A Compilation of Smart Marketing Articles November 2001 -...

April 2004 EB 2004-06

A Compilation of Smart Marketing ArticlesNovember 2001 - November 2003

Edited byWen-fei Uva

Department of Applied Economics and ManagementCollege of Agriculture and Life Sciences

Cornell UniversityIthaca, NY 14853-7801

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Wen-fei UvaDept. of Applied Economics and Management307 Warren HallCornell UniversityIthaca, NY 14853-7801

E-mail: [email protected]: 607-255-9984Phone: 607-255-3688

TABLE OF CONTENTS

PageKey Components in Your Marketing Plan

Getting Started in Farming? Five Keys to Success (October 2002) S. Richards ..................... 1Growing for Profit -- Managing Crop Mix According to the Market (August 2003)

W. Uva ............................................................................................................................................. 3Positioning Your Product in Today’s “Supply Chain” (October 2003) B. Henehan ................. 5Marketing Services (August 2002) W. Uva .................................................................................... 7The Role of Price (December 2002) B. Anderson .......................................................................... 10Some Facts and Myths About “Eliminating the Middleman” (January 2003) B. Henehan ..... 12Who is Reacting to the Food Industry’s Generic Advertising Messages? (June 2002) H. Kaiser and T. Schmit .................................................................................................................... 14

Marketing Strategies Beyond Marketing Plan BasicsAssuring Produce Safety: A Key Industry Marketing Strategy (November 2001)

S. Cuellar ......................................................................................................................................... 16Do Consumers Matter? (January 2002) R. Milligan ....................................................................... 19Back to the Future? Customer Relationship Marketing (CRM) in Food Retailing

(July 2002) R. Hawkes ..................................................................................................................... 21Marketing Strategies of Exemplary Organic Farmers (June 2003) D. Conner .......................... 23

Trends and Opportunities in Marketing Agricultural ProductsDirect Marketing In New York State (December 2001) W. Uva ................................................ 25Private Label Brands -- A Growth Opportunity for Retailers and Produce Suppliers (February 2002) S. Cuellar ........................................................................................................... 28Does the Organic Label Really Mean What Consumers Want It to Mean? (September 2002) D. Conner .............................................................................................................................. 31Food Away from Home Rebounds (April 2002) B. Henehan ........................................................ 33Changing Priorities -- The Gateway to New and Exciting Opportunities in School Foodservice Operations (November 2003) S. Cuellar ............................................................ 35Marketing Fresh Fruit and Vegetable Imports in the US: Status, Challenges, and Opportunities (March 2003) S. Cuellar ...................................................................................... 38Contracting in Fresh Produce: Wave of the Future? (March 2002) K. Park ............................ 40Vegetable Consumption, Dietary Guidelines, and Agricultural Production in New York State -- Implications for Local Food Economies (February 2003) C. Peters, N. Bills, J. Wilkins, R.D. Smith ...................................................................................................................... 42Marketing Fruit (May 2003) E. Parkinson ....................................................................................... 45Fruit Consumption, Dietary Guidelines, and Agricultural Production in New York State: Implications for Local Food Economies (September 2003) C. Peters, N. Bills, J. Wilkins, R.D. Smith ...................................................................................................................... 47

Gaining Control in Marketing Dairy ProductsTrade Safeguards and Agricultural Imports: The Case of American Cheese (November 2002) C. Nicholson .......................................................................................................................... 49Developing a Dairy Marketing Plan (May 2002) M. Stephenson................................................... 51

“Smart Marketing” is a monthly marketing newsletter developed for extension publication in localnewsletters and for placement in local media. It reviews the elements critical to successful marketing inthe food and agricultural industry. This series is coordinated by Wen-fei Uva and Brian Henehan, andarticles are written by the faculty members in the Department of Applied Economics and Managementat Cornell University.

Special appreciation is expressed to colleagues in the Department of Applied Economics and Manage-ment at Cornell University for contributing articles to the series. All Smart Marketing articles can befound at http://hortmgt.aem.cornell.edu/smart_marketing/index.htm, including past articles from February1988 through April 2004.

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October 2002

Getting Started in Farming?Five Keys to Success

Steve RichardsDirector, NY FarmLink

Do you want to operate a farm some-day? FarmLink helps establish connectionsbetween current farm owners and thosewanting to start farming. However, this isonly the first step in getting started. Of allthe farm “seekers” in the FarmLink data-base, only 2 out of every 10 may be suc-cessful getting started each year. Successfulnew farmers differ from their counterpartsdue to these common traits:

1. Experience: Successful farm start-ups have 3-10 years of farm experi-ence.• Nothing substitutes for real-world

experience on the farm. If you don’thave a lot of experience, try volunteer-ing or working on a farm.

• These days, it takes a good farmmanager to keep the farm running andsupporting a family. Try to gain man-agement experience!

2. Equity: It always helps to have theability to invest in a farm opportunity!• Livestock, equipment, and cash (of

course) improve your chances ofgetting a loan in order to get started.

• If you or your spouse have an outsidejob, it helps with the cash flow. Youmay not want to quit your outside jobsimmediately — give the farm situationa try first.

3. Education: Farming requires busi-ness savvy and technical skills!• Business management education will go

a long way to improve your chances ofsuccess.

• Do you already have all the technicalknowledge necessary? If you arestarting from scratch, chances are youneed some farm education.

4. A Business Plan: A clear plan of howto take advantage of the currentbusiness environment and how toallocate your resources.• Summarizes a business opportunity and

how you are going to seize it!• Primarily used for raising capital and as

a means for guiding business growth.

5. A Marketing Plan: What you will selland how you are going to sell it.In most businesses, a marketing plan isthe most critical piece of the start-up pie.However, it is often the most overlookedpiece of the puzzle when getting started.New farm operators are sometimes loathto make marketing plans a part of theirstart-up efforts. If you are starting a newfarm operation, take the time to prepare amarketing plan — it may be the differ-ence between success and failure.

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What type of farm do you want to start?This may influence what should be

emphasized in your marketing plan. Al-though all “4 Ps” of a marketing plan need tobe addressed by all farms, it is my observa-tion that a direct marketer has differentmarketing challenges than a wholesalemarketer. The direct marketer has moreproblems with the first two Ps product andpricing. The wholesale marketer has moreproblems with the last two Ps promotionand placement.

Direct Marketers: product and pricingconcerns

Direct marketing operations have prob-lems deciding what products will sell thebest. Given that many raised farm productshave to be planned at least 3-4 months inadvance, this poses a logistical challenge.You must grow something that your custom-ers want! Give them a reason to buy yourproduct. Don’t just grow something and thentry to figure out how to sell it.

Pricing is also a challenge. The mostcommon mistake of first-time direct market-ers is pricing their products too low. Often,new marketers just look at what it cost themto grow the particular product and leave outthe overhead expenses. With small busi-nesses, the overhead expenses are often ahigher proportion of the total cost of produc-tion! Warren Abbott, of Abbott Farms in

Syracuse, uses the snow plow example: ayoung fellow purchases a snow plow, charges$10 a driveway and thinks he is making a lotof money—until the truck breaks down. Hethen realizes he hasn’t considered truckrepairs, insurance or truck payments into his$10 price! He goes out of business eventu-ally; but there are always more new snowplowing businesses starting every year.

Wholesale Marketers: promotion andplacement concerns

Wholesalers are often commodity produc-ers (similar products as a lot of other farm-ers) and price takers (take the price that the“middleman” gives them). Given thatwholesalers have little control over productand price, this makes promotion and distribu-tion that much more important. Successfulpromotion strategies for wholesalers concen-trate on promoting quality differences andadding services to their product. Distribu-tion strategies such as adding a retail outletand identifying new markets/buyers havealso proved to be important keys to success.

________________* For more information:Read “Developing a Strategic Marketing Plan” by GeraldWhite and Wen-fei Uva. Available by writing to:Publications, Applied Economics and Management,Cornell University, Ithaca NY 14853. If you havequestions about getting started in farming, contactNY FarmLink at 1-800-547-3276.

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August 2003

Growing for Profit -- ManagingCrop Mix According to the Market

Wen-fei UvaSenior Extension Associate

Horticultural Product Marketing

There are no magic answers for running aprofitable horticulture business. Everythingyou do in business must start with a “market-ing philosophy” to MEET YOUR CUSTOM-ERS’ NEEDS, not merely to sell products.Making cropping decisions plays an impor-tant role in carrying out this marketingphilosophy, and you should not be simplygrowing what you grew last year. Your cropmix is the primary vehicle by which totransform your marketing opportunity intocustomer loyalty, growth in sales and, mostimportantly, profits. However, the processcan be complex. There are more varietiesthan ever for growers to choose from. Today,growers can find more than 30 varieties oftomatoes in seed catalogs and choose frommore than 80 poinsettia varieties in manyshades and patterns. The key is to keepfocused on the opportunities, select newproducts, and be willing to change yourproduct lines to develop the sales and profitsthese opportunities offer.

Knowing the TrendsKnowing industry trends is the first step

to identifying opportunities in the market.The market for horticultural products isbecoming more diversified. Increasingly,consumers are buying more of their basicsfrom discount merchandisers for the competi-tive prices. Nonetheless, more consumers arealso willing to pay higher prices for desiredservices and product features – quality,uniqueness, convenience, locally grown,

organic, etc. For instance, while competitionfrom mass marketers is intense, sales of moreexpensive options, such as bigger perennials,potted annuals, antique or unusual fruit andvegetable varieties, or branded products, arestronger than ever with independent gardencenters and farm markets. Knowing markettrends will help you segment your customerbase and decide how to satisfy their needsand wants.

Develop a ProcessWhat does all this mean to growers when

selecting crops to grow for the comingseason? Selling customers what they want tobuy is an easier task than selling customerswhat you grow. Your production plan - whatyou plant, when you grow, and how youmerchandise - must be a process of identify-ing: (1) who your customers are (discountchains, independent retailers, or consumers;(2) your customers’ needs; (3)an intuitiveunderstanding of what your customers mightneed and buy if it were available to them;plus (4) which of the identified crops you cangrow. This is an entirely different marketingphilosophy than growing what you like orwhat you prefer to grow and trying to sellthem.

The Product PortfolioYour product mix is like an investment

portfolio. As you study your investments andthe returns they bring, you often transfer oneinvestment to another, or you increase the

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amount of investments by adding newinvestments to manage the portfolio foroptimum returns. The same principles applyto managing your product mix. One solutionto guarantee profitability is to know yourcosts and be able to set the selling price togenerate a profit. However, today’s growersare often faced with the reverse in somemarket sectors. The large retail chain buyersoften set a price they’ll pay, and growers mustfigure out how to produce the product at thatprice for a profit.

Moreover, growers often need to carry abroad product line including some unprofit-able products to remain an attractive supplierto big chain buyers or to become a destina-tion site for retail shoppers. Therefore, if alow-margin product is important to theproduct mix, it needs to be evaluated to seeif it can be purchased less expensively thanyou can grow it. If so, that might be a goodoption for you. It is important to know theprofit margin of each product and to opti-

mize your return by selecting a good balancebetween low-margin or unprofitable buthighly desirable crops and high-margin cropsto satisfy your customers’ needs. You shouldnot carry the product mix if you cannot sell itat a reasonable margin. Remember, salesgenerating zero margins cannot offer you anyprofit no matter how much more you sell.

Knowing the CompetitionFinally, it is becoming more important to

keep tabs on your competition to stay ahead.If you offer only what your competitor offers,there is little reason for a customer to dealwith you unless you have the lowest price. Intoday’s economy, positioning your business asthe low-price leader is a vulnerable competi-tive position. As you plan your crop mix forthe coming season, remember that you can’tcarry everything for everybody. Knowingwhat your target market wants and providinga mix of crops and services that will differen-tiate you from your competitors will ensurethat you are growing for profit.

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October 2003

Positioning Your Product inToday’s “Supply Chain”

Brian HenehanSenior Extension AssociateAgricultural Cooperatives

Most of us have heard of the term“Supply Chain”. It describes the set of linksrequired in any industry to move productsfrom raw product suppliers through variousintermediaries to the end user or consumer.Unless a producer is marketing directly toconsumers, they participate in a supply chain.

In the context of the food and agricul-tural industry, the supply chain typicallyincludes the following links starting at thefarm level:

from Producers assembling processing

distributing marketing to Consumers

This supply chain starts at the farmfollowed by a number of key links requiredto connect with consumers. Farm productsusually need to be assembled at a site whereraw products can be: stored, graded, orprepared for further processing. Followingassembly of an adequate volume of product,the next link involves processing to trans-form the product into a more marketableform. The next link involves transportationto where products enter various marketchannels for distribution to retail or foodservice establishments. The final link is themarketing of products to consumers or endusers.

Producers may tend to focus on thedramatic changes occurring at the production

level. However, significant change is con-stantly occurring within each of these links inthe food supply chain. Increasing concentra-tion and collaboration of retail and foodservice firms continues to place economicpressure on all links in the chain. There is anintense focus on supply chain managementrequiring all suppliers to cut costs and betterserve buyers.

Given the importance that each link playsin moving farm products to consumers, smartmarketers should be thinking more abouthow to best position their products in today’srapidly changing supply chains. Here areeight questions that might be useful indeveloping strategies to better understandand address supply chain challenges.

1. What are the links required to move myproducts from the farm to consumers?

2. How do each of those links operate andwhat recent changes have occurred thataffect my products?

3. What are the costs associated withmarketing my farm products for eachrelevant link? (assembly, processing,distribution, marketing, etc.)

4. How do I maintain a high level of qualityfor my products throughout the supplychain?

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5. How do I maintain effective businessrelationships with all the players involvedin moving my products throughout thechain and become a preferred supplier?

6. What services can I offer to cut costs orimprove quality in the supply chain?

7. How can I work with buyers operating inother links to create more demand for myproducts with consumers? (advertising,promotion, etc.)

8. Can I find creative ways to collaboratewith other producers or players in thesupply chain to better position my prod-ucts?

There is a tremendous amount of dataand information available on how the supplychain operates in today’s food industry.Understanding and better positioning yourfarm products in today’s supply chain are keyelements of smart marketing.

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August 2002

Marketing Services



Service is becoming more important inthe business of agriculture for value addingas well as customer satisfaction. Increases inconsumer disposable income and discretion-ary buying power, emphasis on leisure time,having less time to do it are all positivetrends for marketing services.

In concept, marketing goods and market-ing services are essentially the same. In eachcase, you, the marketer, must select andanalyze the target markets. Then a marketingprogram must be built around the 4 Ps ofmarketing – the Product (goods or services),the Price structure, the Place (distribution ordelivery system), and the Promotional prog-ram. However, some distinct characteristicsthat differentiate services from goods oftencreate special challenges and opportunitiesfor marketing services. Therefore, thestrategies and tactics used in conventionalgoods marketing frequently are inappropriatefor services marketing, and it typically leadsto a quite different marketing program.

Services are IntangibleIt is impossible for customers to sample

taste, feel, see, hear, or smell services beforethey buy. Therefore, your promotion mustportray the benefits to be derived from yourservices, rather than emphasizing the serviceitself. Some promotional strategies you canuse to suggest service benefits and makeyour service tangible in customers’ minds are:

1. Visualization: For example, you candepict the benefits of your service byshowing people relaxing in their beautifulgarden, having a great cookout with theirfriends and family using the fresh producethey just bought from you, or using yourservice to free up time for somethingmore “fun” or “important” to them.

2. Association: Connect your service with atangible good, person, object, or place.Many businesses use spokespersons topromote and build confidence in theirbusinesses. You can establish your busi-ness as an expert in the field by makingyourself or someone from your businessavailable to answer questions for themedia, donate your service for a popularpublic area or event in your town, orsponsor programs with local organizations.

3. Physical representation: For an agriculturalbusiness, your store, staff, equipment andvehicles are the physical items peoplesee. Creating a distinctive logo to bedisplayed on everything representing yourbusiness, dressing your employees inclean, distinctive uniforms to stressvisibility and dependability, keeping yourequipment and vehicles clean, andcreating a display to demonstrate yourexpertise are things you can do toestablish a good image in customers’minds.

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4. Documentation: Many companies cite factsand figures in their ads to support claimsof quality, dependability and perform-ance. Do not be shy about celebratingyour history, heritage, awards andcustomer testimony.

Service Typically Cannot be Separatedfrom the Creator-Seller of the Service

Production and marketing of services areoften performed simultaneously. Customers’opinions regarding a service frequently areformed through interaction with a business’scontact personnel and impressions of thephysical surroundings. Therefore, buildingpersonal relationships and trust withcustomers is vital for marketing service. Toooften, the contact personnel, your staff, thinkof themselves as producers of a task ratherthan marketers of a service. Training youremployees to interact with customers and beknowledgeable, courteous and willing to gothe extra mile to answer customer s’ needs isvery important.

Services are Impossible to StandardizeBecause the final product of a service

depends on the person who performs theservice, each “unit” of the service is some-what different from other “units” of the sameservice. However, to build trust in the com-pany, customers need consistency. Therefore,you should pay special attention to productplanning when marketing services. You mustdo all you can to build a protocol for per-forming service tasks. It is imperative tomaintain consistent service quality at orabove the level of consumer expectations.More importantly, quality is defined by theconsumer, not by the producer-seller of aservice.

Services are Highly Perishable andCannot be Stored, and the Demand forServices Often Fluctuates Considerablyby Season

The combination of perishability andfluctuating demand presents many challengesto market services. Keeping your presence infront of customers during your off-seasonwill help you market your services later on.Developing new uses for idle capacity ofyour facility during the off-season, providingnewsletters to deliver information throughoutthe year, and offering special services orevents to your best customers, can even outcash flow and improve customer retention.Make it easy for customers to learn aboutyour services. For example, offer no-costevaluation for a service, use internet andother convenient locations to provideinformation, arrange tie-in sales with otherlocal businesses.

Customer for LifeTrends carry considerable influence in the

marketing of services. Sociological factors ofsocial-class structure and small-group influ-ences are very important market determin-ants for services. Thus, service marketing canbenefit significantly from indirect types ofpromotion such as publicity (newspapers,radio, and television) and communityinvolvement.

Moreover, among all the promotionalactivities used in services marketing,personal selling plays the dominant role. Anyemployee who comes into contact with acustomer is part of your marketing force. Acrucial step to successfully marketingservices is to provide sales and marketingtraining for all of your personnel and impressupon them the importance of their roles inmarketing. Your employees need to be goodat what they do with land, plant/animal, andwith people as well. Customers are not just

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buying the service, they are buying thebenefits from your service, such as having agarden to enjoy, saving time, providing theirfamily good nutrition, and having a goodexperience. Moreover, consumers want

reliability, responsiveness, assurance, andempathy from your business, includingeveryone on your staff. If you can deliverthat, you have the customer for life.

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December 2002

The Role of Price

Bruce AndersonAssociate Professor

Agricultural Cooperatives

As U.S. agricultural industries becomemore market oriented, it is appropriate tostep back and examine the role of price.Price serves several functions, and it isdifficult if not impossible to separate eachrole. More important, the new role of pricehas major implications on the way farmersand growers manage their operations.

The Four Roles of PricesFirst, price provides income. Price times

the quantity sold results in the total incomefrom a commodity. When trying to get ahigher price,either through better marketingor government programs, it is this aspect ofprice which most farmers are concernedabout.

Second, price determines the quantitysupplied and consumed. As prices increase,more will be supplied and less consumed.The opposite is true as prices decrease. Inthis role, price regulates the quantity avail-able and consumed. As agricultural indus-tries become more market oriented, increasedemphasis is placed on this role of price. Lessemphasis is placed on price as only a providerof income, as the 2002 Farm Bill maystimulate more supply that consumers aredemanding.

Third, price serves a signal. Especiallythrough price incentives (premiums) anddisincentives (discounts) it communicatesinformation to provide more or less of a

product, service or qualitative feature. Forexample, a higher price for a certain varietyof sweet corn, higher protein in milk, or aspecific level of sugar in grapes is designed tosignal producers that these features are whatprocessors want and consumers are willing topay for. Farmers and growers can expectmore of these types of incentives anddisincentives as agricultural industries be-come more market oriented. Why? Becauseit is an efficient way to communicate toproducers what consumers and processorswant and need.

Finally, price transfers ownership. Onceyou pay the price, you are the new owner ofthat product, tractor or plot of land.

Costs of ProductionOne issue farmers and growers are always

concerned about is the relationship betweenprices and the costs of production. Costs ofproduction can be an ambiguous concept.There is no such thing as a single cost ofproduction, or, for that matter, market price.For example, costs of production for anygiven commodity probably vary by 30 per-cent or more from farm to farm. In otherwords, there are always some producers withcosts of production higher than the price, nomatter what that price is. And the funnything is that when price goes up, cost ofproduction typically increases as well. Thekey is to make every attempt to be a “lowcost producer”, especially in commodity

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industries like agriculture.

In a market-oriented environment, at anygiven point in time the role of price has littleto do with the costs of production. Some-times prices will significantly exceed thecosts of production, and at other times priceswill be lower than costs. Does this makesense? Yes, when price is used to communi-cate market information about consumer andprocessor wants, instead of just trying to useprice to provide producers a stable incomewith little concern about surpluses. How-ever, over time price should be sufficient tocover the costs of production of the survi-vors.

Strategies for Farmers and GrowersThe changing role of prices means

farmers and growers must also change theirstrategies. What are some of the changesrequired?

First, be prepared for greater price swings.This implies one must use more equityfinancing and less debt financing. Equity isan essential cushion to weather fluctuationsin prices.

Second, strive to be a “low cost pro-ducer”. Know your costs and that of otherproducers of your commodity. CooperativeExtension and several commercial firms canhelp you in this effort. Also, continue toidentify new ways to maintain a competitivecost advantage.

Third, be cautious in reacting to short-term price changes, both on the up side andthe down side. For example, one should beskeptical of the reaction to expand opera-tions based on an extremely attractive short-term price. When analyzing such alterna-tives, make sure you also budget for “aver-age” and “worst” price case scenarios. Those

are the prices you may experience whenadded production eventually comes on line.

Fourth, seek out market outlets that areproviding price incentives for specific prod-uct features. However, this usually meansthere are also disincentives for deliveringundesirable product features. In addition,work with processors and other buyers toidentify qualitative characteristics andservices customers are willing to pay for.That is the simplest way to find and createyour own market niche. For example, todayorganic production receives an attractivepremium in many commodities, plus demandfor organic products is increasing rapidly.But remember, it always costs more toproduce and deliver those added productfeatures or services. However, if donecorrectly the added revenues should morethan cover the added costs.

SummaryThere is a tendency for some farmers and

growers to long for a return to “the good ol’days” and to resist the new roles of price.However, there is little indication that thosegood ol’ days will return anytime soon, ifever.

The alternative is to acknowledge thenew role of price, and adjust one’s operationsaccording. Producers who accept thechanges and adopt appropriate strategies arethose who are most likely to survive andbenefit from this new environment.

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January 2003

Some Facts and Myths About“Eliminating the Middleman”


In agricultural producer circles one oftenhears the comment “If we could just elimi-nate the middleman” we could lay claim toall the profits being extracted by them fromproducer’s pockets. In some cases there may,indeed, be opportunities to operate further upthe supply chain and reap financial rewards.But in many cases, the so-called middleman(or woman) may be performing valuableservices on behalf of producers that areessential to successful marketing.

On the factual side, in production agri-culture we typically have to assemble anadequate volume of raw product and convertit into a more marketable form. Theseassembly costs can include transportation offarm products from the farm to an assemblypoint where products may be stored, graded,or converted into a more marketable form.From that or other assembly points additionalmarketing and distribution functions mayneed to be accomplished such as managinginventory, filling orders, transporting prod-ucts to customers, or providing other relatedcustomer services. In many cases, middle-men or intermediaries accomplish theseassembly and distribution functions.

Some of the myths associated with“eliminating the middleman” can include:

• Myth: There are “too many” middlemenoperating in the food and agriculturesystem.

Fact: The number of middlemen orintermediaries is shrinking dramaticallyas the structure of the food and agricul-ture system changes. Major customersare requiring their producer-suppliers toperform many of the services previ-ously accomplished by middlemen.This fact may be detrimental to small-to mid-sized producers in maintainingtheir access to important customers.

• Myth: If we simply eliminated themiddlemen, we would automaticallymake more money.

Fact: Producers attempting to accom-plish all of the assembly and distribu-tion functions otherwise performed byintermediaries will need to bear thatcost themselves. In some cases, pro-ducers may be able to perform thosefunctions profitably but in many casesthe actual costs of assembly anddistribution are underestimated byproducers, resulting in losses.

• Myth: A confrontational or adversarialrelationship is the only way to effec-tively deal with middlemen.

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Fact: More producers are figuring outways to build fair, working relationswith intermediaries for their mutualbenefit. Doing business with a middle-man who effectively adds value to yourproduct ensuring what your mutualcustomers want can result in a “win-win” outcome.

Smart marketers strive to understand allof the costs associated with putting theirproduct in a form the customer wants, aswell as distributing it to the locations whereand when their product is needed. This iseasier said than done in today’s changing

economy but essential for profitable opera-tions.

Some producers may be in a position toaccomplish all of the necessary assembly anddistribution functions themselves or as agroup. However, for others not in thatposition, eliminating “middlemen” may notbe as desirable at first glance as producersmight think, unless they can accomplish allof those functions at a lower cost than thoseindividuals or firms who performed thoseassembly and distribution activities on theirbehalf.

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June 2002

Who is Reacting to the Food Industry’sGeneric Advertising Messages?

Harry Kaiser and Todd SchmitProfessor and Research Associate

Cornell Commodity Promotion Research Program

Since 1984, U.S. dairy producers and milkprocessors have contributed more than $300million annually to promotions, with a rela-tively large share committed to generic adver-tising programs. Hence, it is very importantfor farmers, processors, and policy makers tounderstand the economic impact of genericadvertising.

This article reports the results of a recentstudy that used household-level data toanalyze the impact that generic advertisinghas on the demand for dairy products, includ-ing its effect on the likelihood of purchaseand levels of consumption. This is particu-larly important when evaluating advertisingprograms to determine to whom – new orcurrent consumers – the message has beensuccessfully delivered.

Purchasing data for fluid milk and cheesefor home consumption and annual householddemographic data were obtained from theACNielsen Homescan Panel sample of U.S.households from January 1996 throughDecember 1999. Fluid milk was divided intofour sub-categories: whole, reduced fat (2%),light (0.5%-1%), and skim milk. Cheese wasdivided into American, Mozzarella, Pro-cessed, and Other cheese categories. TheOther cheese category contains severalvarieties, including Ricotta, Muenster,Farmers, brick, and cream cheese.

The effects of numerous factors on thedemand for dairy products are considered inthis study. Product price, household income,household size, and generic advertising arethe basic factors analyzed. Because priceoften varies due to volume and store dis-counts, we include variables that reflect theproportion of purchases in various packagesizes and store types, and the proportion ofunits sold. Variables used to reflect differ-ences in household composition are age ofthe household head, whether mom worksoutside of the home, and the proportion offamily members by age classification. Thestudy also analyzes these data with regard torace, education, geographic location, andseasonality.

Since the focus here is on advertising,only the advertising impacts are reported.The generic milk advertising message appearsto have a predominant effect on levels ofconsumption of fluid milk. Generic milkadvertising had a positive and significantimpact for all fluid milk products. Theresults of our analysis showed that, for totalfluid milk, a 10% increase in advertising hasa slightly less than 1% (0.81%) increase inhousehold demand for milk. Of that in-crease, 88% can be attributed to increasingthe demand for milk from current consumers,while only 12% can be attributed to increas-ing the likelihood of new households topurchase fluid milk. This is consistent acrossall fluid milk categories, with the largest

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response from the generic campaign shownfor reduced fat (0.81%) and skim milk(0.82%), followed closely by whole (0.74%)and light milk (0.72%).

While the effect was positive and signifi-cant from generic advertising in the totalcheese category, the effectiveness of thegeneric cheese advertising campaign appearslower than that estimated for fluid milk. Thetotal cheese category had a 0.24% increase inhousehold demand for cheese with a 10%increase in cheese advertising. However, theentire amount of this was realized from thelikelihood of households to purchase cheese.That is, cheese advertising appears to beeffective at increasing the probability of newconsumers to purchase cheese, but has nosignificant effect on increasing the demandof current consumers. This is consistentacross all cheese. The largest contributors tothe total cheese result were from the Othercheese category (0.69%) and Americancheese (0.63%), while the Processed (0.21%)and Mozzarella (0.21%) advertising effectswere more similar in magnitude to that of theaggregate product. It is interesting that whileboth programs are generic and do not target

any specific products, the generic advertisingeffects on individual product are morevariable for the relatively differentiatedcheese categories, but are much more similarfor the relatively homogeneous milk products.

From the wide disparity in advertisingresponse, it is clear that the fluid milk andcheese generic advertising campaigns areinducing response from different types ofconsumers. While fluid milk advertisingseems most effective at increasing the de-mand of current consumers, its effect on newbuyers is less pronounced. Conversely, theeffect that cheese advertising has had ontotal household demand is clearly from theresponse of new buyers to the market orfrom increasing the likelihood of purchasefor U.S. households, not from increasing theconsumption of current consumers. Thistype of information could provide valuableinformation to dairy product marketers indetermining where past efforts have beenmost effective and to all agricultural productmarketers in developing future advertisingstrategies with respect to their targetaudience.

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November 2001

Assuring Produce Safety: A KeyIndustry Marketing Strategy

Sandra CuellarExtension Associate, Food Industry Management Program

Changing lifestyles and a growing interestfor fresh, ready to eat, nutritious food amongconsumers has brought produce to the fore-front of the U.S. retail industry, with continu-ously increasing sales and profits. As a result,food retailers are using the produce depart-ment as a way to differentiate themselvesfrom competition, focusing significant effortsto increase the variety, quality, and availabil-ity of the produce products offered for sale.According to a recent study conducted by theFood Marketing Institute (FMI), “95% ofU.S. consumers surveyed are completely ormostly confident that the food in their super-markets is safe.” This result reflects themoral and social responsibilities implied forfood retailers in the U.S. and highlights theimportance for the whole food supply chainto assure that produce is safe and whole-some.

Along with the increasing consumptionof fresh fruits and vegetables in the U.S., sci-entists in the Centers for Disease Control andPrevention (CDC) in Atlanta, Georgia no-ticed that between 1973 and 1998, there wasa steadily increasing trend in the number offood-borne outbreaks associated with freshfruits and vegetables. Among the main prod-ucts involved in such events during the pastdecade are sprouts, lettuce, cantaloupes, wa-termelons, tomatoes, strawberries, raspber-

ries, scallions, basil, and parsley. The mostcommonly involved pathogens have beenseveral strains of Salmonella, E ColiO157:H7, Hepatitis A, Cyclospora cayetanensis,Shigella sonnei, Staphylococcus aureus,Campylobacter jejuni, and Clostridiuym botulinum.The occurrence of food-borne illness out-breaks can mean irreparable damage to abusiness, both from the legal point of view aswell as from the negative impact on its brandand company reputation.

Currently, there are no mandatory rulesfor the safe growing and packing of fruitsand vegetables, except for those regulatingwater and pesticide residues under the sur-veillance of EPA. In October 1998, FDArolled out the “Guide to Minimize MicrobialFood Safety Hazards for Fresh Fruits and Veg-etables,” comprising a set of Good Agricul-tural Practices (GAPs). Although, it is cur-rently optional, many in the produce industryare incorporating these practices into theiroperations as quickly as possible, in an effortto preempt the possibility of stringent regula-tions by FDA.

Keeping produce safe is no easy task.There are many opportunities where freshfruits and vegetables can be contaminated ontheir way from field to table. In the field,produce can be contaminated through soil,

*This article is part of the 2001 Fresh Track Study by the Food Industry Management Program at CornellUniversity developed for the Produce Marketing Association.

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water, and pests and, very importantly, by in-adequate or mishandled chemicals (i.e. pesti-cides). During harvesting, the major risk ofcontamination comes from handling by work-ers who may be the carriers of pathogens.During packing of fresh produce, the risks liewith contaminated packaging equipment andsupplies, especially while processing andpackaging of pre-cut products which in-volves several safety hazard points. Distribu-tion of produce in trucks, which might becontaminated from previous cargoes or dueto lack of temperature controls in them, alsorepresents a major threat to produce safety.At retail, storage of produce, handling by em-ployees for display, as well as handling byconsumers, all represent important risks ofcontamination. Finally, though not necessar-ily less important, mishandling of produce byconsumers and the chance of cross contami-nation of the products at home are yet otherhazards to the safety of produce. It is clear,then, that there are specific responsibilities inkeeping produce safe at each stage along thesupply chain.

The confidence that consumers have intheir supermarkets along with the newincidence of food-borne illnesses caused bytainted produce in the United States mayexplain recent food safety requests fromretailers. Some of the major supermarketchains, and foodservice operators as well,now require suppliers to not only follow theGAP’s guidelines but also to obtain third-party audits as a prerequisite for doingbusiness. These new demands have created agreat deal of controversy in the industry.While some see third-party audits as a way toraise the quality and safety of produce and atraining tool to build a food safety program,others view them as an excessive and costlymethod, mainly geared to limit retailers’liabilities but not necessarily resulting inincreased safety. A major consideration of

third-party audits is their cost. They rangefrom tens of thousands to a few hundredthousand dollars, a cost exclusively absorbedby the growers. This can be difficult or evenimpossible for small growers to afford,eventually driving them out of the market.

Interestingly, some major supermarketorganizations are looking at produce safetyfrom a system-wide management approach,where all parties involved in the supply chainacknowledge their responsibilities. In thisapproach, knowing your business partnersand the relationship you have with thembecomes the key. This approach to producesafety may prove particularly challengingunder the present circumstances of consoli-dation where long-term vendor-buyer rela-tionships have been eroding, and no clearfuture trend in this respect is yet defined. Onthe other hand, it may prove a new buyer-seller paradigm could be a key mechanism indeveloping such collaboration throughout theproduce supply chain. One example is thatsome producers in California have estab-lished a “university” concept whereby theycan lavish their hospitality upon their buyersin the form, often, of entertainment, while inserious seminars, educating them on thespecial nature and opportunities with theirparticular commodity. Such buying “visits”to shipping points(s) generally result in abetter understanding of the vendor’s typicaldilemmas by the buyer and ,ideally, improvecollaboration and coordination system wide.

As there is no single clear-cut solution toassuring produce safety thus far, it is evidentthat the produce industry needs to developcreative cost-efficient procedures with whichit can address the hazards involved at thedifferent stages along the distribution chan-nel. Perhaps making use of innovativetechnologies, developing new schemes ofcollaboration among its members, and even

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providing information to consumers willbring about an industry-wide proposition andallow the industry to ensure the safety of its

products while fulfilling the expectations ofits customers for high quality and good value.

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January 2002

Do Consumers Matter?

Robert MilliganProfessor

“Whatever color you want, as long as it isblack.” You have probably heard thatfamous statement from Henry Ford about theModel “T” Ford. The Model T wasimmensely successful!!!!

Do you think a car manufacturer wouldbe successful today with that attitude? Ofcourse not! Today cars come in untoldcombinations of sizes, colors, trims, etc.What is the difference between the Model Tand today?

The simple answer is that the Model Twas produced in a producer-driven economyand today we are in a consumer-driveneconomy. This change occurred in themiddle of the twentieth century. After theend of the Second World War, the producer-driven economy probably reached its peak.Consumers had money, and goods werescarce due to the demands of producing forthe war effort. Whatever was produced waspurchased.

Within a few years, however, consumersstill had unprecedented levels of income, andas production caught up with demand, theystarted to exercise more choice. They beganto “vote” with their pocketbooks. As theeconomy continued strong in the 1950s and1960s, we moved more and more into aconsumer-driven economy.

In the same period, Dr. W. EdwardsDeming introduced Total Quality Manage-ment (TQM). Some have suggested thatTQM was the single most important develop-ment of the twentieth century. TQM trans-formed how quality is managed, it led to themodern employee empowerment movementand it altered how the consumer is viewed.

The first two principles of TQM are thatthe consumer defines value and the produceradds value.

Let’s look at how this impacts cars.Henry Ford looked at his Model T as simply acar. When he produced it at a very low price,almost everyone bought one. Today theautomakers must look at a car through theeyes of the consumer; they look at attributesincluding price, status, fuel economy (includ-ing environmental perspectives), color, andcomfort.

They are seeking to determine what thecustomer will pay for. The customer decideswhat they will purchase. The customer,therefore, determines value!!! Producing thisvalue is then an opportunity for the automo-bile manufacturer. The profitability ofautomobile companies is determined by howsuccessful they are in producing what thecustomer values, producing the attributes thecustomer will pay for.

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Let’s apply this same analysis to agricul-tural products. Using milk as an example, theequivalent of “whatever color you want aslong as it is black” was “however you wouldlike your milk as long as it has 3.5 percentbutterfat.” Just as cars have changed so havedairy products. We now have multiple fatlevels, calcium added, flavored milk, yogurt,untold types of cheeses and much more.

How should the producer of milk, thedairy farmer, view milk? Again, it must beviewed as the customer views it — by itsattributes. What are those attributes? Cer-tainly price is one attribute. Another isnutritional quality. The addition of variouslevels of fat content has been a reflection ofthis attribute. The customer has determinedvalue and the dairy industry has responded.Another is convenience. Milk is the onlybeverage I know of that does not fit in thecup holder in a car.

You can similarly think of the attributesof the agricultural or horticultural productsthat you produce.

Increasingly, the important attributes offood products concern food safety. Consum-ers increasingly value food products and foodproduct production and delivery systems thathave real or perceived food safety advan-tages.

Recent events including terrorism, food-related disease outbreaks, new biotechnologyproducts and food contamination haveheightened interest in and concern aboutfood safety. Farmers and everyone in thefood system will continue to be faced withthese issues. As you are faced with theseissues, including proposals for traceback andanimal identification, I encourage you tothink about the consumer’s view. Look atyour product through the “eyes” of theconsumer. Just as with cars, if the consumervalues the attribute, she or he will pay for it.Any attribute that consumers will pay for isan opportunity for producers.

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July 2002

Back to the Future? Customer RelationshipMarketing (CRM) in Food Retailing

Rod HawkesSenior Extension Associate, Food Industry Management Program

Close your eyes and imagine travelingback 75 years in time to 1927, when small,independent neighborhood grocery stores andspecialty shops were the norm. In thosedays, the grocer/owner knew most of thecustomers by name and many of their foodpreferences and needs. The store was prob-ably a family operation and the grocer’sfamily may have lived right in the neighbor-hood, if not above the store itself.

That type of customer intimacy haslargely disappeared as large supermarketsreplaced grocery stores and supermarketchains have increasingly replaced indepen-dent ownership in many parts of the world.

However, history has a tendency torepeat itself and often what is old becomesnew again. Such is the case with a new trendin food retailing called customer relationshipmarketing (CRM). Essentially, CRM is anattempt to regain the customer intimacy thatwas so much a part of the grocery industry inthe past. The goal of CRM is to create andmaintain customer loyalty because a loyalcustomer can be less costly to serve and,therefore, may be more profitable in the longrun.

Customer relationship marketing (CRM)can be defined as understanding the specificneeds and preferences of individual con-sumer households and marketing, staffing,and merchandising to meet those needs. The

key CRM objectives are to increase (1)operational and marketing efficiency, (2)customer loyalty, and (3) long-term profit-ability.

The difference today is that the huge sizeof current supermarkets makes it difficult toestablish actual person-to-person relation-ships as in the early days of the 20th century.

Two major factors are driving the explo-ration and adoption of CRM by food retail-ers: technology and competition. Technology isenabling retailers to track purchases byindividual households through bar codescanning and customer identification cards.Retailers are thereby able to target promo-tions and advertising to the customers whoactually use various products.

Competition from other supermarkets,nontraditional food retailers such assupercenters, wholesale clubs, drug stores,and convenience stores, and many rejuve-nated farm markets has resulted in too manyoutlets vying for the grocery spending of aconsumer base that is not growing as fast asthe number of shopping alternatives. As thenumber of stores in a market increases,competition forces prices to decline, puttinga premium on efficiency to maintain profit-ability and sales growth.

In this environment, smart retailersrecognize that the cost of acquiring a new

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customer is much higher than the cost ofkeeping a current customer. Also, loyalcustomers can be more profitable, especiallyover their lifetime, than customers whoswitch stores on a regular basis. Therefore,CRM focuses on identifying and nurturing astore’s best customers and trying to increasethe loyalty of the rest of the store’s customerbase.

For at least the past 40 years, foodretailers have treated all customers as if theywere equally important (i.e., profitable) to thecompany. Advertising fliers are universallyavailable in stores or as newspaper inserts, asare discounts, coupons, and even frequentshopper card membership. Customers whoonly purchase a few discounted sale itemshave been treated the same as customers whopurchase the majority of their food andhousehold goods each week in one store.

Today many retailers understand that aslittle as 30 percent of their customers mayaccount for as much as 80 percent of theirsales. Obviously, all customers are notcreated equally! CRM offers a vehicle bywhich retailers can better manage theirbiggest asset — customers — by rewardingthe best customers for their loyalty.

The large scale of supermarket opera-tions requires sophisticated computerizeddatabase management to effectively deployCRM. However, since CRM principles can

be deployed on a smaller scale without ahuge technology investment, this may be anarea where small stores, farm stands, andfarmer’s markets may have a distinct advan-tage over their giant competitors. Smalleroperations often already enjoy a more inti-mate relationship with their customers thatcan be enhanced and solidified throughattention to customer needs and service. Infact, one of the acknowledged supermarketCRM leaders in the country is a one-storeoperator in Syracuse, NY called Green HillsFarms Market.

Small size and local ownership areattractive for a growing segment of shoppersacross most demographic groups. Evidenceof this trend is found in the parallel move-ment of major retail chains to build smallerstores, incorporate local and regional prod-ucts, and to become more involved in sup-porting activities in each store’s local com-munity, among many other things. On theconsumer side, recent events have causedmore and more concern about the origin,handling, and safety of the foods they buy.Locally owned and operated food stores canalleviate some of these concerns with theirfamiliar faces, product knowledge, localsourcing, and customer service. Small storeoperators may also be able to respondquicker to changes in consumer tastes anddemand. All of these features may allowsmall operators to achieve the ultimate goalof CRM: Customer Loyalty.

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June 2003

Marketing Strategies ofExemplary Organic Farmers

David ConnerResearch Support Specialist

How do organic farmers decide what togrow? How do they stay in business whilesome others fail? What opportunities andthreats do they face? These and other ques-tions were asked of a group of exemplaryorganic farmers affiliated with the NortheastOrganic Network (NEON) project, an inno-vative consortium of farmers, researchers,extension educators and grass-roots non-profits working together to improve organicfarmers’ access to research and technicalsupport. These farms were nominated bypeers and researchers as hallmarks of suc-cessful organic farming.

Informal marketing interviews wereconducted on eight farms during the winterof 2002-2003. Questions were broad andopen-ended to allow farmers to describe theiroperations and marketing strategies in theirown words wherever possible.

The rationale behind crop choice variesgreatly among farms. Many mentionedgrowing crops that grew well on their farms(fitting the farm’s climate and land, or thefarmers’ skills) or that they enjoyed growing.Others chose crops that fit well in theiroverall rotation schemes or that were se-lected for specific traits (taste, diseaseresistance, etc.). The demand of eitherwholesale account buyers or CommunitySupported Agriculture (CSA) membersgreatly influences crop choice too. CSAfarmers tend to grow a broad variety of

staple vegetables that are familiar to mem-bers and easy to cook (potatoes, carrots,tomatoes, etc.).

Quality of product and service are twocommonly mentioned competitive advan-tages on these farms. Given the seasonal andscale limitations of northeast farms, they relylargely on niche markets and personal rela-tionships with their consumers or buyers.They focus on providing a higher level ofservice and quality to set them apart andkeep their customers from buying fromcheaper or more convenient mass channels.“The customer is always right,” one growerstates; providing low quality or service evenone time may well lose the customer forever.One farm grows 55 varieties of heirloomtomatoes, paying special attention to flavorrather than high yield, long shelf life, or othertraits emphasized by large-scale organicgrowers.

In growers’ minds, education is anotherkey feature to customer retention. One farmcreates and distributes point-of-purchasematerials on the produce, describing how ittastes and how to cook it. The farmers hold“taste-offs” for tomato varieties. CSA farmshold open houses, picnics and farm tours toemphasize the social aspect of CSA, buildrelationships between grower and consumer,and teach about farming practices and landstewardship. Many mentioned that building

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relationships and addressing consumers byname are vital.

Many farmers see a growing opportunityin the increased popularity of and mediaattention upon organics and consumers’desire to “know where food comes from.”They felt that markets for organic grainfarmers are currently fairly good, althoughthe future is uncertain. Most of the veg-etable farmers continue to operate on a smallscale. While this poses a challenge whencompeting with larger growers, it also enablesthem to respond quickly and nimbly tochanging demands and market conditions,and grow a diversity of crops.

Despite their successes, these farmers seethreats in current trends as well. Increasedimports of food threaten farm prices; in-creased demand for organics has broughtcompetition in the form of new or transi-tioning farmers. The National Organic Prog-ram brings greater scrutiny and a more rigor-ous inspection process, as well as uncertaintyas to rule changes. Grain farmers are alsoconcerned about seed availability (findingseed that both meets the traits their buyersdesire and grows well organically in theirregions) and the impact of pollen drift fromgenetically modified crops. Finding adequate

labor supply is an ongoing challenge for manyfarms.

Concerning the “Four Ps” of marketing(product, place, price, promotion), there wasa consensus on the need for high quality, butdisagreement on price. Some farms, espe-cially smaller ones more reliant on directmarketing, maintain a high price to reflect thepremium quality of food and refuse to lowerit. Other farms set it lower than the equiva-lent prices in grocery and health food storesand fear raising it because of customers’ pastexpectations. Place varies from on-farm CSApickups to wholesale deliveries to big cities.The degree of promotion varies, too, fromword-of-mouth to brochures, websites andadvertisements in holistic magazines andnewsletters.

Each farm is unique in its marketingstrategies and view of the future, but it isclear that there is a place in the Americanagricultural landscape for high quality organicfood from farms willing to create and nurtureniche markets. Matching the market to thegrower is more art than science, and dependsgreatly on the farmer’s skills, interests andpersonality. Finding those opportunities is achallenge to growers, researchers and exten-sion educators.

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December 2001

Direct Marketing in New York State



Farmer-to-consumer direct marketing orfarm retailing experienced a resurgence ofinterest in recent decades. Some contributingfactors include depressed wholesale farmprices and consolidation in the produceindustry in recent years. Many medium- andsmall-size farms have adopted direct market-ing to consumers as an alternative to sustainbusiness vitality. In addition, growing con-sumer interest in nutrition and food quality,combined with increased attention in thesustainable agriculture movement and inlocal community development, further fueledconsumer interest in direct purchasing fromfarmers. However, marketing directly toconsumers takes special skills and abilities onthe part of marketers and requires a favor-able location with respect to land resourcesand local markets. Since many direct market-ing operators lack the resources and experi-ence to compete with supermarkets, theyneed to differentiate themselves from massmarketers.

This article will summarize results of asurvey conducted by the Cornell Horticul-tural Business Management and MarketingProgram to collect information on farmer-to-consumer direct marketing (retail) practicesused by New York vegetable farms in 2000.One hundred twenty-two direct marketingvegetable farms from 44 counties in NewYork are represented in this survey. Thedirect marketing sales in this study refer tofarms selling their products (food and non-

food) and services directly to consumersusing various retail outlets — roadsidemarkets, farmers’ markets, pick-your-own(PYO), community-supported agriculture(CSA), catalog, internet, etc. A majority ofdirect marketing vegetable farms producedmore than vegetables. Among the surveyedvegetable farms, 46 percent also producedfruits and berries, and 45 percent also pro-duced ornamental crops. Although theoverall average retail sales of the surveyedfarms were $123,196 in 2000 (includingproducts grown on the farm and purchasedfor resale), one-half of the respondents hadless than $30,000 (median) annual retailsales.

Direct marketing to consumers was animportant source of farm income for veg-etable farms with retail activities. Forty-fivepercent of the farm income generated by thesurveyed direct marketing vegetable farmswas from retail sales in 2000. Sixty-ninepercent of the respondents received morethan half of their farm’s gross income fromdirect sales to consumers. Moreover, for 44percent of the respondents, retail salesaccounted for more than 90 percent of theirtotal farm receipts, compared with 7 percentof the respondents who attributed less than10 percent of farm receipts to retail.

Although direct marketing is an impor-tant source of income for these farms, theygenerally did not depend on retail alone.

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Five marketing channels were identified inthis survey ‘wholesale to supermarkets’,‘wholesale to other retail farm markets’,‘wholesale to foodservice outlets’, ‘wholesalethrough other wholesale outlets’ (wholesal-ers, brokers, processors, auction, etc.), and‘direct marketing to consumers’. Respon-dents used an average of 2.3 marketingchannels to sell their products. ‘Wholesale toother retail farm markets’ is the most com-monly utilized wholesale outlet, while‘wholesale to foodservice outlets’ was theleast utilized wholesale channel. Moreover,while only 29 percent of the respondentswholesaled through ‘other wholesale outlets’,this marketing channel is important to farmincome, especially for large farms. Twenty-ninety percent of total surveyed farm saleswere generated from this wholesale channel,compared with 14 percent from ‘wholesale toother retail farm markets’.

New York direct marketing vegetablefarms generally only retail seasonally. Thesurveyed respondents retailed, on average,6.4 months in 2000. About one-quarter ofrespondents retailed less than four months ofthe year, and only 8 percent retailed year-round. Operations with higher retail salesand operations with urban retail locationsalso had longer retail seasons. May throughOctober is the most important sales seasonfor direct marketing sales. Fall sales werevery significant for New York direct market-ers, and December is a month with potentialto generate high sales.

Fresh vegetables, ornamental plants andfresh fruits were the top three retail items forNew York direct marketing vegetable farms.Other products sold by surveyed farmsincluded processed products, holiday crops(pumpkins and Christmas trees), gifts andaccessories, baked goods, ice cream, meatproducts, milk and cheese products, and

other products (maple syrup, mushrooms,entertainment activities, furniture, firewoodand wool). Larger retail farms had a broaderproduct mix. New York direct marketingvegetable farms also retailed more than justitems that they produced. They purchaseditems for resale to expand their product line,increase variety, and supplement the volumeof products available for retail. Exceptvegetables and pumpkins, more than 50percent of farms purchased some items in allother product lines identified in this study toresell.

Among the direct marketing methodsidentified in this study — roadside markets,farmers’ markets, PYO, CSA, catalog sales,internet sales, and other methods (includingdirect order/custom sales), New York directmarketing vegetable farms with direct mar-keting activities generally used one to twomarketing methods to retail their products.Three of the most commonly used directmarketing methods were roadside markets,farmers’ markets and PYO. Roadside mar-keting was used by most direct marketers andgenerated the highest sales.

Competition in the market and labor-related challenges are the top barriers tosuccess in many direct marketers’ minds.Competitions identified include supermar-kets, international trades and other farmmarkets. Labor-related challenges mentionedinclude lack of labor pool, hard to findseasonal help, difficult to find good labor andkeep qualified labor, and high costs of labor.Other top barriers were location, limitedresources (capital, time and land), regula-tions, and marketing-related issues (advertis-ing, display, attracting new customers, etc.).

While the top opportunity identified bythe respondents was definitely diversificationand expansion, many farms have different

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plans on how they want to expand anddiversify their retail businesses. These plansinclude expanding product lines, developingentertainment and agri-tourism, diversifyingmarketing outlets, and extending season,farm size and operating hours. Respondentsalso strive for ‘farm fresh’, to provide highquality and fresh products as well as goodservice. More marketing is another topopportunity identified by respondents.

Direct marketing is an important value-added strategy and source of income formany New York vegetable farms. Many NewYork direct marketing farms are consideringexpansion. More marketing training is on themind of many marketers. Moreover, moreattention to marketing and business manage-ment will be necessary to ensure futureprofitability and success.

* For a complete report, please contact Wen-fei Uva [email protected] or 607-255-3688.

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February 2002

Private Label Brands -- A Growth Opportunityfor Retailers and Produce Suppliers


Over the last decade, Private LabelBrands or Store Brands have become a popu-lar and profitable marketing strategy in theUnited States as well as in Europe. Accord-ing to a Gallup study sponsored by the Pri-vate Label Marketing Association and con-ducted in September 2000, 71% of U.S.supermarket shoppers consider store brandsthe same as or better than the quality ofnational brands.

Retail consolidation has had a stronginfluence on Private Label. Store brandshave become a way for retailers to differenti-ate themselves from their competitors and tocreate loyalty to their stores in an evermoretightly concentrated marketplace. In Europe,Private Label products’ value and unitpenetration in the seven major markets hasbeen significant, with the United Kingdomleading at 45.4% volume share and 43.5%value share in 1999. This is followed byBelgium, Germany, France, the Netherlands,Spain, and Italy (Table 1). Where is thegrowth potential for Private Label brands?The long-term Private Label trends in theUK market for the period 1997-2000 indicatethat Private Label share of sales has contin-ued to grow mainly in the food sectors, andparticularly in perishables such as dairy andbakery, with shares of 52.4% and 61.1% in2000, respectively. Shares for other catego-

*This article is part of the 2001 Fresh Track Study by the Food Industry Management Program at CornellUniversity developed for the Produce Marketing Association.

ries such as household products, soft drinks,and health and beauty aids decreased duringthis period.

In the United States, Private Labelpenetration (value share) among the top tenfood retailers in 2000 ranged between 7% forCostco to 23% in Winn Dixie Stores andA&P (Table 2). In 2000, Private Label salesin U.S. supermarkets increased 1% in dollarshare of sales to 15.5% but decreased 1.2%in unit share to 20%, compared with 1999.Among the different types of products, basiccommodities declined at the expense of so-called value-added products: six out of theten top commodity categories declined indollars sales and eight of the top ten declined

Country Volume Share Value Share% %

United Kingdom 45.4 43.5

Belgium 34.7 27.4

Germany 33.2 26.0

France 22.1 19.1

The Netherlands 20.6 18.4

Spain 20.5 14.8

Italy 17.1 15.5Source: PLMA Yearbook 2000.

Table 1. Private Label Penetration inEurope 1999

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in unit sales. Among the main double-digitgainers in share of sales are frozen and refrig-erated items that is, many perishable prod-ucts. Packaged salads have been one of thehighest-growth segments, accounting for 12%of the value-added category, up 4% from1999.

As these data clearly indicate, a shiftfrom the basic commodity to the value-addedcategories is driving the Private Label salesfigures. In the United States the growth offresh-cut produce is a principal contributingfactor toward selling more store-brandedproduce since little Private Label develop-ment has taken place so far in the producedepartment and national brands are onlypresent for a few items. It is up to retailers totake advantage of this opportunity, which, intheory, should benefit the whole produceindustry and, similarly, it is up to both retail-ers and suppliers alike to master the chal-lenges involved.

Challenges for retailers include a commit-ment to quality, along with delivering pro-duce to meet the standards of today’s con-sumers’ expectations on a permanent basis,and ensuring that the product being packagedcorresponds to the image of the store.Challenges for suppliers include the ability toprovide their customers the required qualityin sufficient, adequately packaged and safequantities on a permanent basis. At bothends of the supply chain there is a need toinnovate and to have the flexibility to adaptto the consumer’s changing needs and wants.

The growers and shippers surveyed in the2001 Fresh Track study consider that themajor responsibility for Private Label in theproduce industry lies with the retailers.Retailers agree with this assessment. In fiveyears, growers and shippers see this mainly asa shared responsibility, though retailers stillview it more on their side and as a sharedresponsibility, as opposed to being more on

Total Sales Aprox. PL SKU PL shareCompany billion $ count (% of total dollar sales)

Wal-Mart 57,200 5,000 20%

Kroger 49,700 6,000 20%

Safeway 32,500 3,000 20%

Albertson’s Inc. 31,000 6,000 16%

Ahold USA 28,100 2,000 20%

Costco 17,700 500 7%

Delhaize America 14,700 6,500 17%

Winn Dixie Stores 14,323 2,700 23%

Publix Super Markets, Inc. 14,100 1,200 16%

A&P 10,500 2,300 23%

Source: 2001 Report -- Top 40 Supermarket/Wholesalers. Private Label, March-April 2001, pp. 27-32.

Table 2. Private Label SKU Count and Share of Sales in 2000 forthe Top Ten US Food Retailers

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the grower/shipper end of the supply chain.Some growers/shippers indicate negativeexperiences with orders for Private Labelproducts. These negative experiences aremainly related to order cancellations, and theconsequent need to repackage the product,with additional costs involved and dimin-ished product quality and shelf life.

Clearly, if the industry is to benefit fromthe growth opportunities that Private Label

produce offers, adequate planning, accurateforecasting, and appropriate brand managingare the requisites for retailers. For suppliers,the ability to maintain quality standards, toinnovate, and to add value constitute keystrategies. Above all, this is a businessopportunity where partnering of retailerswith growers and shippers would bring aboutthe best system-wide outcome.

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September 2002

Does the Organic Label Really MeanWhat Consumers Want It To Mean?

David ConnerResearch Support Specialist

In academic circles, the implementationof the US Department of Agriculture’sNational Organic Program’s Final Rule in late2000 was often seen as a key step in expand-ing commerce in organic foods. Before thistime, the exact meaning of the organic label,including what was or was not allowed to beused in organic production and processing,was left to a broad group of independentcertifying agencies such as New York’sNortheast Organic Farming Associationchapter. Many researchers argued that havinga single definition would make it easier forconsumers to know what they are gettingwhen they buy food labeled organic and,therefore, decrease transaction costs andfacilitating trade in these foods.

This all sounds good in theory, but theactual process proved to be more difficult.The USDA committee responsible for draft-ing the rules released an initial draft in 1997and received an unprecedented 275,000comments, most of them critical of thesestandards. The most common objection wasallowing the use of what became known asthe Big 3: genetically modified organisms(GMOs), biosolids (municipal sewage sludge)and irradiation. Although the Final Rulebanned the use of the Big 3, it has becomeclear that if the meaning of the organic labeldoes not mean what consumers want it tomean, or if the meaning is not well under-stood, the value of this label, and the pro-gram in general, will be diminished.

This issue was the subject of a 2000survey of current consumers of organic foodin Ithaca, New York. Consumers were askedabout their attitudes and behaviors concern-ing organic food. Questions included reasonswhy they buy organic, whether they thought anumber of key practices (including the Big 3)ought to be allowed in the production andprocessing of organic food, and how muchthey would pay to have or avoid the Big 3 inorganic food.

The results showed that if the meaningof organic is only a list of what practices areallowed, the Final Rule conforms to con-sumer preferences quite well. About 75% oforganic consumers oppose the use of any ofthe Big 3, and strong majorities also supportthe banning of hormones, growth regulators,sub-therapeutic antibiotics and confinementof animals. None of these practices areallowed under the Final Rule. In addition,organic consumers are willing to pay anaverage premium of 50% to avoid each ofthe Big 3 in organic food. An experimentalauction, conducted with another sample oforganic consumers a year later, confirmedconsumers’ willingness to pay a premium toavoid GMOs.

However, results from the auction indi-cate that label’s meaning is not well under-stood. For instance, most of the participantsdid not know that GMOs were banned inorganic food. Industry has responded to this

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confusion: many organic food products havea label on the package stating the ingredientsare GMO-free. These manufacturers mustbelieve that a significant number of consum-ers do not understand this aspect of theorganic label’s meaning if they incur the extralabeling cost.

Furthermore, the organic label does notalways guarantee reasons stated by consum-ers for buying organic. Some common re-sponses, like concerns about pesticideresidues, the environment, and farm workersafety, are addressed by the current standards.However, other common responses, such asconcern for community, sustainability andopposition to the corporate food system, arenot addressed. It is believed that the North-east’s dependency on imported food productsfrom the west coast and around the worldcontributes to the loss of farms and disinte-gration of rural communities. Transportationof food over vast distances contributes tofossil fuel depletion and pollution. Followingnational trends, the organic market has been

marked in recent years by increasing domina-tion of large corporate producers and proces-sors. Such issues are central to the spirit andfounding principles of the organic movementin many consumers’ minds, and the FinalRule does not address them.

These results suggest promotional oppor-tunities for smaller organic producers in theNortheast. First of all, these producers canhighlight the fact that buying organic is thebest way to avoid the Big 3 (especiallyGMOs). Organic consumers have expressedwillingness to pay a premium to avoid thesepractices. Secondly, local organic producersshould promote their independence from thecorporate food system and their contributionto the social and ecological well-being oftheir communities. Since advertising re-sources are limited among individual produc-ers, such promotional efforts would likelyhave a greater impact if organic producer andconsumer groups pooled their resources topromote the broader aspects of the benefitsof local organic food to a wider audience.

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April 2002

Food Away from Home Rebounds


Understanding current consumer wantsand needs is an ongoing challenge. Manyconsumer trends are slow to develop, asconsumers typically don’t make dramaticshifts in purchases. Periodically, there can bea shock to the system causing more dramatic,short-term changes in markets and consumerpreferences. These shocks can reverberateover time. The events of September 11created such a shock to the food and agricul-ture system. One significant change immedi-ately following the attack was a decrease inconsumption of food away from home.

That change had a dramatic, immediateimpact on some groups of agriculturalproducers. A small specialty products mar-keting cooperative in the Catskills area ofNew York lost its single largest customerwhen the “Windows on the World” restaurantwent down with the World Trade Centertowers. Other groups of fresh producegrowers in the Northeast lost 60% of salesduring their peak production season asmetropolitan restaurant patrons in keymetropolitan markets stayed home.

National dairy markets were affected asprices for cheese, cream and butter droppedsignificantly as food service sales declined.Sales of novelty dairy products marketedthrough food service channels also declined.

In response to the uncertainty created byterrorist attacks, consumers have been

spending more time with families, entertain-ing more at home, and seeking the security ofthe home “nest”. As consumers shied awayfrom eating out, some products fared well.Those food products which are convenient toprepare, perceived as healthy, or are seen astraditional “comfort” foods saw increasedsales.

Convenience in home-prepared foods canbe gauged in a number of ways such as:quick preparation, easy to cook, and pack-aged complete meals. Food products de-signed for easy home entertaining such asfrozen pizza have seen increased interestfrom consumers.

Producers may be able to leverage mar-keting efforts as buyers look for more guaran-teed food safety and increased security fromsuppliers. The ability of suppliers to tracesourcing back to individual farms or preserveidentity through the supply chain may be ofvalue to buyers.

However, long-term trends are not easilyoverridden by short-term events. Our foodand agricultural system is very resilient.There is a long-standing trend toward con-sumers eating more food away from home.The abrupt drop in away-from-home con-sumption following the events of September11 has not changed that trend. Indeed,consumption of food away from home hasrebounded over the last six months.

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It remains unclear what the longer termeffects of terrorism might be on consumerwants and needs, but some of the lessons tobe learned at this point are:

• Short-term deviations don’t tend tooverride longer-term consumer trends.

• Food consumption away from home isrebounding.

• Marketers who can guarantee securefood supplies may have an advantage.

• Consumers continue to seek outhealthy, convenient, and relevant foodswhether they are consumed at home ornot.

In summary, smart marketers understandthat there can be abrupt shocks to the foodand agricultural system. But the resiliency ofthe food and agricultural system, as well aslong-term consumer trends, tends to absorbthose shocks.

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November 2003

Changing Priorities -- The Gateway toNew and Exciting Opportunities in School

Foodservice Operations


The “Obesity Epidemic” in the UnitedStates, announced by the Surgeon General inDecember 2001, has certainly put in motionmany diverse efforts and initiatives to helpreverse this public health problem. Increas-ing consumption of fresh fruits and veg-etables has emerged as a key strategy for thiscritical situation and promises excitingopportunities for the produce industry in thiscountry.

Indeed, the amazing success of the Fruitand Vegetable Pilot Program (FVPP) re-ported by the Economic Research Service ofUSDA to Congress in a recent publication1 isa case in point. With a budget of $6 millionfor the 2002-03 school year, the FVPPstemmed from the Nutrition Title of the2002 Farm Act with the main objective ofpromoting fruit and vegetable consumptionamong the nation’s school children. TheProgram, which was designed around the freedistribution of fresh and dried fruits andvegetables in 107 schools, might be expandedto schools nationwide in the near future.

The success of the FVPP Program wasreported by a majority of the participatingschools on the basis of students’ interest intaking part in it. In addition, through thisProgram some students were exposed to awide assortment of fresh fruits and veg-etables, in some cases for the first time ever.Other relevant effects of the Program asreported by staff members in participatingschools include students’ increased aware-ness and interest for a variety of fruits andvegetables (particularly some less familiarproduce items), greater acceptance of fruitsand vegetables offered as part of schoolmeals, and increased consumption of fruitsand vegetables at lunch. Also, students’parents reported that their children wererequesting more fruits and vegetables athome and the opportunity to try unfamiliarfruits and vegetables without pressure fromhome.

The FVPP program and interviews withschool foodservice experts also indicated thatstudents preferred fresh produce over the

*This article is part of the 2003 Fresh Track study by the Food Industry Management Program at CornellUniversity developed for the Produce Marketing Association.

______________1 Buzby, Juan C., Guthrie Joanne F., and Kantor, Linda S. “Evaluation of the USDA Fruit and Vegetable PilotProgram – Report to Congress.” May 2003.

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dried products, and they want new and inter-esting products, individually packed in attrac-tive packaging, portable and easy to eat.Hand-held products are important. Fruits aredefinitely more popular than vegetables.Many schools used dips and side condimentsto improve vegetable consumption amongstudents. Schools are interested in productsthat are well accepted by students and thatincorporate enough added value to facilitateoperations, reduce labor costs and guaranteefood safety at an affordable price. Mostschools in the FVPP program (96%) boughthigher cost foods for the Program, such aspre-cut and prepared trays of fresh fruits andvegetables, particularly pre-cut carrots andcelery, to control labor costs and to handlestorage limitation.

The participating schools include a mixof large and small, rural and urban, elemen-tary, middle and high schools, and studentsfrom diverse ethnic backgrounds and familyincome levels. Therefore, results do convey aclear message to the produce industry aboutthe underlying opportunities in this non-commercial segment of the foodserviceindustry. Even though the produce industryoften looks at this segment of the food-service industry as one where the challengesout-weigh the opportunities, clearly times arechanging and the new priorities might justprovide the conditions for more exciting andsuccessful business opportunities. The FVPPresults have shown that students are inter-ested and willing to try and to eat a widervariety of fresh fruits and vegetables, andschools are excited about it and lookingforward to alternatives that will allow themto offer more of these products to theirstudents. In the short run, the increasedconsumption of a variety of fresh fruits andvegetables among children clearly implieslarger volumes of produce that could bemoved through this channel. In the long run,

the opportunity lies in that today’s children,with an increased awareness and interest infresh fruits and vegetables, will becometomorrow’s shoppers.

Aside from increased funding that wouldhave to come from the Government as aresult of changing priorities to reverse thecurrent obesity epidemic, schools will needthe produce industry’s support to take thisinitial success even further. This supportcould come not only in the form a variety ofproduct offerings that will deliver on bothstudents’ and school foodservice operations’needs and expectations at an “affordable”price point, but also from other strategiesthat will contribute to schools’ success withthese products.

HMC Group Marketing’s Lunch BunchGrapes and Grimmways’ “Snack Pack” babyor crinkle-cut carrots are two successfulproduce examples. A trademarked brand, theLunch Bunch Grapes program offers schoolsred seedless grapes in bunches of 2 or 4ounces, in cases of 150 bunches or 20-21pounds. Bunches just need to be rinsed anddrained before serving. It is a value-addedproduct of consistent size and quality avail-able 50 weeks a year at an “affordable” pricepoint. Approximately 75% of the LunchBunch Grapes are sold to schools.Grimmways’ “Snack Packs” are baby orcrinkle-cut carrots individually packed in a1.6 ounce package which meets USDA one-serving standards. Again, it is a value-addedproduct that is portable and easy to use andrequires little labor while providing completefood safety assurance. “Snack Packs”register double-digit sales growth in schools.An example of the type of initiatives devel-oped by other sectors of the food industryincludes the Wisconsin Dairy Council pro-gram that provides schools with refrigeratedcases at 25% of their cost. Attractive-

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looking and easy for kids to use, these casesallow schools to successfully promote andsell a variety of dairy products.

Development of training “kits” formanagers and chefs alike on the “a,b,c’s” ofproduce and particularly of value-addedproduce constitutes yet another type ofsupport that the produce industry could

provide to schools. Self-instructive trainingkits with key information on produce issuessuch as “how to buy” (varieties, size, pack,value-added options), “when to buy” (variet-ies, harvesting season, prime time), “how tohandle and store”, and “how to display andserve” to maximize flavor and acceptability,would be a most important tool for schools’foodservice success with produce.

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March 2003

Marketing Fresh Fruit and Vegetable Imports inthe US: Status, Challenges, and Opportunities


Per capita consumption of fresh fruitsand vegetables in the United States increasedfrom 254 lbs. in 1980 to 328 lbs. in 2000. Atthe same time, imports of fruits and vege-tables into the U.S. market have increased atan annual growth rate of 7.8% for fruits and8.1% for vegetables between 1990 and 2000,and imports’ share of consumption wentfrom 24% to 40% for fruits and from 5% to11% for vegetables between 1980 and 1999.In the current state of consolidation andfierce competition in the retail industry, theproduce department is a major contributor tosales and profits in supermarkets. Importedproducts are gaining attention because oftheir increasing importance in the producedepartment.

This article reviews results from surveysconducted with retailers over the internet andpersonal surveys administered to importersand foreign exporters during the 2001 PMAConvention in Philadelphia. A total of 13retailers, 9 importers and 9 exporters partici-pated in the study. The objectives of thisexploratory research project were to identifythe current status of imported fruits andvegetables at retail, characterize the businesspractices of different participants involved inthe supply chain of imported fruits andvegetables (retailers, importers and export-ers), and identify opportunities and challen-ges faced by these participants in marketingimported produce in the U.S. market.

Imports account for 27% of the volumeof produce currently sold by supermarketsand will increase to one-third in 5 years. Fourcategories of imported fruits and vegetableswere examined in this study – traditional(mainstream or common fruits and vege-tables), banana, tropical and specialties(exotic fruits, vegetables, roots and tubers).Bananas account for half of imports’ volumebut its share is expected to decrease, whileshares for traditional, tropical and specialtiesare expected to increase in the next 5 years.Traditional imported products are carriedmainly to increase sales, bananas to increaseboth sales and profits, tropicals to targetethnic consumers, and specialties as a way todifferentiate, diversify and target ethnicconsumers. Main sources of imported pro-duce for retailers are importers, followed byUS grower/shippers and wholesalers. USgrower/shippers play a significant role as asource of many of these products, particu-larly in providing tropicals and specialties toretailers.

Key current issues in marketing the fourcategories of imported fruits and vegetablesamong retailers are assuring food safety,reducing transportation costs, and improvingeating quality. Reducing shrink and ensuringyear-round availability are important in allbut specialties. In the future, retailers antici-pate that the application of irradiation, add-ing value to products and introducing newvarieties will become key issues.

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Seventy-five percent of participatingimporters source their products by purchasingthem directly from foreign grower/shippers.Major retail chains are their main customers(55%), followed by wholesalers (14%) andfull-line general wholesalers (13%). Currentkey issues faced by importers in marketingimported fruits and vegetables include im-proving eating quality, assuring food safety,improving packaging and providing producttraceability.

The main source of products exported byparticipating exporters is their own produce

Share of Imported Produce by Category - All Firms

% of Imported Produce Volume Purchased

17%26%

7%

50%

28%

9%18%

45%

0%10%20%30%40%50%60%70%

Traditional Bananas Tropicals Specialties

Currently In 5 yrs

and produce purchased fromother growers. Their main mar-keting channel is wholesalers inthe United States. Current keyissues faced by exporters inmarketing their products includeimproving packaging, addingvalue to products and assuringfood safety.

Implications and OutlookAs current consumption

trends in the US continue, re-tailers’ business in produce islikely to continue to grow. The

increasing variety and availability of im-ported fruits and vegetables will continue tocontribute to retailers’ produce business. It isin the retailers’ best interest, therefore, tobetter coordinate efforts with their suppliersin addressing both current and future issuesrelated to marketing imported fruits andvegetables. Likewise, it is in the best interestof suppliers (importers and exporters) tobetter focus on their target market needs andto coordinate with their customers the effortsneeded to address those marketing issues.

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March 2002

Contracting in Fresh Produce:Wave of the Future?

Kristen ParkExtension Support Specialist, Food Industry Management Program

The data gathered from this year’sFreshTrack 2001 retail respondents corrobo-rate a trend established in virtually all of theprevious FreshTrack studies: buyers andsellers of fresh produce are departing fromtraditional practices of transacting salesthrough daily spot sales in favor of engagingin a wide range of contractual agreements.Of course, this is not happening overnight,but the evidence collected in this year’s studydemonstrates that it is happening relativelyquickly for a number of reasons. Opportu-nistic buying and selling of merchandise,where one or the other party finds itselffacing unusually unfavorable short-termconditions, is not part of the long-term mis-sion and operating strategy of the ever larger,sometimes multinational, companies nowpart of the community of produce buyersand sellers. Indeed, many of these large com-panies are now playing a channel-dominantrole. These companies have been moreaggressive in adopting supply-chain manage-ment practices where the objective is year-end, not weekend, results. Their interest isnet returns, not gross returns. What’s more,in recent years, the produce industry hasexperienced more “long” than “short” situa-tions. Such a condition generally shifts theadvantage of contracting to the buying sideof the market, once again providing retail

buyers additional motivation over the pastseveral years to increase their contracting.

Despite a number of considerable disad-vantages, in general, today’s buyers andsellers alike appear to be won over by thegreater price certainty that contracting makespossible. It facilitates their ad planning,sales, planting, harvesting, and packingdecisions. Moreover, it ensures sellers anoutlet for at least a portion of their produceand it ensures buyers a source of produce,particularly in difficult supply conditions.

However, high degrees of productperishability, weather uncertainty and result-ing price volatility, and structural differencesbetween and among produce buyers andsellers create significant challenges to thedesign of the produce contract. Contractcharacteristics range widely from those thatare concerned only with quantities and prod-uct specifications to those that focus morenarrowly on price. Additionally, a growingnumber of contracts today specify variousfees and services that one or the otherparticipant will perform.

A contract developed during the 2001marketing season prominently cites prices tobe paid as well as packaging specifications,

Excerpt from:Perosio, Debra J., Edward W. Mclaughlin, Sandra Cuellar, and Kristen Park. 2001. Supply Chain Management in theProduce Industry. Produce Marketing Association, Newark, DE. October 2001.

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quarterly and annual volume targets and,importantly, rebates and promotion. Adver-tising schedules are laid out, including so-called BOGO (“buy-one get-one” free)allowances. Finally, it should be noted that

natural disasters, crop failures, and “acts ofGod” clauses are now being routinely in-cluded in fresh produce contracts to protectbuyers and especially sellers.

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February 2003

Vegetable Consumption, Dietary Guidelines, andAgricultural Production in New York State --

Implications for Local Food Economies

Christian Peters, Graduate Student, Department of Crop SciencesNelson Bills, Professor, Applied Economics and ManagementJennifer Wilkins, Professor, Division of Nutritional SciencesR. David Smith, Professor, Department of Animal Science

Local food economies that feature well-developed demand responses by local pro-ducers to regional consumers’ needs are gain-ing attention as a means for boosting agricul-ture and food production in New York State.Concurrent with this interest in local agricul-ture is a national concern over the health ef-fects of American food consumption patternsand the capacity of agriculture to provide nu-tritious diets.

This article reports on a study thatmerges these areas of inquiry in the contextof a nutritionally and economically importantagricultural sector: New York State vegetableproduction. Three important and heretoforeunanswered questions are examined. First,how does New York State vegetable produc-tion compare with the vegetable consump-tion by New Yorkers? Second, how doesproduction and consumption of vegetablescompare with the recommendations on theU.S. Department of Agriculture Food GuidePyramid? Finally, what implications, if any,do these comparisons have for New YorkState agriculture?

We looked at these questions by adoptingnational, regional and state data to estimatevegetable production and vegetable con-sumption in-state. Our analysis was pat-

terned after methods established by the Eco-nomic Research Service to make nationalcomparisons of farm commodity productionand food consumption to see how they stackup against the Food Pyramid recommenda-tions.

Regarding consumption, we determinedthat no comprehensive data exist for NewYork; instead, we adopted annual per capitavegetable consumption estimates for theNortheast. We estimate that New Yorkersconsume approximately 160 pounds of veg-etables per person per year. This is vegetableintake — after accounting for inedible por-tions, food loss, and so on. Based on popula-tion estimates, this level of per capita con-sumption indicates that in-state vegetableconsumption was about 2.9 billion pounds incalendar year 1999.

In contrast, New York State farmers har-vested an average of 3.3 billion pounds ofvegetables annually during the 5-year period1994-1998. After knitting together all avail-able production data, we find that this pro-duction comes from 81 individual “vegetablecrops”. Included were edible dry bean cropsthat usually are not categorized as vegetablecommodities in production statistics. Afteradjusting for post-harvest losses and inedible

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portions, the consumable equivalent of NewYork’s farmgate production is 1.6 billionpounds. Based on a crop-by-crop compari-son, New York produces a handful of veg-etable crops (e.g., beets, cabbage, onions,pumpkins, snap beans, and sweet corn) inquantities that exceed the estimated in-statedemand. As a result, New York producesenough vegetables to provide 38 percent ofthe total vegetable consumption plus 500million pounds of “surplus” of the aforemen-tioned crops.

Our comparisons with the Food GuidePyramid demonstrate that both vegetableconsumption and production in New YorkState mirror national trends. New Yorkerseat too few nutritionally important veg-etables. Consumption of the “dark greenleafy & deep yellow vegetables” and the “drylegumes” are only 41 percent and 19 percent,respectively, of the recommended amounts.Though New York State harvests enough dryedible beans to match the current level ofconsumption, it is well below the recom-mended amount. Furthermore, New York isa minor producer of the dark green leafy anddeep yellow vegetables, producing only 12percent of the recommended number ofservings.

We believe that our study could have fa-vorable implications for New York State veg-etable growers and consumers. Our intentwas to improve understanding of the linksbetween vegetable consumption, vegetableproduction, and nutrition all within the con-text of New York agriculture. We view suchunderstanding as the necessary starting pointfor identifying any potential for New Yorkagriculture to both supply a greater share ofproduce to New York residents and promotebetter state-wide nutrition.

There are limits to the implications thatcan be drawn from our study regarding theprospects for expanding or reducing veg-etable acreage in New York State. Growersare responding to prices, anticipated trendsand other market factors, as well as their newand ongoing relationships with buyers oftheir product. This study does not addressprices or the nature of these marketing rela-tionships. Nonetheless, our results help pro-ducers make informed future decisions re-garding vegetable production by estimatingthe volume of in-state consumption and thedirections in which state vegetable consump-tion may be trending as health-consciousNew York State consumers adhere moreclosely to nutritional guidelines.

Considered in this light, our results helppave the way for estimates of the potentialmarket value of vegetables currently con-sumed in smaller amounts locally (statewide)as well as revealing the potential influence ofexpanding ethnic markets and other trends inconsumer preferences and food choices.Such information can be increasingly impor-tant to growers who can gain strategic advan-tages in targeting local, ethnic, or other de-mographically important markets. One mar-keting approach that could be supported bythis research is expanding production ofcrops currently being under-produced relativeto consumption, exploiting local niche mar-kets further. Producers now targeting a fewhigh volume markets for processed or freshvegetables would do well to consider the re-sults of this study in light of their prospectsfor diversifying production and possibly in-creasing the economic vibrancy of their busi-nesses.

Looking across New York State, the veg-etable sector is arguably one of the biggestsuccess stories of New York State agricul-ture. Today as in years past, sales of

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veetables to fresh and processed marketsconstitute one of the largest sources of in-come for New York farmers. In addition,though New York State has lost millions offarmland acres to either development or re-forestation since the 1950s, land used forvegetable production has remained fairly con-stant at 170,000 acres. Moreover, though thetotal number of farms in New York has de-clined precipitously in the last 50 years, thenumber of farms classified as vegetablefarms by the Census has remained amazinglystable. Indeed, despite many dramaticchanges in the industry over the last century,vegetable production continues to be a main-stay of New York agriculture.

Identifying potential production opportu-nities for producers is beyond the reach ofthis study, primarily because those opportuni-

ties are greatly intertwined with decisionsproducers must make about their own marketoptions. Nonetheless, our study adds newperspective and context to these farm-levelmarketing discussions, and illuminates areaswhere additional research is needed in settinggoals and researching in-state markets forvegetable commodities. From the work wepresent, large-, medium-, and small-volumevegetable producers will undoubtedly dis-cover new options for targeting New YorkState consumers and capitalizing on demo-graphic and ethnic market trends, as morenutrition-savvy New Yorkers adhere to theFood Guide Pyramid dietary standards.

For the complete report please see: http://aem.cornell.edu/research/researchpdf/rb0207.pdf

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May 2003

Marketing Fruit

Edward ParkinsonExpert Agriculturist

Reprinted from Jamestown Journal, November 11, 1913

Editor’s Note: This article was discovered by Dr. Bruce Anderson, Department of Applied Econom-ics and Management, Cornell University. It was originally printed by the Jamestown Journal, now theJamestown Post-Journal, on November 11, 1913 (permission granted to reprint). It was found when his wifewas refurbishing a piece of furniture taken from their Falconer, NY, homestead, sold in 2000.

The Cornell Agribusiness Management and Marketing faculty feel that many of the points are asapplicable today as in 1913. In 2001, apple growers established Premier Cooperative, a “growers’ associa-tion”, to improve marketing and enhance grower returns. The cooperative represents a significant portion ofall fresh apples sold on the east coast and includes members from New York, Michigan, Ohio, Pennsylvania,and Virginia. During the same year, 14 onion growers in Oswego County, New York formed a corporationand branded their product “New York Bold” to ensure quality and enhance their collaborative marketingpower. We also see a fast growth in direct marketing activities among fruit and vegetable growers.

The market will continue to change, and marketing will continue to challenge the fruit and vegetableindustries today and in the future much as it did 90 years ago. Success in the future will require the industryand individual businesses to do something different from the past, be innovative, take control, and developappropriate strategies to maintain and improve competitiveness.

There are four ways of disposing of or-chard products selling the fruit on the treesto a buyer, who comes to the orchard andmakes a lump sum offer; selling through acommission merchant; selling through a fruitgrowers’ association; or selling to the con-sumer direct.

The first method involves the leasttrouble, but the seller receives the lowestprice, as the buyer has not only the work ofpicking, etc., but must sell the fruit to amiddleman. Moreover, buyers will not, as arule, contract for small orchards, the expenseof bringing men, etc., being too great. How-ever, if the owner has an orchard of several

acres and is unable to superintend the workhimself, selling in this way is both practicaland profitable.

Selling through a commission merchant isoften very satisfactory, particularly if the or-chard is not near any market, and if care istaken to look up the merchant’s financialstanding, for the commission man naturallydoes his best to sell to advantage. In sellingin this way, write or telegraph the merchantbefore shipping, that he may be prepared toreceive and dispose of the fruit at once.

To sell through a fruit growers’ associa-tion, one must become a member, and this

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may be done by writing to the state depart-ment of agriculture for the names of the as-sociations in the state and their financialstanding; also by writing to the secretary andapplying for membership. These societies un-dertake to sell the fruit of their members inthe best markets. In fact, it is not unusual forfruit growers’ associations to take charge of acrop from the time it becomes ripe, picking,packing and selling the same, the grower sim-ply cashing the check he receives as the re-sult of his year’s work.

Selling to the consumer direct is an excel-lent method of disposing of one’s produce inmore ways than one if the farm happens to

be near a town or city. In the first place, bet-ter prices are obtained for the fruit, and notinfrequently a market is opened for eggs,poultry, potatoes or anything delectable onemay choose to raise. There is also the inter-est of personal contact and the change of thetown sights and sounds, which, to a countrydweller who doesn’t live among them, is of-ten an agreeable diversion. However, to sella crop of apples by the bushel or quart, forinstance, necessitates a storage building ofsufficient capacity to hold the entire output,so that one may keep a crop for the bestprices. Such a building need not be an expen-sive affair, but it must be frost proof.

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September 2003

Fruit Consumption, Dietary Guidelines, andAgricultural Production in New York State:

Implications for Local Food Economies

Christian Peters, Graduate Student, Department of Crop SciencesNelson Bills, Professor, Applied Economics and ManagementJennifer Wilkins, Professor, Division of Nutritional SciencesR. David Smith, Professor, Department of Animal Science

Consuming locally produced foods offersmany benefits to consumers, farmers, and theenvironment. As a result, local food econo-mies are gaining attention as a means forboosting agriculture and food production inNew York State. Concurrent with this inter-est in local agriculture is a national concernover the health effects of American foodconsumption patterns and the capacity of ag-riculture to support nutritious diets. This ar-ticle reports on a study which merges theseareas of inquiry in the context of a nutrition-ally and economically important agriculturalsector, namely New York State fruit produc-tion. The study expands on work completedfor vegetables — see the February 2003 issueof Smart Marketing at http://hortmgt.aem.cornell.edu/smart_marketing/index.htm.

Three questions were examined in this re-search. (1) How does New York State fruitproduction compare with fruit consumptionby New Yorkers? (2) How do productionand consumption of fruit compare with therecommendations of the U.S. Department ofAgriculture Food Guide Pyramid? (3) Whatimplications do these comparisons have forNew York State agriculture? These questionswere addressed using secondary national andstate data. We replicated some analyses thatwere previously conducted on a national ba-

sis by the USDA Economic Research Serviceto assure comparability with prior research.

According to the most recent nationalfood intake data, annual per capita consump-tion for the Northeast U.S. averaged 180pounds between 1994-96. Based on thislevel of consumption, we estimate that NewYorkers ate approximately 3.2 billion poundsof fruit in calendar year 1999. In contrast,New York fruit growers harvested an averageof 1.5 billion pounds of fruit annually during1994-1998, of which just 816 million poundswas “consumable” after adjusting for weightchanges that occur during processing (e.g.canning, freezing, juicing), post-harvestlosses, and inedible portions. A handful ofthese products (fresh apples, processedapples, and processed cherries) were pro-duced in quantities that exceeded the esti-mated in-state demand. As a result, we esti-mate that New York produced enough fruitto provide 18 percent of all the fruit NewYorkers consumed plus 256 million poundsof “surplus” of the aforementioned threecommodities.

Comparison of consumption with theFood Guide Pyramid demonstrates that,though fruit intake in the Northeast is higherthan the national average, intake is still well

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below recommended levels. Based on cur-rent fruit consumption (1.9 servings per per-son per day), New Yorkers would need to in-crease consumption by 63% to reach the rec-ommended intake. Current consumption isconsistent with the Pyramid recommendationthat intake be split evenly between the Vita-min C-rich “citrus, melons, and berries” andthe catchall category “other fruit”. However,current dietary preferences may not satisfythe Pyramid suggestion that consumersshould choose whole fruits most often.Juices presently comprise more than a thirdof all fruit servings.

New York harvests enough fruit to pro-vide 20% of this recommended intake, butproduction is not evenly distributed betweenthe two subgroups. Almost all in-state pro-duction comes from fruits in the “otherfruits” category (e.g. apples, grapes, andpears) while the production of melons andberries is insignificant relative to the recom-mended intake.

The results of this research suggest bothopportunities and challenges to New YorkState’s fruit growers and consumers. Formost fruits, the in-state market is large rela-tive to current production. In addition, con-

sumption of fruit needs to increase substan-tially to meet national nutritional goals.Taken together, these findings suggest poten-tial for marketing more fruit, and more NewYork grown fruit, to New Yorkers. However,the length of the growing season and the pre-dominance of just two crops, apples andgrapes, bring into question the ability of NewYork’s fruit sector to provide the diversityneeded to supply a more significant share ofthe state’s consumption. Moreover, currentfood preferences may limit sales of in-stateproduced fruit as over 60% of consumptioncomes from crops that cannot be grown inNew York’s temperate climate. Despitethese conflicting patterns, potential exists forgrowers to target local and regional markets,particularly if they can excite the palates ofnutritionally conscious consumers.

For a complete report of this study, please see“Fruit Consumption, Dietary Guidelines, and Ag-ricultural Production in New York State – Implica-tions for Local Economies” by Christian Peters,Nelson Bills, Jennifer Wilkins, and R. DaveSmith, RB 2003-02, Dept. of Applied Economicsand Management, Cornell University (http://aem.cornell.edu/research/researchpdf/rb0302.pdf).

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November 2002

Trade Safeguards and Agricultural Imports:The Case of American Cheese

Charles NicholsonSenior Research Associate

Cornell Program on Dairy Markets and Policy

Imports of American cheese have beenmaking news recently, illustrating just howcomplicated agricultural trade policy can bein these days of the World Trade Organiza-tion (WTO). On November 15, 2002,USDA announced the imposition of addi-tional tariffs on imports of American-typecheese because the total amount of importsduring 2002 had surpassed a “trigger” levelfor such action. The additional tariffsamount to about $0.16/lb., bringing the over-all tariff to $0.64/lb. (which is more than 50percent of the current price of Cheddarcheese in US markets).

The use of these additional tariffs raisesquestions about the overall effectiveness oftrade policy in preventing imports from un-dermining prices for US producers, and aboutthe various “safeguard” mechanisms thatwere written into the WTO agreement.When the US agreed to join the WTO, itmodified its dairy trade policy to replacefixed-amount import quotas (often withcountry-specific import licenses required aswell) to a system called Tariff Rate Quotas(TRQ). Under this system, the US agreed toallow a limited amount of most dairy prod-ucts to be imported at relatively low tariffs.This is referred to as “in-quota” imports. Theamount of in-quota imports increasedthrough 2001 to allow other countries greateraccess to US markets. (Other countries werealso required to provide greater access totheir markets.) Amounts of imports over the

“in-quota” amount are subject to muchhigher tariffs, and are referred to as “over-quota” imports. These higher tariff rateswere often large enough that they made over-quota imports very small under normal mar-ket conditions. Even with this protection,many of the countries joining the WTO sawa need for additional measures, just in caseimports grew too rapidly, or world marketprices dropped too far below previous levels.This is where “safeguard” mechanisms comein.

There are a number of “safeguard” provi-sions for different products. Under “normal”safeguard mechanisms, producers who be-lieve they have been harmed by excessive im-ports can request that the federal governmentassess the degree of damage to their industry.If a formal study concludes that producershave been harmed, the government may thenimpose additional tariffs, as it did in the caseof lamb imports a few years back. “Special”safeguards operate a bit differently, and thereare two kinds, value-based and volume-based. Value-based safeguards kick in ac-cording to a sliding scale whenever the im-ported price of a product falls below a speci-fied level. These additional tariffs are auto-matic and remain effective until the importprice rises above the specified level. For ex-ample, if American cheese could be landed inthe US at a price of $0.64/lb., the US couldimpose a relatively small additional tariff ofabout $0.04/lb. on top of other tariffs.

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Volume-based safeguards may come intoplay when the level of imports in a calendaryear reaches some reference level—37 mil-lion lbs. in the case of American cheese. Butrather than kick in automatically, someonehas to request that they be imposed, and thegovernment has to agree to do so. In August2002, the National Milk Producers Federa-tion, a trade association representing dairyfarmers, called for the Secretary of Agricul-ture to impose volume-based safeguard tariffson American-type cheese. Unlike “normal”safeguards, there is no need to prove injury orconduct a study to find out what level or typeof remedy should be applied. The triggerquantity is based on a three-year moving av-erage of all imports, both in-quota and over-quota, but the tariff imposed applies only tothe over-quota imports. Thus, growth in im-ports is allowed, but the safeguards shouldhelp prevent large increases in imports in agiven year. However, there are limits on theimposition of these tariffs, and therefore ontheir effectiveness. These volume-triggeredtariffs only apply until the end of the calen-dar year in which they are imposed, and theystart at the time they are authorized followingthe request. In addition, they don’t apply toany shipments that are “on the water” at thetime the tariffs are authorized. Given that

it’s November and it takes a few weeks byboat for cheese to reach the US, it is unlikelythat they will affect many imports before theyexpire.

For American cheese, the various tariffsand safeguards, along with actual calendar-year imports through August of this year andlast, are shown in Table 1. In-quota importsare subject to a tariff of 10 percent, or lessthan $0.15/lb. in a typical year. The tariffrate for over-quota imports is about threetimes as much, $0.48/lb. The import pricewould need to fall to $0.73/lb. before value-based safeguards could be applied, and it waswell above that at $0.95 in the first eightmonths of 2002. The actual amount of im-ports through August was 42 million lbs.,well above the volume-based trigger of 37million lbs.

In the case of American cheese, over-quota imports (nearly all from New Zealand)have increased markedly in 2002 despite tar-iffs of $0.48/lb. and the threat of volume-based safeguards. This is due in part to lowercheese prices on the world market. The im-pact of American cheese imports on overallcheese and milk prices is likely to be mini-mal, even given the large increase from lastyear. However, given the low milk pricesthat dairy producers have seen this year, thegrowth in imports of “American” cheese from“non-American” sources adds a bit of insultto injury.

More information on dairy trade policy will be avail-able shortly at the Cornell Program on Dairy Marketsand Policy website: www.dairy.cornell.edu under“Weblets.”

ActualImports, mil. lbs. Value- import Volume- Volume-

Tariff based price, based basedImport Rate, Jan-Aug Jan-Aug % trigger, 2002, trigger, tariff,Category $/lb. 2001 2002 change $/lb. $/lb. mil. lbs. $/lb.

In-quota 10.0% 3.8 3.7 -3.6%

Over-quota 0.48 16.3 38.6 137.2%

Overall 20.1 42.3 110.4% 0.73 0.95 37.0 0.16

Table 1. Trade Policy and Imports for American Cheese, 2001-2002

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May 2002

Developing a Dairy Marketing Plan

Mark StephensonSenior Extension Associate

Cornell Program on Dairy Markets and Policy

I teach a dairy marketing course atCornell University. One topic thread that iswoven throughout the semester is that al-though price risk in dairy markets is real, itcan be managed. The only way to ultimatelymake good decisions about the adequacy of amilk price and the strategy employed to pro-tect it is to remove emotions from the deci-sion-making process. This is best done bythe development and implementation of amarketing plan.

Creating a marketing plan does not needto be a difficult process. However, the pro-cess should generate a physical documentthat is your personal road map to price riskmanagement. There is not “one recipe” forsuch a document, but there are several itemsthat every good marketing plan should ad-dress. For instance, how vulnerable is youroperation to the big price swings that wehave seen in the past decade. A couple ofnumbers such as a debt-to-asset ratio and adebt coverage ratio will help you understandyour vulnerability. Another assessment to bemade is your personal tolerance to risk. Ifyour business is quite solvent and you have ahigh tolerance to risk, a perfectly acceptabledecision may be to just take what the cashmarket gives you. If either your business oryour personality can’t handle large priceswings, then your marketing plan needs to bea bit more ambitious.

A marketing plan must also contain anunderstanding of your cash costs of produc-tion. This is often called your operating costsand it differs from the total costs of produc-tion, which further includes values for depre-ciation, returns to equity in your business anda return to your labor and management.Those costs have to be covered in the long-run, but in the short-run, it may make senseto produce milk at a milk price that doesn’tallow you to replace capital items. However,locking in a milk price that is less than yourcash costs of production never makes sense.You should be willing to gamble that the cashmarket may recover by the time you actuallysell your milk rather than to assure yourself aloss on every hundredweight that you pro-duce.

I suggest that you choose three pricegoals as triggers for action. The lowest pricegoal is your operating costs of production.Beyond mere business survival, a second rea-sonable price goal should include an ad-equate family living withdrawal, money forcapital replacement, etc. A final “I want itall” price goal should adequately fund anyother reasonable items such as off-farm re-tirement investments, college funds for yourchildren, etc. With these goals in mind, youcan begin the next step in the plan.

A futures market or a fixed price forwardcontract will not directly relate to your pricegoals. The Chicago Mercantile Exchange

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(CME) has futures contracts and options fora class III or class IV milk price but you don’treceive a either of those class prices as yourmilk check. Some forward contracts havebeen offered as blend price contracts, butvery few producers sell milk at the standard-ized component values of a blend price andmost receive some level of premiums. Youneed to understand how your milk price re-lates to a futures market or fixed price for-ward contract. That relationship is called a“basis”. A simple comparison of your milkchecks to the contract benchmark (class orblend prices) for the past couple of years willprovide the mapping of your price goals to aneeded contract price.

The final piece of a plan details what youwill do when one of the triggers is met. Hereit helps if you have some idea of how themarket opinion is moving. If the CME classIII price for September milk meets your high-est price goal but has been moving upward,then you may want to purchase a put optionwhich places a floor under the price but al-lows for additional upward movement. If theCME price meets your highest price goal buthas been falling, you may want to sell a fu-tures contract or consider a fixed price for-ward contract as a less expensive means ofretaining the price goal. There are many dif-

ferent strategies that can be employed underdifferent circumstances.

Finally, you should think about evaluat-ing your marketing plan. After it has been inplace for several months, ask yourself if it isperforming as you would like it to or whetherit needs to be modified. You should alsoconsider how much time to spend on market-ing your product. It will be more difficult toreach your price goals if you don’t spend agood deal of time focusing on ways to loweror at least maintain your operating coststhrough good management practices.

Some, or perhaps many, of these market-ing concepts may be new to you. As one pro-ducer told me, they may be confusing at firstbut it’s not rocket science! Perhaps one ofthe best ways to tackle something like a mar-keting plan is to join a marketing club. Thereare several that are being started in the state,and we are helping to support the learningprocess with materials and guest speakers.Acquiring this type of knowledge may bebest done in a group atmosphere. Ask yourlocal Cooperative Extension office aboutforming or joining such a group or visit http://hortmgt.aem.cornell.edu/risk/newsletters/marketing_clubs.pdf for additional informa-tion about marketing clubs.

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