NE-165 PROJECT PROPOSAL

JUSTIFICATION

Post farm gate processing, marketing, and distribution of food is a critically important problem because of the size of this sector in the U.S. economy and the impact of its performance on farmers and consumers. Sales by the U.S. food marketing system totaled nearly $800 billion in 1994. Value added by the food system represents about 81 cents of each food dollar spent (Gall). Equally important, the post farm gate share of the consumer's dollar has increased significantly not only in the long runit was 58 percent in 1929but also over the very recent past. Value added by post farm gate processing and distribution was 75 percent in 1988 (Dunham). The trend towards fewer very large and often vertically integrated agribusinesses is changing how the food system operates. Profits for both food processors and retailers have continued at record levels during the 1990s (Gallo). During the 1980s, the stock prices of food manufacturing firms in the Standard and Poor 500 Index increased nine-fold as the index itself tripled (Cotterill 1993). For these reasons the performance of the system remains a critical issue. Are profits due to increased market power, efficiency gains, and/or global expansion into "virgin" markets? Are food distribution systems on both sides of the Atlantic converging to a common structure and similar strategies? If so, what are the implications for performance in different countries and sectors? Could food be provided in a more affordable, i.e., efficient, fashion? Are consumers being supplied with the optimal amount of food quality, especially safety, information, and regulatory protection? How safe is safe?

ESCOP recognized the importance of this research in its 1994 report . In its national and regional ranking of research initiatives, to "increase the use of integrated and sustainable (emphasis added) production systems" and to "enhance food safety" are tied for first place among 22 topic areas, while to "enhance agricultural and rural economies" is ranked fifth and to "enhance food quality and value" is ranked thirteenth. The Joint Council on Food and Agricultural Sciences in its Fiscal Year 1997 Priorities for Research, Education, and Economics identifies five high priority research areas. They include research on: 1) provision of a safe, affordable, reliable, and nutritious (emphasis added) food supply and 2) improve- ment in the global competitiveness of U.S. food products, including identifying quality assurance programs and assessing the impacts of public policy on competitiveness.

The need for economic research on food marketing is comprehensive and critical not only because of changes in the structure of markets and in private strategies but also because of recent and contemplated cuts in federal programs and the dismantling of federal food and agricultural policies. Key problem areas addressed by research in this Project are: the scope and impact of market power and new cost efficiencies; the effectiveness of new antitrust, food safety, and other regulatory measures; the impact of increased vertical integration and coordination in food industries and of internationalization of the food system; possible paths of convergence of food systems in developed economies on particular private strategies and competitive performance levels; food access for at risk, poor consumers given actual and contemplated cuts in federal programs; and the potential role of agricultural cooperatives as coordination and stabilization agencies in the event that federal farm programs are dismantled.

Given the length of this list of problem areas, the need for an international, coordinated, cooperative research effort is clear. Complete "solutions" for each of these areas may not be possible, but high quality research on any of them requires an integrated team approach that is beyond the span of any individual or institution. The proposed NE-165 Project is large because it seeks to focus and coordinate the efforts of many researchers to analyze specific issues in a comprehensive, multifaceted fashion. Absent focus and coordination, individual efforts almost always fall short. Participants in the previous Project have found integration and cross fertilization to be particularly stimulating to their research. In planning for a new Project, the participants overwhelmingly supported a unified approach to research on market structure, vertical coordination, food quality, and government regulation (see Critical Review below). NE-165 is more active and organized than most regional projects, and better able to coordinate the collaborative efforts of a large number of researchers, because it has a funded Core Research Group at the Food Marketing Policy Center (FMPC) at the Universities of Connecticut and Massachusetts. The resulting leadership and facilitation provided by the Policy Center ensures timely, visible, productive research forums, conferences, and symposia for the coordinated delivery of research on important issues. As evidence of a proven track record on this point we cite the eight conferences held or to be held during the second five years of the Project (1992-1996). Interaction and feedback with key policy agencies is particularly facilitated by the participation in the Project of members of the Agricultural Marketing Service, Economic Research Service, Packers and Stockyards Administration, and Rural Business-Cooperatives Service of USDA; Food and Drug Administration; Centers for Disease Control and Prevention; and General Accounting Office.

Several Project researchers have testified before Congress, written major policy white papers, served as expert economists in antitrust and regulatory matters, and worked with state legislatures, public interest groups, and other organizations to influence food system performance. NE-165 is credited with playing the crucial role in establishing the economics of food quality, especially food safety, as an active research field within economics, contributing to high quality analysis of new regulatory initiatives such as Hazard Analysis Critical Control Point (HACCP) for control of foodborne pathogens. Cost savings to the public from the Project are likely to sum to billions of dollars as research improves competition, efficiency, food quality, and government policy. For example, recent FMPC policy research at Connecticut and Purdue has contributed to major national television stories on high cereal prices, Congressional focus on this issue (FMPC Newsletter), and actual price reductions by leading cereal companies that may save the average cereal consuming household $200 per year. For research productivity, the benefits of continuing the Project will be seen in increases in collaborative research projects that improve the effectiveness of its members; NE-165 sponsored conferences, symposia, and workshops; and Internet and standard access to written work, including the NE-165 Working Paper Series and Journal Reprint Series.

The proposed research intends to have a major impact on scientific methods and understanding by developing new approaches to analysis of food markets. Of particular importance in this regard is 1) the integration of demand analysis into industrial organization work through the use of the greatly improved, scanner-based data now available on the brand level for food products, and 2) the development of improved methodologies to measure the benefits and costs of private strategies and public polices aimed at improving food quality.

Table of Contents


Return to NE-165 homepage