Academic journal article Agricultural and Resource Economics Review

The Ramifications of Nearly Going Dark: A Natural Experiment in the Case of U.S. Generic Orange Juice Advertising

Academic journal article Agricultural and Resource Economics Review

The Ramifications of Nearly Going Dark: A Natural Experiment in the Case of U.S. Generic Orange Juice Advertising

Article excerpt

(ProQuest: ... denotes formulae omitted.)

The extant literature is replete with studies of the effectiveness of generic advertising and promotion programs conducted by the already large and growing number of commodity "check-off " programs in the United States (e.g., Forker and Ward 1993, Williams, Shumway, and Love 2002, Kaiser et al. 2005, Kaiser 2006, Williams and Capps 2006, 2011, Williams, Capps, and Dang 2010, Capps, Williams, and Málaga 2013, Capps et al. 2013). Check-off programs are primarily cooperative efforts by producers of similar agricultural products to enhance their individual and collective profitability through advertising at the retail end of the supply chain. Virtually every U.S. agricultural commodity is associated with some type of organization dedicated to promoting the economic welfare of its producers through retail-level generic advertising programs funded through check-off fees imposed on sales by producers and sometimes others in the marketing chain. The term check-off comes from the concept of checking the appropriate box on a form such as a tax return to authorize a contribution for a specific purpose, such as public financing of election campaigns or, in this case, financing programs to enhance producer welfare.

Prior research on the effectiveness of generic advertising and promotion activities by U.S. commodity check-off programs has focused primarily on deriving stakeholders' returns on investment or on benefit-cost ratios. The methodological thread common to the studies is a comparison of the results of two simulations: (i) a baseline "with promotion expenditures" scenario using actual expenditures in a period and (ii) a counterfactual "without promotion expenditures" scenario that eliminates the program by setting its expenditures to zero during the same period.1

The counterfactual is rarely realized in practice, but in 2001 the Florida Department of Citrus (FDOC), which was responsible for virtually all of the orange juice industry's national generic advertising, went "nearly dark" when it almost completely defunded its massive program promoting orange juice for three months. We take advantage of this natural experiment to estimate the resulting loss in national consumption and sales revenue during that period. We also examine the length of time required for sales and consumption of orange juice to recover once the FDOC reversed its decision. Our analysis makes use of both a structural econometric model and a vector autoregression model of orange juice advertising. Consequently, our work adds to the literature by analyzing the consequences of a generic advertising program nearly going dark using alternative quantitative approaches.

The only other study that has addressed this situation is Crespi and Sexton (2005), which evaluated the effectiveness of promotion by the California Almond Board. The board's entire advertising program was suspended for three crop years (1994/95 through 1996/97) due to litigation. Crespi and Sexton (2005, p. 168) found that "the almond industry in California suffered substantially in terms of profits due to the suspension of the industry advertising program imposed by litigation," costing the industry an accumulated profit that was estimated at between $84 million and $231 million.

The implications of this work are important for several reasons. First, funding forsuchcheck-off programs derives from sales of agricultural commodities and thus is susceptible to year-to-year variability. If, for example, funding is reduced by weather-related crop shortfalls, the effect of the lack of promotion on retail demand can extend into subsequent years. In addition, producers opposed to paying check-off assessments continually challenge the validity and effectiveness of the programs, often in court (Crespi and Sexton 2001,Crespi2003). Our study can elucidate the potential consequences of defunding a check-off program.

Methodology

To examine the repercussions of FDOC's nearly going dark from September 2001 through November 2001, we econometrically estimate the coefficients of a structural representation of U. …

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