Myers, Lester H.

English

Research Papers in Economics

SOUTHERN  JOURNAL  OF  AGRICULTURAL  ECONOMICS  JULY,  1981
DISCUSSION:  REGIONAL  MARKETS  FOR  FOOD  AND  INTERREGIONAL
COMPETITION:  IMPLICATION  FOR  SOUTHERN  AGRICULTURE
Lester H.  Myers
A  comprehensive  discussion  of research  and  regions.  Again,  if we  accept  this,  then  his  sub-
interregional competition  logically includes three  sequent  analysis,  which  purports  to  show  little
major  components:  (1)  a  review  of  the  overall  food  expenditure  variability  across  income
need for the research  results and  a clear  delinea-  groups,  actually argues against including income,
tion  of  the  differences  in  information  require-  at least as a continuous variable,  in the consumer
ments  across types of clientele;  (2)  a description  demand function.
of the  characteristics  of  the  needed  research  A  problem  exists  in  that  the  analysis  only
methodology,  as  related to  the  specific  clientele  casually  addresses  two  fundamental  questions.
needs;  and  (3)  the  resulting  data  requirements,  First,  What is  the food consumption response to
consistent  with both  the  methodology  and  with  various  income  levels?  and,  second,  How  does
the research objectives. Furthermore,  in address-  this  response  coefficient vary  across  geographic
ing a research-oriented  audience, there should be  regions? Blakley presents and addresses the first
emphasis  on  identifying  "bottlenecks"  that cur-  question  on  a national  basis  for  fairly  aggregate
rently  exist either  in developed  methodology  or  food groups.  It is  doubtful that the data given are
data bases,  or both.  Of course,  the idealistic  ob-  appropriate  to  formulate  any  useful  hypotheses
jectives are to stimulate the assembled audience,  regarding  regional  income parameter  variations.
first,  to return  home  with an enthusiasm  for de-  Even  his tentative  conclusion  that only  two  in-
veloping  new  and  more  appropriate  analytical  come  groups  are needed  in demand equations  is
methods; and, second,  to begin lobbying for bet-  tenuous  because  of the  aggregation  involved  in
ter and  more  extensive public  data resources.  the  food  groups.  For  example,  the  observation
In their respective  papers,  Professors  Blakley  that total expenditures for meat, poultry, and fish
and Johnson each recognize  and address the fac-  are  relatively  insensitive  to  changes  in  income
tors just mentioned.  It is  hoped that these  addi-  across  the  four  income  groups  presented  does
tional  comments  will  serve  to  reinforce  the link  not  necessarily  imply  that the  demand  for  any
between  the  research  need  and  the  appropriate  given  component  of  that  group,  for  example,
methodology  and data required.  beef, pork,  and so forth,  is insensitive to income
Professor  Blakley  spends  considerable  time  levels.
discussing  the  factors  affecting  consumer  de-  If,  through empirical analysis,  it is determined
mand and reaches  the conclusion  that tastes and  that traditional  price and income  parameters  dif-
preferences,  relative  prices,  and  food  budgets  fer geographically,  the  question concerning  why
have  become  more  homogeneous  across  geo-  the  differences  exist  remains  unanswered.  Of
graphic  areas;  hence,  demand  relationships  are  course,  this  leads  us  to  the  "taste  and  prefer-
not inherently different because of the location of  ence"  issue,  and  that  leads  us  to  the particular
consumers,  but  because  of the  socioeconomic  population  characteristics  of  a  given  locality.
characteristics  of the  consuming  families.  While  Blakley argues,  on the one hand, that population
one cannot really argue with this  conclusion, the  mobility,  nationwide  advertising  and  marketing
analysis  presented to justify the conclusion  does  programs,  and  homogeneity  of income  distribu-
get  a bit  confusing.  In particular,  the section  on  tion  are  factors  leading  to  uniform  tastes  and
income response  needs  some comment.  preferences  across  regions.  He  then goes  on  to
The first statement in the income section of his  argue  for  better  identification  of socioeconomic
paper  focuses  on  the  problem.  He  says,  "Re-  variables,  implying  that  demand  will  be  influ-
gional demands for goods  have been  different  in  enced by these variables.  An obvious conclusion
the  past  because  of  differences  in  levels  of  in-  is that we should at the very least include  socio-
come."  If we  accept  that  (a)  demand  relation-  economic  (ethnic,  education,  age,  employment,
ships  are  multivariate  functions  which  include  family  size,  urbanization,)  variables  as  demand
income,  and (b) that the response parameters are  shifters.  However,  a similarly  logical hypothesis
homogeneous  for  all consuming  segments,  then  is that the price and income response coefficients
his statement  reflects  a movement  along a single  are  also  related  to  socioeconomic  variables-
demand  surface  from  region  to  region,  as  op-  thus,  an argument  for estimating unique demand
posed to  differences  in demand functions  across  functions for each  group.
Lester  H. Myers  is  Senior Economist and  Director,  International  Agriculture  Services,  Chase Econometrics,  Bala  Cynwyd,  Pennsylvania.
79While this argument is intellectually  appealing,  For example,  we recently found that in Canada
its practicality  is suspect for  several  reasons:  there is very significant yield response to current
and  recent-past  economic  conditions  for  all  the
1. The  various  "socioeconomic"  variables  major  crops.  Also,  the  yield  response  to  eco-
tend to be highly  correlated.  nomic  conditions  differs  between  western  and
eastern Canada.  Thus the conclusion that expec-
2.  Data are difficult  and expensive  to obtain.  tations for crop prices relative to input costs not
only  affect  the  allocation  of land  among  crops,
3.  Even  if  it  is  possible  to  estimate  unique  but also the way farmers care for the crop at and
demand  relationships  by  socioeconomic  after the  planting period.
group,  for  spatial  equilibrium  or  regional  Another argument for regional analysis  is illus-
research  it  is  necessary  at  some  time  to  trated  by  the  winter-wheat-planted  acreage  in-
aggregate  across  functions  to  obtain  a  re-  creases  in the  U.S.  this  past fall.  Responding  to
gional  demand.  Aggregation  problems  are  short  grain  supplies  and  a  strong price  outlook,
not  trivial  when  the  parameters  differ  U.S. farmers increased winter wheat acreage  by
across groups.  about 6 million acres. The  significant thing about
this  is  that  the  largest percentage  increases  oc-
Furthermore,  geographic  differences  in  de-  curred primarily  in the  Southeast,  where winter
mand  are also  likely  to  result from  regional  dif-  wheat is normally not a major crop.  This suggests
ferences in firm marketing activities,  the location  the possibility of double cropping with soybeans,
of commodity production,  and other unexplained  and it very vividly illustrates the regional produc-
factors.  This  becomes  more  evident  when  one  tion adjustments  that are  stimulated  by relative
deals with more  detailed product  characteristics:  price  fluctuations.
for  example,  apples  and  oranges  versus  fruit;  The  current  interest  in  developing  new  fuel-
chilled  and  frozen  orange  juice  versus  orange  ethanol  production  capacity  using  grain  feed-
juice; beef and pork versus meat; hamburger and  stock  could  have  significant  regional  impact  on
steak versus beef,  and so on.  agricultural  activity.  Archer  Daniel  Midland
In  summary,  the  above  comments  suggest  a  Company is planning an anhydrous alcohol plant
stronger  position  for  regional  demand  analysis  that  will use  a  reported  85  to  90  million tons  of
than was  apparent  to  me  in Blakley's  paper.  Of  corn a year and produce the protein equivalent of
course,  this leads  to  the  very tough  problem  of  more than  500 thousand tons of soybean  meal in
data  collection.  In  my opinion,  consumer  panel  the  form  of  corn  gluten  feed  and  corn  gluten
data, despite many and well publicized shortcom-  meal.  The  regional  impact  for  crop  production
ings, is the best alternative.  Perhaps the technical  and  livestock  feeding  from  this  magnitude  and
capability will soon be available to have electron-  type of activity can be tremendous.  As a profes-
ically  generated  panel  surveys  as  opposed  to  sion,  we had  better  be  in  a position  to  evaluate
diaries, which are highly dependent  on consumer  the impacts.
recall.  This  suggests  that,  as  a  profession,  we  Professor  Johnson's  paper  represents  a  thor-
should  exert  more  pressure  on  the  USDA  and  ough review of the methodology applied to inter-
other public agencies to develop and fund a more  regional  and  transportation  problems.  His  con-
extensive public data-collecting procedure for re-  cern  over model  and parameter  validation prob-
tail  level  transactions.  Despite  the  wide  accep-  lems  associated with normative  spatial models  is
tance of systems analysis and the undisputed link  shared by many  in the  profession.
between  the  consuming  and  producing  sectors,  I  was  intrigued  by  the  statement that  "model
government  spending  on agricultural  data is  still  validation  converts  competitive  equilibrium
very  weighted on  the  side of the producing  and  models  from  normative  to  positive  estimator
first-handler level  in  the marketing chain,  models."  Unfortunately,  I  did not have access to
Obviously,  it is easier to recognize  the impor-  the  Wallace  reference  given  to  support  the
tance  of regional  differences  when  considering  statement.  If I have  interpreted correctly,  John-
the supply side of the market.  Professor Blakley  son's criteria  for model  validation  rests strongly
handles this discussion well, and I offer only sev-  on the ability of programming  model solutions to
eral additional  thoughts.  First,  it  is important  to  track  actual  market  observations.  In  my  view,
emphasize the need for  disaggregating  total crop  this  does not convert a model from being norma-
supply  response  relationships  to  the  acreage,  tive to positive in character.  All it  really  says is
yield,  and  production  components.  Private  sec-  that  the  "normative"  results  produced  by  the
tor  clientele  of our  research  have  a  particularly  model  happen  to  coincide  with  the  "positive"
acute  need  for  this  breakout.  While  many  of  data generated  by real world activity.
these firms are serviced by proprietary economic  If  we  are  conscious  about  fitting  our  meth-
consulting  firms,  such  as  the  one  I  represent,  odology to the needs of the users of our research,
public research agencies  have a vital role to play  it  may  be  found  that the  amount of interest  in
in  the  continued  development  of  methodology  knowing what regional adjustments  are "likely to
and data generation.  occur"  (in the context of positive economics) far
80exceeds  the  interest  in  knowing  what  adjust-  other to produce a positive definite quadratic ma-
ments  "should occur,"  to be consistent with the  trix  in  the  programming  model  objective  func-
particular  objective  function  chosen  in  a norma-  tion.'
tive model.
A final comment  relates  to Johnson's  plea for  Oe  possible  way  of  assuring  that  the  esti-
the  "internalization  of closely related  commodi-  mated  demand price  and  cross-price  slopes  will
ties"  in  spatial equilibrium  models.  One  cannot  be consistent  with  the  conditions  required  for  a
help  but  agree,  and  conceptual  models  such  as  unique  optimum  solution  is  to  develop  the  de-
those  developed  by  Judge  and  Takayama  and  mand  coefficients  by  estimating  complete  de-
others  can  handle  substitution  relationships  mand systems that incorporate  the parameter re-
However, on a practical level, my experience  has  strictions  implied by the  maximization  of utility
been that econometrically  estimated  coefficients  subject to budget  constraints.
very  rarely  fulfill  the  necessary  and  sufficient  If one  argues  for regional  demand differences
Kuhn-Tucker  conditions  for a unique solution  to  and for spatial equilibrium analysis with internal-
the  programming  problem.  For  example,  in  a  ization of closely related commodities, then there
spatial  equilibrium  model  using  demand  func-  would  appear  to  be  a  strong  argument  for  es-
tions with own-price and cross-price coefficients,  timating complete demand systems on a regional
there  is  no  guarantee  that  the  estimated  coeffi-  basis.  Of course,  that  raises  a whole  new  set  of
cients  will  have  the  proper  relationship  to  each  data problems.
'For  example,  consider the quadratic  programming problem:
Find  a vector  x>O,  which  maximizes  the  quadratic  function:
f(x)  = c'x- /2x'Qx
subject to:
Ax<b
x>O.
A unique  solution  requires  the  n x n quadratic  matrix  Q  to be positive  definite,  that is,  the  objective  function  is strictly  concave. This  discussion  relates to the situation where  Q  represents  own-price  and  cross-price  slopes  from consumer  demand  functions.
81

DISCUSSION: REGIONAL MARKETS FOR FOOD AND INTERREGIONAL COMPETITION: IMPLICATION FOR SOUTHERN AGRICULTURE

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