Monday, October 01, 2007

How effective is generic pork advertising?

Generic pork advertising, such as the “Other White Meat” campaign, is far less effective at increasing consumer demand than had previously been reported, according to a new official economic evaluation (.doc) of the National Pork Board released this year. According to the previous official evaluation, released in 2000, a 10% increase in generic pork advertising would lead to a 1.1% increase in the quantity of pork consumed, holding other factors constant. By contrast, the new official evaluation estimates that a 10% increase in generic pork advertising would lead to a 0.21% increase -- one fifth of 1% -- in the quantity of pork consumed.

Because domestic pork consumption is very large, amounting to perhaps $40 billion per year, even a small percentage increase in consumer demand would reflect a large dollar amount. The report's best estimate is that producer benefits equal 10.39 times as much as the promotion costs. However, there was a wide range of uncertainty about that estimate: "We found benefit-cost ratios to be positive for all point estimates of Program activities and combinations of
activities, but some of our return measures can be measured only imprecisely." The authors reported that the true benefit-cost ratio could be anywhere from 58 to no benefit at all. They estimated a 78 percent probability that the checkoff promotions had a favorable benefit-cost ratio for producers.

The benefit for producers comes partly from an increase in the quantity demanded and partly from a modest increase in the price of pork, which of course is a harm to consumers rather than a true net gain for society. The net social benefit or loss -- reflecting the program's consequences for consumers as well as producers -- was not reported in the conclusions of the report.

The new evaluation used data for 1987 to 2005, while the previous evaluation used data from the years 1987 to 1998. For comparison, the new study broke out separate results for the earlier years. The new study estimated that in 1987 to 1998 a 10% increase in generic pork advertising would lead to a 0.18% increase in the quantity of pork consumed, less than one fifth as big an effect as had previously been estimated. The authors of the new study, commissioned by the National Pork Board from the Research Triangle Institute and North Carolina State University, said the earlier official economic evaluation had been cited in the economic literature as “a case of implausibly high promotion elasticity.”

The National Pork Board is a semi-governmental industry organization called a “checkoff” program, created by the U.S. Congress, overseen by a board appointed by the U.S. Secretary of Agriculture, and funded by a tax of about $60 million per year on pork producers. The board’s marketing messages are approved by the U.S. Department of Agriculture. In a 2001 referendum, a majority of pork producers did not vote to approve the continuation of the checkoff program, but a deal between the leading pork industry trade association and the U.S. Department of Agriculture led to the program’s continuation in any case. Congress has required that checkoff programs conduct official economic evaluations every five years. The National Pork Board had widely used the more optimistic estimates from the older 2001 economic evaluation to defend the effectiveness of the pork advertising.

In 2006, the National Pork Board agreed to purchase the intellectual property rights to the “Other White Meat” brand from the pork industry’s private sector trade association, the National Pork Producers Council, for $60 million. In past reporting, U.S. Food Policy has questioned the appraisal on which that payment is based. Both the National Pork Board and the U.S. Department of Agriculture have refused to share details about the appraisal with U.S. Food Policy. Separately, I have petitioned USDA to stop approving the National Pork Board’s “low carb” fad weight loss diet promotion, which is inconsistent with the federal government’s Dietary Guidelines for Americans.

The new study found that generic pork advertising had a bigger effect in reducing consumer demand for beef than it did in increasing consumer demand for pork. The report estimated that a 10% increase in generic pork advertising would lead to a 0.23% decline in consumer demand for beef, all else equal. Agricultural economists call this pattern the “beggar thy neighbor” consequence of generic commodity advertising.

The National Pork Board shared the full economic evaluation in response to my email request. I shared a draft of this post with the board for comment. Michael Wegner, the vice president of communications for the National Pork Board, forwarded a response from an economist who consults for the board. He disagreed with the post. He suggested it is misleading to report elasticities such as those reported in the lead paragraph, because they compare a percentage increase in advertising expenditure to a percentage increase in the much larger dollar value of total demand for pork. These elasticities were included among the "key results" in the executive summary of the report. He also advised that I add the figure in the second paragraph, showing that there is a 78 percent probability that the benefit-cost ratio is favorable to producers, which he described as "not bad at all." He objected to my description of the 2001 referendum, which "make it sound like this was some sort of backroom deal." Instead, he described USDA's conduct of that referendum as "ridiculous" and corrupted. Mr. Wegner added in a subsequent email that the board's public opinion polling suggests that 73 percent of producers support the checkoff program.

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