Demand Expansion

Policy Tool: Checkoff Programs

Policy Area: Marketing, Demand Expansion

What It Is: Checkoff programs deduct a given amount per unit of product marketed by the producer to finance education, market development, advertising, and/or research programs (see Domestic Market Development and Foreign Market Development). Such programs exist under either special individual commodity legislation or general authorizing legislation, such as marketing orders. Such legislation may allow for refunds. Milk is the only commodity authorized for a processor checkoff.

Objective: To finance foreign and domestic market development programs, advertising (mostly generic), education, and research on basic commodities.

When Used: Checkoff programs are used when the necessary legislation exists and the required majority of the producers approve the checkoff in a referendum. In the fluid milk processor program, a majority of the processors voting for implementation must represent 60 percent of the volume. In special commodity legislation at the federal level, refund provisions have generally been required. Numerous states have enacted local checkoff programs to fund education, research and market development, e.g., cottonseed checkoff to fund research on cotton varieties and rice checkoff (based on acres planted) to fund rice research.

Experience: Voluntary checkoff programs with refund provisions have sometimes encountered problems with relatively high redemption experience. As a result, the tendency has been to go to mandatory programs without a refund option. A high share of the funds generally have been spent on advertising and foreign market development.


Policy Tool: Domestic Market Development

Policy Area: Marketing, Demand Expansion

What It Is: Domestic market development programs assist producers in raising funds required to carry out generic promotion and advertising programs (see Checkoff Programs). Such programs are authorized on an individual commodity basis under either Congressional or state legislative authority. At the national level, they generally are administered by a Board of Directors appointed by the Secretary of Agriculture, with USDA having oversight responsibilities. The 1990 farm bill authorized a fluid milk promotion program for processors.

Objective: To expand the domestic demand for farm products.

When Used: Domestic market development programs get started only on the initiative of producers and/or processors who sponsor portions of the program. Producers have to be organized to obtain the checkoff legislation or marketing order programs needed to implement a market development program. Market development programs have been most extensive in milk, cotton, and oranges, although programs exist in many other commodities. Several of the marketing orders contain provisions for the collection of funds needed for market development activities.

Experience: Most producer domestic market development programs are generic and promote the product in general as opposed to a particular brand of the product. In a limited number of instances (e.g., cotton), significant resources are devoted to joint advertising that has the effect of subsidizing the advertising of innovative new uses of a branded product. The only authorized processor program is fluid milk. Research indicates brand promotion and joint advertising programs are more effective than generic advertising. Promotion and advertising programs must be geared to the availability of the product and the size of the market. In the early 1990s, the dairy checkoff program created intra- industry controversy when conflict developed between state programs and the federal dairy board. Low prices for milk fostered discontent over the merits of the program.


Policy Tool: Foreign Market Development, Cooperator Programs

Policy Area: Marketing, Demand Expansion

What It Is: Foreign market development activities of the U. S. government involve assisting firms or producer organizations in selling products abroad. These programs, managed by the Foreign Agriculture Service (FAS) in the USDA, are planned, implemented, evaluated, and financed jointly by the FAS and the cooperator organizations. They emphasize market information and technical assistance in servicing the needs of importing countries to utilize products effectively, enhance buyer awareness, and educate consumers. Producer program costs are generally financed through a checkoff program on commodities sold (see Checkoff Programs).

Objective: To expand export demand for agricultural products.

When Used: Foreign market development activities depend heavily on producer, processor and handler initiative to develop and finance a joint FAS-industry cooperator program. While FAS through its agricultural counselors has a general responsibility to promote exports, the greatest effort is devoted to those products that have cooperator programs.

Experience: Cooperator programs that are well-conceived and well-financed are effective at expanding the demand as long as the commodity is available at competitive prices. It is difficult, if not impossible, to expand export markets for U. S. farm products when U.S. prices are higher than world prices.


Market Organization and Control

Policy Tool: Cooperatives, Capper-Volstead

Policy Area: Marketing, Market Organization and Control

What It Is: The Capper-Volstead Act gives producers the right to act together in marketing their products, therefore providing cooperatives limited exemption from the antitrust laws. It prohibits cooperatives from unduly enhancing price, however. The Secretary of Agriculture is responsible for enforcing the provisions regarding undue price enhancement.

Objective: To assist producers in jointly marketing their products by providing a means for improving terms of trade, lowering costs, stabilizing market flows, expanding markets, or improving communication.

When Used: The Capper-Volstead exemption is limited to farmers and to marketing functions. Farmers are those involved in actual growing functions; therefore, agribusiness corporate integrators are not farmers. Likewise, joint activities between cooperatives and noncooperative are not covered by the Capper-Volstead exemption. Marketing functions are interpreted broadly to include bargaining, information, pricing, processing, and so forth. Cooperatives appear to have virtually unlimited rights to merge with one another. They cannot, however, engage in predatory or coercive practices with regard to either members or nonmembers.

Experience: Cooperatives have effectively organized to market their products in a number of ways. The cooperative market share is about 28 percent overall but as high as 80 percent of the market in milk. Cooperatives are most effective when there is a firm producer commitment to market through them. Marketing orders are frequently used to augment cooperative market power and influence. Proposals have been made to eliminate the Capper- Volstead exemption or to transfer it to the Federal Trade Commission for enforcement.


Policy Tool: Marketing Boards

Policy Area: Marketing, Market Organization and Control

What It Is: A marketing board is a central government authority that directs the marketing of a commodity. Export management is the most frequently performed function of a marketing board. With all exports centralized in a single government agency, producers give up the right to their commodities at harvest; all storage and marketing functions are managed by the government. Producers receive an advance on commodities delivered or stored on the farm, with subsequent payments being made as marketing is completed. All producers receive the same price (price pool) adjusted for location and quality. Additional farm program provisions, such as minimum return to producers, may also be provided through the marketing board.

Objective: To raise and stabilize producer prices as well as offset the superior market power of commodity buyers.

When Used: Marketing boards have never been used in the United States. They are used extensively in Canada, Australia, and South Africa.

Experience: Evidence of the impact of marketing boards on producer prices and incomes is mixed. Some show higher returns than others. Boards do, however, provide increased price and income stability to the producer, who is shielded from the effects of within-year price fluctuation. While boards are frequently credited with providing strict control over production, their records are considerably less impressive. Conflicts arose in negotiations over the Canadian Free Trade Agreement with Canadian marketing boards that maintained producer prices above those in the United States.


Policy Tool: Marketing Orders

Policy Area: Marketing, Market Organization and Control

What It Is: Marketing orders are joint industry-government programs that may be authorized to manage the following industry-wide marketing activities: advertising, size or container, quality, and quantity or price (in some cases). Marketing orders are authorized for specific commodities under the Agricultural Marketing Agreements Act of 1937.

Objective: To create more orderly marketing conditions for farm products and thereby stabilize supplies, prices, and producer incomes.

When Used: Marketing orders are available only for commodities designated in the Agricultural Marketing Agreements Act. These include specific fruits, vegetables, nuts, and milk. Orders for fruits, vegetables, and nuts emphasize the establishment of minimum quality, grade, size, or maturity standards for products entering the market. Reserve pools exist for some commodities in which stocks are held over the marketing season or into the next marketing season. Milk prices are set by the marketing order in terms of the milk's end use. Higher prices are charged for milk used for fluid purposes. Orders are put into effect after a request is received from producers (generally a cooperative), a hearing is held, the Secretary of Agriculture concurs, and two- thirds of the affected producers approve in a referendum. The 1985 farm bill deviated from these procedures by virtually mandating changes in milk marketing order provisions.

Experience: Marketing orders have been highly effective in stabilizing markets where they have been used. Over time, however, the Secretary of Agriculture has been less inclined to utilize orders as strict supply management tools. Emphasis has been placed on orderly marketing and price stabilization. Strict marketing quotas have been limited to minor commodities such as hops and peppermint. All marketing orders with market flow provisions are under attack by the Office of Management and Budget as well as consumer advocate groups.


Market Facilitators

Policy Tool:
Crop and Livestock Production Report

Policy Area: Marketing, Market Facilitators

What It Is: Crop and livestock production reports provide detailed estimates (predictions) of crop production from before planting (intentions) through harvest.

Objective: To improve the quality and quantity of available information on production prospects and thereby make markets more competitive.

When Used: Crop and livestock production reports have their origin in a series of laws enacted between World War I and the late 1940s. They are used by the private sector as an aid to production and marketing decisions, by economists to forecast, and by government officials to develop policy and aid in program decisions.

Experience: The USDA's goal is to provide estimates within 1 or 2 percent of actual production or prices. Its record in achieving this degree of accuracy has been outstanding. USDA crop reports are frequently charged with having the effect of lowering farm prices. A bias one way or the other is impossible to confirm. Extensive steps are taken to protect the integrity of the reports. Government cost-cutting measures, however, have reduced the quantity (and maybe the quality) of available information. USDA efforts to charge for access to crop and livestock production reports have come under considerable fire.


Policy Tool: Export Sales Reporting

Policy Area: Marketing Programs, Market Facilitators

What It Is: The USDA presently requires that export sales involving more than 100,000 MT of major grains and oilseeds be reported to the USDA within 24 hours of sale. For other commodities, weekly reports are required.

Objective: To provide information for the government to use in developing export policies and programs, to provide producers with information to help in their marketing decisions, and to improve performance of U.S. commodity markets by making timely information on export sales transactions available to the public.

When Used: Following the impacts of the unanticipated large grain sales to the USSR in 1972, the government instituted the export sales reporting system in September 1973 under Section 812 of the Agriculture and Consumer Protection Act of 1973. It has been in operation since that time. Modifications to the system were made in 1980 to shorten the public reporting lags of 11 to 18 days to approximately 7 to 14 days.

Experience: The export sales reporting system has had moderate success in achieving its goal of increased access to timely information. The system still suffers from substantial lag time in reporting information and limited detail on contract specifics. A number of alternatives have been considered, including specific contract terms and prenotification.


Policy Tool: Grades and Standards

Policy Area: Marketing, Market Facilitators

What It Is: Grades and standards classify units of a commodity according to quality so the variation or range in quality is smaller within groups than it is over the whole range of the commodity.

Objective: To develop homogeneous quality groups to facilitate orderly marketing of a commodity.

When Used: Grain grades are established under the U. S. Grain Standards Act while other grades are established under several different pieces of legislation, including the Agricultural Marketing Act of 1946. Grades and standards exist for virtually all agricultural commodities. Most grades are primarily designed to facilitate trading at the wholesale market level although grades such as those on beef have a definite consumer orientation.

Experience: Once grades are established, they are very difficult to change. In addition, there is resistance to the establishment of consumer-oriented grades because opportunities for product differentiation (advertising) are reduced. Questions exist regarding the extent to which grades should reflect the end use of the product. Private grades and USDA grades frequently reflect a different set of factors. Over time, grades and standards tend to become unresponsive to consumer preferences, probably because of resistance to changing the grades. As a result, changing grades to become more consumer oriented has become a major goal of consumer advocates.


Policy Tool: Market News Price Reporting

Policy Area: Marketing Programs, Market Facilitators

What It Is: Market news provides daily information on prices in spot or cash markets for farm products.

Objective: To improve the quality and quantity of information on market activity available to farmers and agribusiness firms and thereby make market conditions more competitive.

When Used: Authority for market news extends back to World War I.

Experience: Market news has been in a continuous state of modernization and improvement since it was established. Market news increasingly finds itself competing with private information sources such as Urner-Barry and Yellow Sheet. These private reports are used extensively in formula pricing. Private reports have been the subject of much debate over accuracy and reliability, while USDA reports have been subject to questions of timeliness, accuracy, and statistical reliability. Proposals have been made to transfer all market news functions to the private sector. Considerable controversy surrounds USDA's unwillingness to report contract terms for products such as broilers.