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Soybean Checkoff Return on Investment Analysis 1980/81-2006/07 USB/ QSSB Partnership Workshop

Soybean Checkoff Return on Investment Analysis 1980/81-2006/07 USB/ QSSB Partnership Workshop St. Louis, Missouri June 1, 2009. Dr. Gary W. Williams Dr. Oral Capps, Jr. Dr. David A. Bessler Texas Agribusiness Market Research Center Texas A&M University College Station, Texas.

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Soybean Checkoff Return on Investment Analysis 1980/81-2006/07 USB/ QSSB Partnership Workshop

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  1. Soybean Checkoff Return on Investment Analysis 1980/81-2006/07 USB/QSSB Partnership Workshop St. Louis, Missouri June 1, 2009 Dr. Gary W. Williams Dr. Oral Capps, Jr. Dr. David A. Bessler Texas Agribusiness Market Research Center Texas A&M University College Station, Texas

  2. Research Objectives TWO KEY QUESTIONS 1. What have been the effects of the soybean checkoff program on U.S and world soybean and product markets? 2. Has the soybean checkoff program benefited soybean producers?

  3. Research Objectives FIRST KEY QUESTION Have Soybean Checkoff DEMAND PROMOTION EXPENDITURES Shifted Out the Demand for U.S. Soybeans and Soybean Products? Supply Demand HIGHER PRICE P r i c e HIGHER DEMAND HIGHER SALES Sales

  4. Research Objectives FIRST KEY QUESTION Have Soybean Checkoff PRODUCTION RESEARCH EXPENDITURES Shifted Out the Supply of Soybeans and Soybean Products? Supply Demand HIGHER SALES P r i c e HIGHER SUPPLY LOWER PRICE Sales

  5. Research Objectives FIRST KEY QUESTION What Have Been the Net Effects on Soybean and Soybean Product Prices … HIGHER DEMAND HIGHER PRICE Supply Demand P r i c e P r i c e Clearly sales increase … ? or down! but price could go up HIGHER SUPPLY LOWER PRICE Sales Sales

  6. Research Objectives FIRST KEY QUESTION What Have Been the Net Effects on Soybean and Soybean Product Prices … U.S. Exports … and Foreign Exports?  If checkoff programs increase foreign demand, U.S. supply, or both, then U.S. soybean exports should increase.  If checkoff programs increase price, then foreign soybean exports should also increase. But U.S. export share could go up or down.

  7. Research Objectives SECOND KEY QUESTION Has the Soybean Checkoff Program Benefited U.S. Soybean Producers? Two reasons that might prevent producers from benefiting: 1. There are many “free riders” who capture some of the benefit without paying any of the cost.

  8. Research Objectives Benefits from checkoff programs must “trickle down” to producers … … some of the benefits are captured by others in the supply chain. Oil and Meal Product Retailers … and along the way …… Wholesalers and Fabricators Wholesalers and Fabricators Foreign U.S. Foreign Foreign U.S. U.S. U.S. Processors Processors Foreign U.S. Foreign Exporters Exporters U.S. Foreign Producers Producers

  9. Research Objectives SECOND KEY QUESTION Has the Soybean Checkoff Program Benefited U.S. Soybean Producers? Two reasons that might prevent producers from benefiting: 1. There are many “free riders” who capture some of the benefit without paying any of the cost. 2. The promotion and research programs could cost more than they return back to producers.

  10. Research Objectives Even if producer revenues increase as a result of promotion, the important question is: Do producer revenues increase by more than the cost of checkoff programs? Cost of Checkoff Programs Producer Revenue Increase

  11. Research Objectives Even if producer revenues increase as a result of promotion, the important question is: Or do checkoff programs cost more than the increase in producer revenues achieved? Producer Revenue Increase Cost of Checkoff Programs

  12. Research Methodology MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM A three-step process: Step 1: Statistical procedures to isolate and measure the specific effects of checkoff expenditures on U.S. and foreign soybean, soybean oil, and soybean meal demand and on U.S. soybean supply. U.S. and Foreign Demand Equations (Soybeans, Soymeal, and Soyoil) D = f(P, PO, Income, Checkoff $ Spent, Other)

  13. Research Methodology MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM A three-step process: Step 1: Statistical procedures to isolate and measure the specific effects of checkoff expenditures on U.S. and foreign soybean, soybean oil, and soybean meal demand and on U.S. soybean supply. U.S. Soybean Acreage and Yield Equations A = f(P, PO, Farm Policy, Checkoff $ Spent, Other) Y = f(P, Checkoff $ Spent, Other)

  14. Research Methodology MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM A three-step process: Step 2: (a) Build a world soybean and products model (SOYMOD) that includes the effects of the checkoff expenditures (b) Use SOYMOD to simulate the level of world market supplies, demand, prices, and trade that would have existed “without” the checkoff program and compare to actual history.

  15. Research Methodology SOYMOD: World Soybean and Products Model

  16. Research Methodology MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM A three-step process: Step 3: Use the SOYMOD simulation results to calculate: (1) the effects of the soybean checkoff program on U.S. and world soybean and soybean product markets and trade. (2) the return on investment to soybean producers from the checkoff program.

  17. Benefit-Cost Analysis Total Revenue Generated by Program Research Methodology MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM BENEFIT-COST RATIO (BCR) The is the calculated increase in sales revenues generated by the program divided by the total level of checkoff expenditures over the life of the program. BCR= Total Checkoff Expenditures

  18. DATA Two Sets of Data Required for this Analysis for 1980/81-2006/07: 1. Market Data – U.S. and Foreign Markets - Soybeans, Soybean Oil, Soybean Meal - Supply and Demand (Acreage, yields, production, stocks, consumption, etc.) - Prices and Trade 2. Soybean Checkoff Expenditure Data - Production Research Expenditures (1970/71-2006/07 with a 4-year Gap) - International Market Promotion Expenditures (1970/71-2006/07: Pieced together by country, region, commodity, and contributor from data provided by FAS (USDA), ASA, and USSEC) - Domestic Promotion Expenditures (1994/95-2006/07: Pieced together by commodity from data provided by QSSBs and USB Contractors)

  19. Soybean Checkoff Expenditures Promotion and Production Research Expenditures, 1970-2006 International Promotion Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council

  20. Soybean Checkoff Expenditures Promotion and Research Shares of Checkoff Expenditures, 1970-2006 percent International Promotion Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council

  21. Soybean Checkoff Expenditures Checkoff Expenditures as a Percent of Soybean Cash Receipts, 1970-2006 percent Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council

  22. Soybean Checkoff Expenditures International Promotion Expenditures by Contributor, 1970-2006 Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council

  23. Soybean Checkoff Expenditures Contributor Share of International Promotion Expenditures, 1970-2006 percent Note that 3rd Party Contributions have dried up Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council

  24. Soybean Checkoff Expenditures Regional Share of International Promotion Expenditures, 1970-2006 percent Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council

  25. Soybean Checkoff Expenditures Commodity Share of International Promotion Expenditures, 1970-2006 percent Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council

  26. Soybean Checkoff Expenditures Domestic Promotion Expenditures by Commodity, 1994-2006 Source: Expenditure data obtained from United Soybean Board

  27. Soybean Checkoff Expenditures Production Research Expenditures by Type, 1978/79-2006/07 millions $ Four-year GAP when data was not compiled Source: Expenditure data obtained from Keith Smith and Associates through the United Soybean Board.

  28. Soybean Checkoff Expenditures Production Research Expenditures by Region, 1978/79-2006/07 millions $ Four-year GAP when data was not compiled Source: Expenditure data obtained from Keith Smith and Associates through the United Soybean Board

  29. Effects of Soybean Checkoff Program Annual Changes in U.S. and Regional Soybean Production from Soybean Checkoff Program, 1980/81-2006/07 mil. bu.

  30. Effects of Soybean Checkoff Program Regional Share of Change in U.S. Soybean Production from Soybean Checkoff Program, 1980/81-2006/07 percent

  31. Effects of Soybean Checkoff Program Effects on U.S. Soybean Markets, 1980/81-2006/07

  32. Effects of Soybean Checkoff Program Effects on U.S. Soybean and Product Exports, 1980/81-2006/07

  33. Effects of Soybean Checkoff Program Effects on U.S. Soybean and Soy Product Export Shares, 1980/81-2006/07

  34. Effects of Soybean Checkoff Program Change in Soybean and Product Demand, 1980/81-2006/07 Change in Regional Production, 1980/81-2006/07 mil. bu. mil. bu. Change in U.S. Exports, 1980/81-2006/07 Percent Change in U.S. Prices, 1980/81-2006/07 1,000 mt %

  35. Benefit-Cost Ratio Calculation Soybean Checkoff ROI Analysis, 1980/81 – 2006/07 6.4

  36. Major Conclusions THE SOYBEAN CHECKOFF PROGRAM HAS … returned $6.4 in additional profit to U.S. soybean farmers for every dollar invested. increased the size and profitabilityof the U.S. soybean industry. supported soybean and product prices each year by an average of 2% above what the prices would have been without the checkoff program. boosted the annual level of soybean, soymeal, and soyoil exports by an average of 5%, 15%, and 24%, respectively. reduced the competitive threat of the South American soybean industry. acted as a countercyclical force in the soybean industry, reducing the severity of market downturns in bad years and adding to growth and profitability in good years.

  37. Implications for Program Management Things to think about when deciding on how much to spend for what and where: The U.S. soybean industry is underinvesting in soybean checkoff programs! The current mix of expenditures is reducing the potential return!  More demand pull(domestic and international promotion) relative to supply push (production research) needed.  More international promotionrelative to domestic promotion needed.  More soymeal/soyoilpromotion relative to soybean promotion needed.  Neglect of large, mature marketsis also reducing returns. Decision to no longer leverage international promotion expenditures with Third Party Contributions is also reducing the potential return!

  38. Implications for Program Management Last, but certainly not least… A record-keeping system for checkoff expenditure data across contractors and across QSSBs is desperately needed. - It took us 4-5 months just to find, compile, and prepare the historical data on checkoff expenditures before we could even begin our analysis. - We still ended up with big holes in much of the data because critical data was not preserved. - Nobody’s “fault.” - There is just no systematic process in place to warehouse the expenditure data for evaluation purposes. - Remember: the results of an evaluation of the checkoff program can be no better than the data.

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