Lee F. Schrader

Cholesterol Information and Shell Egg Consumption

U.S. per capita shell egg consumption has declined steadily since 1955 despite a falling real price. This paper investigates how information about cholesterol, as measured by a newly constructed index based on medical journal articles, has affected U.S. demand for shell eggs. The results of a fixed coefficient model indicate that information on the links between cholesterol and heart disease had decreased per capita shell egg consumption by 16% to 25% by the first quarter of 1987. A simple changing coefficient model indicates that cholesterol information has changed shell eggs own price and income elasticities, so that the 1955–87 falling egg price and rising income increased egg consumption less than they otherwise would have.

Growth of large cooperative and proprietary firms in the US food sector

Growth of sales and assets of large cooperative and proprietary firms in five food industries from 1975 to 1980 were analyzed. Models of firm growth were estimated using data from 32 cooperatives and 35 proprietary corporations. The seven factors included in the model affect the growth of cooperatives and proprietary firms similarly but fail to account for the more rapid growth achieved by cooperatives during the period studied.

Responses to Forces Shaping Agricultural Marketing: Contracting

ogies are expected to affect both the internal organization of firms and the means used to coordinate the food and fiber sector. Their impact on vertical market structures may be even greater than that of the preceding mechanical and chemical technologies which had their major impact in the horizontal dimension. Contracting is a means to coordinate successive stages in a commodity system. It includes a wide variety of arrangements spanning a continuum between open production (produce and then sell) and integration. That is, it includes all arrangements between pure market coordination and intrafirm-administrated coordination of two or more stages of production (integration). Contracts for delivery of a specific quantity at a specific price, time, and place-common in the grain and oilseed trade-are considered a part of market coordination. Some resource providing production contracts are functionally equivalent to integration. When the contractors guarantee is needed to obtain financing for the producers facility, production is controlled by the contractor, and payment to the producer is on a piece-rate basis; the effective difference between contracting and integration is not a difference in coordination. The objective of this paper is to augment the theoretical or conceptual framework for the analysis of contracting as a coordination mechanism and to advance some hypotheses regarding the probable direction and extent of change in agricultural contracting practices during the next decade. Theoretical Concepts

An Experimental Comparison of Pricing in Two Auction Systems

Trading and pricing procedures are being increasingly viewed as variables in the marketing system, particularly as the pricing role of central markets declines. Quantification of the effect of pricing systems on price outcome is needed for decisions in this area. English (ascending bid) and Dutch (descending price) auctions are compared in a series of experiments. Specific hypotheses regarding price variation, pattern of price during an auction period, and departure from equilibrium price are tested. The experimental evidence indicates the existence of a significant area of indeterminacy in pricing processes.

Regional Location of Beef Cattle Feeding

INEAR programming methods for solution of point-trading spatial equilibrium models have provided an important tool for analysis of regional adjustments to changing economic conditions. Studies to date generally have been concerned with equilibrium product shipments and product prices. Increased flexibility in the possible types of analyses recently has been provided by a programming formulation of a general equilibrium model for both product and factor shipments and prices.2 This development has proved particularly helpful in the quantification of this model concerned with the location of beef cattle feeding facilities. Although the entire analysis is not completed, the method used appears to be of sufficient general applicability and interest to warrant presentation at this time of the preliminary findings and the approach employed. Feedlot finishing of beef cattle basically involves three major variable inputs: feeder cattle, feed concentrates, and hay or other roughages. These factors can be shipped among various regions of the country. Similarly, slaughter cattle or meat can be shipped to meet regional levels of demand for beef. The problem is to determine that regional organization of cattle feeding, factor and product shipments, and beef prices that would result from perfectly competitive behavior. This organization would provide a basis for appraising efficiency of the current location of feeding, and for determining probable direction of regional adjustments to changes in such factors as regional level of demand for feedlot finished beef. A spatial equilibrium analysis of this nature requires specification of three types of functional relationships; namely, demand functions, transfer functions for product and factors, and supply functions for the production of feedlot finished beef. In this study, the demand function is

Relationship between Two Price Quotes for Eggs

Most transfers of shell eggs at all levels of the marketing channel from the production to the retail level are priced by formula based on published market quotations. Most pricing formulas in the U.S. east of the Rocky Mountains are based on prices quoted in Producers Price-Current. West coast egg-pricing formulas most often use quotes by the U.S. Department of Agricultures Poultry Market News. The pervasive use of formula-pricing results in a thinly traded cash market and focuses attention on the price quotes. The validity and accuracy of quotes are major concerns of the trade. The problems of egg pricing are documented by Rogers and Voss and by Schrader, Larzelere, Rogers and Forker. The desire on the part of the trade for a means to facilitate price discovery and price reporting for eggs motivated the establishment of Egg Clearinghouse, Inc. (ECI). ECI is a cash exchange trading gradable nest-run eggs, where trades are matched by computer with the product moving directly from seller to buyer once a trade has been completed. Trading on ECI has been thin, representing less than 0.5% of all eggs produced in 1978. Yet trades on ECI and Defense Personnel Support Center purchases represent the only transactions for which quality and delivery are clearly specified and for which prices are available to the public. Other transactions are known to participants and, to some extent, to Urner Barry or USDA reporters. Both Urner Barry and Market News report prices paid by retailers for cartoned eggs; however, these prices usually are determined by formula using a prior quotation. Much of the trading on ECI represents trading among grading and packing firms to correct shortterm imbalances. As such, these relatively few trades may represent the marginal price-making transactions. The quality specifications are such that only eggs suitable for cartoning for table use are acceptable for delivery in the gradable nest-run classes.

Patron Valuation of a Farmer Cooperative under Alternative Finance Policies

Farmer cooperatives have grown and prospered in recent years. This growth has resulted in larger individual cooperatives and, in some cases, increased market shares held by cooperatives. This expansion has attracted greater public interest in cooperatives, and critics have attacked both the unique tax treatment and antitrust exemptions accorded agricultural cooperatives (Business Week, p. 102). There has been growing pressure on various regulatory agencies and legislators to redefine the rules governing cooperatives. A number of the proposed changes would affect the capital structure of cooperatives. The objective of this paper is to analyze the effect that changes in capital structure have on the financial value of a cooperative to its member patrons. While this analysis introduces no additions to the theory of cooperative finance, it does contribute to the understanding of the nature and importance of the unique relationships that exist between an owner-patron and his cooperative, as contrasted to the relationship found between a corporation and its owners. Three policy options are analyzed: (a) payment of a required return on all forms of member-contributed capital; (b) changes in the minimum cash proportion of the patronage refund; and, (c) limited length of revolving fund cycle. Cooperative corporations are primarily distinguishable from other business firms because they operate on a cost-of-doing business basis. In effect, the cooperative does business with a prior commitment to return any revenues above costs and capital needs to its patrons. The amount of the return (patronage refund) is a function of patronage volume rather than the amount of capital invested. In addition, cooperatives are characterized by limited returns on capital and member control through one-man-one-vote. These characteristics substantially reduce the attractiveness of cooperative investment to nonpatrons and compel the organization to rely on member patrons for a major portion of investment capital. Unlike the normal corporate organization, the financial returns generated by cooperative patronage represent a combination of earnings. They may be attributable to extending the patrons farm business to another level of the commodity system as well as to the capital invested at that level. The flow of funds to the patron is quite clearly a function of his business volume with the cooperative, the extent of value added by the organization, and the capital structure of the cooperative. It is vital that the simultaneity of the owner-customer relationship be included in any analysis of patron benefits. The authors contend that the analysis of policies affecting the capital structure of cooperatives must be in terms of the flow of funds to member patrons over the relevant patronage horizon. Further, the evaluation of the flow of funds must reflect the

Formula Pricing in Five Commodity Marketing Systems

Formula pricing has been a subject of concern in the food industry for twenty years, and perhaps longer (NCFM Report, p. 98). Formula pricing contracts involve prices on individual shipments or transactions which are tied directly, by formula, to a specific market price quotation. After buyers and sellers agree on the formula, subsequent transactions are routine and low in cost. Formula pricing is a delegation of price discovery to those who negotiate prices. Consequently, the market mechanism and the price reporting services which generate the prices used in formula-priced contracts have an increasingly important and potentially more difficult burden placed upon them. Formula-pricing arrangements reduce the fraction of total supply entering into market price determination, and the resulting, more thinly traded markets may be more sensitive to erratic or manipulative influences on market prices or market price reports. More recent concerns in the beef subsector are evidenced by several court cases, hearings before a House Small Business subcommittee, a special USDA Meat Pricing Task Force, and congressional bills focusing on meat industry pricing and price reporting systems (e.g., H.R. 91, 1979). This study focuses on formula pricing in five commodity marketing systems where formula pricing was known or expected to be heavily used. We analyze the extent of formula pricing use in those markets, the incentives for or benefits of formula pricing, and the disadvantages and problems associated with formula pricing. Through a comparative analysis of formula pricing in the beef, pork, cheese, turkey, and egg markets, we offer some insights into the similarities and differences found in these markets and the sources of the controversy surrounding formula pricing systems. A few policy alternatives are then briefly considered.

Implications of Electronic Trading for Agricultural Prices

Electronic trading is expected to result in net prices which are more favorable to producer sellers and/or buyers of agricultural products than those generated in traditional trading systems. Lower transaction costs and reduction of market power imbalances account for the difference in net prices. Review of the evidence from actual electronic trading supports these hypotheses. The importance of balanced information availability and effective loss of power by one side of the market due to electronic trading suggests that the move to greater use of such systems must come from agricultural producers.

Egg Prices Revisited

Recent egg price quotes are evaluated in a vector autoregression. The results indicate that empirical relationships observed over the period 1975-1976 differ from those observed over the period 1979-1982.