Upstream Transmission Effects of Generic Advertising and Promotion: The Case of Soybeans

This dissertation aims at analyzing the effects of various assumptions that may affect the upstream transmission of the benefits of commodity checkoff programs. Despite the amount of econometric research on evaluation of the effects of checkoff programs for producer benefits, little empirical research has focused on the various simplifying assumptions often made in those analyses that may influence the rate and extent of the retail-to-farm transmission of generic advertising and promotion effects. The first part of this study is a qualitative analysis of the world soybean and soybean products markets. Then the conceptual model is proposed and discussed. A model of world soybean and soybean markets has been developed which relaxes all of the simplifying assumptions often made in analyses of commodity checkoff programs. The model is used to analyze the implications of those assumptions for the upstream transmission of the returns of the soybean checkoff program to producers. After estimating the econometric parameters of the model, the model has been simulated over history as a means of model validation. Then the model has been simulated again assuming that the U.S. soybean checkoff program had not existed over history. The differences from the simulation results by the baseline simulation are considered as the base case against which all other simulation results are compared. The base case results indicate that the soybean checkoff program has been highly effective over the study period returning $6.9 in revenue to soybean producers for every checkoff dollar spent. This upstream transmission of the benefits of the soybean checkoff program is analyzed through a series of simulations with the world soybean model in which the simplifying assumptions made by other checkoff program analyses. These are imposed on the model including the assumptions of no supply response, no price response, no government intervention, no free riders, no domestic supply chain linkages, no global supply chain linkages, no checkoff investments in production research and no promotion programs at multiple levels of the supply chain. The results of the scenario simulations provide the evidence that simplifying assumptions made in checkoff program analyses can seriously bias the calculation of the benefit-cost ratios (BCRs) for checkoff programs. Some assumptions have a tendency of overestimating the BCR for checkoff programs while others have a tendency of underestimating the BCR calculation. The implication of these findings is that analyses of checkoff programs must consider carefully the simplifying assumptions made to avoid seriously under- or over-estimating the returns of those programs to producers.