Retired industry veteran and esteemed economist Herb Baum weighs in on a recent blog post about blueberry promotions. From Herb:
Your recent blog on the Blueberry Marketing Order was interesting as was your suggestion of this as a possible model for a generic marketing order. As the former CEO of Naturipe Berry Growers and twice Chair of the California Strawberry Commission (CSC), I have written and analyzed the subject in my book, "Quest for the Perfect Strawberry - A case study of the California Strawberry Commission and the Strawberry Industry: A Descriptive Model for Marketing Order Evaluation." The book was the basis for my PhD at the University of Chicago in 2006.
Chapter 6 outlines my basis for evaluating marketing orders and differs from the Kaiser econometric approach and uses a list of barometers for measurable performance outcomes.
Not having read the Kaiser paper it is difficult to comment on his definition of promotion and his distinguishing between private sector promotion and Board promotion, including the magnitudes of each and their causal relationship. Private sector promotion involves price and quantity projections (ads), usually with 2 week advance quotations. Whether the multiple industry projections create general market price equilibrium is unknown until after the fact.
Price is the key variable and, if promotions (ads) are based on prices which are too high to clear the market, prices will continue to fall until a correct price is reached and frequently it will be below what it would be if projections were correct. We also do not know what effect quality had on price relative to other periods. What I am suggesting from the strawberry experience is that private sector pricing and promotion (creating ads) is the key ingredient in marketing and influencing demand. For this reason, the CSC ceased industry promotion expenditures as well as industry advertising.
Additionally, it was assumed that Chains throughout the country would promote without promotion allowances provided by the CSC. It now relies on Category Management not direct promotion, since the private sector directs this activity with its own category management, including sales (prices) and promotion (ads). When Kaiser and other economists (UC Davis) discuss this issue they generally fail to include the most important element in the evaluation, the private sector pricing and promotion practice, which is intended to increase demand with chain advertising and promotion.