An economic analysis of the red cherry industry in Michigan with special emphasis upon pricing

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AN ECONOMIC ANALYSIS OP THE RED CHERRY INDUSTRY IN MICHIGAN WITH SPECIAL EMPHASIS UPON PRICING

By LAWRENCE LEROY BOGER

A THESIS Submitted to th e School o f Graduate S tu d ies o f M ichigan S ta te C o lle g e o f A g ricu ltu re and A pplied S cien ce in p a r t ia l f u lf illm e n t o f th e requirem ents fo r th e degree o f DOCTOR OF PHILOSOPHY Department o f A g r ic u ltu r a l Economics 1950

ProQuest Number: 10008701

All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion.

uest ProQuest 10008701 Published by ProQuest LLC (2016). Copyright of the Dissertation is held by the Author. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code Microform Edition © ProQuest LLC. ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346

ACKNOWLEDGMENTS The author w ishes to exp ress h is g r a titu d e to a l l th o se who h elp ed w ith th e com p letion o f t h is study and th e p rep aration o f th e m anuscript*

Valuable guidance was e s p e c ia lly g iv en by P r o fesso r

Lawrence W. W itt o f th e A g r ic u ltu r a l Economics Department in th e plan n ing and su p e r v isio n o f th e study as w ell as in th e read ing o f th e manuscript*

A lso , p r o fe sso r Arthur Mauch gave gen erou sly o f

h is tim e and c r i t i c a l l y review ed th e e n t ir e study* Thanks are a ls o due fo r Dr. C. M* Hardin, D irector o f th e M ichigan A g r ic u ltu r a l Experiment S ta tio n fo r h is p art in i n i t i a t i n g and encouraging th e study*

Mr* A* J* Rogers, Manager, Cherry

Growers1, In c*, a ls o co n trib u ted m a te r ia lly to th e id ea s in v o lv ed i n some s e c tio n s o f t h i s stu d y. The author w ishes to acknowledge the a s s is t a n c e g iv en by M iss Joan Bengel and Mrs* B etty C ornelius o f th e s e c r e t a r ia l s t a f f o f th e A g r ic u ltu r a l Economics Department for t h e ir a s s is ta n c e in ty p in g th e o r ig in a l m anuscript and in th e p rep aration o f c h a r ts, and a ls o th e a s s is t a n c e g iv e n by Mrs* Mildred Howe fo r her f in a l ty p in g o f th e m anuscript* F in a lly , th e author i s indebted to h is w ife , Frances, fo r her p a tie n c e and th e sin c e r e encouragement extended to him during a l l th e sta g e s in th e p rep aration o f t h i s p ie c e o f work* Although th e c o n tr ib u tio n s by in te r e s te d people have been many, th e author assumes f u l l r e s p o n s ib ilit y fo r any errors which may s t i l l be p resen t in th e manuscript* LAWRENCE LEROX BOGER

TABLE OF CONTENTS Page LIST OF TA BLES............................................................................................................

iii

LIST OF ILLUSTRATIONS...............................................................................................

iv

Chapter I.

INTRODUCTION............................................................................................

1

II.

REVIEW OF LITERATURE........................................................................

5

Economic a n a ly s is o f th e Cherry Industry Economic a n a ly s is o f r e la t e d in d u s tr ie s Economic p o l i c i e s o f r e la te d in d u s tr ie s Methods o f a n a ly s is F o r e ca stin g demand and p rod uction Summary III. IV.

SOURCES OF DATA.......................................................................................

2$

.........................

42

THE RED CHERRY PRODUCTION INDUSTRY P r ic e and p roduction i n s t a b i l i t y 5 ~ S ta te production and p r ic e s Red c h e r r ie s and farm; income P rodu ction and p r ic e tren d s problems a s so c ia te d w ith growth Summary

V.

FACTORS AFFECTING FARM PRICES OF CHERRIES............................ Measures o f Enumeration Measures o f A n a ly sis o f Summary

V I.

57

supply o f fa c to r s demand fa c to r s a f f e c t in g farm p r ic e s

THE MICHIGAN RED CHERRY PACKING INDUSTRY............................. A lte r n a tiv e methods fo r expansion Amount produced and amount packed C on cen tration in th e in d u stry Types o f pack Volume o f b u sin ess and r is k spreading P r ic e d eterm in ation Product d if f e r e n t ia t io n S a le s agreement Storage p o l i c i e s C osts o f sto ra g e and p ro cessin g Summary

i

77

TABLE OF CONTENTS (C ont'd) Chapter V II.

Page THE RED CHERRY PACK AND PRICETRENDS...........................................

10?

Opening and average p r ic e s P r ic e and pack r e la t io n s h ip s P r ic e s and co n ta in er s iz e s Stocks i n tra d e channels Summary V I II.

FACTORS AFFECTING F.O.B. PLANT PRICES OF RED CHERRIES IN MICHIGAN.............................................................................

U4

S e le c t io n o f supply f a c to r s M arketing c o s ts Demand In d ica to rs In d ic a to r s used The dependent v a r ia b le s P r ic e s o f number 2 cans P r ic e s o f number 10 cans P r ic e s o f JO pound t in s R ela tio n sh ip s among pack p r ic e s Farm p r ic e s r e la te d to pack p r ic e s Summary IX.

PROBABLE FUTURE TRENDS IN THE RED CHERRY INDUSTRY. . . .

149

N ation al income and consumption exp end itures M arketing charges P rodu ction tren d s Other tren d s A d v e r tisin g program Use o f r e s u lt s o f p r ic e a n a ly s is X.

SUMMARY AND CONCLUSIONS............................................................. • •

15$

APPENDIX A ......................

164

APPENDIX B .........................................................................................................................

I69

BIBLIOGRAPHY.........................................................

162

ii

LIST OF TABLES Table

Page

I

P rodu ction o f Red Cherries* 5 S t a t e s , 1951

II

T otal Value o f P rodu ction o f S ix F r u it s , M ichigan,

III IV V

1948*

•

4$

1956-48..........................................................................................

51

Red Cherry Tree Numbers In p r in c ip a l Cherry Producing S t a t e s , 1890-1945

* *

5^

Per C apita Consumption o f Canned and Frozen C h erries, U nited S t a t e s , 1909 to 1948 .

76

Average Annual f»o«b» P r ic e s o f Packed Red C herries in M ichigan w ith th e Values o f th e P r ic e In d ic a to r s , 1951^48...................................................................

iii

LIST OF ILLUSTRATIONS F igure 1*

21 5* 4* 5*

6*

7«

8*

9*

10* 11#

page R e la tiv e Importance o f Major Commercial Areas o f Red Cherry P rod u ction , U nited S t a t e s , S e le c te d p e r io d s, 1959 to 1948# . • ..................................................................................

45

Red Cherry P roduction in 5 -8 b a te s and p r ic e s per Ton in M ichigan, 1 9 5 1 - 4 8 ..............................................................................

49

P ercen t o f Bearing and Non-Bearing Red Cherry Trees by Commercial C ou n ties, M ichigan, 1948 . #

55

p erso n a l Consumption and Food and Tobacco Expendi­ t u r e s , U nited S t a t e s , 1929-48 ...............................................................

64

Indexes o f P r ic e s R eceived by Farmers, Income o f I n d u s tr ia l Workers, Nor>-farm W holesale P r ic e s , U nited S t a t e s , 1 9 2 y - 4 8 .........................................................................

66

Average R e la tio n Between Michigan Red Cherry Farm P r ic e s and 5**State P roduction w ith Consumption Ex­ p en d itu r es, U nited S ta te s Farm P r ic e s , and Time Held C onstant, 1955-48, excluding 1944, 19^5 and 1946.....................................................................................................................

70

Average R ela tio n sh ip Between Michigan Red Cherry Farm P r ic e s and U nited S ta te s p erson al Consumption Expendi­ tu r e s w ith 5 -S ta te p rod u ction , United S ta te s Farm P r ic e s , and Time Held C onstant, 1955-48, exclu d in g 1944, 1945# and 1946...................................

71

Average R ela tio n sh ip Between M ichigan Red Cherry Farm P r ic e s and U nited S ta te s Farm P r ic e s w ith 5—S ta te P rodu ction , U nited S ta te s p erson al Consumption Ex­ p en d itu r es, and Time Held C onstant, 1955-48, exclud­ in g 1944, 1945, and 1946.....................................................................

12

Average R ela tio n sh ip Between Michigan Red Cherry Farm P r ic e s and Time w ith 5—'S ta te P rodu ction , U nited S ta te s P erson al Consumption E xpen ditu res, and U nited S ta te s Farm p r ic e s Held C onstant, 1955*,#48, exclu d in g 1944, 1945, and 1946*

75

A ctual and Estim ated Red Cherry Farm p r ic e s , M ichigan, 1955-48 ex clu d in g 1944, 1945 and 1946 .......................................

75

Number o f p la n ts Packing Red C h erries, M ichigan, 1 9 5 1 - 4 8 . ..............................................................♦.

80

iv

. .

LIST OF ILLUSTRATIONS (Cont*d) F igu re 12# 1^* 14.

15* 16* 17*

18# 19*

page P ercen t o f T otal Pack p ro cessed by F ive L argest P a ck ers, M ichigan, 1 9 2 1 - 4 8 .................................................................... T otal P rodu ction and Total Pack o f Red C h erries, M ichigan, 1921 - 4 8 . . . . . . . . . ..........................

82

84

T otal Canned and Frozen Pack o f Red C h erries, and P ercen t That Frozen Pack i s o f Canned Pack, M ichigan, 1921 - 4 8 . • .................. . .................................. • * •

87

Average Importance o f Red Cherry pack to T otal Volume o f B u sin ess fo r 24 p la n ts , M ichigan, as o f 1948 • • • •

90

Number o f Red Cherry Packing p la n ts packing Other F r u it and V egetable P roducts, M ichigan, 1948 . . • • • «

92

P ercen t o f Red C h erries Packed or D istr ib u te d Under th e Packer*s Own Brand Name by Number o f p ack ers, M ichigan, 1948 * . . * . ................................ • • • • • • • *

97

Average P r ic e s o f Packed Red C h erries, M ichigan, 19^1 - 48# • • • • . ........................................................................

104

Average R e la tio n sh ip Between Opening and Average f . o . b . P la n t p r ic e s o f Red C h erries in Number 2 Cans, M ichigan, 1 9 3 > 4 8

106

20*

Average R e la tio n sh ip Between Opening and Average f .o .b # Plant Prices o f Red Cherries in Number 10 Can3, M ichigan, 1 9 2 1 - 4 8 ....................................................................... 107

21.

Average R ela tio n sh ip Between f . o . b . P la n t P r ic e per Dozen Number 2 Cans o f Red C herries in M ichigan and 5** S ta te P roduction w ith U nited S ta te s p erson al Con­ sumption E xpenditures, U nited S ta te s Marketing Charges, and Time Held C onstant, 1921~^8* exclu ding 1944, 1942, and 19^6...........................................................................................

122

Average R ela tio n sh ip Between f . o . b . p la n t P r ic e per Dozen Number 2 Cans o f Red C herries and U nited S ta te s p erso n a l Consumption Expenditures w ith 5 ~ S ta te Pro­ d u ctio n , U nited S ta te s Marketing Charges, and Time Held C onstant, 1921-48, exclud in g 1944, 1945 and 1 9 4 6 ................................................................................................................

122

Average R e la tio n sh ip Between f . o . b . P lan t p r ic e per Dozen Number 2 Cans o f Red C herries and U nited S ta te s M arketing Charges w ith 5 - S ta t e P roduction, United S ta te s P erson al Consumption E xpenditures, and Time Held C onstant, 1921**48, exclu d in g 1944, 1945 and 1 9 4 6 ................................................................................................................

125

22*

22*

v

LIST OF ILLUSTRATIONS (C ont'd) F igu re 24.

25*

26.

27.

28.

29-

50.

51.

Page Average R e la tio n sh ip Between f . o . b . P la n t P r ic e per Dozen Number 2 Cans o f Red C herries and Time w ith 5 S ta te P rod u ction , U nited S ta te s p ersonal Consumption E xpenditures and M arketing Charges Held C onstant, 1951-48, ex clu d in g 1944, 1945* and 1946 • • • • * . . .

126

A ctu al and Estim ated f . o . b . P la n t P r ic e s o f Red C herries per Dozen Number 2 Cans, M ichigan, 1951-48, ex clu d in g Estim ated fo r 1944, 1945# and 1946. • . • ♦ •

127

Average R e la tio n sh ip B etw een f.o .b . P la n t P r ic e per i Dozen Number 10 Cans o f Red C herries in M ichigan and 5 -S ta te Production w ith U nited S ta te s P erson al Consumption E xp en ditu res, U nited S ta te s Marketing Charges, and Time Held C onstant, 1951-48, exclu d in g 1944, 1945, and 1946............................................................................

129

Average R e la tio n sh ip Between f . o . b . p la n t P r ic e per J Dozen Number 10 Cans o f Red C herries in M ichigan and U nited S ta te s Personal Consumption E xpenditures w ith 5 - S ta t e p rod u ction , U nited S ta te s Marketing Charges, and Time Held C onstant, 1951-48, exclud in g 1944, 1 9 4 5 ,and 1946............................................................................

150

Average R e la tio n sh ip Between f .o .b * P la n t P r ic e per ^ Dozen o f Number 10 Cans o f Red C herries in M ichigan and U nited S ta te s Marketing Charges w ith 5 -S ta te p ro d u ctio n , U nited S ta te s Personal Consumption Ex­ p en d itu r e s, and Time Held C onstant, 1951-48* exclud­ ing 1944, 1945, and 1946......................................................

151

Average R ela tio n sh ip Between f . o . b . P la n t p r ic e per £ Dozen Number 10 Cans o f Red C herries in M ichigan and Time w ith 5 -S ta te P roduction, U nited S ta te s Per­ son al Consumption Expenditures and U nited S ta te s Marketing Charges Held C onstant, 1951—48, exclu d in g 1944, 1945, and 1946 ............................................................................

152

A ctu al and Estim ated f . o . b . P la n t p r ic e s o f Red C herries per ^ Dozen Number 10 Cans, M ichigan, 1951— 48, exclu d in g-E stim ated fo r 1944, 1945* and 1946 • . •

155

Average R ela tio n sh ip B etw een f.o .b . P la n t p r ic e per Pound in 50 Pound Tins o f Red C herries in M ichigan and 5- S t a t e P roduction w ith U nited S ta te s P ersonal Consumption E xpenditures, U nited S ta te s Marketing Charges, and Time Held C onstant, 1957-48. . . . . . . .

155

vi

LIST OF ILLUSTRATIONS (Cont*d) F igu re J2m

55*

54*

55*

56 .

57*

J8»

59*

4o* 4 l.

Page Average R e la tio n sh ip Between f . o . b . p la n t p r ic e per Pound in JO Pound Tins o f Red C h erries in M ichigan and U n ited S ta te s p erson al Consumption E xpenditures w ith 5“ S ta te p ro d u ction , U nited S t a te s Marketing Charges, and Time Held C onstant, 1957 - 1948 • * • • •

15^

Average R ela tio n sh ip Between f . o . b . P lan t P r ic e s per Pound in JO Pound Tins o f Red C h erries in M ichigan and U nited S ta te s Marketing Charges w ith 5 - S ta t e P rod u ction , U nited S ta te s P erson al Consumption Ex­ p en d itu res and Time Held C onstant, 1957-48* • • • • •

157

Average R ela tio n sh ip Between f . o . b . p la n t p r ic e s per Pound in JO pound Tins o f Red C herries in M ichigan and Time w ith 5**State P rod u ction , U nited S ta te s per­ son al Consumption E xpenditures, and U nited S ta te s M arketing Charges Held C onstant, 1957—1948 . . . • •

I58

A ctu al and E stim ated f .o .b # P la n t P r ic e s per Pound in JO Pound Tins o f Red C h erries, M ichigan, 1957 - 58 * ..............................................................................................

159

Comparison o f E stim ated f . o . b . P la n t P r ic e s o f Red C h erries in Number 10 Cans Per J Dozen From O rig in ­ a l A n a ly sis and from th e P r ic e o f Number 2 Cans Per Dozen w ith A ctu al p r ic e s , M ichigan, 1951-194$ • . . • •

l4 0 a

Comparison o f Estim ated f . o . b . P la n t P r ic e s o f Red C h erries per Pound in 50 Pound Tins from O rig in a l A n a ly sis and from th e P r ic e o f Number 2 Cans per Dozen w ith A ctu al P r ic e s , M ichigan, 1957-48 . . . . . .

l4 l

Average R ela tio n sh ip Between M ichigan Farm P r ic e s and f . o . b . P la n t P r ic e s in Number 2 Cans o f Red C herries w ith U nited S ta te s Marketing Charges 'Held C onstant, M ichigan, 1955“!9 4 8 . . « • • . « . * • • • •

l4 j

Average R e la tio n sh ip Between M ichigan Farm P r ic e s o f Red C herries and U nited S ta te s Marketing Charges w ith f .o .b * p la n t P r ic e s o f Number 2 Cans Per Dozen Held C onstant, 1955-1948.............................................................

.

145

A ctual and Estim ated M ichigan Farm P r ic e s or Red C h erries, M ichigan, 1955-194$ .............................................

146

A Comparison o f E stim ated Farm P r ic e s o f Red C herries ffom O r ig in a l A n a ly sis and from th e P r ic e o f Number 2 Cans and M arketing Charges w ith A ctual Farm P r ic e s , M ichigan, 1955-4$............................. .....................................................

147

v ii

AN ECONOMIC ANALYSIS OF THE RED CHERRY INDUSTRY IN MICHIGAN WITH SPECIAL EMPHASIS UPON PRICING

CHAPTER I INTRODUCTION Determ ining sea so n eq u ilib riu m p r ic e s in a market fo r h ig h ly sea ­ so n a l crops i s a very d i f f i c u l t task*

U su a lly th ere i s no cu rrent

p r ic e a g a in st which cu rren t and fu tu re co n d itio n s o f supply and de­ mand can be weighed*

These eq u ilib rium p r ic e s must be e s ta b lis h e d on

th e b a s is o f a p a tte r n o f p r ic e e x p e c ta tio n s extend ing fo r a year in to th e fu tu r e i f th e crop i s p ro cessa b le ra th er th an on ex p ecta tio n s based upon knowledge o f a cu rren t market*

P ro cesso rs o f th e se crops u s u a lly

o p era te on f a i r l y narrow margins so t h a t a sm all error i n th e judgment o f fu tu r e supply and demand co n d itio n s o f te n s p e ll s th e d iffe r e n c e tw een p r o f it and l o s s fo r them*

be­

O ften, th e impact o f u n c e r ta in ty th a t

th e fu tu re h o ld s fo r th e f u lf illm e n t o f p r ic e e x p e c ta tio n s i s tran s­ fe rr ed in p art from p ro cesso rs to producers*

A scer ta in in g th e r ig h t

p r ic e , to g e th e r w ith o b ta in in g agreement on i t among th e a f fe c te d groups n o t o n ly c o n s t it u t e s a major problem but determ ines th e w elfa re o f each group o f entrep ren eu rs involved*

Removing th a t p art o f th e p r ic e uncer­

t a in t y co n fro n tin g th e s e entrepreneurs which i s caused by lack o f know­ le d g e though q u ite a form idable ta sk fo r any product, should co n trib u te t o th e p e r fe c tn e s s o f a market and a id in th e achievem ent o f a b e tte r a llo c a t io n o f p rod u ctive resources*

Focussed in a broad framework,

th e s e problems con fron t producers and p ro cesso rs in th e M ichigan red cherry industry*

P rodu ction i s se a so n a l, p r ic e s must be based upon

2 fu tu r e as w e ll ae cu rren t e x p e c ta tio n s , and th e in d u stry i s lo c a liz e d t o th e e x te n t t h a t p r ic e i s th e s o le , though u n c e r ta in , determ inant o f income a t h a rv e st tim e fo r many producers as w e ll as p rocessors* This study n a tu r a lly d iv id e s i t s e l f in to four broad areas*

The

f i r s t area c o n s is t s o f a review and c h a r a c te r iz a tio n o f th e red cherry p rod u ction industry*

A second area d e a ls p rim a rily w ith a c o n sid e r a tio n

o f fa c to r s a f f e c t in g farm p r ic e s o f red ch erries*

N ext, th e red cherry

p r o c e ssin g in d u stry i s analyzed in i t s economic s e t t in g and t h i s i s fo llo w e d by an a n a ly s is o f fa c to r s a f f e c t in g red cherry pack p rices* This c l a s s i f i c a t i o n e s s e n t i a ll y c o n s t it u t e s an a n a ly s is o f th e p r ic e u n c e r ta in ty co n fro n tin g producers and p ro cesso rs over one tim e period (10 - 12 month) fo llo w ed by an a n a ly s is o f th e e x te n t w ith which t h i s p r ic e u n c e r ta in ty can be reduced by p r ic e a n a ly sis* The impact o f p r ic e u n c e r ta in ty in th e producer and p rocessor mar­ k e t s i s m an ifested in th e u n c e r ta in ty o f income and th e m a la llo c a tio n o f reso u rces which r e s u lts *

In oth er words, th e impact o f p r ic e uncer­

t a in t y may be evalu ated in th e l i g h t o f i t s e f f e c t s upon income and production*

R ation al p rod u ction p lan s are geared t o a somehow developed

s e t o f p r ic e ex p e c ta tio n s s e t up as an expected p r ic e stru cture*

In

some c a s e s, even though p r ic e e x p e c ta tio n s are f u l f i l l e d , entrepreneurs may a c t u a lly produce a t a low er le v e l because o f i t s r e la t iv e sa fen ess* But more o f te n i n our economic system , p r ic e ex p e c ta tio n s are not f u l­ f i l l e d , ©o th a t w ith a g iv en s e t o f p rodu ction p lan a, which we may assume to be f u l f i l l e d , incomes w i l l vary from th e exp ected , and m arginal re tu rn s w i l l be unequal to th e p r ic e s o f th e fa c to r s o f production* Ifrus, incomes sore u n c e r ta in , perhaps a ls o u n sta b le , and reso u rces are n ot e f f i c i e n t l y a llo c a te d *

I t i s reason ab le to fu r th e r assume th a t th e

5 g r e a te r th e p r ic e u n c e r ta in ty , th e g r e a te r w i l l be th e u n c e r ta in ty o f income and th e l e s s e f f i c i e n t w i l l be th e a llo c a t io n o f resou rces* I t i s b a s i c a l l y assumed in t h i s study th a t producers' and pro­ c e s s o r s 1 a c tio n s approach some s o r t o f r a t io n a l p r ic e behavior* T herefore i f p rod u ction p la n s are a c t u a lly based upon t h i s typ e o f a c tio n , th e r e s u lt in g m a la llo c a tio n o f reso u rces and th e m a ld is tr i­ b u tio n o f income w i l l be l e s s than when p rod uction p la n s a re guided by m u lti-v a lu e d p r ic e ex p ecta tio n s*

A g iv e n p r ic e e x p e c ta tio n even

though i t may not be f u l f i l l e d should reduce the range o f u n c e r ta in ty and le a d to a more optimum a llo c a t io n o f reso u rces and a b e tte r d is ­ t r ib u t io n o f income* In th e red cherry in d u str y , p ro cesso rs must name a p r ic e a t th e b egin n in g o f th e h a r v e st season th a t w i l l be s a t is f a c t o r y t o growers and a llow th e pack t o be moved through th e ensuing year a t a reason ­ a b le p r o f it t o th e packer*

I f th e p r ic e to th e grower i s e s ta b lis h e d

to o high., m argins fo r th e packer are reduced so th a t p r o f it s are small o r even n e g a tiv e or ca rry -o v ers r e s u lt because pack p r ic e s are too h igh fo r th e market to absorb th e pack*

On th e o th er hand, i f p r ic e s

both a t th e farm and packer l e v e l are to o low , th e r a te o f movement o f th e pack i s such t h a t th e pack i s so ld e a r ly in th e year and retu rn s t o both groups are low er than necessary*

Storage p o l i c i e s in th e i n ­

d u stry are o n ly c le a r - c u t to th e e x te n t th a t p ro cesso rs do n ot d e s ir e t o carry over p a rt o f one y e a r 's pack to th e next*

From th e stand­

p o in t o f coping w ith in d u stry p o lic y over and above i t s s t r i c t l y economic c o n s id e r a tio n s, gen eral economic c o n d itio n s need on ly be ev a lu a ted fo r th e ensuing pack year and need not be p ro jected in to th e n ex t pack season*

4 N a tu r a lly , th e r e are m eth od ological lim it a t io n s to any s t a t i s t i c a l a n a ly s is o f f a c t o r s a f f e c t in g p r ic e s o f any product or i n th e develop­ ment o f a com p aratively sim ple form ula fo r p ricin g* must be capable o f num erical exp ression * valued*

Independent v a r ia b le s

A ll v a r ia b le s must be s in g le ­

Data must e it h e r be known or a v a ila b le *

These are lim it a t io n s

which are p e c u lia r t o m ethodology ir r e s p e c t iv e o f th e product s in g le d out fo r study*

In t h i s study* a fu r th e r r e s t r i c t i o n has been imposed on

th e ch aracter and k in d o f independent v a r ia b le s which may be used*

This

r e s t r i c t i o n i s th a t each in d iv id u a l independent v a r ia b le must be known or be capable o f a ccu ra te e stim a tio n p r io r t o th e h a rv est season*

This

i s e s s e n t i a l i f th e a n a ly s is i s t o prove u s e fu l i n reducing th e range o f p r ic e e x p e c ta tio n s so th a t produ ction p lan s may be more c a r e f u lly made and in order th a t th e formula can be used as an aid to f i n a l p r ic e determ ination* H erein l i e s th e core o f t h i s study*

F ir s t o f a ll* th e markets for

red c h e r r ie s must be analyzed as t o th e fo r c e s a f f e c t in g p r ic e determina­ tio n *

Secondly* a sm all group o f m eaningful independent v a r ia b le s must

be is o la t e d fo r more p r e c is e a n a ly sis*

F in a lly * th e s e independent var­

ia b le s must be worked in to a formula so th a t t h e ir aggregate e f f e c t s as w e ll as t h e ir sep arab le n et e f f e c t s upon red cherry p r ic e s may be meas­ ured*

The u ltim a te g o a l i s t o reduce th e p r ic e u n c e r ta in ty co n fro n tin g

th e in d u stry through improved knowledge which should e f fe c t u a t e more cer­ t a in incomes and a more e f f i c i e n t u se o f produ ctive resources*

5 CHAPTER I I REVIEW OP LITERATURE The l i t e r a t u r e review ed i n t h i s chapter can be c l a s s i f i e d under two headings*

The f i r s t p e r ta in s to li t e r a t u r e regard in g economic problems

and p r a c t ic e s o f th e red cherry and r e la te d in d u str ie s* review o f l i t e r a t u r e p e r ta in in g to m ethodology.

The second i s a

O bviously, th e l i s t o f

p u b lic a tio n s t h a t could l o g i c a l l y be c l a s s i f i e d under each s e c tio n i s alm ost in e x h a u stib le*

An attem pt .has been made to s e le c t th o se w r itin g s

which have co n trib u ted most to a ch ro n o lo g ica l development o f th e econo­ m ic a n a ly s is o f th e red cherry and s im ila r in d u s tr ie s or t o s t a t i s t i c a l methodology*

R e la t iv e ly l i t t l e has been w r itte n concerning th e economic

c h a r a c t e r is t ic s o f th e red cherry in d u stry , but a number o f economic s tu d ie s have been completed d e a lin g w ith s im ila r in d u str ie s*

The main

a t te n t io n i n th e m ethodology s e c tio n i s cen tered on th e r e la tio n s h ip be­ tween graphic and l e a s t squares c o r r e la tio n *

In a d d itio n , methods o f

economic a n a ly s is are reviewed* Economic a n a ly se s o f th e cherry in d u stry *

The most comprehensive

economic a n a ly s is o f th e cherry in d u stry was made by N elson and Sulerud 1/ i n Oregon in th e e a r ly t h i r t i e s . ^

Their study was not lim ite d t o th e

c o n fin e s o f th e s t a t e o f Oregon, but con tain ed area comparisons o f Oregon w ith s im ila r producing s t a t e s on th e P a c if ic c o a s t as w e ll as Oregon and th e P a c if ic c o a s t w ith th e e a ste r n s ta te s*

D eta iled data were gleaned

from many so u rces coverin g m ost a sp e c ts o f th e in d u stry in c lu d in g such d ata a s b earin g and non-bearing t r e e s by s t a t e s by y ea rs and v a r i e t ie s a s w e ll a s oiiher p r e v io u sly unassembled in form ation on s iz e and ty p e o f

3/

M ilto n N* N elson and George L. Sulerud, An Economic Study o f th e Cherry Ind u stry w ith S p e c ia l R eference to Oregon, A g r ic u ltu r a l Ex~ perim ent S ta tio n , B u lle t in 510, Oregon S ta te C o lle g e , C o r v a llis , Oregon, February, 1955*

6 pack by s ta t e s *

P r ic e s r e c e iv e d o n ly cursory a t t e n t io n , and from th e

sta n d p o in t o f a thorough economic a n a ly s is o f th e in d u stry , t h i s was a s e r io u s lim it a t io n t o th e study*

The a t t e n t io n t h a t was g iv e n to

p r ic e s was co n fin ed to p r ic e s a t th e farm le v e l w ith no formal con­ s id e r a t io n w hatsoever g iv e n to pack p r ic e s*

In s p it e o f t h is limita^-

t io n , th e study i s w e ll reco gn ized a s one o f th e ou tstan d in g works concerning th e cherry in d u str y , and a few o f t h e ir c o n clu sio n s bear comment* N elson and Sulerud p o in ted out th a t “in growth o f pack (c h e r r ie s ) have n ot h eld t h e ir own compared t o th e canned pack o f oth er f r u i t con sid ered i n th e aggregate*

This i s p a r t ic u la r ly tr u e o f canned

sw ee ts, which gained o n ly s l i g h t l y compared to the more pronounced g a in made by sours*

About 57 p ercen t o f th e n a tio n a l canned pack o f

c h e r r ie s h a s been sours and 4^ p ercen t sw eets* *

From t h is th ey con­

cluded th a t "the ou tlo o k fo r any co n sid era b le expansion o f sw eets i n canned form i s n ot b rig h t* *

In a fo llo w in g co n clu sio n th e authors s ta te d

t h a t th e ou tlook f o r th e u t i l i z a t i o n o f sour c h e r r ie s in cold-pack form was very b righ t*

They p oin ted out th a t th e fro zen pack had alread y made

la r g e in road s on th e canned pack and th a t t h i s trend would continue* A very in t e r e s t in g summary sta tem en t was made w ith regard to poten­ t i a l markets*

Sour cherry p rodu ction on a commercial s c a le on th e

P a c if ic C oast i s lim ite d p rim a rily to th e s t a t e s o f Washington and Oregon* In con n ection w ith t h i s , th ey remarked th a t d e s p ite Washington and Ore­ gon* s r e l a t i v e l y sm all p rod u ction th ey were having to look e a s t o f th e Hookies fo r market o u t le t s *

2/

I b id , p . 4 .

This le d t o th e co n clu sio n th a t because o f

7 th e advantage in tr a n sp o r ta tio n or ship p in g by th e e a s te r n producing a r e a s, th e w estern producing area would be un able to compete e ith e r w ith th e e a s te r n canned or co ld pack*

This would in fe r th a t th e sour cherry

in d u str y in Oregon would no lon ger expand w hich, o f co u rse, was not borne o u t J ^

L ik ew ise, N elson and S u leru d 's co n clu sio n s as to p r ic e s

d id n ot m a te r ia liz e *

They p oin ted out th a t even though p r ic e s o f both

sours and sw eets had heen a t t r a c t iv e , th e b u sin e ss d ep ressio n had brought i n i t s wake a pronounced r e c e s s io n in p rices*

This was follow ed by th e

statem ent th a t "Even under more normal co n d itio n s o f market demand, expansion may a lrea d y have proceeded to o far*

UnlesB c o n s tr u c tiv e mea­

sures are tak en , fu tu r e p r ic e tren d s fo r sev e r a l y ea rs to come are l i k e l y to be d isa p p o in tin g ly low*11 Even though t h i s stu d y was m asterfu l in i t s com prehensiveness, the co n c lu sio n s were to o p e s s im is tic *

The sour cherry in d u stry , even in

Oregon, had not over-expanded, and th e fu tu re ou tlook fo r p r ic e s in 1955 should have been b righ t* A lso in 1955* M otts, S c h o ll, and C hapin^ o f th e M ichigan A g ricu l­ tu r a l Experiment S ta tio n p u blish ed a very d e ta ile d b u lle t in on cherry p rod u ction trends*

A d e t a ile d count o f a l l b earing and non-bearing t r e e s

was ob tain ed by n e a r ly 6 ,0 0 0 p erson al v i s i t s in order to a ccu ra tely ev a lu a te M ichigan's r e l a t i v e p rod uction p o t e n tia l as w e ll a s to p r o je c t l i k e l y fu tu r e tren d s in output*

Of* F igu re 1, Chapter IV* y

G* N* M otts, 0 * A* S c u o li, and J . W* Cnapin, Trends in Cherry Pro­ d u ctio n i n M ichigan, M ichigan A g r ic u ltu r a l Experiment S ta tio n , S p e c ia l B u lle t in 2j57, J u n e , 1955*

8 U sing t n e ir r e s u lt s as a b a s is fo r e s tim a te s , f o r e c a s t s were made o f th e p o s s ib le s i z e o f th e 1956 crop *5/

For M ichigan th e D iv is io n o f

Crop and L iv esto c k E stim ates computed a par o f p rod u ction , or what was co n sid ered to be a one hundred p ercen t crop*

This par o f p rod u ction

fig u r e d o u t to be 55*5 pounds per t r e e i n 1959 * which was con sid ered t o be c o n se r v a tiv e f o r e stim a tin g th e p o t e n tia l s iz e o f th e commercial crop*

Assuming th a t 85 to 90 p ercen t o f th e crop was p rocessed th ey

estim a ted th a t 60 p ercen t o f normal crop in 195^ would have y ie ld e d a pack o f 55 to 57 m il l i o n pounds w h ile a 100 p ercen t o f normal crop would have y ie ld e d a t o t a l pack o f 58 t o 61 m illio n pounds* These methods fo r M ichigan were ap p lied t o th e U nited S ta te s w ith th e r e s u l t th a t by 1956* w ith a normal crop, p rod uction would have been 120 m illio n pounds d is tr ib u te d among th e s t a t e s a s fo llo w s*

M ichigan,

60 m illio n ; Mew York, JQ m illio n ; W isconsin, 16 m illio n ; and Pennsyl­ v a n ia , Ohio and Colorado combined, l 4 m illio n * These e stim a te s were o f cou rse, based upon normal weather and economic co n d itio n s* p o s it io n

(a s s u m in g

I t i s in t e r e s t in g to n ote th a t M ichigan's r e la t iv e

sim ila r crop c o n d itio n s in oth er s t a t e s ) would have

been equal to th e combined p rod u ction o f a l l th e oth er sour cherry pro­ ducing s t a t e s i n th e United S ta tes*

This p o s it io n has been m aintained

in r e c e n t years* Another b u l l e t i n from th e M ichigan s t a t io n appeared in 1955$ s ta te d in th e p refa ce th e purposes o f t h e b u lle t in wares

As

1) to p resen t

a p ic tu r e o f th e tr en d s o f th e red p it t e d cherry in d u str y , 2) to d eter­ mine th e cau ses o f p r ic e s th a t have appeared r e l a t i v e l y lower than th o se

5/

IM d, pp. 59-*40*

6/

Roy E* M arsh all, P rodu ction and P r ic e Trends in th e P itte d Red Cherry In d u stry , M ichigan A g r ic u ltu r a l Experiment S ta tio n , S p e c ia l B u lle t in 258* February, 1955*

9 fo r oth er f r u i t s in r e c e n t y e a r s , and J) to p o in t ou t c e r t a in im p li­ c a tio n s con tain ed in th e d ata th a t should a id both producers and pro­ c e s so r s i n a d ju stin g t h e ir b u sin e ss t o e x is t in g co n d itio n s*

The

problem was c le a r ly low p r ic e s i n th e in d u stry which were a ttr ib u te d t o over production*

M arshall s ta te d in h is opening statem ent th a t

th e red cherry was one o f th e most p r o f it a b le o f th e deciduous t r e e f r u i t crops u n t i l 19^1*

Favorable p r ic e s had encouraged h ea v ier than

u su a l t r e e p la n tin g s which were begin n in g to produce by 19^1*

The

summer o f 1951 was th e f i r s t o f fou r co n secu tiv e seasons w ith exceed­ in g ly low p r ic e s*

p r ic e s during th e s e y ea rs were l i t t l e more than

enough to cover h a r v e stin g and d e liv e r y c o s ts th u s p erm ittin g p r o f it s t o none ex cep t th e most e f f i c i e n t producers w ith orchards s itu a te d in fa v o ra b le lo c a tio n s *

A lso , some o f th e p ro cesso rs were forced to c lo s e

t h e ir p la n ts because p r ic e s would not cover co sts* The M ichigan cherry in d u stry had expanded co n sid era b ly during t h i s period*

From a r e l a t i v e p o s it io n o f 48 p ercen t o f th e t o t a l United

S ta te s canned pack during 1926-^4, M ichigan's share o f th e t o t a l pack averaged 60 p ercen t i n th e two y e a r s , 1955

195^*

The cold or fro z e n

pack, j u s t i f y i n g N elson and S u leru d 's p r e d ic tio n , 7 / in creased tremend­ o u sly during th e y ea rs j u s t p r io r to 195^* was had in moving th e la r g e pack o f 19^0*

co n sid era b le d i f f i c u l t y There were some in d ic a tio n s

th a t th e r e was an over expansion in fr o zen pack r e l a t i v e to canned pack in some o f th o se years* A fte r a n a ly zin g th e v a rio u s r a t e s o f movement fo r th e v a rio u s packs, M arshall turned to a d is c u s s io n o f p r ic e s and p r ic e trends*

2/

Op* c it * p* 4*

Beginning

10 w ith th e pack season i n 1951* re»citrus) p rod u ction and U t iliz a t io n 1954-46, United S ta te s Department o f A g r ic u ltu r e , Bureau o f A g r ic u ltu r a l Econ­ om ics, Washington 25, D* 0 . , J u ly , 1947. k/

Anonymous, F r u its and N uts, Bearing Acreage 1919—1946, United S ta te s Department o f A g r ic u ltu r e , Bureau o f A g ricu ltu r a l Economics, Washing­ to n 25, D* C*, January, 1949* Anonymous, Sour Cherry P roduction in £ Eastern S t a t e s , United S ta te s Department o f A g r ic u ltu r e , Bureau o f A g r ic u ltu r a l Economics, Washing­ to n 25, D* C*, 1 p« mimeo* an n u ally, June 15*

6/

e* g* Annonymous, Survey o f Current B u sin ess, United S t a te s Depart­ ment o f Commerce, monthly*

4o A very s e r io u s lim it a t io n t o th e secondary sou rces o f data per­ t a in in g t o th e red cherry in d u stry i s th a t p r io r to 1958 th e data did not d is t in g u is h betw een red and sw eet ch erries*

I t i s very d i f f i c u l t

t o e stim a te l e v e l s o f p rod u ction and p r ic e s p r io r to t h is time*

Other

in fo rm a tio n such as th e age d is t r ib u t io n o f t r e e s and bearing acreages a ls o d id n ot d i f f e r e n t i a t e between th e two k in d s o f ch erries* Many o th er secondary sources o f data appear as oth er government p u b lic a tio n s , experim ent s t a t io n b u l l e t i n s , and th e lik e *

Some o f

th e s e have been review ed i n Chapter I I w h ile d ata in o th ers are la r g e ­ l y d u p lica ted in o th er la t e r p u b lica tio n s* The major p o r tio n o f th e data r e la t in g th e s iz e o f th e pack by ty p es o f pack was com piled from unpublished r ep o rts s e n t in by eanners in M ichigan, W isconsin, and Ohio t o P ro fesso r Roy E* M arshall, Depart­ ment o f H o r tic u ltu r e , M ichigan S ta te C ollege*

Other com m ercially iow

p ortan t s t a t e s a lso com pile t h is in form ation so th a t th e s iz e o f th e t o t a l pack each year may be known by a l l eanners*

These, data were

a v a ila b le s in c e 195^* Pack p r ic e data on number 2 and number 10 can s, 1927 to 195^* were p u b lish ed by th e M ichigan A g r ic u ltu r a l Experiment S ta tio n in 1955*

7/

These p r ic e s e r i e s were d isco n tin u ed in 1955 because o f lack o f in t e r e s t on th e p a rt o f th e in d u str y .

C onsequently, th e p r ic e data s in c e 1955

had to be gathered d i r e c t l y from packers*

These data were c o lle c t e d by

p erson al in te r v ie w from more than 50 packers in M ichigan during March and

y

Roy E* M arsh all, p rod u ction and p r ic e Trends in th e P itte d Red Cherry In d u stry , M ichigan A g ricu ltu r a l Experiment S ta tio n , S p e c ia l B u lle t in 258, February, 1955*

hi

A p r il, 19^9*

Monthly p r ic e s , when a v a ila b le , were ta b u la te d on work

s h e e ts by typ e o f pack by y ea rs fo r as many years as were a v a ila b le from each o f th e packers*

Average annual p r ic e s were recorded by typ e

o f pack by years when m onthly p r ic e s were not a v a ila b le *

Data were

c o lle c t e d fo r fro z e n red c h e r r ie s in JO pound t in s in a d d itio n to th a t fo r number 2 and number 10 cans*

Average annual p r ic e s were computed

by w eig h tin g average p la n t p r ic e s by s iz e o f pack*

P r ic e s fo r 1925*

19^69 and 1957 were estim ated from average r e la tio n s h ip s w ith farm p r ic e s s in c e none o f th e p la n ts surveyed could fu rn ish data fo r th e s e years* In a d d itio n t o th e p r ic e data ta b u la ted d ir e c t ly on th e work sh e e ts a t th e tim e o f in te r v ie w , a q u estio n n a ire was prepared fo r th e c o l l e c t i o n o f m isce lla n eo u s inform ation*1^

Data on th e r e la tio n s h ip o f

c h e r r ie s to t o t a l volume o f b u sin e s s, c o s ts o f sto ra g e, and c o s ts o f p r o c e ssin g were recorded by y e a r s, when p o ssib le *

These data were de­

sig n ed to supplement oth er d ata gathered e ith e r from primary or second­ ary sources i n such a way as to a id th e accuracy o f a n a ly sis*

y

See Appendix A fo r a copy o f th e sch edule used*

CHAPTER IV THE RED CHERRY PRODUCTION INDUSTRY Through th e y e a r s , th e red cherry in d u stry has become a h ig h ly s p e c ia liz e d b u sin e s s which has lo c a liz e d in th e most fa v o ra b le areas in th e U nited S ta tes*

Whereas a la r g e number o f farms rep o rt th e growing

o f a few c h e r r ie s ,* ^ th e com m ercially im portant areas are con cen trated in a few townships and on r e l a t i v e l y few farms throughout th e United S ta te s*

In th e U nited S ta te s in 19^7* cherry growing i s about a f i f t y

m illio n d o lla r i n d u s t r y H o w e v e r , red cherry prod uction i s concen­ tr a te d w ith in th e boundaries o f tw elv e s t a t e s (F igure 1)*

These tw elve

s t a t e s are d ivid ed in a r a t io o f seven to f i v e between th e West and th e East*

In th e seven w estern s t a t e s (Washington, Oregon, Montana, Idaho,

Utah, Colorado, and C a lifo r n ia ) , Washington has been th e most important producing s t a t e fo llo w ed by Colorado, Oregon, and Utah* The com m ercially important areas w ith in th e s e s t a t e s are lo c a te d in a sm all number o f cou n ties*

Washington and Oregon have te n im portant

producing c o u n ties each, but th e importance o f red c h e r r ie s has been gen­ e r a l l y d im in ish in g s in c e th e year 19^0 in th e s e sta te s*

Colorado and

Utah seem t o be m ain tain in g or in c r e a sin g t h e ir t o t a l produ ction w h ile th e o th er w estern s t a t e s are o f l i t t l e importance* Of th e f i v e e a ste r n s t a t e s , M ichigan, New York, and W isconsin are th e most im portant producing s t a t e s .

M ichigan i s by fa r th e most im­

portan t producing s t a t e o f th e group, accounting fo r about o n e -h a lf o f

1/

5^*551 farms in M ichigan, 19^5 cen su s, as compared w ith 5^,021 in 1955*

2/

Thomas F* C a r r o ll, C h erries, Background Inform ation and S t a t i s t i c s fo r F r u it M arketing I , A* E. 6 62 , C ornell U n iversiby A g r ic u ltu r a l Experiment S ta tio n , Ith a ca , New York, March, 1 9 ^ *

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P e r c e n t o f B e a rin g and N o n -B e arin g Red C h e rry T re e s hy C om m ercial C o u n tie s , M ich ig an , 19^-8.

M m iiM ililtlM M iiim ifM iM M iiM M iiiM tiiiiiiM M M iiM iniiM iM iM M m iM iiiM iM iM iM M iiiiim M M iM iM M m iM iiiM iinnM m iM im iiim m m uim im itiiim m iiiiiim m iinM iim iiirH iiiim iiM ii

*•

54 P rod u ction and p r ic e tr e n d s*

Red cherry prod u ction has been in c r e a s­

in g over a p erio d o f yea rs in th e U nited S t a te s as w ell as in Michigan* One measure o f t h e growth o f th e prod uction o f c h e r r ie s i s th e number o f b ea rin g t r e e s (T able I I I )*

The census makes no d is t in c t io n between red

and sw eet t r e e s , y e t th e d ata are f a i r l y r e p r e s e n ta tiv e o f th e red cherry p rod u ction s itu a tio n *

These data show a stead y in c r e a s e in the number o f

t r e e s from 1890 t o 1955*

F ollow in g 1955* t r e e numbers have d e c lin e d p r i­

m a r ily a s a r e s u l t o f th e la ck o f replacem ent stock from the non-bearing group*

For M ichigan th e r e was an in c r e a se in th e r a t io o f non-bearing

to b earin g t r e e s in 1948 which w ill tend to o f f s e t a fu tu re d e c lin e in t r e e numbers*

But t r e e numbers are n ot accu rate measures o f production*

The w eather, o f co u rse, i s always a hazard th a t i s d i f f i c u l t to reckon* Then, t o o , tech n o lo g y improves through time*

When a l l fa c to r s a re con­

s id e r e d , and even though t r e e numbers have f a ll e n s in c e 1955* th e r e has Table III* — Red Oherry Tree Numbers in P r in c ip a l Cherry Producing S t a te s , 189Q~1945* Census Year

Trees in Red Cherry Producing S ta te s Bearing

Non^bearing

Trees in M ichigan Bearing

Non-bearing

m illio n s o f t r e e s 1890 1900 1910 1920 1950 1955 1940 1945 Source: * **

1*75 5 -5 1 4.17 4*71 5*84 5 .8 8 5 .1 2 4*50*

---------------------

2 .0 0 1*21 2 .2 0 1*61 1*07

*45 •90 .7 6 1 .0 8 1*19 2*25 2*14 2*07**

— -

.5 4 •55 .9 9 •59 • 68**

C a r r o ll, op* c i t . , p* 6 *

Estimated* For 1949 from M ichigan C ooperative Crop R eporting S e r v ic e , Lansing, Michigan*

55 b een a gen era l tren d upward in t o t a l production*

Whereas th e t o t a l pro­

d u ctio n flu c tu a te d around th e s e v e n ty -fiv e thousand l e v e l in th e e a r ly ' t h i r t i e s , i t had in crea sed about tw e n ty -fiv e thousand to n s to o n ehundred thousand to n s by th e l a t e 'f o r t ie s * was a ls o tr u e fo r M ichigan*

This gen eral upward tren d

In M ichigan, th e t o t a l amount o f red c h e r r ie s

produced in crea sed from about t h i r t y - f i v e thousand to n s to more than f i f t y thousand to n s from 1955 to 1948*

During t h i s p eriod o f g e n e r a lly r is in g

p r ic e l e v e l s , th e in c e n tiv e s were fo r more in te n s iv e c u ltu r e o f e x is t in g orchards as w e ll as fo r an expansion in th e number o f orchards* The ra th e r sev ere flu c tu a tio n s th a t have occurred in t o t a l p rod u ction in a d d itio n to th e g en era l trend upward, are c h a r a c t e r is t ic o f th e pro­ d u ctio n o f most o th er deciduous t r e e f r u it s * l y h igh one year and sm all the next*

Production tends to be f a i r ­

With c h e r r ie s , and w ith few ex cep tio n s

fo r both th e U nited S ta te s and M ichigan, t h is p a tte r n has been borne out* Two

e x c ep tio n s to t h i s p a tte r n during th e y ea rs 1955 to 1948 were 1955

and 1940 when p rod u ction in creased fo r th e second year in a row in both cases* Problems a s so c ia te d w ith growth*

This rap id growth o f th e red cherry

in d u stry has caused th e m a g n ific a tio n o f some o f th e problems th a t have ex­ i s t e d in th e p a st in th e red cherry in d u stry in M ichigan.

At th e farm

l e v e l many exogenous fo r c e s w ield a decided in flu e n c e upon th e growers a c tu a l or a n tic ip a te d p rod u ction , p r ic e , and income*

As i s tru e w ith most

f r u i t cro p s, th e weather i s probably th e most im portant s in g le p o t e n tia l hazard fa c in g th e producer* th e year i s dangerous*

Unfavorable weather in alm ost any season o f

However, from bloom to h a rv est tim e, fav o ra b le

weather i s extrem ely im portant in order fo r growers to be assured o f h igh

56 production*

From an in d iv id u a l grow er's sta n d p o in t, he i s u s u a lly iin­

t e r e s t e d in h ig h p rod u ction r e g a r d le s s o f th e l e v e l o f aggregate pro­ duction* demand*

I t i s g e n e r a lly assumed th a t most f r u i t s have an i n e l a s t i c In such c a s e s , r e s t r ic t e d or low prod uction y ie ld s h igh er t o t a l

reven u es t o a l l growers than u n r e s tr ic te d or h igh p rod u ction .

But w ith ­

ou t p rod u ction c o n tr o l or r e s t r i c t i o n s , an in d iv id u a l grower w ill attem pt to maximize h i s p r o f it s under h is assum ptions as to fu tu re p r ic e exp ect­ a tio n s and a n tic ip a te d production*

The id e a l s it u a t io n s e x i s t s o f cou rse,

when e x p e c ta tio n s are s in g le -v a lu e d and are f u l f i l l e d fo r a l l growers* However, when an in d iv id u a l1s produ ction a n tic ip a tio n s are f u l f i l l e d and o th er growers have overestim ated p rod u ction (i* e * aggregate production i s lo w ), th e in d iv id u a l g a in s a r e l a t i v e l y more advantageous p o sitio n * P r ic e and p rod u ction are th e b ig u n c e r t a in t ie s co n fron tin g producers* As tiie h a r v e st sea so n approaches, th e volume o f p rod uction becomes more and more c erta in *

When p rod u ction i s f a i r l y w e ll determ ined, th en th e

p r ic e must be e sta b lish e d *

The p r ic e i s u s u a lly e s ta b lis h e d j u s t p rio r t o

or a t th e b egin n in g o f th e h a rv est season*

The aim o f th e growers and

packers i s to agree on a p r ic e th a t w i l l not change as th e h a rv est sea­ son p r o g r esse s u n le s s o th er exogenous fo r c e s a c t to m a te r ia lly change th e a c iu a l p rod u ction from th a t estim ated* Summary*

Some o f th e economic problems fa c in g th e red cherry in ­

d u stry have been considered*

These problems hinge d ir e c t ly on p r ic e un­

c e r t a in ty and i t s e f f e c t upon income*

An o b je c tiv e a n a ly s is , though

lim it e d by th e kind and q u a lity o f th e a v a ila b le a n a ly s is , should in ­ d ic a te q u a n tit a tiv e ly what has had to be judged h e r e to fo r e as q u a lita ­ tiv e .

F u rth er, by emptying independent v a r ia b le s In th e a n a ly s is which

can be f a i r l y a c c u r a te ly estim ated p r io r to th e h a rv estin g season pro­ ducers should be provided w ith a t o o l which w i l l reduce the p r ic e and income u n c e r ta in ty co n fro n tin g them*

CHAPTER V FACTORS AFFECTING FARM PRICES OF CHERRIES As m entioned in Chapter IV, th e volume o f p rod u ction o f red c h e r r ie s had l i t t l e e f f e c t upon farm p rices*

I h is statem ent needs to be explored

more th o ro u g h ly , but c e r t a in ly oth er f a c to r s which may have some in f lu ­ en ce upon p r ic e s need to be in v e s tig a te d fo r p o s s ib le r e la tio n s h ip s#

A ll

o f th e fa c to r s th a t can p o s s ib ly be con sid ered may be c a te g o r iz e d a s be­ in g f a c to r s a f f e c t in g th e supply o f or fa c to r s a f f e c t in g th e demand for th e product*

A fte r p rop erly e v a lu a tin g th e d e s ir a b i l i t y , as w e ll as th e

f e a s i b i l i t y , o f u sin g v a rio u s p r ic e in d ic a to r s , th e r e la tio n s h ip may be m ath em atically developed and analyzed* Enumeration o f f a c t o r s *

One o f th e la r g e s t and most im portant cherry

packer s i / in th e s t a t e l i s t e d tw elv e p o in ts as im portant p r ic e in flu e n c in g fa c to r s *

These p o in ts w i l l be considered in th e l i g h t o f how r e lia b ly

each i s e ith e r m easureable or a v a ila b le as a guide fo r market p r ic e de­ term ination* 1*

The s iz e o f th e oncoming crop .

This has p r e v io u sly been men­

tio n e d as one o f th e most im portant and u n c e r ta in o f th e fa c to r s a f f e c t ­ in g p rices*

There seems to be an upward tren d in p rod u ction, y e t th e r e

i s a h ig h degree o f v a r i a b i l it y from year to year about th e trend l i n e . In th e M ichigan C ooperative Crop Reporting S e r v ic e 's estim a tes th e r e ten d s to be a c o n ser v a tiv e b ia s , e s p e c ia lly in th e years fo llo w in g crops w ith h igh p r ic e s .

Then t o o , in d iv id u a l e stim a te s are u s u a lly in terms

o f th e c o n d itio n s as some p ercen t o f normal or o f th e p reviou s year* This ty p e o f e stim a te la r g e ly ig n o res th e new orchards th a t come in to b earin g in th e cu rren t year*

1/

A* J* R ogers, Manager o f Cherry Growers, Incorporated, Traverse C ity , M ichigan, in a d is c u s s io n b efore a m arketing seminar a t M ichigan S ta te C o lleg e in March, 1950*

58 2*

The s i z e o f oncoming com peting crops*

There i s widespread be­

l i e f t h a t crops such as p each es, a p r ic o t s , ap p les,an d stra w b erries are la r g e com p etitors w ith c h e r r ie s on t h e market*

S in ce th e cherry crop

i s one o f th e e a r l i e s t on th e m arket, i t i s d i f f i c u l t to p r e d ic t w ith any h igh degree o f accuracy, how la r g e th e s e competing crops w i l l be* Even i f th e s iz e o f th e s e crops was a c c u r a te ly known, i t would be d i f f i ­ c u lt t o measure i t s in flu e n c e upon market p rices* 5* ment*

The amount o f th e o ld crop ca rried over and i t s r a te o f move­ These data are a ccu rate and a v a ila b le fo r sto c k s in packers hands*

For t h i s p o r tio n o f th e pack, th e geographic lo c a t io n i s a v a ila b le*

How­

e v e r , no data are k ep t to g iv e an in d ic a tio n o f sto ck s a t other sta g e s i n th e channels o f trade*

L ocation o f th e se sto ck s g e o g ra p h ica lly as w e ll

a s t h e ir s iz e are im portant p r ic e in flu e n c in g fa c to r s* 4*

The sto c k s o f oth er processed competing f r u its *

Most p rocessed

f r u i t s th a t are used in bakery products compete w ith red ch erries*

Apples

a re u s u a lly sto red in t h e ir fr e sh form and are considered to be f a i r l y stro n g com p etitors w ith red c h e r r ie s fo r p ie s and cobblers*

Stocks o f

th e s e products are a v a ila b le from variou s so u rces, and can be used as a guide in p r ic e making*

But, again , th e exact q u a n tita tiv e r e la t io n s h ip s

are d i f f i c u l t t o f o m u l a t e . 5*

The l e v e l s o f and tren d s in economic co n d ition s*

Unemployment

caused by s t r ik e s or l a y - o f f s even i n lo c a l market areas can d r a s t ic a lly reduce th e q u a n titie s o f c h e r r ie s u t iliz e d *

L evels o f income and tren d s

i n economic a c t i v i t y d ir e c t ly in flu e n c e the le v e l o f demand and conse­ q u en tly th e p r ic e a t which a g iv en pack can be sold* 6*

The development and acceptance o f new u ses fo r consum ption.

A ttem pts are c o n tin u a lly b ein g made to expand th e market fo r new u ses

59 or fo r u se e o f new forme o f th e product*

To m ention a few , c h e r r ie s may

be brin ed and can d ied , packed in heavy syrup fo r u se as t a b le d e s s e r t s , or glaced*

These developm ents ten d to in c r e a se consumer demand fo r th e

p rod u ct, but t h e ir p r ic e e f f e c t s are very d i f f i c u l t to measure#

7*

The d ir e c t and th e d erived e f f e c t s o f government p urchases.

H iring and s in c e World War I I , th e government has bought la r g e quanti­ t i e s o f c h e r r ie s fo r m ilit a r y u ses*

N a tu ra lly t h is buying helped to

in c r e a s e th e demand by augmenting c i v i l i a n purchases*

But j u s t as im­

p o rta n t as th e d ir e c t e f f e c t o f government buying i s th e derived e f f e c t o f th e s e purchases through th e c u lt iv a t io n o f a d e s ir e for the product by in d iv id u a ls which co n tin u es a f te r t h e ir r e le a s e from th e m ilit a r y serv ic e* 8* storage*

The c r e d it a v a ila b le to packers fo r fin a n cin g purchases and A sm all packer w ith a poor c r e d it r a tin g and no reg u la r s a le s

o u t le t must reduce h is p r ic e s below th e p r e v a ilin g l e v e l s in order to a t t r a c t purchasers*

By doing so , he c o n s t it u t e s a b ea rish fa c to r on th e

market which a d v ersely a f f e c t s th e w e ll-fin a n c e d e s ta b lish e d packer by fo r c in g him to reduce h is p r ic e . 9*

The ex te n t and p e r s is te n c y o f grower demands*

Growers in some

l o c a l i t i e s are organized to th e e x te n t th a t th ey are ab le to e x e r t a monopoly in flu e n c e upon p r ic es*

The stren g th o f t h e ir market power i s

such th a t con certed a c tio n on the p art o f th e group d e f in i t e l y a f f e c t s p rice s*

Whether th e n e t r e s u lt has been favorab le or unfavorable i s

d i f f i c u l t t o sa y , but th e immediate sh ort-ru n e f f e c t i s b u llis h a t th e farm l e v e l , and probably b u llis h a ls o a t th e packer le v e l* 10.

The e f f e c t o f a d v ertisin g *

The N ation al Red Oherry I n s t it u t e

i s p rim a r ily a prom otional o r g a n iz a tio n fo r red c h e r r ie s a t th e n a tio n -

60 a l le v e l*

M ichigan has an o p tio n a l grower deduction o f *001 d o lla r s per

pound which i s p aid in to th e M ichigan Oherry Commission to be resp en t fo r a d v e r tis in g th e red cherry*

P ie baking c o n te s ts are sponsored,

queens are s e le c t e d , f e s t i v a l s are h eld — a l l o f which are d esign ed fo r prom otional p u rp oses.

A side from th e o r ig in a l amount o f money spent

by th e I n s t it u t e or th e Commission, much more a d v e r tisin g i s receiv ed in co n n ectio n w ith th e a d v e r tis in g by complementary in d u str ie s*

B ak eries,

f lo u r com panies, and ic e cream m anufacturers a d v e r tise c h e r r ie s in coj>* n e c tio n w ith t h e ir products*

Measuring th e e f f e c t s o f a d v e r tis in g are

very d i f f i c u l t , but in gen eral i t a ls o has a b u llis h e f f e c t upon p rices* 11*

The ty p e o f purchases made by consumers*

I n s t it u t io n s or even

consumers may fo llo w a p o lic y o f buying hand-to-mouth because o f t h e ir d e fla tio n a r y b ia s*

I f purchases are made w ith t h is in te n t , th e product

i s moving d ir e c t ly in to consumption.

However, th e same q u an tity may be

purchased and in v e n to r ie d because o f an in fla t io n a r y b ias*

This kind

o f a purchase p o lic y may e v e n tu a lly r e s u lt in a backlog o f th e product on th e market and have a b ea rish e f fe c t *

No data are a v a ila b le to check

t h e s e p o l i c i e s or measure t h e ir in flu e n c e upon p r ic e s . 12.

The q u a lity o f th e pack*

Damage from weather, i n s e c t s , and

d is e a s e s r e s u lt s in a low q u a lity pack th a t may discourage s a le s and cause reduced p r ic e s*

On th e oth er hand, a pack o f e x c e p tio n a lly h ig h

q u a lity ten d s to b o ls t e r p r ic e s .

An ev a lu a tio n o f q u a lity i s alm ost en­

t i r e l y s u b je c tiv e and th e r e la t io n o f q u a lity to p r ic e i s a q u a lita t iv e judgment th a t i s very d i f f i c u l t to m easure. These twelve considerations are fairly comprehensive yet at least one addition need be made.

That addition would be the cost factor*

Changes in the cost of pack other than the fruit costs change with var-

61 i a t i o n s in economic a c t iv it y #

T ran sp ortation r a t e s , th e c o s t o f th e

package, lab or c o s t s , and o th er m arketing c o s ts n e c e s s a r ily in flu e n c e th e p r ic e o f th e pack# Measures o f su p p ly*

Let us f i r s t con sid er th e supply side#

Some

measure o f p rod u ction w ith in a p rescrib ed area f i r s t comes to mind as a p o s s ib le fa c to r a f f e c t in g p rice*

p rodu ction fig u r e s are numerous as was

apparent from th e d is c u s s io n in th e l a s t chapter* For th e f i v e e a ste r n s t a t e s , th e r e s u lt s o f independent estim a tes were shown in Table I in Chapter IV#

These p rodu ction fig u r e s appear

to be f a i r l y accu ra te and are probably more ex a ct fo r purposes o f p r ic e a n a ly s is than th e more in c lu s iv e measurements for a l l years*

And sin c e

th e a c tu a l data are not a v a ila b le , th e e stim a tio n o f t o t a l production fo r f i v e s t a t e s based upon in d iv id u a l e stim a tes fo r each s t a t e i s pro­ bably more a ccu ra te than th e in d iv id u a l estim ates*

These data should

be f a i r l y good as e stim a te s o f produ ction on th e supply s id e . Other than an e stim a te o f t o t a l production th ere are no other data t h a t appear adequate fo r a n a ly tic a l purposes on th e supply side*

Some

measure o f ca rry -o v er from one year to th e next would be very d e s ir a b le . The o n ly data a v a ila b le , however, are th o se p e r ta in in g to sto ck s in can n er's hands fo r ca se goods p lu s some data fo r co ld sto ra g e holdings# These data are so lim it e d , both in scope and amount, th a t th ey f a i l to be o f any r e a l p r a c t ic a l value* Measures o f demand*

On th e demand s id e th e data are more numerous

and s e le c t i o n o f th e proper in d ic a to r s i s more d i f f i c u l t .

Some measure

o f aggre g a te demand such as n a tio n a l income, d isp o sa b le income, or th e l i k e must be u sed .

The components o f n a tio n a l income and product aggre-

62 g a te s may be l i s t e d as f o l l o w s : ^ A*

N a tio n a l Income 1* 2» 5* 4* 5* 6* 7* 8* 9*

B*

Gross N a tio n a l product 1« 2* 5* 4*

C*

P erso n a l Consumption E xpenditures Gross P r iv a te Domestic Investm ent Net F oreign Investm ent Government Purchases o f Goods and S e r v ic e s

P erson al Income and D is p o s itio n o f Income 1* 2* 5* 4* 5* 6m 7*

D»

Compensation o f Employees Wages and S a la r ie s Supplements to Wages and S a la r ie s Income o f Unincorporated E n terp rises Inventory V alu ation Adjustments R ental Income o f Persons Corporate p r o f it s b efo re Tax Corporate p r o f it s Tax L ia b ilit y N et I n te r e s t

Wage and S a la ry R eceip ts P rop rietors* and R ental Income P erson al I n t e r e s t Income T ransfer Payments P erson al Tax and Non-tax Payments p erso n a l Consumption Expenditures p erso n a l Saving

R e c o n c ilia tio n Item s Between N ation al Income and Gross N a tio n a l product 1* D ep recia tio n Charges 2m A ccid en ta l Damage to Fixed C ap ital 5* C a p ita l O utlays Charged to Current Expense 4* I n d ir e c t B u sin ess Tax and N on-tax L ia b ilit y 5* S u b sid ie s Minus Corrent Surplus o f Government E n terp rises 6m S t a t i s t i c a l D iscrepancy

I t should be noted th a t th e g ro ss n a tio n a l product i s equal to n a tio n a l income ex cep t fo r th e e n t r ie s l i s t e d under item D*

F urther,

th e item p erson al consumption expen d itu res appears as a component o f both g r o ss n a tio n a l product and n a tio n a l income*

2/

Under item B, p erson al

Anonymous, N a tio n a l Income Supplement to Survey o f Current B u sin ess, U nited S ta te s Department o f Commerce, Bureau o f F oreign and Domestic Commerce, W ashington, D* C ., J u ly 1947# pp* 8*-10«

65 consum ption exp en d itu res c o n s is t s o f th e d iffe r e n c e between g ro ss n a tio n a l product and th e e n t r ie s 2 , 5*

4 under item B*

However,

p erso n a l consumption exp en d itu res a s l i s t e d under item C i e equal to th e summation o f item s 1 through 4 l e s s item 5 which eq uals what i s commonly termed d isp o sa b le p erso n a l income*

D isposab le p erson al in ­

come l e s s p erson al sa v in g s i s th en equal to p erson al consumption ex­ p en d itu res*

In th e income c l a s s i f i c a t i o n , p erson al consumption ex­

p en d itu res i s roughly equal to income to in d iv id u a ls l e s s person al ta x e s and savings* Most p r ic e a n a ly s is s tu d ie s have used d isp o sa b le p ersonal income as th e measure fo r aggregate demand*

This i s p a r t ic u la r ly tru e fo r th e

s tu d ie s o f th e Bureau o f A g r ic u ltu r a l Economics*

However, fo r gen eral

purposes o f p r ic e a n a ly s is , p erson al consumption exp end itu res can be j u s t i f i e d aoout as e a s il y as th e more in c lu s iv e fig u r e o f d isp o sa b le p erso n a l income s in c e p erson al sa v in g s i s th e o n ly d iffe r e n c e between th e two measurements* Because o f th e change in th e amount o f savin gs through tim e, per­ so n a l consumption exp en d itu res c o r r e la te s high er w ith farm p r ic e s o f red c h e r r ie s than did d isp o sa b le p ersonal income*-^

U n til th e r e v is io n o f

th e n a tio n a l income e stim a te s in 1947 th ere was no such c l a s s i f i c a t i o n as p erson al consumption exp en ditures which i s a fu rth er important reason fo r i t s lim ite d u se in p r ic e a n a ly sis* p erson al consumption exp en d itu res have r is e n in a l l th e years s in c e I 952 excep t fo r a s l i g h t d e c lin e from 1957 to 195$ (Figure 4)*

y

From 1929

The two measurements o f aggregate demand were checked g r a p h ic a lly w ith farm p r ic e s o f ch er ries* Although t h i s should never be th e s o le c r it e r io n fo r th e s e le c t io n o f v a r ia b le s i t can be j u s t i f i e d in t h i s in sta n ce*

CO

-=}■

VO

ON

V O c~\

o

HH •H O Wp

cs-

65 to 1955 bhe tren d was a ls o downward*

Food and tobacco expenditures*

which i s one c a teg o ry o f tw elv e in clu d ed in th e t o t a l fig u r e fo r p erson al consum ption expenditures* have v a ried d ir e c t ly w ith p erson al consumption exp en d itu res ex cep t from 1952 to 1955*

However* th e magnitude o f v a r ia ­

t i o n has been co n sid era b ly l e s s fo r food and tobacco exp en ditures than fo r th e t o t a l consumption exp en d itu res fig u re* Other in d ic a to r s or r e f le c t o r s o f demand are income o f in d u s tr ia l workers* p r ic e s r e c e iv e d by farm ers, and non-farm w h olesale p r ic e s (F ig ­ u re 5 )*

2ho in d ex o f income o f in d u s t r ia l workers has flu c tu a te d con­

s id e r a b ly more than th e exp en ditu re in d ic a to r s in Figure 4*

In d u str ia l

workers* incomes f e l l from 1929 to 1952* then ro se from th e d ep ressio n low to 1944 ex cep t fo r th e downward readjustm ent from 1957 to 195$*

Tk®

downward s l i d e from 1944 to 1946 was a r e s u lt o f changes in th e pro­ d u ctio n p ro cess from war to peacetim e goods*

Beginning in 1945* th e

c o r r e la t io n between in d u s tr ia l w orkers1 income and cherry p r ic e s was n eg a tiv e* P r ic e s r e c e iv e d by farmers have follow ed th e movement o f p erson al consumption ex p en d itu res very c lo s e ly sin c e 1929*

3!h® v a r ia tio n s in farm

p r ic e s have been somewhat more pronounced* e s p e c ia lly fo llo w in g th e slump b egin n in g a f t e r 1957*

As compared w ith p ersonal consumption expenditures*

farm p r ic e s le v e le d o f f ®ore from 1945 to 194^ and from 1947 to 1948*

On

th e b a s is o f c o r r e la t io n w ith farm p r ic e s o f c h e r r ie s i t i s d i f f i c u l t to make a s e le c t i o n o f one o f th e se v a r ia b le s in p referen ce to the other* The l a s t o f th e th ree in d ic a to r s shown in Figure 5* non-farm whole­ s a le p rices* e x h ib ite d co n sid era b ly l e s s v a r ia tio n through tim e than did any o f th e oth ers* This can be exp lain ed in p art by th e f a c t th a t many

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U sing t h i s r e g r e s s io n eq u ation and s u b s t it u t in g th e mean v a lu e s fo r

kj

This and subsequent r e g r e s s io n eq u a tio n s were computed by th e Doo­ l i t t l e method from th e m a trix o f c o r r e la t io n c o e f f ic ie n t s * The numbers in p a ren th eses below th e r e g r e s s io n c o e f f i c i e n t s are th e corresp on d in g t-v a lu e s #

69 t h r e e o f th e fou r independent v a r ia b le s a t a tim e in to th e eq u a tio n , th e n e t r e la t io n s h ip s betw een th e dependent and one independent v a r ia b le may be shown when th e o th e r independent v a r ia b le s are h e ld co n sta n t a t t h e ir mean v a lu e s* This procedure y ie ld e d a zero s lo p e to th e r e g r e s s io n l i n e which ex p ressed th e n e t r e la t io n s h ip betw een th e M ichigan farm p r ic e o f c h e r r ie s and 5—1s t a t e p ro d u ctio n (F igu re 6 )* th e c o e f f i c i e n t o f c o r r e la t io n was a ls o zero*

For th e s e two v a r ia b le s , In o th er words, th e r e ­

g r e s s io n eq u a tio n i s one hundred p ercen t a s e f f i c i e n t when t o t a l 5 - s t a t e p ro d u ctio n i s om itted*

The n e t r e la t io n s h ip between th e M ichigan farm

p r ic e o f red c h e r r ie s and p e rso n a l consum ption exp en d itu res fo r th e same tim e p er io d turned o u t to be n e g a tiv e (F ig u re 7)«

This occurred i n s p i t e

o f th e p o s i t i v e c o r r e la t io n between th e two v a r ia b le s*

From th e n e t re­

g r e s s io n eq u a tio n , a change o f one b i l l i o n d o lla r s in p erson al consumption ex p e n d itu r es r e s u lt e d i n a change o f o n ly 1 .4 5 d o lla r s per ton in th e p r ic e o f c h e r r ie s in th e o p p o site d ir e c tio n * The r e la t io n s h ip betw een th e in d ex o f U nited S ta te s farm p r ic e s and th e farm p r ic e o f red c h e r r ie s w ith th e o th er independent v a r ia b le s h eld c o n s ta n t was h ig h ly p o s i t i v e (F ig u re 8)*

As a measure o f demand, th e

n e g a tiv e e f f e c t o f p erso n a l consumption exp en d itu res was more than counter­ acted *

A r i s e o f 10 p o in ts in th e in d ex o f a l l farm p r ic e s was accom­

p an ied by an in c r e a s e o f about 15 d o lla r s per to n in th e M ichigan farm p r ic e o f c h e r r ie s * The n e t r e la t io n s h ip betw een tim e and th e M ichigan farm p r ic e o f red c h e r r ie s was a ls o p o s i t i v e (F igu re 9)*

On th e average an in c r e a s e in

tim e o f one yea r was accompanied by an in c r e a s e in th e p r ic e o f 4*80 d o lla r s p er ton*

This i s a r e f l e c t i o n o f th e gen era l upward tren d i n p r ic e s

through tim e in a d d itio n to th e upward tren d i n th e oth er independent

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A verage R e la ti on ship Between Michigan Bed Cherry Farm P r i c e s and £ S t a t e P r o d u c tio n w ith Consum ption E x p e n d itu r e s » TJhited S ta te s Parm P r i c e s , and Time H eld C o n s ta n t, 1933-48, e x c lu d in g 1944, 1945, and 1946•

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A v erag e R e l a t i o n s h i p B etw een M ich ig an Red C h e rry Farm P r i c e s > an d U n ite d S t a t e s P e r s o n a l Consum ption E x p e n d itu re s w ith 5 - S ta te P r o d u c tio n , U n ite d S ta te s Farm P r ic e s , and Time H eld C o n s ta n t, 1 9 3 > 4 8 , e x c lu d in g 1 9 ^ » 19^5* and 1 9 ^ 6 .

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65 from l e s s th an 5 t o s l i g h t l y over 9 p ercent*

In some y ea rs th e r e appears

t o have b een q u ite a heavy c o n c e n tr a tio n in th e packing o p era tio n s in a few fir m s w h ile in o th e r s , th e pack was f a i r l y ev en ly d is tr ib u te d through­ o u t m ost o f th e firm s i n th e ind ustry* Amount produced and amount packed*

Through th e y ea rs s in c e 195^*

t h e r e appears t o have been a narrowing o f th e d iff e r e n c e between th e amount produced and th e amount packed, measured in th e terms o f raw pro­ d u ct (F ig u r e 1^)*

Judging from th e narrowing o f t h i s gap and i t s r e ­

la t io n s h ip w ith th e tren d in economic p r o p s e r ity , th e r e appears to have been a d ir e c t r e la t io n s h ip between th e two*

That i s , as th e country be­

came more p ro sp ero u s, a h igh er p ro p o rtio n o f th e c h e r r ie s produced were packed*

Of c o u r se , d isc r e p a n c ie s from t h i s d edu ction in in d iv id u a l years

may be accounted fo r by s p e c ia l circu m stan ces such as th e q u a lity o f th e pack due to u n fa v o ra b le weather or th e p revalen ce o f c e r t a in d is e a s e s . Another major f a c to r c o n tr ib u tin g t o t h is narrowing o f th e gap may have been th e in c r e a s e in th e number o f p la n ts and th e gradual development o f new u se s which ten d s to u t i l i z e p o t e n tia l su rp lu ses*

With an in c r e a s e

i n th e number o f c o m p e titiv e firm s th e r e ten d s to be more e x c e ss p la n t c a p a c ity developed*

As t h i s o c c u r s, th e r e i s a g en era l o v e r a ll tendency

to p r o c e ss more o f th e product and th u s reduce th e a b so lu te q u a n tity o f p o t e n t ia l surplus*

The e f f e c t o f th e development o f new u se s w i l l be

t r e a te d more f u l l y la te r *

I t i s s u f f i c ie n t h ere t o m ention th a t new u se s

can a f f e c t th e narrowing o f t h i s gap in two ways*

F i r s t l y , th e y can be

o f such a typ e as to eco n o m ically u t i l i z e a lower q u a lity o f f r u i t such as th a t g oin g in t o jams, j e l l i e s , or j u ic e where th e i d e n t it y o f th e f r u i t in i t s n a tu r a l form i s changed*

S econ d ly, new u se s can be o f th e

ty p e t h a t r e q u ir e a h ig h q u a lity f r u i t such as candied or g la c e c h e r r ie s ,

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85 and f o r c e th e u t i l i z a t i o n o f poorer q u a lity f r u i t i n low er u ses* C o n cen tra tio n i n th e in d u str y *

R eturning to th e problem o f concen­

t r a t i o n i n U ie red cherry packing in Michigan* i t appears th a t th e tren d h as been away from co n cen tra tio n *

N ic h o lls has s ta te d t h a t even though

a em ail p ercen ta g e o f th e product i s c o n tr o lle d by a sin g le* or a few firm s* th e im pact o f co n c e n tr a tio n may be sev ere s in c e th e in d u str y i s so h ig h ly lo c a liz e d * ^ /

This l o c a l i z a t i o n may mean th a t a grower may have

o n ly one s in g l e o u t l e t fo r h i s product and th e r e fo r e a c o n d itio n b e s t d e sc r ib e d as l o c a l monopsony m ight e x is t *

In M ichigan i t would be d i f f i c u l t

t o argue th a t t h i s s it u a t io n has e x is t e d except* perhaps* in th e shortr»run* Members o f c o o p e r a tiv e packing p la n ts u s u a lly s e l l a l l o f t h e ir crop through t h e ir own a s s o c ia tio n *

In some y ea rs th e p ool p r ic e th a t th ey r e c e iv e may

a verage lower th an p r ic e s p aid by p r iv a te c o r p o r a t i o n5 /s T h i s could be in te r p r e te d as a c o n d itio n o f lo c a l monopsony s in c e th e grower has a stro n g o b lig a t io n to s e l l h i s produce through h is coop erative*

Some p la n ts , how­

ever* s o l i c i t a group o f growers as a k in d o f sem i-in su ran ce t h a t th ey w ill r e c e iv e a rea so n a b ly good volume o f b u sin ess*

Other p la n t op era to rs a re

u s u a lly aware o f th e s e " l i s t s 11 so th a t i f a grower becomes d is s a t is f i e d * he may encounter d i f f i c u l t y in d isp o s in g o f h is crop elsew h ere and may be fo r c e d in to s e l l i n g to th e o r ig in a l s o lic it o r *

These d e a lin g s are common

w ith many b u s in e s s e s and are not unique i n any sen se to th e red cherry p acking in d u stry*

Thus i t would appear th a t i f N i c h o l a s g en era l a s s e r t io n

Z/

W illiam H* N ic h o lls , Im perfect O om petition W ithin A g r ic u ltu r a l In­ d u s t r ie s * Iowa S t a te C o lle g e P r e s s , Ames, Iowa* 1947*

y

A ls o , th e r e v e r s e o f t h i s i s o f te n tr u e , but th e i l l u s t r a t i o n o f a c o o p e r a tiv e a s a lo c a l monopsony in th e sh o rt-ru n n e c e s s it a t e s t h i s assumption*

06

was v a lid fo r th e red ch erry packing in d u str y , i t was much l e s s v a lid i n 19^8 th an i t was i n 1951*

T his was seen p r e v io u s ly in th e tend en cy fo r

more firm s to e n te r th e in d u str y during t h i s p erio d a s w e ll a s f o r a sm all­ er p r o p o rtio n o f th e t o t a l pack b ein g packed by th e f i v e la r g e s t p la n ts each year*

But i t i s d ou b tfu l whether even lo c a l m on op son istic c o n d itio n s

e x i s t e x ce p t i n c e r t a in is o la t e d c a ses in th e shor;b—run*

This does not

mean t h a t th e in d u str y i s co m p letely c h a ra cterized by th e d o c tr in e o f p e r f e c t c o m p etitio n s in c e o th e r im p erfect elem en ts o b v io u sly e x i s t and t h e ir im pact upon th e market w i l l be con sid ered la te r * Types o f pack*

Hie ty p e o f pack t h a t th e in d u stry has p ro cessed has

v a r ie d through th e y ea rs a s a r e s u lt o f changes in th e demand fo r c e r t a in products*

I t was p o in ted o u t th a t th e r e has been alm ost a continuous up*

ward tren d in th e per c a p ita , as w e ll as th e t o t a l consum ption o f red c h e r r ie s*

Consumer t a s t e s and h a b its o f t e n change through tim e and th e s e

have had a marked in flu e n c e upon th e ty p e and q u a n tity o f each ty p e o f pacx p ro cessed by th e in d u stry*

S p e c ia l f a c i l i t i e s are o f te n needed fo r

th e s to r a g e and m arketing o f c e r t a in ty p e s o f pack* With th e M ichigan pack, th e r e has been a g en era l upward tren d i n both t h e q u a n tity canned as w e ll a s th e q u a n tity fr o zen from 1951 to 19^8 (F ig ­ u r e l4 )*

The bulk o f th e y e a r ly v a r ia t io n s , however, were due t o th e

y e a r ly v a r ia t io n s in production*

Michigan® s canned pack has in crea sed

from about 50 m il l i o n pounds to a volume o f 95 m illio n pounds in 19^8* This amounts to an in c r e a s e o f over 200 percent*

The fr o zen pack was r e ­

l a t i v e l y unim portant in th e e a r ly ' t h i r t i e s accou n tin g fo r o n ly 2*5 m i l l i o n pounds*

But in 19^*8, 29 m il lio n pounds o f red c h e r r ie s were pro*

c e s se d as fr o z e n pack which was a phenomenal in c r e a s e o f more than 1 ,0 0 0 percent*

The p ro p o rtio n o f th e t o t a l pack which i s fr o z e n has a lso in -

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66 creased "though, it has varied considerably from year to year*

In the

early 'thirties the frozen pack was only about J percent as large as the canned pac*.* 25*

By the late 'forties, this percentage was averaging about

These increases in frozen pack (absolute and relative) coincide

with the general increases that have taken place in the manufacture of all frozen foods during these years* The canned pack is processed in a wider range of packages or cans than the frozen pack* and the number 10*

The most common sizes of cans are the number 2

The number 2 can is the consumer canned package that

is commonly sold through retail stores while the number 10 can is packed for appeal to the institutional trade*

Other can sizes, such as the

number 2 1/2 and the number JO J have been used to a limited extent*

Some

red cherries have also been packed in glass rather than tin cans; how­ ever, almost all of them have been packed in tin*

Besides these variations

in can sizes, there has been some variation in the liquid used in the containers*

Most of the red cherries are packed as a water pack, but some are

packed in syrup*

There can be many variations in the syrup*

is usually used, but sometimes a juice base is used* vary from JO ° baume to as high

A water base

Then the syrup can

6 0 ° » o r in extreme cases, 70° baume*

These cherries are of course very sweet and can be eaten directly as dessert or used without the further addition of sugar in baking.

References to the

canned pack, insofar as further analysis is concerned, will be made in terms of water pack in number 2 and 10 tin cans only* The frozen pack has also been packed in various sized containers, the most popular size has been the JO pound tin.

but

Other sizes have been

used ranging from the 1 pound consumer sized package through theinstitu­ tional sizes of 10 pound tins to even 400 pound barrels.

The JO pound tin

39 h as and p rob ab ly w i l l be th e m ost popular s i z e , however*-^ Even a cu rso ry a n a ly s is o f th e pack data y i e l d s th e v a lid c o n c lu sio n t h a t when th e red ch erry crop , and con seq u en tly th e pack, i s la r g e , th ere i s a d e f i n i t e ten d en cy to pack a h ig h er p ro p o rtio n o f th e pack in th e con­ sumer s iz e d packages (th e number 2 can and th e 1 pound fro zen p a ck a g e). The i n s t i t u t i o n a l tra d e a p p a ren tly does not expand and co n tr a c t t h e ir v o l­ ume o f purchases n e a r ly so much as th e consumer market*

The packers re­

c o g n iz e th e p o t e n t i a l i t i e s o f th e huge consumer market and t r e a t them as th e e l a s t i c p a rt o f th e market* Volume o f b u sin e s s and r is k spreading* i s h ig h ly l o c a l i z e d and h ig h ly s p e c ia liz e d *

The red cherry packing b u sin e ss C h erries a lo n e accounted fo r

one—h a l f or more o f -the average t o t a l d o lla r volume o f b u sin e ss done by 15, or 5 4 p e r c e n t, o f th e 28 p la n ts The m ost common f ig u r e g iv e n fo r th e r e l a t i v e im portance o f c h e r r ie s to th e t o t a l volume o f b u sin e ss f e l l between 20 and J9 percent*

Of th e 28

p la n t s , 5# or 13 p ercen t o f them packed and s o ld n oth in g excep t c h erries* Many firm s have n ot attem pted to reduce r is k by d i v e r s i f i c a t io n .

T his makes

some o f them h ig h ly v u ln e ra b le t o th e economic sh o rt-ru n i n s t a b i l i t y o f th e red ch erry industry* Spreading th e r is k o f th e p r o c e s sin g o p era tio n s may in v o lv e th e pro­ c e s s in g o f s e v e r a l o th er p roducts whose p r o c e ssin g season d i f f e r s from t h a t o f c h e r r ie s*

kj

One p la n t tha^ p ro cessed oth er f r u i t s in M ichigan in

Of* Roy E* M a rsh a ll, “Some Trends in th e Red Cherry In d u stry*, The Oanner, January 4 , 1947* These d ata were gath ered in answer t o th e q u e stio n , “What p ercen t o f your t o t a l sa x es a re made up o f c h e r r ie s? (a ) By y ea rs or (b) A verage”* Data by in d iv id u a l y ea rs was too in com plete to be mean­ in g fu l*

90

8 7

6

Uumber of B acker s

5

3 2 1 0 0 -1 9

20-39

6o~79

80-100

P e r c e n t o f T o ta l Volume o f B u sin ess L Composed o f Bed C h e r r ie s . F ig u re 15* A verage Im p o rtan ce o f Bed C herry P ack to |J?otal Volume o f B u sin e ss f o r 2k P l a n t s , M ichigan* a s o f 1 9 ^ 8 ..

91

19^8* p ro cessed 14 d if f e r e n t p r o d u c ts ^ (F ig u re 16)*

Most p la n ts d id

n o t pack more th an s i x or sev en products* and o n e -h a lf o f th e p la n ts packed f i v e or l e s s oth er products*

Q u ite a number o f p lan ts* e s p e c ia lly

th o s e i n sou th w estern Michigan* packed v e g e ta b le s

One p la n t packed

a s many a s s i x v e g eta b les* another packed f i v e and th e r e were two p la n ts i n each group t h a t packed four* two* and o n ly one oth er v e g e ta b le pro­ duct b e s id e s some f r u it *

Most o f th e p la n ts th a t d id d iv e r s ify * d id so

by packing more f r u i t s and f r u i t products ra th er th a n by packing v eg eta b le products* P r ic e d eterm in a tio n *

The method o f determ ining p r ic e s and variou s

p r ic in g p o l i c i e s fo llo w e d in th e in d u str y are th e most im portant f a c e t s o f th e problem o f p u rch asin g and d is t r ib u t in g th e red cherrycrop*

The

p r ic in g problem i s u s u a lly e x c e e d in g ly d i f f i c u l t as th e h a r v e st sea so n approaches s in c e th e o ld pack i s u s u a lly alm ost i f not e n t ir e ly s o ld out* Thus th e r e i s u s u a lly no m eaningful p r ic e q u o ta tio n from which to b ase a new s e a s o n 9s p rice*

The grower c e r t a in ly has no b a s is fo r e s t a b lis h in g

p r ic e s ex c e p t c e r t a in q u a lit a t iv e judgments* along w ith th e judgment o f re p u ta b le canners*

U sually* a f t e r a p r ic e i s e sta b lish e d * i t i s s e v e r a l

months b efo r e anyone can t e l l whether or not th e p r ic e was too h igh or to o low*

6/

Once t h i s i s known* l i t t l e can be done by way o f adjustm ent

The t o t a l l i s t o f o th er f r u i t products in clu d ed a p rico ts* apples* peaches* pears* plums* sw eet ch erries* straw b erries* b lu eb erries* red and b la ck r a s p b e r r ie s , b la ck b erries* b o y se n b er rie s, goose­ b e r r ie s , dew b e r r ie s , e ld e r b e r r ie s , pineapple* currants* crab a p p le s , and grapes* O thers in clu d ed grape jam and raspberry pre­ se r v e s; grape* ch erry , a p p le, red currant* b lack b erry, gooseb erry, and straw berry j e l l y * Three j u ic e s , namely* a p p le, cherry* and tomato were packed along w ith apple vinegar* The t o t a l l i s t o f v e g e ta b le s packed e it h e r a s f r e s h , fr o z e n or cann­ ed c o n s is te d o f ca rro ts* sw eet corn* p otatoes* red beets* lim a beans* asparagus* c a u liflo w e r * onions* pumpkin, rhubarb* p ea s, and snap­ beans*

92 Number o f P a c k e rs 8

6

2 Wi

IS 0 11

Humber o f F r u i t P ro d u c ts

2

0 5

6

Humber o f V e g e ta b le P ro d u c ts F ig u re 16* Humber o f Red C herry P a c k in g P la n ts P a ck in g O ther F r u i t and V eg e ta b le P ro d u c ts* M ichigan# 19^8.

e x c e p t by c o o p e r a tiy e s which pay fo r th e crop on th e b a s is o f a p ool p r ic e arrangement*

The packer though i s fo rced to a d ju st h is p r ic e

s e a s o n a lly in k eep in g w ith tren d s in market demands* Because o f th e im portance o f naming th e ^right" paying p r ic e to grow ers, which t o a c o n sid e ra b le e x te n t means naming th e opening p r ic e o f th e pack, th e r e i s a g r e a t d eal o f d is c u s s io n among v a rio u s packing p la n ts as w e ll as w ith growers con cernin g what th e p r ic e should be*

The

a c tu a l naming o f a producer p r ic e i s u s u a lly done by one o f th e im portant p r iv a t e co r p o ra tio n s th a t packs red c h e r r ie s*

C oop eratives have t h e ir

g r e a t e s t d i f f i c u l t y in naming t h e ir opening pack p r ic e s in c e th e p ool method o f payment a llo w s some f l e x i b i l i t y o f payment a t th e farm le v e l* The s it u a t io n i s r ip e fo r p r ic e le a d e r sh ip by one or two im portant firm s* Xn d is c u s s in g o lig o p o ly , S t ig le r an alyzed th e s it u a t io n o f a p r ic e -le a d o r or what he a ls o c a lle d th e ca se o f th e dominant f ir m * ^

He s ta t e d th a t

as a minimum, such a firm should supply o n e-fo u rth o f th e t o t a l s a le s * Then a l s o , th e r e are numerous sm all independent r iv a ls *

Under th e s e con-

d i t io n s , th e s it u a t io n e s s e n t i a ll y becomes one o f duopoly s in c e th e o th e r fir m s a c t c o m p etitiv ely * Many assum ptions can be made regard in g th e b ehavior o f d u o p o lists and t h e ir demand cu r v e s, but S t ig le r l i s t s th e fo llo w in g as r e le v a n t f a c to r s in flu e n c in g th e demand cu rves*^ /

§/

"1*

The speed w ith which one r iv a l r e a c ts to changes in th e o th e r * s p o lic y *

*•2*

The r e l a t i v e s iz e s o f th e two firms*

George J* S t i g l e r , The Theory o f P r ic e , The M acmillan Company, New York, 19^7# p* 227*

94 Th® m o b ilit y o f p u rch a sers, in c lu d in g th e e x te n t to which lon g-term c o n tr a c ts a re used* *4*

The p o s s i b i l i t y o f k eep in g p r ic e c o n c e ssio n s sec r e t*

"5*

The c o s t s and g a in s in d r iv in g th e r i v a l ou t o f b u s in e s s . "

The ex a c t e x te n t t o which im p erfect co m p etitio n e x i s t s w ith in th e red ch erry in d u str y i n th e form o f e it h e r duopoly or o lig o p o ly i s d i f ­ f i c u l t t o determ ine*

But c e r t a in ly some o f th e c o n d itio n s fo r th e s e

ty p e s o f im p er fec tn e ss do e x is t *

With regard t o th e p o in t on p r ic e

le a d e r s h ip , one o f th e m ost common answers r e c e iv e d from p eop le in th e in d u str y to th e q u e stio n o f how th e y determ ine p r ic e s was t h a t th ey ask­ ed th e c o m p e titiv e p rice* c u t te r s "•

They would emphasize th a t th ey were not "price

O b viou sly th e s e f o lk s were lo o k in g towards someone or some

few who s e t th e p r ic e and th ey charged th e same p r ic e fo r t h e ir pack* Prom an a n a ly t ic a l v ie w p o in t, th e in d u str y in M ichigan probably has had and may co n tin u e t o have p r ic e le a d e r sh ip and a c o n d itio n approaching t h a t o f p r a c t ic a l o lig o p o ly * To go so fa r as to say t h a t p r ic e d eterm in ation a t th e farm l e v e l conforms to th e p r in c ip le s o f p e r f e c t co m p etitio n i s a ls o an ex a g g era tio n o f th e f a c ts *

There i s a form al, though somewhat i n e f f e c t i v e , b argain in g

a s s o c ia t io n o f growers or r e p r e s e n ta tiv e s o f th e p rodu ction in d u stry who have some regard fo r th e s e l f i s h advantages to be gain ed from th e possess® io n o f market power*

Growers a ls o p o s s e s s some semblance o f market power

as in form al groups or through a c o o p era tiv e a s so c ia tio n *

The firm s in

th e in d u str y a ls o exchange id e a s on e q u ita b le paying p rices*

These groups

o c c a s io n a lly do n ot agree upon paying p r ic e s and a c e r t a in amount o f bar­ g a in in g e n su e s.

The in d u str y appears to be on th e c o n se r v a tiv e s id e in

t h e s e c a s e s , but some s a t i s f a c t o r y agreement i s u s u a lly reached p r io r t o

S>5 t h e h a r v e s t season*

To th e e x te n t th a t growers on th e one hand and th e

firm s on th e o th e r a re o r g a n ized , some o f th e p r in c ip le s ap p lyin g to b i l a t e r a l monopoly are p resen t*

The p r in c ip le s , accord in g to S t ig l e r ,

s im ila r ly e x i s t but in a more com p licated form, as b i l a t e r a l o lig o p o ly * T h e o r e tic a lly , t h i s s it u a t io n y i e l d s a range o f p r ic e s ra th er than one p r ic e a t which a g iv e n q u a n tity w i l l s e ll *

This range must be r e c o n c ile d

by th e op posing groups and i s f i n a l l y s e t t l e d in r e la t io n t o th e market power t h a t each group i s a b le to exert*

At th e farm l e v e l , t h i s s it u a t io n

h as e x i s t e d . i ^ / Product d i f f e r e n t i a t i o n *

Another fa c to r making fo r im p erfectn ees in

th e market fo r red c h e r r ie s i s th e d if f e r e n t ia t io n o f homogeneous pro­ d u cts*

T w enty-three p la n ts rep orted t h a t th ey used a brand name ( e it h e r

t h e ir own or t h e ir d i s t r i b u t o r ’ s ) in 1948*

Most o f th e p la n ts e it h e r pack­

in g or d is t r ib u t in g under a brand name used more than one name*

In t o t a l ,

t h e s e 25 p la n ts e it h e r packed or d is tr ib u te d under 44 d if f e r e n t brand n a m e s T h o s e red c h e r r ie s th a t were n e ith e r packed nor d istr ib u te d under a brand name were u sed p r im a r ily in th e i n s t i t u t i o n a l tra d e where a p p a ren tly no fu r th e r d if f e r e n t io n was needed*

Some o f th e la r g e r f ir n s

d if f e r e n t ia t e d t h e ir products so t h a t competing r e t a i l o u t le t s i n th e same market area cou ld sto c k seem in gly d if f e r e n t products*

10/

I b id * p* 266-7*

ii/

Growers have h e ld mass m eetin gs s im ila r to one h e ld in th e Hart area i n 1948 a t which th e y p r o te ste d th e packers o f f e r o f 9 ce n ts a pound and h e ld out fo r cen ts* The p r ic e was f i n a l l y s e t t l e d a t about 9 i c e n ts in t h i s p a r tic u la r area*

12/

These 44 brands were n o t used e x c lu s iv e ly on homogeneous products* V a r ia tio n s in q u a lity as w e ll as v a r ia tio n s in th e pack such as heavy vs* l i g h t syrup were a ls o included*

96

The m ost common amount o f a p la n t ’ s ou tp u t e it h e r packed or d i s t r i ­ buted under i t s own brand name(s) f e l l between ^0 and 59 p ercen t (F ig ­ u re 17)*

Only 2 p la n ts in each c a se packed or d is tr ib u te d l e s s than 50

p ercen t under t h e ir own b r a n d (s).

F iv e p la n ts packed or d is t r ib u te d pO

p er ce n t o r more under t h e ir own b r a n d (s ). S a le s agreement*

A fu r th e r c o n s id e r a tio n , i n a d d itio n to th e u n i­

l a t e r a l fe a tu r e s o f th e p r ic e or s a le s agr cement ,^ 2 / i s a form o f le g a l p r ic e c u t t in g in s o fa r a s th e fe a tu r e s o f th e Bobinson-patman A ct sire concerned*

Brokers f e e s a re 5 p ercen t o f th e s a le s p rice*

I f th e broker

i s b y -p a sse d , th e p r ic e to th e w h o lesa ler can be somewhat l e s s s in c e th e brokerage f e e i s n o t paid*

T his i s b ea rish on th e market and encourages

r e t a l i a t i o n by th o s e who s e l l through b rok ers, and t h i s in tu rn s e t s up a c h a in r e a c t io n le a d in g to fu r th e r p r ic e red u ction s*

For example, suppose

th a t a packer s e l l s a dozen number 2 cans to a w h o lesa ler a t 2*00 d o lla r s* The p a ck er’ s n e t p r ic e i s 1*94 d o lla r s (2 .0 0 d o lla r s l e s s 5 p ercen t)*

The

packer who b y -p a sse s th e broker can s e l l to th e w h o le sa le r , c e t e r i s p a rib u s, a t 1*94 d o lla r s *

The packer s e l l i n g through a broker must s e l l to th e

w h o le sa le r a t 1*94 d o lla r s , i f h e wants t o e f f e c t a s a le which means th a t h i s n e t p r ic e i s th en o n ly a f r a c t io n over 1*83 d o lla r s*

I f t h i s p r ic e i s

s t i l l p r o f it a o l e , th e d ir e c t s e l l e r can th en s e l l a t 1*68 d o lla r s , cau sin g perhaps a fu r th e r r e d u c tio n in p r ic e s by th e firm s e l l i n g through a broker* These p r ic e c u t tin g wars are u s u a lly o f a l e s s magnitude than i l l u s t r a t e d s in c e th e broker does perform a m arketing fu n c tio n which saves th e packer some c o s t s .

Y et th e s e r e a c tio n s can have a tremendous b ea rish impact upon

a j i t t e r y or weak m arket, and rnuBt be guarded a g a in s t o r a t l e a s t recog­ n iz e d as b ein g temporary by th e more s ta b le firm s in th e in d u str y .

15/

O f. Chapter I

The ex*

97

90 and ' over

Less th a n

50-59 P e r c e n t Packed

and o v er

90

L ess th a n 60-69

70-79

P e rc e n t D i s tr ib u t e d P ig u re 1 ?. P e r c e n t o f Red C h e rrie s P acked o r D i s tr i b u t e d Under th e P a c k e r 's Ov/n Brand Name by Number o f P ackers* M ich ig an , 19^8*

98 i s t e n c e o f such a l e g a l p o lic y p lu s th e u n ila t e r a l s a le s agreement regard­ in g p r i c e s , te n d s to m agnify th e p r ic in g problem th a t e x i s t s w ith in th e in d u stry *

A com bination o f a l l th e s e fo r c e s makes an in d iv id u a l firm w ith ­

o u t s u f f i c i e n t working c a p it a l or o th er fin a n c in g p a r t ic u la r ly v u ln era b le t o such p r a c tic e s * S to ra g e p o l i c i e s * p e c u lia r t o o u tsid e r s *

S to ra g e p o l i c i e s pursued by th e packers appear Taking th e in d u str y as a w hole th e r e has been a

n a tu r a l a v e r s io n to y e a r -to -y e a r storage*

Most p la n t op erators f e e l th a t

an in d ex fo r th e measure o f su c c e ss o f o p era tio n s in a p a r tic u la r year i s how f a s t th e pack i s moved*

M arshall s ta te d th ^ t a t l e a s t 60 p ercen t o f

th e pack in number 10 cans should be moved by December 1 , and a s l i g h t l y h ig h er p ro p o rtio n o f th e number 2 canned pack should be so ld a ls o by Dec­ ember 1 each year i f th e pack i s to be moved p r io r t o th e n ext h a rv est s e a eon*^ ^

This f e e l i n g s t i l l p r e v a ils in th e th in k in g o f th e in d u stry p art­

l y b ecau se th e q u a lity o f th e new pack i s u s u a lly such t h a t s a le s o f th e o ld pack are reta rd ed or p r ic e co n c e ssio n s are so d r a s tic th a t l o s s e s occur* TheBe a re dan gers, but i f th e r e i s any r e la tio n s h ip between packs and q u ali t y , one would ex p ect th a t th e la r g e packs would be o f h ig h e s t q u a lity and th e sm all packs o f poorer q u a lity *

T herefore th e h ig h er q u a lity o f th e

la r g e packs should be a b le to compete w ith th e poorer q u a lity o f th e sh ort pack#

14/

P r ic e s should a ls o be s u f f i c i e n t l y d if f e r e n t based upon th e s e d i f f e r -

Roy E* M a rsn a ll, P rodu ction and p r ic e Trends in th e P it t e d Red Cherry Indust r y * M ichigan S ta te A g r ic u ltu r a l Eaqperiment S ta tio n , S p e c ia l B u lle t in 2^8, February, 1955*

99 e n t volum es packed th a t th e r e need b e l i t t l e fe a r from g e t t in g a s a t i s ­ fa c to r y p r ic e fo r th e ca rry -o v er pack*

A la r g e r fe a r would seem to be

th e d e p r e ssin g e f f e c t o f l a s t y e a r 's pack on t h i s y e a r 's pack p r ic e s i f th e r e i s a carry-over*

The p ressu re a t t h i s p o in t comes from growers who

do n o t care t o r e c e iv e a p e n a lty in th e p r ic e t h i s year because th e pack­ e r s were tr y in g to meke more money on l a s t y e a r 's pack* S to ra g e or d is t r ib u t in g q u a n tit ie s through tim e ( i n y ea rs) maximizes t o t a l reven u es provided th e e l a s t i c i t y o f demand i s such th a t th e curve becomes more i n e l a s t i c as q u a n tit ie s are reduced*

S torage red u ces

t o t a l revenue i f th e e l a s t i c i t y o f demand i s such t h a t th e curve i s more i n e l a s t i c as q u a n t it ie s are reduced*

As has been p o in ted out above, th e

p r a c t ic a l problems o f p r ic e n e g o tia tio n may be so numerous th a t sto ra g e i s n o t f e a s ib le *

Then, t o o , th e p r a c t ic a l problems may a lso be t h e o r e t i­

c a l l y sound, because any s t r a ig h t l i n e demand curve f u l f i l l s th e r e q u ir e ­ m ents conducive to

non**storage«

In t h i s ca se th e e x te n t o f any sto r a g e

p o l i c y c a r r ie d on depends upon th e p o t e n tia l good w i l l from th e depend­ a b i l i t y o f th e source o f supply, o th er non-monetary advantages, as w e ll a s who may be a b le to s to r e a t lo w e st cost* C o st8 o f sto r a g e and p r o c e ssin g * a s betw een th e fr o z e n and canned packs*

C osts o f sto r a g e vary co n sid era b ly Much o f th e sto ra g e and warehous­

in g fo r th e canned pack are performed by th e packers them selves and c o s ts are m erely p r o -r a te d over th e t o t a l volume o f b u sin e ss and not seg reg a ted as a se p a r a te fu n ctio n *

l^ /

Frozen pack i s u s u a lly fr o z e n and sto red by

George J* S t i g l e r , " S ocial W elfare and D if f e r e n t ia l P r ic e s " , jo u r n a l o f Farm Economics, xx (1 958) , 5, 575-90 (In clu d in g a r e jo in d e r by F . V* Waugh) fo r a d is c u s s io n o f th e p r in c ip le s in volved *

100 s p e c ia liz e d c o ld sto r a g e w arehouses.

O osts in 1948 ranged from 0 .0 1 5

d o lla r s p er pound fo r fr e e z in g and th e f i r s t m onth's sto ra g e to 0.0281 d o lla r s per pound.

C osts f o r a d d itio n a l months ranged from 0 .0 0 0 7 to

0 .0 0 5 8 5 d o lla r s per pound.

The m ost common c o s t fig u r e fo r sto r a g e

a f t e r th e f i r s t month was 0 .0 0 1 5 d o lla r s per pound. The s a le s p o l i c i e s fo llo w ed a f f e c t t h e sto r a g e p o l i c i e s o f in d iv id u a l fir m s .

I f a buyer o r a number o f buyers back-up on ord ers because o f

p r ic e drops o r slow s a l e s , th e packer i s sometimes fo rced to perform th e s to r a g e fu n c tio n f o r lo n g er p erio d s than o r ig i n a lly ex p ected .

Backups

on o rd ers are s e r io u s and have d ir e consequences s in c e s e l l i n g c o s t s must b e in cr ea sed i n order t o s e l l th e pack and i n th e meantime a d d it­ io n a l sto ra g e c o s t s a ccru e.

These back-ups th us put a double squ eeze on

m argin s. P r o c e ss in g c o s ts in 1948 fo r number 2 cans v a ried from 0 .0 5 6 6 to 0 .0 8 4 4 d o lla r s per pound fo r th o se r e p o r tin g .

For number 10 cans th e

c o s t s per pound v a ried from 0.0545 to 0 .0 5 7 d o lla r s . o f th e f r u i t was about 0 .0 9 d o lla r s per pound.

The average c o s t

Based upon th e se d a ta ,

t o t a l c o s ts cou ld vary as much a s about 0*025 d o lla r s , and assuming id en ­ t i c a l r e t a i l p r ic e s , p r o f it s could a ls o vary by th e same amount.

For th e

fr o z e n pack in 1948, p r o c e s sin g c o s ts v a ried from a low o f 0 .0 4 5 5 d o lla r s p er pound t o 0 .0 8 0 5 d o lla r s per pound.

Adding about 0 .0 9 d o lla r s per

pound fo r th e c o s t o f f r u i t and th e t o t a l c o s ts l e s s sto ra g e and ware­ h o u sin g ranged from 0 .1 5 5 5 t o 0.2105 d o lla r s per pound.

This range o f

n e a r ly 0 .0 7 7 2 d o lla r s per pound was alm ost th r e e tim es as h igh as th e range i n c o s t s fo r th e canned pack and means th a t th e r e i s a wide range i n th e e f f i c i e n c y o f in d iv id u a l fir m s.

These v a r ia tio n s can be p a r t i a l l y

e x p la in e d by th e f a c t th a t th e c a p it a l investm ent fo r p la n ts packing o n ly

101 cold pack are very low as compared with the investment necessary for purchasing and maintaining the equipment necessary for hot packing* firms usually begin operations by cold packing. the plant as business expands.

New

Hot lines are added to

But getting started may entail higher

costs than those of competitors.

High interest costs on borrowed capi­

tal, lack of quantity discounts, high selling costs, and higher paying prices for ftruit as compared with more efficient firms makes entry into the industry a difficult process.

Even so, the fixed costs are lower

in relation to variable costs for cold packing as compared with hot pack­ ing and with the existence of capital rationing, it is much easier to finance short-term working capital than long-term fixed capital.

Summary.

The red ch erry in d u stry in M ichigan has been a r a p id ly

grow ing in d u str y s in c e 195^*

P r ic e s ro se in th e fa c e o f expanding pro­

d u c tio n making i t conducive to th e en try o f new fir m s .

C onsequently,

th e number o f firm s packing red c h e r r ie s in M ichigan in crea sed from 19 t o 44 during th e 18 y e a r s .

The p ercen tage o f th e t o t a l pack packed by

th e f i v e l a r g e s t firm s has d ec lin e d during th e same p erio d , le s s e n in g t h e amount o f economic co n ce n tra tio n p r e s e n t.

The q u a n tity o f fr o z e n

pack has in c re a se d r e l a t i v e to th e canned pack and th e most popular typ e o f c o n ta in e r s has been th e number 2 and 10 cans fo r th e h ot pack and th e 50 pound t i n fo r th e fro zen pack*

The in d u stry i s h ig h ly s p e c ia liz e d but

a few fir m s d i v e r s i f y t h e ir o p e r a tio n s by p r o c e ssin g oth er f r u i t s and v e g e t a b le s .

There i s some evid en ce o f p r ic e lea d ersh ip as w e ll as b i­

l a t e r a l o lig o p o ly e x i s t i n g in th e in d u str y .

Product d if f e r e n t io n i s one

o f th e s a l e s p r in c ip le s fo llo w ed by most fir m s.

S to ra g e, and p a r tic u la r ­

l y p r o c e s sin g c o s t s , vary among firm s w ith th e most v a r ia tio n o ccu rrin g

102 for the processing costs for the cold pack.

This analysis sets the

stage for a more thorough analysis of prices in the subsequent chapters.

CHAPTER VII THE RED CHERRY PACK AND PRICE TRENDS One of* the main purposes of this study was to attempt to develop an historical price series for the various important types of pack by sur­ veying the cherry packers in the state and collecting price data from 195^ until the present time.

Many problems were encountered.

For in­

stance, most firms place all their records in dry storage after the elapse of a few years.

Thus, there was no possible way to get data from these

plants for those years.

But data were reasonably complete for at least

a few of the major firms for the years beginning in 1 958.

For the three

years, 1955* 195^* and 1957 prices had to be estimated for the major types pack.

These prices were estimated from the regression of farm

prices of red cherries on prices of number 2 and number 10 cans.

Combin­

ing all of the alternatives for determining prices, a complete histor­ ical series was developed for number 2 and number 10 cans. Prices for the frozen pack were not collected by Marshall-l/ along with prices for number 2 and number 10 cans.

Therefore there were no

published prices for the frozen pack prior to 195^*

The only series that

could be developed then was that from prices obtained by survey.

These

were available from enough packers for the development of a price series on the frozen pack from 1957 through 1948. Prices for each of the above mentioned types of pack moved fairly close together (Figure 18).

Prices for number 10 cans are shown as so

much per I d o s e a ^ since the value of 5 number 10 cans has been approx-

y 2 /

Of* Roy E. Marshall, production and price Trends in the Pitted Red Cherry Industry, Michigan State Agricultural Experiment Station, Special Bulletin ^ 8 , February, 1955* Number 10 and number 2 cans are usually quoted as so much per dozen. A case of number 10 cans consists of six cans while a case of number 2 cans consists of twenty-four cans.

o

o

cm

vr\ o

o

CM

1931

-3"

cn and 1946*

124 (0 *8 7 6 ), the net relationship between the two was slightly negative (Figure 2J)•

Its weight in the regression equation was the smallest of

all the variables as evidenced by its low t—value*

In general, an ir^«

crease of 10 points in the index of marketing charges was associated with a decrease of about 0*05 dollars per dozen* Time was a fairly important variable in the regression equation (Figure 24)*

Its net regression value was negative to the extent that

each additional year caused a price reduction of aDout 0.05 dollars per dozen* Hie regression equation was fairly efficient in estimating the aver­ age f.o.b* price of red cherries in number 2 cans (Figure 2 5 ) . ^

Hie

estimate of 1945 was 0*24 dollars per dozen too low, which represented the largest absolute error for any year* 0*01 dollars too low*

In 1941 the estimated price was only

The average error was equal to 8*6 percent of the

mean value for the 15 years* prices of number 10 cans*

The same analysis applied to the pack in

number 10 cans yielded very similar results*

r*l

r *2

rl .

1

*166

r 2*

•166

r?*

•908

.477

r4.

*869

.465

*9?0

*30?

.410

.900

r5*

1

1

The correlation matrix was

r *5

r *4

r#5

*908

.869

.805

.477

.465

•4io

.950

*900

1

1

♦7?6

*7?6 1

which yielded the multiple regression e q u a t i o n i S /

2 /

The coefficient of multiple linear correlation, r3^ 2 5 4 5 * was e(lua^ 0*964 and its standard error, 83^ 2 5 4 5 * was e(lual to dozen*

dollars per

125

L80

1 .4 * i*7B6

^ 0032?%

Dozen

I .6 0

Xp

D ollars

per

41

1.20

3.00 90

100

110

120

130

150

Sty - In d ex o f M ark etin g Charges F ig u re 2 3 . A verage H e la tio n s h ip Between f . o . b . P la n t P r ic e per Dozen Humber 2 Cans o f Heel C h e r r ie s and U n ite d S ta te s M ark etin g C harges w ith S ta te P r o d u c tio n , U n ite d S ta te s P e r s o n a l Con** sum ption E x p e n d itu re s , and Time H eld C o n s ta n t, 1931-48, e x c lu d in g 1944, 1945» and 1946.

126

1. 90* L80

Xx *

1

*7182 - . 0 3 3 8 X5

1.60

1

1.20

1.00

.801

X5 - Time in Years S in ce 1930 F igu re 2h*

Average R e la tio n s h ip Between f . o . b . p la n t P rice per Dozen Number 2 Cans o f Red C h erries and Time w ith 5 -S ta te P rodu ction , U n ited S t a t e s P erson al Consumption E xpenditures and M arketing Charges Held C on stan t, 1931-U 8, ex clu d in g 19Wi, 19U5, and 1 9 i6 .

127

O CM

P ) CD

& &

P i CD N * O MO PI -j" On P i fH CD CO

c3

CD

•H •* U UM Pt d"

CD O n

Xl r— 1 ^ -3* 1—I

P i ON

*H O

P
— \

3.20

32 .60 i! . 4

t

1

.

8

1

.. j

..........

9 10 (000 O m itted)

X 3 - P e r s o n a l Consum ption E x p e n d itu re s (10 M illio n D o lla r s ) F ig u re 27.

A verage R e la tio n s h ip Betw een f . o . b . P la n t P r ic e p e r i Dozen Number 10 Cans o f Red C h e r r ie s i n M ichigan and U n ited S t a t e s P e rs o n a l Consum ptio E x p e n d itu re s w ith 5 - S ta te P r o d u c tio n . U n ited S t a t e s M arketing C h a rg e s, and Time H eld C o n s ta n t, 1931~48, e x c lu d in g 1944, 1945, and 1946.

i— .

_

\

3.40

151

o “CO 1— I

,£ p 0 1— 1 - H i £ a)

o

v/ n

rH

ia 0 tuo £ xl O tjfl £

O

£

•H P

CD

* s o

s £

fxj

rH

% CO

s

£ ©

O O

CD

- * - t pY

o

CXD

CVJ 0

9 •H (H

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o

vO

U 8Z0C T

Y

6

CO

CM

CO

e.o o

* 0 0 £ 3 -p *H 0 e»o £ £ Ph £ 0 • £ Oh ,Q £ • 0 1— 1 O 0 0 £ • c8 P K 4 -1 ti 0 •H P m £ £ CO 0 O 0 •H » £ V *=ri 0 1 P p rH 0 £ •H C O p q •H £ O N P > rH P h 0 •» •H 0 , £ *H £ P CO £ 0 £ £ • H £0 £ 0 P 0 P 0 •H r £ O O £ £ O nJ rH t ) 0 O 0 0 P h P4 Oh -d 1— 1 0 0 & 0 P ffi cS c$ 0 P £ 0 d CO 0 > co f *H v rv e h < O 0 0 *»0 £ a & 0

■!© O

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UN

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& "*rt

U 0 0 u a o p

CO

o o cft

o

O UN

•

H H O Q

/

_______

g Ph

>

NS^ \

0

X

-•5 \ N s /

47 ,

i i ti i 1

48 V

-.1 0

✓ ^

1 90

! i 100

. . . . .

110

120

130

140

150

- Index o f Marketing Charges f ig u r e

33* Average H e la tio n sh ip Between f . o . b . P la n t P r ic e s Per Pound in 30 Pound Tins o f Red C herries in Michigan and U nited S ta te s M arketing Charges w ith 5 - S ta te P rodu ction , U nited S ta te s ' P erso n a l Consumption E xpenditures and Time Held C onstant, 1937-^3 •

1 1 1

138

.25

1.5

* * - . 053X5 -f .312^

D ollars

per

Pound

.20

.10

.05

10

17

~ Time in Y ears S in ce 1930 F ig u re 3k •

Average H e la tio n s h ip Between f . o . b . P la n t P r ic e s P e r Pound in 30 Pound T in s o f Bed C h e rrie s in M ichigan and Time w ith 5 - S ta t e P r o d u c tio n , U n ite d S ta te s P e rs o n a l Consum ption E x p e n d itu re s , and U n ite d S t a t e s M ark etin g C harges H eld C o n sta n t, 1937-19^8.

CO

g jg iiiiiiiil

VO, *H

»H

-P (1) W.H

CNm

C°V c r \

■P

•P

ON

% rH O

s H

9-

VO

rH

iH

CO

VO o

l 4o Relationships among pack prices»

Since f*o*b* pack prices of number

2 and number 10 cans correlated almost identically with the independent variables, and since JQ pound tin price movements were almost identical with those for number 10 cans, there appears to be sufficient justification for purposes of expediency to relate pack prices with each other rather than proceed from the basic analysis*

For farm prices, an additional factor

may have to be considered# The coefficient of correlation for the price of number lOoans and the price of 2*s was 0*992 which yielded a regression equation for 10*s, in terms of 2*s of Y per \

1*22X - 0*17# where Y equals the price of number 10*s

dozen and X equals the estimated price of number 2*s per dozen* i y -

Using this procedure to estimate theprice of 10*8 per J dozen, the standard error was only increasedsbout 0*02 dollars*-^/

These two procedures are

illustrated in Figure 56 where they are compared with the actual prices as they existed 192^ to 1948* For the years 1957 to 19^8, the price of red cherries frozen in pound tins also correlated very high with the average f#o#b* price of red cherries in number 2 cans — • the coefficient of correlation being 0*9$9* The regression equation was Y s Q*06lX

*002 where Y equals the price per

pound in ^0 pound tins and X equals the estimated price of red cherries per dozen number 2 cans* 0*01 dollars

smalleri^/

The standard error of this procedure was about than for the original analysis which included the

abnormal years (Figure 27 )•

15/

See Table VIII for the basis data used*

iy

0*202 dollars as compared with 0*184 dollars*

1^/

0*020 dollars as compared with 0*009 dollars*

C>o rH

o

C\J CJ On rHW

^3” *rH

r.;:;.::iW-t=/:;-;.t.*^g

*■* r T Tfil-ftif■♦■■

» % % T « » > I» > :* > I* i* .+I * i, *%**%****Tk’

o 5

r -i

vr\

W

O

o

o

rH

U0ZO(X Y

S J^ IX O d

rH

l4 l

• -durable good s, i n which c a se changes i n p rod u ction would be th e m ost im portant fa c to r in determ in in g fu tu r e p r i c e s . p la u s ib le *

These l a t t e r two p o s s i b i l i t i e s seem m ost

That i s , red cherry p r ic e s can be exp ected to remain e ith e r

a t , or s l i g h t l y below p re se n t l e v e l s w ith a gradual w idening o f th e spread betw een f .o .b * pack p r ic e s and farm p r ic e s . Other t r e n d s *

There are some o th er tren d s th a t are l i k e l y in th e

in d u s tr y , based in p a rt on th e tren d s in clu d ed e it h e r d ir e c t ly or in d ir e c t ly

155 i n th e above a n a ly s is , but a ls o on some o u ts id e fo rces*

The developm ent

o f new u s e s fo r th e product as w e ll as new ty p es o f pack o f f e r p o s s i b i l — i t i e s fo r expanding th e markex* and in c r e a sin g th e aggregate demand fo r th e product*

The developm ent o f new u se s sometimes in v o lv e s th e d evelop ­

ment o f a new re c ip e *

B a k e r ie s, flo u r m anufacturers, candy m akers, i c e

cream f a c t o r i e s , and many o th e r s a s s o c ia te d w ith th e i n s t i t u t i o n a l tr a d e , have re se a r c h c o n s ta n tly under way to supplement th a t o f th e in d u stry i n th e q u est f o r new u se s fo r t h e ir products*

Red c h e r r ie s fbr b r in in g

have in c r e a se d in volume s in c e th e 1t h i r t i e s , and some have a ls o been g la c e d and u sed a s a co n fec tio n *

Jams, p r e s e r v e s , and j u ic e s a ls o r e ­

p r e se n t s p e c ia l u se s th a t expand th e q u a n tity th a t can be sold*

A con­

c e r te d e f f o r t i s b ein g made to pack red c h e r r ie s in ex tra heavy syrup so t h a t th e y may be consumed d i r e c t l y from th e can as d essert*

T echn ical

problems o f m a in ta in in g and han dling such heavy syrup have been encounter­ ed, and consumer r e s is t a n c e i s s t i l l presen t*

Yet a product th a t

i s de­

s ir a b l e and t h a t w i l l compete fa v o ra b ly w ith oth er canned f r u i t s a s a d e s s e r t h o ld s g r e a t p o t e n t i a l i t i e s fo r appeal in th e mass consumer market* New ty p e s o f pack a ls o o f f e r p o s s i b i l i t i e s *

I n i t i a l l y , th e fr o zen

pack was d esign ed e x c lu s iv e ly fo r th e i n s t i t u t i o n a l trade*

G radually a

few red c h e r r ie s were packed in sm aller and sm aller c o n ta in e r s u n t i l th e 1 pound consumer package became f a i r l y popular*

The most common ty p e o f

1 pound fr o z e n package has been th e waxed cardboard co n ta in er w ith m etal en d s.

On th e p ack in g l i n e , th e s e co n ta in er s have not y e t been adapted fo r

th e speed and accu racy o f s e a lin g t h a t i s t y p ic a l o f a number 2 can h ot pack l i n e . damage*

A p o o rly s e a le d co n ta in er th a t le a k s cau ses a g r e a t d ea l o f

C onsequently, th e in d u stry i s now in tro d u cin g a m etal package

s im ila r to th e number 2 can which w i l l overcome th e d i f f i c u l t i e s en cou n t-

156 ©red with the cardboard containers*

But the problem still to be over­

come is that of* educating the consumer to keep the package frozen*

Other­

wise there is the danger of over— expansion of the contents causing a minor explosion* Advertising program* A strengthening factor for future prices in view of the potential increase in production is the advertising program now under way for red cherries*

At the national level, the National Red

Cherry Institute is the organization whose primary function is to promote the red cherry* this function*

In Michigan, the Michigan Cherry Commission performs By act of the state legislature in Michigan in 1947* a

commission composed of representatives of growers and packers was formed for the sole purpose of promoting the red cherry industry*

The Commission

is appointed by the Governor and approved by the state legislature.

The

activities of the Commission are financed by a subscription of *001 dollars per pound of raw product sold, levied on each grower and collected by the packers at the time of sale*

The subscription is not compulsory.

Growers may claim exemption from the tax by filing exemption forms with the proper authorities if they so desire*

Compliance has been high.

The

provisions of the act have only been in effect for two years and each year the rate of compliance has exceeded 90 percent of the product marketed* Thus, the Commission's operating funds have exceeded 100 thousand dollars in each of the years 1948 and 1949*

Actually the amount of funds was

almost equal for the two years since the rate of compliance was enough higher in 1949 to offset the effects of the smaller crop as compared with 1948*

The Commission^ policy has been not to advertise Michigan cherries

as such, but to promote the product*

Consequently, the Commission has

cooperated with the National Red Cherry Institute to promote the product

157 n a t io n a lly w ith no co n certed e f f o r t t o d i f f e r e n t ia t e c h e r r ie s grown in M ichigan from c h e r r ie s grown in o th er s ta te s *

Judged from th e stand­

p o in t o f e f f i c i e n t m arketing and w ise p o lic y t h i s procedure seems sound* How s u c c e s s fu l th e a d v e r tis in g program has b een , o f co u rse, would be d i f f i c u l t t o m easure.

As compared w ith 1948, red ch erry p r ic e s were

p r a c t i c a l l y th e same i n 19^9, averagin g about *09 d o lla r s per pound in each year * A ll farm p r ic e s dropped from t h e ir a l l tim e h ig h in 1948 to lower l e v e l s in 1949*

The in d ex o f a l l f r u i t p r ic e s , h e a v ily w eigh ted

by ap p le p r ic e s , f e l l c o n sid e ra b ly from 1948 t o 1949 a l s o .

Whether ad­

v e r t i s i n g had much e f f e c t upon m a in ta in in g th e r e l a t i v e f a v o r a b ilit y o f red ch erry p r ic e s i s very d i f f i c u l t t o sa y , but i t probably has been a co n tr ib u to r*

I t has been estim ated th a t fo r each d o lla r sp en t fo r ad­

v e r t i s i n g d i r e c t l y by th e in d u stry i t has r e c e iv e d th e eq u iv a le n t o f 10 d o lla r s worth o f a d v e r tis in g space s in c e r e la te d in d u s tr ie s t i e in t h e ir 14/ a d v e r t is in g programs w ith t h a t o f th e ch erry in d u str y *— ' This would mean t h a t c h e r r ie s have been promoted by th e e q u iv a le n t o f more than 1 m ill io n d o lla r s worth o f a d v e r tis in g per year* Use o f r e s u lt s o f p r ic e a n a ly s is *

The u se o f p r ic e a n a ly s is in th e

fo rm u la tio n o f e x p e c ta tio n s a ffo r d s an op p ortu n ity fo r th e red u ctio n o f p r ic e u n c e r ta in ty f a c in g bo^h growers and packers* u n c e r ta in ty cou ld do two th in g s*

The red u ctio n o f p r ic e

F i r s t , i t could reduce th e range o f p r ic e

e x p e c ta tio n s by in d iv id u a ls in th e market to th e e x te n t t h a t income through tim e i s more sta b le * 2 5 /

S eco n d ly, i t could add to th e com p leten ess as w e ll

By A* J* R ogers, M gr., Cherry Growers, I n c ., b efo r e a m arketing c la s s a t M ichigan S ta te C o lle g e i n Marcn, 1950* X^/

d » Gale Johnson, Forward P r ic e s fo r A g r ic u ltu r e , U n iv e r s ity o f Chicago P r e s s , C hicago, I l l i n o i s , 19^7* Of* e s p e c ia lly Chapter XIII*

158 ae th e p e r f e c tn e s s o f knowledge about th e market*

This would mean th a t

th e market i s more n e a r ly p e r fe c t and would o p era te more n e a r ly in con­ formance w ith th e p r in c ip le s o f p e r f e c t com petition *

To th e e x te n t th a t

p r ic e a n a ly s is c o n tr ib u te s to th e r e d u c tio n o f p r ic e u n c e r ta in ty in th e s e two w ays, i t should prove to be b e n e f ic ia l to th e industry* A fu r th e r in d u str y tren d t h a t would ten d t o make th e market more p e r f e c t i s th e tren d away from con cen tration *

As th e in d u stry has e x ­

panded, more and more firm s have en tered , th u s reducing th e r e l a t i v e im portance o f th e la r g e r firm s*

With th e probable fu tu re in c r e a s e s in

p ro d u ctio n , i t i s l i k e l y t h a t more firm s w i l l con tin u e to en ter th e ix>d u str y ra th er than th e r e b e in g any major tendency fo r th e p r e se n t firm s t o become la rg er*

There w i l l probably always be some c o n s o lid a tio n o f

sm a ller firm s who do not en joy some o f th e econom ies o f s c a le o f th e la r g e r fir m s and encounter f in a n c ia l d i f f i c u l t i e s .

T h is, o f co u rse, i s

h e a lth y fo r th e in d u str y s in c e more economic e f f i c i e n c y i s a tta in e d by so doing* The fu tu r e o f th e red cherry in d u stry in M ichigan appears b righ t* i

In d u stry p o l i c i e s and tren d s are such t h a t th ey ten d to promote sound­ n e ss and e f f i c i e n c y .

F o llo w in g such p o l i c i e s , p r ic e s and incomes to

growers should rem ain r e l a t i v e l y fa v o ra b le in th e y ea rs ahead as compared w ith o th e r a lt e r n a t iv e o p p o r tu n itie s fo r e it h e r grower or packers*

CHAPTER X SUMMARY AND CONCLUSIONS 1*

The red ch erry in d u stry has become a h ig h ly s p e c ia liz e d b u si­

n e s s and has been of* commercial im portance in o n ly a few c o u n tie s o f a r e l a t i v e l y sm all number o f s t a t e s .

In many o f th e s e c o u n tie s th e wel­

f a r e o f a g r ic u ltu r e and in d u stry depends upon th e income d erived from t h e ch erry crop*

Once th e crop i s determ ined fo r a p a r tic u la r y ea r,

p r ic e s h o ld th e key to income and w elfa re fo r th e s e areas so th a t es­ t a b li s h i n g th e " rig h t* p r ic e i s o f major importance* 2*

The farm v a lu e o f th e p rod u ction o f red c h e r r ie s has c o n s titu te d

from about 1 /2 p ercen t to s l i g h t l y more than. 2 5 /4 p ercen t o f th e v a lu e o f a l l farm p ro d u ctio n in M ichigan s in c e 1951*

Incomewise, red c h e r r ie s

have produced as much as 18 m illio n d o lla r s in 1946 in th e lo c a liz e d commercial a rea s o f th e s t a t e . 5*

The p ro d u ctio n o f red c h e r r ie s has been h ig h ly v a r ia b le from

y ea r t o year in M ichigan a s w e ll as in th e U nited S t a t e s , and in r e c e n t y e a rs th e m agnitude o f t h i s v a r ia t io n has markedly in c r e a se d .

This

phenomenon i s m ain ly due to th e i n t e n s i f i c a t i o n o f produ ction m aking.the t o t a l ou tpu t more s u s c e p t ib le to th e exogenous n a tu ra l and economic fo r c e s a f f e c t i n g th e industry* 4*

The p r ic in g problem a t th e farm l e v e l has always been acu te in

view o f th e f a c t th a t p r ic e s must be e s ta b lis h e d on th e b a s is o f a n t i­ c ip a te d a s w e ll as p r e se n t supply and demand co n d itio n s*

B ut, th e r e are

no cu rren t q u o ta tio n s upon which to base e stim a te s o f th e s e co n d itio n s* T herefore in fo rm a tio n or g en era l knowledge th a t would reduce th e range o f u n c e r ta in ty c o n fro n tin g producers and p ro cesso rs in th e in d u stry should in c r e a s e th e o v e r a ll economic e f f i c i e n c y o f th e industry*

160 5*

P ro d u ctio n and farm p r ic e s o f red c h e r r ie s have tren ded upward

whether M ichigan, th e f i v e e a s te r n s t a t e s , or th e U nited S ta te s was co n sid er e d as th e area*

The exp ected in v e r se year t o year r e la t io n s h ip

betw een p r ic e s and p rod u ction did not c o n s is t e n t ly occur in any o f th e s e a r ea s fo r th e y e a r s b eg in n in g w ith 1955 an(* exten d in g through 19^8 p r im a r ily b eca u se o f o v e r a ll i n f l a t i o n o f a l l p r ic e s fo r t h e s e years* p r o d u c tio n th u s bore l i t t l e r e la tio n s h ip to p r ic e s* 6*

The most im portant f a c to r s a f f e c t in g th e farm p r ic e o f c h e r r ie s

were th o se in d ic a tin g or r e f l e c t i n g l e v e l s o f aggregate demand*

The n e t

r e la t io n s h ip betw een M ichigan p r ic e s and 5“ s t a t e p rod u ction was zero , w h ile th e n e t r e la t io n s h ip between th e in d ex o f a l l farm p r ic e s and red ch erry farm p r ic e s in M ichigan was h ig h ly p o s it iv e *

P erson al consumption

e x p e n d itu r e s, as an in d ic a to r o f aggregate demand, bore a h igh p o s it iv e r e la t io n s h ip w ith farm p r ic e s* 7*

U sing th e fou r independent v a r ia b le s , 5-® bate p rod u ction , per­

so n a l consum ption ex p en d itu res in th e U nited S t a t e s , th e in d ex o f U nited S ta te s farm p r ic e s , and tim e , th e M ichigan farm p r ic e o f c h e r r ie s was estim a ted w ith an erro r th a t exceeded 0*01 d o lla r s per pound in o n ly 2 o f th e 15 y e a r s in clu d ed in th e a n a ly s is .

The standard error o f th e

e s tim a te was 0*0065 d o lla r s per pound* 8*

The f a c t o r s s e le c t e d fo r th e a n a ly s is o f red cherry pack p r ic e s

in clu d ed t o t a l p ro d u ctio n in 5 - s t a t e s , p erson al consumption exp en d itu res i n th e U nited S t a t e s , an in d ex o f m arketing charges in th e U nited S t a t e s , and tim e*

Of th e s e independent v a r ia b le s , th e n e t e f f e c t o f p erson al

consum ption ex p en d itu res was h ig h ly p o s it iv e w h ile th e n e t e f f e c t o f each o f th e o th er v a r ia b le s was n egative*

p erso n a l consumption exp en d itu res

c a r r ie d t h e g r e a t e s t w eigh t in th e r e g r e s s io n eq u ation s fo r th e canned

161 pack fo llo w e d by p r o d u c tio n , tim e, and m arketing charges in t h a t order* The c o e f f i c i e n t o f m u ltip le c o r r e la tio n was s l i g h t l y more than 0*96 fo r th e two d i f f e r e n t ty p e s o f canned pack*

The a n a ly s is o f th e fro zen

pack in c lu d e d few er y e a rs but th e r e la t io n s h ip s were sim ilar* 10*

As was tr u e w ith farm p r ic e s o f red c h e r r ie s , th e r e was

l i t t l e g r o ss r e la t io n s h ip betw een M ichigan p r ic e s and e it h e r th e amount packed or produced*

However, th e upward tren d in th e volume packed was

s l i g h t l y more th a n th e upward trend i n production* 11*

The r i s e in p r ic e s through tim e fo r th e i n s t i t u t i o n a l s iz e d

c o n ta in e r s was r e l a t i v e l y g r e a te r than th e r i s e fo r consumer s iz e d packages*

This i s probably a r e f l e c t i o n o f th e d iff e r e n c e s in th e

e l a s t i c i t y o f demand*

As th e q u a n tity packed in c r e a s e s , more should

b e packed i n th o se c o n ta in e r s fo r which th e demand i s most e la s t ic * 12*

Changes i n th e ty p e o f pack p rocessed by M ichigan packers r e ­

f l e c t changes in demands*

The fr o zen pack in crea sed f iv e tim es as much

a s th e canned pack betw een th e e a r ly ' t h i r t i e s and 1948*

The r e la t i v e

s i z e o f th e fro z e n pack to th e canned pack a ls o in crea sed though th e r e was c o n sid e r a b le year—to -y e a r v a r i a b i l i t y . 15*

In y ea r s o f la r g e crop s, more o f th e pack was p rocessed in to

consumer s iz e d rauher than i n s t i t u t i o n a l s iz e d con tain ers*

In th o se

y e a r s , more e f f o r t was th u s expended on e f f e c t in g d ir e c t consumer s a le s which c o n s tit u te d th e g r e a t e s t p o t e n tia l market fo r th e product* 14*

Favorable red cherry p r ic e s in th e fa c e o f in c r e a s e s in th e

per c a p ita consum ption o f th e product was conducive t o in d u stry expan­ sion *

In M ichigan, th e number o f p r o c e ssin g firm s in th e in d u stry irt-

crea sed from 19 i n 1951 to 44 by 1948*

This growth i n th e number o f

firm s has j u s t about k ep t pace w ith th e in c r e a s e in p rod u ction , th u s n ot

162 m a t e r ia lly a l t e r i n g th e average s i z e o f firm in th e ind ustry* 15*

The r e l a t i v e s i z e o f th e f i v e l a r g e s t firm s in th e in d u stry

d ecrea sed from about 70 p e rcen t 6 f th e t o t a l pack in I 95I t o 44 per­ c e n t i n 1948*

There has t h e r e fo r e been a tren d away from economic

c o n c e n tr a tio n in th e in d u str y a s in d ic a te d by r e l a t i v e p h y sic a l volumes* 16*

C h erries a lo n e accounted fo r o n e -h a lf or more o f th e average

t o t a l d o lla r volume o f b u sin e ss done by ^4 p ercen t o f th e p la n ts in M ichigan in 1948*

T his means t h a t th e s e firm s are h ig h ly v u ln era b le to

p r ic e and p ro d u ctio n i n s t a b i l i t y in th e cherry in d u stry in th e short-run* 17-

Some o f th e r e q u is it e s fo r im p erfect co m p etitio n as th ey per­

t a i n t o p r ic e s and p r ic e p o lic y have been p r e se n t in th e industry*

In

p r a c t ic e , though, th e s e fo r c e s were not con sid ered to be stro n g enougjh to e x e r t any major in flu e n c e upon p r ic e s* 18*

Y e a r -te -y e a r sto ra g e has been frowned upon by th e in d u str y .

I f t h i s p o lic y h as been t h e o r i t i c a l l y sound, th e p r ic e e l a s t i c i t y o f t o t a l demand as q u a n tity d ecreased must have been l e s s provided th e de­ mand curve i t s e l f d id n o t s h ift*

In c rea ses in demand undoubtedly have

occurred which would tend to co u n tera ct th e adverse e f f e c t s o f sto r a g e due t o th e r e l a t i v e e l a s t i c i t i e s o f demand* 19*

Inventory p o l i c i e s by m arketing a g e n c ie s a t h igh er l e v e l s in

th e tra d e channel than th e packer cause p se u d o -rea ctio n s on p r ic e s and r a t e s o f s a le a t th e packer l e v e l .

More data on sto c k s are needed in

th e s e h ig h er l e v e l s o f th e tra d e ch an n els so th a t p r o c e sso r s may pursue sounder s a le s p o l i c i e s on th e b a s is o f th e more com plete know ledge.

165 20*

The fu tu r e o f th e red cherry in d u stry fo r th e n ex t two or th r e e

y e a r s w i l l be co n d itio n e d by economic e v e n ts.

N ation al income w i l l pro­

b a b ly be m ain tain ed a t or near p resen t l e v e l s and red cherry p r ic e s are l a r g e ly a f f e c t e d by movements in a ggregate demand*

The in d u str y i s pro­

m oting th e product through a d v e r tis in g in an e f f o r t to fu r th e r s tim u la te demand.

R esearch i s a ls o c o n s ta n tly under way in an e f f o r t to develop

new u se s fo r th e p rod u cts as w e ll as to develop new ty p es o f pack fo r a broader m arket. expanding in d u str y .

New firm s w i l l probably con tin u e to en ter in to t h is

APPENDIX A

QUESTIONNAIRE USED FOR COLLECTION OF MISCELLANEOUS INFORMATION.

QUESTIONNAIRE FOR MICHIGAN CHERRY PACKERS

Packer Number Date F i l l e d i n By

L. L. BOGER AGRICULTURAL ECONOMICS, MICHIGAN STATE COLLEGE EAST LANSING, MICHIGAN

166

A*

RELATIONSHIP OF CHERRIES TO TOTAL VOLUME OF BUSINESS

W hat p e r c e n t o f y o u r t o t a l s a l e s a r e made up o f c h e r r i e s ? ( a ) By y e a r s o r (b ) A v e ra g e .

1931

1936 ___________

I 9la

19US

1932

1937 ___________

1 9 U2

19U6

1933

1938 __________

19U3

19h7

193 U

1939 ___________

19hh

19h8

1935>

19U0 __________ ( i f e s t i m a t e o f av e ra g e f o r a l l y e a r s , l i s t h e r e .)

(b )

A v erag e

______

W hat o t h e r f r u i t s o r v e g e t a b l e s d id you pack o r d i s t r i b u t e i n 19li8? (C heck th o s e t h a t a p p l y . ) F ro z e n C anned F ro zen banned A s p a ra g u s

____

Snapbeans

____

C abbage_________ ____

A p ric o ts ____ ____

A pples

____

____

P eaches_____________

____

C a r r o t s _________ ____

____

P e a rs ___________ ____

____

C a u l if lo w e r

____

____

Blums___________ _____

____

Cucum bers

____

____

Sw eet C h e r r ie s ____

____

T om atoes________ ____

____

O ther

Lima B eans

____

____

Navy B eans

____

____

O th e r

____

What p e r c e n t o f y o u r c h e r r i e s do you pack a n d /o r ____ d i s t r i ­ b u te u n d e r y o u r own b ra n d names? ____________ % (Check and f i l l _i n _%.) What a r e y o u r b ra n d names, and w hat g rad e do th e y r e p r e s e n t? ( L i s t eac h )

Brand

Grade

167

B* 1.

COSTS OF STORAGE FOR CHERRIES

What d oes i t c o s t you t o s to r e c h e r r ie s per month? ( L i s t by typ e o f p a c k .) Canned

Frozen

2*

( I f c o s t s have b een c a lc u la te d by y e a r s, l i s t them below by th e y e a r s . A lso n ote ite m s o f c o s t in c lu d e d .)

168 C. 1*

COSTS OF PROCESSING CHERRIES

What d oes i t c o s t you p e r pound, to pack f ro z e n c h e r r ie s ? E s tim a te A c tu a l

2,

_____________ ________________

What does I t c o s t you p e r pound to pack canned c h e r r i e s ?

3*

E s tim a te

_______________

A c tu a l

_______________

( I f p r o c e s s in g c o s ts have b een c a lc u la te d by y e a r s , l i s t them by y e a r s , th e n enum erate ite m s o f c o s t i n c l u d e d . ) Canned F ro zen Canned F rozen

1931

19U0

1932

19kl

1933

19U2

193k

19U3

1935

l9U t

1936

19U5

1937

19U6

1938

19U7

1939

19U8

lu

W hat p e r c e n t o f y o u r r e c e i p t s was p ic k ?

1931 ____________

19U0 _

1932 ____________

19kl _

1933

19U2 _

I9 3 h ____________

19U3 _

1935 ____________

_

1936 ____________

19U5 _

1937 ____________

I9U6 __

1938 ____________

19U7

1939

19U8

169

APPHHDIX B SUPPLEMENTAL DATA,

170 APPENDIX B SUPPLEMENTARY L&TA TABLE NUMBER I b* lib .

PAGE A ggregate V alues o f S e le c te d Measures o f Demand, U nited S t a t e s , 1929-48#

171

E stim ated and Observed Average Farm P r ic e s o f Red C h e r r ie s, M ichigan, 1955 - 1948#

172

I I I b* Number o f P la n ts th a t Reported Packing Red C h erries, M ichigan, 1951-48# IV b*

175

P ercen t o f T o ta l Pack o f Red C h erries P rocessed by th e F iv e L a rg est p a ck ers, M ichigan, 1951-48#

175

Vb.

T o ta l Pack o f Red C h erries, M ichigan, 1951—48#

175

VI b*

S iz e s o f th e Canned, Frozen, and Brined Packs o f Red C h e r r ie s, M ichigan, 1951-48#

174

VII b* A verage Importance o f Red Cherry Pack to T otal Volume o f B u sin e ss fo r 28 P la n ts , M ichigan, 1948*

174

V III b Number o f Red Cherry Packing p la n ts Packing Other F r u its and V e g e ta b le s, M ichigan, 19^8#

175

IX b*

P ercen ta g e o f Red C h erries Packed and/or D istr ib u te d Under Own Brand Names by p la n t s , M ichigan, 1948#

175

Opening Pack P r ic e s by Type o f Pack fo r Red C herries f# o b . Packing P la n t, M ichigan, 1951-48#

178

E stim ated and Observed Average f# o .b # P r ic e s o f Red C h erries i n Number 2 Cans, M ichigan, 1951-48#

177

XII b# E stim ated and Observed Average f.o # b # P r ic e s o f Red C h erries i n Number 10 Cans, M ichigan, 1951-48#

178

X III b Estim ated and Observed Average f*o.b # p r ic e s o f Red C h erries in 50 Pound T in s, M ichigan, 1957-48*

179

XIV b* E stim ated f.o * b * pack P r ic e s fo r Number 2 and 10 Cans and 50 Pound T in s, M ichigan, 1951—48#

180

X b# XI b#

XV b .

M isc e lla n e o u s Ranges in C osts fo r Red Cherry Pack, M ichigan, 1948#

181

171 Table I b . - A ggregate Values o f S e le c te d Measures o f Aggregate Demand, U nited S t a t e s , 1929-46*

Per son al Pood and Consumption Tobacco Expenditur e s ^ / Expendi­ tu r e s!^ B illio n B illio n D o lla rs D o lla r s

Year

1 9 1 0 -1 4 1955-59 1929 1950 1951 1952 1955 1954 1955 1956 1957 1958 1959 1940 1941 1942 1945 1944 1945 1946 1947 1948

_ _ _

7 8 .8 7 0 .8 6 1 .2 4 9 .2 4 6 .5 5 1 -9 5 6 .2 6 2 .5 67*1 6 4 .5 6 7 .5 72.I 8 2 .5 9 0 .8 1 0 1 .6 1 1 0 .4 12 1.7 14 5.7 1 6 4 .4 1 7 7 .7

Income o f I n d u s tr ia l* W orkers-'

Farmers^/

W holesale P r ic e s o f N o n -fa r m . Products-^

Index

Index

Index

100

100

100 154 110 84 58 61 16 86 100 117 91 105 119 169 241 522 5^6 291 275 552 560

««***»

-

21*4 1 9 .5 I 6 .5 1 2 .7 12*8 15 .6 1 7 .7 2 0 .0 21 .6 20*7 21 .1 2 2 .6 2 6 .5 52 *8 58*1 4 1 .6 4 6 .7 5 5 .1 6 4 .5 67*1

P r ic e s R eceived

149 128 90 68 72 90 109 114 122 97 95 100 124 159 192 195 202 255 278 287

156 126 111 104 106 116 115 118 126 121 120 125 152 l4 l 144 146 148 162 200 222

a/

S u rvey o f C urrent B u sin e ss, N a tio n a l Income Supplement, U* S* Dept* o f Commerce, J u ly , 1947 and Current Issu es*

b/

A g r ic u ltu r a l O utlook C harts, U« S* Dept* o f A g r ic u ltu r e , B* A* S*, 1949

.

172

Table I I b* — E stim ated and Observed Aysrage Farm P r ic e s o f Red C h erries, M ichigan, 1955 -4 8 .

Year

E stim ated ^ / D o lla r s per to n

1955 1954 1955 195 - 3 t a t e p ro d u ctio n in to n s , X^ 2 P ersonal Consumption Expendi­ tu r e s in 10 B i l l i o n d o lla r s , X^ = Index o f U. S . M arketing Charges, and X,. - Time in y e a rs s in c e 1950#

The years 1944, 194^, and 1946 were om itted#

17a

Table XII b . - E stim ated and,Observed Average f .o .b * P r ic e s o f Red C h erries in Humber 10 Cans, M ichigan, 1951 * 48.

Xear

1951 1952 1955 1952* 1955 1956 1957 1953 1959 1940 1941 1942 1945 1944 1945 1946 1947 1948

a/

Estimated minus Observed

Estimated^

Observed

Dollars per 4 Dozen.

Dollars per J Dozen.

Dollars per J Dozen.

1 .5 5 1 .1 9 1 .1 8 1 .1 9 1 .1 7 1 .5 5 1 .5 5 1 .6 2 1 .2 9 1 .5 1 1*75 1 .6 2 2 .5 6 —

1*79 *96 1 .1 0 1.16 1*55 1 .4 o 1.5 5 1*55 1 .1 4 1.21 1*77 1 .9 0 2 .8 4 2 .8 8 4 .1 1 4 .5 0 2 .9 8 5 .0 1

- .2 6 •25 •08 .0 5 - .1 8 .1 5 - .2 0 •29 *15 .1 0 - .0 4 - .2 8 - .2 8 — — — •25 - .0 2

— —

5*21 2 .9 9

E stim ated from ^

S 1 .0 5 9 - • 000011OXg * .002192^ - . 0 0 1 7 1 ^ - .0 1 8 5 ^

where th e u n it s o f th e independent v a r ia b le s are id e n t ic a l w ith th o s e o f Table XI b .

179

Table X III b* — Estim ated and Observed Average f .o .b * P r ic e s o f Red C h erries in JO Pound T ins, M ichigan, 19J l - 4 8 *

1957 1958 1959 1940 19^1 1942 1945 1944 1945 1946 1947 1946

a/

Estimated^'

Observed

Estim ated minus Observed

D o lla r s per pound

D o lla rs per pound

D o lla rs per pound

• 0 -j 0

Year

•080 •078 • O65 •070 *075 .090 .145 ‘ .1 5 6 .1 9 0 .2 1 9 .1 5 2 .1 5 5

-•0 1 0 —.012 .0 0 4 .0 1 0 .0 4 4 .0 0 2 - .0 2 2 -♦015 — 002 - .0 5 5 .055 .001

•066 •069 •080 • 119 •092 .121 .1 2 5 • 188 .1 8 4 .1 8 5 .1 5 4

E stim ated from

* .J J 2 - .OOOOOO^Xg * * 0 0 0 0 ^ 6 ^ - •0044963^ - •01522^

where th e u n it s o f th e independent v a r ia b le s are id e n t ic a l w ith th o se o f Table XI b*

160

Tabid XIV b* — Estimated, Farm and f * o .b . pack P r ic e s fo r Dumber 10 Cans and $0 pound T in s, M ichigan, 1931 * 48.

Year

Farm ^ D o lla r s per to n

1931 1932 1933 193^ 1933 1936 1937 193S 1939 19*0 19^1 19*2 19^3 1944 1945 1946 1947 1948

—

35*0 5 2 .6 4 6 .8 8 1 .5 6 1 .8 8 5 .6 ‘ 55*5 57*4 96. 5 7 8 .8 1 6 2.6

Dumber 10 O an s^ D o lla r s per ^ Dozen 1.6 7 1*25 1 .2 2 1 .2 2 1.1 6 1*59 1*35 1.6 3 1.2 7 1 .2 3 1*73 1*57 2*61 —

— «— 206*3 173*0

30 Pound T in s^ / D o lla rs per pound — — —

— *~ .072 .O83 .067 .0 6 8 ♦090 •082 .131 — —

—

3*33 3* o4

.1 6 4 • 150

a/

Estim ated from X S «~18*98 + 110.67X. ~ .460Xc where * th e f . o . b . p r ic e o f number ^ cans per dozen and°Xc Z Index o f U. S . M arketing Charges*

b/

E stim ated from Y - 1.32X - .1 7 where X “ f * o .b . p r ic e o f number 2 cans per dozen*

c/

E stim ated from Y - .061X + .0 0 2 where X s f . o . b . p r ic e o f number 2 cans per dozen*

lax

T able XV b . - M isc ella n eo u s Ranges in C osts fo r Red Cherry Pack* M ichigan, 1948.

Item

Range D o lla rs

Median D o lla r s

F r e ez in g and S to r in g JO pound t i n s per pound F i r s t month A d d itio n a l month

0*015 -0 .0 2 8 1 O.OOO7-O.OO585

p r o c e s sin g C o sts Number 2 cans per pound Number 10 cans per pound 50 pound t i n s per pound

0 .0 5 6 6 -0 .0 8 4 4 0 .0 5 4 5 -0 .0 5 7 0 . 0455- 0.0805

0 .0 1 5 0.0015

182 BIBLIOGRAPHY

A lco rn , George* "Using p r ic e R e se a r c h ,11 Journal o f Farm Economics. XXXI (1 9 4 9 ), A pp. 1096-8* „ -----------------------------------------Anonymous, F ed era l R eserve Chart Book, H is t o r ic a l Supplement, W ashington, D« 0 »; Board o f Governors F ederal R eserve System , March, 1950, p* 74* Anonymous, F r u its and N u ts, B earing Acreage 1919*0.946* U nited S ta te s Department o f A g r ic u ltu r e , Washington 25, D* C*: Bureau o f A g r ic u ltu r a l Economics, CS-52, January, 19^9* Anonymous, F r u its (15 n o n -c itr u s ) p rod u ction and U t i li z a t i o n 1954—56. W ashington 25, D* 0*: U nited S ta te s Dept* o f A g r ic u ltu r e , Bureau o f A g r ic u ltu r a l Economics, J u ly , 1947* Anonymous, The M arketing o f Red C h erries, An A n a ly sis o f Problems That Are o f Mutual I n t e r e s t to Oanner and Grower* Washington, D* C* s D iv is io n o f S t a t i s t i c s , N ation al Carmars A s so c ia tio n , January, 1940* Anonymous, M ichigan Cherry Survey, L ansing, M ichigan; o p e r a tiv e Crop R eporting S e r v ic e , 1949*

M ichigan Co­

Anonymous, N a tio n a l Income Supplement t o Survey o f Current B u sin ess* W ashington, D* C*: U nited S ta te s Dept* o f Commerce, Bureau o f F o r eig n and Dom estic Commerce, J u ly , 19^7* Anonymous, Sour Cherry P rod u ction in 5 E astern S t a t e s * U nited S ta te s D ept, o f A g ricu ltu re* Washington 25, D* C*: Bureau o f A g r ic u ltu r a l Economics, 1 p« mimeo* a n n u a lly , June 15* B ou ld in g, Kenneth E* 19?1.

Economic A n a ly s is , New York: Harper & B roth ers,

Bruner, Nancy and Leavens, Dickson H* E conom etrica, XV (1947)# 1.

"Notes on th e D o o lit t l e S o lu tio n , 11

C a r r o ll, Thomas F* C h erries, Background Inform ation and S t a t i s t i c s fo r F r u it M arketing I* A* E« 662* I th a c a , New Yorks C ornell U n iv e r s ity A g r ic u ltu r a l Experiment S t a tio n , March, 1948* C avin, J* P* " F o reca stin g th e Demand fo r A g r ic u ltu r a l p rod u cts," A ddress, j o i n t m eetin g , American S t a t i s t i c a l A s s o c ia tio n , and American Farm Economic A sso cia tio n * E ly , R ichard and Wehrwein, George S* M acm illan Co*, 1940*

Land Economics*

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The

185 F o o te , Richard J# and I v e s , J* R u ssell* The R e la tio n sh ip o f th e Method o f Graphic C o r r e la tio n to L east Squares* Washington 25, D* C*: U n ited S ta te s Dept* o f A g r ic u ltu r e , Bureau o f A gri­ c u ltu r a l Econom ics, S t a ^ is t ic s and A g r ic u ltu r e Wo* 1, A p r il, 1941* G essn er, Anne L* Handbook o f C oop eratives P r o c e ssin g H o r tic u ltu r a l P ro d u cts, 1945—46 and 1946—47* M iscella n eo u s Report 120, Farm C re d it A d m in istr a tio n , W ashington, D* C .: U nited S ta te s D ept, o f A g ricu ltu re* G essn er, Anne L* M arketing F r a c tic e s o f Co op er a t iv e s P r o cessin g Canned and Frozen F r u its and V eg eta b les* M iscella n eo u s Report 15 0 , Farm C red it A d m inistration* W ashington, D* C.s U nited S t a t e s Department o f A gricu ltu re* G ir sh ic k , M* A* and Haavelmo, Trygve* “S t a t i s t i c a l A n a ly sis o f th e Demand fo r Food: Examples o f Sim ultaneous E stim a tio n o f S tr u c tu r a l E q uations," Econom etrica, XV (19^7)* 2# H oos, S idney and P h elp s, H* Fisk* C a lifo r n ia C lin g sto n e Peaches Economic S ta tu s , C a lifo r n ia A g r ic u ltu r a l E ^ erim en t S ta tio n , C ircu la r 5^5* B erk eley , C a lifo r n ia : U n iv e r s ity o f C a lifo r n ia , May, 1948# H oos, S id n ey and Shear, S* W# " R elation Between A u ction P r ic e s and S u p p lie s o f C a lifo r n ia Fresh B a r t le t t P e a r s ,* H ilg a r d ia , B erk eley, C a lifo r n ia : U n iv e r s ity o f C a lifo r n ia p r in tin g O f f ic e , V o l* l4 , Number 5 * January, 1942* H oos, Sidney* S t a t i s t i c a l A n a ly sis o f th e Annual Average f*o*b* p r ic e s o f Canned A p r ic o ts , 1926—27 to 1948-49# Mimeo* Report No* 91 $ B erk eley , C a lifo r n ia : U n iv e r s ity o f C a lifo r n ia , A g r ic u ltu r a l Experiment S t a t io n , June, 19^9* Hoos, Sidney* S t a t i s t i c a l A n a ly sis o f th e Annual f*o*b* P r ic e s o f C lin g sto n e P each es, 1924—25 to 1948"49* Mimeo* Rep* No* 9^>»""" B e r k e le y , C a lifo r n ia : U n iv e r s ity o f C a lifo r n ia , A g r ic u ltu r a l Ex­ perim ent S t a t io n , June, 1949* Hoos, S id n ey . S t a t i s t i c a l A n a ly sis o f th e Annual Average f*o*b* p r ic e s o f P a c if i c C oast Canned B a r tle v t P e a r s ~ 1926-27 t o 1948-49* Mimeo* Report No# 9 8 . B er k e ley , C a lifo r n ia : U n iv e r sity o f C a lifo r n ia , A g r ic u ltu r a l Experiment S t a tio n , June, 1949# Johnson, D# Gale* Forward P r ic e s fo r A g r ic u ltu r e * U n iv e r s ity o f Chicago P r e s s , 1947* Kenney, John F* M athematics o f S t a t i s t i c s * Company, 1959*

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M a llo ry , L. D. Sm ith, S . R. and Shear, S . W. "Factors A ffe c tin g Annual P r ic e s o f C a lifo r n ia Fresh Grapes, 1921-1929", H ilg a r d ia . B erk eley , C a lifo r n ia * U n iv e r s ity o f C a lifo r n ia p r in tin g O f f ic e , V o l. 6 , No. 4 , September, 1951* M a rsh a ll, Roy E. P rod u ction and P r ic e Trends in th e P itte d Red Cherry In d u stry . E ast L ansing, Michigan* M ichigan S ta te A g r ic u ltu r a l Experiment S t a tio n S p e c ia l B u lle t in 258, February, 1955* M a rsh a ll, Roy E. "Some Trends in th e Red Cherry In d u stry," Canner, January 4 , 1947*

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M otts, G. N ., S c h o ll, C. A. and Chapin, J . W. Trends in Cherry p ro d u ctio n in M icnigan. S p e c ia l B u lle t in 257* East Lansing, Michigan* M ichigan A g r ic u ltu r a l Experiment S t a tio n , June, 1955* N e lso n , M ilto n H. and Su leru d, George L. An Economic Study o f th e Cherry In d u stry w ith S p e c ia l R eference t o Oregon, A g r ic u ltu r a l Experiment S ta tio n , B u lle t in 310* C o r v a llis , Oregon* Oregon S ta te C o lle g e , February, 1955* N ic h o lls , W illiam H. Im perfect C om petition W ithin A g r ic u ltu r a l I n d u s tr ie s . Ames, Iowa* Iowa S ta te C o lleg e P r e s s , 1947* N orton, L. J . " D iffe r e n tia tio n in M arketing Farm P rodu cts," o f Farm Economics, XXI (1959 )$ 5 (*)# PP* 5®7-95*

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Palm er, Cary D. and S ch lo tzh a u er, E. 0 . "Methods o f F o r eca stin g P rod u ction o f F r u i t ," A g r ic u ltu r a l Economics R esearch, I I (1 9 5 0 ), 1, pp. 1 0 -1 9 , S h ear, S . W. and Howe, R. M. "Factors A ffe c tin g C a lifo r n ia R a is in S a le s and p r ic e s , 1922-1929," H ilg a r d ia . B erk eley, C a lifo rn ia * U n iv e r s ity o f C a lifo r n ia P r in tin g O f f ic e , V ol. 6 , No. 4 , Septem ber, 1951* Shepherd, G eo ffrey . "Price D iscrim in a tio n fo r A g r ic u ltu r a l P rodu cts, " J o u r n a l,o f Farm Economics, XX (195® ), 4» pp* 792-807* S te c k , Leon J . " E ffec t o f an In crea se in p o p u la tio n on th e Shape o f th e Demand Curve," Journal o f Farm Economics, XVI (195^)# 5* P* 555* S t i g l e r , George J . " S ocial W elfare and D if f e r e n t ia l P r ic e s ," Journal o f Farm Econom ics, XX (195®)# 5* PP* 57 5 -9 0 . (In clu d in g a r e jo in d e r by Waugh.)

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S tu r g e s , Alexander* "The Use o f C o r r e la tio n in P r ic e A n a ly s is *11 Jou rn al o f Farm Economics* XIX (1 9 5 9 ), pp. 699-706* T in tn e r , Gerhard. "The Theory and Measurement or Demand*11 Journal o f FarmEconomios, XXI (1959)* 5 ( I ) , pp* 610* Thomsen, F . L. "Measuring Changes in th e Demand fo r Farm p rod u cts, 0 Jou rn al o f Farm Economics, XXI (1959)# 1 , pp*1 5 2 - l4 l. W aite, Warren C. "Place o f and ^Notes on th e D is c u ss io n , 0 (1 9 ^ 1 ), 1, pp. 5 1 7 -2 5 . -

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Waugh, F red erick V* "Market P rorates and S o c ia l W elfare," Journal o f Farm Economics, XX ( 1958) , 2 , pp. 405-17* Wellman, H. R. " A p p lica tio n and U ses o f th e Graphic Method o f M u ltip le C o r r e la tio n ," Journal o f Farm Economics, XXIII (1 9 4 1 ), 1* pp* 511-517* Wellman, H. R. and Braun, E. W. C h erries. A g r ic u ltu r a l Experiment S t a tio n , B u l l e t i n 488. B erk eley, C a lifo r n ia ; U n iv e r s ity o f C a lifo r n ia C o lle g e o f A g r ic u ltu r e , February, 195°• Wellman, H. R. S t a t i s t i c a l A n a ly sis o f th e Annual Average f . o . b * P r ic e s o f Canned C lin g sto n e Peaches, 1924-25““to 1958-59* Mimeographed Report Mo* 67* B erk eley, C a lifo r n ia ; U n iv e r sity o f C a lifo r n ia A g r ic u ltu r a l Experiment S t a tio n , June, 1959* Wellman, H. R* Supply, Demand, and P r ic e s o f C a lifo r n ia P eaches* A g r ic u ltu r a l Experiment S t a tio n , B u lle t in 5^7* B erk eley, C a lifo r n ia ; U n iv e r s ity o f C a lifo r n ia C o lle g e o f A g r ic u ltu r e , December, 195^* Working, Elmer J . "E v a lu a tio n o f Methods Used in Commodity P r ic e F o r e c a stin g , " ^Jou rn al o f Farm Economics, XII (1 9 5 °) 1* PP* 119-59Working, Elmer J . "Graphic Method in P r ic e A n a ly sis," Farm Econom ics, XXI (1959)# 1# PP* 557-45*

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