Folwell, Raymond J.

McCracken, Vicki A.

Worley, C. Thomas

English

Research Papers in Economics

Methodology for Trend Analysis and Projection
Of Production, Market Shares, and Consumption*
by
C. Thomas Worley
Department of Agricultural Economics
Washington State University
Pullman, Washington
Raymond J. Folwell
Department of Agricultural Economics
Washington State University
Pullman, Washington
Vicki A. McCracken
Department of Agricultural Economics
Washington State University
Pullman, Washington
Introduction
Food processing and marketing firms must
continually analyze alternative product marketing
strategies in view of the intensely competitive
environment of the industry. Rural, agriculturally
dependent communities with concentrated produc-
tion of various crops frequently turn to expansion
of food processing and marketing for increased
employment and value adding economic activity.
Formulation of product marketing strategies by
firms and rural economic development efforts face
the same problems of identifying crops, products,
and areas in which to expand.
Identification of trends in crop acreage and
consumption of important agricultural products in
defined geographic regions is valuable for firm
planning and overall industry outlook purposes.
Numerous single commodity analyses have been
performed using econometric and mathematical
programming techniques. Examples of single
industry studies include Greig’s mathematical
programming model of the U.S. sweet corn indus-
try and French and Willett’s econometric model of
the nation’s asparagus industry. Shortcomings of
these studies is lack of comparability among the
results across commodities. Extensive data is also
required for initial model construction and subse-
quent use in industry simulations.
Application of uniform and systematic
methods of analysis across the spectrum of crops
and processing activities in a region yields mean-
* Research Report Presented at the Thirty Third Annual Meeting of the Food Distribution Research Society at Boston,
Massachusetts, November 4, 1992
February 93/page 110 Journal of Food Distribution Researchingthl relationships and comparisons concerning
acreage, processing, marketing and consumption
trends. The purposeof this research is to describe
a systematic method of analyzing consumption
trends and market shares which do~ not require
excessive collection and maintenance of data and
complex modeling techniques.
Objectives
The objective of this research report is to
describe methods for analyzing consumption
trends and regional market shares. The methodol-
ogy is first presented and discussed in general
form. Subsequently, the techniques are applied to
the consumption and market shares of Washington
asparagus.
These techniques were developed to gain
insight concerning relative rates of expansion in
various types of fruit and vegetable processing in
Washington in the year 2010, ~orley and
Folwell]. The methodology and results of this
research are based upon relatively few variables.
This permits the methods to be replicated for
other regions and crops which may be of particu-
lar interest to persons representing many different
food industries.
Although these techniques are relatively
straight forward in nature, there is much sophisti-
cation incorporated into the projection methods via
the income and population forecasts utilized.
Forecasts of U.S. income and population made by
the United States Department of Commerce are
incorporated into the methodology. These fore-
casts are based on a complex set of assumptions
concerning fbture economic and population growth
in the United States which are fhrther explained in
the text of this paper.
Domestic Consumption Per Capita
U.S. domestic market demand projections
were accomplished in two steps. First, per capita
consumption functions were statistically estimated
for each product form (fresh, canned, frozen,
etc.). The per capita consumption function eMi-
mated for each product form was one of the fol-
lowing three functional forms:
(2)
(3)
where:
C,,t =
Y, =
T, =
b, =
per capita consumption of the i*
commodity form in the @year;
per capita personal income year t in
constant 1982 dollars;
time trend measured in years, 1980,
1981, etc.; and
the ordinary least-squares estimators
of the intercept and slope coeffh
cients for the iti commodity form.
A consumption function was estimated using
historical data from 1980-1989 for each product
form. Selection of functional form (with or with-
out an intercept) and the specification of the equa-
tion (with or without a trend variable) was based
upon statistical considerations (significance),
economic considerations (signs), as well as the
predicted value for the year 2010, given trends in
the historical data.
Thus, the projected per capita consumption
levels are based upon a continuation of past trends
with income and/or time being the primary vari-
ables in the consumption formulas. The data
requirements are minimal with per capita con-
sumption for each product form and a U.S.
income series being the only required data. The
estimation technique is the simplest among those
in inferential statistics which allows for hypotheses
testing and tests of statistical significance.
The estimated per capita consumption func-
tions were evaluated for the year 2010 using
projected per capita personal income for 2010.
The income level in 2010 was adopted from pro-
jections by the U.S. Department of Commerce
Bureau of Economic Analysis (IJ!SDC-BEA). The
projected 2010 per capita income was $16,693
measured in 1982 dollars.
(1)
Journal of Food Distribution Research Februsry 93/page 111The income projections by the USDC-BEA
are based on assumptions of continuance of past
economic relationships with no major policy
changes. Consequently, these are essentially the
same assumptions underlying the consumption
functions. Gross national product (GNP) was
projected based on projections of population,
labor-force, employment, and GNP per employee.
The population projections were based mainly on
the work of the U.S. Department of Commerce
Bureau of the Census (USDC-BC), and the labor
force projections were based mainly on the work
of the U.S. Department of Commerce Bureau of
Labor Statistics. The GNP projections were in
general the basis of the derivation of other
national measures, including total personal income
by component and both employment and earnings
by industry.
Aggregate U.S. Consumption
The 2010 per capita consumption estimates
were used in conjunction with projected 2010
population levels as published by the USDC-BC to
determine aggregate U.S. consumption, The
USDC-BC uses a cohort-component model to
make such population projections. The basic data
used to generate the projected population levels
included a base-year population, projected fertility
rates, projected surviwd rates, fiuure net immigrat-
ion statistics, and under count rates from the
1980 census. The projections include a low,
middle, and high series of estimates for U.S.
population. The USDC-BC describes these esti-
mates as:
. . . The lowest series assumes low fertil-
ity, low life expectancy, and low net
immigration; while the highest series
assumes high fertility, high life expec-
tancy, and high net immigration. These
series provide the widest range around the
middle series (which is based upon the
middle assumption for each component)
in terms of future total population size,
but do not necessarily represent the ex-
treme range for any particular population
subgroup.
The total U.S. population estimates for
2010 by USDC-BC using these assumptions were:
Low: 264,193,000
Middle: 282,575,000
High: 305,882,000
These population levels were multiplied by
the projected 2010 per capita consumption esti-
mates to project total U.S. consumption in 2010
for the three population levels of the various
commodity forms.
Net Foreign Demand
Import and export data as identified by the
Harmonized Commodity Description and Coding
System were compiled for the calendar years 1989
and 1990 [Foreign Agricultural Trade of the
United States]. The data for specific products
were aggregated by product form (fresh, canned,
frozen) to achieve compatibility with the domestic
consumption product forms. The data were
reported on a product weight basis and were
converted to fresh or farm weight by using factors
published by USDA [Stat. Bulletin 616].
Trade data for calendar years 1989 and
1990 were averaged and used to calculate net
foreign trade as a percentage of total 1990 domes-
tic consumption for each product form. This
percentage was assumed unchanged in the future
and was used as an adjustment factor to the previ-
ously estimated 2010 domestic consumption to
account for the effect of net foreign trade. Total
U.S. output was assumed equal to aggregate
domestic consumption adjusted for the percentage
of consumption represented by foreign supply or
demand.
Market Shares Determination
Estimated market shares for a selected study
area were obtained through trend analysis of
historical acreage data using regression tech-
niques. The market shares for the study market
area were specified as linear functions of time:
MS, = aoiJ + alJJ T, ,
Where MS, is market share and is defined as the
percent of U.S. acreage grown in the study area
in year t, T is the time trend measured in years;
~,ij ~d ~l,iJ are the ordinary least-squares esti-
mators; i andj denote the i* commodity form and
February 931page 112 Journal of Food Distribution Researchj* market area, and t is the year. The market
shares measure: 1) the percentage of total U.S.
acreage of the iti commodity grown in a selected
state, and 2) the percentage of total state acreage
of the iti commodity grown in the study area. The
regression equations were estimated using histori-
cal acreage data from 1980 through 1990. An
advantage of using this simple model for projec-
tions is that the market share for the state and the
rest of the United States will always add up to 100
percent, which insures gains in market share in
the selected state are offset by losses in the other
states.
Market Shares Applied to
Projected U.S. Production
The market shares projections for 2010
were applied to the previously calculated net U.S.
output projections to determine the production of
each commodity in a selected state and study area.
These were then compared to the derived level of
production in 1990 for the selected state and study
area to determine the magnitude of change over
the 20-year period.
The procedure was to first calculate the
state’s share of the net U.S. production and then
use the resulting state total to calculate the study
area’s share of state production. The same market
share was used for all forms of product. This
assumes that each state and the study area produce
the same proportion of each product form of the
commodity. These projections were compared to
1990 production levels calculated the same way
except using 1990 market shares and net U.S.
production. Thus, comparability between a base
year, 1990, and the 2010 projections was main-
tained.
Example Application:
Washington Asparagus
The historical per capita asparagus con-
sumption data summarized in Table 1 was first
regressed on income and time variables as
described previously. The results of these OLS
regressions are presented in Table 2 for each
product form of asparagus. The regression was
not completed for frozen asparagus since the
historical consumption of this product remained
unchanged over the ten-year period of 1980-89.
These estimated consumption functions were
then used to predict the per capita levels of con-
sumption in 2010 by evaluation at projected 2010
income and time. Column one of Table 3 reports
these estimated 2010 per capita consumption
levels. Per capita asparagus consumption trends
are negative for canned, flat for frozen, and
slightly positive for fresh product. The regression
equations of fresh and canned were used to project
the per capita consumption of these product forms
in 2010, while the historical average for frozen
was used as the per capita projection for that
product form. The per capita estimates of con-
sumption were then multiplied by the three e&i-
mates of population to estimate aggregate U.S.
consumption levels for 2010 reported in Table 3.
Table 4 shows the average net level of
foreign trade in asparagus by product form, the
percentage of 1990 U.S. consumption, and the
resulting adjustment factor. U.S. aggregate con-
sumption was adjusted using this factor which
resulted in the projected asparagus production
shown in Table 5. Net trade for fresh and frozen
asparagus is negative; the United States is a net
importer of these forms. The United States is a
relatively small net exporter of canned asparagus
with quantities averaging 1.3 percent of domestic
consumption during 1989 and 1990.
Acreage data used for the trend regression
is shown in Table 6. The estimated trend in
market share coefficients indicates that
Washington’s share of U.S. acreage in increasing.
Washington’s share of U.S. acreage has expanded
during the 1980-1990 period by an estimated 0.3
percent per year. Projecting this rate of increase
to year 2010 results in an expected share of 38.8
percent of all U.S. acres to be grown in
Washington, increasing from the 32.7 percent
share in 1990.
Applying the estimated 2010 market shares
to the estimated U.S. production levels in 2010
provides the projected level of output in
Washington in 2010 shown in Table 7, These
projections are then divided by the 1990 levels
yielding the expansion ratios shown in Table 7.
Journal of Food Distribution Research February 93/page 113Table 1
U.S. Per Capita Asparagus Consumption By Form Of Product, 1980-89
Product Pounds Per Capita
Form Mean Std. Deviation Range
Low High
Fresh .47 0.1252 .30 .60
canned .32 0.0422 .30 .40
Frozen .10 0.0000 .10 .10
Source: USDA Vegetables and Specialties
Table 2
Ordinary Least Squares Estimates
Of Asparagus Consumption Function Coefficients By Product Form
Product Form Intercept Income Time Residual Mean
Square
Fresh .0000385 .009577
(15,37)’
canned
94.604 .0001522 -.048455 .000276
(5,88)1 (4.78)1 (-5.83)’
Frozen regressionnotpossible
lStudent t values at the 95% level of confidence.
Table 3
Estimated 2010 Per Capita And Total U.S. Consumption By Population Level
Product 2010 2010 Total U. S. Consumption
Form Per Capita Low Middle High
lbs farm weight equivalent (millionlbs)
Fresh 0.64 169.1 180.8 195.8
canned 0.25 66.0 70.6 76.5
Frozen 0.10 26.4 28.3 30.6
February 93/page 114 Journal of Food Distribution ResearchTable 4
Net U.S. Trade Of Asparagus By Product Form (Exports-Imports) Averaged For 1989 and 1990
Average Average as % of 1990 Adjustment
Product Form Net Trade Consumption Factorl
million lbsfarm weight equivalent
Fresh -3.788 2.53 0.9747
canned 0.995 1.33 1.0133
Frozen -1.135 4.55 0.9545
lAdjustment factor to adjust aggregate U.S. consumption to total U.S. production.
Table 5
U.S. Asparagus Production Projected In 2010 By Population Level
Product Adjustment Population Level ----------------- ------------ —---------------
Form Factor Low Medium High
---- millionpounds ----
Fresh 0.9747 164.800 176.266 190.805
canned 1.0133 66,928 71.584 77.489
Frozen 0.9545 25,216 26.971 29.196
Journal of Food Distribution Research February 93/page 115Table 6
U.S. and Washington Asparagus Acreage and
Share of U.S. Acreage in Washington State, 1980-1990
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Washington United States I WAIUS
----- (W acres ------
22.20 87.95 ,2524
23.70 81.99 .2891
28.40 84.64 .3355
29.30 87.29 .3357
29,00 89.93 .3225
29.00 91.45 .3171
30.00 96.18 .3119
31.00 99.84 .3105
32.00 100.91 .3171
32.00 98.51 .3248
30.00 95.60 .3138
Estimated time coefilcient: .00304
Projected 2010 share of U.S. in WA: .388
Table 7
Washington Asparagus Production Projected in 2010 and
The Expansion Ratio Relative to 1990 at Three Population Levels
i
2010 Projected
I 1 Expansion Ratio
i I
1
I 1990 Low Med High ~ Low Med High
1 # I
i
millionpoundsfarm weight
i
Fresh ~ 45.760 63.942 68.391 74.032 ~ 1.397 1.495 1.618
canned i 23.787 25.968 27.775 30.066 [ 1.092 1.168 1.264
I
Frozen I 7.469 9.784 10.465 11,328 { 1.310 1.401 1.517
February 93/page 116 Journal of Food Distribution ResearchData for the last three years indicate that 69
and 31 percent of Washington asparagus is grown
for processing and fresh use, respectively WA
Agri-Facts], This dependency on processing
coupled with the forgoing trends suggest that the
asparagus processing industry in the state will
continue at about its present size. The likelihood
of expanded canning activity seems especially
slight, given the declining per capita consumption
and relatively low volume of net exports.
Summary and Conclusions
Relative magnitudes of change between
currentand projected production, processing and
consumption levels can be consistently measured
using the described methodology. These methods
provide results which identify those crops and
processing activities which have potential for
expansion in a state and intra-state regions. The
methodology was applied to only one region of
the state and to only one commodity. Applica-
tions to other specified study areas could yield
regional expansion rates for comparison within a
state.
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METHODOLOGY FOR TREND ANALYSIS AND PROJECTION OF PRODUCTION, MARKET SHARES, AND CONSUMPTION

METHODOLOGY FOR TREND ANALYSIS AND PROJECTION OF PRODUCTION, MARKET SHARES, AND CONSUMPTION

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