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Chapter 2: Economic Importance of Marketing Activities

Chapter 2: Economic Importance of Marketing Activities. Conceptual and Measurement Issues. Value added – form, space, time. Sources: Food Expenditure Data. Trends: food expenditures and consumption. Alternative Measures of Marketing Services. Price spreads

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Chapter 2: Economic Importance of Marketing Activities

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  1. Chapter 2: Economic Importance of Marketing Activities Conceptual and Measurement Issues Value added – form, space, time Sources: Food Expenditure Data Trends: food expenditures and consumption Alternative Measures of Marketing Services Price spreads Other measures - GDP/employment

  2. Conceptual and Measurement Issues (marketing services) What is the concept you want to measure? • data available correspond to the concept? Aggregate Measurement Concept: (aggregate food retail value - aggregate farm gate value) Aggregate retail expenditures; aggregate agr output problems with implementation Comparability of agr and food products What is a retail food product ? (home, food service, institutional) What is an agriculture product ? (pet food, tobacco, fibres - cotton/flax) Industrial uses (ethanol, biodiesel, starch)

  3. Data Sources: Food Expenditures Different data sources are different – different objectives United States USDA - Agr. Marketing Service - ERS US Dept of Commerce Bur. of Labour Statistics Canada Agriculture and Agri-food Canada: Statistics Canada Health Canada International: FAO, IFPRI, World Bank, ILO Private and Other Public Sources Private Corporations: A.C. Nielson Industry Organizations University Institutions Private “Think Tanks” (George Morris Center; Guelph)

  4. Measuring Food Expenditures and the Value of Marketing Agr + Food Products Conceptual Issues What’s an Agri-Food Product? What is included? Fish, beef bones, Pet food, cotton, hemp Beer/Wine Spirits, ethanol, biodiesel Practical Challenges: working with the data you have

  5. Tomato on farm versus tomato at retail Tomato => many products (pizza) Individual Food Products Measurement Concept Challenge: Converting from primary to processed Joint production - co-products Beef (steak vs beef on the hoof) Wheat (loaf of bread vs bushel of wheat Food away from home Lettuce in a hamburger Adjustments for trade Retail expenditure data Excludes export marketing services Includes import marketing services

  6. US Retail Food Expenditure Data Different expenditure data from USDA and Commerce Dept. USDA – Concept 1: Total retail value of FOOD consumed in the USA • Purchases, donated, home-produced for human consumption–all sources • + Government/business food services USDA – Concept 2: Personal expenditure data • excludes non-purchases & food provided to employees • measures expenditures out of personal income

  7. Department of Commerce Food Expenditure Data Personal Food Expenditures Includes pet food, ice, prepared feed Results in different proportion of disposable income spent on food

  8. Changes in Food ExpendituresRole of marketing services Expenditures on food and marketing are increasing Growth in away from home consumption More processing Prices increasing (even adjusted for CPI) Population growth

  9. Some Canadian Data 2005 – Canadian food expenditures (AAFA) $131 Billion – food & beverage (including alcohol) $4K per capita (32 Million Population) Canada – expenditures out of household income 1961 – 20% of household income on food and non-alcoholic beverages: 2005 – 9.3% $ 71 B in grocery stores (66%) $ 37 B in food service establishments (34%) -------------- $ 108 food expenditures $ 24 B for alcohol

  10. Changes in Consumption of Individual Products 1) Disappearance data Production + (beg. stocks - end. stocks) + (imports - exports) US - Bur of Labour Statistics and USDA Canada - Statistics Canada; AC-Nielson (scanner data) Expenditure weights for CPI Nutritional status analysis Defined for primary food commodities (beef, eggs, milk) Approximate per capita consumption (waste is estimated) Adjusted for industrial and nonfood use to estimate food consumption 2) Periodic household surveys

  11. Data Sources - Food Expenditures United States USDA - Agr. Marketing Service, Economic Research Service US Dept of Commerce, BLS USDA food consumption (per capita) data system (2013 active) http://www.ers.usda.gov/data-products/food-availability-%28per-capita%29-data-system/.aspx#.Ug6UbKyZaVY Canada Agriculture and Agri-food Canada: Statistics Canada – Food Expenditure Surveys Health Canada Consumer Expenditures (2013 active) http://www4.agr.gc.ca/AAFC-AAC/display-afficher.do?id=1171288446081&lang=eng

  12. 1970 - 1996

  13. Serecon Management Consulting - 2005, for AAFC

  14. Alternatives to Aggregate ExpenditureRetail-Farm Price SpreadsValue of Marketing Services Concept: Calculated for individual products (retail price - imputed farm values) Imputed farm values Farm prices and conversion factors Practical Difficulties - adjustments Multi-ingredient products Co-products

  15. USDA Market Basket Concept Retail-farm price spread – set (Basket) of products • retail prices for home consumption (no restaurants) • excludes seafood, and nonalcoholic beverages • Weighted by average quantities of food products purchased Farm value based on farm prices Difference = value of marketing services Narrow range of products Set of products relatively static

  16. USDA Marketing Bill Concept 1) Compute total retail food expenditures • All/most food products (includes non-alcoholic drinks) • includes away-from-home purchases • excludes imports and seafood Share of consumer $ spent on marketing 2) Farm values - based on farm gate prices (1) – (2) = Estimated value of marketing services

  17. Farm Share of Retail Food Expenditures Measures vary market basket (static) or marketing bill (dynamic) • what is included • how pattern of purchases evolves Market basket => higher farm share Both measures => declining farm share

  18. Based on 2007 USDA data

  19. Other Economic Measures Contribution to GDP • Includes import and export marketing services Employment Schrimper provides US data Canadian Data Follow

  20. Revenues generated for each sector An Overview of the Canadian Agriculture and Agri-Food System 2013, Research and Analysis Directorate, Strategic Policy Branch, Agriculture and Agri-Food Canada, Ottawa. ISSN 1708-4164 2013

  21. Canadian AAF System GDP: 8.0% (2011) Primary Agriculture 1.7% GDP Marketing System 6% (Post Farm-Gate) $100 Billion Total GDP An Overview of the Canadian Agriculture and Agri-Food System 2013, Research and Analysis Directorate, Strategic Policy Branch, Agriculture and Agri-Food Canada, Ottawa. ISSN 1708-4164 2013

  22. Employment: AAFS 12.5% (2.1 Million Canadians) 87.5% Marketing Activities

  23. A few more numbers from the AAFC 2013 Report Exports: $ 40 Billion Imports $ 31 Billion 2011 Consumer spending: food, beverages and tobacco = $181 Billion 18% of personal spending Spending on food and non-alcohol = 10% of personal household expenditures Government support to the AAF System (all levels) = $ 7.5 Billion (2011/12) $2.7 Billion in program payments to primary agriculture (PSE 2011 = 14%) Research Support (In real terms): 1990 $500 Million ($ 2002) 2011/12 $430 Million ($ 2002)

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