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CHOICES The magazine of food, farm, and resource issues 2nd Quarter 2006 • 21(2) CHOICES 53 A publication of the American Agricultural Economics Association 2nd Quarter 2006 • 21(2) ©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the American Agricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org. Overview: Commodity Checkoff Programs Gary W. Williams, Guest Editor and Oral Capps, Jr., Editor Currently, there are a number of advertising and promo- tion programs associated with agricultural commodities. ‘Got Milk?’ ‘Pork. The Other White Meat,’ ‘Cotton: The Fabric of Our Lives,’ ‘Beef. It’s What’s for Dinner,’ and ‘American Lamb from American Land’ are examples of messages from various commodity boards who are attempting to impact the demand for their agricultural products. These messages typically are labeled as generic advertising and promotion and the institutional structure for funding them is referred to as commodity checkoff programs. This theme centers attention on why checkoff programs were instituted initially, how program benefits are measured, the costs associated with various programs, the evidence to support their existence, and the legal chal- lenges surrounding checkoff programs. Commodity checkoff programs are primarily coopera- tive efforts by groups of suppliers of agricultural products intended to enhance their individual and collective profit- ability. Virtually every agricultural commodity has some type of organization dedicated to promoting the economic welfare of its producers funded through some form of fee on sales by producers and often others in the marketing chain. The term “checkoff” refers to the collection of a fee and comes from the concept of checking off the appropri- ate box on a form, like a tax return, to authorize a contri- bution for a specific purpose, such as the public financing of election campaigns, or, as in this case, the financing of programs to enhance producer welfare. The funds collected by checkoff groups are used pri- marily to expand demand (both domestic and foreign) through both generic advertising efforts and the develop- ment of new uses of the associated commodities. Although many checkoff programs also fund research intended to reduce production costs and/or enhance yields, the share of their total budgets spent on research is generally much smaller than the share spent on demand-enhancement activities. Contributions to the earliest check-off programs were voluntary. These voluntary programs, however, were plagued by the problem of free-riders, which motivated the supporters of some programs to pressure state, and later federal, legislators to provide them with legislative authority for mandatory checkoff contributions. Cur- rently, federal checkoff programs are in effect for beef, pork, soybeans, eggs, cotton, dairy, mushrooms, honey, peanuts, popcorn, potatoes, watermelon, cultivated blue- berries, Haas avocados, and mangos. In addition, federal marketing orders for a wide variety of primarily fruits, veg- etables, and nuts are authorized to conduct promotion and research programs. Other checkoff organizations operate under state authority. Also, organizations of commodity producers and/or processors, like the Sugar Association, operate generic promotion programs independent of any state or federal authority. In this issue of Choices, several authors explore the pur- pose, impact, effectiveness, and legal status of commodity checkoff programs. Ward describes the purpose of check- off programs, as well as the functions and benefits of these programs. Crespi and McEowen subsequently examine the constitutionality of generic advertising and promotion programs. Additionally, they focus on the repercussions of the Supreme Court ruling in May 2005 regarding the beef checkoff program. Wohlgenant deals with the importance Articles in this Theme: Overview: Commodity Checkoff Programs . . . . . . . . . . . . . . 53 Commodity Checkoff Programs and Generic Advertising . . 55 The Constitutionality of Generic Advertising Checkoff Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Retail-to-Farm Transmission of Generic Advertising Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Measuring the Effectiveness of Checkoff Programs . . . . . . 73 Producer Support for Checkoff Programs: The Case of Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

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Page 1: Choices Magazine, 2nd Quarter 2006

CHOICESThe magazine of food, farm, and resource issues

2nd Quarter 2006 • 21(2) CHOICES 53

A publication of theAmerican AgriculturalEconomics Association

2nd Quarter 2006 • 21(2)

©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the AmericanAgricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org.

Overview: Commodity Checkoff ProgramsGary W. Williams, Guest Editor and Oral Capps, Jr., Editor

Currently, there are a number of advertising and promo-tion programs associated with agricultural commodities.‘Got Milk?’ ‘Pork. The Other White Meat,’ ‘Cotton: TheFabric of Our Lives,’ ‘Beef. It’s What’s for Dinner,’ and‘American Lamb from American Land’ are examples ofmessages from various commodity boards who areattempting to impact the demand for their agriculturalproducts. These messages typically are labeled as genericadvertising and promotion and the institutional structurefor funding them is referred to as commodity checkoffprograms. This theme centers attention on why checkoffprograms were instituted initially, how program benefitsare measured, the costs associated with various programs,the evidence to support their existence, and the legal chal-lenges surrounding checkoff programs.

Commodity checkoff programs are primarily coopera-tive efforts by groups of suppliers of agricultural productsintended to enhance their individual and collective profit-ability. Virtually every agricultural commodity has sometype of organization dedicated to promoting the economicwelfare of its producers funded through some form of feeon sales by producers and often others in the marketingchain. The term “checkoff ” refers to the collection of a feeand comes from the concept of checking off the appropri-ate box on a form, like a tax return, to authorize a contri-bution for a specific purpose, such as the public financingof election campaigns, or, as in this case, the financing ofprograms to enhance producer welfare.

The funds collected by checkoff groups are used pri-marily to expand demand (both domestic and foreign)through both generic advertising efforts and the develop-ment of new uses of the associated commodities. Althoughmany checkoff programs also fund research intended toreduce production costs and/or enhance yields, the shareof their total budgets spent on research is generally muchsmaller than the share spent on demand-enhancementactivities.

Contributions to the earliest check-off programs werevoluntary. These voluntary programs, however, wereplagued by the problem of free-riders, which motivatedthe supporters of some programs to pressure state, andlater federal, legislators to provide them with legislativeauthority for mandatory checkoff contributions. Cur-rently, federal checkoff programs are in effect for beef,pork, soybeans, eggs, cotton, dairy, mushrooms, honey,peanuts, popcorn, potatoes, watermelon, cultivated blue-berries, Haas avocados, and mangos. In addition, federalmarketing orders for a wide variety of primarily fruits, veg-etables, and nuts are authorized to conduct promotion andresearch programs. Other checkoff organizations operateunder state authority. Also, organizations of commodityproducers and/or processors, like the Sugar Association,operate generic promotion programs independent of anystate or federal authority.

In this issue of Choices, several authors explore the pur-pose, impact, effectiveness, and legal status of commoditycheckoff programs. Ward describes the purpose of check-off programs, as well as the functions and benefits of theseprograms. Crespi and McEowen subsequently examine theconstitutionality of generic advertising and promotionprograms. Additionally, they focus on the repercussions ofthe Supreme Court ruling in May 2005 regarding the beefcheckoff program. Wohlgenant deals with the importance

Articles in this Theme:Overview: Commodity Checkoff Programs . . . . . . . . . . . . . . 53

Commodity Checkoff Programs and Generic Advertising . . 55

The Constitutionality of Generic Advertising Checkoff Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Retail-to-Farm Transmission of Generic Advertising Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Measuring the Effectiveness of Checkoff Programs . . . . . . 73

Producer Support for Checkoff Programs: The Case of Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

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54 CHOICES 2nd Quarter 2006 • 21(2)

of retail-to-farm price transmission,the nature of checkoff assessments,the effect of supply response, the roleof input substitution, the effect ofgovernment intervention, the pres-ence of market power, and the indus-trialization of agriculture in evaluat-ing the economic impacts associatedwith generic advertising and promo-tion. Williams and Capps discuss the

issues of defining and measuring theeffectiveness of checkoff programs.They also center attention on com-municating the measurement resultsto program contributors and stake-holders. Finally, Chung, Norwood,and Ward investigate the degree ofproducer support for the beef check-off program.

Gary W. Williams is Professor andDirector of the Texas AgribusinessMarket Research Center, and OralCapps, Jr. is Professor and SouthwestDairy Marketing Endowed Chair,Department of Agricultural Econom-ics, Texas A&M University, CollegeStation, TX.

Page 3: Choices Magazine, 2nd Quarter 2006

CHOICESThe magazine of food, farm, and resource issues

2nd Quarter 2006 • 21(2) CHOICES 55

A publication of theAmerican AgriculturalEconomics Association

2nd Quarter 2006 • 21(2)

©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the AmericanAgricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org.

Commodity Checkoff Programs and Generic AdvertisingRonald W. Ward

JEL Classification: Q13

“Beef. It’s What’s for Dinner.” “Got Milk?” “Pork. TheOther White Meat.” “Flowers. Alive with Possibilities.”We have all heard and seen these and similar promotionalmessages over the years on television, over the radio, andin magazines. Often labeled generic advertising, these mes-sages are government-sanctioned but producer-fundedefforts to enhance the demand for farm commodities. Asopposed to advertising for specific brands of a product byparticular producers, generic advertising is generally acooperative effort of a large group of producers (suppliers)to promote the demand for the homogeneous (similar)product. These advertising messages are funded throughan institutional structure known as commodity checkoffprograms. Why do the checkoff programs exist? What arethe major functions of checkoff programs? What are theeconomic issues associated with these programs? Havethey generated any economic benefits?

The Purpose of Commodity Checkoff ProgramsGeneric advertising is all about information -- informationabout a specific commodity and its underlying attributes.Consumers already have a reasonable amount of informa-tion about most foods, fibers, and other goods they buyalong with some history of use. So even without any addi-tional generic advertising, most checkoff commoditieswould still be consumed at some level. For example, someamount of milk would still be purchased if all “Got Milk”commercials were stopped! The purpose of advertising, ofcourse, is to generate additional purchases of the productbeing advertised. How advertising affects consumer pur-chasing, however, depends on the type of advertising towhich the consumer is exposed. Brands and brand adver-tising messages are intended to direct consumers to a spe-cific product identified within a particular commodity cat-

egory. To the extent that brands have common attributesand are substitutable, brand messages may increase thetotal demand for a commodity. Brand messages areintended to highlight differences among product formsmaking up the commodity group rather than their similar-ities.

Generic advertising and promotions, on the otherhand, focus on those attributes common to the group andthose attributes that may not be readily judged withoutassistance (e.g., nutritional content, origin, or qualityassurance). Brands exist when real and/or perceived differ-ences can be achieved. For example, the successful promo-tion of Angus Beef as a brand requires that consumers per-ceive the unique attributes of the beef from that breed ofcattle. The result is some level of brand identification. Acelebrity endorsement may create a perceived differencethat translates into brand identity whether or not such adifference actually exists. Within many commodity sectorsthere is limited product differentiation from producer toproducer so that achieving substantial growth in demandthrough branding generally is not feasible. In this case,demand growth is more readily achieved through enhanc-ing the total demand for the commodity through genericadvertising. Of course, demand growth does not assureprofitability but is an essential component.

Goods that cannot be differentiated are referred to ascooperative goods. For cooperative goods, generic advertis-ing may potentially enhance total demand but should notchange the underlying market shares among producers orsuppliers. For some goods, consumers may be willing tosearch out the attributes they desire in a product beforemaking a purchase. Alternatively, they may be willing toexperiment with goods to gain a greater understanding ofthe products attributes (Forker & Ward, 1993.) These

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56 CHOICES 2nd Quarter 2006 • 21(2)

search and experience categories pro-vide considerable insight into howreceptive and responsive potentialconsumers may be to an advertisingmessage. Additionally, some prod-ucts have credence attributes suchthat consumers must rely on externalinformation to judge a particularproduct attribute. Claims about anti-oxidant benefits are a good exampleof a credence attribute.

Many, if not most, foods, fibers,and goods purchased for their aes-thetic value, such as flowers, fitwithin the cooperative and/or experi-ence goods categories. Such productslend themselves more to the promo-tion of the commodity itself (genericadvertising) than to the promotion ofa specific form or particularattributes of the commodity (brandadvertising). For commodities thatdo not fit well into the cooperativeand/or experience categories, bothgeneric and brand promotional activ-ities are common. The relative inten-sities between generic and brand pro-motion for those products thendepend on consumers’ need for infor-mation in general and the ability ofthe product to achieve some level ofbrand identity. The meat industry isa good example of this concept whereabout 80% of beef is non-branded,while more than 80% of poultry isbranded (Ward & Ferrara, 2005).

If a product is not differentiableand information is needed, why doproducers tend to promote theircommodities collectively? Theanswer is relatively simple: free-rid-ers and the cost of advertising. Whenadvertising of a generic product byany specific producer increases totaldemand for that commodity, thegains from one producer’s advertisingmay be partially captured by otherproducers who do not share in thecost of the advertising. These pro-ducers get a “free-ride” in terms of

increased demand from the promo-tional efforts by individuals or smallgroups of producers. This is the clas-sic “free-rider problem” in whicheveryone shares in the benefits butonly a few pay the costs. Also, thecost of sufficient advertising to have aperceptible effect on total demand isgenerally beyond the means of indi-vidual producers. Commodity check-off programs were designed to dealwith these two problems - minimiz-ing the effect of free-riders and creat-ing sufficient resources to pay forexpensive media advertising. Remov-ing potential free-riders and creatinga pool of funds earmarked for genericadvertising messages is precisely theintent of the national legislation forsupporting commodity checkoff pro-grams and an important objective ofmany federal and state marketingorders. Commodity checkoff author-ity granted through the federalenabling legislation provides thevehicle for collecting assessments tofund generic advertising programs.

Currently, there are 17 activenational generic promotion programsfor agricultural goods and an addi-tional 35 or more operating underfederal market orders (AMS-USDA,2005). Also, there are many addi-tional state programs designed topromote agricultural commodities.Similar programs are also in opera-tion for many nonagricultural goodsranging from tourism to propane.Common characteristics among mostof these programs include efforts tomaintain product identity throughthe supply chain from producer toconsumer and the need to provideinformation to existing and potentialconsumers continually. A number ofthese generic advertising programsrequire mandatory participation byall producers of the commoditythrough an assessment on those pro-ducing and supplying the product

and are subject to close governmentoversight.

The Functions of Commodity Checkoff ProgramsWhile checkoff programs are diverseand the goals dependent on the situa-tions for each commodity, there areseveral common functions foundacross the generic advertising pro-grams. As indicated in Figure 1, allcheckoff programs must: (1) entail anadministrative structure, (2) have aprecise message and focus, (3) showeconomic benefits, and (4) exhibitfairness and equity in setting the pro-gram focus and resulting distributionof benefits. A problem within one ormore of these four functions is a sig-nal for failure.

Organization and Administration. Nearlyall commodity checkoff programs arefunded through a unit or valueassessment on producers and firsthandlers (top box of Figure 1).Assessments are generally in therange of less than one percent of thevalue of the good. Most assessmentsare on a unit basis with pork being anotable exception. While theday-to-day administrative structuresare similar to those of many Boardsof Directors, they differ in that eitherstate or federal governments closelymonitor the policies and administra-tive activities. The government’s roleis essential when individual produc-ers are required to pay assessmentsbased on state or federal enabling leg-islative authority. Clearly, the author-ity to impose assessments on produc-ers in an industry must beaccompanied by direct governmentaloversight. Administrative structuresrange from very large Boards such asfound with the beef checkoff toBoards made up of a few elected orappointed Directors. In every case,the Directors have the authority to

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2nd Quarter 2006 • 21(2) CHOICES 57

set policies, govern the administrativestaff, and set the focus and intensityof the various advertising and promo-tion programs. Yet, as long as a pro-gram is mandatory, actions by a com-modity checkoff Board may besubject to governmental veto.

Program Design and Delivery. Advertis-ing messages of the various checkofforganizations are as diverse as thecommodities they represent and areclosely tied to the attributes of theproduct, the target audience, and themedia used (the right box in Figure1). Most, if not all, checkoff pro-grams have logos and strap-lines likethose at the beginning of this articlethat convey the intended messages.Usually, the product is for consump-tion at the retail level and the rawproduct is easily identifiable through-out the distribution channels. Forexample, fluid milk or beef at theretail level are directly associated withthe farm-gate goods. Messages, targetaudiences, and the intensity of the

promotions are initially developed inclose coordination with variousadvertising agencies. Even so, inmany cases, the federal or state-levelgovernments have veto power overthe fundamental message(s) beingconsidered. The media used are func-tions of the available resources andthe need for local, regional, ornational coverage. Complexities withthe message and focus often are asso-ciated with the diversity amonggroups within industries like citrus,where both fresh and processed prod-ucts are important, and beef and soy-beans, where both domestic andexport market promotions arefunded. Competing interests within acommodity sector often create a chal-lenge in designing and deliveringgeneric advertising messages.

Effectiveness and Evaluation. Movingclockwise around Figure 1, the box atthe bottom relates to the economicimpact of the generic advertising. Todetermine the effectiveness of a

checkoff program requires the devel-opment of criteria for judging perfor-mance and methods and data formeasuring the impact on demandusually involving some form of statis-tical analyses. Many commoditygroups have turned to econometricmodeling as the instrument for deter-mining if their generic advertisingmessages have had a numerical andstatistically significant impact ondemand. Most of these modelsaccount for the effects of advertisingon demand in terms of the dollarsspent over an appropriate time inter-val. They frequently include delayeddemand responses and measure bothshort-term and long-term impacts.These models usually show numeri-cal measures of the advertisingimpacts on demand and calculatebenefit-cost ratios at different levelsin the distribution system. Somemodels first measure demandchanges at the retail level and thenattempt to determine how gains aredistributed through the vertical mar-

Figure 1. Functions of commodity checkoff programs.

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58 CHOICES 2nd Quarter 2006 • 21(2)

ket system back to producers. Themeasurement of the distribution ofgains through the supply chain is acontentious issue and is considered inmore detail in the article by Wohl-genant in this issue of Choices.

Legal, Political, and Equity Concerns.Referencing back to Figure 1, the

top, right, and bottom boxes reflectthe collective efforts by a commoditysector to achieve demand changesthrough an administrative structurethat designs and delivers the genericmessage. In contrast, the last box onthe left represents the interests of theindividual producer. If a producerfeels that his or her share of the gainsis not proportional, an equity prob-lem potentially exists and that pro-ducer may oppose the program.Equity concerns may relate to thedistribution of benefits among pro-ducers and the distribution of bene-fits up and down the vertical marketsystem for the commodity. Opposi-tion to a program may be expressedthrough administrative and legalchannels. Evaluations of these pro-grams are particularly importantwhen addressing equity concernssince it is at the evaluation stagewhere the benefits and the distribu-tion of the benefits are measured.

Checkoff programs are all aboutthe dissemination of information,and in the last decade, many of thesecommodity programs have beenchallenged, not on the equity, but onthe constitutionality of the programsrelating to speech. Some have arguedthat mandatory assessments forspeech purposes violate the individ-ual’s right to freedom of speech underthe 1st Amendment to the Constitu-tion. These legal challenges based onthe freedom-of-speech premise haveworked their way through the courtsystem for many years. A recentSupreme Court ruling on the beef

checkoff program basically con-cluded that the program is govern-ment speech and, hence, not subjectto the 1st Amendment argument.More details on this and other legalissues related to checkoff programsare highlighted in the article by Cre-spi and McEowen in this issue ofChoices. Time will tell if the beefcheckoff ruling is the end of the legalchallenges to commodity checkoffprograms. Historically, the recordwould suggest that it is not.

Figure 1 reflects the functionscommon to all checkoff programs, aswell as group action versus individualinterest. The functions in each boxmust work for a program to succeed.Because information is alwaysneeded, there will always be potentialconflicts between the individual’sinterest and the interest of the indus-try. One argument is that protectingthe individual’s rights in terms ofspeech may prohibit everyone elsefrom speaking. Allowing some indi-viduals not to participate in the costof checkoff-funded generic advertis-ing to protect their individual rightsto free speech, however, gives rise tofree-riders. The free-rider problemalways occurs as long as consumerscannot differentiate between thegoods supplied by producers who paythe assessment and those supplied byproducers who opt not to pay. Inmost cases, consumers probably can-not make the distinction when buy-ing the commodity. At this point, thelegal and legislative systems mustintervene since relying on economicpressures to support a voluntary pro-gram have proven difficult, althoughpossible. The current Flower Promo-tion Program is a notable case wherethe industry has moved from a man-datory to a voluntary program.

The Economics of Commodity Checkoff Programs All generic advertising programs areintended to either enhance or lessenthe erosion in the demand for a com-modity. Demand is influenced bymany factors, including checkoffprogram advertising and promotionactivities. Most of the factors thataffect demand, however, are com-pletely outside the control of theindustry. Consequently, decliningdemand does not mean a promotionprogram has failed because so manyfactors can work against the bestefforts of the industry to promote itsproducts. The evaluation task is tomeasure the effects of generic effortsin an environment where manydemand drivers are changing demandall at the same time. Economistsmost often turn to statistical modelsto estimate and isolate the specificeffects of different demand driversand their impacts on the commoditymarket. Many of the major checkoffprograms have developed statisticalmodels that show the demand effectsattributable to their generic advertis-ing activities. In fact, checkoff pro-grams established under federalauthority are required to periodicallymeasure the economic impact oftheir programs using appropriate sta-tistical procedures.

While most models used to mea-sure the effectiveness of commoditycheckoff programs are tied to theuniqueness of the respective com-modity analyzed, they all includesome measure of demand, frequentlyat the retail level. Demand dependson prices, purchasing power, buyercharacteristics, product attributes,market conditions, information, andmany other factors. Generic advertis-ing and promotion efforts, usuallymeasured with checkoff expendi-tures, enter these models as a variable

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2nd Quarter 2006 • 21(2) CHOICES 59

expected to enhance demand oversome time period. If consumersrespond to the message, some posi-tive increase in demand attributed tothe advertising should eventuallyoccur. No consumer response wouldindicate that the messages have hadlittle to no impact. Determining thisadvertising response is the singlemost important step in the evalua-tion process. Of course, getting tothat response level requires an under-standing of the checkoff programs,data collection, and careful analysis.With these things in place, individu-als responsible for doing the evalua-tion can usually draw inferencesabout changes in demand attribut-able to the checkoff efforts and thoseattributable to other factors. Shifts indemand may lead to higher prices inthe short run and, hence, greater rev-enues for the industry. Depending onthe characteristics of production,storage, and trade flows, supplies mayalso change. Then any checkoff gainsare expressed recognizing both shiftsin demand and any changes in sup-ply. The underlying analytics formeasuring this process are not easy!As Wohlgenant demonstrates inanother article in this issue ofChoices, the problem is complicatedfurther by determining where in thedistribution system these shifts indemand and supply are measured.

By definition, generic advertisingshould be brand or market share neu-tral. In other words, generic advertis-ing may increase total demand, butshould not result in one firm orgroup of firms gaining market shareover another. For example, genericpromotions of flowers should notfavor one type of retail sales outletsuch as florists over another outletlike supermarkets. Major brands ofcommodities like Florida orangejuice (Tropicana, Minute Maid, andFlorida’s Natural) would not be

expected to lose or gain shares fromthe generic advertising of Floridaoranges or orange juice. If a genericmessage enhances or reduces onebrand share or outlet share relative toothers, then a major equity problemoccurs, as suggested in Figure 1 (leftbox). The program is no longerbrand (or other segmentation) neu-tral and support for the program maywell eventually decline because of theunderlying inequity. Furthermore, ifa firm is sufficiently large to effec-tively promote its own brand andcapture the gains, that firm will arguethat their contribution to genericpromotions could more effectively beused to promote its own brand. In anindustry driven by a few majorbrands, generic promotion programsusually play less prominent roles thanbrand advertising. In general, thelevel of concentration and the com-petitive structure within a commod-ity sector are major factors determin-ing the usefulness of genericadvertising. A few commodity check-off programs, particularly almonds,provide advertising credits to majorbrand suppliers who can demonstratethat their own advertising programsenhance demand.

The Benefits of Commodity Checkoff ProgramsThe literature on economic benefitsof commodity checkoff programs isgrowing and increasingly technical.Every commodity checkoff groupstruggles with the measurement ofbenefits and performance of theirgeneric advertising programs andhow to best communicate those ben-efits back to those who are “payingthe bills.” Economic modeling con-tinues to be the instrument of choicefor gaining insight into the economicimpact from generic promotion pro-grams. As a rule, benefit-to-cost

ratios for generic advertising pro-grams reported by researchers acrossa broad range of commodities are inthe range of 4:1 to 6:1, indicatingthat for each dollar of promotions atleast 4 to 6 times that amount is gen-erated in new revenues, profit, or“economic surplus” to the industry,depending on how the “benefits” aredefined in the associated study. Thisrule seems to be reasonably robustwith a reported benefit-to-cost ratiofor beef of 5.6:1; pork, 4.8:1; dairy,4.6:1; flowers, 6.6:1; prunes, 2.7:1 ;eggs, 4.7:1; and processed orangesbetween 2:1 to 4:1, depending on themodels and time period of analysis(AMS-USDA, 2005; Capps, Bessler,& Williams, 2003; Alston et al.,1998; FPO, 2005; Kaiser, 2005;Reberte, Schmit, & Kaiser, 1996;Ward, 2004).

In nearly every one of these stud-ies, econometric models are used topredict demand with and without thegeneric advertising efforts, whichyields the change in demand attribut-able to generic advertising. Once thegeneric-advertising-induced changein demand is estimated, the associ-ated gains or losses in revenues,profit, or “economic surplus” (the“benefits”) are expressed relative tothe advertising effort (the “costs”)and reported as benefit-cost ratios.The issue of measuring the benefitsto checkoff programs is considered inmore detail in the article by Williamsand Capps in this issue of Choices.

Moving ForwardCheckoff programs have gonethrough a period of considerableuncertainty in recent years primarilybecause of conflicting legal rulingsrelated to an increasing number ofcourt challenges to the checkoff sys-tem. Now that a final legal ruling onthe constitutionality of the beef

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60 CHOICES 2nd Quarter 2006 • 21(2)

checkoff has been handed down bythe Supreme Court, many of thelegal uncertainties may have beenremoved. New challenges will likelyarise, however, and may well relate tothe overall effectiveness and effi-ciency of the programs and theequity questions. Those types ofchallenges are more readily addressedwith the types of economic modelsusually used for measuring advertis-ing responses than has been the casefor the legal challenges related toconstitutionality.

Information is a key ingredientwhen making buying decisions.Commodity checkoff programs pro-vide a marketing tool for producersto have a voice to inform potentialbuyers about the attributes and usesof their commodity. Most checkoffissues are not about the need forcommunicating, however, but about“what is said” and “who says it.”Checkoff messages compete for theconsumer’s attention with the intentto influence buying behavior. Futurechallenges to checkoff programs mostlikely lie in the creativity of the mes-sage and the delivery process withmore targeting to specific potentialconsumers. The promotion of freshflowers is an excellent example of achange in strategy from a broadapproach with “Mr. Buzz . . . theflower spokesperson or spokes-bee”to now focusing on selected demo-graphics.

For More InformationAgricultural Marketing Service,

United States Department of Agriculture (AMS-USDA). (2005). Research and Promotion Program. www.ams.usda.gov/fv/rpb.html. Washington, D.C.

Alston, J., Carman, H., Chalfant, J., Crespi, J., Sexton, R., & Venner, R. (February 1998). California Prune Board's Promotion Program: An Evaluation. Giannini Founda-tion of Agricultural Economics. Research Report Series. Paper RR344. Available online: http://repositories.cdlib.org/giannini/rrs/RR344.

Capps, Jr., O., Bessler, D.A., & Will-iams, G.W. (2003). Evaluating the economic impacts associated with advertising efforts of the Flor-ida Department of Citrus. Pre-pared for the Advertising Review Committee in Association with the Florida Department of Citrus and Florida Citrus Mutual. Col-lege Station, TX: Forecasting and Business Analytics, LLC (FABA).

Flower Promotion Organization (FPO). (2005). Estimated impact of FPO's generic promotions of fresh-cut flowers: Analysis through Phase VI. Available online: www.flowerpossibili-ties.com.

Forker, O.D., & Ward, R.W. (March 1993). Commodity advertising:

The economics and measurement of generic programs. New York: Lex-ington Books, 294 pp.

Kaiser, H. (July 2005). Report to Congress on the National Dairy Promotion and Research Pro-gram and the National Fluid Milk Processor Promotion Pro-gram. Washington, D.C.: AMS-USDA.

Reberte, J., Schmit, T., & Kaiser, H. (4th Quarter 1996). An Ex Post Evaluation of Generic Egg Adver-tising in the U.S. NICPRE QUARTERLY. A newsletter from the National Institute for Com-modity Promotion Research and Evaluation on program evalua-tion and related issues.

Ward, R.W. (September 2004). Beef demand and the rate-of-return to the U.S. beef checkoff: Two inde-pendent evaluation approaches. Evaluation Report to the Cattle-men’s Beef Promotion and Research Board (59 pp). Centen-nial, CO.

Ward, R.W., & Ferrara, O. (2005). Measuring brand preferences among U.S. meat consumers with probit models. AAEA Annual Meetings Contributing Paper (30 pp). Providence, RI.

Ronald W. Ward ([email protected]) isProfessor, Food and Resource Eco-nomics Department, University ofFlorida, Gainesville, FL.

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CHOICESThe magazine of food, farm, and resource issues

2nd Quarter 2006 • 21(2) CHOICES 61

A publication of theAmerican AgriculturalEconomics Association

2nd Quarter 2006 • 21(2)

©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the AmericanAgricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org.

The Constitutionality of Generic Advertising Checkoff ProgramsJohn M. Crespi and Roger A. McEowen

JEL Classification: K10, Q18

Until recently, the legal status of generic advertising pro-grams seemed questionable. After an initial victory forgeneric advertising proponents in 1997 in Glickman v.Wileman Brothers & Elliott, Inc. (521 U.S. 457 (1997)),the U.S. Supreme Court ruled four years later in UnitedStates v. United Foods, Inc. (533 U.S. 405 (2001)) that thefederally-mandated mushroom advertising program wasnot part of a larger regulatory scheme (as was present inthe 1997 case), and was, therefore, unconstitutional ascompelled private speech. To many, the marketing ofmushrooms under the checkoff statute at the heart of theUnited Foods case seemed no different from the way inwhich other commodities promoted through checkoffprograms, like beef and pork, were marketed. After theUnited Foods case, it seemed only a matter of time beforeall mandatory checkoff programs would be ruled uncon-stitutional as well.

The Supreme Court did not address in either the 1997or 2001 cases, however, whether the checkoff-fundedgeneric advertising programs at issue were governmentspeech and, therefore, not subject to challenge as anunconstitutional proscription of private speech under theFirst Amendment. That question was answered in 2005when the Court upheld the Constitutionality of the beefcheckoff on government speech grounds. The checkoffindustry was immediately re-invigorated.

What does this new ruling mean for other checkoffprograms? This article reviews recent commodity promo-tion litigation, speculates on what opponents of compelledsupport for generic advertising may be planning next, andconsiders some potential fallout from the recent decision.

The Agricultural Marketing Agreement Act of 1937 (7U.S.C. § 601 et seq.) and several “stand-alone” acts (such asthe Beef Promotion and Research Act of 1985, 7 U.S.C. §

2901 et seq.) establish the federal statutes for checkoff pro-grams. These mandated, grower-funded programs are usedfor a variety of industry enhancement programs includingresearch, market development, and marketing strategies.The most controversial strategies surround the use ofindustry funds for generic advertising. Since the 1980s,the generic advertising portion of these checkoffs has beenchallenged constitutionally on the basis that the mandatedprograms violate the freedom of speech of producers.Courts have long held that advertising is a form of privatespeech protected under the First Amendment and that theright to freedom of speech also includes the right not tosubsidize a private message with which an individual dis-agrees (see, for example, Keller v. State Bar of California,496 U.S. 1 (1990)). The programs may be challenged onfreedom of association grounds. Like the speech issue,opponents of generic advertising claim that the mandatoryassessments compel industry participants to be associatedwith a particular message (the advertising) with whichthey do not agree. Over the last two decades, nearly everycommodity promotion program in the country has beenchallenged.

After years of wrangling over the constitutionality ofmandated producer-funded generic advertising programs,a case finally reached the U.S. Supreme Court. In 1997,the Supreme Court ruled in Glickman that a federallymandated checkoff program for California tree fruits wasconstitutional. The main issue in the case concerned theamount of regulation that already existed in the Californiatree-fruit industry. Writing for the Court, Justice Stevensrepeatedly stressed the statutory context within which thegeneric promotion program had arisen and that genericcampaigns had to be viewed in light of the regulatoryscheme that Congress had put forward:

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“California nectarines andpeaches are marketed pursu-ant to detailed marketingorders that have displacedmany aspects of independentbusiness activity that charac-terize other portions of theeconomy in which competi-tion is fully protected by theantitrust laws. The businessentities that are compelled tofund the generic advertisingat issue in this litigation doso as a part of a broader col-lective enterprise in whichtheir freedom to act inde-pendently is already con-strained by the regulatoryscheme” (Glickman, at 457).

The Court then pointed out thatthere were four characteristics of theCalifornia nectarine and peach mar-keting orders’ regulatory schemesthat distinguished the orders fromother laws that had been found toviolate the First Amendment. First,the checkoff programs did not pre-vent producers from communicatingany message to any audience. Sec-ond, the programs did not compelhandlers to engage in any actual orsymbolic speech. Third, the pro-grams did not compel the handlers toendorse or to finance any political orideological views. Fourth, the pro-grams had antitrust exemptions. TheCourt stressed that the regulatorynature of the marketing orders forthe industries in question requiredthat the generic advertising be judgedin a different light from that of othercommercial speech cases. Congresshad made a regulatory decision that,right or wrong, certain commoditiesshould be marketed jointly. JusticeStevens, writing for the majority,stated:

“In sum, what we are review-ing is a species of economicregulation that should enjoy

the same strong presumptionof validity that we accord toother policy judgmentsmade by Congress. Themere fact that one or moreproducers ‘do not wish tofoster’ generic advertising oftheir product is not a suffi-cient reason for overridingthe judgment of the majorityof the market participants,bureaucrats, and legislatorswho have concluded thatsuch programs are benefi-cial” (Glickman, at 477).

To many, the issue of mandatedpromotion seemed to have beendecided with the Glickman case.However, in November of 1999, theSixth Circuit Court of Appeals ruledthat the Mushroom Promotion Actof 1990 (7 U.S.C. § 6101 et seq.)was unconstitutional because, unlikethe marketing orders in Glickman,the Mushroom Act was not in thesame spirit as the broader, collectiveregulation that the Supreme Courtused to uphold the tree-fruit order(United Foods, Inc. v. USDA, 197F.3d 221 (6th Cir. 1999)). UnitedFoods, Inc., a Tennessee food proces-sor, had challenged the 1990 Mush-room Act on the grounds that theassessments were compelled commer-cial speech and that the marketing ofmushrooms was distinct from themarketing that existed in the Califor-nia tree-fruit industry in the Glick-man case.

The attorneys for United Foodsused a very interesting argument todistinguish the mushroom industryfrom the tree-fruit industry. Focusingon the language of Justice Stevens’opinion concerning regulation andcompelled association, they empha-sized that the regulatory environmentthat justified the tree-fruit order wasalmost completely absent in themushroom industry. The Court of

Appeals found this limited-regulationargument persuasive. Writing for themajority, Judge Merritt stated: “TheCourt’s holding in Glickman, webelieve, is that nonideological, com-pelled, commercial speech is justifiedin the context of the extensive regula-tion of an industry but not other-wise” (United Foods, Inc. v. USDA,197 F.3d 221 (6th Cir. 1999), at224). In other words, without theextensive regulation present in thetree-fruit marketing orders, there wasno justification for any further limitson compelled speech.

On appeal, the U.S. SupremeCourt upheld the Sixth Circuit’s rul-ing in 2001. Writing for the majority,Justice Kennedy pointed out the dif-ferences between the 1997 tree-fruitcase and the mushroom case: “Theprogram sustained in [Glickman] dif-fers from the one under review in amost fundamental respect. In [Glick-man] the mandated assessments forspeech were ancillary to a more com-prehensive program restricting mar-keting autonomy. Here, for all practi-cal purposes, the advertising itself, farfrom being ancillary, is the principalobject of the regulatory scheme” (USv. United Foods, Inc. 533 U.S. 405(2001), at 411-412). Thus, as long asthe generic advertising is part of abroader regulatory scheme (like themarketing orders for fruit), theassessments pass constitutional mus-ter. However, if generic advertising isthe primary purpose for collectingthe assessments, the assessments thenviolated the First Amendment. It didnot take long for opponents of othermandatory checkoff programs,including the beef checkoff program,to adopt the strategy that was suc-cessful in the United Foods case. TheBeef Promotion and Research Act(“Beef Act,” 7 U.S.C. § 2901 et seq.)was passed by Congress as part of theFood Security Act of 1985 (16

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U.S.C. §§ 3801-3862). Under theBeef Act, the Secretary of Agricultureis directed to issue a Beef Promotionand Research Order and appoint aCattlemen’s Beef Promotion andResearch Board which imposes a $1per head checkoff on all sales orimportation of cattle. This assess-ment then is used to fund such thingsas beef promotional activities, whichare designed by the Operating Com-mittee of the Beef Board andapproved by the Secretary of Agricul-ture.

Citing United Foods, the trialcourt ruled in 2001 that the beefcheckoff program was unconstitu-tional (Livestock Marketing Assoc.(LMA) v. USDA, 132 F. Supp. 2d817 (D. S.D. 2001)).1 In this case,the government’s argument that thebeef checkoff was government speechwas rejected by the trial court. Onappeal, the United States Court ofAppeals for the Eighth Circuitaffirmed (LMA. v. USDA, 335 F.3d711 (8th Cir. 2003)). The U.S.Supreme Court subsequently agreedto hear the case.

Meanwhile, another case againstthe Beef Act was winding its waythrough the federal courts. InNovember 2002, the Federal DistrictCourt for Montana held that the beefprogram “creates programs where thegovernment utilizes private cattlemen

to disseminate a single message, amessage prescribed by Congress andthe USDA” (Charter v. USDA, 230 F.Supp. 2d 1121 (D.Mont. 2002)). Inthe Charter case, the District Courtheld that the government is makingthe speech through the cattlemenrather than for the cattlemen and, assuch, the speech was governmentspeech, not individual or private,commercial speech. Thus, the adver-tising did not implicate the plaintiffs’First Amendment rights. The Chartercase was appealed to the U.S. Courtof Appeals of the Ninth Circuit.

Before the Ninth Circuit ruled onthe Charter appeal, the SupremeCourt rendered its opinion in theLMA beef case. In a 6-3 ruling, withthe majority opinion written by Jus-tice Scalia, the Court upheld the beefcheckoff on the grounds that the pro-gram was government speech(Johanns, et al. v. LMA, 544 U.S. 550(2005)).

Why the change? In the major-ity’s opinion, the beef checkoff caserevolved around the question ofwhether the statutory language of theBeef Act created an advertising pro-gram that could be classified as gov-ernment speech. Thus, as Justice Sca-lia explains, “We have not heretoforeconsidered the First Amendmentconsequences of government-com-pelled subsidy of the government’sown speech.”

While the government speechdoctrine is fairly new and not welldeveloped, prior Supreme Courtopinions (not involving agriculturalcommodity checkoffs) indicated thatto constitute government speech, agovernment mandated program mustpass three tests. First, the governmentmust exercise sufficient control overthe source of the message to bedeemed ultimately responsible for themessage. Second, the main purposeof the message and the program must

be identified as the government’s.Finally, the source of the assessmentsmust come from a large, nondiscretegroup. It was believed by many thatthe beef checkoff would have a hardtime overcoming this last test becausethe source of the funding, cattle pro-ducers, seemed to be a rather dis-crete, identifiable group. The ratio-nale behind this third test is thatcourts have ruled that greater careneeds to be taken when the govern-ment seeks to tax individuals orgroups to pay for messages. Thebroader the source of the financing,the more diluted is the governmentalinfringement on individual rights.

Justice Scalia, writing for themajority, opined that the first twotests were satisfied because Congresshas provided the rationale for a com-pelling state interest and instructedthe Secretary of Agriculture to bothimpose the order, as well as overseethe actions of the Beef Board and theprogram’s Operating Committee.While the opponents of the beefadvertising program had argued thatthe Operating Committee was a non-governmental entity and, thus, theadvertising cannot be consideredgovernment speech, the Courtrejected this premise: “The messageof the promotional campaigns iseffectively controlled by the FederalGovernment itself. The message setout in the beef promotions is frombeginning to end the message estab-lished by the Federal Government....Congress and the Secretary have setout the overarching message andsome of its elements, and they haveleft the development of the remain-ing details to an entity whose mem-bers are answerable to the Secretary....Moreover, the record demonstratesthat the Secretary exercises finalapproval authority over every wordused in every promotional campaign”(125 S.Ct. 2055 at 2063 (2005)).

1. In October 2002, a U.S. district judge in Michigan, Richard Enslen, also citing United Foods, ruled that similar legislation for the pork checkoff program was not only unconstitutional but “rotten” as well (Michigan Pork Producers Association v. Campaign for Family Farms, 229 F. Supp. 2d 772 (W.D. Mich. 2002)) and struck down the entire pork checkoff, including the portions for research and education.

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As to the final test regarding thesource of the assessments, Justice Sca-lia argued that the compelled assess-ments, in fact, are unaffected bywhether the funds are raised throughgeneral or targeted assessments. Thedissent argued that this final test waskey to the Act’s being unconstitu-tional as the Act did not establish suf-ficient democratic checks. With thismajority ruling, however, the Courteliminated this last test entirely. AsScalia opined, “Citizens may chal-lenge compelled support of privatespeech, but have no First Amend-ment right not to fund governmentspeech. And that is no less true whenthe funding is achieved through tar-geted assessments devoted exclu-sively to the program to which theassessed citizens object.”

One First Amendment issue thatwas not addressed was the associationissue. Most beef checkoff advertise-ments are credited to “America’s BeefProducers,” which may give theimpression that the objecting cattleproducers endorse the message. Themajority examined only the languageof the Act and concluded thatbecause the statute does not requirethis attribution, the Act is not invalidon its face. However, the Court didnote that they could not determinewhether association rights were beingviolated because the record beforethem did not contain evidence thatthe ads were being associated withthe plaintiffs. Such an argument wasnot part of the beef challenge, but ispart of a pending challenge of thesimilar pork checkoff. In the porkcase, the challenge is whether thegovernment can compel producers tobelong to a particular group. Previousrulings by the Supreme Court haveheld that Freedom of Associationincludes the right not to associate.As this question was not part of thebeef checkoff case, the Court never

ruled on it. So, a checkoff programthat is found to constitute govern-ment speech could still be foundunconstitutional on freedom of asso-ciation grounds.

An interesting question iswhether the majority opinion was, inreality, a minority opinion as far asthe government speech argumentgoes. Two of the six Justices whoformed the majority, Justice Gins-burg and Justice Breyer, concurredwith the majority opinion as anacceptable decision, though they dis-agreed with the rationale. JusticeGinsburg wrote separately that theAct was constitutional, but did notagree that the beef checkoff consti-tuted government speech. JusticeBreyer joined the majority, but wroteseparately that the checkoff was anacceptable form of government regu-lation; hence the government speechissue was not pertinent for its consti-tutionality.

What are the implications of theSupreme Court decision on the beefcheckoff program for commoditycheckoff programs in general? In onesense, it could be argued that neitherGlickman nor United Foods are rele-vant anymore in determining theconstitutionality of a checkoff pro-gram. After the United Foods ruling,supporters of generic advertisingtried to argue that their industrieswere more like that of the Californiatree-fruits, while their opponentsargued that the industries were morelike those of the mushroom industry.Because of this new ruling on thebeef checkoff, deciding whether aprogram is pertinent based upon thedegree of regulation in an industryno longer seems important if theadvertising funded can be consideredgovernment speech. However, thefact that only four of the Justicesactually saw the checkoff programs asgovernment speech and that two of

these, Chief Justice Rehnquist andJustice O’Connor, are no longer onthe Court, makes the relevance of theearlier decisions a bit murky.

Another implication of the beefcase ruling is that, since checkoffmessages may be considered govern-ment speech, much more regulatoryoversight by the Secretary of Agricul-ture over all programs may be inevi-table because failure to sufficientlymonitor the programs may lead tolax oversight over promotional mes-sages. Claims that a program is notbeing run as a government programwould most likely blossom into fur-ther legal battles as to whether a pro-gram is in line with Congress’ intentand whether or not the operatingcommittee is sending an approvedmessage. Generic advertising done bya program operating without suffi-cient oversight, therefore, may beseen as infringing on some partici-pants’ First Amendment rights.

Finally, for those thinking thatthe ruling will be limited to checkoffprograms, a 2006 opinion of theUnited States Court of Appeals forthe Sixth Circuit is worth watching.In 2003, the Tennessee legislatureauthorized sales of a specialty licenseplate with a “Choose Life” logotypewith half of the profits going to a pri-vate organization, New LifeResources, Inc. At the same time, thelegislature denied authorizing a pro-choice specialty license plate at therequest of Planned Parenthood ofTennessee. Consequently, the Ameri-can Civil Liberties Union of Tennes-see sued, challenging the Act asunconstitutional. The Trial Courtagreed but, based on the LMA beefcase, the Appellate Court reversed(ACLU of Tennessee, et al. v. Bredesen,441 F.3d 370 (6th Cir. 2006)). Cit-ing the Supreme Court’s beef check-off decision, the Appeals Court notedthat the “Choose Life” license plate

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was a government-crafted messagewhere the legislature, like the Secre-tary of Agriculture in the checkoffprogram, had retained the right toapprove the message even though thedesign and message itself was devel-oped by a private organization. TheCourt also cited the beef case inholding that dissemination of a gov-ernment-crafted message by a privateorganization did not require theviews expressed to be neutral. TheU.S. Supreme Court has declined tohear the case. Clearly, the govern-ment speech doctrine set in motion

by the Supreme Court’s recent beefcheckoff ruling may very well haverepercussions far beyond the scope ofagricultural enterprises.

For More InformationCrespi, J.M. (2005). Generic adver-

tising’s long history and uncertain future. In Kaiser, Alston, Crespi, and Sexton (eds.). Commodity Promotion Programs in California: Economic Evaluation and Legal Issues. New York: Peter Lang Pub-lishing.

McEowen, R.A. (June 2005). Supreme Court rules that beef checkoff is government speech; but checkoff litigation may not be over. Agricultural Law Digest, 16(11): 81-84.

John M. Crespi ([email protected]) is Associate Professor,Department of Agricultural Econom-ics, Kansas State University, Manhat-tan, KS. Roger A. McEowen ([email protected]) is Leonard DolezalProfessor in Agricultural Law, IowaState University, Ames, IA.

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Retail-to-Farm Transmission of Generic Advertising EffectsMichael K. Wohlgenant

JEL Classification: Q11, Q13

The efficacy of commodity checkoff programs, especiallythe effects of generic advertising programs, on producers’welfare has received much attention by agricultural econo-mists, commodity groups, and legal observers. At the cen-ter of the debate has been the question of whether produc-ers are better off under a voluntary or mandatory checkoffprogram. Allocation of checkoff funds for generic advertis-ing under a voluntary program often is characterized as afree-rider problem because producers have an incentivenot to participate and free ride on those who choose tocontribute, thereby resulting in failure of the program toproduce enough funds to support advertising that benefitsall producers. Opponents of mandatory checkoff programsgenerally have argued that such programs violate the prin-ciple of economic freedom. Not surprisingly, adjudicationhas, and continues to this day, to surround many of theseprograms. While some proponents of checkoff programsbelieve the argument for eliminating free-ridership is nec-essary to mandatory programs, whether in fact individualproducers are better off under a mandatory program is stillan open question.

There is much debate in the agricultural economics lit-erature about the relative importance of generic advertis-ing compared to other factors influencing demand forcommodities. Cross-commodity effects (the so-called“spillover” effects) of generic promotion, for example, arefrequently ignored in analyses of the effectiveness of com-modity promotion. These effects can be importantbecause increased beef promotion, for example, can reducepoultry consumption; in turn, reduced poultry demandcan cause the demand for beef to decline, thus subtractingfrom any direct effect of beef promotion on beef demand(Brester & Schroeder, 1995). Piggott, Piggott, and Wright(1995) derive the economic determinants of cross-com-

modity impacts and show specifically how returns in anisolated market are dependent upon cross-commodityeffects. Other market characteristics also can determinehow generic advertising affects the demand for a commod-ity. For example, Kinnucan et al. (1997) show that theeffects of generic advertising on meat demand are highlysensitive to health effects. They conclude that if variablesaccounting for health information about cholesterol andother information about red meats are included in aregression analysis to measure the demand effects ofgeneric advertising, the measured impact of the advertisingon meat consumption is smaller. Brester and Schroeder(1995) find that accounting for brand advertising alsoleads to smaller measured effects of generic advertising onmeat consumption. Whether or not the measured effectsof advertising are statistically significant also has not beenadequately addressed (Alston, Chalfant, & Piggott, 2000;Davis, 2005). However, a review of the literature doesindicate generally high point estimates of the return togeneric advertising, ranging from 2:1 to 10:1 for each dol-lar invested in advertising.

Even with generally high estimated rates of return toadvertising, a number of producer groups in recent yearshave expressed dissatisfaction with checkoff programs andhave called for either new referendums or legal action toeliminate mandatory programs (Becker, 2004). If rates ofreturn to commodity advertising are really so high, why dowe see dissatisfaction among producers about mandatorycheckoff programs? It may be that the published rates ofreturn to generic advertising are overstated because somecritical factors important for understanding how farmers’returns are affected by generic advertising have beenneglected.

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The Importance of Retail-to-Farm Price TransmissionFor the most part, research has notfocused on one very important aspectof estimating the rates of return toadvertising - the retail-to-farm pricetransmission. Usually aggregate dis-appearance data are used to estimateadvertising elasticities and price elas-ticities of demand which are thenused to calculate how much of achange in retail price can be attrib-uted to a one dollar increase in adver-tising, holding the quantity of thecommodity produced fixed. A criti-cal assumption usually made in suchanalyses (either implicitly or explic-itly) is that that there is a one-to-onetransmission of changes in prices atthe retail level back to the farm levelso that returns in dollars at the retaillevel measure the same return as atthe farm level. An additionalassumption usually made is that pro-ducers do not have enough time toalter production decisions inresponse to an advertising-inducedprice increase so that supply can beregarded as fixed. Certainly both ofthese assumptions are questionableand can have serious consequencesfor the measuring the returns thatproducers can expect to receive fromspending money on generic advertis-ing.

Conceptually, whether or not thefarm-level response to retail-levelgeneric advertising is likely to be thesame as the retail-level responsedepends primarily on the nature ofthe retail-to-farm price transmissionoccurring in those markets (Forker &Ward, 1993, p. 55). There are at leastsix reasons why the farm-level effectsof retail-level generic advertising maydiffer from those that may occur atthe retail level: (a) non-uniformcheckoff assessments; (b) non-zerosupply response of producers; (c)

input substitution between raw prod-uct and marketing inputs; (d) gov-ernment intervention; (e) marketpower; and (f ) the influence of con-tracting and/or vertical integration.

The Nature of Checkoff AssessmentsIn part, the farm-level response togeneric advertising depends on howthe checkoff assessment is levied. Ifthe assessments are uniform acrossproducers, then the net farm-levelprice effects resulting from advertis-ing-induced demand shifts at theretail level will be the same acrossproducers, assuming the commodityproduced is homogenous and pro-ducers are price takers (Forker &Ward, 1993). However, if the assess-ments are not uniform or qualities ofthe product differ across producers,then per unit benefits will not neces-sarily be equally distributed acrossproducers. Indeed, most commodi-ties are produced where producersreceive either premiums or discountsfor their products. Thus, a constantper unit assessment (e.g., $ per cwtproduced) can shift the distributionof advertising gains from low-qualityto high-quality product suppliers, orvice versa.

The Effect of Supply ResponseThe retail-to-farm price transmissionof advertising can be sensitive to thelength of time required for producersto respond to higher farm pricesinduced by additional generic adver-tising. Most agricultural commodi-ties have demand curves that areinelastic. The percentage change inmarket price resulting from a onepercent increase in advertising isequal to the advertising elasticitydivided by the sum of the supplyelasticity and the absolute value ofthe elasticity of demand. If the abso-lute value of the elasticity of demandis 0.5 and the supply curve is upward

sloping with an elasticity of, say, 0.5rather than perfectly inelastic as isoften assumed, then the percentageincrease in price from a one percentincrease in advertising would be halfwhat would have been calculated.With a supply elasticity of 1, the per-centage price increase would be cutby a factor 3. Therefore, it is not hardto see how a calculated rate of returnto generic advertising of, say, 2:1could actually be 1:1, or even less ifthe supply response to the advertis-ing-induced price increase is takeninto account.

The preceding analysis assumesthat the checkoff assessment is alump sum tax. If the assessment is aper unit fee, which is frequently thecase, then the effect of the supplyelasticity is mitigated to some extentbecause a per unit assessment offsets,at least partially, the direct effect ofincreased industry output on outputprice by shifting the tax onto con-sumers. Indeed, Kinnucan and Myr-land (2000) show that these twoeffects just offset one another in thesingle product case when determin-ing the optimal checkoff rate. How-ever, with multi-product industries,the indirect and direct effects maynot be equal. Thus, the sensitivity ofthe retail-to-farm price transmissionto the magnitude of the supply elas-ticity depends on the nature of thecheckoff; that is, whether the assess-ment is a lump sum or a per unit fee.

The Role of Input SubstitutionAnother potentially importantparameter affecting the retail-to-farmprice transmission of generic adver-tising is input substitution betweenthe raw agricultural product andmarketing inputs in producing thefinal composite food product. Theinput substitution issue is importantfirst of all because a small degree ofsubstitutability can lead to a substan-

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tial reduction in the retail-to-farmtransmission of advertising effects(Wohlgenant, 1993). Second, inputsubstitution has been found to be sig-nificant and important for a widevariety of agricultural commodities(Wohlgenant, 1989). Often theassumption is made that the finalretail product (beef, for example) isproduced using fixed proportions ofthe raw material (cattle in this case)and marketing inputs which may bereasonable for an individual firm inthe short run. However, firms differin their “recipes” for producing prod-ucts from raw materials. A higher rel-ative raw material price will inducefirms with technologies using less ofthe raw material to produce a largershare of industry output, causing theamount of the raw material per unitindustry output to decline. In addi-tion, many final products we analyze(like beef ) are really composites ofdisaggregated products (steaks,roasts, ground beef ), so that productsubstitution may occur in response toadvertising even when there is nosubstitution between the raw mate-rial and marketing inputs in produc-ing a single good (Wohlgenant,1999). If no provision is made for thepossibility of such product substitu-tion, but rather the product (beef ) istreated as a single composite good,then what we observe as input substi-tution may really be a combinationof substitution between the rawproduct and marketing inputs andchanges in the composition of thecomposite retail commodity pro-duced (Wohlgenant, 1999). Highercattle prices, for example, induced byincreased generic advertising, lead themarketing sector to produce higher-value products; that is, products con-taining less of the now relativelymore expensive raw product. Forsome commodities like dairy, thischange in product composition may

be quite extensive because of thewide variety of dissimilar commodi-ties produced from milk (fluid milk,cheeses, butter, yogurt, frozen dairyproducts). The bottom line is thatbecause of the relatively inelastic sup-ply of the agricultural raw material,an increase in demand for the endproduct induced by generic advertis-ing increases the relative price of theagricultural raw material and inducessubstitution away from the raw mate-rial toward marketing inputs so thatthe net effect on farm price may beless than would be the case if therewas one-to-one transmission of retaildemand increases to the farm level.

To demonstrate the importanceof input substitution, I have calcu-lated the retail-to-farm price trans-mission coefficients for beef, pork,poultry, and dairy presented in Table1. These coefficients are calculated bydividing retail own-price elasticitiesby own-price elasticities of deriveddemand for the same commodities,and then multiplying these numbersby average values of the farmer’s shareof the retail dollar as demonstrated inWohlgenant (1993). If the coeffi-cients were to equal 1, there would bea one-to-one transmission of theprice effects of generic advertisingfrom the respective retail marketsdown to the farm level. However,because the coefficients are actuallyall less than 1 for all these commodi-ties, a one cent increase in retail pricetranslates into less than a one centincrease in farm price, holding thesupply of the farm product fixed. Inthe case of beef, for example, a onecent increase in retail price fromadvertising translates into a 0.67 centincrease in the farm price. The verysmall transmission elasticity of dairy,0.16, suggests that factors other thaninput substitution may be at work.

Why don’t more studies ofgeneric advertising make the distinc-

tion between retail and farm leveleffects if transmission effects are somuch different than one? Theanswer, in part, is that many analystsfail to appreciate the limitations ofthe disappearance data published bythe USDA. These data, while derivedvery carefully and useful for manypurposes, are best viewed (as thename implies) as production datarather than as consumption data.The apparent consumption data arederived as production plus adjust-ments made for net exports andchanges in inventories. The resultingnumbers are multiplied by fixedinput-output coefficients, reflectingloss in processing, to arrive at figuresto estimate the amount of the rawmaterial “disappearing” into the mar-keting channel that ultimately is con-sumed. The main problem withusing these numbers to representconsumption is that one has toassume that, for example, a pound ofhamburger is valued the same as apound of steak to the consumerwhich obviously is not the case. Apreferable estimate of consumptionwould be a constant dollar measurewhere each component of the com-posite quantity is weighted by a fixedprice (Nelson, 1991). The error inusing simple sum quantities of meatcan be quite large (Brester and Wohl-genant, 1993). Researchers using dis-appearance data may come closer to

Table 1. Estimates of retail-to-farm transmission of generic advertising for beef, pork, poultry, and dairy.

Commodity

Increase in farm price from one cent increase in retail

price from advertising

Beef 0.67

Pork 0.69

Poultry 0.90

Dairy 0.16

Note: Estimates assume fixed supply and are cal-culated from Wohlgenant (1989).

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estimating the true elasticities byspecifying and estimating wholesalelevel or farm level demand functions,rather than consumer demand func-tions.

The Effect of Government InterventionGovernment intervention in com-modity markets can also affect theretail-to-farm price transmission ofadvertising. The dairy industry is acase in point where the dairy pricesupport program occurs in wholesalemarkets, causing derived demand formilk at the farm level to follow oneregime if the price is set by thewholesale market for manufacturedgoods or another regime if the priceis set by the support prices for cheeseand/or butter. The effect of govern-ment intervention in dairy markets isto cause derived demand overall to bemore elastic (Wohlgenant & Clary,1993). On average, we would expectthe retail-to-farm price transmissionfrom advertising to be reduced as aresult of government intervention.Therefore, the small coefficientobserved empirically (Table 1) maybe explained in large part by govern-ment intervention in dairy markets.Another example might be cotton(Murray et al., 2001) where the inter-action of agricultural policy, interna-tional trade, and markets has led tosituations during some time periodsin which the farm price has beenunaffected by demand shifts, includ-ing any increases from generic adver-tising.

The Presence of Market PowerThe presence of market power in theprocessing/marketing sector canaffect retail-to-farm price transmis-sion of advertising. If there is a wedgebetween price and marginal costcaused by market power and thiswedge (which would be positive andlarger than 1) is constant, then mar-

ket power acts much like the effect ofinput substitution. The overall effectin this case is to cause the deriveddemand elasticity for the agriculturalraw material to be larger in absolutevalue (Wohlgenant and Piggott,2003). Therefore, the effect of mar-ket power in this case would be tolessen the retail-to-farm price trans-mission of advertising. An importantquestion is how significant does mar-ket power have to be to have an eco-nomically important effect on retail-to-farm price transmission? A simula-tion analysis conducted by Wohl-genant and Piggott suggests that mar-ket power is not as important in theretail-to-farm price transmission ofadvertising as other more fundamen-tal market determinants. In particu-lar, they show that the impact ofadvertising on retail-to-farm pricetransmission assuming some level ofmarket power is indistinguishablefrom that obtained assuming price-taking behavior. In fact, the simula-tion results show that the results aremost significantly affected by supplyresponse and input substitutabilitybetween the raw product and mar-keting inputs. Kinnucan, extendingthe analysis to market power in boththe output and agricultural rawmaterial markets, arrives at a similarfinding that optimal advertisingintensity is extremely sensitive toinput substitution but not to marketpower.

The Industrialization of AgricultureIn recent decades, the agriculturalprocessing and marketing sectorshave undergone unprecedented orga-nizational and structural changes.Increased vertical coordinationthrough contracting and increasedvertical integration upstream intoagricultural production have beenpervasive in livestock and fruit andvegetable industries and may affect

the retail-to-farm price transmissionof advertising. In particular, increasedcontracting and ownership of live-stock by processors (so-called “cap-tive supplies”) allegedly has createdmarket power for livestock processorsin procurement of animals from thespot market. If true, then the trans-mission of generic advertising to pro-ducers may have been affected,although how and in what way arequestions that have not beenaddressed.

One way in which the transmis-sion of advertising may have beenaffected by the industrialization ofagriculture is through its distribu-tional effects on producers. Verticalintegration and contracting are char-acterized by much more quality dif-ferentiation than one might find onthe spot market (Goodhue andRausser, 2003). Moreover, somecompanies are not only integratingupstream into production but down-stream into retail outlets withbranded products so that genericadvertising in some instances maywork against these firms. Thus,movement toward branded productsand increased vertical integrationdownstream may lead to less supportfor commodity checkoff programsthat fund generic advertising.

ConclusionsThe evaluation of the economiceffects of generic advertising onprices and producer welfare is an areaof research that has occupied a lot ofattention. Despite the amount ofeconometric research indicating highrates of return to generic advertising,there is disenchantment and disbe-lief among some producers and com-modity groups as to whether produc-ers actually benefit from genericadvertising. More accurate measure-ment of the farm-level effects of

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retail-level generic advertising mustaccount for various factors that influ-ence the transmission of retaildemand changes from advertising tothe farm level. Six of the potentiallymost important of these factors are:(1) non-uniform assessment of thecheckoff program, (2) non-zero sup-ply response of producers, (3) inputsubstitution between raw productand marketing inputs, (4) govern-ment intervention, (5) market power,and (6) influence of contracting and/or vertical integration. Which ofthese different factors is most impor-tant cannot be determined conclu-sively because the answer dependsupon the particular commodityunder investigation. However,research to date suggests that inputsubstitution, government interven-tion, and contracting and verticalorganization are generally the factorswith potentially the most importanteffects on the transmission of theretail-levels effects of advertisingdown to the farm level. The impor-tance of input substitution in esti-mating returns to advertising suggeststhat an understanding of the natureof the production process for con-verting raw food materials into themyriad of final consumer products isessential to understanding howgeneric advertising is transmittedfrom retail markets back to the farmlevel. Future research will need tofocus on the issues related to retail-to-farm price transmission if moreaccurate measures of the return toproducers from generic advertisingare to be developed.

For More InformationAlston, J.M., Chalfant, J.A., & Pig-

gott, N.E. (2000). The incidence of costs and benefits of generic advertising. American Journal of

Agricultural Economics, 82(3), 665-671.

Becker, G.S. (2004). Federal farm promotion (“check-off ”) programs (Order Code 95-353 ENR). Washington, DC: Congressional Research Service, The Library of Congress.

Brester, G.W., & Schroeder, T.C. (1995). The impacts of brand and generic advertising on meat demand. American Journal of Agricultural Economics, 77(4), 969-979.

Brester, G.W., & Wohlgenant, M.K. (1993). Correcting for Measure-ment Error in Food Demand Estimation. The Review of Eco-nomics and Statistics, 75(2), 352-356.

Davis, G.C. (2005). The significance and insignificance of demand analysis in Evaluating promotion programs. American Journal of Agricultural Economics, 87(3), 673-688.

Forker, O.D., & Ward, R.W. (1993). Commodity advertising: The eco-nomics and measurement of generic programs. New York, NY: Lexing-ton Books.

Goodhue, R., & Rausser. G.C. (2003). Value differentiation. Journal of Agricultural and Resource Economics, 38(2), 375-395.

Kinnucan, H.W. (2003). Optimal generic advertising in an imper-fectly competitive food industry with variable proportions. Agri-cultural Economics, 29(1),143-158.

Kinnucan, H.W., & Myrland, Ø. (2000). Optimal advertising with application to the Norway-EU Salmon Agreement. European Review of Agricultural Economics, 27(1), 39-58.

Kinnucan, H.W., & Zheng, Y. (2005). National benefit-cost

estimates for the dairy, beef, pork, and cotton promotion pro-grams.” In H.M. Kaiser, J.M. Alston, J.M. Crespi, & R.J. Sex-ton (Eds.), The economics of com-modity promotion programs: Lessons from California (pp. 255-284). New York: Peter Lang.

Kinnucan, H.W., Ziao, H., Hsia, C., & Jackson, J.D. (1997). Effects of health information and generic advertising on U.S. meat demand. American Journal of Agricultural Economics, 79(1), 13-23.

Murray, B.C., Beach, R.H., White, W.J. Viator, C., Piggott, N., & Wohlgenant, M. (2001). An eco-nomic analysis of the cotton research and promotion programs (Research Triangle Institute Project 8024). Research Triangle Park, NC.

Nelson, J.A. (1991). Quality varia-tion and quantity aggregation in consumer demand for food. American Journal of Agricultural Economics, 73(4), 1204-1212.

Piggott, R.R., Piggott, N.E., & Wright, V.E. (1995). Approxi-mating farm-level returns to incremental advertising expendi-ture: Methods and application to the Australian meat industry. American Journal of Agricultural Economics, 77(2), 497-511.

Wohlgenant, M.K. (1999). Product heterogeneity and the relation-ship between retail and farm prices. European Review of Agri-cultural Economics, 26(2), 219-227.

Wohlgenant, M.K. (1993). Distribu-tion of gains from research and promotion in multi-stage pro-duction systems: The case of the U.S. beef and pork industries. American Journal of Agricultural Economics, 75(3), 642-651.

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Wohlgenant, M.K. (1989). Demand for farm output in a complete system of demand functions. American Journal of Agricultural Economics, 71(2), 241-252.

Wohlgenant, M.K., & Clary, C.R. (1993). Development and mea-surement of farm-to-retail price

linkage for evaluating dairy advertising effectiveness. The Journal of Agricultural Economics Research, 44(1), 18-27.

Wohlgenant, M.K., & Piggott, N.E. (2003). Distribution of gains from market research and promo-tion in the presence of market

power. Agribusiness: An Interna-tional Journal, 19(2), 301-314.

Michael K. Wohlgenant ([email protected]) is WilliamNeal Reynolds Distinguished Profes-sor of Agricultural & Resource Eco-nomics, North Carolina State Uni-versity, Raleigh, NC.

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CHOICESThe magazine of food, farm, and resource issues

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A publication of theAmerican AgriculturalEconomics Association

2nd Quarter 2006 • 21(2)

©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the AmericanAgricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org.

Measuring the Effectiveness of Checkoff ProgramsGary W. Williams and Oral Capps, Jr.

JEL Classifications: Q13, M31, M37

IntroductionAll federal and many state checkoff organizations arerequired to perform evaluations of the effectiveness oftheir programs periodically. Although some programmanagers conduct evaluations primarily to satisfy legisla-tive requirements, most recognize the importance of accu-rate and detailed evaluations of the effectiveness of pastpromotional activities for successful management of theirprograms.

Program evaluation usually is thought of as the mea-surement of program effectiveness; that is, the “metrics”needed to determine how much “bang for the buck” hasbeen generated by the promotion and research, as well asother programmatic activities funded by the commodityorganization. In essence, the “metrics” are an after-the-factassessment of whether the organization funding the pro-gram has been “doing things right;” that is, whether theactivities in which the organization has invested have beensuccessful in achieving their objectives.

Evaluation also includes an assessment of whether theorganization is “doing the right things;” that is, whetherthe program goals and objectives and the process designedto meet those goals efficiently and effectively lead to theoptimum allocation of the program funds. Even if all pro-motion expenditures are found to generate positivereturns, the evaluation results may suggest some realloca-tion of funds among alternative activities to maximize thereturns to the available funds.

Evaluation also has proven to be important in recentcourt challenges to checkoff programs. As Crespi andMcEowen discuss in another article in this issue of Choices,the constitutionality of many legislatively-mandated com-modity programs has been challenged by some who arerequired to pay as a violation of their First Amendment

rights to freedom of speech. Implicit in the arguments isthe question that program evaluations are designed toanswer whether the promotion and advertising programsfunded by checkoff funds are effective in securing theanticipated benefits for those who pay for the programs.

Defining Checkoff Program EffectivenessThe first step in measuring program effectiveness is toclearly define what “effectiveness” means to the checkofforganization. Whether or not a promotion program can bejudged to be effective depends on the objectives of the pro-gram. Even though the overall mission or goal of checkoffprograms is to enhance the profits of program contribu-tors, most programs define intermediate objectives thatserve as indicators of program effectiveness, such aschanges in: (1) industry sales, (2) industry prices, (3)industry market share, (4) industry profits, or (5) con-sumer awareness of a product or of positive productattributes.

Measurement MethodsOnce specific indicators of effectiveness are identified, thenext step is selecting the appropriate measurement methodto match the indicators identified. The mechanism bywhich a promotion program ultimately impacts the profitsof those who pay for the program often is thought to beginwith enhancing consumer awareness of the product orproduct attributes, which is expected to change consumerbuying behavior and impact sales and prices which onlythen will impact contributor profits. In schematic terms:Promotion → Consumer Awareness → Sales/Prices → Con-tributor Profits

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Consequently, typical approaches tomeasuring the effectiveness of check-off programs generally fall into one ofthree categories: (1) consumer aware-ness studies, (2) retail sales impactstudies, and (3) contributor profitstudies. Effectiveness in one categorydoes not necessarily imply effective-ness in other categories. For example,the organization may increase con-sumer awareness, but not increaseeither retail sales or profits. By thesame token, increases in retail salesmay not necessary lead to increases inindustry profits.

Consumer Awareness StudiesA primary metric of program effec-tiveness for many checkoff programs,and particularly those in the earlystages of development, is the extentto which promotion activities affectconsumer attitudes and awarenessconcerning their commodities. Mostof what is known about consumerattitudes/beliefs regarding specificagricultural commodities has comefrom "tracking" studies done by mar-ket research firms for the correspond-ing commodity promotion organiza-tions. Consumer attitudes/beliefsregarding specific characteristics ofthe commodity of interest are"tracked" over time through periodicsurveys of consumers. Improvementsin attitudes and changes in beliefsconsistent with the promotion mes-sages over time are taken as evidencethat the promotion program is effec-tive in boosting sales and, ultimately,industry profit.

One problem with these types ofstudies is that attitudes can be influ-enced by several factors other thanthe promotion program so thatchanges in consumer attitudes/beliefs, as indicated by “trackingstudies,” cannot always be confi-dently attributed to the promotionprogram. For example, even though

the "Other White Meat" message ofthe U.S. pork industry by itself mayhave had a positive effect on con-sumer attitudes about pork, con-sumer surveys might indicate nochange or even a negative change inthose attitudes/beliefs if public healthmessages have simultaneously con-veyed concerns about the health risksof eating meat.

Even if the promotion success-fully changes attitudes, there is noguarantee that the attitude changewill translate into increased sales. As aconsequence, many researchers havepreferred to analyze the direct rela-tionship between promotion expen-ditures and sales without consideringwhether the promotion had anyimpact on consumer awareness orattitudes.

Retail Sales Impact StudiesEarly efforts to measure the salesimpact of commodity promotionprograms relied largely on anecdotalevidence and simple comparisons ofgross investments in promotion andgross changes in sales. During peri-ods of rapidly expanding markets andrising prices, this approach can yieldsome persuasive stories and evenmore impressive upward-slopinggraphical relationships between pro-motion expenditures and sales. Theproblem with this approach is thatvarious factors other than the promo-tion program affect the volume andvalue of commodity sales, such as rel-ative price changes, agricultural poli-cies, changes in incomes, populationgrowth, competition from otherproducts, and consumer health con-cerns and demographics, just toname a few. The problem becomes alltoo apparent in years when marketsturn down and prices drop. Programmanagers find that taking credit forrising demand and prices in goodyears forces them to take the blame

for declining demand and prices inbad years.

Over the years, increasinglysophisticated statistical methods havebeen developed to isolate and mea-sure the unique contribution of pro-motion programs to the performanceof commodity sales and the profit-ability of the farm sector. Most com-mon has been the use of econometricmodels to statistically disentangle theeffects of promotion program activi-ties on commodity sales and demandfrom those of other market forces.Even if the analysis indicates thatpromotion programs have had a posi-tive and statistically significant effecton market sales, however, the ques-tion remains as to whether theincrease has been greater than thecost of the program. For that reason,most checkoff organizations are moreinterested in some measure of returnon investment (ROI) rather than theeffects of promotion on the level ofsales. Consequently, what most stud-ies provide is some Aggregate Mea-sure of the Effectiveness (AME) ofcheckoff program activities. Unfortu-nately, the AMEs estimated forcheckoff programs often are pre-sented in different forms and calcu-lated in different ways for differentcommodities, which causes confu-sion among researchers, as well asamong checkoff program managersand stakeholders.

The most commonly reportedAME is the benefit-cost ratio (BCR),which is typically calculated in retailsales impact studies as the dollarincrease in sales per promotion dollarspent (retail BCR). Because promo-tion expenditures occur over timeand have different effects over theirlife cycles, the increase in retail salesgenerated by the program over timeoften are discounted to present valuebefore dividing by the cost of theprogram to account for the time

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value of money. However calculated,if the BCR is greater than one, thepromotion program is deemed “effec-tive” because more than one dollar insales is generated for every dollarspent. On the other hand, if the cal-culated BCR is less than one, theprogram is deemed “ineffective.”

Because they provide measures ofthe “average” return to promotionactivities, the usefulness of BCRs formaking promotion funding alloca-tion decisions is limited. Thus, somestudies report a marginal rate ofreturn (MRR) as a more appropriateROI concept than a BCR as a mea-sure of the advertising and promo-tion effectiveness. A retail sales MRRis usually calculated as the percentageincrease in sales revenues from a 1%increase in promotion expenditures.Thus, an MRR provides a more accu-rate indication of the change in totalreturns that might be expected froma reallocation of funds among com-peting promotion activities.

While BCR and MRR measuresprovide some sense of whether acheckoff program has effectivelyincreased retail demand and sales,they provide no clear criteria forjudging whether the benefits of a par-ticular advertising program haveexceeded the costs sufficiently to war-rant continuation of the program.How high must a BCR or MRR bein order to justify a conclusion thatthe program is “effective”? How highis too high and how low is too low?

Reported BCRs for checkoff pro-grams typically range from about 2:1to 10:1 (Williams & Nichols, 1998;Kaiser et al., 2005). Does that meanthat a checkoff program with an esti-mated BCR of 10:1 is 5 times moreeffective than a program with a BCRof 2:1? Are BCR estimates of 50:1 or100:1 unreasonably high or are thoseprograms just that much more effec-tive than programs with more typical

BCRs? How are we to interpret aBCR for a checkoff program at thebottom of or below the typical range?Beyond indicating that the cost of acheckoff program is greater than thereturns generated, is there any mean-ingful difference between a BCRbetween 0 and 1 and a negativeBCR?

The problem is that a typicalbenefit-cost analysis of a checkoffprogram’s effectiveness fails toaddress whether or not the programis a “good” investment for those whopay for the program. Even if the esti-mated BCR from a particular adver-tising program is estimated to be pos-itive and even higher than thoseestimated for other advertising pro-grams, what program contributorswant to know is whether they coulddo better with the funds they con-tribute by investing in other com-mon investment opportunities andrealizing an even higher return. If so,then it would likely make little differ-ence to them if the BCR from theadvertising program is “positive” ifthey could keep their money andinvest it in other investment oppor-tunities and realize a higher return.

For economists, this issue impliesthat the fundamental concern inmeasuring the effectiveness of check-off programs probably should be theopportunity cost of the checkoff pro-gram funds from the collectivegroup. This issue has received rela-tively little attention in the literature.For program managers, the implica-tion is that more relevant informa-tion might be provided by economicevaluations if researchers treatedcheckoff programs as investmentalternatives and calculated how wellthe various programs fare comparedto other investment opportunitiesavailable … like buying land orinvesting in Treasury Bills, etc.

The standard business methodfor determining the highest yieldinginvestment opportunity is to calcu-late the internal rate of return (IRR)of the investment over time. In ana-lyzing alternative business invest-ments, the IRR often is referred to asthe discounted rate of return, themarginal efficiency of capital, and theyield of an investment. For measur-ing the effectiveness of a commoditypromotion program, the IRR is cal-culated as the change in the futurevalue of the estimated returns to thepromotion expenditures over timedivided by a change in the presentvalue of advertising expendituresexpressed in percentage terms. Con-sequently, the IRR is a dynamicreturn on investment measure thatexpresses the estimated marginalreturns to promotion expenditures(i.e., the percent change in returnsfrom a 1% change in promotion).

In a recent study of the Floridaorange juice promotion program, theIRR to Florida orange growers wascalculated to be 14.4% over the lifeof the program (Williams, Capps, &Bessler, 2004). In other words, forFlorida orange growers to have donebetter with the funds they invested inthe orange juice promotion program,they would have had to have foundan investment alternative that yieldedmore than 14.4% on average annu-ally over the entire 33-year period ofthe program. Curiously, we tend touse the IRR method for evaluatinginvestments in research that shift thesupply curve, but not for invest-ments, like advertising, that shift thedemand curve.

Contributor Benefit StudiesA particular limitation of the retailsales BCR and MRR measures is thatthey are calculated assuming thatnothing, including prices, changeswhen promotion expenditures

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change. Unless one is willing toassume that all the benefits generatedin terms of increased retail sales arecaptured dollar for dollar by produc-ers who pay for the program, anunlikely possibility, such measures arenot particularly meaningful as mea-sures of the benefits of checkoff pro-gram expenditures to those who payfor the program. Thus, the relevantquestions are: (1) what portion ofany benefits from shifting the retaildemand curve accrues to those whopay for the program? and (2) arethose benefits greater than the costsof promotion? For this reason, somestudies of checkoff program effective-ness calculate BCRs in terms of addi-tional industry profits (i.e., theincrease in industry sales or cashreceipts net of additional productioncosts) or producer surplus generatedper dollar invested in advertising andpromotion (i.e., a profit BCR or sur-plus BCR).

Sales impact analyses are designedto determine whether or not pastpromotion expenditures have effec-tively shifted out the demand and,therefore, sales. If such analyses con-clude that promotion expenditureshave not shifted out demand, then itis likely from a statistical perspectivethat the program has not benefitedthose who have paid for the program.

However, even if such studiesindicate a positive demand impact,the related increase in sales may ormay not translate into increased prof-its of those who pay for the programsfor a variety of reasons as discussedby Wohlgenant in another article inthis issue of Choices. Most impor-tantly, the benefits of the programmay be captured by wholesalers, dis-tributors, processors, importers, for-eign producers, or others along thecommodity supply chain or even inclosely related markets that do notcontribute to the costs of the pro-

gram. For example, in an analysis ofthe Florida orange juice promotionprogram, the increase in orange juicedemand and price generated by theprogram prompted an increase inorange juice imports, which bene-fited foreign orange growers and lim-ited the benefits of the program toFlorida orange growers who pay forthe program.

Measuring the benefits of promo-tion programs to those who pay forthem requires a more sophisticatedand dynamic type of commoditymarket model than used for demandand sales impact analyses. Becausemost products pass through severalstages of processing before reachingthe final consumer, the markets asso-ciated with these different stages areinterrelated at some level. In verticallyrelated markets, what happens in onemarket or processing stage affects allother markets or stages. Furthermore,product processing often results inby-products or joint products thatsell in entirely different markets. Inhorizontally related markets, productsthat are not directly in a processingchain may be considered close substi-tutes for products in the chain. At thesame time, some markets include for-eign components. Market supplymay include imports and marketdemand may consist of both domes-tic and export demand.

The intricacy of the interrelation-ships among and between marketsmeans that a myriad of factors canaffect the transmission of the retail-level effects of checkoff programactivities back to those who pay forthe program. Once the market forthe product has been accurately mod-eled and the relative roles of the pro-motion program activities and othermarket forces at the various levelsalong the supply chain have beenaccounted for and incorporated intothe model, the process of measuring

the benefit of the promotion expen-ditures to those who pay for the pro-gram is done through scenario analy-sis. This process is accomplished bysimulating the model over the histor-ical period with and then without thepromotion expenditures included inthe model. The actual historical dataare taken to represent the “with pro-motion” scenario. For the “withoutpromotion” scenario, the level of pro-motion expenditures is first set tozero in the model in each year overthe historical period. The model thenis simulated over that period to gen-erate changes in the levels of the pro-duction, consumption, trade, andprices that would have existed overtime in the absence of any promotionprogram. The simulated differencesbetween the values of model variablesin the “with” and “without” promo-tion scenarios provide direct mea-sures of the historical effects of theprogram on the market of the com-modity being promoted. The resultsare used to calculate a BCR or anIRR to represent the estimatedchange in the aggregate profits of thecontributors that is attributable tothe checkoff promotion program.

Beyond MeasurementRegardless of how program effective-ness is defined and measured, check-off programs often face the difficultchallenge of “selling” the results totheir stakeholders. Despite positivemeasures of effectiveness, producersand other contributors often find itdifficult to understand or believe theresults. The primary problem in con-vincing program contributors thatpositive evaluations of a checkoffprogram are meaningful is that, whilethe cost of checkoff programs to eachcontributor is eminently observableby them, the benefits of the programsare not. While contributors can

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clearly see the effects of assessmentson their bottom lines, they have noway of seeing the portion of their rev-enues that are directly attributable toprogrammatic activities.

Evaluations of checkoff pro-grams specifically are intended tomeasure the portion of revenues atvarious levels in the industry that canbe directly attributable to the check-off programs. But in doing so,researchers must compare actual reve-nues or sales over some time periodto nebulous, intangible concepts like“what might have been earned orsold in the absence of the program.”In other words, the results imply that$2, $5, or $10 for every dollar theywere assessed are in their pockets, butthey just don’t know it because theirearnings would have been lower if thecheckoff program had not existed.This concept has proved extremelydifficult to communicate to produc-ers.

Compounding that problem isthe tendency of many checkoff pro-gram staffs and boards to oversell theactual and potential impacts of theirprograms to insure a positive out-come from producer referenda andotherwise justify continuation oftheir programs. Contributors cometo expect large impacts on prices andprofits because of the anecdotes theyhave been told about how successfulvarious activities have been and howlarge the benefits to them are fromcontributing to the program. Esti-mated BCRs much in excess of 1:1often are taken to imply large abso-lute impacts of a checkoff programon the market. Nothing could be lesstrue. A BCR of 5:1 results by divid-ing a $5 billion industry profit bene-fit by a $1 billion checkoff invest-ment or by dividing a $5 benefit by a$1 investment. For most commoditypromotion programs, the value of theexpenditures in research and promo-

tion activities is extremely small incomparison to the total value ofindustry sales. Commodity promo-tion expenditures generally amountto a fraction of 1% of the total indus-try sales each year. With such a lowlevel of investment compared tosales, the overall impact of a com-modity promotion program couldhardly be expected to be significantin a practical sense in its effects onproduction, prices, sales, and marketshare even if the impact could be saidto be statistically significant.

When producers and other con-tributors fail to see the large impacton their returns that they have beenled to expect, they tend to disbelievethe measured effectiveness of thecheckoff program. One potentialsolution for checkoff program boardsand their staffs is to spend more timeeducating producers on the truepotential of their programs. Perhapscheckoff programs would be bettersold to contributors as tools to helpreduce downside pressure on pricesand profits in bad years and contrib-ute to higher prices and profits ingood years rather than as panacea tothe financial problems they face.

Another potential solution is tofocus on appropriate measures of“effectiveness” that more readily con-vey the success or failure of checkoffprograms in meeting their objectivesto program contributors. Benefit-cost ratios as measures of effective-ness have often proved to be less thansuccessful in that effort. Furtherdevelopment of the internal rate ofreturn (IRR) methodology could leadto a measure of effectiveness thatmight be more easily interpreted byprogram contributors. Strong argu-ments also can be made for simpleprice effects. In a competitive indus-try, producers relate well to changesin prices as a result of intervention.

Summing UpMeasuring the effectiveness of a com-modity checkoff program beginswith understanding the promotionobjectives and then adopting anappropriate measurement technique.For checkoff organizations primarilyconcerned with positively impactingconsumer attitudes and awarenessconcerning their products, consumerattitude and awareness studies aresufficient for measuring programeffectiveness. New checkoff organiza-tions often begin with this objectivebelieving that changing consumerattitudes is the key to changing con-sumer behavior, positively influenc-ing retail sales, and eventuallyenhancing the profitability of theirindustry.

Eventually, however, checkofforganizations must determinewhether their promotional effortshave gone beyond any change in con-sumer attitudes to actually shiftingout the demand for their commodi-ties. Sales/demand impact studies aredesigned to measure the retail levelimpact of checkoff promotion pro-grams. Such studies often reportaggregate measures of effectivenesssuch as benefit-cost ratios or mar-ginal rates of return. Sooner or later,however, someone is going to ask:“What am I getting for my checkoffcontribution?” The answer to suchquestions requires more complex andin-depth analyses to track the retaillevel impact of advertising and pro-motion programs back through thesupply chain to producers to measurethe effectiveness of retail-level pro-motion programs in enhancing theprofitability and economic welfare ofproducers and other contributors.

Once the effectiveness of the pro-gram has been measured, however,the checkoff program still faces thechallenge of communicating the

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results to contributors. Even if theprogram is deemed to be highlyeffective, contributors are often skep-tical of the magnitude of the results.While they can readily observe thecosts of the program to them, thebenefits generated are an unobserv-able component of their total revenuestream. Checkoff program boardsand staffs often compound the prob-lem by overselling the potentialimpacts of their programs ondemand, prices, and profits, and byimplying that high estimated rates ofreturn imply large program impactson the market. One solution may befor checkoff program managers to selltheir programs as collective efforts toenhance positive market pressuresand moderate negative market pres-

sures rather than always shifting outdemand and boosting prices.Another solution is for researchers tofocus on developing measures thatmore readily convey the effectivenessof checkoff programs such as theinternal rate of return.

For More InformationKaiser, H.M., Alston, J.M., Crespi,

J.M., & Sexton, R.J., eds. (2005). The economics of commodity pro-motion programs: Lessons from California, New York: Peter Lang Publishing, pp. 13-37.

Williams, G.W., & Nichols, J.P. (May 1998). Effectiveness of com-modity promotion. TAMRC Con-sumer and Product Research

Report No. CP-01-98, Depart-ment of Agricultural Economics, Texas A&M University.

Williams, G.W., Capps, O. Jr., & Bessler, D.A. (February 2004). Florida orange grower return for orange juice advertising. TAMRC Consumer and Product Research Report No. CP-01-04, Depart-ment of Agricultural Economics, Texas A&M University.

Gary W. Williams is Professor andDirector of the Texas AgribusinessMarket Research Center, and OralCapps, Jr. is Professor and SouthwestDairy Marketing Endowed Chair,Department of Agricultural Econom-ics, Texas A&M University, CollegeStation, TX.

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CHOICESThe magazine of food, farm, and resource issues

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A publication of theAmerican AgriculturalEconomics Association

2nd Quarter 2006 • 21(2)

©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the AmericanAgricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org.

Producer Support for Checkoff Programs: The Case of BeefChanjin Chung, F. Bailey Norwood, and Clement E. Ward

JEL Classification: Q13

Agricultural producers have generated approximately$750 million annually in mandatory checkoff contribu-tions and have invested a majority of these funds in vari-ous generic advertising and promotion programs. Over thepast decade, a number of economists have studied the eco-nomic impacts of checkoff-funded generic advertising pro-grams and found, in most cases, positive net benefits forproducers. Nonetheless, as Crespi and McEowen discussin another article in this issue of Choices, mandatorycheckoff programs have faced constitutional challenges onthe grounds that they violate the individual contributor’sright to free speech because the checkoff fees are used forcollective advertising and promotion efforts. Even thoughthe recent Supreme Court ruling on the beef checkoff pro-gram has apparently settled that question in favor ofcheckoff programs, the future of all checkoff programs,mandatory or otherwise, depends critically on the supportof producers. Under current legislation, the AgriculturalMarketing Service (AMS), the USDA division responsiblefor overseeing commodity checkoff programs, must con-duct a national referendum on a checkoff program when-ever there are enough petitions from producers, and canterminate programs whenever such referenda find insuffi-cient support from producers.

Support for checkoff programs may vary across farmsettings and producers with different attitudes towardssuch programs. An understanding of the extent to whichthe support may be affected by various producer character-istics and attitudes should be useful for managing theirprograms and communicating with stakeholders. A suc-cessful checkoff program requires an effective public rela-tions campaign to convince producers that the checkoff isa profitable investment. If program managers could iden-tify producers (by their characteristics and organization

affiliation) who are less likely to support checkoff pro-grams, they could better target those groups to enhancesupport. Eliciting producer attitudes towards the currentcheckoff could also help improve producer support ofcheckoff programs. Why do some producers not supportthe current checkoff? Is a lack of support due to insuffi-cient information about the checkoff? Do producers feelmost checkoff benefits are captured by processors, retail-ers, or foreign exporters?

To answer these questions and other questions aboutproducer support for checkoff programs, a mail survey wasconducted using a stratified sample of Oklahoma cattleproducers from the United States Department of Agricul-ture’s National Agricultural Statistics Service, (USDA-NASS, 2002). A total of 2,950 Oklahoma cattle producerswere selected for the mailing list, ultimately providing 670usable responses (a reasonable 23% response rate). Produc-ers were grouped by their demographics, organizationaffiliation, and attitudes. In the survey, a series of ques-tions were asked to collect information about the differ-ences in producer support rates for the beef checkoff pro-gram by farm demographics (producer type, size, andaffiliation with producer organizations) and producer atti-tudes toward the current checkoff. The survey proceduresfollowed and the statistical methodology used to analyzethe survey results are discussed in detail in Norwood et al.(2004).

Do Farm Demographics Affect Producer Support for the Beef Checkoff Program?Producer types were categorized in the survey into threegroups according to the similarity of production inputs:(1) weaned calf, feeder cattle, or purebred cattle producers(WFP producers), (2) fed cattle producers, and (3) veal

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producers. The WFP producers relyheavily on pasture and grazing, whilefed cattle producers typically use con-centrated grain rations. Veal produc-ers are different from WFP and fedcattle producers due to their use ofliquid feed and small calf pens. Assummarized in Figure 1, 79% of sur-veyed producers were categorized asWFP producers, 15% as fed cattleproducers, and only 6% as veal pro-ducers. The distribution representsoverall Oklahoma cattle producers.Support for the beef checkoff pro-gram differed somewhat across thesethree groups (Table 1). Although52% of both WFP and fed cattle pro-ducers indicated support for thecheckoff program, a smaller share ofveal producers (37%) indicated sup-port.

Respondents were also asked toindicate their farm size by selecting arange of the average number of cattlesold each year. A total of 12% ofrespondents were categorized as largeproducers (sales of over 500 weanedcalves or 1,000 stocker calves) andthe rest were considered small pro-ducers (Table 1). The checkoff sup-port rate by large producers was47%, six percentage points less thanthat of small producers. This differ-ence, however, was not found to bestatistically significant.

About 17% of all respondentswere members of the National Cat-tlemen’s Beef Association (NCBA)and 38% were members of the Okla-homa Cattlemen’s Association(OCA) (Table 1). The NCBA has aclose working relationship with theCattlemen’s Beef Board (CBB),which is responsible for managingthe beef checkoff program. In fact,the two organizations are located inthe same building, and the CBB hiresthe NCBA to perform many of itscheckoff activities. Therefore, asexpected, the support for the beef

checkoff was significantly higheramong NCBA members than non-members (13 percentage points). Notsurprisingly, the result was similar forOCA members and nonmembers,suggesting that the national beefcheckoff organization works closelywith state and national produceraffiliate groups. Membership perhapsmeans more awareness, which trans-lates into more support for checkoffprograms among members.

Do Producer Attitudes Affect Their Support for the Beef Checkoff Program?Producers were also asked about theirawareness of the recent litigation andcourt rulings on the beef checkoffprogram (Table 2). Only 64% ofrespondents answered “yes,” suggest-ing that about one-third of therespondents are likely to be detachedfrom current checkoff issues andactivities. Are these less informedproducers also less willing to support

Table 1. Projected support rate of beef checkoff by farm type, size and organization affiliation (N = 670).

% of total Support rate

Farm type Weaned calf, feeder cattle, or purebred cattle producers

79% 52%

Fed cattle producers 15% 52%

Veal producers 6% 37%

Farm size Large cow-calf or stocker production 12% 47%

Small cow-calf or stocker production 88% 53%

Organization membership

National Cattlemen’s Beef Association Yes: 17% 63%

No: 83% 50%

Oklahoma Cattlemen’s Association Yes: 38% 62%

No: 62% 45%

Table 2. Projected support rate of beef checkoff by producer attitudes (N = 670).

% of respondents Support rate

Were you aware of the recent litigation and court ruling on the beef checkoff before this survey?

Yes 64% 55%

No 36% 44%

Who do you feel benefits the most from checkoff funding on advertising?

Cattle producers 10% 76%

Beef processors and retailers 35% 30%

Both benefit equally 42% 76%

Who do you feel benefits the most from checkoff funding on research?

Cattle producers 18% 73%

Beef processors and retailers 26% 25%

Both benefit equally 37% 73%

How much do you feel the beef checkoff funds benefit cattle and beef producers outside of the U.S.?

More than U.S. producers 7% 24%

Less than U.S. producers 37% 67%

Equal to U.S. producers 17% 53%

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a checkoff program? The estimatedsupport rates in Table 2 confirm thishypothesis. Support rates among theuninformed were 11% lower thanthose who were informed. The impli-cation is that the more informationproducers receive about checkoff pro-grams, the more likely they are tosupport them.

Next, the survey posed threequestions seeking to elicit producers’perceptions of how checkoff benefitsare passed down the beef marketingchannel to the producer. First, pro-ducers were asked “who benefits themost from checkoff funding of adver-tising (cattle producers or beef pro-cessors and retailers)?” Only 10% ofthe respondents believed cattle pro-ducers benefit the most, while 42%believed they benefit equally (Table2). However, a large percentage ofrespondents (35%) believed mostcheckoff benefits are captured at theretail, wholesale, or processing stage.Surprisingly, those who believed pro-ducers share equally in checkoff ben-efits were just as likely to support thecheckoff as those who believed pro-ducers benefit the most (76%).When the same question was askedregarding checkoff funding onresearch, the results were similar,though more producers believed pro-ducers benefit the most (18%) andfewer believed processors and retail-ers benefit more (26%). The other37% indicated a belief that the bene-fits are equally distributed. The resultfor support rate was similar for thequestion on checkoff funding ofresearch. For those who believed pro-cessors and retailers benefit the mostfrom checkoff-funded research, sup-port for the beef checkoff was thelowest at 25%. Those who believedproducers benefit the most were aslikely to support the checkoff asthose who believed producers shareequally in checkoff benefits (73%).

These results present an opportu-nity for checkoff managers. A majorreason producers apparently abstainfrom supporting checkoff programsis that they believe most of the bene-fits accrue to others. Because check-off-funded generic advertising isintended to enhance demand at theretail level, retailers, wholesalers, andprocessors likely benefit to somedegree from checkoff programs. Onthe other hand, many studies in thegeneric advertising literature haveshown that changes in retail demanddo indeed impact farm prices (e.g.,Chung & Kaiser, 1999; Marsh,2003). Our findings clearly indicatethat checkoff managers can improvesupport for their programs amongproducers through active producercommunication programs, emphasiz-ing the price transmission of advertis-ing from retailer to producer, and theshare of benefits that are passed downto producers. Another application ofthese findings might be to encourageprocessors and retailers to join pro-ducers’ efforts in increasing retaildemand. A good example can befound in fluid milk promotion pro-grams. Producers and processorswork together to expand retaildemand of fluid milk. While produc-ers contribute $0.15/cwt, processorsalso pay $0.20/cwt of milk they mar-ket.

Finally, producers were askedhow they perceived checkoff benefitsare distributed between U.S. andinternational cattle and beef produc-ers. Only 7% of respondents statedthey believed U.S. producers benefitless than international producers,37% that U.S. producers benefitmost, and 17% that both groupsbenefit equally (Figure 2). Supportrates differed predictably by such per-ceptions. Those who perceived thatthe beef checkoff program benefitsforeign producers less than U.S. pro-

ducers showed a much higher level ofsupport for the checkoff (67%) thanthose who perceived that the pro-gram benefits foreign producers more(24%). However, the support rateswere not significantly differentbetween respondents who believedthe U.S. producers benefit more thanforeign producers and those whobelieved they benefit equally. Theresults may have reflected that tosome extent the survey respondentswere made aware of the fact thatinternational beef producers export-ing to the United States pay into thecheckoff.

ConclusionsThis article provides some insights ondemographic and attitudinal factorsthat may affect the extent to whichproducers support a checkoff pro-gram. Using the beef checkoff pro-gram as the example, we found thatthe support rates among producerstended to differ across farm size, farmtype, organizational affiliation, andproducer attitudes toward ongoingcheckoff programs. Veal producersindicated lower support for the beefcheckoff program than cow-calf,feeder cattle, pure-bred cattle, andfed cattle producers. Large cow-calfand stocker producers indicated lesssupport than smaller producers.Members of the national and statecattle and beef associations indicatedhigher support for the beef checkoffprogram than nonmembers. As forthe difference in support rates byproducer attitudes, producers awareof ongoing checkoff litigation prob-lems indicated a higher level of sup-port than those unaware of the ongo-ing legal battles. Most importantly,perceptions regarding how checkoffbenefits are passed down the beefmarketing channel made the largestdifference in support rates. Only

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about 25%-30% of the respondingproducers who believed processorsand retailers capture a majority ofbeef-checkoff-induced advertisingbenefits indicated support for thecheckoff. However, about three quar-ters of those who believed producerseither share benefits with or obtainmore benefits than retailers and pro-cessors from checkoff-funded adver-tising and research programs indi-cated support for the beef checkoffprogram. Perceptions regarding theinternational allocation of checkoffbenefits also play a role in determin-ing the level of producer support forthe beef checkoff program. Whileonly about a quarter of those whobelieved foreign exporters benefitmore from the beef checkoff programthan U.S. producers indicated sup-port for the program, over half ofthose who believed that U.S. and for-eign producers benefit equally andabout two-thirds who believed thatU.S. producers benefit more thanforeign producers indicated supportfor the program.

Producer support is essential tomanage successful checkoff pro-

grams. In terms of program manage-ment and producer communication,this study suggests that checkoffmanagers should work closely withproducer affiliate organizations andmake continuous efforts to increaseproducers’ access to checkoff-relatedinformation to maximize producersupport of their programs. Also,checkoff program managers shouldmaintain active producer communi-cation programs promoting the pro-ducer benefits of checkoff programsbecause producers tend to abstainfrom supporting checkoff programswhen they believe most of the bene-fits accrue to others.

For More InformationChung, C., & Kaiser, H.M. (1999).

Distribution of gains from research and promotion in multi-stage production systems: Com-ment. American Journal of Agri-cultural Economics, 81, 593-597.

Crespi, J.M.., & McEowen, M.A. (2006). The constitutionality of generic checkoff programs. Choices, 21(2): this issue.

Marsh, J.M. (2003). Impacts of declining U.S. retail beef demand on farm-level beef prices and pro-duction. American Journal of Agricultural Economics, 85, 902-913.

Norwood, F.B., Chung, C., Ward, C., & Winn, C. (2004). Feasibil-ity and design of voluntary beef checkoffs. Working Paper. Depart-ment of Agricultural Economics. Oklahoma State University, Still-water, Oklahoma.

United States Department of Agri-culture, National Agricultural Statistics Service (USDA-NASS), (2002). 2002 Census of Agricul-ture: Cattle and calves inventory, and number of farms. Washing-ton, D.C.

Chanjin Chung ([email protected]), F. Bailey Norwood([email protected]), and ClementE. Ward ([email protected]) areAssociate Professor, Assistant Profes-sor, and Professor, respectively, Dep-artment of Agricultural Economics,Oklahoma State University, Stillwa-ter, OK.