The Impact of Market Advisory Service Recommendations on Producers' Marketing Decisions
Pennings, Joost M. E., Isengildina, Olga, Irwin, Scott H., Good, Darrel L., Journal of Agricultural and Resource Economics
A conceptual framework is developed which provides insight into the factors affecting the impact of market advisory service (MAS) recommendations on producer pricing decisions. Data from a survey of 656 U.S. producers reveal that the perceived performance of the MAS, the way in which MAS recommendations are delivered, as well as the match between MAS and producers' marketing philosophy, are important factors explaining the impact of MAS recommendations. Risk attitude does not affect the impact of MAS recommendations on producers' decisions, suggesting producers are more interested in the price-enhancing characteristics of MAS advice than in its risk-reducing features.
Key words: market advisory services, ordered probit model, producers' marketing decisions
Agricultural producers in the United States continue to identify price and income risk as one of their greatest sources of risk (e.g., Patrick and Ullerich, 1996; Norvell and Lattz, 1999). Producers have a variety of price and income risk management tools at their disposal. These include numerous public and private sources of market information, futures and options contracts, an increasing number of yield and revenue insurance instruments, and a new generation of cash-indexing contracts. While producers value and utilize these tools, they place an especially high value on market advisory services (MAS) as a source of price risk management information and advice. For example, in a rating of 17 risk management information sources, Patrick and Ullerich (1996) report that MAS recommendations are outranked only by farm records. In a 1998 study of a sample of Kansas producers' perceptions of marketing strategies, Schroeder et al. found MAS is ranked as the number one source of information for developing price expectations. From a list of seven survey choices likely to be the most important information sources for Illinois producers in the future, Norvell and Lattz (1999) report that marketing consultants and accountants tie for first place among producers. Davis and Patrick (2000) provide evidence of the influence of MAS and consultants on producers' marketing decisions. Based on findings of their study of soybean producers, marketing consultants and information services have a significant influence on the use of forward pricing.
The pricing performance of MAS in corn, soybeans, and wheat has been examined in a series of reports from the Agricultural Market Advisory Service (AgMAS) Project (e.g., Irwin, Martines-Filho, and Good, 2002; Martines-Filho, Good, and Irwin, 2001). These evaluations assume that a representative producer follows the pricing recommendations exactly as provided by the advisory services. Yet, there is only fragmented anecdotal information about how producers actually use the marketing recommendations provided by advisory services. In order to improve performance evaluations, it is important to better understand the way producers use market advisory services. Analysis in this regard will also provide valuable evidence on the way external information affects producer decision making. The purpose of this study is to identify the nature of producers' use of advisory service recommendations and the factors that determine the impact of these recommendations on producers' marketing decisions.
An important motivation for producers to use MAS recommendations is their expectation that such services will directly or indirectly improve the financial performance of their operations. Direct evidence of the relationship between MAS usage and improved farm financial performance is very limited (Patrick, Musser, and Eckman, 1998). However, studies investigating the relationship between the financial performance of small businesses and the use of management advisory services have found a positive relationship (Kent, 1994). Whether or not farmers actually follow MAS recommendations has not been studied. …