Duration: 08/01/2007 to 07/31/2009

Administrative Advisor(s):

NIFA Reps:

Non-Technical Summary

Statement of Issues and Justification

The pricing, advertising, and product quality strategies of large food manufacturing and retailing firms affect the performance of food systems, including the welfare of farmers and consumers. Public policy, including antitrust, agricultural marketing, cooperative marketing, food safety and food policies to address obesity, has a current and critical need for economic research. At the retail level food access in urban low income areas also is an issue. In the dairy and soft drink subsectors there is concern about pricing efficiency, and the impact of vertical contracting and foreclosure on farmer and/or consumer prices.

The quality, particularly the safety, of food products is an increasing focus of government policy and private company strategy and has a growing impact on international trade in agricultural and food products. Economic research is contributing to the design of effective food quality assurance systems through evaluating the private (e.g., reputation, market share) and public (regulatory) incentives for producing high quality food, reducing foodborne risk, and providing information to consumers.

These issues are important globally. Research on trade and on branded product marketing in other countries will provide perspective.

Types of Activities

This project will be a collaborative activity of researchers at the University of Connecticut and the University of Massachusetts. There is a long history of cooperation, and coordination, between these schools in this area. Research tasks will be coordinated to eliminate duplication and to take advantage of common data resources and unique skills of faculty at each school. This will allow us to address different facets of complex marketing problems to provide a more complete mosaic of research knowledge for policy formulation for complex market channel issues. As part of the joint activities, the two universities will hold a two week advanced demand workshop in summer 2008. This two week short course will be taught for our staff and graduate students by Professor John Cranfield, University of Guelph, a leading researcher in nonlinear demand analysis.

Objectives

1. To estimate demand systems for several different products in the United States to measure price and/or advertising impacts, vertical relations, and the degree of market power held by retailers and/or processors.
   
2. To analyze the demand for selected branded food products, including fluid milk, in Europe to explore the cultural and economic context of branding strategies.
   
3. Use demand system results for selected products (including carbonated soft drinks) to analyze the impact on obesity.
   
4. Develop and test models to analyze competitiveness in food markets, including fluid milk markets, wheat markets, and local food markets.
   
5. Analyze supermarket locations in U.S. cities and determine the impact of location choices (entry) by large chains, and crime on food access in urban neighborhoods, especially low income, minority, neighborhoods.
   
6. Develop and test models to address key empirical questions regarding the competitive and welfare effects of vertical restraints between manufacturer and downstream firms and the effect of persuasive advertising and informative advertising on market power.
   
7. Develop a multi-factorial prioritization framework for use by risk managers to determine areas for immediate and longer run attention and conduct in-depth analysis of specific examples of the market and trade impacts of the adoption of risk management strategies by government.
   

Expected Outputs, Outcomes and/or Impacts

The linkage between the pricing, promotion, and consumption of sugared carbonated soft drinks over five years and changes in the obesity of a panel of consumers whose purchase behavior will be linked to the documented price and promotion strategies.

The linkage between pricing, advertising, and the consumption of ready-to-eat cereals. This project will determine how much advertising is focused on children and its impact on the consumption of high calorie, sugared cereals. This work will be in cooperation with Tatiana Andreyeva, post-doctoral research economist, Rudd Center for Food Policy & Obesity, Yale University.

Using purchased IRI scanner data the analysis of the demand for branded and private label products in Italy. This work will be joint with Professor Claudio Soregaroli, Sacred Heart Catholic University, Piacenza. The first of several product category studies is included here and is fluid milk.

The analysis of supermarket locations in 21 large U.S. cities from 1994 to 2004 to assess the degree of food access in low income urban areas, the impact of crime on food access, and the entry patterns of supermarkets to identify whether they are returning to low income urban areas. Policy options, past implemented ones, and possibly new policies will also be evaluated within the context of the quantitative research results.

Research on vertical pricing issues in the fluid milk industry for the Northeast and Southeast U.S. will frame the issues, formulate models to analyze prices paid to farmers, to fluid processors, and to retailers. With purchased IRI scanner data, we will test these models. Primary questions include: Do private label products give retailers buying power relative to food manufacturers and farmers? Are farm prices low due to the exercise of monopsony power? Are retail prices high due to processor and retailer market power? Does Wal-Mart have a pro competitive impact at the farm level, at the consumer level in the Southeast where it is the leading supermarket chain and twice as large as the number two chain Kroger?

Research will analyze the competitive and welfare effects of two types of vertical restraints (exclusive agreements and exclusive territories) in the beer and soft drink industries. This also allows comparison on the effects of vertical restraints typically established by state law (e.g., territorial exclusivity) and those operating through an optional contract between manufacturer and wholesaler (e.g., exclusive dealing).

Using recent reforms of State Trading Enterprises (STEs), research will evaluate whether such reform had a significant impact on the quality, source, and type of wheat imports, as well as determine the wheat characteristics that are sought after the demise of an importing STE.

A Multi-Factorial Risk Prioritization Framework will be completed in cooperation with researchers at the Public Health Agency of Canada and the University of Guelph. This framework will then be applied to evaluate the risks posed by different food/pathogen combinations and to present the results for the use of risk managers in government and the private sector.

Projected Participation

View Appendix E: Participation

Literature Cited

Anders, Sven and Julie A. Caswell. "Assessing the Impact of Stricter Food Safety Standards on Trade: HACCP in U.S. Seafood Trade with the Developing World." Selected paper presented at the annual meeting of the American Agricultural Economics Association, Long Beach, California, July 23-26, 2006.

Chidmi, Benaissa and Rigoberto A. Lopez. "Supermarket-Brand Level Demand for Breakfast Cereals and Retail Competition." American Journal of Agricultural Economics 89 (May 2007): in press.

Cotterill, Ronald W. "Pricing and Policy Problems in the Northeast Fluid Milk Industry." Agricultural and Resource Economics Review, Vol. 35, No. 2, October 2006, pp. 239-250.

Fouayzi, Hassan, Julie A. Caswell, and Neal H. Hooker. 2006. "Motivations of Fresh-Cut Produce Firms to Implement Quality Management Systems." Review of Agricultural Economics 28(1): 132-146.

Hitsch, Günter J. "An Empirical Model of Optimal Dynamic Product Launch and Exit Under Demand Uncertainty." Marketing Science, Vol. 25, No. 1, January-February 2006, pp. 25-50.

Kim, Donghun and Ronald W. Cotterill. "Cost Pass-Through in Differentiated Product Markets: The Case of U.S. Processed Cheese." Journal of Industrial Economics. Forthcoming, 2007.

Rojas, Christian and Everett Peterson. "Demand for Differentiated Products: Price and Advertising Evidence from the U.S. Beer Market." International Journal of Industrial Organization, forthcoming.

Attachments

Land Grant Participating States/Institutions

CT, IA, MA, MN, PA, WI

Non Land Grant Participating States/Institutions