ftp-it*,] Division of Agricultural Sciences UNIVERSITY OF CALIFORNIA ECONOMIC OBJECTIVES AND OPERATIONS OF CALIFORNIA AGRICULTURAL MARKETING ORDERS Sidney Hoos CALIFORNIA AGRICULTURAL EXPERIMENT STATION GIANNINI FOUNDATION OF AGRICULTURAL ECONOMICS Mimeographed Report No. 196 May 1957 ECONOMIC OBJECTIVES AND OPERATIONS OF CALIFORNIA AGRICULTURAL MARKETING ORDERS by Sidney Eoo^ Table of Contents Page Introduction and Setting 1 Attributes and Functions of Marketing Orders k Economic Implications and Inferences 13 Some Observations 25 Selected Bibliography on Marketing Orders 36 List of Tables Table I Characteristics of California Agricultural Marketing Programs Operating in 1956 32 II Provisions of California Agricultural Marketing Programs Operating in 1956 3^ l/ Professor of Agricultural Economics and Agricultural Economist in the Experiment Station and on the Giannini Foundation. ECONOMIC OBJECTIVES AND OPERATIONS OF CALIFORNIA AGRICULTURAL MARKETING ORDERS, MARCH, 1957i/ Introduction and Setting "Economic conditions are constantly changing, and each generation looks at its own problems in its own way." So Alfred Marshall began the "Preface" to the first edition of his Principles of Economics , a book which is secure in the history of economic thought but which is honored more in our day by reverence than by study. Yet, the changing economic conditions with which Marshall was familiar are in many respects similar to those of our generation as are many of the basic economic ideas with which we work in our continuous struggle to understand the operation of our contemporary economic system. Marshall's belief in what he referred to as the "principle of continuity" is, among other places, embodied in his statement: "The new doctrines have sup- plemented the older, have extended, developed, and sometimes corrected them, and often have given them a different tone by a new distribution of emphasis; but very seldom have subverted them. " One may wonder why Alfred Marshall is brought into a discussion of ag- ricultural marketing orders. The reason is to note with emphasis that, in terms of the basic economic ideas underlying marketing orders, our generation of economists draws heavily upon the system of thought commonly referred to as Marshallian partial equilibrium analysis. One might venture the view that, if Marshall were to participate in a discussion of marketing orders, he would-- after a brief explanation of certain terms — be able to enter and contribute to 1/ A section of a study on Economics of Agricultural Marketing Programs. A summary version of this section was presented at the joint annual meetings of the American Farm Economic Association and the Western Farm Economics Asso- ciation, August 27-29, 1956, Asilomar, California, and published in the Jour - nal of Farm Economics , vol. 58, no. 5, December, 1956, pp. l679-l691» 13 hC vo *liVj i^i' i*l«f . •• ' i"*. - 3 •"'4. ■' ,;! **Y' : .i'-r •■'.••iv: ■ •?>■-',■-. jt^ '.^> N; ^ ; n ! bj?i^ae'\A : Vi fe9o!aC[.;c..-on ,"8$*'* iJ^-Ya^lrabnooil crxafr 'to -..Lbs '■ • 2 5." •■ ■: ■ :■> ■ ■, ). ' ■.- 'i-r • 2. the discussion meaningfully and constructively. This is to dispel the notion that the economics of marketing orders involves some new, unique, and all- powerful system of economics. As to whether Marshall would approve the intro- duction and operation of marketing orders, one can judge that from what he writes in the Principles he would likely look askance at them; yet, from what he advised his government at various times, as recorded in his reports to Royal Commissions, one can surmise that he would favor the use of marketing orders under certain circumstances and conditions. But such circumstances and condi- tions would be sporadic and unique rather than continuous and general as are mo6t of the marketing orders currently in operation. The continuous operation of state and federal marketing orders is in sharp contrast to their original intent when first introduced during the depression years of the 1930' s. Then, their originators and sponsors in the main looked upon marketing agreements and orders as devices to handle depression-induced situations in particular commodities. Yet, over the following two -and -a -half decades, with an interruption in the war years, marketing orders have become entrenched and interwoven in the institutional fabric of a substantial number of agricultural products. As is the case in much of the economic -social legis- lation enacted and developed during the years of the early 1930' s, marketing orders may be characterized by the phrase, "depression bred and prosperity fed." What are the distinctive features and objectives of marketing orders which account for their popularity with and use by various commodity groups? What is the economic rationale underlying marketing orders which, in essence, are legislative administrative institutions that operate and survive only as politi- c ally accepted or tolerated? What economic inferences and implications can be deduced from the experience accumulated over a period of more than two dec- ades? These questions suggest the terrain around which one may survey the eco- nomic rationale and results of marketing orders. But before going forward with Mr j &Xo%. :i ai'iogs'i eia ai Bsfrioass' as ,89011^ auottav ^"'JG^aartisvoa eld jb98l?/(>e stf 1 ; * * • '* ... ■ ' . ' . ' '• , , K ■ : •.v.. • • V . . •' ' ' ■ - '• ..•>.'•' ■ ■ " ' ...... .. ' • x^ittsgeotq hiia bnd np,i*a s.ST.fjso" ,936i/ig 9rid ^d .&9$Iistf3fl*j£:!0 od y*sb aiafnro *JSl1W "r3tTI.!Oia V\t iJbOBliKOO ?.l OilfiV Vd 9&I/ hns f j iw vj ,£*U3 £ I/TOO li^dst lO'i. ifiUOO'lB ' ^±Ioq 35 Y-ta 0 svivsus i>as .srfaisKjc- tfaNtf snoiJ ad ideal 9v i^jWds tiilsfce avldBlai^e J. such a survey, it is necessary to dust the lens of our telescope, adjust our transit, and delineate our territory. So far we have used the phrase "marketing orders" in a generic sense. But in legislative and administrative aspects, there are distinctions between "mar- keting agreements" and "marketing orders." A "marketing agreement" is a volun- tary arrangement between the federal or state government and individual producers or handlers of a particular commodity, and its terms are binding on only those individuals who sign the agreement. In contrast, a "marketing order," once made effective under legislatively specified procedures and standards, is binding on and uniformly applicable to all producers and handlers of the product for which the order has been instituted. Although marketing agreements historically pre- ceded marketing orders, the latter now heavily dominate because experience in- dicated that industry-wide compliance was necessary if the intent of the program was to be achieved. Both the federal government and certain states operate marketing orders and agreements. The differences between the federal and state programs involve standards and administrative procedures, and there are differences among state orders. For example, under California legislation, any agricultural product is eligible to have a marketing order; but under federal legislation, a mar- keting order is permissive for only a clearly specified list of products. Federal orders are oriented toward volume control and quality regulation, while the California orders may also include provisions for advertising and promotion, research, prohibition of unfair trade practices, and regulation of grades and standards. Orders permissive under the state of Washington legislation (Wash- ington Agricultural Enabling Act) are limited to advertising and sales promo- tion, research, labeling requirements, and unfair trade practices; volume control provisions are prohibited. The New York state legislature has recently approved legislation authorizing marketing orders which are comprehensive in ■ ' ' hue PUB- :.'9'*VC900. , S^: • ■ ■ . .. ■• ... ■eusT&Viti ataVs bos' £ftt.&b*Vgfte/ a%$?39d .as ..... ' ' ' '*'•'"!" '".l-j. . ... f£ scope as are the California orders and which similarly provide for volume regulation along with provisions for sales promotion, research, and grades and standards. Another difference pertains to fluid milk and cream. There, also, the federal government and certain states have marketing programs. Milk programs, however, are different in important respects from the marketing orders con- sidered here. In general, fluid milk programs establish minimum prices to producers, distributors, and at retail. The administrators of such milk pro- grams deal directly with and manipulate the price level and price structure. In sharp contrast, the marketing orders for products other than milk deal with price only indirectly; those orders deal with and directly affect flow and stock variables which affect prices. Such distinction is significant for analytical purposes as well as administrative procedures. Thus, we shall not consider fluid milk marketing programs. Our terrain to be surveyed will be limited to marketing orders, primarily California orders, although most of the observations and inferences can be also interpreted as being pertinent to fed- eral marketing orders. Attributes and Functions of Marketing Order s In searching into the history of economic and institutional ideas, it is helpful to pin point with precision their embryonic origin. So it is with the basic ideas underlying marketing orders. Earlier it was noted that, in terms of chronology, marketing orders emerged as a result of problems engendered by the "great depression." That is in part true; but the economic structure of orders were, however, in fact gradually and experimentally developed by cer- tain cooperative marketing associations during the 1920' s. They were faced with seasonal "surpluses," quality standards, and unfair trade practices; and they endeavored to organize commoditywise on an industry-wide basis. The g«ttfloV -sc ^ J-nv Safe "ijn'jfffr .fiia* • 1 I .1 - - ' , . • ; ■ ■ .fv< 1 - •'■ ■ • < Si-X ! ■ml .h 11- "t V 5. trials and tribulations of those problems need not be recited here; yet, those marketing associations became convinced that their own devices were not fully adequate to achieve the goals envisaged. New legislation and limited govern- ment participation were deemed to be essential adjuncts. When experience with marketing agreements showed that their signees were "holding the umbrella" for the nonsigners, and the growing gales and rains made the umbrella less effective or even ineffective, thoughts turned to a device whereby everyone in the industry concerned would be required to support the umbrella. Thus emerged marketing orders with their uniform and industry- wide application to all producers or handlers of the product concerned. Such industry-wide application of marketing orders, however, has often been mis- interpreted. It does not mean that the industry has no choice as to whether an order will be introduced; it does not mean that the industry is powerless to change or even eliminate the order; nor does it mean that the industry, with its order, can operate only as the industry desires. Legislation clearly sets forth the procedural and administrative criteria to be followed. Briefly, they include discussions between the industry repre- sentatives interested in an order and officials of the state (or federal) De- partment of Agriculture; the drafting of a proposed order; the holding of an announced public hearing at which the proponents and opponents of the proposed order present their views; a review of the accumulated evidence and testimony by the staff of the Department; the mailing of the proposed order to all di- rectly affected and eligible to vote for their assent or dissent; the necessary requirement of majority approval; and the final approval by the Director (or Secretary) of the Department who specifies its issuance and effective date. The many important details of such procedures need not be discussed here since we are only interested in setting the background for discussing certain economic questions. But several significant points must be underlined. First, . . • ■ •••• ' ■' , >>Mn Mm ■ ' ■ • ■ ; ' ... - 6. a majority of the industry, specific criteria for which are written in the legislation, must approve an order before it can be effective. Second, the Director (or Secretary) is required to determine whether the available evidence indicates the need for an order and that the proposed order meets that need. Furthermore, the Director has the authority to terminate the procedure at any of the steps mentioned earlier or to terminate an order which is in operation if, in his judgment, it is no longer consistent with the legislative standards. In essence, the California Director of Agriculture bears the burden of primary responsibility, and he holds the authority to make final decision as to whether an industry-assented order becomes effective. Thus, in addition to following certain administrative and procedural matters, the Director is required to consider and judge a proposed order in light of legislatively specified eco- nomic standards. These standards are nonquantitative and are set in a definite legal-philosophic framework and expressed in gobbledygook as "To enable agri- cultural producers [of California], with the aid of the state, more effectively to correlate the marketing of their agricultural commodities with market demands therefor . . . establish orderly marketing . . . provide for uniform grading . . . [and] development of new markets ..." (California Agricultural Code, Section 1300.11) . For economic analysis, a more meaningful legislative standard, but still one stated in rather loose language, is "... that such marketing order or amendments thereto will tend to reestablish or maintain such level of prices for such agricultural commodity as will provide a purchasing power for such agricultural commodity which is adequate to maintain in the business of producing such agricultural commodity such number of producers as is re- quired to provide such supply of the quantities and qualities of such agri- cultural commodity as is necessary to fulfill the normal requirements of con- sumers thereof" (California Agricultural Code, Section 1300.1^) . The economic implications and inferences of this compounded set of criteria will be considered • rasa *stlT s.tsBrc isrirj aw. ocroic pocf JBilt i-*rro as •xol £9* t "".OKV.-» noi on di ji ,"•« ■ . . ■ ■' '• t :otfo»t.! .•' . • •. •• - 1 ; : ■ • 1 ' " • • ne baa ' '■ ■ .•-.-».■■ ' ■• ■ i:i ■ ? ■ ••' J • ■ ■ .: ■ • - • • ■ ••• ■ ■ • • • • .• ; . < • '■■ ' f '• • •' ■ ■ • 10I btvm .... ' ■ .■ ■. ■ ' ■• ■■■■■ >i ■■ bO ; • - . ■•• ' . . ■ if. v • ■. I ■ • ; it ■ ■' . ' • . ■ • -•■»'t: ■ • 3 ,?«[.■»(.;: i .. . : . . - ; ■ ■ .- • 'Si: •j ■ . r ;^ ,• ■• Aon '■■ i f e&UUtuutp ■ ■■ to • , .' .• id ■■ ten : r 9qJ . i v •PA. yogi ctcx^csti »af?c>0 ijatu^ luoltjzh &livto'liisO) . "SsMSMCf' ftiac ."...v.r:. . later. But first we need to outline additional attributes and functions of California marketing orders. To assist him in operating a marketing order, the Director appoints an advisory board from a list of industry nominations. If the order pertains to producers only, the board is composed of producers; if the order pertains to producers and handlers, the board is made up of both groups in equal numbers; and if the order pertains to handlers only, the board is composed of handlers. The advisory board may employ a manager and staff, and most boards do so. But in all matters of any consequence, the board cannot make decisions and act thereon. The board can only recommend to the Director, and he either approves or disapproves. For all intents and purposes, the California Director of Agri- culture is a real "economic czar" of the state's marketing orders. The general goals of marketing orders, which operate under the authority of the Director of Agriculture, are mainly oriented in the direction of improv- ing the returns to producers. Although the Director is required to give con- sideration to consumer interests as well as those of the industry at large, the legislation is clear that its primary concern is with the economic welfare of producers. This "economic welfare" of producers is measured in terms of "pur- chasing power" which is suggestive of but not completely similar to the "parity price" or "parity income" notions embodied in federal legislation. Rather than referring to a specific per cent of some base, the California legislation ex- presses its objective in terms of enough purchasing power to keep in business a sufficient number of producers providing an adequate supply of the commodity to meet the needs of consumers. Though one might question the economic validity of such a standard, and we shall do so later, it can be stated that the state criterion is less naive and less rigid than the federal parity price doctrine. To attain the various objectives embodied in particular marketing orders, a set or battery of provisions and tools has been developed over the years. .*%9bio yultqjbm ainaoll IaO go xji inirf J"h2s8^ oT oj eaxajisq "jaJyxo 5.1 < 3£04£aaj£K>a \rx3»:u'fc.q!; to. JyxJ s asyxt £usoa ^*oa.Jtv&a .1 ; .,- •;• .. ■ . >.■■.< ..- J. '..-.I.. : . . . . . - • . , jJttU id .':»J 7$ ••H-. ■ ■ • -■ • 1 • - ' * f)ri^ .vino aislonpn 02 voe &aa 8«o-xelo95 ftjj?.-n .rouaao frxsptf . 9/1?. i^/r.^pSfrpqa. xqa aaj^tfijn. £%. nfc \ . — '.laoo^ 9$?. .' *P&P0&Hffa rcoS-j • S9.y«.7§ ; q^ k. uo';. I 9AJ a9b.nl/9jfia9ijO rf?l|fW ,B^I9Mp ^OX??^^, . '-4 . ''f^.^.v'^T'V , ... . ... . , • . • • ,i : :• M'- " ■ ■. ' ;.'.*■ .i Z ■ ■<-■• •■■.<■■ ■ • ■ . .. . ... .. . , . ,. ; . ■ • ........ tjj S: }fV ?4> ilcv Mmonooa 9rii n?.iiS9ifr jd^i:^ sop dJgx/pdT.. . .fluaatre^vr.^o. afi99tfi. 9iiJ f rfs>«j/»«i.- iistZ 96* Jfiitf f>9?£j3 9d .OS9 ii. +19$. 08. p5 J.iftfi$. t 9W t> fccm ^ &iap,a?J .5 B laXi^oob 9oX-i'j \rfl7aq[ iai5&9.x s/t'.t aad? f>i»ix eafti feas 9ViJ?a saai ax. flat-is^^iA- 13 099d tXfp^tlW . 9ii^,.ais fifty 0"T-. r- liYfta^.'ja xi&tttpd. so .-498-. a. .- 8. Some of these provisions are of the more obvious nature and supplement the type of marketing legislation prevalent in most states as well as in California. Yet, others of the marketing order provisions are unique in that they operate to any extent only because a marketing order is effective. For example, the grading or inspection provisions of an order supplement the broader and more general grading standards which are part of the state legislation independent of marketing orders. But the promotion or volume-regulation provisions of an order exist only because they are part of the order; without the order, no type of collective promotion or volume regulation would be required by the state legislation. This distinction between what might be called supplementary and specific provisions can be noted as we set forth the major types of provisions embodied in California marketing orders. The major provisions or marketing tools, one or more of which are written in the various orders, include: grade and/or size regulation; pack and con- tainer regulation; mandatory inspection and/or certification; prohibition of unfair trade practices; advertising and sales promotion; production, processing, and/or marketing research; and volume regulation, with or without stabilization pools and funds. Of these seven broad provisions, one might classify the first four as supplementary and the remaining three as specific provisions. Although such classification may in part be arbitrary, it does aid in directing attention to the type of regulation which is entirely unique to a commodity having a mar- keting order. In that respect, the specific provisions, particularly volume control and sales promotion, have attracted most attention, discussion, and attack . At this point it is advisable to pause a moment and destroy a false notion which is prevalent in the minds of many, including those who have a superficial familiarity with California marketing orders. This false notion pertains to the volume- restriction provision. Too often the unfounded thought is expressed .altnol*Jte5*3iA*»a tfibt^&rsfj&fre : »rtoa 'ni ' 4 $!t*XaS*9*cj 'rrdli alal 39I 'gflicrei-iaa to - .... .. 1 ■ ■,. . lo 'i '• ■ •• .• ' ; . :■ . .,: . ' ■. f. . ■ ■• -. - ■ :. ■.. :. . ■ 3 ,.■ . ■ ' . ■ aatfiitr 91a rinlrfv to *nom to 900 ^Xoo* '^dt^^ikL-'^'^cia^rbAit^tM tSalmeodi't' « ! ioi^do£»«ri^-' il'^f&tf?? ''atei"^ W?i ; '§ri * e2^-x»vfc»* rsSrfi jiStc{ r 4h'M? tiiftdtf 'cof ^E.'fi l.l'd'iJvts'-d'iVof'ct 8V '.n fi/*''^si#l?j£K\9*/""9js9ioV'' &fe - " ^'risxsbad^ *"$rtX- JiijWif'.lX "Jo^S/ir **i£V9&* ^Ib^bI-o'' iH^Hp. srit<5 '\»^iif*ai •'. •. • ' ■ •.••-■•{ i . i* : a •' ^s&'s-yi ■ t* " •• .■: ': ■ .: jvt qqa 1 " ■ . .. • ' - . ' ' . . • '. ■■: :, ' '. .-■ . -j.r- ■i e : ■■■■■■ .- ,,. .... ... . ... .. 1. , ... : ..... . : ( i '■■ ■ " " ' '■■ • -' ' ' •■■ •■■ h:i 10. Several salient feature of this summary tabulation merit brief comment. First, it may be noted that the most prevalent provisions include "sales pro- motion and advertising," which is embodied in 23 of the orders, and "production or marketing research," which is incorporated in 22 of the orders. "Grade or size" regulation and "inspection or certification" are next in order of fre- quency. Then comes "quantity regulation," followed by "pack or container" regu- lation, with the "unfair trade practices" provision the least frequent. Next, it may be noted that there is no fixed or standard formula setting forth which particular provisions are to be incorporated. Each separate mar- keting order is tailored to meet the considered needs of the commodity concerned, and there is complete flexibility as to which provisions are excluded or included as long as they are consistent with the legislation authorizing and underlying marketing orders. An order for a particular commodity may have most of the available provisions as do cling peaches and lemon products; or an order may provide for only promotion and research activities as do a number of programs including those for bush berries, one of the orders for Bartlett pears, dried prunes, raisins, strawberries, one of the orders for turkeys, and wine. Table II attached summarizes the provisions included in the 28 current orders. Various combinations of marketing tools may be drawn upon in the develop- ment of orders. Also, a single commodity may have more than one order in opera- tion simultaneously. For example, both asparagus and fall and winter pears have separate orders for the fresh and processed utilizations; Bartlett pears have two orders, one of which is for promotion and research; and turkeys have two orders, one for disease control and eradication and a second order for sales promotion and advertising. Another variation is suggested by the potato orders: the long white potatoes order includes grade, size, inspection, promo- tion, and research provisions, while the delta white potatoes order includes those provisions plus quantity regulation. Still another variation available • • • ' Si J., . • ., . ■ . x .... ■ ' b hi ;\ ■ ' • I, .. . • ' • • U; ■ ■• . ■ I Xi . .,. . , : i l }'n "■ ■' ' i • . • • • -, ■ ,.■ . I#p ■ . . . • I--.fi Si. l S' '• ui ' ' : ' : " • ■' ' '•' " • ■ • ' • . .■ . ■■ , • ,.3 . , . ■ '"• jRfJr; joK'^.'XV- 1 '■ • •■■ ■ ' •• • • ■■ . . pj. j . i'1 !*'• ' : ■ ' ■ ; ... . : . ... . . ! . " ' > \& ' •'■ ■> "• ' ■ ' 3 i- \!\ • ,. ,. :.! ' •' ■ - ' ■• ■ .. .: .. • • . :; ■ .. . •■ fi 1 ' • : ' '' • • ' ■ ■ : ■ . • . • .... : . ...... ■ ■ ' ■■ - - ' " ■. ;■ ' . . , o . ''V ' ■■ ■' ; •'■ .' : • ■ •■ - ;t. ' ' - ■' • . ... :■ 11. is that, although an order may include certain provisions, it need not be uti- lized by the industry. An example of this type is the order for extracted honey which includes provisions for "unfair practices/' advertising and sales promotion, and research. But since March, 1952, when the honey order was made effective, its operations have, in fact, been limited to requiring price posting by handlers and promotion activities. Many other examples can be cited, but the several mentioned clearly indicate the high degree of flexibility permissible in the organizational structure and operational objectives of California marketing orders . It is important to recognize that neither by legislative criteria nor by administrative procedures need the provisions or operational objectives of marketing orders be static or unchanging over time. As long as the broad, general criteria written in the state legislation are met, and the Director makes a find- ing to that effect, a proposed order or an amendment to an existing order may be approved by him. Such flexibility has been taken advantage of by the various industries having marketing orders. As with a biological organism, the insti- tutional organism of a marketing order undergoes mutational and evolutional changes. As an example may be cited the program for canning and freezing cling peaches which started two decades ago as a simple state order providing for grade and size regulations, inspection of intrastate shipments, and unfair trade prac- tices. Advertising and promotion were included in the original order but dropped shortly thereafter, although such activities were again included in 19^5- The original state cling peach order of 1937 operated only one year; in 1938 the cling peach order was not favorably voted upon by the industry and, thus, did not become effective. But in the following year, 1939, an order was approved and continued on through 19^2. The years 19k3-kk had no cling peach orders because again they were not approved by the industry. But an order did operate beginning with I9I46 and was enlarged to include grade and size control, inspection, • ■ ■ ' • ' ■ • ' : ■ • ■' '■ ' u ' : -'' s -'-- ■ ■■■■ ! . . ■ . i , _ .. _ . . ; : ' "** ' ' ' • ' : " ; - ; '-' • ; • ■ " '.i.'.wy . ■ : ''foiiti ' •■ ' • ■• ' -in' :■ v : . :8$m Jo..;.., ■ : - " :tvi'~ , . by.-;;; 1 f».< - f ; • ' " ' ■ • '■' 16 -:4 - '*;: •:;;;„•• * - ;>;• '" ; ' ' ; ' I £ "■ ■ - y " '■'•" > '"' i ■•.:..-i-'f^v >•„••:•• ■ • -.;,, r: - T -. "' r;7j ?^ r'-ytid '>' ■ ■ rc ... . 12. advertising, promotion, and research. In 1952 provisions were added for a stabilization fund and diversion to other peach-using products. In 1950 a distinctive volume- control provision was added--the "green dropping" of immature cling peaches. Thus, over the years, the cling peach order has changed its character. In this case, the order became more comprehensive and "stronger" as it developed; but as in biological evolution, some limbs and senses can wither while others develop and strengthen. As one studies the evolution of marketing orders and surveys their changing objectives and emphasis, he sees a moving picture of institutional development. Each order has its own special existence as does each individual in a population. But the societal group gradually takes on new characteristics as the older ones change emphasis and form. The process of institutional mutation and evolution may with considerable articulation be identified in the history and development of marketing orders. In what may be termed the early days of marketing orders, the depression years of the middle 1930' s, the primary provisions of marketing orders pertained to quantity control and regulation which in practice meant volume restriction. In later years provisions for grade and size regulation and mandatory inspection and certif ication- -aspects dealing with quality control-- assumed increased relative importance. And still later, sales promotion and advertising, along with the sponsorship of research, received relatively increased attention. This does not mean that the older provisions were necessarily dropped as new ones were adopted; rather, it means a change in relative emphasis and balance. The development of marketing orders fits in well with Marshall's state- ment: "Economic conditions are constantly changing, and each generation looks at its own problems in its own way." One may question how extensively used are the California marketing programs by the state's agricultural industries. Whether the answer is "considerably" or "little" depends upon the yardstick of comparison. It can be noted that since • ■ ■ " - ■ • . . : - ■ • . . • n ■ ■■■■ .. • . " ; ■ ■■■■ ■■■ ;• a 's ■ Kfaii/b.! . • -. ■•' ■■■■■■ ■ i j :.> f • •••••• •.' • - : ,: .- : - • • ' ' ;j . ■ ■ , . : ■• : • . ; . :• ■ • • ■ • • "/ •■. •■ ■ • • ■;. • • • ■ • . • ■ 13. 1933* when the so-called "self-help" marketing programs were first instituted, some 70 different programs have at one time or another been in operation. A number of the programs were effective for only a single season, and others have operated in some form for as long as 20 years. The average length of life of those 70 programs is about six years, although that figure cannot be actuarially interpreted as an index of life expectancy. In 1956 some 28 different marketing programs were in active operation under the authority of California legislation. These 28 programs reflected an average length of life of nine years, with individual programs ranging from lees than a ysar old to over two decades of active operation. But a figure of 28 programs may not be impressive when compared with a total of over 200 commercial crops and products marketed by the state's agricultural industries. Such comparison, however, may be misleading. A more meaningful set of indicators of the role of marketing orders in the state's agricultural economy may be that in 1955 the total farm value of all commodities having state orders amounted to $390,000,000, some 15 per cent of the state's total cash receipts from farm marketings or 23 per cent of the cash receipts from crops. This latter figure- -23 per cent- -is the more pertinent because all of the currently effective orders, except three, apply to crops. Another statis- tic is that close to 35,000 producers, 33 per cent of the state's farmers or ranchers, were directly affected by those orders, and a substantially larger number were affected indirectly. These figures are cited to set in proper perspective and balance the economic position and role of marketing programs. Economic Implications and Inferences To finance the 28 marketing programs, the producers and handlers-directly concerned with those programs provided all of the necessary funds. .This amounted in 1955 to about $6,900,000 divided as follows: fix Ik. Administration $ 932,800 13.5 per cent Inspection 1,009,600 1^.6 per cent Promotion ^,635,300 67.2 per cent Research 321,300 $6,899,200 4.7 per cent Total 100.0 per cent Whether returns to the industries justified those expenditures is not an issue considered here. An essential point is that the expenditures were entirely borne by the industries through assessments on the participating producers and handlers or processors. That is one of the reasons why the types of programs we here discuss are often referred to as "self-help" marketing programs. But the phrase "self-help" has often been misinterpreted and, in fact, may even be misleading. A more appropriate descriptive phrase would be "self-f inanced, " and even there the phrase would refer to direct immediate expenditures; for if the programs are successful, over a period of time they presumably yield sufficiently increased returns to at least offset their direct costs to the industries. This question about the phrase "self-help" is raised here not only because of clarity in nomenclature. There is also the important issue of joint partici- pation between the state represented by the Director of Agriculture and the in- dustries concerned represented by their respective advisory boards whose function is to assist, recommend to, and advise the Director. The industries presumably initiate the promulgation of the programs; but once such action is taken, from then on the state assumes definite functions and has certain heavy responsibili- ties. Aside from the matter of direct financial costs, the state is definitely one of the necessary parties. To suggest the heavy responsibilities borne by the Director, the following sections from the Agricultural Code, state of California, are cited. "3183. With respect to an agreement or order containing provisions for correlating the supply of the agricultural commodity with market demand therefor by restricting and allocating the total quantity of the "■ '.'£;•'.' If, ■\r:-.; ■ •>',. • , ' ; '■■ ■ .: ; ; '<- • ana^ci^^o a ad* ^d* snots** edi to oiio ejf { - •% ^cSk$sa«:>»,•,.. . .39 : t%3aw6^± sd.t oJ a*aco ^eaiib ijtaitf ita a?W "if aa^i astvi^^t f>9tas*0ffi i •■■>, .... .. be -V '" " : V'j . " - !r.?j ... t. p ' ' ' • '•■•■•< ■ ... . ..... • •• ..... 0 .,. ^ £■•. • ■ ■ •• - - ■ ' ' _ X "l -™ tv- •,,: ; i, : ,.^v ......... , ' ' ••'-•^^ • " tv?;:-; .. .... 1 ' • — 15 commodity which may be marketed during any marketing season and which re- stricted portion of the commodity might otherwise be marketed in compliance with other laws of this State or of the United States, the director shall not issue such agreement or order for the written assent of producers or handlers unless he finds after public hearing that all of the following are true: "(a) The supply of the commodity available for marketing exceeds or is likely to exceed the demand therefor at prices which will provide a reasonable return to producers of the commodity. "(b) The return to producers of the commodity will tend to be increased through the operation of the proposed marketing plan. "(c) The proposed agreement cr order may be administered without per- mitting unreasonable profits to producers of the commodity and with- out unreasonably enhancing prices of the commodity to consumers. "(d) The proposed agreement or order will tend to prevent disorderly marketing of agricultural products within the State. "(e) The proposed agreement or order will tend to establish or main- tain such relationship between the quantity of the particular agri- cultural commodity marketed and the demands of the market for the commodity as will tend to continue in production such volume of the commodity as is probable will be needed over a reasonably long period of time to supply the requirements of the commodity and to provide an adequate standard of living to the farm operator and his family. "318^. If the agreement or order contains provisions only for the purpose of regulating the flow of the commodity or any grade, size, or condition thereof to market without directly restricting the total quan- tity which may be marketed during the marketing season or if the order contains provisions only for the establishment of grade classifications or minimum grade, size, quality or condition specifications and uniform grading and inspection for the purpose of improving the quality of the product marketed, or the elimination of unfair trade practices, the di- rector may issue such order if he finds all the following are true: "(a) That the order is reasonably calculated to attain the objectives in the order. "(b) That the order is in conformity with the provisions of this chapter and will tend to effectuate the declared purposes and poli- cies of this chapter. "(c) That the interests of consumers of the commodity are protected in that the powers of this chapter are being exercised only to the extent necessary to attain such objectives." The criteria just cited are, in essence, economic standards to be followed by the Director in behalf of the state. From those economic standards, however, flow various economic implications and inferences. First, it may be noted that > (if ," ! ... , ■ {*){**; 16. nowhere are the economic standards expressed in precise numerical or quantita- tive terms. No specific percentages of some sort of "parity price" or "parity income" are directed. The Director is not bound either to a simple or a com- plicated numerical formula. On the contrary, the legislation imposes upon him a tremendous burden in the exercise of judicious wisdom compounded with economic thought . The economic standards are saturated with normative and ethical prescrip- tions. Examples include phrases as "reasonable returns to producers," "unrea- sonable profits to producers, " "unreasonably enhancing prices of the product to consumers," "disorderly marketing," "more stable and adequate supply," "re- lationship between the quantity — marketed and the demands of the market — as will tend to continue in production such volume as is probable will be needed over a reasonably long period of time to supply the requirements of the com- modity and to provide an adequate standard of living to the farm operator and his family. ..." In the judgment of what are "reasonable" and "unreasonable" returns to producers, in the definition of what is "orderly" and what is "disorderly mar- keting, " in the determination of "unreasonably enhancing prices--to consumers," in the specification of "such volume as is probable will be needed over a rea- sonably long period of time, " and in the measurement of "an adequate standard of living to the farm operator," the Director is given no guide in the legis- lation. One must admit with candor, moreover, that the economic science we have at hand can help in only a limited way in interpreting such normative concepts, particularly for an economic system that is characterized by growth, change, dynamic structural variations, uncertainties, and the vicissitudes of various degrees of hot and cold wars. Only restraint, supported by naive pre- conceptions, deters one from suggesting that perhaps the Director might consider ... . ' . ■ - . Is • '. ■■• ii - ' ■ . ■ i • ■ : '. ■■ ■ ; ' , \i ' .. ' . ' . as - ■ ii an • . ■ ■ . - ..' . -. ■■• - ■ ■ • . • ■ ■ ■ 17. supplementing his staff of administrators, economists, and lawyers with a bold and articulate philosopher. These questions about the Director's responsibilities with respect to volume restriction cannot be dismissed lightly or cavalierly. Although weighted with normative values, the standards certainly involve economic relationships, and for that reason alone we must be concerned with the economic implications and inferences. The standards are based in large part although not entirely on a conventional static and partial equilibrium setting where, for each of the products, the demand functions facing consumers and producers, the short- and long-run supply functions of producers, and the rest of the Marshallian kit of analytical tools, concepts, and functions are known or can be estimated suf- ficiently accurately to serve as operational devices. The point is that, on the premise there are marketing orders with economic standards of the type briefly indicated earlier, the Director or a comparable administrator can obtain from economists only part of the economic information he should have in order to do his job as set forth in the legislation. Of course, this point can be countered with the view that there should not be mar- keting orders of that type and thus solve the economist's problem as did the physician who cured the patient by amputation at the neck. Yet, one should not be overwhelmed with doubt and pessimism. Economists can and do contribute in the consideration and operation of programs as marketing orders. Economists may not contribute as heavily as they would like, and they certainly do not contribute as much as administrators may expect; but one may venture to say that the economist's role is a necessary if not a sufficient one. Further, one may venture to say that, without what the economist can honestly offer, both the Director and industries would err more often and to a greater extent; in other words, economists do help them to make smaller and fewer mistakes. ■ - - ' ■ ' ■ ... 08 ■ ; - •■ ■ fa ■ . . . - ■ . ... . - • - 18. In addition to the economic implications and inferences flowing from the legislative standards which guide the Director, there are other economic con- siderations involved in marketing orders. These may conveniently be considered in terms of the major functional activities which take place in the operation of the orders. Aside from administration, which is of concern to political scientists and social psychologists, the activities are grouped under inspec- tion, promotion, and research. The activities related to the generic term "inspection" are generally thought of as being physical or noneconomic. Yet, they are carried on for economic reasons and have economic effects. Aside from questions of health and sanitation, inspection involves the segregation and separation of stocks having differential price and market impacts. The effective operation of mar- keting systems utilizing grade, size, and maturity differentiations, for exam- ple, is dependent upon some procedure of inspection with criteria of acceptance or rejection. From the economic view, inspection is that phase of marketing which separates the total crop into segments, each with different demand func- tions, supply functions, elasticities, and cross elasticities. Although objective sampling is beginning to assume importance in grading, sizing, maturity, and quality inspection of some agricultural products, there is considerably more latitude for the introduction of economics. The criteria for inspection acceptance or rejection are still largely devoid of explicit economic analysis, aside from intuitive and subjective notions. Conceptually, at least, one can argue that, since inspection activities have economic effects, an inspection procedure with its criteria for differentiation should logically reflect economic influences. Rather than establishing No. 1, No. 2, and No. 3 grades based on only physical attributes of size, firmness, and coloring of, say, a certain fruit, an alternative would be to include price or income in- fluences. The development of such an alternative would involve knowledge of OU I ■ ! ' • IB 3S ' - - j . ,,. 1 '■ ..... ; , . ■SOl E ■ 91 ■ 0 : MS-. < • ■ ' -- ; . ■ '■ • • ■• ' ' '-' ■ / i ' ' . . ' " ' ' ri . ■' ''** " .a .'■ • : I . - ..-..r--,'- itfl •al&srg eX •. ■ ■ - ' • ■ g ■ . >d jjniX Hi ' ''<-•' MB " - ■ • - - - si - . . . ■MiHoiro fea iBBBflajBttl ,pal»- 5.Q e^Jwcfii.-r^B Xu^iv^Jg' .x r Xiao no f>$>s )t ii- : f*&B*$ andftfil 9^ sriir? .obuXoru ot- .ed lefaR^^tdvscrc&tXB -co -..tiinl .nxeiiSs a .i£>^s 'lo ' &vffoX\K>vii- oviotrai fiXwov ©v iJjecrx^X&'Jp^ii-ssEV^ .'ic' 'tcy.7iaoX«ys£> .^riT . - 39^titiixXl 19. differential price elasticities of various possible grades. One may surmise that by a combination of discriminant-function analysis with demand studies, grades could be established which would be more meaningful in terms of eco- nomic effects, which would reflect consumer preferences, and which would pro- vide a more rational basis for industry marketing policy. Whereas "inspection" provisions are included in half of the California marketing programs now in operation, "promotion" provisions are part of 23 of the 28 currently effective programs. The term "promotion" includes adver- tising, trade and consumer "education," the employment of fieldmen for retail point-of-sale displays, and similar activities. In addition to the large pro- portion of programs which use promotion provisions, another indicator of their role in California marketing programs is that about 67 per cent of the total expenditures for all activities under all programs is classified under "pro- motion." The range of such promotion expenditures varied widely- -from $300 for early apples and $500 for delta white potatoes to $1,000,000 for cling peaches and $2,000,000 for wine. In terms of economics, sales promotion and advertising are carried on to influence consumer demand affecting the derived demands at the handler and producer levels. In conventional economic analysis, consumer demand is gen- erated by the interaction of consumer utility surfaces, income, and prices. Advertising attempts to change the structure of the consumer's preferences thereby altering in certain directions his utility surface. Although we now hear much about depth interviews, hidden desires, and impulse buying, and ad- vertising experts talk in terms borrowed from social psychology and group dynamics, the objective of advertising remains one of shifting demand upward by affecting the consumer's utility preference system. Promotion and advertising activities, as such, are not unique to industry government marketing programs. Private advertising has a long history, and I .- ,.&alyru<&;X4Z. #aQ< ■ *%*psn%: #{d&aaoq < ?a oi*i*v 'jg $9l$3&£ta${» »pt$q, Iri-up^-xf^ttlb ••••.-099 J.Q' . oan.5v gi t Ij/ianJfc^aaat ja^csi #sf iuj^y. 4s>iaV .ts^ttiifBi^f ©cf ,ftlnoo-.ay,&i}is dii/py^.xloiclw. .J&n^ t fdpd^59^^ : .r|j^fla«iagjs Jtwil-^x JfxocatkHptiiv ,.3*99-129 $$$6s • •,> ;^oi io^. ^liftiT^iH. ^4^*1 to'i aiaecf Isaoi**-* a»T^jf-. JfciV j ; , x>iariO'A-ii#.9: ail* "Jo-. ^Xjeri aJ &i$iM&a$. sms. ea-^alystui. "40**0933x11" .aa&'t^W •' • 55 • '•■• . •■•■ ■ . ' •■• • . ■ • /,,,..-..-• . . ■■ . : - i ' . , .... ;; j .. s ;.. . ,. :. &taian to* OEiE&lai'i .to Sao^oltjm, ad* ",r" la/xyaaoo bas_. j£l|^./*$g$B£* ' ■ : ■ ' • ■'■•'' , ■.xtsitj -to tovsoj-rflji ?9d*oaa. ^aapicivoiq 0oiJ.oj1ot1j3.9BiJ dpidw .anuagoa-j $0 40.1JH&5 ' .■■:S*3ct»- atf* .1o tods,- z?l>- &el^9Y >: $s?p?i5»oqx9 : jqoi doaro. ig. rfof/a ./to. t0tgf% sdT .. ^asoJWtw : JSai.l3f ^.OOCxOpO^ .^-.^WakHi.di-lxto a*l9» *;?2 : 00£f hjta *»£qqfi.x&$*.-xft- o-j -&f ■ baiviBu so* g^ N fcfahjaW8&<> £40 floi^oao.ig seise >.zooa |5o. jjhs*i5* al -ass 3i i5fi»3K?6sTE9{?ii>a^O£> •^arlax/aft?. i^tfoaoa^p^i^.A^y/.'xyt) tit ., at^Yd-t , lapjr&O'X^ .aarjitq £•/::< ^afftQo^ . t 59S^ti^e vSij.i,i^ji^iiid£^p . ^.ap.U^r.'ioini on* -vtf £9*ais aeonaiwaaiq a*^9B^aao? q&l .1? tfwteun?$ 94*. .-4g,a.etK> .,<^ v a*qai9*4.3 .$fla)j*&VBA •v- woa aw dswodtf i^,,. • .-asal-tc^ /x* V i*.i/. ajyi. .aaoi?»a*jys jttati&$..a± .xa>\JtLB.x t l&x&M -us bus ,gfu , .;,i/a sal., igii Jots* aaB^^&itf {-awoivi j-ii,t dvtjsb . Jju:Oa^i .rfoi^n .■xftari fciawi;;. r iujaiaali. ,^fii|4ii^a pjoo. dc^amas .i^oiiji^ ltd • ev^*5s £,,00 94? ^^oi^aii^b VM-sHfcai :9*..9ttplm ifeQA $-^.» ? iiwie aa...^a|,ii^i» + 8a ^oi*t*rsavfwj Jboa.-fj.pi.Joaioi'i .1 fcaa ^oi«irf mtiriba *^:jkp^5?»|if^'^ 20. am aware of no evidence suggesting that, because of sales promotion under mar- keting orders, there has been a decrease in advertising by individual firms. The intent of advertising through marketing programs is to supplement private advertising rather than displace it. Yet, one may ask, what is gained by mar- keting program sales promotion since advertising can and is done by many private firms and organizations? The answer involves a basic feature of marketing or- ders noted earlier: If sales promotion is carried on under the authority of a marketing order, everyone in the industry must contribute to the financial support of the advertising, and each participant's contribution is proportional to the volume he markets. If the advertising is effective, each participant gains in a sense corresponding to the benefits a firm derives from the influence of Marshallian net external economies. Although Marshallian economies and dis- economies are generally associated with long-period cost and supply functions, corresponding effects on the revenue and demand functions can be considered to flow from influences external to the firm and yield benefits which are common to all firms in the industry. Marketing order advertising programs generate nonprice competition among products. If fresh peaches and fresh pears, for example, are substitutable and competitive in demand, an advertising program in one is likely to bring forth an advertising program in the other. Similar situations can be envisaged in other commodities as canned peaches and canned pears or dried figs and prunes. Since, in the short run at least, the "human stomach is inelastic" and the total consumption of a group of products closely related in demand is relatively fixed, a situation can develop where industries believe they must advertise if only to hold their historical share of the market. In such a case, advertising is re- sorted to as a buttress against the industry's demand function shifting downward. For reasons we need not pursue here, most producers and handlers seem to have an immeasurable amount of faith in the effectiveness of promotion and 4m, . ajantf 's |4M&£4£&li v;c* ctf *s*yx£d& « need ssd &x»A* § &£Sbio &nXteJ ■ ■i ' '' to '- . :. . - •■ • •■ fit : j '•asm*! . ;■ • . ■ e ~ w :. ■ ■ ■.. It .- ■ - ' * " • ' ox ■■ • «e "■ ■■' .., /•■•■.■■'.' ' ' " ; :; - ■ ■ ' • • ■ ■:■ ■ : . ■. • \ V ■ . ' ; -' ' - ' i "■' ' ' . : : ■ ■ ■ • ■ ; - *> ' • 1 " : . Pfl •'■ ■ ■ . •. "■ ■ fifu - :~ ■ j i»#Q.t' -hfifi "ft.fctf3/5.C9Cf£ Bj. rf*fcflj6*^R ' • " " 6&f . 3ii<1ol tfi QJft PiO&S #{{4 fli 90Jg£8 21. advertising expenditures. Yet, objective and substantive results to support such faith are extremely difficult to develop. The disentangling of short-run and long-run consequences, temporary and lasting results, and single and cumu- lative reactions, as well as multiplier effects, raise tremendous analytical problems. To answer simple questions often asked by industries, such as, "should we advertise" or "how much should we spend on advertising," requires the audacity, boldness, confidence, and daring of an advertising account ex- ecutive. The economists might reply in terms of short-run and long-run net marginal revenues and net marginal costs of advertising; but unless those func- tions can be operationally specified for the industry, it is helped very little. For such reasons, economists play only a meager role in the promotion and ad- vertising provisions of marketing programs. \/ The third major category of provisions to be considered is that of research. In terms of frequency of appearance in currently effective programs, research ranks about equal with sales promotion and advertising. But in terms of total funds expended, research accounts for only k per cent, compared with 67 per cent for promotion. Such comparison is misleading, however, as an indicator of the relative importance of research in the operation of marketing programs. A very substantial amount of research is drawn upon by the marketing program indus- tries from the state university and for which no cost account is reflected in the figures cited. It is pertinent to note that the commodity marketing programs do not have their own research staffs. Rather they utilize other organizations. In addi- tion to the state university, they purchase research services from private firms engaged in such business. At times they participate jointly with the govern- ment under provisions of or similar to the Federal Research and Marketing Act. The point to be emphasized is that many marketing program administrations are cH^ou ©* ajitfir.** *v'f -*«*tfik. *?sw.jf baser** $fliel*savb$ ' : . .. 0« ■ ■■ ' ' - < - i . - ■ ' • ■ ■ . . - " . •' ' '- ' , ■ ' 1 ■ : 1 1 . • . . ti£ ■■ ' . ... ; • ■ • r, . • ■■ "'• • ■ •■ • ' ■ '-. . i£ . ' :.• • ■ . ■ • ■ . 1 , ; . . . : '. a . ■'<■ i : ■: : ■; ??, till . • , : ■ ' ■ ■ ' ■ W*39f& ' -$ :• to? . - , . gtifcJsJfteM bar. $r*.iag fo> *»s»n«»ti-' ^'iotqtMnis -5f«fia«il »aa»'s> Ji**tei>.Uq . -." 5a fa • ' . ■ \ ( ;i :';;: " Si. - i ' •$*xo.t«i/i aai inoi2 ov»t6 two rto&aw :epDaf-i'M'rr^,;?cfeahr,^ *s'T . «. iQyxitaaD ' aaoJLvy:. .1© — ICfH A . 'IBS \£.iQ/*jUOi$,R!i)*f 9~£ .t^iiSJiUSSJ? '"iT-.I .^fiStf&JB'Sq 9fl©aS , 9?1l TifVS Jj£IxJ;0 •wS.luXi'3 ■ ' - ' ' ' ; ' "' ' " ' ' ' "•' ' r -" ■ Jisfc^Safloa -Joe *t& atolriv . atf-oogae JLq$»& •asotarjec-. aseslir v .sv;>f?i? raqgu .baii^c-t ^ofc^sahtflfi .itijcrsolll^o So .vd-ikl-kay $42: j-.atttf W$apN0 . gg^-&ft «»fi..,as^ ••• Jtexvc .iHpiili "W^!:- ..«*rcxwo arid" a4 asnian : n .fe-wipi :>?^4^<^i#-^iftf *p£i ^{tsii^lg HlMl |i'«j> ii33sX-,?£f* ilJfc.' i^ISl 4»4J- • :.^sy^..#0^i^aB ji^Wl-;^ ^feBfcS^lV I ' ■■ , ■ ...... . ■. . . 25. Some Observations The operation of California marketing programs, with their apparent "suc- cess" in the opinions of many participants and observers, has attracted rather widespread attention from various commodity groups in other states. In recent months, particularly, many inquiries have been received asking for information. Often the inquirers suggest that, if they "only could have a marketing program, " their problems would be solved. Such expectations, however, may in some cases be ill-founded. Valid economic generalizations about Joint industry- state marketing pro- grams are difficult, perhaps impossible, to formulate in meaningful and helpful terms. There are so many different types of programs which can be developed, and each commodity has its. own particular problems and circumstances. One generalization, however, can be noted with some confidence. Joint industry- state marketing programs of the type discussed here certainly are not a mysti- cal and all-powerful curative of marketing problems. Rather, such programs are institutional economic devices effective only for certain types of problems under particular circumstances , As is common with most tools, their appropri- ateness and effectiveness for dealing with a certain problem are functions of the skill and know-how with which they are used. A delicate brain operation requires a scalpel in the hands of a skillful surgeon, while the shoeing of a spirited horse requires the competence of a blacksmith. So it is with market- ing programs. They must be tailored to specific circumstances, and they require skillful management blended with appreciation of the economic implications in- volved . Much too often marketing programs are viewed as acceptable substitutes for necessary production adjustments. Where chronic and persistent "overpro- duction" occurs, marketing programs are at best only a palliative to provide ■ o 6VX I 26. time and aid for easing into the basically necessary production adjustments. Where cyclically depressed demand imposes producer sales returns less than out-of-pocket costs, marketing programs can help to retain productive capacity appropriate for the time when the business cycle turns up again. In this re- spect, an example is that of tree fruits from orchards representing capital which can be reproduced only over a period of years. As a historical obser- vation, it may be noted that the early marketing programs grew out of problems faced by tree fruit industries as a result of depressed demand conditions in the early 1930' s. Although marketing programs were "depression bred," with the passage of time they have become "prosperity fed." Of the 28 marketing programs cur- rently effective in California, definite expiration dates now prevail for only k programs, and they may be continued with reinstitution; the other 2h programs have "continuous" terms of operation and continue on until a contrary decision is made by the industry or the Director. It is clear that marketing programs have become established as an integral part of our agricultural marketing in- stitutions. The characteristic of being "depression bred and prosperity fed," however, is not unique to marketing programs. More or less similar degrees of metamor- phosis are evident in many other of our economic and social institutions: un- employment, old age, and survivor's insurance; federal and state employment offices; bank and building and loan deposit insurance; home mortgage insurance; labor-management legislation; and many others, including the federal loan and storage price- support programs. But an important institutional difference be- tween the California marketing programs and the federal price- support programs is that the latter are the subject of political controversy in both the means and immediate ends. California marketing orders, however, are not a subject of po- litical debate in the state. They are viewed as nonpolitical and are biparti- san in the conventional sense of party politics. This does not mean, however, ■ mm IB ) no: I 27. that they are completely noncontroversial. Conflict of interests often pre- vail within an industry, and it is not unusual for producers and handlers or even different groups of producers to take different positions on the accept- ance of proposed marketing orders. But such conflicts of interest are in the main economic and not political. The conflict of economic interests between producers and handlers within an industry can be resolved by the voting procedure. But the conflict of eco- nomic interests among consumers, producers, and handlers cannot be resolved by that procedure. Consumers, as such, have no direct vote in the acceptance or rejection of marketing orders, although consumers do have a powerful and tell- ing voice when they register their votes in terms of dollars and cents at the cash registers of retail outlets. The legislation clearly specifies that con- sumer interests are to be represented and safeguarded by the Director in his consideration and administration of marketing programs. The proposal that consumers be given an independent voice in the promulgation and operation of marketing orders is not heard as frequently in recent years as in previous ones. Marketing order programs were not discovered in a social science labora- tory, developed in a pilot economy, and brought into practical use only after being tried and tested. On the contrary, the forerunners of the present mar- keting programs were put together and into effect under the pressure of current problems needing attention in a depression-ridden economy. Among early partici- pants, the agricultural economists include: E. W. Braun, C. C. Davis, B. A. Holt, W. J. Kuhrt, S. R. Smith, E. A. Stokdyk, J. Tapp, H. R. Tolley, F. V. Waugh, H. R. Wellman, and F. R. Wilcox. During the following years, in consid- erable part through trial and error, marketing orders were developed in their economic, legal, and administrative dimensions into an articulate and flexible institutional organism. Xoq $co. bad' slaoaons aiara . - ■ ■ ^0 8*i©nriin&'i-- 1 srW ,vujji^rio5 arid' uO .f>9$f.5>l fcnjB f>£ii«t gnied ■ 28. Although marketing order programs now have various types of provisions, that of volume control has always attracted the most criticism. Yet, econo- mists have continuously been aware of the double-edged features of volume con- trol. Almost twenty years ago, H. R. Wellman stated, "... marketing control schemes which have for their sole purpose the regulation of the flow of ship- ments to market during the season and which do not involve actual limitation of the total supply marketed are likely to prove beneficial to growers both in the short run and in the long run." But he cautioned ". . .marketing control schemes which are designed to limit the total supply marketed for the season as a whole are in quite a different category. This type of control is essen- tially a palliative and should be treated as such. It should be used only in acute situations ... to go beyond that is to court disaster."— ^ The preceding quotation distinguishes between intraseasonal and inter- seasonal regulation of volume flows. The former, intraseasonal control of quantity marketed, is generally used as a device to dampen the swings in ship- ments and prices thereby attempting to attain a more even or uniform rate of daily or weekly shipments and greater stability in short-run market prices and returns within the season. In the minds of many growers and shippers, the purpose of regulating intraseasonal volume is to prevent short -run "market gluts" and associated sharp "price breaks." Buying attitudes of terminal -market re- ceivers are presumably affected favorably in view of their confidence in an "orderly flow" of shipments to market. With such confidence in the minds of buyers, the presumption is that the season average price is higher than would be if intraseasonal shipments were not "stabilized." l/ Wellman, H. R., Controlled Marketing with Special Reference to California Fruits a n d Vegetables (Eerkeley: University of California, College of Agri- culture, Agricultural Experiment Station, November 16, 193$) > pp. 9 and 10. Processed. k t . 29. Yet, it need not be that for all products, in all seasons and markets, intraseasonal volume stabilization does yield higher season average prices. The outcome depends on the nature of the price elasticities of the daily or weekly market demand and supply functions and also how they shift during the season. Further, if the objective is to obtain as large as possible total returns for the season as a whole, which is a more rational objective for growers and shippers than price stability in itself, the appropriate intra- seasonal regulation calls for accepting the intraseasonal patterns of ship- ments and prices which in combination result in maximum total returns. Such intraseasonal patterns may but need not be consistent with more uniform rates of daily or weekly shipments than would occur without intraseasonal volume regu- lation. The essential problem of using marketing order volume regulation of sea- sonal total supply concerns the interaction of short-run and cumulative effects on grower returns. If the seasonal total demand facing growers is of such nature that restricting the season's total volume is associated with an increase in total returns to growers, there is a short-run inducement to practice such volume regulation. Such volume restriction can be rationalized in acute situa- tions. But continued restriction, resulting in grower returns being increased sufficiently and over a long enough period, can lead to expansion of growers' productive capacity. Such induced expansion of productive capacities can, in turn, bring a growth in total seasonal volume available for marketing at a rate more rapid than is likely to be balanced by market demands consistent with yielding reasonable returns to growers. Thus, the administration of seasonal total supply regulation, under the authority of marketing orders, calls for the application of the provisions of the order so that its short-term applica- tions do not accumulate into long-term effects which aggravate the situation which the order is Intended to alleviate. • V- u 3« n ■ •mi a ft- ■ .. ■ . m 30. Although California marketing orders may be used to control the within- season or seasonal totals marketed, the orders are not effective in control- ling the volume produced by growers. Growers retain freedom in expanding or contracting their acreage or yield and thereby their total volume produced. Despite the existence and operation of the marketing orders, free entry into and exit from the industry remains. Established growers have freedom in ex- panding their production capacities, and new growers can enter the industry in response to anticipated relatively profitable operations. It is such long- run flexibility in production which counteracts, at least in part, the short- run impacts on grower prices and returns from volume control through marketing orders . Over the years various economists, counseling and working with industry groups and government officials concerned with marketing order programs, have attempted to introduce and develop rational economic consideration of long-run as well as short-run impacts of the orders. But to understand fully the mar- keting order institutions, economic analysis is necessary although not suffi- cient. Also necessary are phases of statistical analysis, law, public admin- istration, political science, social psychology, and perhaps a bit of psychiatry. As commodity groups work with marketing orders, considering but not always following the counsel of economists, the industry participants gradually learn economic principles and come to appreciate economic analysis. In some orders, the industry participants have accumulated a rather sophisticated understanding of the economic principles involved. Such industry people may not use profes- sional jargon, but they are learning the significant economic relationships. It may well be that in the long run the spread of "economic literacy" will prove to be the most significant result emerging from the institution of mar- keting orders. In the meantime, commodity groups may derive a measure of psychic income from the believe that their economic destiny rests in their own 'J ■ 31. hands. As Marshall has said: "Economic laws and reasonings in fact are merely a part of the material which conscience and common- sense have to turn to account in solving practical problems, and in laying down rules which may be a guide in life." sea :a. JLk>J-A: TABLE X. Characteristics of California Marketing programs Early apples Fresh asparagus Processing asparagus Standard Lima beans Bush berries for processing Cantaloupes Dried figs Extracted honey Desert grapefruit Lemon products Dry-pack lettuce Fresh peaches Canning and freezing cling peaches Canning Bartlett pears Fresh Bartlett pears Sales promotion of fresh Bartlett pears Canning fall and winter pears Fresh fall and winter pears Hardy pears for canning (pro- motion) Fresh plums Delta white potatoes Long white potatoes Poultry and turkey improvement Dried prunes Raisins Strawberries Turkeys (promotion) Wine Date when first effective 6/28/48 3/12/5* 3/12/5* 3/10/51 9/15/5* 8/1/55 8A/55 3/1/52 5/12A1 3/10/51 6/ll/*2 3/25/50 8/1/36 5/25/38 7/8/37 6/27/50 8/6/*l 8/26/41 6/11/55 3/25/50 8/12/55 11/16/53 6/5/*5 9/3/37 10/1/37 7/7/55 7/9/52 8/2*/38 Term of current program or expira- tion date Continuous Continuous Continuous Continuous Continuous Continuous Continuous Continuous Continuous 9/30/58 Continuous Continuous 6/30/57 Continuous Continuous Continuous 7/1*/ 57 Continuous Continuous Continuous Continuous Continuous Continuous Continuous Continuous Continuous Continuous 6/30/57 ira] Marketing Programs Operating in 1956- a/ Number of handlers or proc- essors in 1955 202 0 26 18 48 56 9 57 19 37 10* 478 55 35 220 219 21 118 15 *31 21 129 0 18 27 50 183 295 Promotional Adminis- and adver- Research tiitive Inspection tising ex- expendi- CGCtS costs penditures tures in 1955 in 1955 in 1955 in 1955 19,000 10,000 23,000 28,000 11,000 12,000 40,000 16,000 15,000 85,000 20,000 60,000 130,000 45,000 15,000 20,000 13,000 6,000 800 22,000 6,000 80,000 55,000 32,000 43,000 16,000 30,000 80,000 dollars 8,000 300 0 0 3,500 0 0 17,000 0 j 0 135,000 7,000 0 15,000 500 5,000 0 0 0 66,000 0 0 17,000 3,500 12,000 0 0 0 1*5,000 7,000 19.000 0 0 18,000 18,000 1,000 onn C\C\C\ jUU , uuu JL , uuu , uuu 77 nnn ( 1, uuu 130,000 lift AAA 110,000 45,000 11,000 0 1,000 600 140,000 0 15,000 0 0 oOO 2p,000 r\ h \3 J 0 0 0 6, 00p/ 5,000 0 1 1/ 500 0 380,000 100,000 0 105,000 0 0 0 440,000 0 0 300,000 4,000 0 28,000 4,000 0 70,000 0 0 2,000,000 170,000 uo (Continued on next page.) J° Table I continued. a/ California Department of Agriculture, California Agricultural Marketing Programs (Sacramento: State Frint. Off., ~ 1956), 31p. (Its Bulletin, vol. U5, no. 1, January-March, 1956, supplemented by current releases.) b/ Inspection costs for delta white potatoes are paid by the handlers directly to the Bureau of Shipping Point In- spection. For this reason, inspection costs for delta white potatoes are not financed through the marketing order; corresponding assessments are not made on participants; nor are inspection expenditures made by the order itself. TABLE II. Provisions of Calif orni a Agricultural Marketing Programs Operating in Commodity Grade and/ or size regula- tion Pack and container regulation Mandatory inspection and/ or certifi- cation Advertis- ing and sales promotion Production f processing, and/or mar- keting re- search and surveys Quantity regula- tion oiiaDi— lization pool and/ or substand- ard pool Unfair trade prac- tices State i una X X X X X X ! i X X X X V" A X X X X X X X X X X X X X X X X X X X X V A X X X X X V A V A X X X X X X X X X X X X X A v A X X X X X X X X X X X X X X X X X X X X X X v A v A Y A Y A x x / X X X c/ X X X X California Marketing Act of 1937 (As Amended) Early apples Fresh asparagus Processing asparagus Bush berries Cantaloupes Dried figs and dried fig products Grapefruit » Extracted honey-' Lemon products Dry-pack lettuce Standard Lima beans Cling peaches Fresh peaches Fresh Bartlett pears Bartlett pears (promotion) Canning fall and winter pears Fresh fall and winter pears Hardy pears (promotion) Fresh plums Delta white potatoes Long white potatoes Poultry and turkey improvemen Dried prunes Raisins (Continued on next pege .) r — Table II continued. Commodity 1 Grade and/ or size regula- tion Pack and container regulation Mandatory inspection and/ or certifi- cation Advertis- ing and sales promotion Product ion j processing, and/ or mar- keting re- surveys Quantity Y"i^cni In* tion Stabi- lization pool and/or substand- ard pool Unfair trade prac- tices t I State fund California Marketing Act of 1937 (As Amended) 1 Strawberries Turkey (promotion) Wine X Y A X X A X Agricultural Producers Marketing Law Bartlett pears, canning (Producers program) X X X X a/ California Department of Agriculture, California Agricultural Marketing Programs (Sacramento: State Print. Off., 1956), ~ 31p< ( Its Bulletin, vol. 45, no. 1, January-March, 1956, supplemented by current releases.) b/ The order for extracted honey also includes a provision for price posting. c/ Disease control phases of the National Poultry and Turkey Improvement Plans and turkey breeding phases of the National Turkey Improvement Plan. UJ 36. 1/ SELECTED BIBLIOGRAPHY OK MARKETING ORDERS-* California Agricultural Prorate Commission, The Agricultural Prorate Act; an Analysis and Explanation of the Statute (as ^^T ^H^^^^, Pr ocedure by Pr fec^rTtQ-Tiki^a-ntaRe of Its Prov isions (R ev i s edtoj^cgft- ber 1, 193(3 (Sacramento: State Print. Off., W8h 22P- (uainoraia Agri- cultural Prorate Commission Bulletin No. h.) California Department of Agriculture, California Agricultural Marketing^ro- grams (Sacramento; State Print. Off., January-March, iy>o) , vol. ^, no. i, 31p. Clodius, R. L., "An Analysis of Statutory Market Control Programs in the California-Arizona Orange Industry," Journal of F arm Economics, vol. 35, no. k, pt. 2, November, 1951, pp. 10U3-104ti. Erdman, H. E., "The California Agricultural Prorate Act," Journal of Farm Economics, vol. l6, no. h, October, 193 1 *, PP- 62*1-636. (University of California, College of Agriculture, Giannini Foundation of Agricultural Economics, Paper 56.) Erdman, H. E., "Comparison of Small and Large Farmers Under Proration Schemes," Journal of Farm Economics , vol. 21, no. 3, August, 1939, P- Erdman, H. E., "Market Prorates as Restrictions on Internal Trade," Jggg£ of Farm Economi cs, vol. 20, no. 1, February, 1936, PP- 170-^3; (University of California, Allege of Agriculture, Giannini Foundation of Agricultural Economics, Paper 67.) Erdman, H. E., "Supply and Adjustments in Fruit and Vegetable Marketing Agreements," National Marketing Review , vol. 1, no. k, Spring, 193°, PP. 330-338. Foytik, J., "Marketing Agreements: Fruits and Vegetables," Chapter 9 in The Agricul tural Commodity Program; Two De cades of Experience by Murray R. Benedict and Oscar C. Sti ne (New York: Tne Twentieth Century Fund, 195° ), 510p. Hamilton, H. G., "Florida Citrus Agreement," Journal of Farm Economics, vol. 31, no. h, pt. 2, November, 19^9, PP» 1237-1253 • Hedlund, F. F., "The Impact of Marketing Agreements Upon the Marketing of Fruits and Vegetables," Journal of Farm Economics , vol. 32, no. 4, pt. d, November, 1950, pp. 1006-1015. Holt, B. A. /'Economic Provisions of Marketing Agreements for General Crops," Journal of Marketing, vol. 1, no. 2, October, 1936, PP- 115-12° • 1/ Compiled in the Library of the Giannini Foundation of Agricultural Economics. 37. Hoos, Sidney, and J. N. Boles, Oranges and Orange Product s; ^Changing Economic Relationships (Berkeley: 1953), 67p. (California Agricultural Experiment Station Bui. 731.) Hoos Sidney, and R. E. Seltzer, Lemons and Lemon Produ cts; Changing Economic Relationships, 1951-52 (Berkeley: 1952), 7«P- (California Agricultural Ex- periment Station Bui. 729.) Hoos, Sidney, Lemons, Fresh and Products, Economic Prob lems, Practices, and Policies (Berkeley: University of California, Division of Agricultural Sci- ences, Agricultural Experiment Station, July, 1956), ll6p. (Giannini Founda- tion Mimeographed Report No. 190.) Processed. Hoos, Sidney, "Economic Implications of California Agricultural Marketing Programs," Jour nal of Farm Economics , vol. 38, no. 5, December, 1956, pp. lo79- 1691. (University of California, College of Agriculture, Giannini Foundation of Agricultural Economics, Paper 158.) Hoos, Sidney, "The Marketing Program- -The Basic Problem" (Address at Sympo- sium on Marketing, University of Washington, Seattle, Washington, March 22, 1957) . (Berkeley: University of California, Division of Agricultural Sci- ences, Agricultural Experiment Station.) Kross, John I., "Marketing Orders and the Potato Industry," American Potato Journal , vol. 31, no. 7, July, 195 1 *, PP- 222-230. Kuhrt, W. J., "What California Has Done to Increase the Sale of Its Agri- cultural Products" (Address before Indiana Marketing Conference, Purdue University, Lafayette, Indiana, February 6, 1957) • Kuhrt, W. J., "Self -Help Marketing Programs Under State Law" (Statement filed with U. S. Senate Committee on Agriculture and Forestry, Fresno, California, November 2, 1955) • McKay, A. W., "The Citrus Marketing Agreements," Journal of Farm Economics, vol. 17, no. 2, May, 1935, PP- 3^0-3^7. Mehren, G. L., Agricultural Market Control Under F ederal Statutes (Berkeley: University of California, College of Agriculture, Agricultural Experiment Station, 19^7), ^8p. (Giannini Foundation Mimeographed Report No. 90J Proc- essed. Mehren, G. L., "Consequences and Place of Marketing Agreements in Stabilizing Farm Income," Increasing Understanding of Public P roblems and Policies; a Group Study of Three Topics in the Field of Extension Education (Chicago: iy W , pp. 69-82. Mehren, G. L., "Elementary Economic Theory of Marketing Control," J ournal of Farm Economics , vol. 31, no. k, pt. 2, November, 19^9, PP- 1247-125^. Mehren, G. L., Federal Marketing Programs for Fru its and Vegetables; Major Provisions of the Law, the Administrative Regulations a nd the Orders IBer-teiey. University of California, College of Agriculture, Agricultural Experiment bta- tion, 19U9) , 88p. (Giannini Foundation Mimeographed Report No. 100.) Processed. Mehren, G. L., Marketing Agreements and Orders for Fruits and Vegeta bles (Berkeley: University of California, College of Agriculture, Agricultural Experiment Station, 19^9), l^p. (Giannini Foundation Mimeographed Report Ho. 99.) Processed. Mehren, G. L., "Place of Marketing Agreements in Stabilizing Farm Income," Journal of Marketing , vol. 19, no. k, April, 1955, pp. 331-337- (University of California, College of Agriculture, Giannini Foundation of Agricultural Economics, Paper ikl.) Mehren, G. L., "Some Economic Aspects of Agricultural Control," Journal of Farm Economics , vol. 30, no. 1, February, 19^8, PP- 29-k2. Merchant, C. S., "Maine Potato Marketing Agreement and Order," Journal of Farm Economics , vol. 31, no. K, pt. 2, November, 19^9, PP- 12U4-1246. Nourse, E. G., "Marketing Agreements, Licenses, and Orders," National Market- ing Review , vol. 1, no. 3, Winter, 1936, pp. 225-231- Nourse, E. G., Marketing Agreements Under the AAA (Washington, D. C: The Brookings Institution, 1935), Wop. Rubel, D. M. , and B. A. Holt, "Marketing Agreements," Yearbook o f Agriculture (Washington: U. S. Department of Agriculture, 195*0, PP- 357- 3&3- Schneider, J. B., "Agricultural Marketing Control Programs in California," Journal of Marketing , vol. 6, no. k, pt. 1, April, 19^2, pp. 366-370- Sellers, Ashley, and J. E. Baskette, Jr., Agricultural Marketin g Agreement and Order Programs, 1933-19H (Washington, D. C: 19^5 ) , 29p- Processed. Smith, S. R., "Current Status of Marketing Agreements for Fruits and Vege- tables," Journal of Farm Economics, vol. 31, no. k, pt. 2, November, 19*9* pp. 1228-1236. Stokdyk, E. A., "The California Agricultural Prorate Act," Journal of Farm Economics , vol. 15, no. k, October, 1933, PP- 729-731. Stokdyk, E. A., "California Agricultural Prorate Act Constitutional," Journal of Farm Economics , vol. 18, no. 2, May, 1936, pp. U21-U22. Stokdyk, E. A., "The California Prorate Act," Journal of Marketing, vol. 3, no. 2, October, 1938, pp. 178-179. Stokdyk, E. A., Economic and Legal Aspects of Compulsory P roration in Agri- cultural Marketing (Berkeley: 1933), Mp. (California Agricultural Ex- periment Station Bui. 565.) (Giannini Foundation of Agricultural Economics, Paper 1+5.) Stokdyk, E. A., "Orderly Marketing," California Department of Agriculture Monthly Bulletin , vol. 22, no. 1, January, 1933, PP- 7B-t». Stokdyk, E. A., "Supreme Court Upholds State Proration," Journal of Farm Economics , vol. 25, no. 2, May, 19^3, PP- 50^-506. 39. Tapp, J. W., and E. W. Braun, "Marketing Agreements Under the Agricultural Adjustment Administration," Journal of Farm Economics , vol. 16, no. 1, January, 1934, pp. 99-109 . Thompson, J. M., "Some Theoretical Aspects of Controlled Marketing," Journal of Farm Economics , vol. 20, no. 2, May, 1938, PP« 495-503. Tinley, J. M., "Some Comments on the Social Aspect of Prorates," Journal of Marketing , vol. 2, no. 2, October, 1939, PP. 117-125. U. S. Agricultural Marketing Service, Federal Marketing Agreement and Order Programs for Fruits and Vegetables (Washington, D. C. : 1955), 10p. Processed. U. S. Agricultural Marketing Service, Marketing Agreements for Fruits and Vegetables; Some Questions and Answers (Washington, D. C: 1954), 9p. Proc- essed. U. S. Agricultural Marketing Service, Potato Marketing Agreements Un der Fed- eral Legislation (Washington, D. C. : 1954), lip. Processed. Waugh, F. V., "Agricultural Marketing Programs After the War," Journal of Farm Economics , vol. 27, no. 2, May, 1945, PP. 297-302. Waugh, F. V., "Market Prorates and Social Welfare," Journal of Farm Economics, vol. 20, no. 2, May, 1938, pp. 403-416. Wellman, H. R., "The California Marketing Act and the California Agricultural Products Marketing Act," Journal of Marketing , vol. 3, no. 2, October, 193°, pp. 177-178. Wellman, H. R., Controlled Marketing vith Special Reference to Ca lifornia Fruits and Vegetables (Berkeley: University of California, College of Agri- culture, Agricultural Experiment Station, 1938), 10p. Processed. Wellman, H. R., and F. V. Waugh, The Economic Effects o f Market Prorates (n.p., American Farm Economic Association, Marketing wesearcn uummittee, 1938), 28p. Processed. Wellman, H. R., "Marketing Agreements for Vegetables and Fruits Other Than Citrus Fruits," Journal of Farm Economics , vol. 17, no. 2, May, 1935, PP. 349-356. Wellman, H. R., "The Place of Economic Research in Marketing Control Pro- grams," California Department of Agriculture Bulletin (Sacramento: State Print. Off., January-March, 1941), vol. 30, no. 1, pp. 75-79. Wellman, H. R., Some Economic Aspects of Marketing Agreeme nts for Fruits and Vegetables (Western Farm Economics Association Proceedings, ttth, 1935), pp. 42-51. Wellman, H. R., Some Economic Aspects of Regulating Ship ments of California Qr^npPR (Berkeley! 1936), 29p. (California Agricultural Experiment Station Circ. 338.) Wilcox, F. R., Surplus Control Under Marketing Agreemen ts in California (West- ern Farm Economics Association Proceedings, 7th, 193^), PP- 106-112. >0 esfo i3il^0 stfim"? ban BsMfl$M t^aM t 2 .on t T-t .lo- ss "»aU , !»jit .C si