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SUBSECTOR STRATEGIC COORDINATION
TOWARD IMPROVED PERFORMANCE:
A FRAMEWORK AND AN APPLE SUBSECTOR CASE STUDY

By

Timothy Alan Woods

A DISSERTATION

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY

Department of Agricultural Economics

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ABSTRACT

SUBSECTOR STRATEGIC COORDINATION
TOWARD IMPROVED PERFORMANCE:
A FRAMEWORK AND AN APPLE SUBSECTOR CASE STUDY

By

Timothy Alan Woods

Constantly changing conditions in the way individual firms can compete in the market
requires that firms commit themselves to the task of strategic management. The task of crafting
and implementing strategies that can set the desired course for the firm can require significant
analysis of the firm’s competitive advantages. Such as task involves artquy matching the strengths
and weaknesses of the firm to emerging opportunities and challenges. Well designed strategy
should be able to elevate and/or sustain the performance of the firm at a high level that, in the
absence of well designed strategy, would unlikely be achieved.

The regional commodity subsector, on another scale, also faces constantly changing
conditions that relate to the overall competitiveness of the region as a supplier. The individual
firms and organizations within the subsector share many overall strengths and weaknesses, as well
as opportunities and challenges. There are a number of situations involving improving overall
competitiveness that require coordinated effort to identify and implement improvement actions for
the subsector. The planning and implementation of such improvement actions, however, requires
encouraging an orientation toward coordinated strategy building among those in the industry in
order to affect the desired changes within the industry. Strong, visionary leadership is critical.

This analysis seeks to build on earlier efforts to improve coordination within commodity

subsectors by examining the case of the Michigan apple subsector as they have collectively

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endeavored to plan and implement strategies toward improving the overall performance of their
subsector. Many useful principles of strategic management have emerged out of the business
school with a view toward helping individual firms improve their strategic planning and
implementation process.

This research seeks to extend and adapt some of the concepts and principles of strategic
management to the complexities of the related process within a commodity subsector. The
innovative, on-going approaches for identifying and developing effective coordinated improvement
actions used by the Michigan apple subsector serve as the basis for much of the analysis. One of
the further goals of this effort is to present concepts and considerations that should be considered

toward a general strategic planning framework for a subsector.

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ACKNOWLEDGMENTS

Many different individuals and organizations helped to make this work possible. The
guidance of my dissertation advisor, Don Ricks, was invaluable. The time he invested to provide
me with the insight into the workings of the US. and Michigan apple industry will hopefully return
dividends for both of us. His patience and persistence throughout the dissertation process to better
understand and practically apply the concepts of strategy, coordination, and planning in the context
of the Michigan apple industry are reflective of his commitment to make a positive and lasting
difference for this industry.

I would also like to express appreciation to my major professor, Jim Shaffer. His counsel
throughout my program and his thoughtful feedback on various stages of my work are reflective
of his commitment to helping me become a more careful and thoughtful agricultural economist.

Chris Peterson and Larry Stirnpert provided meaningful and timely feedback serving on
my dissertation committee. Both professors challenged me to explore beyond the bounds of
traditional ag economics paradigms and to consider the implications developments of thought
within the business school to my worlc Tom Pierson and John Staatz provided much needed
direction and inspiration, not only through the dissertation writing, but also as members of my
program guidance committee.

My gratitude to many others could further be expressed here. Certainly many others were
supportive of this work, directly or indirectly. I would be remiss, however, not to express my
deepest thanks to God, who inspires and sustains, and my wife and daughter, Tracy and Emily,
who so very patiently endured the demands placed on me to bring this project to completion, and

encouraged me through the tougher stretches.

iv

 

 

LIST OF TAB; .

LIST OF FIGL -

LIST OF APPi.

CHAPTER \
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1.2

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{,J

TABLE OF CONTENTS

LIST OF TABLES .................................................... x
LIST OF FIGURES ................................................... xii
LIST OF APPENDICES ............................................... xiii
CHAPTER 1
INTRODUCTION ............................................... l
1.1 SUBSECT OR STRATEGIC MANAGEMENT: AN ANALYTICAL GAP . . l
1.2 RESEARCH OBJECTIVES .................................. 10
1.3 METHODOLOGICAL APPROACH ............................ 11
1.4 OVERVIEW OF THE DISSERTATION ......................... 12
CHAPTER 2
STRATEGIC MANAGEMENT CONCEPTS AND
INTERDEPENDENT ORGANIZATIONS ............................. 16
2.0 INTRODUCTION ......................................... 16
2.1 EVOLUTION OF STRATEGIC MANAGEMENT .................. 17
2.2 EXTENDING RELATED DEFINITIONS AND CONCEPTS OF
STRATEGY TO THE SUBSECT OR ........................... 25
2.2.1 Strategy .......................................... 25
2.2.2 Strategic Planning ................................... 33
2.2.3 Strategic Management ................................ 40
2.2.4 Mobility: Implications for First-Mover and Sustainable Advantages
................................................ 45
2.3 THE FIRM, ORGANIZATIONAL INTERDEPENDENCE, AND
SUBSECT OR STRATEGIZING ............................... 52
2.3.1 Organizational Interdependence to Minimize Transaction Costs . . . . 53
2.3.2 Derived Demand and Supply ............................ 55
2.3.3 Subsector Systems and Joint Impact Goods .................. 57
2.3.4 Cognitive Conceptions of Interdependence .................. 59
2.3.5 Synergy Between Firms ............................... 60
2.4 FURTHER RATIONALE FOR EXPLORING REGIONAL SUBSECI‘ OR
STRATEGY ............................................. 62
2.4.1 Technical Interdependence of Nearby Firms ................. 62
2.4.2 Agricultural Development and Schelling’s Tipping Model ........ 63
2.5 RELEVANCE OF CRAFTING AND IMPLEMENTING STRATEGY
FOR A COMMODITY SUBSECT OR: AN OVERVIEW ............. 64
CHAPTER 3
DEVELOPING A SUBSECI‘ OR STRATEGIC PLANNING APPROACH:
THE MICHIGAN APPLE SUBSECTOR CASE ......................... 69
3.0 INTRODUCTION ......................................... 69

3.1 AN OVERVIEW OF THE MICHIGAN APPLE INDUSTRY .......... 71
3.2 EXTERNAL FORCES CONTRIBUTING TO A NEED FOR INDUSTRY
ACTION ............................................... 74
3.2.1 OBSERVED THREATS TO THE INDUSTRY .............. 75
Lower Returns to Michigan Apple Growers ................. 76
Strong Competition and Expanding Production in Washington . . . . 77
Imported Apple Juice and Other Changes in International Trade . . . 80
Regulations Threatening Reduced Availability of Key
Chemical Inputs ..................................... 84
3.2.2 OBSERVED OPPORTUNITIES FOR THE INDUSTRY ........ 86
New and Expanding Markets ........................... 86
Expanding Capabilities in Michigan ....................... 87
3.2.3 STRATEGIC PLANNING INITIATIVES IN KEY COMPETING
REGIONS ........................................ 88
The Washington State Apple Commission .................. 88
The Washington Tree Fruit Industry Task Force .............. 95
The Western New York Apple Growers Association ........... 97
3.2.4 A SUMMARY OF FORCES INFLUENCING INDUSTRY
ACTION ......................................... 98
3.3 THE MICHIGAN APPLE INDUSTRY STRATEGIC PLANNING TASK
FORCE ................................................ 99
3.3.1 THE FORMATION, ORGANIZATION, AND ADMINISTRATION
OF THE TASK FORCE .............................. 100
3.3.2 ISSUES OF COORDINATION AMONG MICHIGAN
SEGMENTS ..................................... 105
3.4 INDUSTRY ISSUE INFORMATION GATHERING BY THE
TASK FORCE .......................................... 108
3.4.1 MODIFYING STRATEGIC ISSUE MANAGEMENT FOR THE
MICHIGAN APPLE INDUSTRY ....................... 108
3.4.2 TOWARD A COMPETITIVE SITUATION ANALYSIS ....... 110
Fresh Apples ...................................... 113
Canning and Frozen Apples ........................... 116
Apple Juice ....................................... 118
Changes in Per Capita Utilization for US. Apple Markets ...... 119
3.4.3 THE ROLE OF SEGMENT SURVEYS ................... 121
3.5 INDUSTRY STRATEGY: FROM SITUATION TO ACTION AND
DIRECTION ........................................... 123
3.5.1 APPROACHES FOR DEVELOPING ACTION
ALTERNATIVES .................................. 124
3.5.2 A SUMMARY AND EVOLUTION OF EARLY TASK FORCE
ACTIVITIES ..................................... 127
3.6 SOME SUMMARY POINTS ON STRATEGIC PLANNING IN THE
CONTEXT OF THE MICHIGAN APPLE INDUSTRY ............. 129
CHAPTER 4
RESULTS AND ANALYSIS OF THE APPLE SHIPPER SURVEY .......... 133
4.0 INTRODUCTION ........................................ 133
4.1 BACKGROUND AND APPROACH TO THE APPLE
SHIPPER SURVEY ...................................... 135
4.1.1 SURVEY CONTENT ............................... 136
4.1.2 THE SURVEY PROCESS ............................ 137

vi

4.2 A SITUATIONAL ANALYSIS FOR THE MICHIGAN APPLE INDUSTRY:

THE FRESH SHIPPER PERSPECTIVE ........................ 138
4.2.1 STRENGTHS OF THE FRESH SECTOR ................. 139
On Subsector Strengths .............................. 139
Michigan Apple Shippers on Industry Strengths ............. 140
Historic Strengths .................................. 141
Emerging Strengths ................................. 145
4.2.2 WEAKNESSES OF AND THREATS TO THE
FRESH SECTOR .................................. 149
On Subsector Weaknesses ............................. 149
Perceptions of Industry Weaknesses and Threats ............. 150
4.2.3 THREATS TO THE FRESH SECTOR ................... 155
4.2.4 OPPORTUNITIES FOR THE FRESH SECTOR ............. 160
On Subsector Opportunities ........................... 160
Shipper Perspectives in Industry Opportunities .............. 160
On Opportunity Areas Suggested by the Task Force .......... 161
Further Opportunities Identified by the Shippers ............. 165
Expansion Into Competitive Existing Markets Currently Minor for
Michigan ................................... 169
Improving Value Through Technology, Marketing, and Coordination to
Key Markets ................................ 171
Creating and developing new markets .................... 173
A Market Segmentation Matrix ......................... 175
4.3 SHIPPER EVALUATION AND SUPPORT OF
INDUSTRY ACTION AREAS ............................... 179
On Industry Actions Suggested by the Task Force ............ 179
4.4 PRIORITIZING UNIVERSITY RESEARCH AND
EXTENSION SUPPORT ................................... 191
4.5 INDUSTRY DIRECTIONS PROPOSED BY THE SHIPPERS ........ 198
4.5.1 SUMMARIZING SEVERAL INDUSTRY DIRECTIONS ...... 198
4.5.2 THE WAY AHEAD ................................ 204
CHAPTER 5
RESULTS AND ANALYSIS OF THE APPLE GROWER AND
PACKER SURVEY ............................................ 205
5.1 OVERVIEW ........................................... 205
5.2 THE APPLE GROWER AND PACKER SURVEY ................ 206
5.2.1 THE SURVEY APPROACH .......................... 207
5.2.2 THE SURVEY CONTENT ............................ 209
5.3 THE COMPETITIVE SITUATION OF THE MICHIGAN
APPLE INDUSTRY ...................................... 210
5.3.1 GROWERS ON INDUSTRY STRENGTHS ................ 211
A Summary of the Grower Perspective .................... 212
A Summary of the Packer Perspective .................... 218
Linking Observations to the Shipper Survey ................ 220
5.3.2 ISSUES AND CHALLENGES BOTH INTERNAL AND
EXTERNAL TO THE SUBSECT OR .................... 221
A Summary of the Grower Perspective .................... 222
A Summary of the Packer Perspective .................... 226
Linking Observations to the Shipper Survey ................ 228
5.3.3 INDUSTRY OPPORTUNITIES ........................ 229
Opportunities Relating to Fresh Markets ................... 232
Opportunities Relating to Processing Markets ............... 234

vii

5.4

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6.0
6.1

6-4

Opportunities Relating to Technological Advances ........... 235

Linking Observations to the Shipper Survey ................ 237
5.4 INDUSTRY ACTION ALTERNATIVES ....................... 239
5.4.1 INDUSTRY ACTION ON DEMAND EXPANSION .......... 250
5.4.2 INDUSTRY ACTION ON PEST MANAGEMENT .......... 250
5.4.3 QUALITY ENHANCEMENT THROUGH IMPROVED
PRODUCTION PRACTICES .......................... 253
5.4.4 TOWARD INDUSTRY QUALITY STANDARDS ........... 255
5.4.5 INDUSTRY ACTION ON VARIETIES ................... 257
5.4.6 IMPROVING INDUSTRY TRANSACTIONS AND RECORDS . 258
5.4.7 OTHER INDUSTRY ACTIONS ........................ 259
5.4.8 AN OVERVIEW OF RESPONSES TO PROPOSED INDUSTRY
ACTIONS ....................................... 260
5.5 RESEARCH AND EXTENSION PRIORITIES ................... 262
5.5.1 RESULTS FROM THE GROWER SURVEY ON UNIVERSITY
RESEARCH AND EXTENSION ....................... 262
5.5.3 VARIOUS PERSPECTIVES ON THE UNIVERSITY AND
INDUSTRY STRATEGIC PLANNING ................... 270
5.6 A SUMMARY OF GROWER AND PACKER RESPONSES ......... 274
CHAPTER 6
THE STATUS AND DIRECTION OF SUBSECT OR STRATEGIC PLANNING
FOR THE MICHIGAN APPLE SUBSECT OR ......................... 275
6.0 INTRODUCTION ........................................ 275
6.1 THE STRATEGY BUILDING ............................... 276
6.1.1 ON FIRM AND SUBSECT OR GOALS ................... 277
6.1.2 SUMMARIZING MICHIGAN’S COMPETITIVE SITUATION . . 279
An Internal Capability Assessment ....................... 279
An Assessment of Opportunities and Threats ............... 281
6.1.3 DRIVING FORCES AFFECTING SUBSECT OR CHANGE . . . . 283
6.1.4 KEY SUCCESS FACTORS FOR THE FRESH APPLE
SEGMENT ....................................... 284
6.2 THE STATUS AND DIRECTION OF PRIORITY
INDUSTRY ACTIONS .................................... 286
6.2.1 ACTIONS TO IMPROVE OVERALL FRESH APPLE
QUALITY ....................................... 287
6.2.2 ACTIONS ADDRESSING PESTICIDE USE, AVAILABILITY, AND
WORKABLE PEST MANAGEMENT SYSTEMS ........... 290
6.2.3 ACTIONS FACILITATING DEMAND EXPANSION ........ 290
6.2.4 ACTIONS FACILITATING VARIETY EVALUATION ....... 291
6.4 KEY CONSIDERATIONS FOR STRATEGIC PLANNING IN THE
APPLE SUBSECT OR ..................................... 293
6.4.1 INVOLVING KEY INDUSTRY LEADERS ................ 293
6.4.2 CONSENSUS BUILDING ............................ 294
6.4.3 BUILDING ORGANIZATIONAL LINKAGES ............. 295
6.5 CREATING A SUSTAINABLE STRATEGIC PLANNING SYSTEM FOR
MICHIGAN APPLES ..................................... 296
CHAPTER 7
TOWARD A GENERAL FRAMEWORK FOR COMMODITY SUBSECT OR
STRATEGIC PLANNING ....................................... 298
7.0 INTRODUCTION ........................................ 298

viii

BIBLIOGRAPI-

 

7.1 COMPONENTS AND TOOLS FOR A SUBSECT OR STRATEGIC

PLANNING SYSTEM .................................... 301
7.2 OPERATIONALIZH\IG STRATEGIC PLANNING FOR
A SUBSECT OR ......................................... 313
7.3 THE WAY AHEAD FOR SUBSECT OR STRATEGIC PLANNING IN
GENERAL ............................................. 317
BIBLIOGRAPHY ................................................... 346

Tal‘le 3.1
Table 3.1
Tahle 3.2
Tahle 3.3
Table 3.4
Tahle 3.5

Table 36
Table 3.7

Table 3.8
Tahic 39
Table 3.10
Table 311
Tabée 3.1:

mi: 4.1

 

Table 2.1
Table 3.1
Table 3.2
Table 3.3
Table 3.4
Table 3.5

Table 3.6
Table 3.7

Table 3.8
Table 3.9

Table 3.10
Table 3.11

Table 3.12

Table 4.1
Table 4.2
Table 4.2
Table 4.7
Table 4.3
Table 4.3
Table 4.4

Table 4.5

LIST OF TABLES

QUINN'S ELEMENTS OF A FORMAL CORPORATE PLANNING
PROGRAM ............................................. 35
MICHIGAN SEASON AVERAGE PRICES FOR FRESH AND PROCESSED
APPLES: 1988-1993 ....................................... 77
IMPORTED AND DOMESTIC SUPPLIES OF APPLE JUICE: 1989-1993
...................................................... 83
GOALS, OBJECTIVES, AND SPECIFIC ACTIONS PROPOSED FOR
FRESH WASHINGTON APPLES BY THE WASHINGTON STATE APPLE

COMMISSION ........................................... 91
US. APPLE PRODUCTION BY MAJOR STATES AND REGIONS . . . 111
PRODUCTION UTILIZED FOR FRESH APPLES BY MAJOR STATES
AND REGIONS ......................................... 115
WASHINGTON AND TOTAL U.S. TRADE OF FRESH APPLES ..... 116
PROCESSED UTILIZATION FOR CANNING BY MAJOR STATES AND
REGIONS ............................................. l 17
PROCESSED UTILIZATION FOR FROZEN APPLE SLICES BY MAJOR
STATE AND REGION .................................... 117
PROCESSING UTILIZATION FOR APPLE JUICE BY STATE AND

MAJOR PRODUCTION REGION ............................ 119
AVERAGE PER CAPITA UTILIZATION FOR DIFFERENT APPLE
PRODUCTS IN THE US. .................................. 120
APPROACHES FOR OBTAINING BROAD INDUSTRY SUPPORT AND
INVOLVEMENT ........................................ 125
EVOLUTION OF THE MICHIGAN APPLE INDUSTRY STRATEGIC
PLANNING TASK FORCE AGENDA ......................... 1128
SHIPPER PERSPECTIVES ON HISTORIC STRENGTHS OF THE
MICHIGAN APPLE INDUSTRY ............................. 142
SHIPPER PERSPECTIVES ON EMERGING STRENGTHS OF THE
MICHIGAN APPLE INDUSTRY ............................. 146
SHIPPER PERSPECTIVES ON WEAKNESSES AND LIMITATIONS OF
THE MICHIGAN APPLE INDUSTRY ......................... 152
SHIPPER PERSPECTIVES ON THREATS TO THE MICHIGAN APPLE
INDUSTRY ............................................ 157
SHIPPER EVALUATION OF AREAS OF GENERAL INDUSTRY
OPPORTUNITY PRE-SPECIFIED BY THE TASK FORCE .......... 162
OPPORTUNITIES FOR EXPANDING INTO MARKETS THAT ARE
CURRENTLY MINOR FOR MICHIGAN ....................... 166
OPPORTUNITIES FOR IMPROVING VALUE THROUGH TECHNOLOGY,
MARKETING, AND COORDINATION ........................ 167

OPPORTUNITIES FOR CREATING AND DEVELOPING NEW FRESH
APPLE MARKETS ....................................... 168

Table 4.0
Tahle 4.7
Table 4.8
Table 4.9
Table 4 10

Table 5.1
Tai‘lt’ 5:

Table 5.3
Table 5.4
Table 5.5
Tabit’ 56
Table 57
Title 58

Tahle 5.9

Table 7 l

 

Table 4.6
Table 4.7
Table 4.8

Table 4.9

Table 4.10

Table 5.1
Table 5.2

Table 5 .3
Table 5.4
Table 5.5
Table 5.6
Table 5.7
Table 5.8
Table 5.9

Table 7.1

A MARKET SEGMENTATION MATRIX FOR MICHIGAN FRESH

APPLES .............................................. 178
SHIPPER SUPPORT FOR SELECTED AREAS OF INDUSTRY
IMPROVEMENT ACTION ................................. 180
AVERAGE VALUE OF ANNUAL PRODUCTION FOR SELECTED
MICHIGAN FRUIT AND VEGETABLE CROPS: 1988-92 .......... 193
PRIORITY AREA NEEDS FOR RESEARCH AND EXTENSION SUPPORT
SUGGESTED BY MICHIGAN APPLE SHIPPERS ................ 195
INDUSTRY ACTIONS PROPOSED FROM THE SHIPPER SURVEY,

TASK FORCE, AND SHIPPER SUBCOMMITTEE ................ 201
GROWER PERCEPTIONS OF INDUSTRY STRENGTH ............ 214
PACKER AND NON-PACKER GROWER PERCEPT IONS OF INDUSTRY
STRENGTH ............................................ 219
GROWER PERCEPTIONS ON INDUSTRY ISSUES AND

CHALLENGES ......................................... 223
PACKER AND NON-PACKER GROWER PERCEPTIONS ON INTERNAL
AND EXTERNAL INDUSTRY ISSUES AND CHALLENGES ....... 227
GROWER PERCEPT IONS OF INDUSTRY OPPORTUNITIES BY
FREQUENCY AND ACREAGE ............................. 231
GROWER SUPPORT FOR INDUSTRY ACTION AREAS BY FREQUENCY
AND ACREAGE ........................................ 242
GROWER SUPPORT FOR INDUSTRY ACTION AREAS BY FREQUENCY
AND ACREAGE ........................................ 246

GROWER SURVEY RESULTS ON THE IMPORTANCE OF INDUSTRY
SUPPORT AREAS FOR UNIVERSITY RESEARCH AND EXTENSION. 264
COMPARATIVE INDUSTRY RESPONSES RELATING TO THE
IMPORTANCE OF THE UNIVERSITY’S ROLE IN STRATEGIC
PLANNING AND COORDINATION .......................... 272
GENERAL COMPONENTS TO A SUBSECT OR STRATEGIC PLANNING
SYSTEM .............................................. 303

xi

Figure 2.1

Figure 2.2
Figure 3.]
Figure 3.2
Figure 3.3
Figure 3.4

Figure 3.5

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Figure 2.2
Figure 3.1
Figure 3.2
Figure 3.3
Figure 3.4
Figure 3.5

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LIST OF FIGURES
A GAME THEORETIC FRAMEWORK FOR INTERDEPENDENT

SUBSECTORS .......................................... 29
THE DIMENSIONS OF THE STRATEGIC PROBLEM .............. 37
MARKET UTILIZATION OF MICHIGAN APPLES: 1950-1993 ....... 72
APPLE PRODUCTION IN WASHINGTON, MICHIGAN, AND OTHER U.S.
REGIONS WITH 5 YEAR AVERAGES: 1960-1993. ................ 78
MICHIGAN’S DECLINING MARKET SHARE IN A GROWING U.S.

APPLE JUICE MARKET. ................................... 81
APPLE JUICE PRODUCTION SOLD IN THE US. BY WASHINGTON,
MICHIGAN, AND IMPORTS: 1971-1992. ....................... 82
ORGANIZATIONS CONTRIBUTING TO THE MICHIGAN APPLE
INDUSTRY STRATEGIC PLANNING TASK FORCE ............. 102
THREE DIMENSIONS FOR DEFINING A BUSINESS ............. 176

xii

APPENDIX A
ON CASE STI

APPENDIX B
MICHIGAN A

APPENDL‘T C
MICHIGAN Al

APPENDIX D
SL'PPORTIXG

 

LIST OF APPENDICES
APPENDIX A
ON CASE STUDY METHOD .......................................... 320

APPENDIX B
MICHIGAN APPLE SHIPPER SURVEY .................................. 324

APPENDIX C
MICHIGAN APPLE GROWER AND PACKER SURVEY ...................... 331

APPENDIX D
SUPPORTING DATA TABLES ......................................... 342

xiii

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CHAPTER 1

INTRODUCTION

1.1 SUBSECTOR STRATEGIC MANAGEMENT: AN ANALYTICAL GAP

Strategic management is a concept that, although originally crafted for individual
competitive firms, is finding its place into more broadly defined organizations, including those
within agriculture. A great deal of research capital has been expended in the direction of firm-level
strategic management in an attempt to better understand and improve decision making processes
and developing prescriptions for the strategic action taken by firms facing various economic
conditions with respect to their own resources, the resources of their competitors, and the market.
The relevance of and approaches to the process coordinating strategic planning and implementation
for a regional commodity subsector, itself a collection of horizontally and vertically related firms
has, by contrast, gone largely unaddressed.l

Several lines of reasoning may be behind this analytical gap. The organization that is the
firm, while exhibiting certain similarities, is quite different from the organization of firms that make
up the subsector. There is typically little or no managerial or central administrative hierarchy in
a subsector to parallel that in a furn. Furthermore, there is explicit competition among subsector
firms that are rivals with each other in quite different ways than divisions within a firm. The

fragmented, or atomistic, organization of firms as they create value in the transformation and trade

 

It is noteworthy that joint or interfirrn conduct has received greater attention from
researchers recently as an increased interest in understanding networking, joint ventures,
strategic alliances, and international partnering has emerged in the fields of business and
economics.

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of products through the subsector rarely has explicitly stated, unified goals in contrast to divisions
vertically integrated under a single firm.

Organizational separation between firms within a subsector leads to inherent difficulties for
firms in the subsector to recognize potential joint actions for mutual benefit. Rivalrous
relationships and lack of recognized commonality can provide major obstacles for the firms seeking
to obtain a reasonably equitable division of effort and reward to their cooperation. There also exist
legal bounds that are imposed on inter-firm conduct in the US, particularly among those outside
of agriculture, as laws attempt to regulate market power than can arise out of collusion and undue
price enhancement.

Conceptually, the strategic management of the firm is relatively straight forward compared
to a complex subsector composed of many different types of firms. The strategic management of
the firm involves in a general sense the coalignment of the internal capabilities of that firm with
its external market environment. The key decision makers of the firm are perpetually seeking (or
at least are charged by shareholders to seek) ways to appropriately refine, develop, and enhance
the firm’s capabilities with a view toward the goals of the firm. Capabilities are developed and
strategic courses are chosen, furthermore, with a view toward the rivals of the firm and the
associated buyers and suppliers. The investment activities of the firm are evaluated by
management with a view toward pre-defined (explicitly or otherwise) goals which are in turn
consistent with a unified mission of the organization. This general understanding of the concept
of strategic management is accepted on a fairly wide basis among those in the business academy
and the corporate world.

How the capabilities and environment are assessed, how coalignment takes place, and how
mission and goals are best established by the firm remain the subject of some debate. Much of
what is currently practiced as strategic management by business practitioners, however, is
undertaken within firm organizations that are characterized by a hierarchical autonomy over internal
resources; the upper echelons of management serve as a center of strategic command and control.

Firm strategies, however they may be derived through this management system, are typically

 

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planned and implemented in a top-down manner and are intended to support an articulated mission
of the individual firm.

Firms are themselves organizations of individuals that emerge to internally organize what
would otherwise be market transactions under conditions where the firm costs are less than the
costs of carrying out the transaction through the market.2 Coase concedes the nature of the firm,
a basic unit of analysis in modern economics, to be ”shadowy”, but suggests that the efficiency of
the whole economic system depends to a very considerable extent on what happens within these
”economic molecules”.3

The subsector can be conceived of, extending the chemistry analogy, as an economic
compound made up or defined by the complex interrelationships between these molecules. Firms
find themselves, much like the individuals organized under them, often in need of pursuing various
coalitions to advance or preserve their individual interests. The economic ”system” alluded to by
Coase illustrates the interdependence of action and strategy employed by these economic molecules.
Together they generate a system performance of value creation, transforming and distributing scarce
resources between and among competing outlets.

The nature of trade and the conflict of firm-to-firm goals within a subsector may present
significant barriers to implementing higher subsector-level strategy, particularly where there are a
large number of different firms, products, channels, supporting institutions, and distinct value-
adding stages associated in varying degrees with each other. At the very least, subsector systems
of varying complexity may require different conceptual and/or methodological approaches for
strategic planning and implementation from those taken by the individual firm or less complex
organizations. The development of certain key resources, for example, that would be widely

valued and employed by subsector firms, may be constrained by problems of free-ridership; high

 

2

Following the conception of the firm as presented by Ronald Coase (1937), and later Cyert
and March (1963) and Leibenstein (1979).

3 RH. Coase, The Firm, The Market, and the Law, University of Chicago Press, 1988.

 

3

exclusion cos .-
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exclusion cost goods from which all attending firms would benefit but no individual local firm has
incentive to develop on their own.

There are many positive means of firm cooperation that are demonstrated in agriculture that
can lead to general improvements in subsector performance. Trade associations, commodity
commissions, cooperatives, Land Grant universities, and even government agencies, all provide (in
principle) institutional support for the cooperative efforts of firms seeking to enhance general
performance measures related to their productivity, responsiveness, value, and ultimately,
competitiveness. Selective cooperation on certain aspects can lead to improved coordination of
value-generating activities. Pooling certain types of resources can lead to system-wide economizing
on inputs shared by all, such as market information and certain kinds of research and development.
Cooperation and coordination also have the potential to lead to improved system-wide
responsiveness to shared opportunities and threats. An introspective system-wide search and
identification of weak internal linkages critical to the overall value-adding process and identification
of new needed resources necessary to enhance overall performance can help subsector member
firms to clarify the extent and nature of their interdependencies, identify mutually beneficial
projects and strategic directions, and evaluate their own firm-level activities.

Despite the inherent difficulties found in balancing competition and cooperation within a
subsector, firms do seek to engage in a wide variety of strategic behavior that depends on
cooperation from other firms. Some varying levels of cooperation and coordination often exist
between rival firms seeking to identify synergies through various forms of joint activity or
partnership. As Douglass North states in making the distinction between institutions (the rules) and
organizations (the players): ”The purpose of the rules is to define the way the game is played. But
the objective of the team within that set of rules is to win the game - by a combination of skills,
strategy, and coordination...[m]odeling the strategies and the skills of the team as it develops is a

separate process."4 The conception considered here is that the ”team” can be thought of more

 

4 North, Douglass, Institutions, Institutional Change and Economic Performance, pp.4-5,

Cambridge University Press, 1990.

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broadly than the individuals within a firm competing against other firms. A team can be made up
of a group of related firms, such as those together in a regional commodity subsector, facing a
common threat or acting together to develop a certain opportunity to their mutual benefit.

The subsector, a tacit organization of horizontally and vertically interdependent firms,
represents a system within which firms have some similarities and often incentives for some
internal competition and cooperation. The activities of an individual firm in the subsector may or
may not coincide with the desired course of the broader subsector. The collective management of
strategies for any organization, however it is done, including the deriving of goals, joint actions,
allocating resources, and ex post strategy evaluation, can be observed to conflict or complement
to varying degrees the strategic management initiatives of the individual member firms. The
conceptual economic framework guiding research and inquiry for this micro-macro phenomenon
investigated in this research will draw in part from the systems orientation of subsector studies,
industrial organization, and Thomas Schelling’s micro-motive / macro-behavior models. Combining
these approaches with the theory and tools of firm-level strategic management can help guide
inquiry into subsector strategic planning processes, institutional and organizational innovation, and
contributions to long-term planning, coordination, and ultimately, firm and subsector performance.

Commodity subsector research has traditionally devoted considerable attention to issues of
cooperation and coordination as they lead to measures of improved performance. Subsector
strategic planning and management promises to be a meaningful research area inasmuch as it seeks
in principle to selectively facilitate constructive cooperation and coordination on certain key issues
between otherwise rival firms related by the value-adding process. Subsector firms often share
certain resources within the system (location, public R&D, infrastructure, promotion), compete with
common advantages and encumbrances toward often similar customers or markets, and are often
threatened together by outside forces.

Shaffer has emphasized the importance of the evaluation of food systems by researchers
and participants. There is a need among many to understand better the nature of interactions

within the system and how they contribute to the performance of the economic activity contained

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(Shaffer, 1973, 1980). Routine microeconomic tools are generally inadequate to understand
evaluate and these systems. The complexity of the interactions within a commodity subsector
system can be very challenging for comprehensive evaluation, and therefore a more general
understanding of key driving forces needs to be pursued as well as firm and segment relationships.

It is perhaps a more modest endeavor here to focus (following Shaffer, 1973) on key
trends, forces for change, unexploited economic opportunities, and anticipated problems leading
to performance with a systems orientation to the strategic management initiatives that may be
adopted by a subsector. Examples of this, such as those within the Michigan apple subsector, are
perhaps characteristic of what may be useful or descriptive of other agricultural commodity
subsectors. This can include an attempt to identify, understand, and communicate
interdependencies of alternative strategic actions that may not be, as Shaffer suggests, immediate
or obvious.

Methodological approaches to implementing a strategic planning and management ”system”
for a subsector need to be developed more explicitly, based on a better understanding of the
relevance of this conceptual approach. Prescriptive measures for a subsector-level approach to
strategic planning and management are offered with a recognition that the opportunities and
limitations at this level should be viewed with an understanding that much remains to be learned.
It is unreasonable to expect one methodological approach to be universally applicable with equal
results to all regional commodity subsectors. There exist, however, some basic principles that may
be generally applied to many commonly faced situations. The nature of the internal and external
competitive conditions faced by the Michigan apple subsector studied in this dissertation are
frequently encountered by others.

The case of the Michigan apple subsector suggests that coordinated strategy will typically
evolve through a sequence of stages. One stage involves building a strategic orientation for the
subsector among subsector participants. Strategic planning for the subsector can then be pursued.
A further important stage, inter-related with the others, is the coordination of subsector-wide

strategy development and the implementation of improvement actions intended to move the overall

 

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subsector along a certain direction consistent with the subsector’s strategic plan. The concept of
subsector strategic coordination, in a sense, captures the essence of the full sequence of orientation,
planning, and implementation.

There are several research needs that are therefore recognized. General conceptual and
methodological approaches for strategic planning and action for the fums together in the subsector
that are facing common economic conditions with respect to their resources, the resources of their
competitors, and the market also need to be developed. The impact of a strategy-orienting system
developed and implemented at the subsector level needs to ultimately be evaluated for its
contribution to system performance - its generation of value and efficient use of resources.
Research capital also needs to be expended to better understand and improve joint decision making
processes among firms and organizations together in a commodity subsector.

Firms maintain their own strategy often with little regard for the collective effect of all firm
strategies in a subsector. There is a further need to understand and evaluate the relationship and
dynamics of individual firm strategies as they affect system-wide performance. The firm provides
primary focus to its micro-strategy and attending stream of actions, but these must be considered
in the context of broader macro-strategies and their attending actions. The strategy-orienting
activity within the subsector must include initiative to develop firm-level incentives to cooperate
or engage in conduct consistent with what is necessary to improve overall subsector performance.
The collective problem in this case involves at least two points of micro-macro tension: (1)
individual firms may be unable to sense a need for collective strategic reorientation at the subsector
level and (2) individual firms may not have the wherewithal to respond to a threat or opportunity
adequately even if it is sensed in a timely way.

The firm-level inability or inertia to alter its strategic course may be more resolvable
through collective action and negotiation. Inadequate incentives for the firm to alone pursue the
course for the common good of the subsector may be present and thus require negotiation or
collective action when investments in high exclusion cost and joint impact goods are required to

advance or preserve firm interests. The absence of any mechanism to provide such goods can have

 

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a profoundly negative bearing on subsector-level performance as it may lead to overall subsector
inertia - the whole system is unresponsive to developing a key resource.

There are a number of firm-level concepts which may be useful when extended to
subsector strategic planning and implementation. Sustainable advantage through perpetuating
superior organizational decision making in relatively efficient markets (Oster: 1994), and superior
problem sensing as a component to adaptability (Kiesler and Sproull: 1982), and first-mover
advantages (Chandler: 1990) are among the well developed firm-level concepts that may be
extended in a meaningful way to subsector-level strategic management.

Relative subsector strategic mobility, or responsiveness, is a capability that perhaps can be
developed to improve subsector performance: reducing severe dislocations in factors of production,
improving allocative efficiencies, and improving anticipation of consumer needs. Improving
subsector responsiveness may take the form of improving issue sensing so that the firms within the
subsector are not “caught asleep at the switch”, or it may involve developing mechanisms
necessary to develop an effective response or initiative.

This research effort is presented, in part, as an attempt to extend emerging principles of
strategic management, formerly applied mostly to the firm, to the long-standing problems of
intersectoral planning and coordination often seen in regional agricultural subsectors, particularly
those associated with perennial crops. This research is also related to the broad mission of the land
grant university toward agriculture: to fill the gap in public research and development, extend
information and technology for the betterment of the agriculture community, and basically serve
as a resource that would enhance the long range capabilities of agriculture through research,
extension, and education. The prioritization of publicly funded research and extension activities
corresponding to derived subsector strategies can be an important component to improved
coordination and ultimately performance.

There is often a complex system of ancillary private and public organizations that
contribute to the collective capability and competitiveness of certain commodity subsectors. It is

with a view toward better understanding not only the inter-firm issues and relationships but the

.3

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nature of subsector strategic orientation as it is influenced or guided by the support activities
provided by these ancillary organizations, particularly as they interact and provide solutions for the
Michigan apple sector, that this research proceeds. Subsector demand expansion organizations such
as the Michigan Apple Committee have their own strategic planning initiatives for their particular
organizations that are aligned in some way with the (explicit or implicit) broader mission and
strategies of their respective subsectors.

Improved subsector performance that can serve as the guiding criteria for the effectiveness
of a subsector strategic orientation system includes the improved profitability and competitiveness
of a subsector as realized by the firms that comprise it. The broader concept of subsector
performance, however, is considered here in a similar fashion as Stephen Sosnick. There is a need
to recognize explicitly the existence of such social conflicts as the food-price dilemma and other
such conflicting performance criteria are dependent on various interest groups (Sosnick, 1964).
N 0 single performance standard, such as grower profit, will be universally acceptable to all
subsector member firms, the participants within markets they serve, and firms outside the subsector
that are still in some way interdependent as they are competing for scarce resources. The pursuit
of strictly defined Pareto improvements can be futile and the system participants and researcher
must content themselves to pursue initiatives that help many as much as possible and harm few
as little as possible.

It is a primary goal of this study to evaluate the premise that industry or subsector strategic
management (strategic planning, action, and evaluation) may in some circumstances be effective
in improving industry competitiveness, progressiveness, and vertical coordination among the
various segments, and thus improve performance within the regional agricultural sector.
Performance would include, among other things, a reduction in sustained periods of chronic losses,
reducing firm-level uncertainty with respect to its local environment and thus facilitating
appropriate long-term investments, improving the subsector’s attendance to and delivery of products

best corresponding to consumer preferences.

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1.2 RESEARCH OBJECTIVES

The broad mission of this research is to investigate, conceptually develop, apply and
evaluate strategic planning and management generally at the commodity subsector level. It is the
task of orienting firms within the subsector to think and plan strategically that is the application
of what is developed conceptually.

Distinctions are drawn between firm-level and subsector strategy but with explicit
consideration of their inter-dependence. Generalizable conceptual and methodological approaches
to strategic orientation for the commodity subsector are explored, drawing primarily from the
recent and on-going strategic planning and implementation experiences of the Michigan apple
subsector.

The first objective is to develop appropriate definitions and concepts of subsector strategic
planning and management through a review of selected strategic planning and management
literature. This emphasizes previous work that supports the pragmatic extension of strategic
management of the firm to a group of inter-dependent firms such as those in a regional commodity
subsector. Previous research developed with a primary focus on firm-level decisions helps to
develop a basis for describing a concept and practice of the subsector strategic management
process. A related objective is organizing economic literature that points to the relevance of
strategic management at the subsector level. These lead to a series of propositions relating
subsector strategic orientation to subsector performance.

The second objective is to analytically describe, in the form of a case study, the stages of
formulation of some recent strategic planning initiatives and experiences by participants in the
Michigan apple subsector. This includes a discussion detailing the formation and activity of the
Michigan Apple Industry Strategic Planning Task Force as a facilitating institution. This subsector
case provides an initial basis for comparison and contrast of the strategy formulation process for
the firm compared with the subsector. Initial guiding principles related to the initiation,
development, and evaluation of the activities geared to orient the subsector along the lines of broad

planning and strategy are drawn from this case. Key elements are discussed that relate to improved

10

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lies;

“MIDI pf”
Force.

The tl.
Michigan we
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planning initi.
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subsector performance in relation to the strategic planning initiatives carried out through the Task
Force.

The third objective is to analyze the Michigan apple shipper segment related to the broader
Michigan subsector and to the subsector strategic planning process. Methodological approaches
used and results gathered are evaluated both in terms of content and implications for a broader
subsector plan. Alternative directions for improved performance in the future of the subsector, as
articulated by the shipper segment, are analyzed and discussed. Evidence for a linkage between
performance and the strategic planning activities carried out by the Task Force and Michigan Apple
Shippers’ Association is be compiled specifically for the fresh apple shipper segment.

A fourth objective is to analyze and discuss, as part of the case study, collective strategic
planning initiatives with a focus on the grower segment of the Michigan apple industry. The
approaches employed to facilitate the engagement of growers in the subsector strategic planning
process will be discussed. A competitive situation analysis is compared and contrasted to that
identified by the shippers. Specific actions identified by the strategic planning process that are
anticipated to lead to improved coordination with other subsector segments and performance will
also discussed.

An important overall objective is to provide a summary evaluation of the commodity
subsector strategic orientation and planning process and potential contribution to improved
performance for Michigan apples. General principles, important considerations, and supporting

evidence are analyzed and discussed with a view toward application to other commodity subsectors.

1.3 METHODOLOGICAL APPROACH
The subsector concepts of firm cooperation and coordination toward improved performance
developed by Shaffer (1973, 1980), French (1974), Marion (1986), and others is built upon

together with the work of other economists and business academics to develop a conceptual

framework.

11

 

The 5'.
li
gmly of subset

Sumter is de

   
   
  

use audy met
in Appendix A

Case ~
strategic mane
management p
and idiosyncru
“MIDI, Case
and attributes

TWO r
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35 3 SC‘grnent .
inten‘ieug “l
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The Michigan apple subsector is employed as the central case of this dissertation. A case
study of subsector strategy development and implementation in the context of the Michigan apple
subsector is developed using conventional case study method approaches. A summary of general
case study methods that may contribute to subsector strategic orientation and planning is presented
in Appendix A.

Case study methods help to provide evidence and insight relating to the relevance of
strategic management for the commodity subsector in ways superior to other methods. Strategic
management practice is guided by principles that evolve from highly complex interrelationships
and idiosyncratic attributes of the organization. Given the complex nature of relationships in a
subsector, case methods provide a unique way to shed light on these idiosyncratic interrelationships
and attributes and become part of the pragmatic approach to developing ”workable” strategies.

Two major survey efforts directed at different segments of the Michigan apple subsector
support the work in this dissertation. The first survey involved the 19 major shipper organizations
as a segment of the larger regional subsector. The survey approach involved personal structured
interviews with each firm’s management. The second survey method employed a mailed written
survey to the grower segment and was sent to 1250 Michigan growers listed on the Michigan
Apple Committee mailing list.

The questions and format of both surveys were developed through an iterative process
through collaboration within the Michigan Apple Industry Strategic Planning Task Force. Both
surveys were developed at the request of the Task Force and were conducted by Michigan State
University researchers. The survey questionnaires used in this study are presented in Appendix B

and C.

1.4 OVERVIEW OF THE DISSERTATION
The second chapter will discuss the evolution of strategic management literature identified

in the fields of management and economics leading to current definitions of key concepts and

12

_ —
W" :HF'F-Wm

approaches. l”

management it

 

strategy at if
organizational
pursuing a re;

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subsector strll
subsector. T":

planning effort

 

of crafting and
building prime
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Force and it
implementatir
are inferred t
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““3218 and

approaches, particularly as they may apply to the development of a strategic planning and
management framework for an agriculturally based subsector. The concept and practice of crafting
strategy at the subsector-level is deveIOped further from economic theories of the firm and
organizational interdependence. Another section of the chapter presents an economic rationale for
pursuing a regional subsector strategy toward improved subsector performance and competitiveness.

The third chapter focuses on illustrating concepts and methodological approaches to
subsector strategy formation and implementation through a case study of the Michigan apple
subsector. The driving forces that encouraged the investigation into subsector-level strategic
planning efforts are evaluated and discussed. Attention is paid to some of the process components
of crafting and implementing subsector strategy, describing the specific organizational and coalition
building processes employed by the Michigan apple subsector. Particular attention is paid to the
formation, administration, and activities of the Michigan Apple Industry Strategic Planning Task
Force and its role in facilitating a subsector-level approach to strategy identification and
implementation. Differences in strategic management approaches between the firm and subsector
are inferred based in part on this experience together with the concepts developed in the previous
chapter. Finally, a discussion and analysis of the potential influence of planning and implementing
strategy at the subsector-level on the performance of the Michigan apple subsector are presented,
particularly along the lines of improving overall subsector responsiveness to broadly recognized
threats and opportunities.

The fourth chapter examines a more narrow component and early stage of the Michigan
apple subsector planning process with a focus on the fresh shipper segment. Specific conceptual
approaches and methods for subsector strategic planning are illustrated, as well as some of the
unique opportunities and difficulties of crafting and implementing strategy at this level. The
shipper segment view and analysis of the subsectors competitive situation is presented as well as
their assessment of actions needed to support general strategic directions for the subsector.

Implications for supporting industry organizations are drawn from the results of the survey.

13

 

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Finally, prospects for improvements of subsector performance as a result of identified opportunities
for cooperation and coordination by the shippers are discussed.

The fifth chapter examines a two additional segments of the apple subsector - the growers
and packers. This chapter seeks to illustrate additional approaches to coalition building within the
subsector with a view toward improving the effectiveness of strategic planning and implementation.
This chapter provides a further illustration of a segment-by-segment survey process that organizes
critical information toward identifying feasible action alternatives.

The growers, as a group, are in some respects more diverse in comparison to the shippers,
emphasizing more diverse fresh and processing markets. Potential conflicts and opportunities
relating to the subsector strategic planning process are discussed as growers relate to other
segments. Packers are examined along with the growers, since most packers are also involved with
orchard production as growers. Processes for identifying workable actions toward improving
subsector performance are further identified and discussed with relation to these segments.
Cornrnonalities of recognized opportunities, challenges, and needed actions with the shippers are
also explored. Implications for industry support organizations and prospects for improving
subsector-wide performance are identified from the survey results.

Chapter six presents a summary of the status and direction of subsector strategic planning
for Michigan apple firms and organizations, summarizing the progress to date. The strategy
building context for Michigan apples is summarized with a specific focus on (a) relating firm and
subsector goals, (b) Michigan’s competitive position, (c) driving forces affecting subsector change,
and ((1) key success factors (emphasizing the fresh market).

The status and direction of priority industry actions that have emerged from the strategic
planning process to date are discussed. These include (a) actions to improve overall fresh apple
quality, (b) actions addressing pesticide use, availability, and pest management, (c) demand
expansion, and (d) variety evaluation.

Considerations relating to implementing a number of changes for the Michigan apple

subsector are discussed. The importance of involving key industry leaders, consensus building, and

14

building utghi‘

discuxsion is .i

 

 

 

formation and.
Final
and tour-dim:
limitations It
ohiettn Ca. an .1
apple case.
Principles and

future research

 

 

 

building organizational linkages is emphasized in the context of the Michigan apple case. A brief
discussion is also presented on future activities and alternative approaches for continuing strategy
formation and implementation efforts by the Michigan apple subsector.

Finally, chapter seven provides an overall evaluation of the subsector strategic planning
and coordination processes as they have been adapted for Michigan apples. Opportunities and
limitations to a subsector-level approach are summarized. General components, component
objectives, and tools for a subsector strategic planning system are discussed, based on the Michigan
apple case. Considerations for operationalizing strategic planning are similarly presented.
Principles and possible extensions to other subsectors are lastly considered as well as venues for

future research in this area.

15

 

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CHAPTER 2
STRATEGIC MANAGEMENT CONCEPTS AND

INTERDEPENDENT ORGANIZATIONS

2.0 INTRODUCTION

The practice of strategic management has evolved, in part, because firms and organizations
recognize that the eventual outcome of or payoffs to certain choices can be advantageously
influenced by a well analyzed, coherent, planned set of actions rather than short run reactions.
Furthermore, many key payoffs are often impacted by choices made by other firms and
organizations. Interdependence is inherent in strategic choice. Business activities are not chosen
in isolation, but rather in anticipation of reactions by rivals, partners, and customers, as well as a
changing business climate. Firms linked in a subsector similarly choose among various individual
and joint ventures based in part on a recognition of their strategic interdependence.
Interdependence extends to other subsector participants, rivals and partners beyond the subsector.
A changing business climate that influences directly or indirectly the capabilities and performance
of the subsector can also contribute substantially to the need for functional strategic management
practice at a broad level.

This chapter has several objectives designed to demonstrate the relevance of crafting and
implementing strategy at a regional subsector level. The starting point is establishing a conceptual
foundation on which to develop methodological approaches to managing subsector strategy. The
first section provides background and definitions, and investigates the evolution of the concepts
and practice of strategic management as recorded in economic and business literature. Particular
attention is devoted to collective and coordinated strategy development and implementation.

16

 

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The second section examines four central concepts of firm-level decision making that have
been established in the business and economics literature : strategy, strategic planning, strategic
management, and factors leading to first-mover advantage. These four basic firm-level concepts
are extended to the commodity subsector.

The third section seeks to build on the previous sections by discussing various facets of
economic interdependence, and how the firms can benefit from building coalitions to evaluate and
implement collective strategies. Implications for possible subsector approaches to these kinds of
initiatives are drawn from the theory of the firm and from empirical observation of how f‘um
conduct and performance shed light on organizational interdependence.

The fourth section aims at presenting a rationale for a regional subsector strategy. The
specific focus in this section is on organizational interdependence arising from geographical
considerations.

The final section extends the concepts developed in the previous sections by considering
the relevance of strategic management, particularly as a coordinating mechanism, for a regional
commodity subsector that represents many interdependent firms and organizations. It also pulls
together the material in the chapter through a sequence of propositions relating to strategic
management, the firm, and the subsector. The aim of this section is to clarify the need for further
conceptual development and methodological approaches that will be addressed in part through the

studies of the Michigan apple and asparagus subsectors.

2.1 EVOLUTION OF STRATEGIC MANAGEMENT

The goal of this section is to systematically lay out the conceptual developments in the
business and economics literature that have led up to what is now recognized as strategic
management. The purpose of this phase of the work is to lay a foundation for extending these
concepts and approaches to areas of conduct and performance within a regional agricultural

commodity subsector.

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Much of the current strategic management literature begins with the writings of Chester
Barnard. His book, The Functions of the Executive (1938), is cited in almost every textbook on
strategic management and has made a profound mark on the field. His themes focus on the
individual’s engagement in cooperative action on a variety of fronts, recognizing the ubiquitous
interdependencies of individual actions with other individuals and the implications for
organizational structure and its reason for being. The theme woven throughout Barnard’s work is
that organizations exist to advance individuals’ commonly held goals or to support commonly held
principles. These organizations, in turn, choose strategically among a set of alternative actions
interdependent with the choices of other organizations. Bamard’s work served as the impetus to
much of the behavioralist branch of strategic management research and organizational theory. The
emergence of organizations that defined corporate America concurrent to his writing drew
considerable attention by social scientists seeking to define appropriate firm conduct, both from a
manager/board of directors perspective and from regulatory agencies seeking to maintain some
manner of countervailing power. Many economists have since made meaningful contributions to
firm structure and conduct issues and have thus contributed to the intellectual capital accumulating
in economics and business strategy.

Joseph Schumpeter characterized business strategy as ultimately an issue of firm survival
in a changing, uncertain environment. The dynamics that characterized capitalism was portrayed
in the process of ”industrial mutation” that incessantly revolutionizes the economic structure from
within, incessantly destroying the old one, incessantly creating a new one. He termed this process
”Creative Destruction” and indicated that ”(e)very piece of business strategy acquires its true
significance only against the background of that process and within the situation created by it. It
must be seen in its role in the perennial gale of creative destruction; it cannot be understood
irrespective of it or, in fact, on the hypothesis that there is a perennial lull.”5 Understanding the
context of business strategy formation is critical to any kind of evaluation and, as Schumpeter also
points out in the context of this argument, performance must be evaluated not at a point in time

but over time as it unfolds over decades or even centuries. An implication of Schumpeter’s work

 

5 Schumpeter, Joseph, (1950), pp. 83-84.

18

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is that business strategy may not always be well understood or evaluated using the economists
static-state tools of analysis.

Planning has been recognized as an integral part of strategy choice and execution. An
increasing concern with respect to the direction of business strategy and the evolving mega-
corporation emerged in the decades following Schumpeter’s comments. These concerns were

articulated, for example, by John Kenneth Galbraith in The New Industrial State where he

 

discussed the incentives for corporations to plan and grow, internalizing more activities in order
to circumvent increasingly threatening uncertainties in the market.6 According to Galbraith, the
corporation served US. and western-type economics as the planning instrument to control the
supply of savings and ameliorate the vagaries of the marketplace over time with respect to
expensive technological innovation. His hypothesis was that the corporate organization was
ballooning in size and power as technological innovation was increasingly characterized by an
increase in the time and specialization required to develop and maintain them. Planning and
control was seen as the central activity and objective of the corporation. These economic
conditions gave rise to what he termed the ”Technostructure”, a governance constructed with the
intent to control the organization’s environment and the institution through which group decisions
are made and power is organized.

Alfred Chandler (1962) echoed Galbraith’s assertion that strategy and planning influenced
the structure or form of the corporation. Through historical case study accounts of four major US.
corporations, DuPont, General Motors, Standard Oil, and Sears, Roebuck, and Company, Chandler
develops his proposition that strategy and structure evolve in an almost Darwinian cause and effect,
refining each other as the competitive forces of the environment drive change and innovation for
corporate management.

Approximately concurrent to Galbraith and Chandler was the work of Richard Cyert and

James March, A Behavioral Theory of the Firm ( 1963). This proved in later years to be an

 

enduring and influential work on the theory of the firm and the rationale behind the ”decision

strategies” (so-called by the authors) adopted by the firm. Explicit consideration was made of the

 

6 Galbraith, J.K. (1967), pp.l-45.

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limited search for information relating to these decision strategies employed by managers. The
objective function of the firm was defined in terms of satisficing goals rather than profit
maximization. The behavioral dimension of the organizational culture pivoted around balancing
internally conflicting goals. Individuals within the firm were seen as having conflicting objectives
with other participating individuals. Firm decisions, then, were best understood as the product of
internally negotiated courses of action with a quasi-resolution of internal conflict. The collection
of material assembled by Cyert and March included one of the earliest professional contributions
by Oliver Williamson, a chapter on manager behavior and organizational slack, who would later
make significant additional contributions to the theory of the firm and strategic choice employing
the economics of transaction costs.

The entire field of organizational theory has evolved around studying processes of
organizational administration under various schemes of incentives, structure, interdependencies, and
external stimuli.

Cyert and March, concurrently with Herbert Sirnon7, formalized much of the behavioral
theory of the firm with respect to observed conduct, noting that firms themselves are coalitions of
individuals which represent diverse and often conflicting internal goals (between individuals or
between departments) that must be resolved, coalesced, and directed to coalign with the broader
mission of the firm. This would suggest that many of the principles that guide strategy formulation
for a firm can apply to strategy formulation for a group of firms exhibiting similar characteristics.
Logistic complexity is increased, however, by expanding the bounds of strategy formulation
beyond the firm’s hierarchy of power with its autonomous control over the allocation of the firm’s
own resources. While certain processes of internal strategy formulation within the firm may bear
some resemblance to that within a subsector, several additional inputs are required for a success
process to be implemented at the subsector level.

Kenneth Andrews is often pointed to as the pioneer of what has become a prolific tradition
of strategic management theory and training from the Harvard Business School. The so—called

”Design School” (Mintzberg, 1990) that emerged from this tradition has been subjected to

 

7 March, J.G. and H. A. Simon, Organizations, 1958.

 

20

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significant criticism but has, with the likes of Andrews, Alfred Chandler, Michael Porter, and
others, developed much of the language of strategic management that has evolved to be used today.
The terminology identifying activities related to business strategy and management evolved through
the years to business policy in the business academy, then to later corporate strategy. Some earlier
circles developed momentum with the use of long-term planning and then later strategic planning“,
but more recently the field has fairly widely embraced the broader concept of strategy development
and implementation as the basic conceptual components of strategic management. The paradigm,
for all of its rhetorical tensions and change, has generally focused, however, on essentially the same
issue: ”the determination of how an organization, in its entirety, can best be directed in a changing
world/’9

Much of what has been developed in business school circles has, until recently, focused
on the strategic choice set for the firm; matching the capabilities or objectives of the firm to its
environment. The behavior of competitors, the role of government as a setter and enforcer of rules,
as well as the complementarity of supporting organizations are all explicitly dealt with in most
strategy texts but still with a primary view toward individual firm performance. ‘ Interdependence
of strategic choices between firms is widely noted and prescription for strategic action for the
individual firm is commonly offered for each enterprise. Strategies are recommended given the
firm’s unique situation where they are viewed as competing with distinctive capabilities in
industries characterized by various stages of maturity. The fundamental unit of analysis, however,

has generally remained the firm.

 

Igor Ansoff, after frustration with the resistance to adoption of rational strategic planning
initiatives that were essentially top-management derived, led an initiative to develop a more
holistic approach to strategic action by the firm. Mintzberg (1990) later thus dubbed
Ansoff’s approach the ”Holistic School". This shift in thought, evident with Ansoff's co-
editing of From Strategic Planning to Strategic Management in 1976, was developed to
enhance the implementation of strategy in a sustainable and effective manner. His most
recent text, Implanting Strategic Management, demonstrates his continued effort to develop
workable and implementable strategy tools.

 

Moore, J.I., (1992), p.xii. J.I. Moore provides a wonderful summary of the primary
contributors and a summary of their contributions, which in itself is a meaningful addition
to the literature in this young but rapidly emerging field of study. It serves as a valuable
resource for students of business strategy with both an excellent bibliography and breadth
of coverage.

21

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The conceptual notion of strategic groups has been developed more recently to better
examine parallel behavior of like firms. Sharon Oster provides a commonly accepted definition
of strategic groups as ”[c]lusters of firms within an industry that share certain critical asset
configurations and follow common strategies.”'° The thrust of this conceptual approach suggests
(depending on who was doing the grouping) that the relevant focus of competitive activity is
among and by primarily firms in an industry sharing similar characteristics (ie., competing for
similar market position, competing with a similar resource base, maintaining similar diversification
strategies, etc.). Conduct is generally examined within the group or between groups with rival
strategies. An example of a widely cited study in this literature is that of Hatten and Hatten (1985)
on the US. brewery industry. Firms are assigned by virtue of their analysis as members of one
of three tiers (groups), depending on advertising levels, market share, profitability, and apparent
market strategies. The means for grouping in this literature, however, has been varied and widely
debated.ll The grouping has focused on like firms across a horizontal slice of a sector rather than
regional vertically and horizontally related firms. There is a recognition within this sub-field of
strategic management, however, that related firms may choose like strategies in response to a
shared environment or common capability-changing factor.

There is unfortunately little acknowledged in this literature concerning intra-group
dynamics. These studies seem more focused on developing taxonomies of strategic approaches for
different industries than at explicit intra-group efforts to cooperatively develop viable strategies to
countervail their competitors. Legal bounds on inter-firm cooperation (collusion), of course places
limitations on extending group strategy research in this direction. Latitude in cooperation and a
long history of institutional means for facilitating the coordination of vertical and horizontal
activities in agriculture, however, open this area for potentially fruitful research when defining

groups as regional commodity subsectors.

 

'0 Oster, s., (1994), p.398.

” Recent descriptive and theoretical articles on strategic groups are many. See McGee and

Thomas (1986) and Nayyar (1989) for an overview and theoretical discussion.

22

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Michael Porter (1990) recently compiled industry competitive characteristics research from
10 major industrialized countries to better understand and evaluate why some industries were more
successful in certain countries than others. He highlights competitive advantages observed in a
number of industries derived through the sharing of certain activities in the value chain by related
industries, such as distribution channels, technology development, and local education. '2 The
implications that are drawn suggest that there are specific industrial policy initiatives that national
governments can adopt that will enhance the competitiveness of national related sectors.
Furthermore, certain industries have an incentive to jointly develop shared activities (or resources)
to their mutual benefit. The nature of these interdependencies, he suggests, together with relative
factor conditions, demand conditions, related and supporting industries, and firm strategy-structure-
rivalry make up the basic determinants of national advantage.

Similar theoretical arguments are set forward by Lester Thurow for national competitive
advantage, although they differ somewhat from those of Porter. Strategy is again elevated beyond
the micro-level and prescribed at a meta-level by broad geographical regions in Thurow’s recent
book, Head to Head (1992)”. Thurow challenges the atomistic, anti-cooperative bent of American
industrial policy, suggesting there is a need to recognize the ubiquitous interdependencies of
business groups in a manner similar to their European and Japanese counterparts. The changing
boundaries of trade from primarily national to international markets should, suggests Thurow, call
for a rethinking of how American firms are allowed to cooperate. Thurow states candidly that the

ability to cooperate effectively with your direct adversary will be a requisite for survival.

 

‘2 Porter’s value chain is a concept he employs to describe the linkages of resources within

a firm to generate value to their customers. The value system refers to the vertical stream
of all value generating activities that may be over several firms. Value chains and the
value system are discussed in detail in an earlier work; Competitive Advantage: Creating
grid Sustaining Sflrerior Performance, (1985), pp.33-61.

 

 

The debate regarding the appropriate philosophical orientation to be held by economists
regarding policies that support ”national” advantage has heated up in recent years. Many
major industries or sectors in the US. have continued to realize most of their trade in
domestic markets, therefore it might be argued that this is an issue of secondary
importance. A number of agricultural commodity sectors, however, including apples and
asparagus, have realized significant changes in their international patterns of production
and trade.

23

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Both Porter and Thurow take a much broader view of strategy and competitiveness than
most. Strategic choices are viewed as available to political powers that determine the rules of trade
and property rights, and therefore influence firm incentives and strategy for investment. Industrial
policy is regarded as a fundamental tool for nations to influence the strategic choices of firms that
define the nation’s industry. The implications of this ”instrumentalist” approach is that
governments can create industrial winners. Porter (1990), for example, identifies four basic inter-
related determinants of national advantage: (1) home factor conditions, (2) home demand
conditions, (3) related and supporting industries, and (4) firm strategy, structure, and rivalry. Meta-
strategies that influence these determinants can change the dynamics of national competitive
advantage.

It is the development and implantation of strategic management at the meta-level, among
multiple vertical and horizontally related firms, that is of primary interest in this research. A
necessary condition for understanding strategy at this level is the identification of synergistic
linkages between firms or groups of firms, an understanding of the value-adding process, the
private and/or public development of key strategic resources, not for the procurement of local
monopoly profits but for increased efficiency, improved coordination, and better products provided
by related firms within a sector. One must further identify the driving forces of change within the
sector.

Alfred Marshall expounds on the varieties of cooperation among kindred businesses in
Great Britain near the turn of the century. Cooperation was there largely achieved through trade
associations. He recognized the costly development of operational and standardizing studies and
concluded that the results of such studies are a valuable property to the whole industry concerned.
His recommendation thus was that these studies may best be undertaken by an Association; and
the broader the scope of that association the better. An association for scientific research in
relation to cotton and the cotton industry, for example, ”airns directly and exclusively at enabling
the country to do a large part of her work better and less wastefully than she otherwise would do;

it has no design of enabling one section of the nation to get the better of others in bargaining.”M

 

'4 Marshall, Alfred, Industry and Trade, (1919), pp.607-608.

 

24

 

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2.2 EXTENDING RELATED DEFINITIONS AND CONCEPTS OF STRATEGY TO
THE SUBSECTOR

The rhetoric surrounding the conception, implementation, and evaluation of organizational
strategy can be confusing and has been compounded by differences in understanding of often
employed jargon within the different intellectual circles of game theory, business administration,
management, industrial organization, and other related but distinct fields of inquiry. This section
examines and extends four central concepts of organizational decision making to the commodity
subsector: strategy, strategic planning, strategic management, and mobility as it relates to both first-
mover and sustainable advantages. Conventional conceptual approaches by tools for managing
organizational strategy employed by economists and the business academy are modified and
extended to the commodity subsector level. The objective of this section is not so much to derive
a rhetorical consensus from the many diverse sources that seek to address issues of strategy, but
rather to draw on various definitions and conceptions of key ideas that can be employed in the

derivation, implementation, and evaluation of strategy within and by a subsector.

2.2.1 Strategy

What is strategy? Strategy takes on a rather narrow definition within game theory - a basic
conceptual tool employed by neoclassical economists. Actors, endowed with various analytic and
processing capabilities, and endowed with varying levels of information with regard to the choices
and payoffs available to themselves and other actors, respond to relative incentive conditions by
choosing among a set of actions that correspond to the relative payoffs with an intent to maximize
or at least satisfy some objective function. Game theory is often employed by decision-makers and
theorists to shed light on prescriptive and predictive decision-making under various conditions of
interdependent choice between multiple actors. Dixit and Nalebuff illustrate the ubiquity of what
they call "strategic thinking” in routine decision making from the perspective of game theorists by
applying basic models and decision rules of game theory to a wide array of problems. The ”garne"

represents a situation where there is strategic interdependence - the choices and payoffs of one

25

  
  
 
  

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economic actor influence the choice and payoff of another actor. ‘5 The mathematical complexity
of game theory, with its matrix of multiple actors and types of uncertainty corresponding to
different payoffs, have been employed to only a limited degree by practicing managers. '6 Profit
or utility maximization, the driving force guiding actor choices, oversirnplifies the motivation
behind strategic choices.

Strategic management usually begins with the premise that decision making is made by
organizational leaders in the context of a broader mission. This mission can be quite different for
interdependent actors. Furthermore, choices are often made out of a set of alternative tactics to
maintain a coherence with other activities and must be considered in light of the degree of
complementarity with other actions currently engaged by the actors. Still, game theory yields some
useful principles of contracting, bargaining, and prediction of behavior patterns, and is not
altogether unuseful to organizations strategizing to further their own interests. The basic ideas of
recognizing interdependent payoffs, recognizing and choosing dominant strategies, and identifying
means for promoting cooperation are certainly relevant conceptually to a commodity subsector
strategic management system.

There appears to have been little overlap to date between the business school’s strategic
management literature and the formal game theory of economics. The conception of firm strategy
in the business academy takes on a more organic and eclectic notion, considering the context of
a strategy as it projects the firm and its representative leadership ahead from its history. The
evaluation of static game theoretic competitive equilibria becomes too complicated for most
practicing managers as they seek to direct their firms through Schurnpeterian change - characterized

by constantly evolving firm capabilities that must be reevaluated in the context of their competitive

 

15

A. Dixit, and B. Nalebuff, Thinking Strategically: The Comgtitive Edge in Business,
Politics, and Evmday Life, (1991), p.85

 

 

'6 There may be a trend, however, toward more broad acceptance of the game theory of the

academic economist by decision makers in the business community as witnessed in a
recent Fortune article by Rob Norton, ”A New Tool to Help Managers”, featuring noted
game theorists John Roberts and Paul Milgrom. Economists appear to be making genuine
effort to develop workable tools for practicing managers based on the principles of game
theory. Still, the focus is on firm-level decision making.

26

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environment.17 The mathematical elegance of game theory often yields to conceptual management
models that are more information intensive. Strategy in the business academy is viewed as
directives generated from a complex management system. As a starting point toward the business
school conception of strategy, consider the definition of strategy proposed by James Quinn from
the Amos Tuck School of Business Administration, Dartmouth College:

”Strategy is the pattern or plan that integrates an organization’s major goals, policies, and

action sequences into a cohesive whole. Well formulated, it helps to marshal and allocate

an organization’s resources into a unique and viable posture based upon its relative internal

competencies and shortcomings, anticipated changes in the environment, and contingent

moves by intelligent opponents.“8

This appears to fairly represent the idea of strategy as the matching of capability and
opportunity (Andrews'9) and positioning according to competitive advantage (Portergo) developed
at the Harvard Business School. Thompson and Strickland (1980), with a similar business school
orientation, consider a strategy to be a course of action that is a means to an end, a choice among
alternative actions that should best fulfill organizational objectives and its ultimate mission.21
Alfred Chandler makes the distinction between strategic decisions (concerned with the long-term

health of the enterprise) and tactical decisions (dealing with day-to-day activities necessary for

efficient and smooth operations). His viewof strategy thus appears to align itself more with

 

One particularly challenging sub—field of strategic management research is the area of
management decision-making in high velocity environments - conditions of very rapid
change. The commonly cited example is computer firms in the Silicon Valley.
James Brian Quinn, Stratgies for Change: Logical Incrementalism, (1980), p.7.

'9 Kenneth R. Andrews, The Concept of Corporate Strategy, (1987).

 

2° Michael E. Porter, Competitive Advantage, (1985). This work specifically develops his
ideas of generic competitive strategies and developing distinctive sources of sustainable
advantage.

 

2|

This conception of strategy appears quite similar to Igor Ansoff who describes a business
strategy to be ”Rules for developing the firm’s relationship with its external environment:
what products-technology the firm will develop, where and to whom the products are to
be sold, how will the firm gain advantage over competitors". 1. Ansoff and E. McDonnell,
ImplantinthrateQ Management, (1990), p.43-46. They concede, however, that strategy
remains an elusive and somewhat abstract concept.

27

 

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2 Ansoffs conception of strategy and objective

Thompson and Strickland’s concept of a mission.2
also supports Thompson and Strickland. Objectives are to strategy what ends are to means. When
taken together, well-integrated objectives and strategies should filter projects.23

Henry Mintzberg extends the business school definition of strategy to include emergent and
deliberate strategies, depending on the intention of the strategizers. The ”realized” strategy of the
firm is a product or combination of intended deliberate strategies and emergent (not explicitly
intended) strategies. Strategy can be evaluated as ex post facto results of decisional behavior
(Mintzberg’s research orientation) or as a priori guidelines to decision-making.24 Strategy need not
be a deliberate, premeditated initiative of the firm but can emerge as an unconsciously or passively
chosen pattern of behavior that is derived through a Darwinian type of learning process. He
emphasizes the distinction between planning and learning in the strategizing process, but also their
important interplay, noting that strategy is often conceived informally before being programmed
formally.”

Strategy is also seen as a means for simplifying complex decision processes within an
organization. Strategy helps to ”marshal and allocate an organization’s resources” by providing a

decision rule, guidelines, or sorting criteria for alternative courses of related actions and a means

for evaluating choices the organization may encounter. A strategy provides an organizational

 

22 Chandler makes a distinction between entrepreneurial decisions and actions (the allocation

of resources that effect the enterprise as a whole) which appear to correspond to strategy,
and operating decisions, which are those decisions and actions carried out by using the
resources already allocated. S_trategy and Structure, (1962), p.11.

 

23

Ansoff, I., Corporate Strategy, (1987).

 

2‘ Mintzberg, H., ”Patterns in Strategy Formation”, Management Science, 24(9):934-948,

1978. Mintzberg draws conclusions from his own work, conceiving of strategy as a
pattern in a stream of decisions, that strategy can fruitfully be viewed as the interplay
between a dynamic environment and bureaucratic momentum with leadership mediating
between these two forces.

 

2’ Henry Mintzberg has made many conceptual contributions to the arena of strategy and

strategic management. An interesting sequence of article, comment and response presented
a debate between Mintzberg and Ansoff on the adaptive nature of strategy, its conception,
role, and effect on business performance, and the breadth of perspectives representing
distinctive schools of thought on this area. Mintzberg’s own taxonomy distinguishes 10
different schools. See Mintzberg (1990, 1991) and Ansoff (1991) for a summary of this
debate.

28

...al

‘1' ‘ ‘r-nw ‘v

guideline for

imposes“

 

operating pr

Gl\ L‘
choices can '2
strategic cht "
to maluath:
organization

choices and r

 

game u irh ,
generalized 1

r1gun: 2.1

SUNClL
‘5

WOuld be

guideline for what Chandler refers to as the tactical, day-to-day kinds of activities, and as such it
imposes a sort of directive to all internal decision makers not unlike the effect of a standard
operating procedure.26

Given this conception of strategy, the limitations of game theoretic modeling of strategic
choices can be further illustrated. The subsector can be evaluated itself as an organization making
strategic choices. A series of choices must match a series corresponding payoffs. One approach
to evaluating subsector strategies is by taking the aggregation of payoffs to all member
organizations. This can be presented conceptually in a game theoretic dimension with strategic
choices and relative payoffs within well-defined subsector boundaries. A simplified single period
game with aggregated payoffs to a finite set of mutually exclusive strategies is presented in its
generalized model form in Figure 2.1.

Figure 2.1 A GAME THEORETIC FRAMEWORK FOR INTERDEPENDENT
SUBSECTORS

Subsector 1

 

Subsector
2

 

 

 

 

An example of an interdependent situation that could be considered in this framework

would be the level of the local (regional) grower assessment for local (regional) promotion chosen

 

2" Following Cyert and March (1963) and later Shaffer (1980), the role of the SOP is to
reduce transaction costs in group decision making. They are regarded as generally
accepted rules of thumb for the firm that simplify or eliminate complex and costly
managerial oversight. SOPs are retained (as might selected strategic courses) as long as
the goals of the group members are satisfactorily met.

29

 

by each the

letel at whit

 

commission

Pa} ..
state market
competing r-.-'
in each state

available to *

 

 

 

according to
weakly all
Thi
therefore li
re‘llliremer
Conceptior
tactics 0t
Sltale‘gifi
delYT‘ider
Wmnre‘n
“33cm
in the g2
all mat:

Very di:

27 Growers in each region voluntarily choose a

by each the state of Washington and Michigan.
level at which all regional growers are taxed. These monies are collected by regional promotional
commissions, which in turn develop regional marketing, promotion, and merchandising strategies.

Payoffs to alternative strategies (promotion assessment levels through respective mandatory
state marketing programs) might be in part contingent on the assessment level chosen in the
competing region. Payoffs could represent aggregate assessment adjusted gross margins of growers
in each state.28 The assessment level would be chosen by each region by considering the options
available to the other region and reasoning backward in anticipation of the competition choosing
according to their best interests. Dominant strategies emerge when one strategy dominates (at least
weakly) all others for each economic actor.

This sort of conceptual framework is workable only under very strict assumptions and
therefore limited in usefulness for fully evaluating subsector strategy. One of the most limiting
requirements for such an approach is the need for mutually exclusive strategies. Given the
conception of strategy as articulated by those such as Chandler and Quinn (a stream of related
tactics or activities), specific tactics may support or be consistent with a number of alternative
strategies. Furthermore, rewards functionally tend to be multi-periocl and multi-firm. The inter-
dependencies between strategies and payoffs make this approach too complex for practical
comprehensive strategy evaluation, especially in the context of a subsector. A final point that
suggests the need for a different conceptual approach to organization strategic choice is that choices
in the game theory models are contingent on known expected payoffs (at least relative payoffs) to
all strategic options by all actors. Practically, payoffs to a particular subsector strategy are usually

very difficult to assess and may require a considerable time period to evaluate.

 

27 The assessment level example here is a simplistic conception of strategy in the sense used

by Quinn and Chandler. The assessment level would probably be referred to as an action
or tactic supporting a more broadly defined strategy that would be pursued by a collection
of actions. It is chosen purely for illustration.
2“ No assumption has been stated regarding the distribution of payoffs between growers. The
limitations of aggregating preferences toward some manner of collective welfare function
are stated by Arrow’s Impossibility Theorem (Kreps, 1990).

30

i.--__ .. i

The

 

”actor” Witt:

  
    
 

Nlttating \
memberx. or
of organize
allocation L;

resolution“.

"ml indic it
lt‘lel plum!
lnPUI SUpplj
these Wop
[hN 0th,"
lnCludcd ‘p

Oi 111‘th ‘

a “‘th

Yields a
meme
0%“ 3C
lo the
magi.
antrag

The evaluation of strategy is further complicated by conflicting objectives within the
”actor” (where the actor is a firm or a coalition of firms). A common assumption employed while
evaluating strategic choice between firms is the unity or homogeneity of objectives by firm
members, or equivalently, a consensus objective of a board of directors or CEO. Satisficing criteria
of organizations, as suggested by Simon, and later, Cyert and March, guide search, change, and
allocation rather than profit maximization. Conflicting goals are balanced only through ”quasi-
resolution”.

The assessment example is presented with a consideration of the objective functions of
many individual growers, representing a single segment of the subsector. The choice of assessment
level potentially impacts the fresh shippers, packers, and growers in each region as well as local
input suppliers inasmuch as the primary factor of production and derived demand is influenced at
these secondary levels by the respective grower group choices. Should the net gross margins for
these other related sectors corresponding to each strategy (assuming they could be measured) be
included in the payoff matrix in this case? The game theoretic approach is useful for some types
of analyses, but doesn’t lend itself well to the evaluation of general strategic directions relevant to
a subsector.

The collection of all firm-level strategies chosen by each of the regional subsector members
yields a mosaic that can be referred to as the meta-strategy aggregated over all regional fums. This
mosaic may or may not be a coherent strategy itself. An individual firm seeks to coordinate its
own activities along its own strategic course. The strategy of the firm is developed in response
to the actions of other subsector members as well as outside economic actors. Firm-to-firm
transactions are coordinated to various degrees through market transactions, working relationships,
contracts, shared information, and shared threats and opportunities that generate interdependent
micro-incentives.

In summary, the concept of strategy suggested by the academics in the business school as
well as. by practicing managers differs in a fundamental way from the economist’s discrete choice-
payoff view. Johannes Pennings expresses what may be considered a more typical business school

orientation to strategy:

31

 

 

mu“
|

Str.:'
strategs-pu} I
among deeis
a stream OI
Furthermore
before one .
Eli;
commodits
Supporting
forces be}.
Cap-abilities
bounded m
Sin:

Choices or
Sulhector i
attit'iries m
The

tactical deg
DeClSlOng p
the bmader
built on the
Chl'imnme]

dials who

 

”...strategic decisions cannot be easily pinpointed, because they are embedded in an

amorphous, lengthy process whose process defies punctuation. Their ’messy’ appearance

might lead one to conclude that it is better to refer to strategy, strategic change, strate ic

momentum, or a stream of decisions that reveals a certain directionality.” (italics his)2

Strategy as a stream of decisions indicating a certain directionality results in a blurred
strategy-payoff matrix. There is, nevertheless, a coherency and a synergy that can be sought
among decisions as they are sequentially filtered by the actor (however defined). Evaluating such
a stream of decisions must be undertaken with a recognition of how the decisions are related.
Furthermore, recalling Schumpeter on evaluating strategy, it may take a considerable period of time
before one stream of decisions can be truly evaluated against an alternative course.

Extending this to collective decision making by the many rival but related firms in a
commodity subsector, strategy at this level can be usefully conceived as involving a set of actions
supporting certain general but definable directions. These directions may be driven by market
forces beyond the subsectors influence, but is also derived with a consideration of the overall
capabilities of the subsector. The number of alternative directions may also be limited by the
bounded rationality of the economic actors.

Strategy that is well formulated in a subsector, whether revealed as emerging patterns of
choices or through purposeful, deliberate formulation, will integrate the activities within the
subsector into a cohesive whole. Well crafted strategy should improve coordination among
activities taking place within different subsector firms and organizations.

The distinction between strategic decisions (regarding long-term health or performance) and
tactical decisions (regarding short term activities) is also useful in the context of a subsector.
Decisions pertaining to subsector strategy will be considered here to be made with a view toward
the broader, longer-term performance of the subsector as a whole system. Subsector strategies are
built on the subsector’s relative internal competencies and shortcomings, anticipated changes in its

environment (including widely influencing opportunities and threats), and contingent moves by

rivals who are competing for similar markets or resources.

 

29 Pennings, Johannes M., Organizational Strategy and Change, 1985, p.x.

 

32

$7-. ‘l'l‘l" "A

The
strategic co.
alternatisesi
on specific .:

lf 3
the actions.
approaches

. . I
sustaining at
managemer.
I0 focus on
Sustainabili:

the benefit».

 

 

 

233 Str

Stra!
allcmall\e 5
imm'dl acti
mather and
c0ncfil\ed .
organizatio

the anOCatj

 

The process of identifying the larger picture, that is, the full set of alternative subsector
strategic courses, is alone a very complex and difficult task. While the full range of strategic
alternatives is unlikely to be known, it may be possible to define alternatives and reach agreements
on specific actions reflecting common objectives.

If a preferred course can be identified and generally agreed upon by those in the subsector,
the actions and resources necessary to pursue the course must be coordinated. Workable
approaches allocating responsibility and rewards, and policing commitment to developing and
sustaining what is often inherently a public good are critical components to effective strategic
management program at the subsector level. This is especially true where firms are predisposed
to focus on rivalry conditions and the threat or opportunity in common is not clearly visible.
Sustainability of cooperation in developing a subsector-level strategy depends on a clear vision of

the benefits to cooperation.

2.2.2 Strategic Planning

Strategic planning refers to the activity within an organization to derive and evaluate
alternative strategies. It is therefore process and administratively oriented. For the firm, it is an
internal activity with a view toward the firm’s resources and distinctive capabilities as well as the
market and competitive environment. The more general idea of organizational planning is
conceived of by Simon and March (1958), and later Galbraith (1967), as an attempt by the
organization to circumvent the market through some manner of centralized planning that directs
the allocation of resources. The organization seeks to minimize its dependence on uncertain
markets by seeking to gain greater internal control over key resources and activities. Planning is
necessary for the firm because externalities exist that make the provision of key resources by the
open market unreliable. Galbraith considered the nature of industrial planning and concluded that
because of the increasing requirements of time and capital to recover the development of industrial
technology, the needs of the consumer must therefore be anticipated by months or years. Planning

is the firm’s response to see that what it provided would be purchased by the customer at a

33

remunerati
Galbraith g
"Pl
am
815
fa\
Th
subsector.
concept of
response It
a remunera
Furthcmitir
that lee} in
A;
and USCd ‘
Packing hp.
inPUIS. etc. J
L.ni\'t‘l'.\itit5
and the sub
L'njlfi'fxit}.
Ma

formal Plar

 

 

1i
.. |

1+

remunerative price, and that key inputs would be available at a cost consistent with that price.30
Galbraith goes on to define planning in the following way:

”Planning consists in foreseeing the actions required between the initiation of production

and its completion and preparing for the accomplishment of these actions. And it consists

also of foreseeing, and having a design for meeting, any unscheduled developments,
favorable or otherwise, that may occur along the way.”3 '

The direct customer for any individual firm changes as one moves vertically through a
subsector. Derived demand, however, is ultimately dependent on the end user. Applying the
concept of strategic planning to the subsector suggests that there may be a collective subsector
response to see that what was provided through the value-adding process would be purchased at
a remunerative price distributed over the vertically related activities conducted by different firms.
Furthermore, strategic planning by the related subsector organizations would contribute to insuring
that key inputs would be available at a cost consistent with that price.

Agricultural subsector innovations are increasingly capital intensive and often developed
and used over long periods of time (ie., orchards, perennial crop varietal research, high tech
packing house equipment, mechanical harvesting, new value-added products, specific chemical
inputs, etc.). Many of these innovations make use of research that is on-going within Land Grant
Universities, government agencies, and trade associations. Close linkages between the subsector
and the subsector support organizations, including key public institutions such as the Land Grant
University, are important and may be facilitated with a subsector strategic coordination process.

Many attempts have been made to formalize the firm’s planning process. The elements of

formal planning systems such as those of Quinn (1980) are presented in Table 2.1.

 

 

3° J.K. Galbraith, The New Industrial State, pp.23-24.

 

3' J .K. Galbraith, The New Industrial State, p.25

34

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WE 3’?"V..

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m
07"..—

 

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J
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fl

 

ll:

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dominated
OVerlook '1]
of rhN p:

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pr

to
Ur

A
that there
efforts an
techneltfiig

to Other I:

Table 2.1 QUINN'S ELEMENTS OF A FORMAL CORPORATE PLANNING
PROGRAM

 

Analyzing one’s own internal situation: strengths, weaknesses, competencies,
problems.

Projecting current product lines’ profits, sales, investment needs, etc., into the
future.

Analyzing selected external environments and opponents’ actions for opportunities
and threats.

Establishing broad goals as targets for subordinate groups’ plans.

Identifying the gaps between expected and desired results.

Communicating planning assumptions, goals, and policies to lower echelons.
Requesting proposed plans from subordinate groups with more specific target goals,
resource needs, and supporting action plans.

Occasionally asking for special studies of alternatives, contingencies, or longer term
opportunities.

Reviewing and approving divisional plans and summing these for corporate needs.
Developing long-term budgets presumably related to plans.

Assigning implementation plans.

Monitoring and evaluating performance for emphasis presumably against plans, but
usual] a ainst bud ets.

 

Source: J.B. Quinn, Strateges for Change: Logical Incrementalism, (1980:168-169).

 

Formal planning in the business school and many larger corporations has tended to be
dominated by financial analysis techniques and thus has been inclined to omit or drive out or
overlook important goals and programs not easily quantifiable. Quoting Quinn on the limitations
of these procedures:

”One would expect the adherence to such procedures would lead to a finely honed strategy,

but this rarely happens. ...[L]ogic, politics, and events do not lend themselves well to the

process in detail. But more insidiously, within the structure itself, mechanics often begin
to overwhelm thought processes. And unconsciously, certain analytical procedures
undermine the very strategies they are supposed to create.”32

Ansoff, Declerck, and Hayes (1976) provide an historical perspective on strategic planning
that represented it as imposing rigorous strategic discipline not easily installed. They note further
that there frequently exists an organizational inertia which frustrates managerial efforts; planning
efforts are rejected as a ”foreign antibody”. Strategic planning is treated by these authors as a

technological input. It is regarded as a management technology derived experientially and similar

to other technologies such as financial ratio analysis, management by objectives, and strategic issue

 

’2 1.3. Quinn, (1980), p.169.

35

.1?!“

w
1

trials sis. T

 

adaptation n
planningi a:

Ext

 

corporation.
is apt to be
as unworlca
perhaps cr-

organiutitir

 

Thel
bUdgt’Lx'. fin
has require
different p
Commodll‘:

Th
qualflalfic
a COmpim
PIOblem 5,
“POn CXIC]
of the We:

COnceiVed

33
H.
34
Ar
M

 

analysis. Their indictment of formal strategic planning was the absence or suppression of social
adaptation mechanisms and that the desirable approach would combine both cognitive-logic (formal
planning) and social-psychological dynamics (adaptive learning).33

Explicit application of formal strategic planning, such as that proposed by Quinn for a
corporation, to the much more complex set of firms and organizations in a commodity subsector
is apt to be regarded, at least by some participants, as a ”foreign antibody”. It may be dismissed
as unworkable, unneeded, bureaucratic meddling, unnecessary centralized control, coercive, and
perhaps compromising the right to independent decision making held by each individual
organization.

The failures associated with the formal corporate planning process, with its focus on
budgets, financial accounting performance measures, and concentrated managerial decision making
has required a reconsideration of how to make this a meaningful exercise for the firm. Certainly
different planning approaches and measurements are even more so required in the context of a
commodity subsector beyond those of the formal corporate planning process.

The practice and objectives of strategic planning for the firm have evolved toward a more
qualitative and behavioral process. Strategic planning, for example, is viewed by Ansoff as only
‘ a component of the broader task of strategic management, representing a means (planning and
problem solving rather than implementation and control) by which management evaluates and acts
upon external linkages with respect to techno-economic-informational variables. The dimensions
of the strategic problem and the place of strategic planning in addressing the strategic problem as

conceived by Ansoff is presented in Figure 2.2.34

 

33 H. Igor Ansoff et al, (1976), pp.39-78.

3‘ Ansoff, H.I., and KL. Hayes, ”Introduction”, in From Strategic Planning to Stratggic

Management, ed. by Ansoff and others.

 

 

36

Figure 2.2

 

 

source. ‘
. n?

 

Figure 2.2 THE DIMENSIONS OF THE STRATEGIC PROBLEM

Source: Ansoff, Declerck, and Hayes (1976)

37

Mintzberg provides his own definition of planning that departs somewhat from Ansoff with
his comment, ”an organization can be said to plan to the extent that it uses formalized procedures
to make and integrate its decisions and then articulates the results.”35 He qualifies this conception
with the point that a good deal of highly effective strategy making observed in his research
involved no (formal) planning. This phenomenon would be characterized from Mintzberg’s other
work as emergent strategy, which can be a meaningful component to the revealed strategy chosen.
The later contention of Mintzberg is that deliberate planning (the ”rational approach”) is not
enough, that ”we shall get nowhere without emergent learning alongside deliberate planning
(Mintzberg, 1991:465). The implication of Mintzberg’s conclusion for the subsector is that the
process at this level must allow for adaptive learning in its structuring of the planning activities.
The popularized conception of a ”learning organization” in the business school can apply equally
well to the complex system that is the subsector.36

March and Simon, discussing the merits of centralized versus decentralized planning, raise
what should be regarded as an important point relating to formal planning, that ”since there is no
reason to suppose that any technique of decision-making - whether centralized or decentralized -
will bring the organization into the neighborhood of a genuine ’optimum’, the search for decision
mechanisms cannot take criteria for optimization too seriously, but must seek ’workable’ techniques
for satisficing”37 Formal planning processes (programmed decision making to March and Simon)
cannot generate courses of action ensuring optimal outcomes in the Pareto sense and actually
imposes a rigidity over less formal, un-programmed planning that may impede system performance.
This qualification applied to a firm should be extended to a coalition of firms such as those within

 

35

Mintzberg, H. ”What is Planning Anyway”, Strategic Management Journal, (2):319-324,
1981. Other definitions that present planning as simply taking the future into
consideration, or as conscious attempts to integrate decisions across different areas remain
too broad for Mintzberg who goes on to suggest that it is the orientation toward analysis
as revealed in a formalized procedure and articulated result that captures what most mean
by planning.

 

36

See, for example, Peter Senge’s The Fifth Discipline: The Art & Practigenof the__Learning
Organization, (1990).

 

 

37 March and Simon, Organizations, ( 1958), p.209.

 

38

...J.

u” m'.‘

a subsector.

 

toward alter
Th,

applying tl-

agricultural '

"lf

slut

COT}
.s‘i
rt t.

 

lmr
“cited 1151‘
that can br
Slam. S.
the actors
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A
enflhinn

WWI-plea

3i:

a subsector, seeking to identify a collection of workable techniques aiding intra-subsector decisions
toward alternative courses of action leading to improving their competitive position.

Thomas Schelling provides a useful perspective on planning. It points to the value of
applying the principles and pursuing the objectives of strategic planning to systems such as the
agricultural subsector. His admonition follows:

”If the sluggard can be admonished to study the ant, the social planner is well-advised to

study traffic signals. They remind us that, though planning is often associated with

control, the crucial element is often coordination. People need to do the right things at the
right time in relation to what others are doing."38

Improved coordination leading to improved performance within the system should be
viewed as the primary driver behind the collective strategic planning effort. Institutional innovation
that can bring about means for improved coordination can improve the functioning of the entire
system. Sometimes a very simple rule or mechanism can provide micro-level incentives that propel
the actors and the system forward to focus on other activities with little thought or concern about
issues of equity, control, or monitoring.

Although the administrative complexities of a formal planning process may limit the direct
extension of strategic planning in the business school sense to the subsector, there are many useful
principles The process of strategic planning in the context of the subsector would involve many
similar components, although with somewhat different approaches and objectives.

Evaluating the subsector’s internal situation, analyzing resource and end-product trends
relevant to the general value-adding processes within the subsector, analyzing the environment
external to the subsector for opportunities and threats are steps that can be taken toward evaluating
the subsectors competitive situation.

Firms and organizations within the subsector can plan and develop strategies in a forward-
looking way that can better assure responsive adaptation to markets and external changes, the
development of certain resources, reduce the limitations of certain internal extemalities, improve
the flow if critical planning information, and otherwise create a process for general problem-solving

through collective efforts.

 

38 Schelling, ”On the Ecology of Micromotives”, The Public Interest (25):62, 1971.

 

39

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The
|
subsector i:
momentum
considered
developmer
to plannin '.
particular 8‘

for the suf

2.2.3 St r

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central at
Miriam?
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C
“Opting ”
QUinn’ 1p:
\

39. I

T
F.»

 

The key difficulties for establishing such a strategic planning process in the context of a
subsector include the facilitating, stimulating, communicating, pulling together, and maintaining
momentum for the process. Conflicting internal subsector interests, priorities, and goals must be
considered throughout the process. Legal limits on cooperation, inherent challenges to resource
development necessary to develop and implement strategies, and the inclination toward resistance
to planning by independent-minded individuals representing various firms are also among the
particular significant issues that need to be addressed in relation to the strategic planning process

for the subsector.

2.2.3 Strategic Management

The managerial problem was extended to take into account the internal configuration of
the organization that would best support all dimensions of the strategic problem.39 The
organizational resistance to and inherent difficulties of the formal strategic planning process,
including program rigidity (Ansoff and McDonnell, 1990; Quinn, 1980), the pressure for a strong
central decision making body with autonomy over its resources (Reid, 1989; Chandler, 1962;
Mintzberg, 1990), and the top-down tendency of strategy identification pressures (Reid, 1989), have
caused academic researchers and business managers to consider a more flexible conception of
business strategy and the process of creating it.

The attention of researchers and managers has been more recently extended to the
implementation and control dimension of the planning process. Behavioral and political variables
are now explicitly included in the strategy identification and implementation process in addition
to techno-economic-informational (rational) variables used in more formal strategic planning
approaches.

Certain strategic planning approaches acknowledged the importance of identifying and
adopting an organizational structure compatible to a chosen strategic direction (Chandler, 1962,

Quinn, 1980). Chandler differentiated the strategy of an organization from its structure or what

 

39

This conception is due to Ansoff and Hayes (1976). The dimensions of the strategic
problem are referred to in Figure 2.1.

40

 

could he called i

mm follows \

   
   
  
 
 
 
  
  
  
   

 

a product of 3“
corresponding ant".
this crafting and t
of a management

cleared to a high

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could be called its organizational-administrational configuration with his famous dictum that
structure follows strategy."0 Implementation to Chandler was a dimension of the structure that was
a product of strategic choice involving the crafting and/or discovery of the appropriate
corresponding and supporting organization. Strategic management for the firm attempts to make
this crafting and discovery process more explicit by focusing resources toward the development
of a management system that makes strategic planning work effectively. Implementation has been
elevated to a higher status in strategic management relative to formal strategic planning.

Rapid reconfiguration of some organizations to best support a chosen strategy may be
possible under strong, central leadership. This is unlikely to be a very workable approach,
however, with a regional subsector. Structural change can be induced to a limited extent by
subsector participants jointly pursuing a desired strategic direction, but unlike a f'um, there typically
is no central command and control center to administrate major subsector reorganization.“l

Strategic management in the Design School is held in essence to be the matching of the
internal capabilities. or competencies of the firm to the environment within which the firm finds
itself competing; strategic planning with more explicit consideration on effective planning
processes, implementation, and evaluation. The focus is on the internal formulation of mission,
goal, strategy, and filters for alternative actions within the organizational boundaries of the firm.
A good representation of this school of thought is presented by David J emison, who states:

”...strategic management will refer to the process by which general managers of complex

organizations develop and utilize a strategy to coalign their organization’s competencies
with the opportunities and constraints present in their environment. ”42

 

A.C. Chandler, Strategy and Structure, p.14. Structure, in Chandler’s conception, is the
organization devised to administer the activities and resources that comprise the strategy
for growth. (p.13)

 

41

The voting in of a marketing order that regulates regional supply or quality is an example
of a subsector initiative directed to induce structural change in support of a jointly pursued
strategic direction.

42 David B. Jemison, (1980:601). Jemison elaborates further in this article on needing to
direct research along the lines of what should be done (content) and how it is
accomplished - the processes of strategy formulation and implementation (process).

41

 

POHCT mil

  
  
   
  

stylized concepts
environmental or-
relative competent
have become wiri-
The SO‘Cd
Competitive Strait
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Porter and many contemporaries (Igor Ansoff among the more notable) adopted the now
stylized concepts of organizational strengths and weaknesses in relation to the external
environmental opportunities and threats to characterize and evaluate a firm’s capabilities and
relative competencies. Porter used this internal-external orientation as a basis for developing what
have become widely employed techniques for analyzing industries and competitors.

The so-called SWOT analysis is presented in the introduction one of Porter’s earliest works,
Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980). The emphasis
on strategic positioning relative to a firm’s competitive advantage, striving for security in a unique
segment of the market based on distinctive competency, is a recurring theme throughout much of
Porter’s later work.

Extending strategic management conceptually to a regional agricultural subsector involves
a consideration of the regional ”internal” collective capabilities and competencies, which would
include explicitly addressing the subsectors synergies and conflicts (or competition). These can
be matched or co-aligned with an external environment where there may be shared opportunities
and collective threats. In practice, this may need to involve the partial redirecting or possibly
restructuring of a current organization or perhaps the creation of a new, supporting institution
erected or empowered by subsector participants. Such an institution may be able to facilitate
subsector firms in addressing the difficulties and economic complexities of free ridership, equitable
distribution of benefits, the quality and quantity of subsector joint impact goods, as well as explicit
consideration of appropriate collective conduct leading to a generally recognized improvement in
overall subsector performance.

The process of strategic management in various organizations has been regarded as an
important area of study among business strategy research practitioners, seeking to understand the
process of matching, coalignment, or more basically, the identification process and implementation

of effective strategies leading to improved organization performance (or competitiveness)”3

 

‘3 An excellent bibliography of recent strategic process research initiated within the school

of business is presented in an article by Anne Huff and Rhonda Reger, ”A Review of
Strategic Process Research”, Journal of Management, 13(2):211-236, 1987.

 

42

 

  
  
   
  

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Given the mission of the firm and an endowment (or resource base), the firm employs a
process by which alternative actions are filtered. These actions may ultimately involve a
redistribution of assets or investing them in such a way to influence or refine the future stock of
the firm’s capabilities. This can be through such actions as investment in internal technical research
and development, institutional development, training programs designed to enhance human
resources, or simply changing obsolete standard operating procedures to accommodate more
efficient ways of doing business.

Strategic content (the substance of the strategy developed) and the processes employed in
formulating it must always be subject to evaluation. Consideration of the quality of the input into
the process must be made. A process that formerly generated a plethora of good ideas or provided
an effective early warning system of trouble may become obsolete. The organization may outgrow
a company suggestion box or reliance on trade magazines for competitor intelligence. More
complex or rigourous processes may need to be employed to develop good strategies as the
structure or competitive context of the organization changes.

The general strategic management process, afforded much more detail in later writings of
Porter, Thompson and Strickland, Ansoff, and others, considers the matching and coalignment
actions by the firm to be iterative, guided by a firm mission statement or business definition which '
is pursued by specific actions consistent toward achieving this mission. Given a certain
endowment of resources and competencies, the firm considers means to apply their assets in a way
so as to best achieve their mission.

The commodity subsector represents a unique organizational form — a complex system of
independent but related firms together making up a value-generating system. Simple ”how-to”
formulas are not apt to adequately address the strategy process needs of such a complex
organizational system. Still, there is a need to carefully examine and evaluate alternative processes
to strategic management at this level to gain an understanding of what may lead to meaningful
guiding principles applicable across different commodities. The premise of most strategy process
research is that a good process leads to identifying better strategies and, as such, favorably

influences performance outcomes.

43

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Strateg§

 

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Strategy content is the derivative of the strategic process. Strategy content research
examines the performance outcomes of strategic choices by organizations competing within various
environmental contexts with a view toward developing basic prescriptions.“4 Strategy content must
be evaluated by its resulting performance (as measured by the organization) relative to the
performance that could be expected from an alternative strategic course.

J .1. Moore recounts the evolution of thought in the writings of Igor Ansoff where strategic
planning is viewed as merely a rational approach to aSsessing and defining linkages of the firm
with both its business and societal environments. Strategic management, on the other hand, has
evolved to represent an activity that will both discern the external possibilities and bring about the
appropriate capability changes. (Moore, 1992:23)

The distinctions between strategic planning and strategic management in some literature
may be artificial and it is not uncommon to find the terms used somewhat interchangeably. The
distinctions, when drawn, tend to emphasize (1) a behavioral phenomenon or total management
system of planning, implementation, and control over a strategy production process (Ansoff and
Hayes, Davous and Deas, 1976; Tabatoni and Jamiou, 1976), or (2) a learning and adaptive system
versus a rational, optimal strategic design process (Mintzberg, 1990).

The concept of ”management” may be somewhat alienating on the surface to some
individual firms or organizations within a subsector. Individual firms value their right to
independent decision making with respect to their resources and conduct. Each organization, on
the other hand, can contribute in a meaningful way to help set and maintain a course or general
strategy to the benefit of all subsector participants without giving up individual control of their
firm’s strategy. Strong hierarchical overtones to the planning process in the subsector, inflexibility,
and/or lack of responsiveness to the expressed individual needs are likely to foster an anti-

cooperative attitude that can cause the process to self—destruct. The traditional concept of

 

4‘ An excellent, though slightly dated, taxonomy and bibliography of various approaches to
strategy content research is presented in an article by Liam Fahey and H. Kurt Christensen,
”Evaluating the Research on Strategy Content”, Journal of Management 12(2):167-l83,
1986.

44

i."-"v v——v-" ‘ Yd

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2.2.4 3

“management”, inasmuch as it may be approached in these ways, would not be well suited for
crafting and implementing strategy in the context of the subsector.

The conceptual advances of strategic management beyond formal strategic planning
systems are meaningful and apply particularly to strategy development and implementation in a
subsector. Strategy in this context is much better regarded as a learning and adaptive system.
Further, given the atomistic and independent nature of decision making characteristic among firms
within a subsector, developing and facilitating effective processes for collective identification,
implementation, and evaluation of alternative actions is particularly critical. Rigid planning
regarded as a ”foreign antibody” in a firm will only likely be regarded as more so in the context
of a subsector.

These points made, given the reluctance of subsector fums to be ”managed” and the need
to stimulate a sense of cooperative, collective, and joint decision making within the subsector, the
term strategic planning will in practice here be employed. It will be used less with a view toward
the formal corporate planning processes and more in consideration of and including adaptive

planning, collective learning, and the behavioral aspects of implementation.

2.2.4 Mobility: Implications for First-Mover and Sustainable Advantages

A major objective of an effective strategic planning system is to maintain an organizational
responsiveness to move within the larger space of strategic alternatives. First mover and
sustainable advantage are among several important concepts that are often related to strategic
management and the mobility of the organization. These include crafting strategies to capture
advantages relating to being the first mover to develop a particular opportunity and, a sometimes
related objective, developing a strategy that would lead to a sustainable advantage. These concepts
are discussed here with particular consideration of their implications for a commodity subsector.

Strategic mobility or responsiveness can be considered the extent of the ability of that
subsector to adapt and modify its strategy. Mobility is related to rapid issue identification,
including those specifically relating to the subsectors capabilities, opportunities, and threats.

Further, the wherewithal of the subsector to marshal and deploy new resources, and to affect a

45

modified sul
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modified subsector orientation, can be particularly critical for overall viability. Affecting needed
changes in strategic orientation can be a significant challenge for a subsector where an over-arching
management control system is absent.

Strategic mobility receives its importance from the efficient market hypothesis which posits
that, under most competitive market conditions, opportunities tend to be short-lived and have a
narrow window. Anticipation and responsiveness are key ingredients to competitiveness and must
be built into the orientation of an organization as a matter of course. Competitive advantage for
a firm can be sustained under certain conditions, through access to unique resources or through an
organizations distinctive competence in using these resources, but sustainability depends on the
persistence of friction in the market that prevents imitation (Oster, 1994: l 15).

The fleeting existence of easily captured opportunities is highlighted (in a somewhat
colloquial manner) by McCloskey’s Axiom of Modest Greed that concludes there is no $500 bill
on the sidewalk because someone would have picked it up already. This axiom somewhat
exaggerates a basic economic principle - still, supemorrnal profits tend to .be dissipated quickly.‘5
The implication of this axiom is that those organizations (or groups of organizations) with
consistently lesser means for quickly identifying profitable opportunities and/or credible threats
relative to other rivals are unlikely to be able to sustain a relative competitive advantage.

The best strategies can become diminished in their effectiveness or irrelevant if they take
too long to formulate, particularly in environments characterized by rapid changes in market
demand or technology of production. Sharon Oster uses the principle of efficient markets to

emphasize the imperative for decision making mobility within an organization.46 The returns to

 

‘5 McCloskey, Donald N., If Your So Smart: The Narrative of Economic Expertise,

(1990), pp.1 11-134.
46 ”An efficient market is one in which prices reflect information instantaneously and one in
which extraordinary profit opportunities are thus rapidly dissipated by the action of profit-
seeking individuals in the market.” (Oster, 1994:18)

46

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superior organizational mobility and the existence of first mover or entrepreneurial advantages,
though often temporary, can be substantial and are detailed by many.47

Porter (1990) identifies the competitiveness of supporting industries as an important
determinant of (national) industry advantage. An important implication of vertical interdependence
is that inertia or productive innovation at one level of a regional subsector can be transitive in
effect. A lackluster or vital sector can lead to poor or strong performance of tangent sectors. The
overall subsector advantage can therefore be eroded with the erosion of the competitiveness of a
specific segment within the system’s value-adding activities.

The inability of plant breeders, for example, to develop in a timely way a strain of
asparagus resistant to fusarium in New Jersey led (in a large part) to the dislocation of the
asparagus processing industry in that state and, subsequently, most asparagus production.48 The
overall performance of the New Jersey industry was swayed by the performance of the input sector.

Oster suggests the basic organizational central planning issue to be the following: how
much time to devote to identifying and entering attractive existing markets, and how much time
to spend cultivating entrepreneurial ability and high performance within the current organization
(Oster, 1994:116). A logical extension of this central planning issue in the context of a subsector
would be the following: how much time to devote to entering attractive existing markets (1)
through individual firm effort and (2) through joint efforts; and how much time to spend cultivating
entrepreneurial ability and high performance (1) within the current organization and (2) with related

organizations whose performance positively correlates with the current organization. This is the

 

47

See, for example, Schumpeter on entrepreneurial profit (1934: 128-156) and Chandler
(1990). Chandler differentiates the first mover from the inventors. ”The fust movers were
pioneers or other entrepreneurs who made the three interrelated sets of investment in
production, distribution, and management required to achieve the competitive advantages
of scale, scope, or both.” The distinction is important. The wherewithal to move on an
opportunity in this sense is different from simply identifying one.

‘8 Ironically, a first-class asparagus variety breeding program has since been developed in
New Jersey. A large share of the varieties grown in Michigan have been developed in this
program. The exit of processors to other states, together with flat demand for processed
asparagus, has left there only a small fraction of an industry compared to what was
formerly a major regional asparagus subsector.

47

LM;'" 2‘.—

 

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essence of the central planning decision faced by individual firms as they carry out their respective
activities within the subsector.

The point to make at this juncture is that whether it is moving on new market opportunities
or cultivating internal ability to serve existing markets, many opportunities are fleeting. They can
only be exploited when organizations can identify, evaluate, devise a plan, and marshal and allocate
resources necessary to capture first-(or early) mover advantages while they still remain. Oster
follows the Schumpeterian perspective of an organization being embedded in an environment in
which new ideas are constantly developing and therefore it requires internal mobility to maintain
a clarity of vision both for new emerging markets and new ways of producing in the old market.
Business strategies have a dimension of timeliness that can be enhanced by responsive decision
making within an organization. Recognizing barriers to responsiveness is an important step toward
improving the strategy formulation process.

Organizational inertia can come from several sources. The complexity of bureaucratic
structure can impair responsiveness and mobility. Such a barrier can limit an organization’s ability
to marshal and allocate resources in a timely way. Complex organizations are often characterized
by diluted incentives for individual members to invest in change. High exclusion costs to risky,
but perhaps innovative, approaches to seizing opportunities or addressing problems perceived by
organization members leads to free ridership or shirking. Alchain and Demsetz elaborate on the
stagnating effects that can result in a firm when employee marginal contribution and reward are
not closely aligned. Curnbersome internal dialogue and bureaucracy can also persist with respect
to opportunity identification, evaluation, plan alternatives, and resource allocation. Informational
stimuli that would provide a rationale for organizational change can be muted or go undetected.

Signals for needed change often present themselves weakly relative to the static in the
environment. A superior means for identifying and sorting out these signals can raise the
organization, whether a single firm or a subsector system, to a new height of competitiveness.
Such signals include information (intelligence) pertaining to consumer trends, competitor activity,
government regulation, and new technology. Inertia, in this case, is more a product of inadequate

monitoring mechanisms for the organization.

48

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Organizations that are consistently ”asleep at the switch” relative to their competitors can
generally expect to achieve a lower level of performance. This source of inertia differs from the
high exclusion cost problem. In the former case, the need for change may be detected but is not
acted upon because of micro-disincentives. In this case, the need for change is not even detected.
This can result from (1) a lack of adequate monitoring resources in general and (2) monitoring too
narrow a field. A parallel to this signal reception problem (not detected-not acted on) is suggested
by Albert Hirschmann who points to the missed opportunities to identify consumer preferences and
exploit employee ideas as a result of unknown exit or suppressed voice.49 The ability for an
organization to perceive weak signals (low signal/noise ratio) depends on a number of factors
including (1) the quality of information gathered, and (2) the barriers (such as bounded rationality
or internal bias by the economic agent) to interpreting the information (Arrow, 1974).

Inertia can also come from sticky strategies (Oster, 1982, 1994) which can also be
conceived of as rigid, routirrized standard operating procedures. Strategies can be considered as
a sequence of related actions that direct an organization on a trajectory, a path dependency, so that
incremental action sequences are significantly dependent upon past choices made by the
organization. Sunk cost effects, past commitments to a narrowly-defined strategy of specialization,
and the significance of dedicated or specific assets in current production are among the factors that
also contribute to organizational inertia. A regional commodity subsector often faces the obstacles
of coordinating among many different firms that, though technically related, have conflicting goals
and may lack a central organizing force that coordinates the team productive process within a
firm.50 Opportunities may be perceived by the subsector members but, due to the fragmented and
micro-competitive nature of their subsector organization, they may be unable to agree on a plan
to pursue the venture or may be unable to agree on how to or who should marshal the resources
or allocate the rewards. Such conduct demonstrates a lack of subsector adaptability.

First mover advantages, whether derived through superior sensing or as a product of

intensive research and development, may not always be exploitable by an individual firm within

 

‘9 A.O. Hirschmann, Exit, Voice, and Loyalty

 

50 This conception of a firm is due to Alchian and Demsetz (1972).

49

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a subsector
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a subsector. Significant innovations often require a network of coordination. Mechanical
harvesting for asparagus, for example, requires a degree of coordinated innovation development
on the part of growers, processors, and developing engineers. Economies of scale, high exclusion
costs (supporting research and development, for example), or institutional constraints (legal
conduct) may preclude entrepreneurial initiative by the individual firm. Institutional mechanisms
are sometimes able to overcome these barriers to firm cooperation as may be seen within an
agricultural subsector. These would include such institutions as supply and marketing cooperatives,
land grant universities conducting agricultural research, trade associations, marketing orders, and
publicly funded market news services. Still, the micromotives of the individual firm often run
counter to the desirable macrobehavior of the local system where subsector information and
responsiveness is to the benefit of most.”

The establishment of a viable fresh asparagus segment that annually delivers a certain
minimum volume threshold of reasonably high quality product is generally regarded by growers,
processors, and fresh shippers alike as beneficial to everyone in the industry, providing a needed
profitable alternative outlet for production surges, and generally enhancing the demand for the
grower’s product. The lack of a needed minimum critical mass of quality product consistently
deliverable each year, unable to be met by any one grower, however, has resulted in a relatively
small, weak fresh market for Michigan.’2 While all agree a fresh market is probably sustainable
in Michigan, uncoordinated individual action has to this point been unable to raise the fresh
segment to a significant commercial level.

Strategic issue management has been rigorously developed by Igor Ansoff (1990) as a

prescriptive strategy process tool for improving an organization’s mobility or responsiveness. It

 

5‘ Not all firms necessarily benefit from increased subsector responsiveness to shared

opportunities and threats. One Michigan apple shipper pointed out that a few individual

organizations thrive in the mix of activities precisely because the subsector is unresponsive

in a coordinated way to address shared threats and opportunities.
52 John Platt’s (1973) concept of a social fence parallels this situation: the consideration of
individual advantage preventing one from doing something that might nevertheless be of
great benefit to the group as a whole. Schelling’s (1976) critical mass models are also
related. Schelling suggests that in some behavioral models a minimum level of activity
is required to perpetuate growth and to a self-sustained interest in a collective activity.
Kindling may be required to get a fire ”going”.

50

 

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COllt‘CllVfi
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provides a systematic means for an organization to monitor issues (opportunities and threats),
prioritize them in terms of urgency (level of expected impact) and timing (when impact is likely
to be felt), and thereby developing a priority and basis for considering action alternatives. The
intent of this management activity is to provide an on-going mechanism to monitor and anticipate
systematically changes in the environment and construct an action plan that can best situate the
organization for a timely and appropriate response. The upper echelons of firm management can
utilize a tool such as this to manage strategic issues for an individual firm with their leadership and
initiative.

Strategic issue management (SIM), as practiced by the firm, can be modified to enhance
collective responsiveness at the subsector level. Resources of both a leadership and financial nature
can be pooled to monitor joint opportunity areas and detect joint emerging threats in a way that
can be superior to SIM programs carried out independently by each organization. Detection of
opportunities and threats can be earlier as pooled resources permit more careful monitoring of more
issues (a wider agenda). Furthermore, alternative firm-level responses that may require a degree
of coordinated effort can be negotiated and better implemented. A greater set of subsector action
alternatives may be identified through a pooled SIM effort. This need not replace the individual
firm SIM, but rather can extend and complement it. Individual organizations are likely to express
' a different sense of priority and willingness to commit resources to different responses to the
identified issues due to variable payoffs. The likelihood of emerging opportunities and threats
taking the subsector collectively by surprise, however, could be reduced with this approach. A
means for identifying and articulating mutual organizational needs typically provided through a
public service organization can be established to supplement current approaches to this activity.

Missed and mistaken investments at the individual firm level could thus be conceivably reduced.

51

13 TH
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2.3 THE FIRM, ORGANIZATIONAL INTERDEPENDENCE, AND SUBSECTOR
STRATEGIZING

The intent of this section is to provide a further rationale for subsector-level strategic
management by considering the economic nature of interdependencies commonly present in the
organization of firms in a subsector. The premise is that there are certain economic realities that
link the performance of firms together. Furthermore, there is an opportunity for certain linked
firms to improve their collective performance by explicitly recognizing these interdependencies and
undertaking certain joint activities. Consideration of prospects for cooperation attempts here to
consider issues for improved performance rather than market power. A rationale for inter-firm
strategizing is presented as an approach for guiding system efforts toward minimizing transaction
costs.

A system-wide creation of value and competitiveness is discussed in the context of the
economic notion of derived demand. The importance of the creation and distribution of shared
resources - joint impact goods, within a subsector are discussed. A further rationale for considering
collective strategy formation in a commodity subsector hinges on cognitive conceptions of
interconnectedness - many factors support a sense of shared or common purpose and similarity of
goals that can be built upon for mutual benefit. Inter-firm synergy is also discussed as it offers
important opportunity for capturing economies of scope by firms and organizations seeking to
mutually improve their performance outcomes.

Ronald Coase ( 1988) expressed a concern for the narrow scope of industrial organization
preoccupied with the study of monopoly, the control of monopoly, and anti-trust policy. His
conclusion was that the negative and suspicious view ascribed (in some cases prematurely) to
cooperation precluded meaningful investigation into ways in which healthy cooperation could be
encouraged. This section seeks to advance economic arguments supporting a healthy cooperation

for improved performance in a commodity subsector.

52

 

 

 

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Tl
controlling
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2.3.1 Organizational Interdependence to Minimize Transaction Costs

The value-adding process involves exchange between a number of economic agents
controlling value-adding activities. Exchange is not frictionless, that is, there are real costs
associated with search, bargaining, contract development and enforcement, and other activities
principally related to the exchange process. These costs may be different depending on the
institutional system under which they are organized. Transaction costs drive organizational
structure and influence the overall structure of a subsector.

Williamson provides a compelling theoretical basis for identifying the activity boundaries
of the firm and presents a transaction cost minimizing argument for vertical integration. He argues
that the complex modern corporation under which a diverse array of production activities may be '
organized is mainly to be understood as the product of a series of organizational innovations that
have had the purpose and effect of economizing on transaction costs?3 The conclusion of
transaction cost economists is that organizational structure (governance) will evolve that best
economizes on the costs of exchange.“

The perception of Williamson avoids prescriptive models of organization except that they
maintain the intent on economizing, achieving administrative efficiency. Comparative economic
organization should be driven, he suggests, more by first-order economizing than by strategizing.
Strategizing is relevant principally to firms that possess market power (a small fraction of the total)
and thus efforts should be directed toward eliminating cost excesses in production, distribution, and

organization. ”Economy is the best strategy" is his fundamental conclusion.SS

 

53 DE. Williamson, (1985:273).

5‘ Williamson (1975, 1985), Eggertsson (1990), and Kreps (1990). The concept of a
corresponding governance structure that minimizes the cost of transacting, or, as Kreps
suggests (p. 744), that transactions can often be organized in different ways within social
and legal institutions each with distinct costs. That given, transactions tend to be ”placed”
in a way that maximizes the net benefits they provide, including the cost of the transaction.
A transaction whose transaction costs outweigh the benefits of completion will not be
undertaken at all.

55 Williamson, 0., ”Strategizing, Economizing, and Economic Organization”, Strategic

Management Journal, (12):75-94 1991.

 

53

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This conclusion (economizing as the first principle) retains some merit for an organization
of firms within a subsector. Williamson, for example, goes on in this paper to suggest that the
complexities of organization and the real cognitive limitations of the economic agents imply that
there is routinely a mis-alignment of types of transactions with the most cost effective and
competent governance structure. These conditions apply equally if not more so to an organization
of firms.” The frequent incidence with which there is a blurring of firm boundaries (Eggertsson,
1990: 162), the existence of widely adopted industry standard operating procedures (Hamm, 1981),
and the systems nature by which subsectors are most reasonably analyzed and evaluated for
performance (Shaffer, 1973, 1980; French 1974) suggest a subsector could benefit from giving
careful attention to the way transactions are conducted between member firms. The process of
negotiating acceptable conduct between firms and the erection of institutions that reduce the costs
of exchange inextricably link many subsector members. Institutional opportunities to reduce
transaction costs within a subsector can provide symmetric, or at least mutual, benefit to the
member trading firms. Each member has a vested interest. Evaluating the whole system, the
consumer has a vested interest as well, inasmuch as lower transaction costs lead to lower product
costs at the end in a competitive market.

Williamson’s conditions under which strategizing is relevant (primarily for organizations
possessing market power) appear too narrow. Williamson’s conception of business strategy is
primarily of the efficiency kind; the most efficient organization wins in the long run. Strategic
decisions are not confined, however, only to organizations possessing market power. Strategizing,
whether by firms or a subsector, is a ubiquitous and perpetual activity carried out by economic
agents in response to perpetual changes in the environment, the outcome of whose choices depend
upon the choices of another firm or firms acting purposively.57 Business efficiency and
economizing governance structures play an important part of a subsector strategic planning system,

but positioning, planning, and capability development are all going to be influenced by the

 

56

Williamson, 0., ”Strategizing, Economizing, and Economic Organization”, p.79.

57 Dixit A. and B. Nalebuff, Thinking Strategically, p.85.

 

54

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concurrent and/or anticipated actions of other economic agents, including governments which
dictate the rules of conduct or by competitors.

In summary, firms in a commodity subsector share participation in a value-adding process
that has both transformation and transaction costs. Economizing on transaction costs is desirable
for the system but may not come about just as a matter of course. Cost effective and competent
governance structures under which subsector transactions are organized may require explicit
cooperative design. Strategizing need not be narrowly associated with organizations seeking to

extract monopoly rents.

2.3.2 Derived Demand and Supply

Derived demand implies a dependence on a primary demand articulated from some end-
user(s) that signals preferences upstream in the production system. Firms are linked inasmuch as
they share signals of scarcity and demand, either through prices or more centralized institutions.
A network of market reactions is played out as upstream production activities are coordinated and
adjusted in response to these signals to profitably respond to the next user’s needs. This sequence
of factor markets can vary in the stages of value adding and in the number of distinct firms
transacting and adding value. Tomek and Robinson describe firm interdependence based on this
progressive signaling.58

Downstream signals of changing upstream supply conditions, such as crop size impacted
by weather, new varieties, lower cost of production opportunities due to a new technology, and the
like, sends a signal through the same sequence of firms to the end-user. Apple growers, apple
packers, and apple shippers are related and interdependent in this sense, looking to each other for

supply and demand signals. This dynamic system of supply and demand adjustments is full of

 

58

The concepts of primary and derived demand and supply are discussed at some length by
Tomek and Robinson (1990), pp 108-120. Price discovery in many perennial crops is
often quite a complicated undertaking. The processing segments for apples and asparagus
in Michigan negotiate single season prices between growers and processors paid for the
raw product through a state marketing order that requires, from time to time, independent
arbitration settlement. Tomek and Robinson present a taxonomy of alternative institutional
arrangements common to agriculture that facilitate the price discovery process (pp. 199-
214). '

55

firm-16w
making ‘
segment

takes pl.

team
on int

marks

sully:
$‘stcr
Dim (
“hi:
Valu
Adi

With

fum-level uncertainty within subsectors, especially those that involve perennial crops. Decision-
making is executed at each level based on quite long term market expectations, but firms in other
segments emphasize short-term aspects. It is in the context of this decision making that planning
takes place.

F.A. Hayek noted the concept of planning to be broadly understood in the following way:

”In ordinary language we describe by the word ”planning” the complex of interrelated

decisions about the allocation of our available resources. All economic activity is in this

sense planning; and in any society in which many people collaborate, this planning,
whoever does it, will in some measure have to be based on knowledge which, in the first
instance, is not given to the lanner but to somebody else, which somehow will have to

be conveyed to the planner.” 9

Subsector members, as they vertically coordinate production and the allocation of
resources, are interdependent in the sense that they commit resources as firms to production based
on intra-subsector signals and together (tacitly) derive an output equilibrium, whether through
market prices or other programmed planning processes.

Porter (1985:33-61) would likely say, according to his value chain framework, that
subsector firms are related because they are members of the same value system. It is the value
system around a firm that determines firm competitiveness. A firm’s product eventually becomes
part of a buyer’s value chain. The buyer perceives the supplier as providing value to a process in

which the supplier is engaged. This value system, the sum of activities where suppliers provide

value to buyers, is presented as the conceptual focus of Porter’s work in The Competitive

 

Advantage of Nations. National advantage is derived through maximizing the value generated

 

within a system.

In summary, subsector members share and depend on progressive signals through the
vertical market system. Good firm-level planning in contingent on accurate signals. Some level
of cooperation and/or coordination may improve the signals received by all subsector firms. Firm

and overall subsector performance may be enhanced (value generated increased) and scarce

 

59 F.A. Hayek, ”The Use of Knowledge in Society", American Economic Review, 35(4):519-
530 1945

 

56

$31! I— “J

 

resources

through j

to
be
be
rm

Schmid
Choice. '
conditim
Schmid
but the t

more Us

The ex:

resources better allocated through improved vertical coordination of production and markets

through joint subsector planning and implementation.

2.3.3 Subsector Systems and Joint Impact Goods

It is often useful to characterize goods into the economic dimensions that define them. A]
Schmid has attempted to construct such a taxonomy in his book, Property, Power, and Public
Choice, illustrating how the nature of the different goods employed for production imply various
conditions of inter-dependence. Some goods can enter into two or more persons’ utility irreducibly.
Schmid terms these as joint-impact goods (JIGs), where the benefit of goods are widely realized
but the quality and quantity of the good available is not reduced by extending the benefit to one
more user at the margin. The marginal cost of another user approaches zero over some range.60
The example of such a good suggested by Schmid is national defense.

Such goods are commonly present within an agricultural subsector. Publicly provided
research and extension, commodity promotion provided through a grower-based tax, or quality road
construction and maintenance. The level and quality of these kinds of goods available irreducibly
to subsector members, contributing significantly to the productivity of a subsector with the same
input-output properties as other non-joint factors of production, are commonly derived through
either collective or public action. Pricing signals from the market for these kinds of goods
typically indicate a low willingness to pay on the part of individual firms, particularly when there
is high exclusion and high development cost involved. Where free ridership is possible, marginal
contribution to the provision of a ”public good” is negated. Equitable contribution (individual
contribution equal to the marginal benefit of the good received) to a public good is often difficult
to obtain when extemalities (positive or negative) exist. An evaluation of system-wide or
aggregated benefit must be made with cost sharing administered based on proportion of total

benefit. A certain amount of collective planning and development independent of market price

 

6° Schmid, A. Allan, (1987). See the broader discussion of joint-impact goods presented
in his text, pp.75-94.

57

'1'? ‘I—J

‘? "1T7 '

 

toward the
internalize
Tl
yet indepe
derives a
on the ch.
as one co
chooses ‘

citizens. l

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levels c'
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$618 for

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comm,
and qt
the,-e t
subeC-t,
mean

Clamp

toward the provision of these kinds of goods is suggested inasmuch as there is opportunity to
internalize or equitably meet the external effects within a subsector.

The strategic dimension of a joint-impact or public good arises when a group of related
yet independent enterprises (through a grower cooperative, a regional subsector, a nation) together
derives a level of provision of such a good for their joint use and such a level is interdependent
on the choices made by another economic agent. The military case can illustrate this condition;
as one country chooses a level of military defense provided irreducibly to its member citizens, it
chooses that level not only with a view toward the preferences for resource allocation by its
citizens, but with a view toward the credible threat of armament levels chosen by rival countries.

Agricultural examples can include regional grower resources allocated to state commodity
promotion set to a level with regional resources in mind but also with a view toward promotion
levels chosen by rival states. The paradigm of strategic management that argues for unique
positioning relative to rivals would suggest that collective resources be allocated to develop local
distinctive advantages, again chosen in part with a view toward the choices made by rivals. Choice
sets for some may be more narrowly defined than for others, depending upon the resources and
capabilities of a subsector.

The implication of this economic relationship between J 1G5 and individual firms for
commodity subsector strategic management is that, because joint impact goods are set at qualitative
and quantitative levels outside the individual firm, coordinated strategic management can influence
these goods. They can be crafted in such a way as to support a general strategic direction for the
subsector. Indeed, the atomistic nature of the individual firm provides limited opportunity for
meaningful influence on the quality or quantity of a good that may be central to that firm’s
competitiveness. J IGs such as research and extension, provided by a single institution, can be
prioritized in a meaningful way when a subsector-level strategy is developed, agreed upon, and
articulated. J IGs such as state-level promotion can be co-aligned to support the general strategy

of the subsector. Strategic alliances can be developed with other outside interests to further

58

12..

develop

organiz

addressi
to be pr
or State

subsectt

designa

2.3.4

both by
a COgni
“Till a i
by part
“itch:
the} re]
a Yttxe
90ch
intereq

MACt

langudz
GTC‘WQ]

[hilly .
\

K .

develop J IGs that would be consistent with supporting the strategic direction of both
organizations.“

An often non-trivial dimension of subsector strategic management is to develop means for
addressing the ”public good” provision problem. How does one decide on which public goods are
to be produced, and in what order? What level or quality of goods such as research and extension
or state-level commodity promotion should be pursued? How are total benefits of J IGs to the
subsector to be measured and costs allocated? The relationship between joint impact goods and

designated subsector strategies must also be considered.

2.3.4 Cognitive Conceptions of Interdependence

Organizational interdependence in a regional commodity subsector is cognitively reinforced
both by the participants and by related outside organizations. This section argues that there is often
a cognitive linking between subsector organizations - they have developed patterns of association
with a general subsector, particularly on a regional level. This cognitive association is reinforced
by patterns of economic activity. The individual sorts through a perpetual stream of economic
association data relating to other individuals and organizations that signals some degree whether
they represent a rival, a non-influence, or a source of common interest. Furthermore, there is often
a sense of social identification by individuals with groups; other farmers, other rural citizens, fruit
growers, state agriculture, etc.. Social identification is supported by a heightened sense of common
interest. Trade associations (such as the Michigan Apple Committee, Shippers’ Association,
MACMA, and others, and trade shows serve to strengthen a sense of cognitive association.

Rivals from other regional subsectors also reinforce the sense of association in their
language and conduct. Washington produces and promotes their apples as ”Washington apples".
Growers and shippers support, through mandatory self-assessment, this promotional approach. The

thrust of the promotion is even toward consumer brand recognition and value. Florida oranges,

 

6' The International Marketing Program for Agricultural Commodities and Trade (IMPACT)
Center at Washington State illustrates the provision of a joint impact good provided to
diverse agricultural interests. Technical and marketing support is provided to enhance and
facilitate Washington commodity exports, making each participating commodity group
more competitive than they would be otherwise.

59

Qhkmnat
hnheeca
Tl
shark»
industry” .

andcond

Howete

apprecia

seeking

strategt

SCale t
Cfinah

S“Ppc

California raisons, Georgia peaches, and Idaho potatoes all represent similar cognitive groupings,
in these cases promoted for the purposes of marketing.

The basic observation here is that organizations participating in the value system or
subsector will thus refer to themselves as ”the Michigan apple industry", or ”Michigan asparagus
industry". A recognized commonality and interdependence is revealed in the language, association,
and conduct of the organizations participating in the subsector.

A certain rivalry or inherent distrust may exist between members of related segments.
However, following Porter's orientation of the value system, there is usually a recognized
appreciation for the value of healthy buyers and suppliers.

These state subsector groupings, each driven by regional associations, while not
corporations, still represent an organization of firms in a value system or commodity subsector
seeking to expand the collective value of the product produced in that system through coordinated

strategic choices.

2.3.5 Synergy Between Firms
The economic argument for subsector-level strategic management extends not only from
scale economies but also economies of scope. Opportunities for cross-fertilization may exist under
certain conditions during the process of identifying and evaluating alternative strategies and their
supporting actions. Sharon Oster relates the concepts of synergy and economies of scope stating:
”Two business units have synergies if their union allows for opportunities not available to
either separately. Economies of scope are a more specific expression of synergy, usually
thought of primarily in the cost context. Economies of scope exist when it is less costly
to do something when two units are joined than when they exist separately" (Oster,
1994: 184).
The strategic management literature tends to emphasize this concept in the realm of

mergers and acquisitions. Firms do not have to join in a merger, however, to take advantage of

scope economies. Strategic alliances, joint ventures, and other strategic partnerships have

60

demonstrated
opportunities 2
Syner
responding tr
the scope of
considered a
frillli and Vt
have among
fatoruhle 1,
chemical i1
neceseir}
in COai‘i-Ilt
initial“:
bill d1 46 1
0‘3! her
and the

Cit-e. :13 ‘1

demonstrated the ability of firms to maintain their autonomy and at the same time pursue
opportunities arising from economies of scope.62

Synergy between organizations will not necessarily be captured by respective organizations
responding to competitive pressures of the market. Bounded rationality and costly search limits
the scope of inquiry for potential synergies by individual organizations. Apples, for example, are
considered a minor use crop for purposes of classifying total pesticide use, along with most other
fruits and vegetables.63 Chemical inputs are critical, however, to the production of apples. Apples
have among the highest ratios of chemical costs to total costs of production. Political lobbying for
favorable legislation in the area of pesticide availability, development of alternative approaches to
chemical inputs, and re-registering certain chemicals or develop new ones are very expensive, but
necessary activities. Such activities are certainly prohibitive for any individual apple firm. Joining
in coalition with other minor use crops, however, permits a lower cost to be derived to the total
initiative. This is not only due to scale economies, more resources brought to bear on the effort,
but due to cross-fertilization of ideas, alternative approaches, and innovation in general that spills
over between minor use crops during lobbying efforts, university-based pest management research,
and the develop of private sector chemical innovations that can be rewarded by the broader
coalition.

A fundamental activity of subsector strategic management is to facilitate the identification
of such synergies between firms. The capabilities of the subsector can be enhanced as previously
unidentified synergies are identified and captured to enhance the value generated, and therefore the
competitiveness of the subsector. The enhancement of subsector capabilities can redefine the

appropriate strategic course for the subsector.

 

62

See, for example, Thomas Sporleder’s paper ”Strategic Alliances as a Tactic for Enhancing
Vertical Coordination in Agricultural Marketing Channels", presented at the 1993 IAMA
meetings. He points out that strategic alliances are a weak but malleable form of pursuing
vertical control relative to other means of enhancing vertical control, but often serve as a
viable alternative to merger for vertical integration.

63 A perhaps better description of these kinds of commodities that more clearly expresses the
fruit and vegetable situation has been suggested by a Michigan State University
entomologist: ”High Input - High Value” commodities.

61

raw-.. ._: --I|

2.4 Fl’R'
STR-

The I
regional appl
together. the
geographical?

The i
there are strut
asense in wi
national indt

One
wiNIantially
are common
dtt'elopment
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2.4.1 Tee]

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next to a hi
dense 810m

Emgmphl C E

2.4 FURTHER RATION ALE FOR EXPLORING REGIONAL SUBSECTOR
STRATEGY

The objectives of the subsector actors who have developed individual firms within a
regional apple industry such as in Michigan are at least to some degree advanced or thwarted
together, that is, there is a high correlation between the performance indicators within these
geographically common firms and the exogenous economic factors influencing them together.

The broad product and market definitions relating to the Michigan apple subsector suggest
there are strategic issues that are common to the subsector independent of location. There is even
a sense in which the Michigan industry must consider itself as having common interests with the
national industry.

One proposition is that, there exist strategic issues influencing the subsector that are
substantially independent of location. Another proposition is that many strategic issues exist that
are common only to certain regional components of the national subsector. Market and resource
development strategies make sense for some regional subsectors and not for others. Competition
exists between regional subsectors for geographical and product markets as well as factors that
enhance regional comparative advantage. This section develops more formally an economic
rationale for a regional subsector strategy by considering the sources and nature of regional

interdependence.

2.4.1 Technical Interdependence of Nearby lFirms

Why do firms locate near one another? Why does an engineering research park develop
next to a big college? Why does a bond office locate near city hall or a parking garage near a
dense group of downtown stores? Groups of like firms also group together in a common

geographic area, creating an intense competitive environment but sharing assets that advance their

62

inditidual c
examples 0‘
Tw
of Grand R
control or
inexuicahl;
industry 5;
F i
Value-add
Cites the f
pollinatc
dininctit

rent-alt b

2.4.1

O“ the l

TECOgru

individual objectives. Garment districts, malls, and college apartment housing represent various
examples of this phenomenon.“

Twelve of the twenty major apple shippers in Michigan are located within a 30 mile radius
of Grand Rapids. These firms remain autonomous in one sense in that they retain decision making
control over the planning and allocation of resources within their firm. They are, however,
inextricably linked to the planning and management decisions of other firms within the regional
industry system.

Firms may choose a common locality to maximize their profits under conditions where
value-adding involves a high transportation cost, desired by both firms to be economized. Cheung
cites the frequently employed example of an apple orchard owner contracting with a beekeeper to
pollinate his orchard, noting the fuzziness of firm boundaries in this case where firm
distinctiveness, at least in the mind of most economists, hinges on the form of contract (wage or

rental) between the two.“

2.4.2 Agricultural Development and Schelling's Tipping Model

Path dependency in agricultural development is an economic phenomenon that sheds light
on the dynamics of firm structure, interrelationships with other firms, and location. New firms,
recognizing the technical interdependence of their production or service activity with those of other
firms, are inclined in many cases to choose to structure and organize their activities in a proximity
to vertically related firms that have exhibited strong historical performance. Past performance is
often a component in formulating expectations for future performance. Michigan apple processing
firms recognized a dependence on a strong and profitable grower community that could supply

high quality processing raw product and chose to locate near its source.

 

6‘ Electronics firms in the Silicon Valley were pointed out as another example. Porter
provides an interesting survey of localized industries within nations, suggesting that a
geographic concentration of rivals, customers, and suppliers will promote efficiencies and
specialization. (Porter, 1990:154-159)

Cheung, Steven NS, ”The Contractual Nature of the Firm”, Journal of Law and
Economics, 26:1-21, 1983.

 

63

A lead:
development i
agricultural pt
irrigation. l'lOt
As asparagus
attracted othe
base Event
facilities. am
the developr

Tho
effects can
state desiral
that he cal
Critical p0
Ontcomes
critical W:
M the fat
mints tha
ell-Dru b:
desired }

116C “sari

A leader of a Washington asparagus group conveyed an interesting history of agricultural
development in the Columbian River Basin. He noted that early development was slow and
agricultural production was confined to a few selected areas along the river. Innovations in
irrigation, however, have led to a rapid expansion in productive land beyond the riverside areas.
As asparagus production was able to overcome previously constraining climatic conditions it
attracted other firms to locate in the Basin seeking to take advantage of this emerging production
base. Eventually processors, chemical and fertilizer suppliers, railroads, expanded ag research
facilities, and a variety of other supporting organizations located nearby, encouraging even more
the development of the local asparagus subsector.

Thomas Schelling discusses processes of this sort in his models of critical mass.‘56 System
effects can resemble chain reactions of taking off or unraveling that may or may not result in a
state desirable to the participants within the system. Schelling discusses a series of these models
that he call ”tipping” models, reflecting the idea that system dynamics often have an inherent
critical point or condition. The system may be propelled or ”tipped” toward one of several
outcomes depending on the actions of participants within a system and their proximity to these
critical points. Those involved in strategy formation processes in a subsector should be cognizant
of the fact that systems have a dynamic nature such as this with ”taking off” and ”unraveling”
points that may propel the participants to unanticipated overall performance outcomes. Similarly,
efforts by one or several individuals may be insufficient to propel the subsector to a universally

desired higher level of performance. Certain coordinating or facilitating mechanisms may be

necessary.

2.5 RELEVANCE OF CRAFI‘ING AND IMPLEMENTING STRATEGY FOR A
COMMODITY SUBSECTOR: AN OVERVIEW

The general objective of this section is to demonstrate the relevance of the concepts of
strategic planning and implementation to issues of structure, conduct, and performance facing a

commodity subsector. The first argument is that many of the economic and behavioral phenomena

 

6° Schelling, (1978) Micromotives and Macrobehavior, pp.99-133.

 

64

that are ad:
similarly la
is necessar

related fin

whetheri
for com
competi
them or
mosaic
Otherw
10 its (
SUbLflcg
SUlNe:

they -

gs

si
FUr

"4r

Ere

that are addressed through strategic management by a firm are, with only some differences,
similarly faced by related firms within a subsector. A wider conceptualization of an organization
is necessary to extend this framework. The subsector, as a complex organization or system of

related firms, is seeking to achieve its goals in the context of its external economic environment.

Systematic patterns of strategy can be observed as having been employed by a subsector,
whether by emergent or deliberate action. Firms in a regional subsector often have similar bases
for competitive advantage with respect to other regions producing the same commodity or
competing commodities, whether they explicitly recognize it and develop their strategies around
them or not. The aggregation of firm-level strategies within a commodity subsector produces a
mosaic of strategies, a mix of collective and independent approaches, deliberately pursued or
otherwise, that may or may not be effective in matching the internal environment of the subsector
to its external environment in such a way as to yield the desired performance of the individual
subsector members. It is proposed here that certain approaches to collective strategy for the
subsector may be employed by certain related participant firms to improve the means by which
they identify strategic alternatives, choose among them, and implement them to the benefit of
many.

It is proposed here that firms and organizations within a subsector share, to a significant
degree, certain kinds of resources and capabilities (strengths and weaknesses) that may be
organized to create an environment that emphasizes the commonalities among firms within the
subsector. Firms organize these resources with a view toward a common economic environment
(opportunities and threats) that are often to a substantial degree external to the subsector. There
is a certain transitivity in the influences meted out to subsector organizations by higher level
economic environmental factors. The competitiveness of subsector firms is influenced, often in
a similar way, by exogenous factors beyond the scope of influence by any individual participant.
Furthermore, some strategic alternatives available to subsector firms can be considered as requiring
varying degrees of inter-firm or, even more broadly, inter-sectoral coordination in order to take the

greatest advantage of these alternatives.

65

* “we-w :JII

  

For so:
in and of itsei'.
region often tl‘.
or nearly rela'.

treated quite b

 

individuals. h
elaborate meat
The c
significantly~ 1
available to. tl
facing the fi
Strategies re
MESA-“ling.
llldividuzfi 4
Re
than cxpa
QDanum
Cootdlnat
individué
l
dCCng()n
A Clear
Compm
aqu’iti,
Star"_

gOaLS‘

For some purposes it may be a useful theoretical aggregation to consider a subsector to be
in and of itself an organization. Commodity subsector participants, particularly within a given
region, often think of each other as “members” and often cooperate at high levels with certain like
or nearly related firms. Kenneth Arrow (1974) argues that the term ”organization” should be
treated quite broadly. Participants in organizations may be themselves organizations as well as
individuals. He argues that the market system itself can be regarded as an organization with
elaborate means for communication and joint decision-making (p.33).

The choice set available to individual firms in the face of economic change is often
significantly constrained when opportunity for cooperation is limited. Certain strategic choices
available to the individual firm acting alone may be inadequate to meet the opportunities or threats
facing the firm or not as effective as certain collective. or coordinated stage-setting strategies.
Strategies requiring greater coordination, however, have implicit additional costs relating to search,
bargaining, monitoring, and administration in comparison to those that can be implemented by an
individual firm.

Relevance of strategic management for the subsector should be considered more broadly
than expanding the set of strategic choices available to the individual firm. There is often
opportunity to reduce the search, implementation, and monitoring costs associated with various
coordinating-intensive business strategies, especially compared to each firm doing these things
individually.

Proponents of firm-level strategic management argue that the costs of certain kinds of
decision making internal to the firm are reduced when effective strategy development takes place.
A clear vision or mission can be crafted based on firm goals and provide a basis for renewed
competitive advantage. Such an organizational strategy can be prominently integrated into the
activities of the organization and placed before management and employees as a sort of ”guiding
star”. Resources can therefore be marshalled, focused, and allocated with a view toward firm
goals, and activities that are at odds with these priorities or objectives can be weeded out.

To the extent a group of related firms within a subsector can identify. similar goals and co-

align individual activities in such a way as to improve overall performance on selected common

66

'._1-.""_I. or“

V-.

  
  
   

goals (or work

environment Ll
favorable char.
on certain as
Impro'
Objective of St
SUpporting m.
0f Various ‘3’
CStablished
organizatioi
for better
Competit‘o
E
\hml'k‘ifi c
lead'mg .
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mppr

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$35313

goals (or work toward a common subsector "mission”), they may be able to similarly collectively
improve their efficiency and performance in the way they do business. The outcome would ideally
be reducing internal costs, improving the services provided, and thereby enhancing their
competitiveness. Individual fums are often constrained in their ability to influence their
environment due in part to the limited resources able to be delegated to affect certain kinds of
favorable changes. Rivalry internal to the subsector can further limit firm—level strategic choices
on certain aspects.

Improved vertical coordination toward improved subsector performance has long been an
objective of subsector research.67 A number of firms and organizations will often conduct activities
supporting the individual business activities of participant firms by providing certain public goods
of various types. The priority with which these goods are developed and implemented is generally
established by some mechanism other than market price. Orienting the individual members and
organizations toward collective strategic planning and implementation potentially provides a means
for better signaling priorities in developing resources that can contribute to subsector
competitiveness between private firms and supporting organizations?8

Bemsten and Staatz (1992) underscore the importance of both the process and outcome of
vertical coordination and the contribution made toward improving understanding of subsector needs
leading to improved coordination through the use of subsector analysis. They argue for broadening
research approaches to include systems of production to better understand the interaction between
technologies, institutions, and policies, and further, to identify major information gaps, recognize
inappropriate technical options, highlight access and equity issues, refine technical options, specify
technology characteristics, and identify institutional and policy constraints.

Many of the approaches employed by organizations to address these issues within the

system bounded by the firm under the rubric of strategic management are suggested here to be

 

“7 eg, Marion and Ward (1986), Shaffer (1973, 1980), Bemsten and Staatz (1992).
68 Arrow (1974) suggests that organizations are a means of achieving the benefits of
collective action in situations where the price system fails (p.33). Organizations supporting
the commodity subsector may be the result of focused collective action, such as in trade
associations providing promotion support, or through more dispersed collective action,
which represent a collective action of a much broader interest.

67

i
I"! - "r' “J

   
 
  
  
 

feasibly exten.
subsector. Th1
to can) inform:
subsector.
The 0
need for cons:
larger subsectt
Batman to n7
organizatiom
The r.
Opportunity \Q
in [hfi come
Approach“,
and illustrate
Chapter. felt

organllatlor

feasibly extended, with some modification, to improving coordination and performance within a
subsector. This may be particularly effective where there are mechanisms other than prices needed
to carry infonnation and incentives to those allocating public good-type resources in support of the
subsector.

The concepts discussed and the argument presented in this chapter have emphasized the
need for considering firm-level strategic management principles and practice in the context of a
larger subsector system. Certain modifications of the formal corporate planning systems are likely
necessary to make strategic planning and implementation workable and meaningful for firms and
organizations together in a subsector.

The recent strategic planning efforts of the Michigan apple industry present a unique
opportunity to examine, describe, and evaluate a somewhat unique attempt to develop this process
in the context of a commodity subsector. Chapters 3 through 6 present this case study.
Approaches, considerations, and components. to a subsector strategic planning process, as explored
and illustrated in this case study, reflect back to the concepts and principles developed in this
chapter, relating the need for and possible approaches to strategic planning for interdependent

organizations.

68

DEV

3-0 INTR
The p
0f SUbSC‘ClOf—lt

0f the Michig
developed Wi
Initiatives [ha
OPPOItunity tc
at a legion-d]

()net

[Ddtmry Strut

 

The .
anQ]
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find;
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3.0

CHAPTER 3
DEVELOPING A SUBSECTOR STRATEGIC PLANNING APPROACH:

THE MICHIGAN APPLE SUBSECTOR CASE

INTRODUCTION

The previous chapter sought to establish a relevance for examining principles and concepts

of subsector-level strategy formulation and implementation. This chapter introduces a case study

of the Michigan apple subsector (or industry)69 and the subsector strategic planning initiatives

developed within it over the past few years. Chapters 4-6 provide further detail and summary.

Initiatives that have been proceeding recently in the Michigan apple industry present a unique

opportunity to observe approaches that have been used for strategic planning and implementation

at a regional subsector level.

One central component of this case is the formation and activities of the Michigan Apple

Industry Strategic Planning Task Force. This relatively unique and new organization has sought

 

6° The concept of a subsector is somewhat foreign to those in the firms and organizations

involved with a commodity industry. They would use ”industry” to represent the concept
of the subsector. This can possibly contribute to some confusion as I try to relate these
developments back conceptually to subsector strategic management. The use of the term
”industry” will refer to the concept of ”subsector”, while ”segment” will refer to what the
subsector literature would identify in its taxonomy as an ”industry”, a horizontal slice
containing like members of the subsector that focus on similar production activities.
Furthermore, the distinction between strategic planning and strategic management held by
business school academics, has not been maintained by those involved with the Michigan
Apple Industry Strategic Planning Task Force. The attention devoted to adaptable and
acceptable implementation of strategy and actions by the many diverse firms and
organizations in a commodity subsector is consistent with a more flexible conception of
strategic planning and orientation as outlined earlier.

69

  
   

to iacil'itate e
subsector.
Other
industry. are ll:
an early prelin
relatively earl
a number of
competitive.
building. in
COllCCIch
demonstrm
approache
Structure
.1
to lmmo
they Cor
We“ as

col-“per
of the
Organ

threat:

to facilitate overall strategy planning, formation, and implementation for the Michigan apple
subsector.

Observations of the strategic planning activities recently undertaken by the Michigan apple
industry, are utilized to illustrate one subsector approach. Results are also considered to provide
an early preliminary evaluation of effectiveness and its potential, although the process is still in a
relatively early stage. The process of strategic planning at this level can be seen as unfolding in
a number of distinct stages, each involving active group decision making and action. Economic,
competitive, and organizational conditions propel the process. The approaches to coalition
building, industry goal development, the crafting of an industry agenda, and the formulation of
collective actions and strategies are all considered in this case. The case further seeks to
demonstrate the appropriateness of the approaches employed in the Michigan apple industry. These
approaches were chosen in consideration of the driving forces affecting the industry and the
structure of organizations that were already in place.

The potential contributions of the strategic planning approaches employed in a subsector
to improve system performance are considered. Particular attention is focused on the activities as
they contribute to improving the coordination of production and marketing within the industry, as
well as contributions to improving the overall responsiveness of the industry to the dynamic and
competitive nature of outside opportunities and threats.

The chapter is divided into several components. The first section presents a brief overview
of the Michigan apple industry in terms of its size and product utilization trends.

The second section discusses the major forces that have contributed to the need for more
organized industry action in the form of collective strategic planning. These include a series of
threats and opportunities that have significant and broad implications for Michigan firms involved
in apples.

The third section discusses the formation, goals, activities, and approaches of the Michigan
Apple Industry Strategic Planning Task Force, specifically as a mechanism employed by industry
organizations to facilitate the process of industry strategic planning and implementation. This

section seeks to illustrate some of the advantages and limits to joint strategic planning efforts as

70

 

   
  
   
   
  

undertaken by fit.
Task Force are d:
The four‘f
Force in formula
production trends
situation analysis
The fifth
industry planning '
performance and
actions used by
conclusions and
Various stages c
directions.
“is c
EUR-“.168 in 1h,
and refined b}
Force initiarit.
TI)? first Scn'
SCVey-a] Of Ii
pTOmd to
bur have mm
The pioneer‘1
Task FQICC

economic .
‘

8611']

undertaken by firms within a commodity subsector. Issues of coordination encountered by the
Task Force are discussed.

The fourth section discusses the information gathering processes employed by the Task
Force in formulating and operationalizing its agenda. One component of this is market and
production trends influencing this process that are considered as they contribute to a competitive
situation analysis for Michigan as an apple supplier region.

The fifth section discusses specific strategies and actions that have evolved from the
industry planning process, with particular attention paid to implications for improving the industry’s
performance and competitiveness. Approaches for developing and implementing industry-based
actions used by the Michigan apple industry are discussed. Finally, the sixth section discusses
conclusions and implications that arise from the case. The sections together seek to illustrate
various stages of orienting the subsector toward crafting and implementing strategic actions and
directions.

This case study is presented as a summary and evaluation of the strategic planning
activities in the Michigan apple industry to date. Much of the process remains to be worked out
and refined by those who are involved in the industry process. An ex post evaluation of the Task
Force initiatives on the performance of the subsector cannot be made at this stage of the process.
The first series of actions are yet to be fully implemented. At the writing of this dissertation,
several of the components to a commodity subsector strategic management system, as later
proposed to be necessary as a result of this research, are planned by the Michigan apple industry
but have not yet been formally undertaken. Although learning and adjustment continues, many of
the pioneering efforts and experiences of the Michigan apple industry and the Strategic Planning
Task Force can be drawn upon to the benefit of other commodity subsectors which face similar

economic and organizational circumstances.

3.1 AN OVERVIEW OF THE MICHIGAN APPLE INDUSTRY
The apple industry represents the largest fruit commodity produced in the state of

Michigan. The total value of production at the grower level has averaged approximately $90

71

it: v, '.‘9’ writ—Air“

million 0V6! l
for nearly a
the early 195
last 30 yea“.
of total prod

The
not always
organization:
growing tires
together wit

Figure 3.1
\

1,000 Buslwl
N
8
9.

15001

Tr.

liming

de

million over the past 5 years. Michigan has been among the leading supplier regions in the US.
for nearly a century. Total production has grown slowly, but at a steady pace in the state since
the early 19505. The increasing importance of processing markets for Michigan apples over the
last 30 years, such as canned, frozen, and juice, can be seen in Figure 3.1. Between 60% and 70%
of total production is now marketed by Michigan growers to some processing market.

The diversity of production and marketing orientation within the industry, however, does
not always lend itself to broad-based cooperation between the many diverse firms and
organizations. This diversity of focus is illustrated by the fact that there co-exists a significant and
growing fresh apple sector, averaging over $39 million in farm gate value between 1988 and 1992,
together with a wide mix of processing activities.

Figure 3.1 MARKET UTILIZATION OF MICHIGAN APPLES: 1950-1993

 

1,000 Bushel

  

1950 1955 1960 1965 1970 1975 1980 1985 1990
Years

The approximately 20 major processors in Michigan produce the following products with

varying degrees of specialization: frozen and fresh slices, sauce, juice, cider, concentrate, canned

72

hi: "'wul‘

slices, pie fillir
apple crop has
also an import:-
paclring house.
also growers.
Growl
Current surve
operations wi'
costly and an
increasingly c
for orchard r
Mos
Processed at
and PTOCCssi
region. Mi.
direqs mos
increased so
grown, in o
In the fresh
Th.

is also reg

jg

slices, pie filling, puree, vinegar, diced apples, spiced rings, and essence.70 A larger share of the
apple crop has been marketed through the various processing markets, but the fresh component is
also an important factor. Approximately 20 shippers market most of the fresh apples for some 150
packing houses. Vertically integrated systems for the fresh market are common. Most packers are
also growers. larger shippers often have their own primary packing facility and orchards.

Growers appear to be in a gradual trend toward consolidating into fewer, larger operations.
Current survey data suggests that there are approximately 1100 growers, a decline of over 400
operations within the past 15 years.7| This trend is likely to continue as key inputs become more
costly and apple orchard management more specialized. Net returns to growers are relatively low,
increasingly complex orchard and business management is required, and investment requirements
for orchard modernization is high.

Most growers with larger operations market some fraction of their production into both
processed and fresh markets. Many in the industry regard the combination of both strong fresh
and processing markets as a key source of competitive advantage for Michigan as a producing
region. Michigan has continued to develop several major market outlets. Washington, which
directs most of its attention to the fresh market (typically over 75% of its production), has
increased substantially it volume sold to processing markets recently in conjunction with its rapid
growth in overall production. Washington provides Michigan with strong competition especially
in the fresh markets, but also in processed apple markets.

The Michigan apple industry produces and markets a large number of apple varieties. This
is also regarded by many as a key source of competitive advantage. Dual purpose (fresh or

processing) varieties are commonly planted for flexibility in future market conditions. Most

 

7° These are the product categories identified in the Michigan Apple Committee Processor

Directory supplied by the 23 processors listed, September 1993.

7' The Michigan Rotational Fruit Survey (MDA) for 1991 indicated there were 1300
operations. Michigan Apple Committee data, together with responses from the grower
survey conducted by the Strategic Flaming Task Force, suggest this number is probably
now closer to 1100-1200. The number of operations producing apples appears to have
been steadily declining in Michigan. The 1982 MDA survey indicated there were 1540
operations at that time. Smaller operations have led the decline in numbers. The number
of larger operations (100+ acres) was actually up in the most recent census.

73

 

growers
harvest
varieties
and sout
within th-
directly' 0
based ind
T
among [ht
and prod:
adoptiom
those rela
EYOWing (
Within the
Michigan
At
from Chart;
for COllecr

growers maintain a mix of varieties to accommodate changing demand conditions, maturity and
harvest schedules, pollination requirements, and site-specific growing conditions. The many
varieties grown in the state, as well as the climatic and production differences between the northern
and southern regions also contribute to Michigan’s competitive advantage through diversity.

There are complications and difficulties that arise from production and marketing diversity
within the industry. Many common economic forces influence both fresh and processing markets
directly or indirectly. The synergy between fresh and processing markets raises the need for broad-
based industry cooperation to develop viable strategies that exploit this industry advantage.

The common economic forces influencing firms point to a need for a degree of cooperation
among them, for mutual interests to be addressed and synergies to be exploited. Changing markets
and production technologies present new opportunities that require continual adjustments and
adoptions of new approaches to production and marketing in the state. External threats, such as
those relating to pesticide availability and use, regulations, labor, and trade laws, as well as
growing domestic and international competition influence the viability of the diverse segments
within the Michigan apple industry in a transitive way and require continual adjustments by the
Michigan industry.

An awareness of shared external threats and (to a lesser degree) opportunities emerging
from changing market conditions contributes to the preliminary investigation into the possibilities
for collective strategic planning by the subsector. The major driving forces prompting industry-

level initiative are discussed in the next section.

3.2 EXTERNAL FORCES CONTRIBUTING TO A NEED FOR INDUSTRY ACTION

A series of imminent and broadly impacting forces influencing the viability of the apple
industry in Michigan contribute to the potential for joint strategic planning development initiatives
by the key Michigan apple leaders and organizations. These forces helped to raise awareness by
key industry leaders that a number of industry issues need to be addressed, some of which are to
a substantial degree beyond the scope of influence of individual firms or organizations. A

perceived need for improving the competitiveness of Michigan apple firms has received increasing

74

priority following
to a wide and co
of Michigan appl
Represen
additional strater
established indust
and investigation~|
required more int
The marl
etpanding an in
interrelated. The
in the following 1

the major obserx

31-1 033m

A SCque
Provided Some '
"“8111 address [}
Stror
more

trade
TCgU

Deprexg
emerging [ham
Widely fElt in \1

aggTESSi V6 0

rgan
prOV’id
ed
exd
. A Chan
Slgnifi

priority following several years of relatively low returns -- especially to growers. This contributed
to a wide and concurrent recognition of outside market forces influencing the economic viability
of Michigan apple firms in much the same way.

Representatives from a number of these leading industry organizations began to investigate
additional strategies and consider action alternatives both within their firms and through the
established industry organizations to address some of these key issues. These earlier discussions
and investigations revealed a need to consider additional approaches to strategy development that
required more inter-organizational and/or inter-sectoral coordination and cooperation.

The marginal contribution of any one factor, force, or issue to raising the felt need for
expanding an industry approach to strategic response is difficult to measure. The factors are
interrelated. There were, however, forces that carried more influence than others and are discussed
in the following sections. The discussion is divided for the purpose of facilitating presentation into

the major observed threats to the industry followed by observed opportunities.

3.2.1 OBSERVED THREATS TO THE INDUSTRY

A sequence of emerging threats to the viability of apple production in Michigan have
provided some of the motivation for industry leaders to consider organized industry action that
might address these challenges. These include the following:

0 low returns to Michigan apple growers

0 strong competition, including expanding production in Washington

0 increasing competition from imported apple juice and other changes in international

O feaigciriafiom threatening reduced availability of key chemical inputs

Depressed prices recently have been, in effect, the product of a series of related and
emerging threats to the Michigan apple industry. The increasing competition from Washington is
widely felt in Michigan as well as strategic changes in other key competing regions. Some recent
aggressive organized strategic planning initiatives, particularly in Washington, were observed and
provided an example of a more organized approach that might also be used for Michigan.

A changing international trade environment provided both threats and opportunities. A

significant expansion in the consumption of apple juice in the US. has taken place over the last

75

10-20 years. h
Washington.
An im
the Michigan :
availability of

threats are di~

Lower Retu
A It
Strategic ma
returns ofter
resulted in
gTOWerg‘ a.
M
h‘di‘fd. m
dl\'1810n C
am $30“

funded I:

of the g

progrex

and Shi‘

prlCeX
in 19‘

RCCer

10-20 years, but Michigan has lost market share to both a large expansion of imports and to
Washington.

An increasingly burdensome regulatory environment has also been an increasing threat to
the Michigan apple industry. These regulations and unfavorable economic conditions threaten the
availability of key chemical inputs necessary for a viable apple industry in Michigan. Each of these

threats are discussed at length in this section.

Lower Returns to Michigan Apple Growers

A major factor that has stimulated industry-wide consideration and interest in industry
strategic management for Michigan apple firms and organizations has been the lower grower net
returns often below grower costs. Depressed prices, together with increasing costs of production
resulted in economic difficulties for many growers in Michigan for several years. Some Michigan
growers, as indicated earlier, have been exiting the apple business.

Many industry organizations gauge their own long-term viability with that of the growers.
Indeed, most major apple organizations in Michigan (Michigan Apple Committee (MAC), the apple
division of MACMA, Pomesters, Michigan State Horticultural Society, Michigan Apple Promoters)
are grower organizations particularly sensitive to grower concerns. The MAC and MACMA are
funded through grower assessment monies or membership fees.

Processors and shippers generally recognize their own interdependence with the welfare
of the grower segment and have been among those expressing concern with grower welfare. A
progressive and viable grower segment can favorably influence the competitiveness of processors
and shippers which add value to the raw product delivered by growers.

While the Michigan industry has observed near record production and distinctly lower
prices in 1992 and again in 1993, prices for both fresh and processed apples were relatively strong
in 1990 and 1991. Many grower costs continue to rise at rates out of line with current prices.

Recent season average prices for Michigan are presented in Table 3.1.

76

Table 3.1 l

 

l

 

1988

lll

 

 

 

[/7

73

Table 3.1 MICHIGAN SEASON AVERAGE PRICES FOR FRESH AND PROCESSED
APPLES: 1988-199372

 

 

 

 

 

 

 

 

 
  
  
  
  
  
 

 

 

 

 

 

 

 

 

  

 

ii FRESH CANNED FROZEN JUICE ll
Year ll ---Cents per Pound---
1988 13.20 8.20 9.20 5.30
1989 Al" 11.80 7.40 8.80 4.30
1990 14.80 8.60 9.80 6.10
1991 H 16.40 9.10 10.30 7.00
Irl992 H 11.00 8.00 9.00 5.60
1993 I 12.00 7.65 = 8.90 4.60

A recent survey of fresh apple shippers indicated low grower prices to be an important
issue for the industry, as 92% of the shippers indicated a need to raise prices received by Michigan
shippers and growers to be either very important (50%) or important (42%). Impressions of the
growers’ current economic welfare varied somewhat from shipper to shipper. Still, the sharp
decline in both fresh and processed prices in 1992 and 1993 accentuated the cost-price squeeze,
together with increasing overall national supplies created a major point of concern for many
industry leaders.73

Growers echoed the perception of the shippers in their own survey. The need to raise
grower prices was identified as one of the most important issues by all growers, independent of
grower size or market emphasis. Lower prices and the concern over how certain forces may
impact future prices were important factors encouraging the investigation of strategic alternatives

for the industry that may provide some remedy.

Strong Competition and Expanding Production in Washington

 

72 Source: USDA Non-Citrus Fruits and Nuts Mid-Year Supplement.

73 A study by Kelsey and Schwallier (1989) indicated that since the early 19805 costs have
been trending upward and exceeding season average prices for apples in Michigan.
Estimated costs have continued in excess of season average prices to date, according to
personal communication with Phil Schwallier, a district extension horticultural specialist.

77

T1

for apples“
markets. I
and fresh 2
of Washin
since 196C
has recent
million bu
over the 12

Figure 3.1

\

Production (million bu.)
A 0) oo 5 m A or
KW I‘m A A .._ __

A)
m

“guinea” t
(

total apple 5

The state of Washington continues as an increasingly strong and competitive supply region
for apples in the U.S.. This causes major challenges for Michigan firms, especially in fresh
markets. Particularly noteworthy have been the dramatic increases in Washington apple production
and fresh apple sales along with the aggressive promotion by firms and organizations in the state
of Washington in recent years. Growth in apple production has been trending upward in the US.
since 1960, led primarily by Washington as exhibited in Figure 3.2. Although the rate of growth
has recently leveled off somewhat, Washington produced a record crop in 1993, exceeding 119
million bushel. Production in other US. regions has continued as a group at relatively stable levels
over the last 30 years.

Figure 3.2 APPLE PRODUCTION IN WASHINGTON, MICHIGAN, AND OTHER
U.S. REGIONS WITH 5 YEAR AVERAGES: 1960-1993.

 

   
    
   

1 60 1

1 4o 4
A i Other U.S .
3' 1 20 . ‘ ‘ .

. \‘ ,
g l \{ ‘\\“ c”, \VI ' a “*Q:‘::':\_:
0 100 . :”v.,u‘: 5 3 ~ “e t
.— -. ~II : 7'77 -—.,g ‘4’ ~ . 4
E i J! :: '2‘ ‘7“ , i ' 2'; \\‘\~:~:V \EMT i T: ‘
E ' s ’ I ~ ‘\.. \ N“ R‘
Q
v ‘ ‘ \
c 80 e‘ '
.9 i Washington
‘6
3 i
'8 60 :4
h l
a 1
401
Michigan
i V s", \‘éa", \‘év’h ‘\\‘\"‘""l
20 “ ’I”IIA‘S‘:":’”l'IA¢°‘ fl"Intuit" ‘ "1;ng ’1""v-o'a..'..i’.'m“"‘“"" T

\
Vum urmr \‘
\‘ em "all“. kart \ -.A
I, \\ 7 ,_ 77M A - W #7 er , W._ \,7
minuscule“ Imam“ ”I*\“‘ ’a ”1"}

I \\‘
fi“ 4|“

1
o it--- .— . a, . -L, as, a we. _ I--. . . . ..- ,. _.

1 960 1 965 1 970 1 975 1 980 1 985 1990
Years

Growth in Washington's production as well as in the US. apple supply overall has put
significant competitive pressure on Michigan. Michigan now contributes a smaller share of the

total apple supplies produced in the US, especially because of Washington’s larger growth in

78

produc
to local

and me

to have
peaked '
decline i
however
New tree
Andrews
1993 “h
million a
é‘lipected
growth in
ContinUe
h
ati'etaging
Planted i,
”-39 mill
in Washin
there has

production. Washington’s growth has been stimulated in part due to size economies with respect
to local assessment revenues, effective regional organizations, and increased leverage in promotion
and merchandising relative to Michigan.

The rapid growth in Washington’s apple production observed through the 19805 appears
to have leveled off in the early 1990s. The estimated commercial bearing acreage in Washington
peaked in 1990 at 155,000 acres and has declined somewhat since to 147,000 acres in 1993. The
decline in acreage does not necessarily mean a decline in future productive capacity by this region,
however. Some outlook measures indicate a likely further expansion of production in the state.
New tree plantings have continued strongly in Washington since 1987, according to Marshall and
Andrews (1994), when 1.92 million new trees were planted. This trend has continued at least to
1993 when there were another 3.86 million added. Marshall and Andrews estimate a record 3.95
million apple trees were to be planted in Washington during 1994 based on new propogations
expected for sale currently observed in Washington nurseries. Thus various indicators show that
growth in Washington’s production capacity is likely to be sustained for some time if removal rates
continue to follow their historical pattern.

Michigan, by contrast, planted 279,000 new trees in 1987 with subsequent plantings
averaging 302,000 new trees per year between 1988 and 1991.74 There were 6.8 million trees total
planted in Michigan as of a 1991 orchard census. Washington will have planted an estimated
11.39 million new trees to date just since that Michigan census. The five year average production
in Washington has increased nearly five times over the levels observed in the mid-19605, while
there has been relatively little change in Michigan or the aggregation of other US. regions.
Washington now produces nearly half of all the apples in the U.S..

Bearing acreage in Michigan has increased, but slowly compared to Washington. USDA

data QNIon-Citrus Fruits and Nuts) indicate small increases each year since 1987 when there were

 

49,500 bearing acres in Michigan to 1993 when there were 56,000. New dense planting systems

 

74

Based on data reported in the Michigan Rotational Survey: Fruit 1991, Michigan
Department of Agriculture, MASS, June, 1993. Removal rates are difficult to estimate
from current available data. An important feature of new plantings, however, is that the
quality and productivity of the newer planting systems typically exceeds that from trees
being removed.

79

employing dwarf
acreage alone is
increasing with J
in Washington
currently.

The W.
apple market a
large. increasin
merchandising

The at
market condiri
their buyers at
value for l‘drg

The !
l'eSulted in v,
QUaliry dime
PTOmgtion ar

{TENT} m 'dl’ke I

Imported :s

The
and Chanson
Michigan to

Michigan <

AlthOUgh t]

employing dwarf varieties, however, have been widely adopted throughout the US. so that bearing
acreage alone is not necessarily a good indicator of production capacity. Yield per acre has been
increasing with increased planting density. Marshall and Andrews (1994) report planting densities
in Washington to have increased steadily from under 250 trees per acre in 1980 to about 450
currently.

The Washington apple industry has become the dominant regional force in the fresh U.S.
apple market and a major force in international apple markets. This has been because of their
large, increasingly dominant volume and their high performance on quality, year around supplies,
merchandising support, advertising budget, etc.

The apple industry in Washington has been able to leverage their growth to influence fresh
market conditions. They are a major international supplier that has been able to exert leverage on
their buyers as the principle year around source of high quality fresh apples - a critical source of
value for larger supermarkets and other commercial accounts.

The size and degree of in-state coordination by Washington growers and shippers has
resulted in Washington setting many of the standards for other regions supplying fresh apples.
Quality dimensions, price, standard operating procedures for buying and selling, varieties, and
promotion are all areas where the Washington industry has been a major force, particularly in the

fresh market.

Imported Apple Juice and Other Changes in International Trade

The international trade arena has increased in importance for apples marketed both as juice
and as fresh. A number of changes in international trade have set in motion forces for change in
the Michigan apple industry. Import competition expanding the supply of apple juice concentrate
and changing international demand and supply conditions have been major or potential threats for
Michigan as a competitive juice supplier.

Apple juice has traditionally been regarded as an important secondary market outlet for the
Michigan crop, making up approximately 28% of the utilized production during 1988-1992.

Although the value of Michigan's apples in the juice market have been relatively stable over the

80

past 10 )
internatior
Michigan

15-20‘} it

18

Production (million bu.)
or on o m A 0)

A

M

E)
1mpOrted J"

past 10 years, Michigan has not paralleled the growth realized in Washington and other
international supplying regions. The consequence has been an eroding U.S. market share for
Michigan as exhibited in Figure 3.3. Michigan’s share of the U.S. juice market has fallen from

15-20% in the early 19705 to around 5% currently.

Figure 3.3 MICHIGAN'S DECLINING MARKET SHARE IN A GROWING U.S.
APPLE JUICE MARKET.

  
   
 

 

 

180 , t 25
160 .w :
Michigan's Share All Juice Sold in us. -. 20

A 140 Th’c :

. l g l
3 v. , S
2 120 i i ' 3
.2 t 's E I ‘°
E s ” 15 g-
\E/ 100 ,. 2' ‘s‘u'fluus g E’,’ l 3’
c l “ = 5 ’a l 3'
o , 3 5 ‘s 93
‘3 80 a E 3. 53 l 3
D ‘ E : E 5 y 1 0 {a
U ' =5 30": m
D. I s , | 3
i ”I,“ g v i 0-0-
0 l 5 s‘“ "’6 VI: .1 V

4 4| 2“‘\ g “‘\ ’l" 5
T '23s“ l
Q
20 Michigan ‘
0 T‘; T7 : Mr TT‘T YTTT ‘ T—T rT ’T__lwfi TlT FT? ”Ti—VI—T l‘fii T if T 7‘ 1' O

1 965 1 970 1 975 1980 1 985 1 990
Years

Expansion in juice sales by Washington in the late 19805, and particularly the growth of

imported juice over the mid- 19808, as exhibited in Figure 3.4, together with relatively little growth

81

in Michigar
significant n'
Cor
(Germany.
Brazil). 0V
region. Sot
data in this

The deman.

Figure 3.4

\

10C

6C

4C

Production (million bu.)

2C

prOdUCt in 1
expanding

Co . .
mpermOr

in Michigan juice markets illustrates this market condition. California has also realized some
significant recent volume growth in the juice market parallel to their overall growth in production.

Competition from abroad for U.S. juice markets has primarily come from Europe
(Germany, Hungary, and Austria) and South America (Argentina, Chile, Mexico, and recently
Brazil). Over half of the juice sold in the U.S. currently comes from some international supplier
region. Sources of juice imports and U.S. production since 1989 are presented in Table 3.2. The
data in this table illustrate the breadth of competition Michigan processors face in the juice market.

The demand for apple juice products have grown faster than fresh or any other processed apple

Figure 3.4 APPLE JUICE PRODUCTION SOLD IN THE U.S. BY WASHINGTON,
MICHIGAN , AND IMPORTS: 1971-1992.

 

    
 
    

100»
80 i
3' . Im arts
.0 p
c ........
.2 .~ .
E 60 - ‘
é . s
C 0‘
.9 I \s“
g ‘\
o . ‘.
§ 40 5‘
- “ 'n n
11. Wash: 910
20 J

 

”Michigan

N“ ”'"mmumum mil!“
MN“ "'00: «I‘m.
“M!“

  
   

\
”mom“. “'"mWImmru-NMW“

 

0 7" ' ‘rw " r ‘ T fit 1’ H #r— fr—o Wm— ! "r'k . ,_., T4", *4“:
1971 1976 1981 1986 1991
Years

 

product in the U.S. over the past 20 years, but the rate of growth has been substantially filled by
expanding imports and has more recently slowed which thus may lead to a more intense

competition among suppliers.

82

 

Table 3.2 [MP

Production
Region

 

Argentina

 

German _\

 

Chile

 

Hungary

 

 

Auqna

Turkey

l/

Mexico

1

Brazil
S. Africa

1Thers

ll/

T0131 Tm n '\

l

‘0 limingtrm

l

Michigan
New Ytirk

(”her L‘s

l U]

otal JUic e
and L's

1

11'th

 

‘ducutfin

/.

‘ 1.-
—

H a m u-
”? 2 E a
I C ‘1‘ U F
.. a? —~ § r.
H C
5' a 9’
fl p—le .
O m A
5’ c = 0 g 3
‘1 5’- ’- ,,-
? 2 a .0. 9 a .,

 

.__

Table 3.2 IMPORTED AND DOMESTIC SUPPLIES OF APPLE JUICE: 1989-199375

1989 1990 1991 1992 _ 1989-1992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   
   

 

 

 

 

 

 

 

Production
Re _ion ---Million 42 Pound Bushel Sin le Stren; th E : uivalents---
Arentina 15.0 23.7 19.3 21.5 19.9
Germany 15.2 12.6 12.7 11.7 13.1
Chile 4.0 5.5 8.4 8.7 6.7
Hungfl 6.3 8.0 7.9 4.1 6.6
Austria 8.2 6.4 8.1 2.2 6.2
|[ Turkey 0.5 1.9 3.7 1.6 1.9
Mexico 0.8 1.8 2.1 1.9 1.7
I} Brazil 0.0 0.0 0.0 1.6 0.4
S. Africa 0.0 0.0 0.0 0.7 0.2
Others 11.1 6.7 1 1.8 8.0 9.4
Total Imports 61.1 66.6 74.0 62.0 67.2
Washington 23.6 25.0 18.0 22.6 22.3
California 6.8 g 7.6 7.5 7.7 7.4 8.3
Mitgigan 6.4 3.9 6.0 7.1 5 .9 6.5
New York 3.0 3.2 6.4 6.0 4.7 3.7
Other U.S. 9.8 9.8 14.3 15.7 12.4 17.2
1 Total Juice Import ‘
and U.S.
Production = 1 10.4 116.1 126.2 120.8 1 18.4 122.4

  

 

Barriers into growing export markets have also presented a challenge to the Michigan
industry. The Mexican market for U.S. fresh apples has recently opened up and Washington
shippers moved in quickly to supply this outlet (although trade has declined again with the recent
devaluation of the peso). Michigan firms, however, came up against Mexican phytosanitary

regulations that have prevented any exports to date.

 

7’ Source: compiled from USDA NonCitrus Fruits and Nuts Mid-Year Supplement, and as

reported in MACMA Apple Crop Statistics and Market Analysis: 1994.

 

83

Regulations T11

The dct
quality produce
shippers. RPS

production have

 

with its climatic
some combinati'
concerned with

pesticide tools .1

1
I
scientists who “I
methods, includ|
viable alternatix
major problems
key pesticides p
have subsequer
Particul
Chemical comp;
the apple indtm
raise; the Comp
from the marl-cc
SUch regulatior
parallc
incentives to

L

f IESQarCh

 

Regulations Threatening Reduced Availability of Key Chemical Inputs

The demand for safe produce in the U.S. has increased parallel to a demand for high
quality produce with unblemished appearance. This can present a dilemma for growers and
shippers. Regulations governing the production and use of key chemical inputs for apple
production have been a major point of concern for U.S. apple producers in recent years. Michigan,
with its climatic conditions, has a broad spectrum of apple pests that are often managed through
some combination of chemical and cultural control measures. Growers have become increasingly
concerned with trends in the regulatory environment that have reduced the number of effective
pesticide tools available and therefore have raised their costs of chemical inputs.

A number of research documents have been prepared by Michigan State University
scientists who work with the Michigan apple industry explaining the current usage of pest control
methods, including a variety of pesticides, and that these are being both judicious and often lacking
viable alternatives.76 Continuing regulatory pressure on pesticide availability and usage presents
major problems and high risks to the industry. The threat of further reductions in availability of
key pesticides poses an especially high risk and threat to the industry. Leaders within the industry
have subsequently considered the need to consider alternative strategies to address these threats.

Particular concern has centered around the issue of pesticide re-registration. Agricultural
chemical companies face difficult decisions when re-registering chemicals considered essential to
the apple industry. Tighter regulations on a chemical's use, together with very expensive testing,
raises the company’s costs above that for which they can reasonably expect to realize a fair return
from the market, particularly from pesticides for low-volume, “minor-use” crops such as apples.
Such regulations have resulted in some cases companies declining to pursue re-registration.

Parallel to the re-registration challenge is the changing economic environment related to
incentives to develop new chemicals that are less expensive, more efficient, and safer. The costs

of research and development associated with a new chemical alternative is often quite high,

 

76

See, for example, a staff paper prepared by Ricks, Hull, and Kelsey in collaboration with
a number of extension agents, entomologists, plant pathologists, and horticulturalists,
”Impact on the Apple Industry of Reduced Pesticide Usage”, Department of Agricultural
Economics Staff Paper No. 93-46, March 1993.

84

requiring high
almost all regist
Researc‘:
or make more t
time and resourt
are an integral p
that includes d1
Pests of Michig
DOSI'harV'CSl qt,-
relatively high j

to mmt Other Cr

 

in Principle to t
is Vulnerable a_\
The ch.

more fuhdamml
demanded by II
|

reprisems the “I

a reasonable Dr

,\

JOneS‘
Reduci

John-'81.":
to [he .

Hu11. J.
Fofce‘
ingect’
3")
Beaudr
0mm,
81
Flor ‘
1994 . _
Cosme:

 

requiring high remunerative prices and/or large volume sales. The EPA has recently blocked
almost all registration of new materials regardless of indicated safety.

Research to develop viable and sustainable production systems that employ fewer pesticides
or make more efficient use of others is on-going for apples in Michigan, but takes considerable
time and resources to develop, test, and extend. Chemical controls for many diseases and insects
are an integral part of an overall integrated management system for a Michigan apple pest complex
that includes diseases (up to 20-25 serious in any given year),77 insects (up to 50 serious annual
pests of Michigan apples)", and weeds”. Other minor use chemicals are employed to manage
post-harvest quality (primarily scald and decay)80 and the regulation of plant growfii. The
relatively high level with which a variety of chemicals are needed for marketable apples relative
to most other crops (particularly non-horticultural) tends to attract the attention of those opposed
in principle to the use of chemicals on food products, and therefore the apple industry in general
is vulnerable as a political target.

The challenges arising from the regulation of key chemical inputs are representative of a
more fundamental industry issue - finding the means to produce the high quality of product
demanded by the consumer at remunerative prices to those producing it. Quality, in this sense,
represents the whole package of value: attractive, safe, flavorful, good condition (firmness), all at

a reasonable price.

 

77 Jones, AL. ”Disease Control on Apples in Michigan and Perspectives on Strategies for

Reducing Fungicide Inputs", special report to the Task Force, June, 1994, 13p.

78 Johnson, J .W., ”IAI-EPA Strategies: Apple Insecticides, Michigan Scenario”, special report
to the Task Force, June 1994, 7p.

79 Hull, Jerome Jr., ”Orchard Weed and Vegetation Management”, special report to the Task
Force, June 1994. Effective weed management relates closely to effective management of
insect, disease, and vertebrate pests, as well as influencing optimal vegetative growth.

80 Beaudry, R.M., ”PostHarvest Disorders of Apple: Rationale for Use/Disuse of Chemical
Control Measures”, special report to the Task Force, June, 1994, 6p.

81

Flore, J .A., ”Plant Growth Regulators for Apple”, special report to the Task Force, June
1994, 2p. The paper suggests that plant growth regulators provide basic benefits of higher
cosmetic quality, greater yield, lower labor costs, and superior timing of harvests.

85

Michi
threat to appl
address this is

In sun
significance f
Within the int
guarding agair

individual fim

322 mm:
AnUm
action. Thcse

expanding mar

New and Exp;

New ar
New varieties b
in certain eXpo
Washington am

world, The pr

W . -
a} In the Char

 

nature
K pr“

  
 
   
  

coordination (

promotional su

COUtin
DBSI 15 Yeam

d

a

 

Michigan apple firms recognize this challenge to the industry to be far reaching, a common
threat to apple production in the whole region. Efforts to remedy or to at least meaningfully
address this issue are recognized as requiring broad and coordinated industry commitment.

In summary, a number of factors have been recognized to have increasingly important
significance for the overall viability of the Michigan apple industry. Firms and organizations
within the industry all face these issues and have improved prospects for influencing or safe-
guarding against these factors through collective strategic planning beyond the efforts of their own

individual firm.

3.2.2 OBSERVED OPPORTUNITIES FOR THE INDUSTRY
A number of Opportunity areas also serve as forces for setting the stage for needed industry
action. These are divided here into industry opportunity areas associated with (1) new and

expanding markets and (2) improving capabilities to serve these markets.

New and Expanding Markets

New and expanding export market opportunities are emerging, particularly for fresh apples.
New varieties being produced competitively in Michigan, such as Empire, have been emphasized
in certain export markets. This variety, for example, has been well received in the UK. The
Washington apple industry has been expanding their exports of fresh apples to markets all over the
world. The prospects for Michigan to profitably increase overall industry participation in some
way in the changing international trade environment appears favorable to many in Michigan. The
nature of supplier entry for many of these export market segments, however, requires regional
coordination of market research, overcoming import barriers, maintaining adequate supplies,
promotional support, and service.

Continued growth in the consumption of fresh fruits and vegetables in the U.S. over the
past 15 years also appear to present further opportunity for Michigan firms involved in the fresh

market. Demand for fresh fruit in the U.S. generally continues to appears strong. However, the

86

volume of 5
particularly ir

Addit
grower segmc‘
how Michigar
the industry. '
markets offerii

in later chapte

Expanding C

A nun
recognition [h
Factors such a
from WW plar.
compellllVene‘

 

 

volume of Michigan apples sold in the fresh market has increased slowly over this period,
particularly in comparison to Michigan’s processed markets.

Additional opportunities have been suggested by surveys of the Michigan shipper and
grower segments. The need to identify and better understand export and domestic markets and
how Michigan could best move to take advantage of these is recognized as important by many in
the industry. These indicate a number of more specific opportunity areas in new and expanding
markets offering potential for growth for Michigan-based firms. These are discussed in more detail

in later chapters.

Expanding Capabilities in Michigan

A number of innovations and improved capabilities have contributed to an industry-wide
recognition that Michigan firms are improving in means to generate value in their products.
Factors such as improved pacldng house and storage equipment, as well as the quality and yield
from new planting systems and varieties, offer opportunities for Michigan to enhance its overall
competitiveness. These, and other technical innovations, could potentially aid Michigan firms to
better serve both existing and new market segments.

There is again a recognition that a certain level of industry-wide coordination may help to
enhance and to maximize the value of these innovations. Newer packing house methods and
technologies, newer varieties and strains, and alternative approaches to quality management have
been recognized by many to require some degree of coordination to facilitate industry education.
There is a need for Michigan firms to consider, as an industry, alternative means by which they
can together improve their capability to deliver the demanded product to key market segments.

Opportunities to further improve the overall capabilities of firms in the Michigan apple
industry have been identified through the segment survey process. These are discussed in more
detail in the following chapters.

A degree of purposeful identification, evaluation, and coordination through collective
strategic planning efforts may be necessary to fully exploit or respond to market or innovation

opportunities. The full potential for the Michigan apple industry to further develop certain

87

oppofl U n l
howe ver. .

to address

3.2.3 ST
771:
competitors.
for organiza
their own su
which has gr
SUbSector strz
CXpansion of
have made tl
bait-“d activiu}

Task FOTCC. a

The “‘aShing

 

opportunities through collective influence or coordinating mechanisms remains to be discovered,
however, industry opportunities, like industry threats, once realized as requiring certain joint effort

to address, can serve as an impetus for strategic planning at an industry level.

3.2.3 STRATEGIC PLANNING INITIATIVES IN KEY COMPETING REGIONS

The industry improvement strategies through collective action or strategic planning by key
competitors, primarily in Washington and New York, was one (although relatively minor) stimulus
for organizations in the Michigan industry in the early stages while developing and emphasizing
their own subsector strategic planning. The strong competitive position of the Washington industry
which has grown and evolved over time has been further aided in recent years by some aggressive
subsector strategic planning by leading apple organizations in Washington. The recent significant
expansion of production in that state, together with other growth and high performance factors,
have made this region an especially competitive threat to the Michigan industry. The industry-
based activities of the Washington State Apple Commission, the Washington Tree Fruit Industry

Task Force, and the Western New York Apple Growers Association are discussed below.

The Washington State Apple Commission

The Washington State Apple Commission (WAC) has been a major organizer of industry
activities for firms marketing apples from Washington through aggressive and effective demand
expansion programs. They have been instrumental in setting certain strategic courses for
Washington apples and marshalling the needed resources to implement demand expansion strategies
and supporting activities.

The Washington State Apple Commission was formed in 1937 as a state agency and is one
of the oldest commodity groups in the nation. It has helped to benefit the Washington apple
industry through high organizational performance, capturing certain size economies for promotional
activities and developing momentum in key markets. Examples of some of their more recent
activities have been related to state-level generic promotion and product differentiation, retail

merchandising support, Hispanic market development, and extensive export development. These

88

and other marl
performance of

The re
orientation. and
U.S. apple pm
New York. and

The Mi
received 5208.
Institute. whic'
5910.000 in .\
received $3.91.

The V\
crafted with the
1992.“ The 8:“
including Contii

aimed at prion

growers “thh |

 

 

and other market segment development strategies all have been geared to improve the overall
performance of the apple industry in Washington.82

The relative size of the Washington apple crop, the state’s primarily fresh market
orientation, and relatively higher per unit assessment level enable the WAC to be a major force in
U.S. apple promotion and advertising compared to the much smaller commissions in Michigan,
New York, and California.

The Michigan Apple Commission, for example, in support of export market development,
received $208,000 in MPP funds between FY 1986 and FY 1993. The International Apple
Institute, which represents interests of fresh apples produced throughout the U.S., received
$910,000 in MPP funds during that same period. The Washington State Apple Commission
received $3,910,000 in MPP funds just for FY 1993 and $24,210,000 in total since FY 1986.83

The WAC developed their 1992-1997 Strategic Plan for their organization which was
crafted with their perspective of the conditions facing their regional competitors and consumers in
1992.84 The 85 page document contains a background, a situation analysis, goals, and time lines,
including contingency plans for alternative crop sizes. This particular strategic planning effort was
aimed at prioritizing WAC efforts help to provide the best possible returns for the Washington

growers which they represent. While strategic planning was initiated and implemented through a

 

82 The Commission is forbidden in its constitution to participate in political lobbying or

horticultural research. The WAC had 16 full time employees at their headquarters with
another 16 retail field representatives throughout the U.S. in 1989, with an operating
budget of $10.5 million. A grower check-off is administrated through the warehouses on
a $0.25/box basis. There is no check-off for processed apples. (Anderson, 1989)

83 Based on FAO data reported in Mendelowitz (1993). The Washington State Apple
Commission received a ceiling for their MPP programs of $3.747 million for FY 1994,
according to FAS reports recorded in World Horticultural Trade & U.S. Export
Opportunities (June, 1994). The International Apple Institute was designated to receive
a maximum of $552,000 for FY 1994. These include the 1994 allocation plus any unused
funds from the previous year’s allocation. Congress continues to cut back on this program,
authorizing a total of $100 million for FY 1994, down 32% from FY 1993. Participation
has also become more difficult as congress has further required submission of a description
of unfair trade practices as well as a minimum 10% contribution on non-brand promotions
by the commodity organization.

 

The material presented here is based on a special edition newsletter distributed by the
Washington Apple Commission, ”Commission Sets Course for Future” highlighting the
contents of the more detailed strategic planning document. This special issue of the
Washington Applegram, was distributed August/September, 1992.

 

89

single organiza
action on 3 st.
man)r differen
recently in a m
that Michigan -

The \\
ObjCCllVC‘S and
PerfOfmance b
marketing of f
region. The S
POUnds‘ inCTt‘a:
constant or int
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fourth Emil wd

SummRYiZed in

 

 

single organization in this case, the emergent objectives and strategies reflected performance and
action on a state-wide subsector basis, representing the aggregate production and marketing of
many different grower, packer, and shipper firms. Highlights from this plan were published
recently in a newsletter for Michigan growers by the Michigan Apple Research Committee, stating
that Michigan could benefit from developing their own collective goals in a similar manner.
The WAC identified four basic goals for their five year plan, each with supporting
objectives and specific initiatives intended to bring about a desired level of improved state-wide
performance benefitting the Washington growers. The first goal was to improve the domestic
marketing of fresh Washington apples to increase the market share of Washington as a supplier
region. The second goal was to increase U.S. per capita apple consumption from 22.5 to 25
pounds, increasing consumption from Washington from 11.4 to 12.4, while FOB prices remain
constant or increase. The third goal was to expand export marketing programs to help achieve
export sales equal to a minimum average of 20 percent of the fresh Washington apple crop. The
fourth goal was to meet the communications needs of the Commission and the industry. These are

summarized in Table 3.3.

90

 

 

 

 

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aPPlt‘ industry

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CharaCIEFistics

 

 

It is apparent from the published and widely disseminated plan that the proposed activities
by the WAC are proactive, involve a refined relatively focused agenda, and have direct
implications for the competitive position of the Michigan fresh apple segment to the extent these
objectives are achieved. Apples produced in other regions such as Michigan are regarded as a
substitute or rival for Washington apples, competing for the same shelf spaces and food service
accounts.

Increased fresh sales volume, buyer identification of ”Washington” apples, and market
share are central measures of the WAC promotion strategy. Performance in the WAC plan is
generally measured and evaluated at a state level as the Commission, financed primarily through
grower assessment fimds, seeks to expand markets for Washington apples, improve the welfare of
Washington apple growers, and, indirectly, the many other firms associated with the Washington
apple industry.

The Washington promotion strategy emphasizes the high quality of fruit consistently
available from the state, as well as the dependable supplies and strong merchandising support. An
apple from Washington is also promoted as having distinctive value, representing qualities and
characteristics that uniquely fill consumer preferences.

Michigan firms are affected by Washington’s promotional strategy. Consumer expectations
for apples (size, color, variety, packaging, etc.) on a general level are carried over to Michigan-
based suppliers. The sheer size of Washington as a supplier region relative to other states enables
them to heavily influence the standard operating procedures of most produce buyers.

Suppliers of fresh apples from Michigan will be pressured to conform to the quality
standards and many of the supplying conventions initiated by Washington firms. The wide use
of tray packs, high quality fruit (including premium grades), large promotional allowances to the
trade, high profile consumer advertising, and, more recently, PLU labels on fruit are increasingly
expected of all suppliers by buyers who do a significant business with Washington-based firms.
Suppliers of fresh apples from Michigan will be pressured by buyers to supply similar fruit and
related supporting services as Washington-based firms or the buyers may increasingly shift to

source from Washington.

93

   

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The WAC’s 5 year strategic plan includes specific measurability of most performance
objectives. This facilitates ex post evaluation of the stated objectives by the WAC and grower
community.

Growth in market share is targeted for various market segments, increases in merchandising
participation is enumerated, specific growth in state label recognition is targeted, improvement
levels relating to consumer attitudes are identified, and specific actions corresponding to theses
objectives are proposed. While these targets may be revised as other data is assimilated, the WAC
is able to gauge progress toward these goals. This enables them to communicate their successes,
revise approaches in the event of a goal shortfall, and, if necessary, revise specific objectives.”

Specific means for engaging the participation of other Washington apple industry
organizations outside the purview of the WAC is not stated, though a key component of their goals
is to meet communication needs of the Commission and the industry. It can be a difficult
dimension of industry strategic planning to engage meaningful cooperation from competing,
independent, or only remotely related organizations. An advantage held by the WAC when it
comes to garnering in-state cooperation, however, is its size and influence by which it is able to
devote resources to develop fairly specialized attention to a broad array of issues.

These strategic initiatives undertaken by the Washington Apple Commission on behalf of
the fresh segment of the Washington apple industry have not gone unnoticed by individuals
associated with the apple indusz in Michigan. They have been particularly monitored by those
in the parallel Michigan Apple Committee.

The strategic planning approaches utilized by the WAC provide a number of interesting
illustrations of some alternative means to carry out planning with a view toward influencing the

performance of a regional commodity industry. Considerable and specific detail is provided with

 

8’ The need for quantifiable organizational goals and objectives is a point of some debate

among business strategy academics and practicing strategic managers. Those favoring
quantifiable goals emphasize the merits of clarity of goals, ease of ex post evaluation, and
clear signals for strategic change or goal adjustment arising from differences between
measurable goal and reality (Ansoff and McDonnell, 1990; Thompson and Strickland,
1990). Those presenting a counter-argument (Quinn, 1980) suggest quantifiable goals can
unwittingly present focus or rallying points for opposition, unnecessarily reduce flexibility,
and therefore should be stated more generally.

94

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regard to their goals and specific objectives for the industry and proposed actions to implement
each plan component. The WAC, on the other hand, is one organization with a somewhat more
narrow focus with regard to their strategic planning (marketing and promotion, demand expansion,
industry communication) than that pursued by Michigan firms and through the Michigan subsector
planning. It illustrates, however, both approaches of an industry to collectively influence their
market environment and the nature of the threat faced by Michigan firms in the form of an

aggressive and growing rival supplier region.

The Washington Tree Fruit Industry Task Force

The Washington Tree Fruit Industry Task Force is an example of an industry organization
that meets for the purpose of advancing common interests over otherwise diverse industry segments
and firms. The Washington Tree Fruit Industry Task Force was formed in 1989 to evaluate and
address broad issues influencing the various tree fruit industries in Washington, of which apples
is among the most important.86 The Washington State Horticultural Society, one of the lead
organizations involved in establishing the Task Force, provides financial support of about $10,000
annually to cover travel, meetings, mailing, and other expenses.

The goals of the Task Force cover a broad base of industry issues and segments over a
variety of tree fruits produced and marketed from Washington. Stimulus for early development
initiatives included low returns in 1987 and 1989, the Alar crisis in 1989, and a felt need that
concerted long-run problem analysis was needed for the broad industry. Task Force goals included
the following:

1. Help maintain an economically sound Washington fruit industry

2. Identify important issues that are or will affect industry returns

3. Provide a broad-based forum on industry issues in which representatives from all
segments of the industry are involved

 

8‘ Much of the information presented here is based on an unpublished summary paper of a
study trip to the Washington Tree Fruit Task Force by Don Ricks (1993), subsequently
presented to the Michigan Apple Industry Strategic Planning Task Force.

95

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The mission statement of the Washington Tree Fruit Task Force is as follows:

"The Washington Tree Fruit Industry Task Force is an industry-wide organization that

(I) develops ideas to address future issues that aflect the economic well-being of the tree

fruit industry, and (2) will pass on and support suggestions and/or actions to the

appropriate industry groups for their consideration".

Representation includes each major fruit industry organization and currently involves about
50 participants. The Task Force has been co-chaired by a Washington State University extension
agent and an industry leader. Substantial use is made of subcommittees that focus on issues such
as post-harvest, production, marketing, and environment and public health. These committees
gather information, ideas, identify action alternatives, and then prepare a situation report for their
respective topic area (marketing, environment and public health, legislation, education, and farm
labor) which are then presented to the Task Force.

This Task Force is considered by its members to be an on-going industry organization
committed to issue identification, improved industry communication, developing appropriate inter-
sectoral linkages, and facilitating the development of tree fruit industry strategies that are intended
to improve the welfare of the industry’s f'u'ms and organizations. Implementation of Task Force
strategies and suggested action plans are encouraged by letters from the Task Force to the various
industry organizations. These communications describe the issue and discussed action alternatives
and indicate that the Task force either encourages a certain kind of alternative program, suggests
modifications to current program approaches, suggests a re-prioritization of certain issues, or may
encourage some specific manner of cooperation between different segments in order to implement
a particular action plan. The Task Force views its primary course of implementation as influencing
change through established industry organizations rather than as an independent action-
irnplementing agency itself. An annual status report on recommended Task Force actions is
pursued. Similar goals and approaches have been used by the Michigan Apple Industry Strategic
Planning Task Force with specific focus on Michigan apples.

The Washington Tree Fruit Industry Task Force has been productive in a variety of areas.
They have been important facilitators in recent industry actions that have included increasing
assessments for the Tree Fruit Research Commission, establishing minimum quality standards

(minimum pressure tests) for fresh Washington apples, initiatives to reduce the acreage of poor

96

 

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quality Red Delicious, and other industry improvement actions. Other efforts have related to
improving pest management research, improving pre-harvest crop estimates, establishing a tree fruit
breeding program, expanded research and extension on biological pest control approaches, initiating
a new orchard survey, review and modernization of grade standards for new varieties, reforming
controlled atmosphere regulations, as well as a number of other activities and strategies aimed at
improving overall performance of the Washington fruit industry. The Task Force has apparently
been fairly well received by the Washington industry as an organization and is considered an
important avenue through which the tree fruit industries can plan for their future.

The Task Force mission, goals, activities, and operation provide an illustration of strategy
formulation and implementation at an industry or subsector level. Since the Washington Task
Force had been operating for several years, it was of interest to Michigan leaders as they proceeded

with their own regional industry strategic planning efforts.

The Western New York Apple Growers Association

The Western New York Apple Growers Association (WNYAGA) undertook a strategic
planning project several years ago, to assess the competitiveness of the state’s apple industry. This
effort was completed in cooperation with Bruce Anderson at Cornell University in 1989.87
Anderson’s work on this project included surveys of producers, processors, and retail produce
managers throughout the New York industry as part of the project to identify viable strategic
alternatives for the WNYAGA and the New York apple industry. Anderson used the survey
results, together with market supply projections estimated from state orchard planting surveys, to
identify and recommend strategies for the Association along five basic areas: (1) advertising and
promotion, (2) leadership, (3) marketing and product research, (4) information service, and (5)
industry organization.

The strategic planning effort, somewhat like that undertaken by the Washington Apple

Commission, focused on refining the agenda for a specific organization which primarily emphasizes

 

87 The strategic planning efforts by the Western New York Apple Growers Association are

relayed here as recorded in Bruce Anderson, ”Strategic Alternatives for the New York
Apple Indusn'y”, Agricultural Economics Research Report No.89-15, September 1989.

97

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demand expansion for the state’s apples. The surveying of various segments of the state’s apple
subsector to identify key issues and strategic alternatives leading to viable production and
marketing was demonstrated to be a good approach for assembling valuable industry information.
Important segment interrelationships were clarified. Recommendations to the WNYAGA were
formulated from this information that were intended to improve the overall production and
marketing of New York apples.

The situation in regard to some manner of industry strategic planning and the attending
obstacles to collective approaches are somewhat different for firms in New York and Michigan as
compared to Washington. New York, though a much smaller producing region than Washington,
exhibits an industry structure much more similar to Michigan in terms of f‘um size and number,
relatively greater emphasis on processing, similar climatic conditions, and a similar production and
promotion of a wider variety mix. The firms and organizations involved in the industry strategic
planning process have similar goals. Maintaining strong fresh and processing markets are
important to both New York and Michigan. Firms in both states also tend to emphasize similar
geographic markets. Given the similarities in production and organization of the New York and
Michigan apple industries, some of the recommendations offered as a result of Anderson’s study
may also be meaningful for the Michigan industry.

A further point not fully considered to date is that two regions such as these, facing similar
challenges and opportunities, may have some incentive to coordinate on some fronts to advance
their mutual interests. Cooperative effort to further basic research or market development, for

example, may be in the interest of both regions.

3.2.4 A SUMMARY OF FORCES INFLUENCING INDUSTRY ACTION

In summary, the interest in Michigan industry strategic planning was influenced by the
impact of strong competition in both fresh and processed markets. There are also perceived
unexploited opportunities for Michigan as viewed by industry leaders in Michigan. The related

financial stress at the grower level, and mounting pressures to address challenges to current pest

98

management practices commonly employed by Michigan producers, and other pressures, provided
encouragement for industry leaders to investigate or express interest in possible joint intra-industry
efforts to address these and other matters.

The patterns and competitive pressures of certain collective strategic activities in key
competing regions served as additional stimulus for industry action in Michigan. There has been
a growing recognition that potentially there exists substantial benefit to greater industry
coordination and cooperation on many key issues. Early discussions between trade association
leaders and managers of key firms in the apple industry confirmed the fact that greater joint
influence could be brought to these issues, as well as other emerging and on-going issues, through
coordinated effort compared to the sum of efforts that might be initiated through each individual
firm or organization.

There is a recognition by key industry leaders that there are some kinds of problems
impacting the industry in such a way that they require broader cooperation and joint effort across
industry segments in order to most effectively develop response strategies and that a lack of
collective initiative can result in a deterioration of Michigan’s viable participation in many apple

market segments.

3.3 THE MICHIGAN APPLE INDUSTRY STRATEGIC PLANNING TASK FORCE

This section presents a general background on the formation, organization, and activities
of what has evolved to become the Michigan Apple Industry Strategic Planning Task Force. This
institutional innovation has been a major focus of developing an effective industry strategic process
in Michigan in support of the apple industry. Issues relating to coordination among industry
segments are also discussed. This Task Force has been a major facilitating organization for the
Michigan apple industry to collectively evaluate a number of major issues and coordinate industry

approaches toward improving the overall competitiveness of the industry.

99

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3.3.1 THE FORMATION, ORGANIZATION, AND ADMINISTRATION OF THE TASK
FORCE

The Michigan Apple Committee (MAC), which serves as the major promotional arm of
the industry, was a major organization initiating the subsector strategic planning process for
Michigan. This board recently set about the task of crafting a new five year plan for the MAC.
This planning activity raised awareness and receptivity for industry strategic planning on a more
general level than just the MAC organization itself. The MAC, like the other trade associations
in Washington and New York, is funded through a grower assessment but works closely with
growers, shippers, and processors. Because of its broad industry goals and linkages with various
industry segments, the MAC is very interested in strategic planning and improved industry
coordination.

The Michigan Apple Research Committee (MARC) also played a role in initiating the Task
Force. The MARC allocates apple research funds to various apple research. This committee is
funded by the research assessment together with the MAC. Leadership on the MARC has
supported a broad industry-wide approach for strategic planning with a view, in part, toward
helping them establish meaningful priorities for research.

A recognition of the need for long term planning by the subsector led to discussions among
individuals representing each the MAC and the MARC, together with the support of several
university professionals concerning the need for a concerted industry strategic planning effort. This
resulted in the formation of a ”development" committee that planned the effort and recommended
the formation of an industry strategic planning task force. The general goal was to begin a process
of broad industry strategic planning that would help clarify the appropriate strategic courses of the
Michigan apple industry and would set a relevant perspective for effective planning by these and
other key industry organizations.

It was recognized that substantial industry involvement and “ownership” of this task force
would be necessary in order for effective and credible long term planning and strategy
implementation to be executed. There was a consensus that a significant amount of strategic

management could be effectively carried out by individual firms with the assistance of the

100

 

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corresponding industry organizations. The need was felt, however, for improved intersectoral
linkages to aid the effectiveness of broad strategic planning both at the industry and the firm levels.

Some general goals for industry strategic planning that were later agreed upon and
operationalized by the broader industry task force were generated from the initial development
committee:88

1. Enhance Michigan’s competitive position in the future.

2. Assist in the clarifying and setting of overall priorities for future industry needs.

3. Help further strengthen the cooperation among various industry segments on priority

issues which are not likely to be solVed by individual firm action alone.

4. Develop a future oriented strategic plan for the benefit of the Michigan apple industry.

The development committee recommended the formation of an apple industry strategic
planning task force with representation from all of the major industry organizations. Each of the
major organizations were encouraged to designate one or more leaders to serve both as participants
on the Task Force and as liaisons between the Task Force and their specific apple industry
organization. A schematic representation of the organizations contributing leadership capital to the
Michigan Apple Industry Strategic Planning Task Force is shown in Figure 3.5.

The breadth of industry value-adding activities represented on the Task Force, together with
the active involvement of quality leadership representing the key industry organizations enables the
Task Force to be a powerful voice articulating the needs of the industry. This approach to
concentrating the industry ”voice” provides a credible mechanism through which broad industry
needs can be expressed to other organizations, both outside and within the Michigan industry.
Synergistic analysis, consensus and coalition building can be facilitated to take place relatively
quickly and at a high level, which in turn can facilitate a more rapid and effective response by the
industry to emerging opportunities and threats. A high quality rapid appraisal of the impact and
urgency of certain industry-wide issues or strategies can be conducted on a broad basis and in a

more efficient manner compared to an appraisal conducted by individual firms or outside analysts.

 

8" These goals were summarized in a staff paper by Don Ricks, ”Strategic Planning for the

Michigan Apple Industry”, (December, 1992)

101

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Figure 3.5 ORGANIZATIONS CONTRIBUTING TO THE MICHIGAN APPLE
INDUSTRY STRATEGIC PLANNING TASK FORCE
Michigan Apple
. . Committee , .
Michigan Apple Michigan Apple
Shippers Association * Research Committee
MACMA Processing _ Apple
Apple Division \ . . I Processors
Michigan Apple Industry-
Strategic Planning
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Horticultural Socrety Promoters
Michigan State International
Pomesters Assoc. Apple Institute
Michigan State
University

 

102

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The Task Force has a broad base of indusfly representation including leadership from both
fresh and processing market segments, over various stages of production, and over various activities
undertaken by different industry organizations such as those that emphasize promotion, research,
extension, and production.

The intent of this Task Force is not to replace or duplicate any organization’s basic
program, but rather to augment their capacity to operate more effectively as an organization
through facilitating higher level interaction with other organizations, enabling broad-based issue
identification and clarification, serving as a catalyst for more effective partnering initiatives between
industry segments toward developing and implementing workable, mutually beneficial approaches
to broad and difficult industry problems.

Furthermore, the Task Force seeks to develop greater and effective coordination and
cooperation between industry segments and organizations with a view toward better coaligning
goals and activities, or to at least minimizing the impact of intersectoral conflicts while working
toward developing more effective overall industry strategies. It is the functional objective of the
Task Force to serve as a catalyst stimulating effective long range planning and coordination
between the various organizations already in existence in the Michigan apple industry, particularly
where intersectoral or inter-organizational joint efforts can be improved.

Accomplishing the broad goals with a task force comprised of such varying, and in some
cases, divergent interests poses considerable challenges. Issues of organizational equity and issue
priority must be addressed. While represented firms and organizations have much in common that
they can pursue together, they are often rivals and/or have conflicting interests. Different
organizations often regard certain issues with different senses of urgency. A balanced agenda that
keeps diverse industry interests actively engaged is a central challenge for progress with the Task
Force.

An individual firm can make use of an authoritative structure of the firm’s CEO or Board
of Directors to prescribe the allocation of planning resources by department or division, as well as
mandate individual and divisional cormnitrnents to strategic planning. They can dictate what issues

will receive attention. By contrast, the voluntary participation of industry organizations to a

103

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strategic planning effort requires some type of non-hierarchical mechanism to maintain their
commitment to the effort and to sort out key industry issues, balancing rival organization concerns
with greater industry needs.

There has been strong continuing commitment to the strategic planning effort in the case
of the Michigan Apple Industry Strategic Planning Task Force. This continuing commitment to
the process by the attending organizations indicates that the anticipated benefits of cooperation by
each of them exceeds the anticipated costs of involvement and/or pursuit of independent means of
addressing the major threats impending upon the industry. Several industry organizations,
including for example both the MAC and MARC, want significant voice in the Task Force but
have agreed that administration of the collective effort can and should be facilitated outside the
scope of their respective organizations in order to credibly and effectively emphasize broad industry
ownership, an important factor necessary for broad-based industry involvement and to keep this
collective approach attractive to other organizations.

Task Force objectives have emphasized inter-sectoral and inter-organizational consensus
and partnership building as well as the active involvement of recognized industry leaders. It was
decided by the various participating industry organizations to utilize certain Michigan State
University extension persons in facilitative roles, since the MSU people are considered by industry
leaders to be fairly neutral and objective in their position toward other Task Force organizations.
The University, as a Land Grant institution, is committed to facilitating and pursuing strategic
alternatives improving the production and marketing of Michigan apples. The MSU ex officio
representative to the Michigan Apple Committee and the research and extension director of the
MSU apple research facility in Clarksville, Michigan were appointed to co-facilitate the Task Force
activities, including some administrative and communication responsibilities. It has been suggested
that the Task Force may be well served to have an industry ”president” perhaps on some sort of
rotating basis. It is also being considered by some that eventually the industry will need to staff

the administrative and facilitative duties of the Task Force.

104

The functional objectives of the Task Force as an information and idea gathering

organization that is further seeking to facilitate the collective strategic planning process is reflected
in the comments by Kenneth Arrow (1974):
”...the functional role of organizations is to take advantage of the superior productivity of joint
actions. An organization can acquire more information than any one individual, for it can have
each member performing different experiments. Thus, the limitations on an individual’s capacity
are overcome.” (p.53)

The Michigan apple industry has endeavored to establish an institution that can serve as
an effective vehicle for carrying out the strategic planning needs of the industry. Broad
organizational representation, the involvement of key leaders, and establishing a forum such as this
Task Force for synergistic discussion, analysis, plan development, and implementation strategies

are central components to the approach utilized by the Michigan apple industry to direct the

strategic planning process.

3.3.2 ISSUES OF COORDINATION AMONG MICHIGAN SEGMENTS

Coordination is a central objective of strategic planning. This is especially important in
the context of strategic planning for the subsector. Coordination in the context of the activities
within an industry involves coaligning interests and facilitating collaboration between key
individuals, between firms, between trade organizations, and between supporting organizations.
The Task Force, with its broad organizational and sectoral representation, is well positioned to
facilitate actions leading to improved coordination and cooperation between many of the apple
industry organizations. It has the capacity, through its broad base of industry support and
representation, organization leadership representation, and synergy of diverse perspective, to
facilitate and coordinate the addressing of issues through partnerships that might not otherwise
emerge.

A certain amount of coordination and cooperation takes place at a more micro-level within
the industry organizations represented on the Task Force. Individual organizations within the Task
Force each have their own agenda that may or may not coincide with agendas of other industry

organizations.

105

The Pomesters Organization, for example, represents a collection of apple growers seeking
to coordinate and pursue action alternatives to advance grower interests. They meet periodically,
exchange ideas on production, technology, and marketing in part to assist member growers can
improve the way they do business. The Pomester agenda reflects broad industry issues, but
perhaps in a different priority when compared to other organizations.

MACMA is another organization supported and directed by growers producing for
processing with the purpose of bargaining for equitable raw product prices, and can, it is argued
by those who are members, improve the bargaining process through collective action over that
which could be obtained without such an organization. The agenda for MACMA includes broad
industry issues that are of interest to the Pomesters, but may not be ordered in the same priority.
A certain amount of coordination can be negotiated and facilitated between these organizations
through the Task Force. A series of mutually desired industry actions requiring significant
collective effort that may be difficult for either organization to affect individually can be mutually
identified and more effectively pursued through the Task Force.

The Michigan Apple Committee, though broader in scope than several other organizations
represented on the Task Force, must give substantial attention to the interests of the growers since
the organization is financed and empowered exclusively through a PA 232 program, which
mandates the collection and disbursement of a grower assessment. The need for coordinated
actions with other non-grower segments in the industry, such as shippers, packers, and processors,
results in a high level of interaction between the MAC and these other groups. The MAC serves
as a logical springboard to industry strategic planning given its tradition of maintaining significant
inter-sectoral linkages. The agenda of the MAC, however, has focused on issues of promotion and
merchandising, and they have made a purposeful decision to stay focused in that way while being
very supportive and involved with the Task Force and its broader goals.

There are occasionally issues between segments or organizations where conflicts of interest
may lead to a credibility gap with respect to the true intentions behind recommended inter-sectoral
actions. Progress toward industry action that leading to overall improvements in performance may,

in such instances, be impeded by historical rivalry between segments. Growers, for example, share

106

a certain degree of rivalry with shippers and processors, positioning between them for the highest
return possible. They may hesitate to modify their own business practices on request when they
are suspicious of the shippers or processor’s intent. The shipper or processor may perceive
possible approaches growers can take to improve returns to the industry in general, however, they
may be more in implementing the needed changes if aided by a broad-based industry organizational
effort.

The Task Force, with its concentrated representation of the larger Michigan industry, has
a unique capacity to credibly solicit partnering or collaborative ventures to the benefit of its
member organizations with other influential organizations outside of the Michigan industry. An
illustration of this kind of ”meta-partnership” currently under way is the Task Force cooperation
with the International Apple Institute who is, in turn, cooperating with the Environmental
Protection Agency to develop part of a national pest management initiative that will result in both
a workable and effective programs favorable to (or at least considerate of) the climatic conditions,
unique pest complex, and current management practices employed by Michigan growers. A
comprehensive industry plan is being constructed with the support of selected University specialists
through the forum of the Task Force in a manner that may be both timely with respect to certain
policies and also satisfactory with respect to the regional industry’s situation and needs. The
development of a comprehensive and acceptable plan in a timely manner has been greatly
facilitated by the mechanism of the Task Force.

There may be some opportunity for the Task Force to represent the interests of apple
producers in broader cooperative ventures toward improving the pesticide management situation
with other minor-use crops through a minor-use crop coalition. This has been discussed at several
Task Force meetings.

The coordination of independent firms, organizations, and segments in the Michigan apple
industry to cooperatively address industry-level issues has required a fair degree of facilitation. N 0
individual, firm, or organization has been forced to come to the strategic planning table; all
participation has been voluntary. Identifying where improved coordination is needed may not

always be straightforward or predetermined when the industry organizations commit to the strategic

107

 

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planning process. Through interactive participation in the process, however, opportunities to
improve coordination and information flows have emerged and the key industry segments are well

positioned to craft and implement strategies for improvement.

3.4 INDUSTRY ISSUE INFORMATION GATHERING BY THE TASK FORCE

This section of the case examines the approaches used by the Michigan Apple Industry
Strategic Planning Task Force to gather pertinent information toward prioritizing its actions. This
section begins by presenting the agenda forming process as a modified strategic issue management
(SIM) program suitable for this kind of organization of organizations. The information gathering
approaches utilized by the Task Force are discussed as they relate to this agenda.

A shift-share analysis was employed by the Task Force to provide an overall analysis of
the competitive market environment of the regional industry. This information is assembled and
presented here with a view toward contributing to the larger and ctr-going competitive situation
analysis. More detailed supporting information was pursued by the Task Force on an industry
segment-by-segment basis through a series of surveys, seeking to compile perceptions and ideas
for industry approaches to viable alternative strategies and actions along several fronts. The goals

and approaches used by the Task Force in these segment surveys are presented in the final section.

3.4.1 MODIFYING STRATEGIC ISSUE MANAGEMENT FOR THE MICHIGAN
APPLE INDUSTRY

How can or should an industry identify, sort out, and prioritize the most important or
meaningful issues pertinent to its goals and objectives? Typically, at any given time there exist
a myriad of issues, trends, data, and possible factors that may merit consideration. Those involved
in the planning process often employ some kind of issue sorting mechanism. Ansoff and
McDonnell (1990) propose a formal strategic issue management (SIM) system for individual firms
that compartrnentalizes issues into an impact-urgency matrix from which priorities for action
alternative development and evaluation are derived. In a sense, a matrix of this sort can define the

firm’s agenda. The firm, in its strategic planning efforts, focuses primary attention on those issues

108

evaluated as having high impact-high urgency. SIM for an industry may use a similar impact-
urgency matrix concept to filter, prioritize, and define an agenda for the industry but must focus
more explicitly on inter-fum coordination. The problem of the provision and equitable distribution
of public goods to the independent firms within the industry also needs more attention in the
context of industry strategic planning.

Several filters served to help identify issues relevant for Task Force consideration. These
included, somewhat similarly to Ansoff and McDonnell’s criteria, the breadth of industry impact,
the urgency of a particular issue, and whether or not there was a needed role to be played by the
Task Force to facilitate action or change. Issues of coordination within the industry were
considered, seeking to identify where opportunities to improve linkages and communication
between different organizations as well as generate collective approaches to weaknesses or threats
that may offer more promise than those attempted by an individual firm.

The identification of several impending and significant issues to the firms in the Michigan
apple industry (i.e. very strong competition from Washington, low grower returns in Michigan,
competition and constraining market rules governing international trade, and an increasingly
unfavorable regulatory environment with respect to pesticide use), and the sensed need by
representative organizations for coordinated and collective actions over the entire Michigan industry
to counter these issues, provided the stimulus for the organization of an industry task force. The
clarification of these threats remains, however, with the need to identify the manner by and extent
to which each issue would influence the viability of firms in different segments of the industry.
A clearer understanding of major trends and changing competitive position in Michigan's primary
markets has been sought as well as a better understanding of the basis for Michigan firms’
competitive advantage.

A competitive situation analysis has been recognized as a needed task to be undertaken by
the industry as a means for clarifying common sources of competitive advantage and better
identifying and understanding the implications of fundamental issues facing the Michigan apple
industry.

109

3.4

ldc‘

act

of

3.4.2 TOWARD A COMPETITIVE SITUATION ANALYSIS

Task Force meetings and analysis initially attempted to clarify the key issues and identify
important trends holding significant implications for firms in the Michigan apple industry.
Identifying and discussing key industry problems, threats, and opportunities was an important early
activity. A market and competitive situation analysis was suggested by industry task force
members and was pursued. This aided the Task Force in defining and understanding the position
of the Michigan industry in the context of its competitive environment. This information facilitated
the identification of a number of appropriate strategies important for Michigan to pursue.

One part of initial Task Force analysis focused on production trends in different supplier
regions and market share shifts for apple sauce, juice, fresh, and frozen slices. Focus was primarily
on shares of total U.S. production by supplier region as well as market growth from the early
19705, including total production and crop utilization for each fresh and major processing market
segment.

A number of useful patterns can be observed through such an analysis. Regions grow or
decline at different rates and emphasize different markets. Patterns of U.S. industry growth can
be observed in the apple industry generally and implications specifically for Michigan considered.
The shift-share analysis by each major segment provides a quick overview of past and emerging
growth opportunities and can illustrate a degree of importance of competition that may be expected
from other supplier regions for certain markets.

An important trend that clearly emerges throughout the shift-share analysis is the strong
growth that has been realized by the Washington apple industry relative to the rest of the U.S.,
particularly for the fresh market, for both domestic and export segments. Increases in share and
volume are also evident from Washington for the major processing markets over the past 25 years.

The identification of trends occurring within the various fresh and processing segments was
used to facilitate discussion of additional or more detailed prospective Task Force agenda items and
to consider the implications of the major threats as they may impact each segment. Each

production region has a different set of distinctive advantages that enable them to be more

110

   
  
  
  
   

competitite il
crop to both 1

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regions. like t‘
as fresh and p
such htoad tc
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competitive than others in certain market segments. Each region allocates some portion of their
crop to both fresh and processed markets.

There are a number of limitations with a market share evaluation of this type. Production
regions, like firms, can compete across quite a wide range of market segments when a product such
as fresh and processed apples can be differentiated. A declining market share, when measured in
such broad terms as here, can still leave open opportunities for profitable and expanding niche
markets. This preliminary evaluation was intended to assist the diverse organizational
representatives on the Task Force to become informed about the basic trends occurring in the
industry, including trends in other segments. The shift-share data for all U.S. production is

presented in Table 3.4.

111

 

 

 

 

 

 

 

 

 

 

Table 3.4 U.S. APPLE PRODUCTION BY MAJOR STATES AND REGIONS”
1970-74 1975-79 1980-84 1985-89 1990-92
Average Production Average Production Average Production Average Production Average Production
«million bushels« «million bushels« «million bushels- «million bushels« «million bushels»-
REGION (% of U.S.) (‘1: of U.S.) (% q[ U.S.) (% qu.S.) (% of U.S.)
Midis”! 15.7 16.1 19.3 21.1 21.5
(10.5) (9.3) (9.8) (9.7) (9.0)
Washlnstoll 36.5 54.2 68.2 91.0 1 10.3
(24.4) (312 (34.6) (41.8) (46.3)
New York 21.1 23.1 24.5 22.6 25.5
(14.1) (13.3) (12.5) (10.4) (10. 7)
California 1 1.2 12.0 12.4 14.7 19.2
(7.5) (6.9) (6.3) (6.8) (8.1)
Appalachia” 28.9 27.4 30.5 28.0 24.7
(19.3) (15.8) (15.5) (12.9) (10.4)
N- Caroflnfl 5.6 7.3 8.2 6.4 5.8
(3. 8) (4. 2) (4. 2) (3. 0) (2.4)
New Enslifld 7.3 7.9 7.8 7.4 7.0
mm an no no an
Other U-S- 23.4 25.5 25.9 26.4 24.2
(15.6) (14. 7) (13.2) (12.1) (10.1)
‘13- 149.6 173.5 196.9 217.6 238.1

 

 

 

 

 

_

Total apple production in the U.S. has increased from an average of around 150 million
bushels in the early 19705 to nearly 240 million bushels in the early 19905. A large part of total
U.S. production growth (over 80%) is due to growth of production in Washington. Increases in
share of production since the early 19705 are most noticeable for Washington. Every region, with
the exception of California, lost share to Washington despite modest production increases in a few
states. Total production in states other than Washington increased 14.6% (Michigan +33%) from
the early 19705. The share of U.S. apples produced in Washington increased from 24.4% in the
early 19705 to 46.3% in the early 19905.

There have been dramatic increases in export demand, particularly for fresh apples, that
have been driving much of the overall expansion. This export market has been dominated by

Washington and continues to grow. The other major apple producing regions in the U.S. (New

 

89

Source: USDA, NASS, NonCitrus Fruits and Nuts, various issues.

9° Appalachia includes Pennsylvania, Virginia, West Virginia, and Maryland.

112

York and California) increased in total production during this period, although not to the degree
of Washington. Michigan has expanded total volume somewhat while its share of U.S. production
has remained about the same.

The market share held by regions outside of the four principle regions, however, has been
declining. Regions other than Washington, Michigan, New York and California have seen their
share of the overall U.S. production shrink from 43.6% in the early 19705 to 25.8% in the 19905..
Absolute production in these regions has fallen from 65.2 million bushels to 61.7 million bushels
over that same period.

Different major market segments within each the fresh (domestic and export) and
processing (canning, frozen, and juice) markets are influenced by different factors and are
experiencing different rates of growth. Long term regional industry strategies should be chosen
with a view toward these factors and trends. Some of trends within the specific market segments

in each the fresh and processed markets are discussed below.

Fresh Apples

The total volume of apples produced in the U.S. for the fresh market has increased
significantly since the early 19705, up by nearly 60%. Part of the growth in fresh market has
corresponded to a more general increase in demand for fresh fruits and vegetables. Growth in U.S.
population and real disposable income has also paralleled growth in this segment during this
period.

The market share situation for major states supplying fresh apples is presented in Table 3.5.
Production for the fresh apple market has become considerably more concentrated with Washington
realizing tremendous volume and share growth since the early 19705 with smaller growth from
Michigan, California, and New York and decline from the other major regions. Production for the
fresh market has remained at stable levels for non-Washington production regions when taken
together, although eastern U.S. regions such as Appalachia, North Carolina, New England, and

other eastern states have decreased in volume.

113

Much of Washington’s growth in fresh sales have been to export markets. Table 3.6
summarizes the growth in Washington’s fresh apple exports which reached record levels in the
1993-94 crop year. Over 20% of the fresh sales of this leading production state went to
international customers between 1989 and 1992. Changing international trade conditions have been
a key driving force behind the growth in fresh sales from Washington. A recent special report on
global produce in The Packer (p.5, October 10, 1994) estimated that at the end of 1994 estimated
Washington would export about 25 million of its 83 million boxes (30%) during CY 1994.
Mexico, recently the largest U.S. export customer would import about 8 million boxes alone, up
25% from the previous calendar year.

The U.S. had a record net export of fresh apples in the crop year 1993-94 of 26.9 million
bushels led by record fresh exports by Washington. The sum of exports in other U.S. regions
reached record levels during the 1993-94 crop year as international trade opportunities expanded
for other states as well.

Exports continue to expand. The rapid growth in the export market has been stimulated
by significant expansion of sales to Mexico, new access to Asian markets, and increased imports
by European countries, particularly England. U.S. exports in fresh apples are summarized in Table
3.6, both for Washington and for the total U.S..

International markets appear to be an important consideration with potential expansion
opportunities for the fresh side of the Michigan industry as it considers strategic focus for the
future. Michigan has heavily emphasized domestic markets in the past, and would therefore require
a significant strategic reorientation to develop a significant international market presence.
International customers may increasingly consider Michigan as an alternative U.S. supplier as these

customers increasingly utilize U.S.-grown apples.

114

Table 3.5 PRODUCTION UTILIZED FOR FRESH APPLES BY MAJOR STATES AND

 

 

 

 

 

 

 

 

REGIONS9|
1970-74 1975-79 1980-84 1985-89 1990-92
Average % of Avg % of Avg 9% of Avg % of Avg % of
Fresh U.S. Fresh U.S. Fresh U.S. Fresh U.S. Fresh U.S.

REGION Production Prod. Prod. Prod. Prod.
Michigan 5.7 6.8 6.3 6.5 7.2 6.5 7.6 6.3 7.4 5.5
Washington 28.0 33.4 40.9 41.8 51.4 46.5 63.7 52.5 77.0 57.5
New York 7.6 9.1 9.0 9.2 9.6 8.6 9.4 7.7 11.6 8.7
California 2.9 3.5 2.7 2.7 3.7 3.4 5.7 4.7 8.2 6.1
Appalachia 11.9 14.2 10.0 10.3 11.1 10.0 10.1 8.3 6.9 5.2
N. Carolina 4.0 4.7 4.0 4.1 3.4 3.0 2.5 2.1 1.7 1.3
New England 6.0 7.2 6.5 6.7 6.0 5.4 5.3 4.4 4.8 3.6
Other U.S. 17.7 21.1 18.3 18.8 18.4 16.6 17.0 14.1 16.3 12.2
U.S. Total less
Washington 55.8 66.6 56.9 58.2 59.3 53.6 57.6 47.5 56.9 42.5
Total U.S. 83.8 100.0 97.8 100.0 l 110.7 100.0 121.3 100.0 133.9 100.0

 

9‘ Production in million bushels; Source: USDA, NASS, NonCitrus Fruits and Nuts, various
issues.

115

 

 
  

 

 

 

 

 

 

Table 3.6 WASHINGTON AND TOTAL U.S. TRADE OF FRESH APPLES
Washington Total U.S. Net
Year Ex as“ U.S. Ex Immrts“ U.S. Exports
«4110011 Bushels-«-
1982-83 9.4 4.9 14.3 4.6 9.7
1983-84 8.5 3.2 11.7 5.5 6.2
1984—85 7.6 3.4 11.0 5.5 5.5
1985—86 4.4 3.6 8.0 7.7 0.3
1986-87 5.4 3.4 8.8 7.3 1.5
1987-88 12.2 3.2 15.4 6.3 9.1
1988-89 8.3 4.8 13.1 6.1 7.0
1989-90 14.4 3.1 17.5 5.6 11.9
1990-91 14.3 4.6 18.9 5.8 13.1
1991-92 19.5 7.4 26.9 7.1 19.8
1992—93 17.6 8.0 25.6 4.8 20.8
1993-94 25.2 6.7 31.9 5.0 26.9

 

 

 

 

 

 

 

 

Canning and Frozen Apples

A shift-share evaluation of apple production utilized for canning and frozen apple slices
was also done at the request of the Task Force to provide a baseline analysis. Changes in share
of production of canned apples are presented in Table 3.7 and frozen apples Table 3.8. Growth
in demand by major sauce processors in Michigan have provided Michigan growers a strong
demand for raw product for processing in recent years. Michigan has had one of the largest
growths in canning apples and an increase in market share. Washington is not nearly as significant
8 player in these markets compared to fresh, although they have expanded their sales of canning
apples at a faster rate than any other region since the early 19705.

The overall production sold by U.S. growers to these processing outlets has not grown
quite as dramatically as fresh apples. Processing for canning and freezing are also smaller volume

markets than fresh, together using around 40 million bushels of U.S. apples compared to 134

 

92 Year beginning September 1; Source: Washington State Department of Agriculture, 1983-
1991; Wenatchee Valley Traffic Association, 1992; as reported in Marshall and Andrews
(1994). Washington data from the last two crop years was provided by Jim Thomas,
communications director with the Washington State Apple Commission. Thomas indicated
the 1991-92 estimate of 19.5 million bushels over-estimated exports that year, but he could
not provide an exact number. Note: shipment traffic is lightest during July-August from
Washington. This allows close, although not exact, comparison of these Washington to
U.S. totals.

93 Source: USDA-ERS, Agricultural Statistics, various issues. Year beginning July 1.
l 16

million bushels for fresh. Still, the canning and freezing markets have grown together by about
26% since the early 19705. The fresh market, by comparison, has grown about 37% since that
time. Michigan, with its production of relatively good processing varieties, is well positioned to

continue as a major supplier to these markets.

 

 

 

Table 3.7 PROCESSED UTILIZATION FOR CANNING BY MAJOR STATES AND REGIONS“
1970~74 1975-79 1980-84 1985-89 1990—92
Average % of Avg % of Avg % of Avg % of Avg % of
Quantity U.S. Quant U.S. Quant U.S. Quant U.S. Quant U.S.
REGION Utilized Util Util Util Util
Michigan 3.2 11.8 2.7 10.2 2.9 10.5 4.5 14.5 5.6 16.7
Washington 1.6 5.9 2.0 7.6 2.4 8.5 3.5 11.4 4.2 12.6
New York 6.2 23.0 5.8 21.7 5.8 20.6 6.7 21.7 6.7 20.2
California 2.8 10.2 2.5 9.2 2.3 8.1 1.6 5.2 1.1 3.3
Appalachia 10.7 39.5 10.3 38.7 11.1 39.9 11.0 35.8 11.1 33.4
N. Carolina 0.7 2.4 1.1 4.0 1.4 4.9 1.5 4.9 1.8 5.5
Other U.S. 1.9 7.1 2.2 8.4 2.0 7.3 2.0 6.5 2.4 8.3
U.S. 27.1 100.0 26.5 100.0 27.9 100.0 30.8 100.0 33.4 100.0

 

 

 

 

 

Table 3.8 PROCESSED UTILIZATION FOR FROZEN APPLE SLICES BY MAJOR STATE AND

 

 

 

REGION
1970-74 1975-79 1980-84 1985-89 1990- 1992

Average 96 of Average % of Average % of Average % of Average ‘1: of

Quantity U.S. Quantity U.S. Quantity U.S. Quantity U.S. Quantity U.S.
REGION Utilized Utilized Utilized Utilized Utilized
Michigan 2.0 40.9 2.0 44.9 2.1 49.1 2.9 46.8 2.5 35.1
New York 1.4 29.1 1.2 27.0 1.0 22.6 1.1 18.1 1.4 19.7
Appal. 0.3 5.4 0.4 9.1 0.5 12.4 0.7 12.1 0.5 7.3
Oth U.S. 1.2 24.6 0.8 19.0 0.7 15.9 1.4 23.0 2.7 38.0
U.S. 5.0 100.0 4.4 100.0 4.3 100.0 6.1 100.0 7.0 100.0

 

 

 

 

 

 

9‘ There is some inter-regional sourcing of raw product for different processing outlets by
some processors. Average utilization for processing uses of the raw product within each
production region is reported here, recognizing that the primary source of raw product for
processors comes from within their respective region. Utilization is reported in million
bushels; Source: USDA, NASS, NonCitrus Fruits and Nuts, various issues.

 

117

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Apple Juice

The juice market segment was considered with respect to the changes in sales volume and
share that have taken place within the U.S. since the early 19705. The import of apple juice, as
indicated earlier, has seen quite dramatic growth since the early 19705, increasing by about 8.5
times to its current level. The proportion of juice imported increased from about 23% in the early
19705 to over 55% by the early 19905. Essentially all imported juice has come in the form of juice
concentrate.

Producing regions in the U.S. also expanded juice production substantially during this time,
increasing the raw product utilized for juice by about 23% since the early 19705. Michigan, after
gaining slightly in volume for this market in the 19805, has recently lost some ground in both
volume and share.

The U.S. juice market has been a strong growth market with most of the growth being
supplied by import sources and Washington. Much of the Washington juice product, like other
production regions, has come as a by-product of their growing production for the fresh market.
Juice prices in Washington often reflect salvage prices for product not meeting the quality demand
for fresh, well below their costs of production. Michigan, capable of providing high quality juice,
has faced, and will continue to face, challenges from low-cost suppliers both domestically and from
abroad. Changes in regional shares of the U.S. production of apples for juice utilization and the

volume of imported juice since 1970 is presented in Table 3.9.

118

Ta'

Table 3.9 PROCESSING UTILIZATION FOR APPLE JUICE BY STATE AND MAJOR
PRODUCTION REGION

 

 

 

 

 

 

 

 

 

1970-74 1975-79 1980-84 1985-89 1990-92

Average % of Avg % of Avg % 01' Avg % 01' Avg % of

Quantity U.S. Quant U.S. Quant U.S. Quant U.S. Quant U.S.

Utilized Util Util Util Util
Michigan 4.2 17.8 4.4 13.2 6.8 15.0 6.8 13.7 5.7 10.5
Washington 4.4 18.5 7.3 22.2 9.9 21.8 17.5 35.6 22.6 41.7
New York 4.0 16.8 5.3 16.0 7.2 15.8 4.8 9.9 5.2 9.6
California 3.0 12.9 4.1 12.6 5.7 12.5 6.3 12.8 7.6 14.0
Appalachia 4.3 18.3 5.3 16.2 6.9 15.2 5.1 10.4 3.9 7.2
N. Carolina 0.7 3.2 2.0 5.9 3.3 7.2 2.4 4.9 2.1 3.9
New England 0.6 2.4 0.6 1.7 0.6 1.4 0.7 1.4 0.3 0.6
Other U.S. 2.4 10.2 4.0 12.2 5.0 11.0 5.6 11.4 6.9 12.6
U.S. 23.6 100.0 33.0 100.0 45.3 100.0 49.2 105.3 54.3 100.0
Imports 7.1 23.2 11.1 25.2 32.1 41.5 62.9 56.1 67.5 55.4
Total U.S. Juice .
Market95 30.6 44.0 77.3 112.1 121.8

Changes in Per Capita Utilization for U.S. Apple Markets

Table 3.10 illustrates the relative estimated changes in per capita demand for various apple
products, including fresh, since the early 19705. Per capita utilization of each major apple product
usage is reported in fresh weight equivalents and used as a proxy for per capita consumption.
These data are adjusted for net exports. These figures indicate strong increases in per capita
demand for apple juice relative to other apple products since the early 19705, moving from an
average of 6.3 pounds per capita in the early 19705 to nearly equal that of fresh at over 19 pounds
by the early 19905. Much of this growth occurred by the late 19805.

Fresh and juice products make up the major share of how U.S. consumers buy apples,

increasing in their share of use compared to other forms. Fresh and juice utilization accounted for

 

95

Until 1989 only a very small fraction of U.S. production of apple juice was exported. m
Almanac of Canning, Freezing, Preserving Industries, 1992 reports 26.3 million liters of
apple juice exports in 1989 valued at $16.5 million, 56.7 million liters exported in 1990
valued at $39.3 million, and 60.4 million liters exported in 1991 valued at $42.9 million,
primarily made up of single strength juice. The U.S. imported an average of 874.2 million
liters of apple juice in single strength equivalents between 1989 and 1992 with an average
value of $235.8 million; USDA, NonCitrus Fruits and Nuts Mid-Year Supplement.

 

 

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75% of the consumers’ use between 1973-78. This share has risen to 83% in recent years. Other
per capita utilizations have increased slightly or stayed about the same for the past 20 years.

Table 3.10 AVERAGE PER CAPITA UTILIZATION FOR DIFFERENT APPLE
PRODUCTS IN THE U.S.”

Apple Product Utilization98

Canned m- n on...
----P0unds Ber Capita-m I

 

 

 

 

 

1973-78 6.32 0.95 1.03 0.57 31.11
1978-83 11.86 0.77 0.92 0.60 37.11
1983-88 18.05 0.89 1.13 0.37 44.09
1988-93 19.06 1.14 1.03 0.37 46.82

 

 

 

 

 

 

 

 

 

 

Trends in supply and demand within different key markets that have been traditionally
important for Michigan provided the Task Force with a baseline analysis of key market and
competitive position factors that may be used for in a broad industry strategy planning. The
situational analysis was derived, in part, by examining shift-share data. More detailed analysis of
these and other data, with implications for Michigan, were discussed during the meetings of the
Task Force at the early stages of assessing potential areas of joint action within the industry. Apple
industry organization leaders provided important additional analysis of certain market trends
providing Michigan opportunities, trends threatening the viability of the apple industry in Michigan,
as well as contributing to broader understanding of the implications of these issues within the
different segments.

The competitive situation analysis for the Michigan apple industry was carried out to
provide a basis for identifying and understanding the key capabilities of the industry in the context

of dynamic forces impacting the industry. The shift-share analysis draws primarily on secondary

 

96 Source: Compiled from Fruit and Tree Nuts, Situation and Outlook Report Yearbook.
Utilizations are adjusted for import and export data.

97

Year beginning July 1.

98 Fresh weight equivalent.

120

data to illustrate and enumerate a number of key trends with important implications for the strategic
planning process being carried out by the Michigan industry. The analysis as presented to the Task
Force has benefitted from the fact that knowledgeable industry leaders have been able to clarify

and place an number of trends in proper context.

3.4.3 THE ROLE OF SEGMENT SURVEYS

A critical component of strategic planning for the Michigan apple industry is the need for
broad input and participation in the process from all segments of the industry. This has been
recognized by the Task Force representatives. One chosen mechanism to further prioritize and
clarify the strategic planning issues was an industry segment by segment survey. One focus of
the surveys was to get broad-based industry reaction and ideas on key issues, driving forces, and
improvement actions which may be acceptable to the industry. A broad base of industry input into
the agenda of the Task Force expands the base of knowledge and ideas, enables the Task Force
to recognize actions that seem to have strong consensus support, and encourages those involved
in the strategic planning process to be more cognizant of what are often multi-dirnensional issues
that influence different segments or individuals differently.

Input from the industry various segments was gathered in order to provide more detailed
understanding of the industry perception with respect to its overall capabilities (strengths and
weaknesses), the environment (opportunities and threats), and solicit input on workable actions that
may best coalign Michigan’s competencies with the current market and competitive condition.

It was agreed that the fresh shippers would be the initial segment to be surveyed. The
shippers are a key industry segment, especially for issues dealing with the fresh segment. Shippers
are also relatively small in number and relatively rapidly assessable. This permitted a more
intensive information gathering procedure through in-depth personal interviews with each major
shipper firm. The shippers were also enthusiastic to participate with the Task Force in a shipper
survey.

Subsequent surveys were planned for growers, packers, processors, and perhaps others,

such as buyers and industry supporting organizations and professionals. The data gathered were

121

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intended to assist the strategic planning of the industry Task Force and, perhaps secondarily,
individual shippers, the shippers’ organization, and other interdependent firms and organizations
comprising the Michigan apple industry.

The favorable response by certain industry organizations, such as the MAC and the MARC,
to the information gathered from the shipper survey suggest this to be a valuable linkage, aiding
and facilitating the setting of priorities for planning within these organizations as well as the Task
Force. The survey and results of the shipper survey and their implications for strategy formation
for the Michigan apple industry are addressed in detail in Chapter 4. A copy of the survey
instrument used for the shipper segment is presented in Appendix B.

The grower survey builds on information gathered through the shipper survey. This survey
is similar in content to the shipper survey, but with particular focus on grower issues and actions
that would largely involve the grower segment. Growers who are also packers were requested to
participate in a short attached supplemental survey for packers. The survey and results of the
grower-packer survey and the implications for strategic planning for the Michigan apple industry
are the topic of Chapter 5. A copy of the survey instrument used for the grower segment is
presented in Appendix C.

The specific information gathering and utilization approaches employed by the Task Force
with regard to these segment surveys is discussed in greater detail within each of these later
chapters. Part of the rationale for gathering information to evaluate issues in this way is that many
of the issues, and potential actions that may be undertaken to address them, require a broad
industry-wide base of recognition of the nwd to develop wide scale changes. Many proposals that
involve implementing new policies or a new system—wide orientation (such as improving quality,
gearing up for new export markets, etc.) require an industry-wide commitment to affect change.
Issues can be sorted through this survey process according to the degree to which their is wide
recognition of needed change and wide support for certain proposed actions or strategies to bring
about change.

The segment surveys contribute valuable information to the Task Force as it formulates its

agenda. The perceived urgency and impact of a number of issues are clarified. Workable, widely

122

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supported action alternatives are indicated. Actions suggested by leaders on the Task Force are
evaluated and receive industry feedback. Some recommendations for industry action that are
perhaps initially unrecognized by Task Force members can be offered that can receive further
industry evaluation. In summary, an industry dialogue can be facilitated by this segment survey
process. It will probably be desirable to eventually develop some manner of periodic industry
segment survey over time. Issues and markets change, as well as capabilities to address them.
Maintaining an industry dialogue in this way shows promise for facilitating an overall improved
responsiveness to both industry-wide opportunities and threats.

Considerable time and attention has been given to engaging key leaders, obtaining broad
industry support, and iteratively sorting out and clarifying issues and priorities in the Michigan
apple industry. Consensus and coalition building have been on—going tasks of the Task Force
throughout the issue identification, clarification, and prioritization process. These are discussed in

the next section.

3.5 INDUSTRY STRATEGY: FROM SITUATION TO ACTION AND DIRECTION

The preceding section focused on industry competitive situation and issue information
gathering and assessment procedures used by the Michigan apple indusz through the Strategic
Planning Task Force. This section discusses approaches used by the Task Force for identifying,
evaluating, and developing consensus for a variety of action alternatives among the many
participants within the Michigan apple industry.

A number of Task Force activities were important agenda items prior to and concurrent
with the assimilation of the segment survey data. A summary and overview of many of the earlier
Task Force activities is presented to illustrate the nature and evolution of the strategic planning
issues on the agenda of the Task Force. While it is beyond the scope of this effort to provide
detailed analysis of all the issues considered by the Task Force, such a summary provides an
illustration of the scope of issues that have been sorted out in the Michigan apple industry strategic

planning process.

123

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3.5.1 APPROACHES FOR DEVELOPING ACTION ALTERNATIVES

An important dimension to identifying appropriate industry action approaches perceived
by the Task Force was broad industry acceptance and endorsement. The voluntary nature of
participation, the traditional on-going rivalry within and across segments, and the need to cultivate
an industry ownership of the collective strategy planning process, required that issue identification,
planning, and implementation approaches be chosen with a sensitivity to these industry structure
conditions. It is an administrative challenge to keep a high level of leadership participation with
such diverse segment-specific objectives represented.

A sample of approaches or components to the planning process adopted by the Task Force

are presented in Table 3.11, with examples of specific corresponding Task Force initiatives.

124

Table 3.11 APPROACHES FOR OBTAINING BROAD INDUSTRY SUPPORT AND

 

 

 

INVOLVEMENT
APPROACH EXAMPLE OF CORRESPONDING TASK FORCE INITIATIVE
Conduct industry surveys Conduct comprehensive surveys of each segment and organization

(fresh shippers, processors, growers, packers, industry organization
professionals) to compile assessment of competitive situation and
alternative action plans.

Publish activities, issues, Publish articles periodically in jlhe Great Lakes Emit gigewer Newe
and selected survey results and other trade newsletters.
in industry publications

Develop linkages to the Encourage organizations to appoint their own representatives to the
apple industry organizations Task Force to serve as an organizational liaison. Organizations
solicited for feedback on surveys of relevance to them.

Encourage continual Specific proposals developed in the Task Force (or by sub-
feedback and input from the committees). such as a pesticide management program, are requested
industry to the Task Force to be discussed with indusg)! ogganizations for member feedback.

 

Encourage broad industry Industry members on the Task Force provide direct feedback at
ownership of the Task Force meetings to represent the interests of their segment, can serve on
special interest or issue sub-committees.

Invite special industry Key industry leaders and informants not on the Task Force, as well as
guests to attend meetings for University professionals were invited to attend and provide input for
which they may have a the development of a Michigan apple industry pesticide stewardship
special interest program. Apple processors were invited to attend and similarly

provide input on this issue.

Conduct a large industry A presentation of the results of the shippers' survey initiated by the
meeting Task Force was delivered independently to the Michigan Apple
Shippers Organization. A large, open meeting has been proposed in
the Task Force following the completion of the segment surveys to
discuss altemflve industry actions and their implications.

 

 

Segment surveys provided opportunity for wide informational input and hence indirect
participation in the planning process and focused attention on the segment-specific issues and
concerns. Some of the action alternatives suggested in the survey process supported broad, inter-
sectoral industry action. Other industry actions also required a certain amount of general
cooperation but focused rather on cooperation within the segment (formation of a fresh apple traffic
association, for example). The primary matter here is that as individuals were given opportunity
to suggest actions, express concerns, and suggest opportunity areas, they would become more

invested in the process.

125

The

. . |

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The Task Force sought to further engage industry interest in the planning process by
publishing articles relating to the Task Force activities in widely read grower or trade publications.
Progress reports, expansion or clarification of major industry issues being addressed in the Task
Force, promotion of the industry surveys, and selected survey results as they became available,
were utilized to inform the many industry participants and to further encourage coordinated action
where it was deemed necessary.

Stronger inter-sectoral communication linkages were pursued by encouraging industry
leadership to participate on the Task Force. Participants were encouraged to view themselves as
organizational liaisons, providing continual feedback and input from their organizations on Task
Force agenda items and proposed action approaches. Special sub-committees have been
periodically formed to address specific issues either of a more narrow interest or that require a
particular expertise. Special industry guests have been invited to selected Task Force meetings to
either provide additional expertise or to represent their specific interests on a matter that may be
on the planning agenda.

Side meetings with specific organizations or groups of organizations have been used in
some cases to specifically discuss the workability of certain proposed industry action alternatives,
refine segment surveys, and to present survey results and possible implications. These kinds of
meetings have been well received thus far and further engage different segments of the inde
in the Task Force activities and goals. A large open meeting has been proposed in the Task Force
upon the completion of the segment surveys.

Specifics themes or patterns have emerged in the shipper and grower surveys that suggest
a generally needed strategic course for the Michigan industry. Many needed actions to address
challenges and opportunities relate to improving fresh product quality performance and the
reputation of the Michigan industry among trade and consumer buyers. Maintaining flexibility to
a variety of buyer needs has been identified as an important source of advantage for Michigan fresh
shippers. A series of specific industry actions have been identified to facilitate the further

development of this advantage.

126

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3.5.2 A SUMMARY AND EVOLUTION OF EARLY TASK FORCE ACTIVITIES

A summary of the some of the early-stage activities of the Michigan Apple Industry
Strategic Planning Task Force as identified in various meeting minutes is presented in Table 3.12.
The complexity of issues addressed in terms of scope and degree of impact as well as the level of
industry participation can be seen in the Task Force agenda as growing over time. The institutional
reasons for existence were sorted out first with careful coalition building between industry
organizations.

Earlier sessions focused on discussing and responding to different threats, the preliminary
situational analysis, and the development of general goals for the Task Force. Several industry
efforts, such as reforrnulating controlled atmosphere regulations and on-going research and
promotion projects by the Michigan Apple Research Committee and Michigan Apple Committee,
were already under way and being addressed primarily through other organizations but were also
discussed by the Task Force.

Formulating and conducting the industry segment surveys emerged in later stages as the
Task Force developed approaches to gathering more information, identifying and developing
workable action plans to address certain issues. Segment participation and ownership of the Task
Force’s goals for industry improvement was also considered an important factor in choosing this
survey approach.

The agenda items in the Table 3.12 are presented as some examples during the initial
phases of the Task Force to provide a sense of the scope of Task Force activities. Individual Task
Force meetings often have involved considerable discussion and an ambitious agenda. Typically
20—25 industry representatives have assembled and met for most of a day. The scope and
importance of the issues addressed highlights the challenge of facilitating group decision making
and moving the Task Force forward to provide leadership on certain issues, identify and analyze
alternative actions, and develop workable plans to implement needed changes for the Michigan

apple industry.

127

Table 3.12 EVOLUTION OF THE MICHIGAN APPLE INDUSTRY STRATEGIC
PLANNING TASK FORCE AGENDA

 

Meeting Topics Discussed by the Task Fonce Activity

 

 

4/93 0 Justification for lndustry Planning 0 Fresh Apple Clearinghouse
0 Consideration of further industry representation 0 Response to WAC Strategic Plan
5/93 0 Data on M1 competitive position for fresh, canned, sliced. juice

0 Marketing of varieties

0 Demand expansion

0 Mandatory grades & standards

0 M1 and Task Force goals for spruce, slices, fresh

 

6/93 0 Reactions to Task Force goals by market segment

0 Additional discussion on peeler market goals (Sauce & canning. slices. dried apples)
0 Report from the Fresh Market Committee

0 Ideas for an international trade cormronent for the industgy's strategic plan

 

7/93 0 Continued analysis of market expansion in fresh and processed markets
0 Discussed approaches for obtaining broad industry support and involvement
0 Discussed the content and approach of proposed apple industry surveys
e Washfigton Tree Fruit lndustry Task Force a_s a parallel example

 

l l/93 0 Strategies for industry surveys; objectives. content. funding. and alternative approaches

0 MSU AES pest control activities; Task Force strategies to secure supplemental federal funding
0 Planning industry meetings to present Task Force progress and answer questions

0 CA regulations and changes needed

 

0 Progress report on the Michigan apple shipper survey

2/94 0 Pesticide issues (a) preparing for MSU conference on pesticides and the environment. (b) Minor Crop
Protection Act and possible minor crop coalitions. (c) prospects for participation in the 1R-4 program, ((1)
pesticide research activities

0 Processor report on Michigan's commtitive position

0 Research and extension needs for the industry, impending retirement of key individuals. replacement
strategies ~

3/94 0 [Al-EPA plan for pest management and reduced pesticides
0 MAC S-Year strategic plan

0 Update on the shipper survey results

0 Discussed proposed processor survey

 

 

4/94 0 [Al-EPA partnership plan on modern pest management
0 Results and highlights of the shipper survey
0 Preliminary plans for a grower st_r'rvey

 

6/94 0 Discussed MSU scientists' informational input for Michigan segment of lAl-EPA pest management plan.
0 Discuss next steps for pesticide stewardship project

0 Follow-up actions on the shipper survey

0 Review and modify grower survey as needed

0 Discuss Task Force membership

0 Discuss industry communication strategies of Task Force activities and thrusts

 

 

 

 

Specific alternative courses of action responding to the threat of unfavorable pesticide
regulation emerged, were debated, and developed within the Task Force, including strategies by
which Michigan may be able to secure, through the influence of the Task Force, additional federal
funds to support pest management research. Rapidly emerging opportunities to influence

government pesticide policies favorably to Michigan’s production situation focused the Task Force

128

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3.6

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and (it

agenda to identifying industry actions in support of this thrust. The IAI-EPA partnership emerged

as a central agenda item for most meetings during early 1994.

3.6 SOME SUMMARY POINTS ON STRATEGIC PLANNING IN THE CONTEXT
OF THE MICHIGAN APPLE INDUSTRY

Leaders in various organizations affiliated with the Michigan apple industry, in response
to a series of concurrent problems, issues, and threats (and, to a lesser extent, opportunities)
impacting the industry segments, decided after some deliberations to undertake an intensive
industry strategic planning effort. One goal was to improve industry-wide coordination with
respect to addressing certain major problem areas. Strong prospects for overall improvements in
the general competitiveness of the Michigan apple industry through industry (or subsector)
coordination of certain actions to better take advantage of selected emerging opportunities have also
provided some additional motivation.

The subsector participants, though traditionally rivals who compete among themselves for
customers in their own right, have considered together how they can collectively respond to
problems and threats, improve the competitive position of Michigan as an apple supplier region,
and develop effective industry strategies to help ensure the viability of their firms and the industry.

The development of an industry strategic planning task force, initially worked out
conceptually with University staff and existing trade organizations, provided a major part of the
institutional framework through which collective ideas and actions could be identified, analyzed,
and discussed. Issue identification, clarification, and a corresponding set of action alternatives were
generated by the Task Force which has representation from all major subsector segments and
organizations. The organization and administration of the Task Force has been purposefully
designed by industry leaders involved in the process toward identifying and developing the most
workable and effective approaches to facilitating subsector action.

The Michigan Apple Industry Strategic Planning Task Force has engaged a wide spectrum
of industry leadership and has marshalled feedback and support for its activities through highly

interactive approaches to the industry strategic planning and implementation process. The strategy

129

identification, formulation, and implementation process is on-going, and in many respects is still
in the relative early stages for the Michigan apple industry. The high quality of leadership
participation in Task Force meetings, together with the enthusiastic support demonstrated in the
industry segment survey work with the shippers and growers, indicate there is a high level of
expectation as to the potential benefit of this process for the many diverse participants within the
industry, despite their rivalry and often divergent goals and objectives.

There are a variety of advantages and limits to joint or collective strategic planning efforts
in a commodity subsector such as apples in Michigan. There are many issues that are of such a
nature that some aspect of the issue directly or indirectly challenges the viability of firms in much
the same way. Commonality may pivot around shared markets, shared linkages in their respective
value chains, or many other factors in common. Pooling resources of leadership capital, finances,
and other assets can more effectively bring about needed changes and bring about new synergy,
as well as possibly certain size economies that enable effective response to threatening issues.
Coordination can often be improved between industry segments (and between the industry and
other industry supporting organizations) through intensive and broadly participatory approaches to
strategic planning such as employed by the Michigan apple industry.

Firms and organizations, however, are not always predisposed to working out problems
together. It often takes a serious threat or group of threats to stir otherwise independent
organizations to consider new strategic alternatives that may only be actionable through some sort
of collective or coordinated effort. Alternatively, individuals may, through other means, come to
a realization of the opportunities that may be more easily captured through working together.

There are many challenges to industry strategic planning illustrated in the case of Michigan
apples. This industry (like almost all industries), rmlike many individual firms, typically lacks any
hierarchical structure through which central strategic planning and implementation can be achieved.
There is often some opportunity for rival firms to work to some extent through existing trade
organizations, but overcoming rivalrous tendencies, distrust, and inertia toward collective action

present many significant challenges.

130

Firm and segment-level equity issues (who’s preferences count, and according to what
weight), workable subsector action development and implementation approaches, and in some cases
legal conduct bounds (collusion), must all be addressed in an industry strategic planning process
with much greater attention and effort in contrast to strategic management within an individual
firm.

The favorable conditions intrinsic to successful industry strategic planning (recognized
threats or opportunities, the existence and identification of effective plans, visionary leadership,
etc.) are also necessary at the firm level. The industry planning, however, must more carefully
develop dimensions of broad ownership in the process, concensus decision making, the
implementation of meaningful actions, and the coalition building that emphasizes a shared
environment. Positive collective action is encouraged and inertia overcome by developing ( 1) an
agenda that includes a broad enough range of appropriate industry issues as is manageable to keep
diverse industry leadership and segments engaged and (2) a means to resolve who is going to do
what

The process for developing a successful industry strategic planning system, following the
circumstances and experiences of the Michigan apple industry, needs to be aware of or emphasize
the following:

o The process needs to emphasize the interactive; appeal to and involve actively effective
industry leaders.

0 The process must develop and sustain a sense of industry ownership; avoid the impression
of imposing a plan developed from the outside.

0 Success is also conditional on good consensus facilitating skills. This might include
starting with a few key leaders of the primary industry segments most willing to become
involved and expanding it as appropriate.

0 Success is conditional on good coalition building skills of various industry segments.

0 The process may be facilitated by starting with important, but doable (perhaps less
complex) actions leading clearly to mutual benefit and proceed to more complex and
difficult issues as sense of industry mission and process ownership emerge.

e The more complicated the subsector (differentiated products, politically sensitive history,
frequency and degree of interdependencies, number and diversity of participants), perhaps
more the need of an industry ”task force". In some cases it may be advantageous for a
task force of this nature to be kept distinct from a trade association with the task force
representing multiple segments that may be vertically connected as well as ancillary
subsector support organizations.

131

0 Various approaches need to be employed to overcome the common tendency toward inertia
with respect to planning and particularly implementation.

0 There may often need to be a means to resolve who is going to do what, who will pay for
what, and always maintaining a sense of equity or balance with respect to the agenda,
keeping cognizant of the fact that momentum must be maintained in a variety of fronts to
keep diverse segments effectively engaged.

0 University participation and analysis, when engaged, should often be on interdisciplinary

teams and should maintain a low profile support role initially to facilitate strong industry
ownership of the process.

The facilitation and development of the strategic planning process as discussed here in the
context of a regional industry is not oriented primarily as a centralization of market power. It is
also not involved with an institution with autonomous control over subsector resources that
arbitrarily sacrifices firms’ freedoms in the market. Rather, it can be expected to ideally serve as
a coordinating activity carried out by the voluntary cooperation of diverse but related organizations
that is intended to improve subsector efficiency and performance. The participants may together
pursue actions that enable them to improve the overall performance of their industry, such as
perhaps to better serve current and potential customer needs, to improve quality and service, reduce
the transaction costs within the industry, develop a less hostile regional business environment, to
better coordinate long run supply and demand, or speed the dissemination of information relevant
to firm-level decision-making that commits enterprises to invest in long term specific assets.

The next two chapters focus on Task Force strategic management activities as they relate
to specific segments; fresh apple shippers and growers (including grower-packers). Many of the
considerations proposed here for effective strategic planning are further illustrated in the following
chapters in the context of the Michigan apple industry. They are more formally developed in

Chapters 6 and 7.

132

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CHAPTER 4

RESULTS AND ANALYSIS OF THE APPLE SHIPPER SURVEY

4.0 INTRODUCTION99

Fresh apple shippers are key participants in the fresh segment of the Michigan apple
subsector. They are well positioned within the subsector to recognize and influence subsector-wide
approaches to strategic planning and implementation and to initiate change to improve the
competitiveness and performance of the fresh segment of the apple subsector. Some visionary
shipper leaders recognize the potential from subsector strategic planning and are supportive of
efforts beyond those which already takes place at the level of their individual firms or
organizations. The position and role of shippers, with frequent association and transactions with
packers, growers, other shippers, buyers, and the major trade organizations, places them in a unique
position to evaluate the issues and the competitive conditions of the subsector - especially the fresh
segment. Certain shipper leaders have also provided valuable input and perspective on the need
and merits of alternative subsector strategies and actions tentatively put forward by the Michigan
Apple Industry Strategic Planning Task Force.

Chapter 3 investigated the initial development and progress to date of subsector strategy

building in the Michigan apple industry, primarily through the initiatives and related activities of

 

99 Much of the material presented in this chapter draws on two major reports summarizing
the results of the shipper survey and provided to the Michigan Apple Industry Strategic
Planning Task Force, the Michigan Apple Shippers’ Association, and many others in the
Michigan apple industry. One report, Ricks, D. and T. Woods, ”Michigan Apple Shipper
Survey - Industry Opportunities”, (1994a) emphasized industry opportunities as indicated
by shipper responses. The other report, Ricks, D. and T. Woods, ”Michigan Apple Shipper
Survey - Issues, Needs and Industry Strategies ", (1994b) focused on the broad industry
strategy and action needs. These reports are referred to implicitly throughout this chapter.

133

 

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the Michigan Apple Industry Strategic Planning Task Force. This chapter focuses on a major
information gathering activity carried out by university economists at the request of the Task Force:
a comprehensive survey of Michigan fresh apple shippers. The survey approach, results and
analysis, and follow-up activities taken in response to the survey are presented here to illustrate
some of the major approaches to and components of subsector-level strategic management.

The objectives of the survey included summarizing shipper perceptions of Michigan’s
competitive situation as a supplier region as well as gathering their ideas and responses relating to
some suggested alternative actions that might best support certain alternative strategic directions
for subsector improvement. The shipper survey was also intended to serve as a mechanism for
creating broad-based dialogue on industry needs and issues between and among shippers and the
rest of the industry. The survey process was also intended to help broaden the base of a shipper
input, involvement, and “ownership” of the subsector strategic planning process. Feedback from
the shippers was intended to further clarify and prioritize the agenda of the Task Force. The
shipper survey experiences also served as a basis or guideline for the Task Force surveys of other
industry segments.

Section 1 of this chapter presents the context and background to the shipper’s survey as
well as the methodological approaches that were employed. Section 2 presents the shippers’
assessment of the competitive situation of the subsector by summarizing their judgements about
important strengths, weaknesses, opportunities, and threats. Section 3 considers the shippers’
support and evaluation of alternative firm and subsector actions intended to support or enhance the
competitive position of the fresh segment of the Michigan apple industry. Section 4 presents and
discusses the results of shipper prioritization of industry support needs from university research and
extension. Use of the shipper survey information gathered in setting Task Force priorities and
evaluating actions is also discussed. The fifth section, by way of summary, discusses some
emerging strategies and priority actions requiring a degree of industry coordination that have been

drawn from the shipper survey.

134

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4.1 BACKGROUND AND APPROACH TO THE APPLE SHIPPER SURVEY

Information on perceptions of subsector strengths, weaknesses, opportunities, and threats
are presented here from the perspective of the Michigan apple shippers to provide a basis for
analysis of the competitive situation facing the fresh segment of the subsector. These data reflect
a collective judgement of knowledgeable industry sources, including shipper managers, head
salespersons, and other shipper leaders. The information compiled through this survey was
intended to supplement and/or clarify other information compiled by the Task Force, such as the
regional shift-share analyses as well as market trends and outlook for fresh and processed apple
products presented in chapter 3.

The shipper perspectives are regarded here as an important piece, but only a fraction of the
larger picture of the analysis of the subsector. The survey results reported here contribute in part
to the broader situational composite analysis that can ultimately be more fully developed through
a similar segment by segment survey process and with other types of information and analysis.
One intent of presenting the results of the shippers’ analysis on the subsectors situation is to
provide an initial basis for a more broad compilation of subsector strengths, weaknesses,
opportunities, and threats that can be enriched, clarified, and otherwise better developed as other
subsector segments are surveyed for their perspectives.

This shipper segment was chosen as a starting point for a comprehensive subsector survey
in part because shippers are in a key marketing position in the middle of the vertical value-
generating system. A high level of initial interest by key shippers to participate with the Task
Force in an information gathering process and strategic planning analysis was also an important
choice factor.

There is a relatively small number of shipper firms in Michigan. This facilitated the survey
and enabled the in-depth exploration of a number of key issues and analytical aspects relating to
the subsector. Complex issues could be more easily and more thoroughly examined in contrast to
the grower segment, with its larger number of growers. Considerable investigative dialogue was
possible through in-depth personal interviews with each shipper organization to provide even

further clarification when necessary.

135

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Views of the overall subsector may differ between and within segments with respect to the
nature, existence, or importance of any particular aspect (strength, weakness, etc.). Nevertheless,
an integrated overall analysis of the subsectors situation across and between segments provides an
important foundation for conceptualizing and operationalizing a subsector strategic planning system.
Key issues, significant production and marketing relationships, industry standard operating
procedures, and barriers to possible alternative actions can be analyzed in a useful perspective at
the industry level as the information from each segment is assembled and integrated.

The collective capability of the subsector as a supplier region and environment it faces is
subject to a constant state of change, requiring constant re-evaluation. This implies that issue
prioritization, the identification of action alternatives, and the eventual implementation of specific
improvement actions or programs is best regarded as a process that should be on—going. Shippers,
or other segments within the subsector, can provide up—to—date, insightful, and visionary perceptions
with respect to driving forces, key issues, and apparent changes regarding the subsectors situation,
even though the subsectors environment and capabilities can continue to change in unexpected
ways within a relatively short period of time. It is necessary, therefore, to make appropriate use
of the knowledge, analysis, and insight of the informed industry participants who are observing and
analyzing (at least to some degree) the many rapidly changing factors that impact their subsector.

The subsector competitive situational analysis provided from the shippers’ perspective here
would ideally be reviewed and updated periodically to complement a system of effective

information gathering in support of an on-going subsector strategic management system.

4.1.1 SURVEY CONTENT

The shipper survey was developed with considerable input from the Task Force, a shipper
subcommittee, and the broader Michigan Apple Shippers’ Association. In an overall sense, the
SWOT approach was used as a way to organize the survey questions.

The main questions and basic structure of the survey were distributed to each shipper

organization before each interview and used to guide the somewhat open-ended discussions on the

136

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major questions or themes of inquiry. The general order of inquiry laid out in the survey
follows:'00

1. Strengths of the industry
2. Opportunities for the industry

a. General open-ended opportunities perceived by the shipper
b. Reactions to and evaluation of specific opportunities suggested by the
Task Force
3. Issues, Challenges, Areas of Concern
a. General open-ended issues perceived by the shipper
b. Reactions to and evaluation of specific issues suggested by the Task Force

4. Support/Non-Support for specific actions areas suggested by the Task Force
5. Evaluation of priority needs for University Research and Extension
Although the SWOT approach was used as an overall framework for organizing the survey,
some concern was expressed by some on the Task Force with respect to the explicit use of the
terms ”weakrress” or ”threat”, as commonly used in a firm SWOT analysis. Therefore, at industry
suggestion and after Task Force discussion, weaknesses and threats were investigated under the
combined category of ”Issues, challenges, and areas of concern”, as well as in ancillary comments
in response to questions raised in other parts of the survey. This modified choice of wording from
the traditional SWOT framework was done because industry leaders recognized that to accomplish
effective industry strategic planning, there are very important intra-industry political aspects that
must be handled carefully in order to build and maintain a comrrritrnent of industry leaders to the
industry strategic planning process. Sensitivity to unnecessarily alienating key participants was a
major consideration in the choice of language and emphasis of the inquiry. The industry leaders
were concerned the emphasis on the word “weaknesses” might be viewed sufficiently negative so

as to cause a lack of participation by some.

4.1.2 THE SURVEY PROCESS

A survey involving a personal interview of the leadership within the 19 major apple
shipper organizations was conducted to obtain information on the Michigan fresh apple shippers’
perceptions of the subsectors situation and possible steps for subsector improvement. The survey

was requested by the Michigan Apple Industry Strategic Planning Task Force with the assistance

 

"’0 This questionnaire is presented in detail in Appendix A.

137

 

of
shi

10

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of the fresh shipper representatives on the Task Force. Several informal pretests were made with
shippers and other industry leaders. Several subsequent revisions were incorporated with respect
to some questions before finally carrying out the survey. Both the Task Force and the Michigan
Apple Shippers Association reviewed and offered suggestions regarding the most useful and urgent
questions. These two organizations invested significantly in the development of the survey
structure and content to obtain the most important information from the shippers with maximum
firm-level participation.

All shipper organizations listed in the Michigan Apple Committee’s Fresh Shipper and

 

Processor Directogy were contacted. All organizations participated in the survey with the exception
of two brokers, one of whom had gone out of the apple shipping business and the other regarding
themselves as out of the main stream of the Michigan apple industry.

The top management or lead sales person of each firm was interviewed. In some cases,
the shipper organization preferred to include several of the firm’s managers in the interview.
Results, however, were compiled in such a way as to provide each organization one ”vote”.
Differing responses by managers within an organization to specific closed-end questions were
divided in proportion to the number of respondents participating for that firm and tallied
accordingly. Open-ended comments offered by all interviewees were recorded during each
interview. A total of 24 interviewees were involved representing the 19 shipper firms.

The responses provided a starting point for compiling an important data set upon which
later issue importance and priority areas for developing alternative actions can be identified by the

Task Force and other leaders involved in the subsector strategic planning process.

4.2 A SITUATIONAL ANALYSIS FOR THE MICHIGAN APPLE INDUSTRY: THE
FRESH SHIPPER PERSPECTIVE

This section summarizes the situational analysis based upon information from the Michigan
fresh apple shippers. This comprehensive survey of fresh shippers was undertaken, in part, to
provide information from shippers toward improving industry understanding of the region’s

competitive strengths and the driving forces behind them, particularly those relating to the fresh

138

 

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segment of the Michigan apple industry. The material is presented in the standard SWOT
(Strengths, Weaknesses, Opportunities, Threats) format, concentrating on perceptions of Michigan
as a fresh apple supplier region with respect to the overall internal and external competitive
situation. Weaknesses and threats are evaluated somewhat together, since they were investigated

under the same question in the survey.

4.2.1 STRENGTHS OF THE FRESH SECTOR

On Subsector Strengths

A few comments on competitive strengths as they relate to a subsector may be useful to
begin this section. Subsector strengths can be conceptualized as the collective competencies or
advantages derived or generalized by the firms and organizations within the subsector. Subsector
competitiveness is reflected by the magnitude of these strengths on an aggregated level in relation
to other competing subsectors. The economic notion of comparative advantage, although often
conceived as static, relates somewhat to the sense of advantage conceived here.

There is considerable benefit, however, when it comes to both conceptualizing and
operationalizing a strategic planning and implementation system, in recognizing the dynamic
character of competitive advantage, and that factors that sustain this advantage can be influenced,
positively and negatively, through joint strategic action or the lack of it. The influence of factors
leading to relative advantage need not be through the erection of artificial barriers to competition,
in fact are unlikely to be that for a subsector, but can rather be toward improved subsector
coordination leading to improved system performance in a broad sense.

Strengths of a subsector can and should be viewed in a dynamic context by regarding them
not only by their relative magnitude, but by the extent to which they appear along a continuum of
emerging or historic strengths relative to competing subsectors. To the extent relative strengths
are eroding, they can be addressed within the framework of potential threats to the subsector. It
should be recognized that subsector capabilities are constantly influenced by institutional and
technological innovation internal to the subsector, as well as through changes in the environment

exogenous to the subsector. Driving forces that influence overall capability need to be identified

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for the subsector. These may, however, be difficult to recognize or understand fully, especially
when examining relatively narrow slices of the subsector such as the shipper segment.

A subsector strength can be identified and categorized to facilitate the analysis of industry
opportunities and action alternatives. One approach is to designate a source of competitive
advantage in terms an historic strength (an area or competency that has been important within the
Michigan subsector for some time) or an emerging strength (one in which improved competency
in a particular area is increasingly apparent). The relationship of subsector strengths to the
opportunity dimension of the situational analysis is that these relative capabilities serve as a basis
by which Michigan can take advantage of or develop current or emerging opportunity areas.

Both categories of strength (historic and emerging) are important for formulating effective
action alternatives. Historic strengths or capabilities are often referred to in the strategy
development process by those in the business academy. Strategies that are dependent on
developing new capabilities are frequently recognized as being inherently more risky.‘01 Emerging
strengths, however, illustrate the dynamic nature of the situational analysis and the potential for a
changing choice set and agenda. Emerging strengths suggest a changing capability to compete in

previously limited or previously non-existent opportunity areas.

Michigan Apple Shippers on Industry Strengths

The dynamic nature of competitiveness can be illustrated by the perceptions of the fresh
segment of the Michigan apple industry as evaluated by the Michigan shippers during the survey.
The means by which these collective or shared industry strengths can be influenced or built upon
are discussed later in this chapter in the context of industry opportunities and needed actions.

A number of strengths of the Michigan apple subsector were identified by shippers as
being particularly important for the economic viability of the fresh sector. Shippers were asked

in an open-ended question: ”What are the most important strengths or favorable factors of the

 

‘0' A common prescription in the business strategy field is for organizations to ”stick to their
knitting”, that is, focus on doing what they have traditionally done best. This prescription
was popularized by Peters and Waterman (1982). This would involve a devotion to
maintaining and exploiting the organizational strengths.

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Michigan apple industry that can be built upon for our industry's benefit in the fitture?"'°2. The
open-ended nature of the question encouraged elaboration on how particular subsector strengths
contributed to firm and/or regional advantage for specific opportunities.

Not all shippers identified the same list of strengths. Many of them also qualified strengths
as also presenting inherent weaknesses or limitations for the Michigan industry. Areas of regional
industry strength are summarized over the 19 shipper organizations interviewed in the following
sections. Many of the categories of strength are closely related each other.

The classification of a strength as ”historic" or ”emerging" was made after all the responses
were collected. This categorization was based on whether an area of capability was viewed by the

shippers as a long-standing advantage or more recently developing.

Historic Strengths

Quite a number of regional strengths were identified by shippers that have historically
served as a basis by which Michigan firms have maintained a competitive presence in the fresh
apple market. A summary of responses is presented in Table 4.1. All responses are recorded,
although the degree of elaboration on this question did vary from interview to interview.
Responses are assembled and ordered by frequency of mention over the course of the 19

interviews.

 

'02 Emphasis as it appeared on the written survey provided to the interviewee.

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Table 4.1 SHIPPER PERSPECTIVES ON HISTORIC STRENGTHS OF THE
MICHIGAN APPLE INDUSTRY

 

FREQUENCY HISTORIC STRENGTHS'”

RANK Related 502%”! Area

1. Geographic Location (17)
O Favorable climate for growing quality fresh apples
0 Location close to large mid-west, southern, and eastern U.S. markets
0 Responsive overnight service to most eastern and central U.S. markets
0 Good road system, transportation linkages, freight advantages

2. Varieties (14)
0 Michigan can competitively grow many different varieties that are desirable for

the fresh market

0 Several superior varieties are grown in the state

3. Flavor (7)
0 Superior flavor of Michigan apples especially relative to Washington Red
Delicious
4. Large and viable processing alternatives for growers and packers (6)

O Apples with superior processing characteristics

Industry support organizations (3)

0 Strong marketing and promotion organizations

0 Strong research and extension support from the University

Superior supplier of bagged apples (2)

Healthy product (1)

Long-term grower commitment and experience (1)

Industry size supports an inspection program (1)

Favorable tax laws and zoning (1)

Availability of adequate labor comfled to eastern producing_r£_:gions (l)

S"

 

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The most frequently cited advantage, historic or emerging, was related to geographic
location. Shippers at 17 of the 19 firms indicated the importance of geographic advantages for
Michigan as a supplier region, relating either to the superior features of the climate for apple
growing or market proximity. Shippers specifically identified a favorable climate as contributing
to advantages with respect to the state’s ability to successfully grow a wide variety of apples well
suited for the fresh market.

Market proximity was also identified as a strength related to location. Proximity to large
mid-west, southern, and eastern U.S. consumer markets relative to other supplier regions

complements the climatic advantages. Washington and New York have locational disadvantages

 

'03 Frequency of response is indicated in parenthesis. Mention of an important caveat may
be meaningful here. Not all shippers provided in—depth evaluation of industry strengths
in response to this open-ended question per se. Many would likely agree that a number
of the industry strengths suggested by other shippers would have merit. Frequency of
mention patterns, however, are useful in providing some degree of relative perception of
industry strength.

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to the Mid-West and opposite coasts. Generally good road systems and transportation linkages
from Michigan to key nearby U.S. markets enables Michigan to make the most of their freight
advantages.

The second most commonly cited strength for Michigan as a supplier region relates closely
to the Michigan’s advantages on varieties Shippers from 14 firms identified Michigan’s ability to
competitively grow many different varieties for the fresh market as a major source of strength. The
ability to grow a wide mix of varieties comes partly from Michigan’s location.

Washington has historically tended to focus on the production and marketing of Red
Delicious. Michigan growers and shippers have been able to piggyback Washington’s promotion
of Red Delicious with their own production of marketing of Reds.

Michigan shippers have sought, however, to differentiate themselves historically as a
sourcing region capable of delivering a number of apple varieties to meet a broader range of
customer needs. The Michigan Apple Committee has employed the promotional slogan "More
Than Just Delicious ” in keeping with Michigan’s variety emphasis.

Related to climate is the distinction noted by shippers of a superior flavor of Michigan
apples. This was noted as a particularly distinguishing and desirable advantage by the shippers,
particularly differentiating them from Washington. Some trade customers have apparently
designated superior flavor as a primary reason for sourcing from Michigan. A number of shippers
noted this as being especially common for their export customers. A F lavorbest logo is widely
used by many Michigan shippers and the Michigan Apple Committee in an attempt to draw the
consumer’s attention to this feature. Seven shippers indicated flavor advantages relative to
Washington in a number of varieties, particularly in Red Delicious.

The combined presence of strong processing alternatives for canning, slices, and juice for
growers and packers in Michigan is a strength widely perceived by shippers as being important for
complementing a strong fresh market segment. It was explained that the presence of a sizable and
competitive processing segment can provide an important floor market for the fresh market. It also
permits marginal quality fruit, with inadequate color or condition for the fresh market, to be easily

redirected, providing an economically viable market outlet for this fruit. Many of Michigan's

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varieties, however, have excellent processing characteristics, which fits well with the processing
strength.

An interesting counter-argument was posed, stating that growers in Washington have a less
profitable processing market and thus work harder to assure the delivery of a fresh quality product
for pack to the packing house.

A sizable fraction of the crop in Michigan is directed to the processing markets. Growers
commonly produce or maintain some orchard blocks exclusively for these markets. The processing
segment in Michigan is not generally regarded by growers simply as a secondary market for
product not meeting the standards necessary for fresh marketing, but rather is recognized as a
profitable, primary outlet for growers in its own right. The strong processing alternatives relate
closely to the other strengths of Michigan’s location, many good fresh and processing varieties, and
other strengths identified by the shippers. The ability to produce certain varieties with superior
processing characteristics was among the related strengths cited.

A variety of strong industry support organizations were identified as subsector strengths
that could be built upon for Michigan. Michigan’s advantages with respect to industry support
organizations were stated to be particularly significant in comparison to some east coast and
southern apple regions, for example, in the area of promotion organizations. Strong university
research and extension support as well as grower organizations were also specifically mentioned
as historic strengths.

Michigan was noted by several shippers to be perceived by some of the trade as a superior
supplier of bagged apples. This advantage is being challenged strongly by Washington as they
have recently given more emphasis to aggressively marketing in the bag market. The Michigan
shippers, however, in part because they are typically smaller than Washington shippers, and with
close-to—market location, appear to be more prepared to work with specific needs of certain buyers
with respect to delivery (partial loads, short notice, back-haul loads, etc.) and have used this
advantage to develop a number of sometimes smaller but promising market niches.

Several other points were identified by at least one shipper as strengths for Michigan as

a supplier region. One shipper noted that many Michigan fruit farms are long-established family

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businesses and suggested this was reflective of the growers’ knowledge base for the complex
modern management requirements, long term commitment, tradition, and experience. Another
shipper noted Michigan’s advantage of an adequate labor supply, particularly in comparison to
eastern producing areas; a critical factor for a labor intensive operation such as apples for the fresh
market. The size of the apple crop in Michigan justifies the presence of an inspection program that
facilitates Michigan’s participation in government purchases and export, an important source of
advantage over many smaller apple producing states. Relatively favorable state tax laws and
zoning regulations were also indicated.

The degree and validity of these competitive advantages historically held by the Michigan
apple industry cannot be identified fully simply through these response frequencies. Several of
those indicated may be true but may require further clarification.“ The shipper responses indicate,
however, by and large the Michigan fresh segment (from the perspective of the shippers) has relied
primarily on advantages derived from its location, its ability to produce a number of fresh and
processing varieties well, the presence of a strong processing sector relative to most other supplier
regions, and a relatively superior flavor. Strategic planning for the Michigan apple industry can
benefit from considering actions and strategies in the context of what Michigan’s historic

advantages have been.

Emerging Strengths

Shippers identified a number of improving capability areas with potential for improving
the competitiveness of Michigan firms in key fresh markets. Areas of overall capability that have
recently improved or are in the process of improving that were viewed as aiding Michigan’s
competitive position were classified as emerging strengths. These emerging strengths are

summarized in Table 4.2.

 

'04 Are Michigan apples really differentiable according to flavor? Evidence from different
shippers continues to point toward some advantage for Michigan. A recent consumer
study by Ricks, Heinze, and Beggs indicated apple flavor to be the most important
characteristic consumers consider when buying apples. However, regional distinction along
flavor characteristics remains somewhat unclear.

145

Table 4.2 SHIPPER PERSPECTIVES ON EMERGING STRENGTHS OF THE
MICHIGAN APPLE INDUSTRY

 

FREQUENCY EMERGING STRENGTH”
Related Strength Area
Increasing flexibility in packing, marketing, & merchandising (9)
Improving technical capability with respect to packing quality (6)
General quality improvement for color, size, and condition (6)
Progressive growers (5)
O Improvements and modernization in production and harvest management
Growing volume of apples suitable for the fresh market (4)
0 Moving toward becoming a year around supplier
0 Michigan fresh volumes growing relative to some eastern production regions
Improving attitudes toward change by those in the Michigan industry (3)
O Willingness to adopt technological changes; ie, labeling, new equipment
0 Increasing knowledge of the product and management-marketing sophistication
by key industry leaders
7. Improving reputation for Michgan as a supplier region among buyers (1)

 

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Strengths related to improved ability to respond quickly and flexibly to buyer needs were
most frequently cited. Recent improvements and modemizations in packing house equipment were
widely cited as presenting increased responsiveness for Michigan packer-shippers to changing
product demands. An increased packing flexibility has emerged within the larger packing houses
in Michigan with the adoption of new equipment and quality management. Michigan packing
houses are now capable of supplying a wider range of pack offerings and have increased their
packing house efficiency substantially. A new marketing and merchandising flexibility in the state
has emerged following the wide adoption of new and sophisticated packing equipment.

Marketing flexibility as a result of an increasing volume of controlled atmosphere storage
capacity was identified by some as a strength that continues to improve and a source of potential
advantage. Advances in controlled atmosphere storage technology have contributed in part to
Michigan’s emerging capability to deliver high quality over a longer season more approaching a
year around supplier. While this may provide Michigan with distinct advantages competing with
some minor production regions, it was also noted by some shippers that this advantage may be

eroding as CA capacity in some of these minor production states appears to be expanding.

 

'05 Responses ordered according to the frequency of response.

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The willingness of Michigan packers and shippers to offer flexibility to certain buyers with
respect to packing, packaging, and merchandising, particularly in comparison to Washington, was
noted as a distinct source of advantage for Michigan. This was noted to be a particularly important
capability necessary to compete for the business of smaller stores. Many buyers use Michigan
sourced apples either as a supplement to Washington, or because they don’t care to contend with
the merchandising restrictions mandated by Washington suppliers.

Improvements in the overall quality and sophistication of packing equipment being more
widely adopted in Michigan were widely cited as recent advancements with significant potential
for improving the overall competitiveness of Michigan as a fresh apple supplier region. The
technical improvements adopted by packing houses and the resulting flexibility in marketing were
identified by almost all the shippers as key strengths that could be further built upon. Shippers
widely indicated noticeable improvements in Michigan’s ability to deliver quality apples in terms
of color, size, and condition. One shipper indicated this by noting that the state has consistently
lowered its proportion of ”junk” apples in recent years. It was noted that one outcome of improved
sorting capability in the packing house has been to reduce loss of quality product to lower priced
outlets and at the same time improve the consistency of quality designated for higher quality packs,
which leads ultimately to better buyer satisfaction and prices. Several shippers further indicated
improvements in some packing houses with respect to waxing capability have been occurring.

A further survey of grower-packers in Michigan has been conducted by the Task Force
following this shipper survey. Among the objectives of the packer survey was to chronicle
technical changes that have been made and those that still need to be made to improve quality.
Most shippers, many of whom are also packers, have indicated significant capital investments have
been made. As one shipper indicated, the packing technology exists for incredible improvements
to be realized by Michigan packers in the quality and consistency of product deliverable to
potential buyers.

New packing equipment and an expanding volume of young fruit may reduce the

frequency or delay buyer switching to other supplying regions. Washington, with much larger

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collective supply, can effectively serve buyers with a year around volume. Michigan, apparently,
has lost customers altogether as a result of this switching in the past.

All of the most frequently mentioned items are closely related to overall improvements in
fruit quality. Generally improving size, color, and condition of apples packed in Michigan packing
houses were noted explicitly by a number of shippers. Some distinction was made by some,
however, between the potential or capability for delivering quality and the managerial intent to
deliver it. Gains in the market resulting from gains in quality capabilities, it was stated, can only
be fully capitalized by developing a strategic commitment to consistently delivering quality as an
essential part of an overall marketing program.

Progressive growers in the state were cited as a strength for the Michigan industry. Related
to this were noted recent improvements in orchard planting systems technology, production, and
harvest management particularly favorable for competing in the fresh market.

Other emerging strengths identified by shippers related to the growing volume of quality
apples available for the fresh market in Michigan. The importance of being recognized as a long-
season or nearly year around supplier of fresh apples was noted by shippers as an important
dimension of being a competitive supplier region. Buyers tend to shift their sourcing to other
regions if Michigan supplies run out or quality is deteriorating.

Michigan growers have historically directed the greatest share of their apples to the
processing market. Only 35% of Michigan’s apples went to the fresh market between 1985 and
1989 compared to 56% of the crop going fresh over the entire U.S. during that time.

Shippers expressed optimism with respect to the large plantings of quality young fruit well
suited for fresh market demands just beginning to come into bearing age in Michigan. The
implication would appear to be there are greater prospects for Michigan to increase fresh sales and
competitively supply more quality fresh apples than previously.

Generally improving attitudes toward change by those in the Michigan industry were cited
by a number of shippers as an emerging strength. These are reflected in an increased willingness
to adopt technological changes such as new packing and equipment, storage technology, and

labeling capabilities. Positive attitudes toward change and innovation are apparent at the grower

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level as well where improvements have recently been observed in advanced orchard systems,
improved IPM, advanced sprayer technology, maturity information, multiple picking and other
production and harvest management approaches. Several shippers summarized this strength as
reflective of an increased knowledge of the product and management—marketing sophistication by

key industry leaders

Many of the specific means by which these strengths can be built upon to the advantage
of the Michigan apple subsector may be best understood and clarified in the context of
opportunities and alternative action plans and will be addressed later in these sections. While not
all shippers may agree upon, or accurately perceive, the most important historic and emerging
strengths upon which the industry can build toward the future, their collective perspectives do
indicate some of the key areas of subsector capability that should be considered in the development

of future firm and industry strategies for the fresh segment.

4.2.2 WEAKNESSES OF AND THREATS TO THE FRESH SECTOR
On Subsector Weaknesses

Subsector weaknesses represent the relatively limiting aspects of the stream of production
and value-generating activities of the subsector and the nature of the various products. Relative
capability is defined not only by strengths, but by elements of the firm or subsector’s collective
capability to which there appears to be a competitive disadvantage or resource constraint in the
competitive provision of goods and services consistent with customer demands. Weaknesses are
here viewed as constraints or obstacles limiting Michigan firms seeking to take advantage of or
develop current and emerging market opportunities.

Weaknesses, like strengths, are dynamic. They change in response to changing
environmental conditions and individual firm and/or subsector efforts to address them. Firms can,
in many cases, individually or collectively seek to minimize the extent to which these factors
constrain the pursuit of otherwise attractive markets or cause them to be at a competitive

disadvantage. Relative weakness can also change in correspondence to changes in the subsector’s

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environment. Changes in factors defining competitor’s advantage, changes by regulating authorities
with respect to how business may be canied out, or changes in market demand, including taste-
preference changes on the part of consumers as end-users of the product can redefine the necessary
bundle of relative capabilities necessary for competitiveness in different markets.

Weaknesses may be overcome in part by proactive firm or multi-firm initiatives.
Weaknesses may also become increasingly important if they aren’t adequately dealt with through
strategic actions and adjustments.

Identifying weaknesses as accurately as possible facilitates the later identification of
effective or workable action alternatives to either direct resources to strengthen capabilities in
support of alternative strategic thrusts, or to de-emphasize certain strategic thrusts dependent on a
certain lacking capability. Some weaknesses, such as the continuing active presence of outdated
packing house equipment or the high cost and lack of labeling capabilities by some packing
houses, given the size and equipment of most small-medium packing houses, may be most
effectively addressed by individual firms as each considers its own firm-level strategy. Other
subsector weaknesses, such as poor grower-packer-shipper-buyer coordination, may be addressed
through certain more broadly based joint actions within the subsector. Still other weaknesses, such
as climatic factors that challenge the production of top fruit color and size, or freight cost
disadvantages to certain markets relative to New York and Washington may be beyond the scope
of reasonable recourse and must therefore be accepted as constraining the opportunity choice set

for Michigan firms and adjusted as best as possible.

Perceptions of Industry Weaknesses and Threats
Shippers were asked: "What do you see are the most important issues, challenges, or areas
of concern for the Michigan apple industry?".‘°6 They were also asked to identify w_hy they

thought these were important. Shipper responses to this question provide an important component

 

'06 Emphasis as it appeared on the written survey provided to the interviewee.

150

to the collective industry judgement and represent the perspectives of knowledgeable industry
informants.

The shipper responses are divided here into two areas for the purpose of analysis: (1) those
constraining issues that relate directly to or, in part, defined the internal capability of the Michigan
subsector and its stream of production activities and (2) those that are constraining factors or issues
exogenous to the subsector that could be viewed as elements of the subsector’s environment. The
former are categorized as weaknesses, the latter, as threats. Subsector threats, although also
discussed by shippers at this point of the interview, are summarized in section 4.2.3 since they are
grouped with opportunities as competitive situation parameters exogenous to the subsector.

A concentration on those issues deemed most important by each shipper organization was
thought to be desirable during the survey process rather than attempting to have each respondent
provide comprehensive analysis on all issues, enabling each shipper to offer a ”short list” of
constraining issues based on their subjective assessment of importance rather than complicating
inquiry by requiring them to further sort out whether a particular issue was technically a threat or
a weakness.

The distinction between ”internal” weakness and ”outside” threat is complicated when
assessing a situation for an organization as loosely defined as a subsector, where organizational
boundaries are blurred. How does the analyst classify vegetable shippers coming in to the apple
business in the fall, shippers based outside of Michigan that utilize Michigan fruit, or Michigan
shippers utilizing non-Michigan product for their pack? Another important classification problem
relates to the relationship of the Michigan subsector to the newly formed Coalition of Northeastern
Shippers - an institution designed to address broad issues facing eastern U.S. apple shippers.
Several major Michigan shippers are active in this group and pursue solutions to common problems
with other shippers through collective action. Is this group outside the bounds of the subsector?
Are state boundaries critical when pursuing strategic planning at this level? It depends on some
subjectively pre-defined bounds deemed appropriate for analysis.

Industry weaknesses can be divided conceptually into historic and emerging much in the

same manner as subsector strengths. This can, again, aid an understanding of the dynamic nature

151

of weaknesses and relative competitiveness as it relates to the subsector as a group of related firms.
This distinction is not formally developed here, however, since this was not explicitly pursued
during this line of questioning with the shippers.

A summary of those responses that could be categorized as weaknesses are presented in
Table 4.2 in order of the frequency that they were mentioned during the 19 interviews.

Table 4.2 SHIPPER PERSPECTIVES ON WEAKNESSES AND LIMITATIONS OF THE
MICHIGAN APPLE INDUSTRY

 

FREQUENCY WEAKNESS OR LIMITATION'07
RAMS. WW
1. Limited and inconsistent fresh volume and quality constrains growth into new markets (I 1)

Limited volume to service high volume, quality customers
Limited assessment monies to promote existing Michigan volume and quality
Need volume to develop, maintain, and grow major markets
Michigan as a region has the ability to deliver poor quality in any given year
Variance in pack quality - particularly color
Michigan has been cast with an image of being a low-cost, low-quality, stop-gap supplier
Defaults on deliveries from Michigan too frequent to service high quality accounts
2. Too many varieties (5)
O Inadequate promotion monies to support the wide variety mix and exploit variety
advantages
0 Buyers and consumers can become confused with too many varieties
0 Significant volume of older, less desirable varieties are marketed from Michigan
2. Limited capability to take advantage of export opportunities (5)
0 Relatively high freight costs to Europe, Asia, and S. America
0 Export growth constrained by variable quality
4. Shipper—Packers focus on moving volume at the expense of quality (4)
0 Decisions influenced by high fixed costs for new packing equipment
0 Many Michigan shippers competing on price rather than quality
4. Mis-information between growers, packers, and shippers (4)
0 Shipper-brokers often don 't know what varieties, volume, and quality they have to sell
0 Growers often over-react to new, unproven varieties
6. Some antiquated packing equipment produces a quality of pack that drags Michigan's regional
reputation as a consistent quality supplier of fresh apples (3)
6. Climatic limitations compared to some regions (3)
0 Short growing season, hail, and freezing can produce relatively variable quality
8. Lack of meaningful, credible organization on the part of the shippers (2)
0 Industry not particularly cohesive
8. Some growers have not made long-term capital improvements to modernize their orchards (2)
8. Absence of professional quality standards; USDA standards regarded as "archaic" (2)
l 1. Many packers pack their own fruit; culling standards may be low in these cases (1)
11. Lack of nursery support to growers on how to manage new varieties sold to them (1)
‘ l 1. Quality of waxing in some packing houses inadequate to compete in bulk markets (1)

 

 

 

 

'07 Frequency of response is indicated in parentheses.

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Weaknesses suggested by the shippers fall into a wide array of categories. The most
frequently cited issue focused on concerns relating to the region’s ability to deliver a consistent and
adequate supply and quality of product for the fresh market. Limitations to new market growth
resulting from limited and inconsistent fresh volume and quality were identified during eleven of
the interviews. Michigan’s relatively small volume of fresh apples, traditionally variable quality,
and limited assessment monies for promotion were identified as historic weaknesses of shippers
trying to keep competitive from within the region. The establishment of a spotty image among
buyers has been crafted through variable year-to-year quality, and variable pack-to-pack quality
within the region, and, according to some. Although those in the Michigan industry have made
significant strides toward improving their collective capability to deliver greater volumes of quality
fruit consistently over a longer marketing season, changing the mind-set of many buyers toward
Michigan as a supplier region was described as being difficult. It was noted that a shabby
reputation in quality is quickly obtained for the whole state, while a good reputation takes years
of coordinated effort to build.

One shipper noted that one source of competitive disadvantage for the Michigan firms
affiliated with the fresh segment versus Washington is their relative inability to monitor quality
beyond the packing house. The Washington Apple Committee has many more sales representatives
nationally that are authorized by Washington growers and shippers to pull inferior product and to
provide appropriate retail compensation.

The marketing and promotional difficulties associated with the production of many apple
varieties, particularly where differentiation between varieties was not obvious, was identified during
several interviews as an area of weakness for Michigan. Several noted the breadth of varieties able
to be successfully grown in Michigan to be both a source of advantage and disadvantage. Part of
the difficulty relates to the lack of adequate promotional funds to support such a wide mix. These
shippers indicated there were inadequate promotional monies relative to that needed to develop
Michigan markets for current varieties in both domestic and export markets. It was suggested that
buyers and consumers can also be overwhelmed when presented with 10-12 different apple

varieties.

153

Finally, somewhat related to the encumbrances of a less than desired image held by buyers,
it was noted that a significant volume of older, less desirable varieties are continuing to be
marketed from Michigan.

Geographic location, while offering certain climatic and market access advantages, also can
impede expansion of business into certain growing export markets. This limitation was mentioned
during five of the interviews. Relatively high freight costs and variable quality were identified by
shippers as barriers to expanding activity in otherwise promising export markets. Regions such
as Washington, which are able to diversify among domestic and export markets, are better
positioned to weather isolated economic downturns.

New and modernized packing equipment, efficiency, and capacity, while again widely
identified as an emerging strength, was noted to have potential quality related drawbacks as well.
The high fixed costs associated with the new equipment provide shipper-packers economic
incentive to over-emphasize volume and throughput at the expense, it was alleged, of quality. The
need to spread equipment costs over larger pack volumes in order to recover large capital outlays,
together with the temptation to utilize as much new-found packing capacity as possible, can result
in a preoccupation with lowest price as the main source for competition.

Shippers indicated many technical improvements remain to be made in Michigan packing
houses. The continuing active presence of outdated packing facilities that deliver a sub—standard
quality of fresh fruit to the market contributes to a negative image for the entire region. Shippers
that identified this as a weakness, however, also indicated that market forces would probably lead
to a fairly rapid consolidation of the packing activity in the state because of the economies of scale
inherent in the new packing technologies.

Incomplete information circulating between growers, packers, and shippers was identified
as another area of industry weakness. Shipper-brokers indicated they often don’t know what is in
storage with regard to condition, color, and size. Storage and sales reports are circulated that
indicate only vaguely fresh quality supplies and returns. Growers, by way of another example,

according to some interviewed, are prone to over-react to rumors on returns and make planting

154

decisions based on poor or short-term market information. Many growers, it was alleged, also had
a tendency to over-plant newer varieties that were unproven in the field or on the market.

Concern for seriously low net returns to many growers over the last 4-5 years was
expressed by most shippers. This concern was frequently raised while shippers were considering
the prospects for increasing assessments to growers to expand resources geared toward improving
their returns. Many shippers felt that many growers were too financially stressed to shoulder such
increases. Some shippers expressed concern with the increasing level of debt canied by many
young growers. Issues such as chronic low grower-shipper returns, for example, were widely
designated as important, but shippers offered little in terms of specific action alternatives that
would remedy the situation. In many cases, low returns were identified as mostly a function of
competitive factors beyond the control of those within the Michigan subsector. Given this fact,
the issue of prices is also taken up under the category of subsector threats.

Several other concerns were expressed by some of the shippers. Some shippers felt rather
that either Michigan, or at least their individual firm, could benefit from the absence of
”professional" quality standards, or were indifferent to the lack of serious organization on the part
of the shippers. These particular shippers would need more compelling evidence that indeed these
were important issues influencing the capability of their firm to compete effectively. Many of the
issues raised were identified too generally and would require greater analysis to gather the detail

necessary to formulate specific action alternatives.

4.2.3 THREATS TO THE FRESH SECTOR

Subsector threats were identified by shippers in the survey together with weaknesses under
the more general category of ”Issues, Challenges, and Areas of Concern”. Elements in this
category judged to be beyond the bounds of the Michigan subsector, that is, exogenous and more

easily understood as part of the market environment evolving beyond the direct influence of those

155

within the subsector, were designated as ”threats”. These factors can be viewed as obstacles to
pursuing opportunities or maintaining the subsector’s current competitive position. “’8

Threats were noted by shippers to come from a variety of sources. Increased and more
effective competition, unfavorable changes in demand conditions, and restrictive regulations were
among the most frequently identified categories of threatening issues. A summary of responses

from different shippers is presented in Table 4.7.

 

'08 Responses to the open-ended question regarding ”issues, challenges, and areas of concern"
were not nearly as focused as was hoped. Shippers tended to become easily diverted onto
issues of lesser importance. While many meaningful observations and thoughtful analysis
was provided at this stage of the survey, patterns were difficult to draw when assembling
the responses over all 19 organizations.

156

Table 4.7 SHIPPER PERSPECTIVES ON THREATS TO THE MICHIGAN APPLE
INDUSTRY

FREQUENCY THREAT'09
RANK Related Strength Area
1. Competitive actions threatening from other supplier regions and products(7)

0 Merchandising activities of the Washington Apple Committee, specifically (a) the
promotion of Red Delicious and (b) aggressive control over retail shelf space
through slotting allowances
Washington premium pack over-shadows Michigan's improving quality;
Washington’s non-premium pack purported to being sold at "dumping” prices
Washington expanding into bagged apple market
Larger retailer buyers demand high volumes of consistent product
Competition from other fruit; expansion of items carried in produce departments
Overseas competition from areas with cheap labor and longer growing seasons
Subsidized Canadian apples hurt U.S. in Canada
1. Poor grower returns (7)

0 Total over-supply in the U.S. and world-wide; demand and supply imbalances

0 Currently there is a challenging buyer's market I!

O Constant struggle to maintain a good price in keeping with the value offered

0 Chronic low returns to growers limits opportunities to increase assessment
1. Poor buyer attitudes toward Michigan quality (7)

0 Buyer standard operating procedures, specifically with respect to perceptions of

Michigan’s quality, volume, and seasonalin
0 Export markets requiring very high quality standards which are influenced by
Washington

0 Retailer obsession with waste and shrinkage measures rather than per-unit profit

4. Declining availability of key chemicals (4) l1

 

O Declining availability of key chemical inputs due to (I) expensive re-registration
processes for chemical companies and (2) legislative moratoriums threatened on
certain compounds

0 Corollary issue is the potential for increased presence of pests, diseases, and
blemishes in fiuit, reducing salability

4. Decreasing flexibility and increased cost associated with stickering (4)

0 Nutrition, variety, chemical use labeling are all expensive but increasingly being

used

 

 

 

Increased competition from Washington, New York, and other apple producing states was
cited as a one of the leading threatening issues. Many of the issues relating to increasing
competition related to strides made by Washington in the area of quality. The aggressive
promotion and merchandising by Washington was widely noted as putting increased pressure on
Michigan shippers. Concern was expressed that market segments traditionally held by Michigan,
particularly bagged apples, would be threatened as other expanding production regions sought

profitable segments for their product. All of the shippers designated the need to more effectively

 

"’9 Frequency of response indicated in parentheses.

157

compete with Washington, New York, etc., for fresh market sales as either an important (16%) or
very important (84%) issue in the follow-up closed-ended question. Several shippers expressed
concern with increasing competition from other fruits adversely affecting Michigan.

One of the most frequently identified area of threat to the Michigan subsector was poor
grower returns. A challenging buyers market has emerged from conditions of total over-supply
world-wide, according to many shippers. Buyers are increasingly more demanding and able to fill
their needs from a number of different supplier sources. A follow-up closed ended question asked

II M ' II II

shippers to evaluate several issues as "very important , important , minor importance”, or "not
important”. Shipper responses to "A need to raise prices received by Michigan shippers and
growers " confirmed the issue’s high level of importance indicated in the earlier open-ended
responses. Fifty percent indicated the issue to be ”very important” and 42% indicating it to be
”important". Those who qualified their responses indicated that it was not just prices but net
returns that were low.

Poor buyer attitudes toward Michigan quality was also frequently mentioned during the
open-ended dialogue as a major threat to Michigan suppliers. Michigan has often been cast as a
stop-gap supplier of medium quality fresh apples, or sometimes a secondary source when
Washington shippers have been unable to deliver at a reasonable price. Michigan has traditionally
pursued the market segments where they have been able to deliver smaller fruit at lower prices.
Many buyers have not come to recognize new capabilities by many Michigan shippers to more
consistently deliver larger, quality fruit on a year around basis. Old buying habits and perceptions,
it was often suggested, are difficult to shed.

The unwarranted persistence of artificially high phytosanitary barriers, particularly in
Mexico, were mentioned as threatening Michigan’s prospects for expanding into the export market.

Restrictive regulation that has led to the declining availability of key chemical inputs
considered necessary for Michigan to remain competitive was among the most frequently cited
threatening issues. Challenges posed by pesticide, food safety, and environmental regulations were
designated as important (26%) or very important (68%) by the shippers. Concern was expressed

with respect to the high cost of re-registration of key chemicals by private chemical companies.

158

Demands to increase the quality of fruit delivered from the state concurrent with the elimination
of pesticide tools to grow that quality were widely noted as a dilemma facing Michigan as a
supplier region.

One shipper suggested that the growth of produce sales in club stores could adversely
affect Michigan to the extent that it required suppliers to provide very high volumes of product at
out rate prices. It was suggested that this could undermine opportunities resulting from expanded
capability to deliver premium price-premium grade produce just now becoming attainable for
Michigan.

A wide range of issues were raised by the shippers, each with potential implications for
the economic viability of the Michigan apple industry. It is difficult to see definitive patterns in
the threatening issues simply according to frequency of response. Based on the data reported here
and a more detailed qualitative analysis and accounting of the shipper responses in Ricks and
Woods (1994b), the primary threats to the Michigan apple industry according to the consensus of
shipper opinion include the following:

0 The growth and competitive actions by the Washington apple industry with respect
to the fresh market present difficult and numerous challenges for the Michigan
apple industry to compete, particularly in the areas of quality, promotion, and
price.

0 The declining availability of key chemicals to the Michigan apple industry through
challenging regulatory processes and the economics of re-registration may present
challenges for Michigan to produce a marketable quality of fresh apple at a
remunerative price.

0 Buyer power places greater demand on packaging, service, and quality with little
opportunity for shippers, packers, and growers to raise prices. A trend toward
fewer and larger buyers may well translate to even greater competition among

supplying regions.

0 Poor buyer attitudes persist toward Michigan as a supplier region.

There are many ways these threats are inter-related. All of them currently affect or have
a potential for significantly affecting returns realized by the Michigan industry. Shippers widely
recognize the importance of these issues and the need for the Michigan apple industry to develop

workable plans to address each one, at least in part.

159

4.2.4 OPPORTUNITIES FOR THE FRESH SECTOR
On Subsector Opportunities

Individual firms or organizations strive independently and, to a lesser degree, collectively
to position themselves with the capability to profitably take advantage of perceived market
opportunities. The matching of the capabilities of the subsector to the subsector’s environment is
one of the fundamental tasks of strategic planning. The identification and implementation of
appropriate strategies that can propel the organization in a desired direction is another matter, but
is contingent on an understanding of the competitive advantage and context within which a
subsector finds itself.

Michigan, as a fresh apple supplier region, faces uniquely a number of opportunities
relative to other potential suppliers. Relative advantages critical to competitiveness and held in
common by subsector firms may be developed and/or maintained to maximize returns in emerging
growth markets. A certain degree of broad recognition and cooperation may be necessary,
however, to mobilize the resources and activities of the participating firms within the subsector to
take advantage of emerging opportunities that can be shared by many in the subsector. Following
Porter’s value system model (Porter, 1985), the identification or creation of new markets, together
with the discovery of better means to service and establish these markets, are ways to increase the

total value of the system and thus the returns to the participants generating the value.

Shipper Perspectives in Industry Opportunities

The Task Force, aware of the nature of many opportunities requiring a degree of subsector
coordination, surveyed the Michigan shippers regarding the prospects and barriers to certain
opportunities of this sort for Michigan. Specific opportunities were identified and discussed during
the interviews in terms of (1) their general potential for benefitting Michigan firms and (2) needed
industry actions that could lead to improving Michigan’s position. The discussion relating to
industry actions is taken up in a later section of this chapter.

Opportunities are organized in this section along two lines. The fust task of this section

is to present and evaluate the responses of the shippers to opportunity areas that were suggested

160

by the Task Force and explicitly specified in the shipper survey questionnaire. The second task
of this section is to present and evaluate some open-ended survey responses with respect to
opportunities for the Michigan fresh apple segment. All responses (open- and closed-end) are
organized in a systematic way by bringing together other components of the situational analysis
to identify Michigan’s basis for advantage and obstacles constraining expansion along these various
directions.

A market segmentation matrix is presented as a framework for organizing opportunities
both for an individual firm and for the Michigan subsector as a whole. Customer functions and
customer groups are outlined in this matrix according to shipper identification of prospective
customers and functions as a proposed tool to facilitate future evaluation of firm and subsector

marketing strategies.

On Opportunity Areas Suggested by the Task Force

Shippers were asked to (1) respond to the open-ended question: ” What do you see are
some important opportunities that need to be more fully exploited by the Michigan apple
industry?" and (2) to respond to a list of opportunities indicated by the Task Force as perhaps
emerging for the Michigan apple subsector, with particular emphasis on the fresh market. Shippers
were asked to identify the extent to which a each of the pre-specified opportunity area had
”realistic potential as (an) attainable goal”. They were then asked to suggest ”actions that would
help the industry achieve the favorable opportunities”. They were also asked to classify an
opportunity as ”outstanding”, ”good”, ”fair”, or ”poor”. Considerable additional information was
typically offered by shippers in support of their closed-end responses, as shippers were encouraged
to expand on or identify related opportunities, issues, and alternative approaches to industry action.

Shipper responses to the Task Force list of opportunities are presented in Table 4.3.

161

Table 4.3 SHIPPER EVALUATION OF AREAS OF GENERAL INDUSTRY
OPPORTUNITY PRE-SPECIFIED BY THE TASK FORCE

Outstandin Good mm
[________

----Percent Responding-m
(based on 19 shipper organizations)

1

 

 

110

Area of General Industry Opportunity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Improving efficiency and quality through more technically advanced
packing houses 62 28 5 5
Marketing more tray and cell Eek apples 55 32 13 0
Expandingiport markets for fresh Michigan apples 53 36 8 3 J
Improving the quality of fresh Michigan apples 47 50 3 0
Exgndingthe sales volume for fresh Michigan apples 39 43 l4 3 I
Improved communication and effective linkages between different
sea cuts of the industry 36 50 8 6
Expanding Michigan’s market share for fresh apples 34 47 16 3
Improve industry education on how to grow and market top quality
apples 24 63 5 8
Refme/develop the marketing-merchandising programs for Michigan I
apples 24 45 26 5
Obtainin hi 1 er mices for fresh Micflan apples 15 25 43 I6 I
Expanding the varieties offered by Michigan 3 21 37 34 ’
lrExpmdipLMiCMgm’s type of pack offerings 5 45 24 26
Mechanical harvestin for u_rocessin a les 0 O 46 54 _J

Opportunities closely related to taking advantage of the improving overall quality of fresh
apples being packed in the state were viewed as the most promising by the shippers. There was
a consensus that Michigan shippers have not fully exploited the quality control improvements that
have been made and continue to be under way to the potential possible. As a part of this, the
aspect of "Improving efliciency and quality through more technically advanced packing houses"
received higher designation as an outstanding opportunity than any other category with 62%.

Shippers generally expressed optimism toward expanding Michigan participation in tray

and cell pack markets as well as expanding fresh exports - both areas being very demanding in

 

”0 Many shippers were inclined to respond to an area of industry opportunity as, for example,
”good to outstanding", avoiding a categorical response. Responses are summarized in the
table by splitting such responses equally between categories, recognizing the central
tendencies toward the middle categories. Precision of ordinal ranking is not the critical
objective, rather a more general identification of opportunity areas that may be fertile for
more detailed later investigation and/or corresponding action alternative development.
Opportunity areas are ordered here simply according to frequency of categorization as
”outstanding”. Some categories may not sum to 100 percent due to rounding.

162

terms of quality. Michigan, in their mind, seems poised as a supplying region to expand into
markets previously mainly conceded to Washington by most shippers in the state, primarily as a
result of the emerging capabilities within the subsector to deliver higher quality fresh apples and
improved capabilities to pack tray packs.

Opportunities to improve certain industry capabilities, such as ”improved communication
and effective linkages between different segments of the industry " and ”improved industry education
on how to grow and market top quality apples" were noted generally to offer primarily "good” and
”outstanding” opportunity for Michigan. Shipper perceptions and suggestions relating to these key
areas were of particular interest to the Task Force inasmuch as they represented opportunities for
broad industry effort to improve overall responsiveness to major issues and market opportunities.

Shippers indicated that historic patterns of industry cohesiveness have been improving, but
there remains substantial opportunity for further improvement. These areas relate directly to the
internal capability of the subsector, reflecting important patterns of strength or weakness in the
subsector as a supplier region. Optimism expressed in this area generally was accompanied by
indications of improving communications. Some noted, however, that current linkages and
education was poor and therefore left considerable opportunity for improvement. Caution or
reservations expressed tended to be accompanied by comments pointing to a long-standing conflict
between shippers and growers that may be difficult to overcome.

There was a strong sentiment that industry actions and educational activities that genuinely
encourage individual firms, such as growers and packers, to go out and observe how their apples
are managed in other levels of the process can provide great ideas for improving business practices
back at the individual firm level. These kinds of educational activities can stimulate an
entrepreneurialism and spirit of cooperation that can lead to the benefit of all within the subsector.
It was noted by one of the largest shippers that growers need to see a clear benefit to their
cooperation with shippers and packers.

Improving the marketing-merchandising programs for Michigan was met with somewhat
lesser enthusiasm relative to some other opportunity areas, largely due to the limitations imposed

by fewer promotional dollars compared to Washington. Many identified means by which

163

improvements could be made if sufficient funds were available. Most felt, however, the Michigan
Apple Committee already was getting nearly as much promotional leverage out of the monies they
have to work with as they possibly can. Most shippers indicated there was little prospect for out-
merchandising Washington on a head-to-head basis and Michigan fruit is easily displaced by
Washington fruit, especially among the larger buyers. Some shippers suggested that many of the
smaller buyers that currently make up the base of Michigan’s business would prefer lower prices
rather than glitzy merchandising incentives. Some shippers suggested more specialized
merchandising could be done along the lines of the individual shipper organizations.

The summary of industry opportunity categories relating to prospects for improved
performance reflects a cautious optimism on the part of the shippers taken as a whole regarding
the overall outlook for the fresh segment of the Michigan apple industry. Improvements in quality
seem to be expected to continue, contributing to an increase in the sales volume for fresh apples
grown in the state. Prospects for expanding Michigan’s sales volume and market share were
regarded as generally ”good” to ”outstanding”. Increased market share was anticipated to come
primarily at the expense of minor producing states that were declining in production.

Prospects for higher prices for fresh Michigan apples were regarded primarily as "fair” to
”good”, with many shippers expressing concern with chronic (3-5 years and running) low prices
generally realized by the grower. While many identified this area an important issue facing the
industry, few were able to suggest quick and simple remedies. Improved returns, it was suggested,
might be derived through improved and consistent overall quality, which, in turn, improved shipper
access to growing and profitable markets.

Opportunities related to the expansion of varieties offered by Michigan and expanding the
type of pack offerings were held in lesser regard, as the majority of shipper designated these areas
as either "fair” or ” poor”. Further opportunities to build on these value-adding activities beyond
what Michigan currently services was perceived to be limited. The continuing status as primarily
a ”bag" and ”variety” state is likely to continue to a major degree and major industry growth

opportunities were generally seen by the shippers to lie elsewhere.

164

Further Opportunities Identified by the Shippers

Many opportunities were identified by various shippers beyond those initially derived
through the industry leaders on the Task Force. The responses were compiled and summarized for
the purpose of comparison and analysis into three general categories: (1) opportunities for
expanding into competitive existing markets (markets that are established but are currently minor
for Michigan), (2) opportunities for improving products or services (value) to markets through
technology, marketing, and coordination, and (3) opportunities for creating and developing new

“' A summary of these opportunities are presented in Tables 4.4-4.6, together with a

markets.
summary of Michigan’s basis for advantage and obstacles corresponding to each area as
summarized from the shipper interviews. Other sources of regional advantage or obstacles to

expansion may exist. Discussion here, however, focuses on summarizing the perceptions

communicated by the shippers during the survey.

 

”' These different classes of opportunity are modified and adapted from Oster (1994). Which
class of opportunities ought to be emphasized, or which opportunity areas within a given
class present the greatest promise is a subject of some debate, not only among the shippers
but throughout the apple subsector. Following Oster, "A central strategic planning issue
for any organization (such as related firms jointly planning within a subsector) is how
much time and energy should be devoted to identifying and entering attractive existing
markets, and how much should be spent in cultivating entrepreneurial ability and high
performance in the organization as it is currently structured. This debate is played out
in organizations throughout the U.S. economy. " (Oster, p.116, 1994)

165

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168

Expansion Into Competitive Existing Markets Currently Minor for Michigan

Expansion into competitive existing markets is becoming increasingly possible for
Michigan largely due to improving fresh fruit quality. Product offerings such as tray packs, gift
packs, and premium packs have traditionally been sourced out of Michigan on a limited basis.
These high quality-based products also tend to be potentially high profit items.

A major obstacle for Michigan to participate in premium-grade products is its reputation
for being a low-cost, low-quality sourcing region. Expanding opportunity areas associated with
higher quality standards suggest this should be a priority for the fresh segment of the industry to
develop action plans that modify or transform Michigan’s performance and hence this image. It
was widely noted among the shippers that Michigan’s image as a supplier region is influenced by
all participants.

Michigan has developed and improved its capability, primarily through firm-level
investments, to pack and market these products at a quality and price that is competitive with
Washington. Shippers indicate there may be further advantages for Michigan to exploit its variety
and flavor distinctions for these markets. Obstacles to expansion along these premium-grade
product lines include the high cost of superior sorting and grading equipment, as well as labeling
fruit with PLU codes. Only the largest packers currently own equipment to serve this market with
any significant volume. Many shipper-packers surveyed, however, indicated plans to make
significant investments to upgrade packing lines within the next few years.

Geographic areas in the U.S. not traditionally served by Michigan but that consume
significant supplies of apples were identified by different shippers as having various degrees of
expansion opportunity. Many different countries were identified as promising export markets
within which Michigan could expand its presence, despite freight disadvantages compared to New
York and Washington. Reduced trade barriers to Mexico and hopefully to other South and Latin
American countries was identified as a factor that improves the advantage for Michigan, together
with its improving fruit quality compatible for export demands. Again, Michigan’s wider variety
offerings may also prove advantageous in certain export markets, since a wider band of variety

tastes and preferences are available from Michigan. Most shippers sell many varieties and can ”get

169

their foot in the door” often with one or two varieties and expand service and sales of other
varieties from there.

Many shippers also designated different regions of the U.S. as presenting various degrees
of opportunity for Michigan-source apples. Many of these markets were those where Michigan
firms had either been active at one time and then crowded out by Washington, or where
competition from local production formerly constrained penetration by Michigan as an outside
supplier. Shipper opinions were mixed on the extent to which opportunities were legitimate and
sustainable and which regions offered promise. Michigan shippers expect increased promotional
efforts to continue from Washington, New York, and California as competition for shelf space
increases and new state promotional organizations become more aggressive in New York and
California.

It appears that at this time California is expanding its commission to include all varieties
grown in the state. According to the American Fruit Grower (June, 1994), they are attempting to
differentiate their product as having superior flavor, much like the "Flavorbest" campaign of the
Michigan Apple Committee. Increases in California’s production will likely endow their
commission with significant promotional funds.

New York has recently combined eastern and western New York grower organizations to
form a state-wide commission to promote New York apples. As the second largest apple
producing state, New York may become even tougher competition for Michigan in eastern and
southern U.S. markets. Michigan thus will probably not be able to expand uncontested to fill
openings in markets formerly served by these now declining production regions.

Food service markets have long been dominated in the U.S. by Washington. Military and
school outlets, however, were suggested by several shippers as having greater promise for
Michigan. The military was noted to be the single largest purchaser of apples, though it is a
customer declining in size. Changing produce procurement practices by the military may favor
increased utilization of Michigan product as more regional purchasing is taking place.

USDA and direct purchase opportunities for midwestem U.S. schools were identified by

some shippers as likely to expand for Michigan in the future. Promotional thrusts are currently

170

underway in schools that encourage the purchase of state and regional apples. Health and nutrition
features have been emphasized for apples generally and the industry has long been considering new
ways to increase the exposure of apples to youth to develop early consumption habits.

One shipper suggested encouraging the increased use of processed apple products in
school, such as cobbler, sauces, and other apple-based desserts could indirectly increase the
consumption of fresh apples. Advances in fresh processed apple products was also noted as having
promise for Michigan in school systems, enabling % apple or slices to be served. Improving
quality and continuing strong demand for fresh and healthy produce makes this an increasingly

attractive market for Michigan shippers.

Improving Value Through Technology, Marketing, and Coordination to Key Markets

There are many ways Michigan firms have improved and continue to improve the products
and services provided from the state to keep competitive in currently emphasized markets. Overall
capability improvement in such areas as growing and packing, while opening opportunities to better
compete in markets not traditionally emphasized by Michigan, also allows for even greater
competitiveness in established markets through better quality, better service, and/or lower cost.

Significant investments have been made in the industry by individual farm that reflect
favorably on the overall quality potentially delivered from Michigan. These include improvements
in packing house technology, improvements in storage and post-harvest management and
technology, continued development of new sport strains particularly well suited for growing in
Michigan’s climate, increasing crop size and product availability, and new focused efforts to
improve industry coordination, education, and communication. All of these areas represent means
by which Michigan has been able to improve its product and service offerings. All of these factors
have contributed to a greater consistency of product quality.

Many shippers remain cautiously optimistic about means within the state to consistently
deliver higher quality. Michigan still is subject somewhat to highly variable climatic conditions
that influence the quality of the fresh fruit. Many specifically identified quality inconsistency year-

to-year as a weakness historically plaguing Michigan. Improving varieties, post-harvest

171

management improvements, and quality differentiating technologies have moved Michigan to
become less vulnerable to climate than formerly.

A number of shippers emphasized emerging advantages that help improve Michigan’s
quality performance and hence support an improving image of the state as a competitive and
dependable supplier of quality fresh apples over a longer marketing season. The ability to promote
the state along these lines provides an important competitive distinction relative to minor producing
regions.

Continuing marketing and merchandising efforts, funded by grower assessment monies,
provide Michigan with momentum and exposure in promotion advertising and marketing.
Although this promotional program is with a considerably smaller budget than Washington, it
currently exceeds many of the promotional resources available to other more minor producing
states.

It is noteworthy that 81% of the shippers supported increasing the grower assessment for
promotion and advertising through the Michigan Apple Committee to further expand demand for
Michigan apples. Shippers, while clearly benefitting directly from MAC increased promotion, are
mostly involved directly in the technical end of packing and/or growing. Only 56% of the shippers
supported increasing the assessment for expanding technical and market research projects,
suggesting shippers regard increases in promotion as offering greater opportunities than continued
technical production improvements.

Obstacles to continuing technical improvements in packing and shipping are apparent.
Shippers routinely expressed concern for the high cost of improving packing capabilities, especially
installing high volume PLU labeling equipment.

Expanding the number of varieties grown and marketed by Michigan was also met with
widely divergent opinion, depending in part on the shipper size. Smaller shippers tended to
emphasize negative aspects to this thrust. Buyer and consumer confusion with respect to the many
variety names and characteristics, limited shelf space for varieties, and the lack of adequate
promotion dollars for many varieties currently offered from Michigan were among the most

commonly cited constraints for growth in this area. Larger shippers, however, indicated advantages

172

to marketing more varieties by Michigan to the extent that it could increase opportunities for cross-
variety selling and permit inroads to certain markets that might otherwise remain closed to

Michigan with a more limited variety offering.

Creating and developing new markets
A third class of industry opportunity areas includes creating and developing new markets

112

that either don’t exist or are considerably under-developed. The number of specific opportunities
mentioned by Michigan shippers with respect to new markets for fresh apples were limited. Fresh
processed apple products and innovative specialty packaging are presented here as possible
examples. Opportunities identified by shippers in this class include fresh processed apple products
and innovative specialty packaging, some of which have been tried on a limited scale.

Identifying and exploiting these opportunities may require a certain vision for what can be
done individually or through collaboration. A major limitation arises when firms constrain their
pursuits to be in accordance with their own small development and promotional resources.
Shippers, incidentally, have little incentive to divulge truly new market opportunities that they as
an individual firm can exploit. It is conceivable, however, that similar firms with a common
production domain, can benefit from the innovations developed by a nearby first-mover. A
workable anti-oxidant for apples that made fresh processed products feasible, and marketed initially
using varieties best produced in Michigan would benefit both apple growers and other Michigan
shippers as the product base sourced from Michigan would expand and thereby making Michigan
more attractive as a sourcing region to food service buyers.

Fresh processed apple products would appear to have significant promise for Michigan
inasmuch as emphasis relating to demand for raw product is less on fruit size and color and more

on flavor and condition (firrrmess, slicing characteristics, etc.). Food service markets (restaurants

and other institutional buyers) may likely be among those with the strongest demand for such

 

”2 This class of market segments and differentiation is distinguished from opportunities to
expand into existing competitive markets by the opportunity to gain first-mover advantages
(following Chandler, 1990).

173

products. Shippers also indicated Michigan may have a cost advantage supplying raw product for
this use, although they suggested that Michigan may not be able to supply all the product
demanded for these products if this market grows rapidly. A major obstacle, commonly
constraining these kinds of opportunities, is the high cost of research and development, particularly
prohibitive for the smaller Michigan firms.

Specialty packaging was suggested as one possible area of opportunity by the Task Force
and some shippers. It was generally considered a fairly narrow niche market that a few shippers
may be able to service profitably. New ideas are constantly being presented and shippers expressed
an openness to new suggestions. A wide variety of packages are already marketed from the state.
Some retailers are receptive to innovative packaging to better serve their customers and in some
cases differentiate their produce from competing retailers. Demand for creativity with respect to
packaging apples appears to be significant among some buyers, although maintaining many
alternative package types are also expensive.

Quality improvements throughout the production and marketing activities within the
subsector were central to many of the discussions concerning industry opportunities. A useful
delineation for the Task Force, while sorting this information out, might include two levels. The
first level would be opportunities or strategies to improve the overall quality of production and
service delivered by the region. The second level is a recognition of the growth potential for
Michigan firms in different cells of the customer group-customer function matrix contingent on
improving quality. This is discussed in more detail in the next section and in Figure 4.1 and Table
4.6. Firm and/or industry actions to improve quality should be driven both by changing demand
factors that are increasingly requiring higher quality, as well as by changing supply factors that
reflect the firms increasing capability to deliver better quality.

Concluding, although some follow-up inquiry more clearly defining opportunity areas
suggested by various shippers may be desirable to help inform the Task Force, many different
directions of growth seem feasible for Michigan to realistically pursue. Ideally, an opportunity
outlook and analysis would be an on-going and iterative process back and forth between the Task

Force and the individual shippers, evaluating, among other things, obstacles and possible fmn-level

174

and joint subsector actions perceived by the shippers that may better open opportunities for
Michigan. An opportunities analysis and information gathering process initiated through the Task
Force or some similar organization, say every 2-3 years, would provide an on-going data source
that could be valuable to shippers, growers, and supporting organizations as they each may be in

the process of deriving their own longer-term planning.

A Market Segmentation Matrix

Derek Abell (1980) proposes developing a business definition matrix as a tool for setting
the context for strategy evaluation. The this three-dimensional matrix includes customer functions,
customer groups, and alternative technologies. This matrix can help an organization or a subsector
map not only where they are in relation to where they may want to be, but also anticipate threats
to certain courses from rival technologies, etc. The general conceptual approach is illustrated in

Figure 4.1

175

Figure 4.1 THREE DIMENSIONS FOR DEFINING A BUSINESS

A Business Serving Multiple Customer Groups
Three Dimensions for Defining a Business
Customer

Customer Functions

Functions

6

Customer
Groups

 

 

 

Customer
GrOups

 

Alternative

l 'es
Alternative Techno 09'

Technologies

A Business with Products Based on Several Alternative

A Business Serving Multiple Customer Functions Technologies

Customer

' Customer
Functions

Funcnons

  

 

 

Customer a Customer

Alternative
Technologies

 

Alternative
Technologies

Source: Abell, Derek, Defining theflsinesszflie Starting Pant of Strategic Planning
(1980)

176

Discussions with shippers revealed many opportunities for fresh apples with respect to
different customer groups and functions. A market segmentation matrix is presented in Table 4.6
illustrating some of the prospective cells for different customer groups and customer functions.
The presentation complexity of adding alternative technologies precludes detailed presentation here,
but certainly technologies that are emerging relating to opportunities to improve products or
services delivered to these cells should be considered in the opportunity mapping exercise.

Customer groups served by the apple industry can be evaluated along geographic,
institutional, and socio-demographic classes. The apple shippers provide a wide array of customer
functions for which shippers have indicated varying degrees of opportunity. Detailed firm or
indusz plans can target the development of certain of these segments. Certain customer functions
may overlap, such as varieties and package type. The value of such an exercise for any
organization, however, is to map out such segments with a view toward understanding both the
current status of the organization with respect to key cells as well as trends indicating expanding

or declining areas of opportunity.

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178

4.3 SHIPPER EVALUATION AND SUPPORT OF INDUSTRY ACTION AREAS
On Industry Actions Suggested by the Task Force

An initial series of ideas for industry improvement action areas was discussed by the Task
Force and through preliminary meetings with various industry leaders, including those from the
Michigan Apple Shippers Association. In the survey, shippers were asked for their evaluation of
appropriateness of various actions for the industry by responding to a list on the questionnaire of
20 prospective action areas, indicating their general support for these possible industry initiatives.
They were also asked to provide their ideas relating to specific actions within those action areas
where they indicated their support. Shipper responses were intended to provide the Task Force
with some basis for initial prioritization for developing plans for industry action and strategies
within these areas.

Shippers were asked, in addition to indicating their support for developing industry
initiatives, to identify steps that could be taken to stimulate needed changes in each area. They
were also asked to identify potential benefits, disadvantages, or obstacles to implementing actions.
If an action area was not supported by a shipper in the survey, that shipper was encouraged during
the interview to suggest specific programs relating to these more general action areas that they felt
may be workable, both with a view toward other shippers and, where necessary, in cooperation
with the grower community.

The Task Force was primarily collecting ideas on specific subsector action needs and
alternatives during the shipper survey, as well as how such ideas might be implemented. One
advantage of interviewing each shipper individually was that many different and perhaps
controversial ideas could be suggested by the shipper without concern for managing immediate
negative reaction from other shippers. Shippers could discuss their perspectives frankly without
being identified. A summary indicating the frequency of support for the various action areas

proposed by the Task Force and shipper leaders is presented in Table 4.10.

179

Table 4.7 SHIPPER SUPPORT FOR SELECTED AREAS OF INDUSTRY
IMPROVEMENT ACTION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Not
Su rt Su rt
Industry Action Area"3 ---Percenr Responding»-
19 or anizations)
II Emphasize and explore special market niches for Michigan apples. 100 0
Further improvements in storage technology, equipment and storage
management for Michigan varieties. 97 3
Continued improvements to reduce bruising in orchards by pickers and forklift
operators and in packing houses through improved packing line equipment and
design for less bruising as well as more widespread implementation of current
know-how on bruise reduction. 97 3
Encourage more uniform sizing of Michigan fresh apples through improved
cultural practices, modernized packing house equipment, and marketing practices.
97 3
Encourage growers to multiple pick for the needed color, size and maturity
for fresh market. 95 5
Further improvements in maturity information programs, implementation
and harvest management to get fruit picked at best times for good storage life
and condition. 94 6
Increase the number of bins for expanding Michigan production. 89 ll
Encourage growers to remove and rejuvenate poor varieties and strains and
to plant only the best strains. 89 11
Continue expansion of CA storage capacity for Michigan’s expected larger
apple production in the future. 85 15
Monitor and analyze the progress and success of competing fresh market
_£_egions including Washiflton, New York, Chile, etc. in relation to Michigan 82 18
Increase efficiency, flexibility, and effectiveness in meeting buyer-customer
needs of the average Michigan packing house through the adoption of top-
notch equipment. 82 18
Increasing the grower assessment for promotion and advertising through the
Michigan Apple Committee to further expand demand for Michigan apples. 81 19
Comprehensively evaluate new varieties and strains that are best suited for
Michigan’s fresh markets and growing conditions. 71 29
Develop and implement a system for non-destructive firmness testing in
Michi an ackin houses. 68 32

 

 

”3 Action areas are ordered in terms of the frequency with which they were indicated as
supported. Bolded emphasis is at it appeared on the written survey.

180

Table 4.7 SHIPPER SUPPORT FOR SELECTED AREAS OF INDUSTRY

IMPROVEMENT ACTION Cont.

 

 

ACtiOll mm ---Percent Responding---
l9 Oranizations)

 

 

 

 

 

 

 

Increasing the grower assessment for apple research to finance needed
technical and market research projects. 56 44
Develop a new mandatory program for management of quality and grade '
standards, especially for firmness and maturity by the Michigan industry. I
SO 50
Expand total packing house capacity. 47 53 i
A Michigan apple marketing clinic similar to the IA] national marketing clinic .
in Chicago. 42 58 .
An association of apple exporters. 38 62 I
Develop a program to pay growers to eliminate poor quality blocks and
strains. 0 100 __

 

Many of the action areas were defined in fairly broad terms without specific tactics
identified or stating exactly how an action might be implemented. "Increase the number of bins
for expanding Michigan production ", for example, designates an action area, but stops short of
suggesting how this would be canied out or coordinated over the subsector.

Recognizing a need for action and supporting a specific program of cost sharing are clearly
different matters in this case. A high level of support for some sort of action along a particular
course would indicate, however, a sense of priority for developing a workable specific program that
could fulfill, at least partially, the industry’s needs.

Conversely, a low level of support for a particular action area need not imply the
corresponding issue is perceived by the shippers as unimportant. Half of the shippers, for example,
did not support a mandatory quality and grade standard, although the desire to identify mechanisms
to continue to raise Michigan’s reputation for delivering high quality apples, especially regarding
condition, was nearly universal. Some specific programs by which this might be accomplished,
however, remains a topic of considerable debate. Indusz mandatory approaches can be highly

controversial, particularly in the absence of details outlining specific features of a program.

 

”4 Action areas are ordered in terms of the frequency with which they were indicated as
supported. Bolded emphasis is at it appeared on the written survey.

181

Shippers would typically state their case during the survey interviews based on principle rather titan
with regard to a specific detail.

Certain action areas were defined more specifically in the survey questionnaire, such as
"Increasing the grower assessment for promotion and advertising through the Michigan Apple
Committee to fimher expand demand for Michigan apples ", or "Develop a program to pay growers
to eliminate poor quality blocks and strains ”. These were presented in the survey, however, as
flexible with respect to the details of amount or suggesting a specific plan of implementation.
Support for these more narrowly defined action areas also recognizes the need for further
refinement and consensus building before these might be adopted. Shippers often stated explicitly
that they recognize the growers, for example, pay the MAC assessment and therefore should be
the ones ultimately to vote on it.

Shippers were unanimous in their support to emphasize and explore special market niches

115

for Michigan apples. This is an aspect that most Michigan shippers said they currently pursue,
at least to some degree. Shippers indicated that they currently pursue special niche market
opportunities for their product and have been able to compete effectively in certain segments of
the market ignored or poorly serviced by other supplier regions. Competitiveness for Michigan
shippers in certain niches, such as Mid-West independents can be developed largely by individual
firms. Certain other initiatives of a more joint nature may be required, however, in order to
advance or maintain a competitive presence by Michigan shippers in other niches.

Washington, because of its large volume of fresh apples, services a very broad scope of
market segments all over the world. Michigan generally finds itself pursuing relationships with

buyers to either supplement supplies primarily sourced from Washington or service specialized

demands in terms of delivery size, variety mix, packaging alternatives, or delivery schedule.

 

”5 Michael Porter (1985) refers to the focus generic strategy that is often designated elsewhere
as a niche strategy. This strategy differs from other generic strategies because it rests on
the choice of a narrow competitive scope within an industry. Porter distinguishes between
a cost focus, in which a firm seeks a cost advantage in its target segment, and a
differentiation focus, where a firm seeks to differentiate its product within that segment.
Broad market competitors may have either higher relative costs serving a particular
segment or be unable (or unwilling) to meet the unique needs of a narrow segment of the
market.

182

Action areas consistent with improvements in quality were highly supported by shippers.
Most shippers indicated significant opportunities for Michigan corresponding to quality and quality
image improvements and, in many cases, have been very active in this area at the firm level.
Coordination with growers to facilitate quality improvements was generally recognized as a critical
area of concern. Low quality fruit and/or poor varieties and strains severely constrained what
shippers can do with that fruit. Further improvements in the production activities relating to
storage, bruising, sizing, color, maturity, and general quality management were among the action
areas receiving the greatest support.

Encouraging the removal or rejuvenation of poor varieties and strains was supported by
89% of the shippers. There was considerable debate, however, on how this could actually be
accomplished. Shippers dissenting or qualifying their response indicated that the market would
effectively eliminate growers consistently delivering poor quality fruit to the packing house and
getting consistently low pack out.

One shipper who was instrumental in the questionnaire design suggested perhaps
developing a program to pay growers to eliminate poor quality blocks and strains. This was met
with unanimous opposition by the shippers, including even the shipper who suggested asking about
it. Most shippers, however, recognized a need to provide growers some incentive to remove older
blocks or provide them with better information to facilitate a better economic evaluation.

Capacity expansion for storage, packing, and bins to accommodate an expected surge in
Michigan production was generally supported by shippers, but to a lesser extent than the quality
improvement actions.

Shipper support for increasing the number of bins was high at 89%. Apple bins generally
turn over between the packer and the grower several times during the season. Ownership,
maintenance, and control of the bins varies according to individual circumstances. The supply of
bins in circulation, although able to accommodate variable supplies to some extent, appears to be
short for large crop years. How these additional bins are supplied remains an issue to be worked

out between growers, packers, and shippers.

183

Expansion of CA storage capacity (85%) was quite high, however only 47% supported
expanding total packing house capacity. Most shippers said that Michigan has adequate total
packing house capacity. Several suggested that Michigan now has too much packing capacity and
new problems are likely to emerge from this situation. The firm-level economic incentives for
packers, many which have been stressing volume over quality, were mentioned frequently in
connection with this issue.

One shipper, who is not a packer, expressed concern with the lack of commitment to pack
quality, noting that expensive high-tech equipment does not ensure a quality pack. He indicated
he would rather work with an older packing house that had a reputation for being conscientious
with respect to quality rather titan a newer one with more advanced equipment that was not
committed to packing quality.

This may or may not persist as a problem in Michigan depending on the extent to which
the total volume of production actually expands in the state, particularly as new production appears
to be largely consisting of new, high quality orchard planting sytems. The short run, however,
appears to present some challenges for some packers and shippers with respect to the firm-level
incentives to maintain high quality standards.

Increasing the efficiency, flexibility, and effectiveness in meeting buyer customer needs
through the adoption of sophisticated packing house equipment was supported by 82% of the
shippers. This was regarded as an important orientation by most shippers for Michigan to stay
competitive. Continued modernization is regarded as a critical need for Michigan packing houses
as buyers become more demanding in the area of quality and other services, such as PLU labels,
etc. Shippers, citing retail trends toward reduced retail warehouse space, indicated flexibility and
reliability in delivery would also be increasingly important services demanded by retail buyers.

Evaluating new varieties and strains received a fairly high level of support (71%), although
the emphasis was on the need for more careful evaluation of a variety’s suitability for Michigan
growing conditions rather than the expansion of the number of varieties per se. Shippers indicated
that there may be a tradeoff between devoting resources to improving current strains and expanding

the variety mix even more; it is difficult to do both well.

184

Some indicated that economic evaluation of varieties must consider the mix for the
subsector together rather than simply focusing on a variety-by-variety analysis. Buyers are inclined
to prefer a supply source where they can fill a broad portion of their variety needs. Some varieties,
though perhaps offering limited potential alone, may also serve to open the door for growth in
certain markets for other varieties of which the buyer may have previously had only limited
knowledge. The scope of varieites can potentially be presented as a menu for the buyer that
communicates “choice” and selection alternatives of a scope that may not be available from other
regions.

The strong quality performance of new varieties and strains contribute to much of the
optimism shared by shippers with respect to the improving quality and suitability enhancing
Michigan’s competitive position in certain segments. Economic and market outlook evaluation for
growers that can help speed up the modernization of needed changes from older, less desirable
varieties and strains exhibiting poor performance would be welcomed by the shippers.

Communication and coordination between shippers and growers with respect to variety
demand and long-term planning came up frequently. It was suggested that an independent
organization, such as the Task Force or Michigan Apple Committee, could facilitate the
communication or compilation of some sort of comprehensive current shipper assessment of variety
demand and outlook.

It appears there is an opportunity to improve subsector coordination between growers and
shippers as shippers often have a knowledgable perspective of demand conditions for fresh varieties
that may not necessarily be adequately communicated in current prices received by growers. There
may be some means for improved planning between shippers and growers related to this, perhaps
targeting approximate desirable proportions of certain varieties. ' '6 Some shippers, however, hesitate

to appear as dictating what varieties growers ought to grow.

 

”6 A survey of fruit plantings is currently conducted on a rotating basis by the Michigan
Department of Agriculture compiling historic plantings by variety. While this data
provides growers with useful information with respect to current bearing and non-bearing
plantings, it provides little by way of variety demand outlook, and considers only
information from the grower segment of the industry.

185

Shippers generally supported monitoring and analyzing the progress and success of
competing fresh market regions (82%). On the other hand, this is an activity most shippers feel
they involve themselves in anyway. Those dissenting expressed concern about committing
additional scarce grower assessment monies in this area and questioned how much return actually
may accrue to the grower as a result of additional effort here. One shipper noted that each
marketer must ultimately take responsibility to gather their own competitor intelligence. This is
an important action area, but shippers appear to be of a mind that it is already well addressed.

This opinion was not universally held. Some shippers expressed frustration toward both
growers and other shippers, while suggesting that many rarely looked much beyond the state when
it came to making fundamental business decisions. Return to investments in strategic intelligence
systems is admittedly difficult to evaluate, especially for a stratified subsector where jointly
gathered strategic intelligence is shared by many firms. How might one value an information
system that may lead in part to choosing one series of actions over another, or more generally
reduce uncertainty with respect to some future stream of choices?

Shippers were asked to indicate their support or non-support for increasing the grower
assessment for apple promotion and research. Possible increases in assessment funds were divided
into two areas, (1) for promotion and advertising, and (2) for technical and market research
projects. Shipper support for increased assessments for promotion and advertising was
considerably higher (81%) than for research (56%), as shippers consistently expressed a greater
need for focusing expanded efforts on promotion.117 Not a single shipper supported increasing the
assessment for research without increasing the assessment funding for promotion.

Expanded initiatives in both directions (promotion and technical research) should be
carefully assessed, according to the shippers, in terms of their costs and benefits to the grower.
Where support for an increase was not indicated, shippers cited either a financially strapped grower

community, lack of clear benefit to the grower, or the vagueness of the survey question failing to

 

”7 This difference probably would have been even greater given more clear and consistent
wording of the question in the written survey instrument. ”Needed” technical and market
research projects was probably somewhat leading favoring their support and the term
”needed” was not used for the promotion category.

186

indicate specifically enough programs that would receive new or expanded funding. It appeared
that shippers felt that the technical dimension of growing (basic production research) and
technology advances in the packing house had made considerable and sufficient advancement at
this time relative to the needs for increased promotion of Michigan apples.

Several shippers felt that shippers should have the latitude to use a fraction of the
assessment monies for their own firm-level promotion in support of the individual shipper
promotions undertaken.

A number of action areas generated some controversy among the shippers with respect to
the need for industry developement strategies. One area included developing and implementing
a system for non-destructive firmness testing in Michigan packing houses There were 68%
supporting the development of a non-destructive firmness testing system. Those favoring non-
destructive firmness testing indicated poor, soft condition fruit is one of the greatest areas of
concern for Michigan as the region seeks to improve its quality image. It was suggested that
additional advances in field-level firmness testing could complement testing at the packing house.

Those opposing non-destructive firmness testing question the cost effectiveness of such a
technology, especially since such testing focuses exclusively on firmness. Quality needs to be seen
more broadly than fruit condition, it was suggested, and many further questioned the accuracy of
pressure tests and their reliability as indicators of fruit condition.

Another action area that revealed divisions among the shipper community was developing
a new mandatory program for management of quality and grade standards, especially for firmness
and maturity. One half of those surveyed supported it, the other opposed supporting a mandatory
quality grade standard. Opinions were strongly expressed behind both positions.

Those supporting a mandatory program for quality grades and standards cited an industry-

wide need to recognize the broad impact of the sale of poor quality on the demand for Michigan

187

fresh apples. One bad apple purchase leads produce buyers and consumers to long-standing
substitution of other fruits for apples or a switching of regions from which the apple are sourced.l '8

Most favoring a mandatory program recognized many in the industry would feel
uncomfortable with this approach, but that if the industry would set its own standards and
enforcing mechanism it would be well received by the trade. Further, if Michigan wants to focus
on a strategy of serving quality, premium accounts, some manner of consistent, professional
(widely recognized, credibly enforced) quality standards will need to be adopted. This will be
somewhat complex with a variety mix such as that which is currently produced and marketed in
the state as well as the variety of market segments serviced. Those in Michigan must decide what
markets will ultimately be of highest priority to develop or maintain for their long term interests.
The absence of meaningful quality standards limits growth in some of the better growing markets.

Shippers noted Michigan appears to be losing considerable ground to Washington over the
quality issue and perhaps unnecessarily. Some suggested Michigan may want to use a recognized
trade minimum standard, particularly for condition, by initially adopting that used by Washington.
This would at least make a Michigan quality standard immediately understood and acceptable to
retailers. One shipper noted that Washington has developed the industry standard whether
Michigan shippers wanted to acknowledge it or not. Another noted that a program must be
mandatory or it won’t work.

Those opposing a mandatory standard cited a concern for unnecessarily infringing on the
freedom for negotiation for quality between growers, packers, and strippers, and furthermore a
perceived ineffectiveness of the standard in Washington. Competition was viewed as an effective
driver of quality. Others noted that mandatory standards were not flexible enough with highly
variable annual climatic conditions and that inability to credibly and consistently deliver such a

standard might unwittingly compromise Michigan’s stock of buyer goodwill. Setting and enforcing

 

”8 This would be a meaningful consumer study to undertake on behalf of the Michigan fresh
apple segment, testing and observing actual consumer switching patterns between fruits.
The extent to which consumers do switch to another fruit after one or two bad experiences
would have implications for the extent to which some sort of broad quality control
incentives may be justifiable.

188

a meaningful standard would be difficult and perhaps compromise one of Michigan’s unique
advantages as a supplier region, namely its packing flexibility and responsive delivery.

Imposing such a standard on fresh apples would likely have further effects on the
processing segment of the industry in Michigan and should be taken into consideration before
being mandated.

Several indicated there would be too high a cost related to inspection and packing house
slow down exceeding any benefit that may be realized. Imposing such a standard would result,
some argued, in a consolidation of packing houses, given the expense of inspection and the need
for high volume equipment.

Others indicated lower-end growers not committed to an increasing quality standard will
be naturally weeded out by economic pressures without a mandatory minimum. Similarly, it was
argued that lower quality product tends to be directed by some shippers toward lower quality
accounts who don't tend to pay their bills. Shippers routinely shipping low quality therefore will
also be weeded out.

Several shippers indicated that they market a ”premium” product or pack and recognize a
decent premium over conventional packs. A standard premium grade definition without imposing
a mandatory minimum standard would be more acceptable to some shippers who indicated non-
support.

It is apparent that developing a workable program, particularly for a mandatory minimum
quality standard, would require quite a lot of industry discussion, consensus building, coordination,
and evaluation before development and implementation of a program could be accomplished. The
relatively low level of support compared to some of the other action areas should not necessarily
signal to the subsector or. Task Force that this is a low priority area within which to develop
specific programs. Strong cases were made by shippers both in support and in opposition. There
appears to have been some division on the matter according to the size of the shipper organization
and whether or not a shipper was active in the export market. Larger shippers and those tending

to emphasize more export tended to favor adopting a minimum standard while smaller shippers

189

tended to be in opposition.1 ‘9 The adoption of such mandatory quality standards may not benefit
all shippers equally, depending on the specific market segments emphasized by each firm.

A difficulty in subsector strategic planning is illustrated here as subsector strategies that
are viewed by some firms as critical for the subsector and directly supporting their firm-level
strategies may be viewed as running counter to the f'um-level strategies of others. Pareto
improvements through the adoption of mandatory industry-wide courses of action rarely follow on
a firm by firm basis.

Several industry changes or initiatives were suggested and supported by a number of
shippers, but received less than enthusiastic support from the shippers as a whole. Initiation of a
Michigan apple marketing clinic was one proposal. It was not strongly opposed, but the marginal
benefits of such a clinic were not widely apparent.

An association of apple exporters was met with similarly limited support. Only a fraction
of the shipper organizations in Michigan are involved in the export market to a major degree at
this time.

Shippers favoring such approaches indicated there may be opportunity to capture some
economies of information gathering. Those opposing indicated there was plenty of information
available and accessible for individual shipper organizations and another organization or meeting
would be difficult for most organizations to support, particularly the smaller ones.

Most of the proposed industry actions were suggested in recognition that the success of the
action is contingent on, or may be enhanced by, a coordinated, collaborative effort. The shipper
that proposed a standard stickering charge over the industry, for example, stated that it could only
work if their was strong solidarity among the Michigan shippers. It was recognized that even with
such a unified position shipper standard operating procedures were typically established by

Washington concerns given their sheer size.

 

”9 Detailed demographic data with respect to shipper size, sales emphasis, technology, etc.,
were not gathered during this stage of the interview. The size and market emphasis
relationship stated is based on an approximate assessment of shipper size and export
emphasis derived through discussions with key industry persons as well as through the
firm interviews.

190

Other actions proposed recognized the need for neutral leadership behind the initiative.
Packer surveys, packing house TQM programs, and market outlook surveys and analysis for
varieties all require effective leadership and facilitation with more of a supporting role provided
by selected shippers. Increasing promotional content to buyers of apples to reflect the technical
advances of the Michigan subsector, including packing houses, storage, orchards, etc., received
broad support and was thought best achieved through the on-going promotion and merchandising
programs of the Michigan Apple Committee.

Some actions proposed received broad support in principle, but required a fair amount of
consensus development for any specific program. The variety and packer surveys fell in this
category to some degree, but details were addressed through the shipper subcommittee within the
Task Force.

The packing house TQM program and Michigan Standard premium grade, however, have
engendered much greater debate along the finer points of the proposals. The methods for
advancing the development of these proposals include active debate and evaluation at Shipper
Association and Task Force meetings, pursuing further feedback from packers and growers through
surveys, active meeting of the shipper subcommittee, and information articles in industry
publications relating the importance of and opportunities for improving quality in a general sense.

In summary, the increased level of commitment on the part of the shippers to support
industry-level efforts beyond the immediate scope of their firms was widely demonstrated
throughout this component of the survey. The survey permitted open proposal and discussion of
a wide variety of industry actions to improve the competitive state of the region. Shipper
responses provided direction to the Task Force and other supporting organizations with respect to
priority action areas needing to be developed, as well as direction for pursuing supplemental

information from other segments of the industry.

4.4 PRIORITIZING UNIVERSITY RESEARCH AND EXTENSION SUPPORT
An important component of strategic management for any organization is marshalling and

allocating subsector resources into a unique and viable posture based on its internal competencies

191

and shortcomings. These activities should be done by those in the subsector with a view toward
integrating the subsector’s major goals and action sequences into a cohesive value-generating

'20 The firm, with its hierarchy of management and administration, can mandate policies

system.
to coalign its internal departments or divisions with a broader organizational strategy. This is not
so easily brought about in a subsector where such hierarchy is absent. Markets and prices don’t
always discipline all subsector organizations toward cohesive system-wide strategies.

The arguments laid out in chapter two suggest alternative coordinating mechanisms may
be necessary to maximize a system’s performance. This may be true with respect to supporting
organizations that are not as responsive to markets or prices when setting their own agenda.

The research and extension activities supplied by Michigan State University, as the Land
Grant University supporting the state’s agriculture, provide important resources for the apple
subsector. Support provided through the Land Grant institution for the benefit of the agricultural
sector and also the consumer. An attempt was made during the interview to remind shippers of
the limited resources available to the university to provide education and informational assistance
to the industry. Shippers were encouraged to keep a sense of priority in mind as they responded
to questions in this part of the survey.

It was apparent that shippers were very positive about the role of research and extension
support coming out of Michigan State University. Shippers and growers both, in separate surveys,
widely identified the research and extension support as a key regional strength for Michigan as a
supplier region.

Research and extension provided through the public university may be considered valuable,
but may not be economically feasible to undertake to any significant degree by any individual firm
or private organization. This is the typical justification for public provision of these services. The

individual firm, because its inability to capture adequate exclusive benefit or due to other

 

'20 See Quinn (p.7, 1980) for the corollary to the firm.

192

diseconomies, still is able to integrate certain key goods and services to complement assets
committed by the private sector.121

Significant research and extension resources have been committed by Michigan State
University to the support of the apple industry in Michigan. This is partly because the value of
production generated by the apple sector is considerably greater titan other individual fruit or
vegetable produced in the state. A comparison of the average value of production of selected fruit
and vegetable crops is presented in Table 4.8. The value of the apple crop made up nearly 50%

of the value of all fruit crops in the state between 1988-92.

Table 4.8 AVERAGE VALUE OF ANNUAL PRODUCTION FOR SELECTED
MICHIGAN FRUIT AND VEEETABLE CROPS: 1988-92

 

 

 

 

 

Average Value of Annual ProductionI22
Fruit or Vegetable Commodity "“MILUON DOLLARS-«-
Apples 82.9
Tart Cherries 36.3
Blueberries123 27. 1
Carrots 18.1
Onions 17.8
Asparagus 15.0
Celery 14.6
SWCCI Cherries 126

 

 

 

The coalignment of research and extension efforts undertaken through the university with
the needs and priorities for the provision of complementary public goods demanded by the apple
industry is an important goal pursued with varying degrees of success by university personnel and
by firms within the industry. It is often difficult to accurately gauge regional industry demand for
the kinds of specific support provided through university research and extension, therefore
additional means of demand signaling may well benefit the coalignment of University support with

industry demand for the kinds of support that can be provided by such an institution.

 

'21 On the problem of determining an equitable quantity and quality of publicly provided

goods and services, see Schmid (1987, pp. 36-94).

.—
f)
IJ

Michigan Agricultural Statistics 1993, Michigan Agricultural Statistics Service.

l23

Value of production only recorded for 1992.

193

The Michigan Apple Research Committee is one organization that has allocated very
limited grower assessment monies for supplemental support of selected apple research activities.
They consider their perceptions of research needs for growers. By far the major source of funding,
with considerably more research and extension support, is provided to the apple industry through
staffing professionals in various departments within the MSU College of Agriculture who are
financed through state and federal funding. Additional publicly provided resources support
experimental research stations, extension agents and offices, etc.

The broad scope of public good-type supporting activities, many of which are of a fairly
specialized nature, together with limited resources coming from a variety of sources, points to a
need to develop a systematic means for coordinating and prioritizing areas of support for research
and extension to the Michigan apple industry.

One of the more secondary objectives of the Michigan Apple Industry Strategic Planning
Task Force has been, through a segment-by-segment survey, to develop a sense of priority need
areas relating to research and extension support. A section of the shipper survey addressed this
particular issue and was intended, in part, to serve as a facilitating or information mechanism to
aid a compilation of shipper perceptions in this area. A list of 13 research and extension areas
were discussed during each interview, asking shippers to indicate their rating of each area as being
”very important”, ”moderately important", or of ”low importance" to the Michigan apple industry.
These areas were identified by the Task Force previously as activities or resource areas identified
as particular areas of need in which the University has traditionally served the apple industry. The

compilation of responses from the different shippers is presented in Table 4.9.

194

Table 4.9 PRIORITY AREA NEEDS FOR RESEARCH AND EXTENSION
SUPPORT SUGGESTED BY MICHIGAN APPLE SHIPPERS

Moderately Low
Im ortant 1m tortant 1m 0 ortance

Research and Extension Area'“ ---—Percent Responding----
(Based on 19 shipper or anizations)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Improving the overall quality of apples produced by 89 l l 0
Michigan growers
Improved, safe, and politically acceptable pest control 84 16
methods, includirLg IPM approaches
Improved maturity, storage, and post-harvest methods 82 18
Expanding domestic and export demand for Michigan 74 I3
apples
Economic and marketing amcts for Michigan apples 68 26
Improving grower efficiency through new orchard 67 25
technology

H Integration and strategic planning for the Michigan 50 42
apple industry as a whole
Improved packing house technology, equipment, and 50 24
methods

ll Labor issues. management, and regulations 45 47
Varieties that are well adapted to Michigan 39 39
Fruit farm business management 36 47
Improved processing technology and methods ' 20 53

l' Expanding grower production of Michi _an a. les 1 l 28

 

Some of the research and extension areas represent a fairly broad spectrum of related
activities within which further prioritization would probably be desirable. Differences in designated
relative importance across research and extension areas, however, provides an indication of priority
along different streams of more specific, related activities.

Many shippers referred to the high standing of extension within the grower community and

indicated that certain industry re-orienting or educational actions may be viewed as having more

 

‘24 Ordered by frequency of response to ”very important”.

195

credibility coming from Michigan State than from the shipper organization, which can often be
regarded with suspicion by the growers. This would include such activities as coordinating and
facilitating joint subsector action where broad-based participation may be necessary to affect certain
strategies or change.

”Improving the overall quality of apples produced by Michigan growers ” was designated
most frequently as a "very important” area (89%) through which research and extension can help
the Michigan apple industry, with 100% indicating it to be moderately or very important.
"Improved maturity, storage, and post-harvest methods" relates closely to research and extension
efforts leading to overall quality improvements, and was designated as "very important" by 82%
of the shipper organizations, with the remaining 18% ranking it as moderately important. These
areas stood in contrast to research efforts that would lead to expanding production, as "Expanding
grower production of Michigan apples " was the area most frequently designated as having ”low
importance” (with 61%) and was ranked "very important” by only 11% of the shippers.

hnproved and politically acceptable pest control methods was regarded as an area of high
importance for research and extension support. Eighty-four percent of the the shippers ranked this
area as very important, and the other 16% as moderately important. Research on new and effective
pest control alternatives is an expensive, time consuming activity that requires a high degree of
specialized technical knowlegde and resources. The individual firms in Michigan are unable to
accomplish much of these kinds of research initiatives independently. Given the strong demand
for a variety of effective pest control techniques, together with the relatively high intensity of
chemical applications involved in the production process for apples in Michigan, research on
superior pest management systems is one of the areas of highest priority among shippers.

Marketing, demand expansion, economic analysis of key issues, and strategic planning for
the industry were among those areas that could be regarded perhaps as being in the "next tier" of
priority areas. These had, however, 87%-92 % of the shippers who ranked them as moderately to
very important.

"Improving grower efficiency through new orchard technology" and "Improved packing

house technology, equipment, and methods", both which to a limited extent could be regarded as

196

quality improvement areas, were also areas in this tier which were designated as "very important"
as the modal response. Many shippers that designated these areas as having ”low” or ”moderate"
importance indicated that either individual shippers or non-university organizations were able to
provide needed support along these lines, or that currently, marginal improvements along these
lines were important but other areas were more important. Over 50% of the shipper organizations,
however, designated these categories as "very important" priority need areas for research and
extension support.

Areas designated by shippers as having primarily ”moderate” or "low” importance include
University support programs aimed specifically at expanding grower production or improved
processing technology. The research and extension activities directed primarily toward these
groups were not apparently viewed as providing significant direct benefit to shippers and may have
influenced their ranking accordingly. Labor regulation and management, fruit farm management,
and improved processing technology and methods were perceived as areas more feasibly developed
on an individual firm basis, and therefore of lesser priority for additional research and extension
resources in comparison to resources and programs requiring a more industry-coordinated
development effort.

The limited opportunities associated with expanding the varieties marketed by Michigan
was again reflected in the shippers’ indication of priority for "varieties that are well adapted to
Michigan”, where 60% designated this area as having "low" or ”moderate" importance. Those that
designated this area as being ”very important” also tended to indicate emphasis should be on
improved strains of current varieties.

These results should be considered in context. Many shippers expressed concern with
declining University support for the industry. Prioritizing the research and extension goods and
services may speak to realigning the mix of what supporting activities are provided, but some were
concerned that by designating areas of relative importance, it would result in a further shrinking
of the supporting resources provided.

This survey, interaction, and information gathering with the shipper segment has proven

to be valuable to several organizations in addition to the university. The Michigan Apple

197

Committee, for example, has included a major emphasis in marketing as a part of their five year
plan. Priorities for this plan were developed in part from these results as well as other elements
of the shipper survey. Leaders from the MARC have also indicated they have used this
information to reassess some of their priorities. In response to shipper comments, several research
and extension areas were added or expanded for the grower survey in order to provide even greater

clarity on priority within several areas.

4.5 INDUSTRY DIRECTIONS PROPOSED BY THE SHIPPERS
4.5.1 SUMMARIZING SEVERAL INDUSTRY DIRECTIONS

This section seeks to draw together the results of the apple shipper survey which was
requested by the Task Force and carried out by MSU agricultural economists. Many useful
insights and specific proposals were generated through this survey process that have been either
incorporated into the agenda of specific organizations, or raised the need to develop means for
addressing them. Others issues, needs, or approaches raised through this process have been widely
debated by industry leaders with resulting further industry evaluation with regard to their objectives
and workability, while some have been summarily dismissed. The survey project has, at the very
least, placed shippers in a mind set to reflect on their broader competitive condition and the future
of the Michigan subsector as a supplier region.

Several major themes of related needs for industry action emerged from the survey.
Following the concept of strategy as a stream of decisions that indicate a certain directionality, it
appears that at least three broad directions are emerging, each with a number of related actions that
could be considered as supporting the broader thrusts or directions. Overall quality improvement
appears to be one of these major directions. Developing improved information gathering and
coordination mechanisms for industry responsiveness to opportunities and challenges is a second
thrust. A third thrust, perhaps a specific application of the aforementioned areas, is the
development of an effective pest and pesticide stewardship program for the Michigan industry.

Many factors in the competitive situation analysis indicated that improving quality was

something Michigan producers are increasingly able to deliver, buyers are increasingly demanding,

198

and competing regions are increasingly providing. Many of the promising opportunities for
Michigan shippers and growers are contingent on improved quality; quality product, quality service,
overall quality performance, and quality image. Many of the industry strategies proposed by
shippers related directly to means for improving overall performance in this area. Industry actions
that require considerable changes and effort received high support and commitment by shippers
because of the recognized importance for this key driving force seen as critical to the future success
of the individual firms.

The responsiveness of the shippers to participate in an extensive and intensive set of
strategic planning activities to examine and discuss alternative approaches to key industry issues
is reflective of their recognition of the value of a responsive industry to changing conditions.
Many of the industry issues and actions related directly to improving communication linkages.
Support and input for further industry segment surveys was widely observed. A recognition of the
interdependence of the welfare of the shipper community with that of the Michigan growers and
packers was widely reflected in the interviews.

The development of a market demand analysis and outlook for varieties and strains was
widely supported and identified in Shipper Association meetings as an action that should receive
immediate priority. Industry coordination toward delivering the best product in the long run was
of high concern to the shippers.

The other area consistently receiving high priority throughout the interviews related to the
area of pest management. The challenges posed by pesticide, food safety, and environmental
regulations was among the greatest areas of concern for shippers. Improved, safe, and politically
acceptable pest control methods, including IPM approaches, were designated as the second highest
area of priority for University research and extension. While few shippers offered detailed
proposals on industry actions to address this area, many who were familiar with the concurrent
"Pesticide Stewardship Program” being developed within the Task Force, were extremely
supportive of this initiative.

This section also presents a summary of specific industry actions that were discussed by

various shippers during the interviews, including a number that were not explicitly included on the

199

original survey questionnaire. Most of these additional or specific actions were offered in response
to issues or actions that were explicitly included in the questionnaire. A number of these industry
actions have been summarized and discussed as part of the results, at the Task Force meetings, at
the Shipper Association meetings, and among those involved with the shipper subcommittee of the
Task Force. The wide array of specific industry actions proposed by many different individuals
indicates a strong orientation toward prospective collaborative effort on the part of the shippers as
a group.

The industry actions proposed through the course of meetings in the Task Force, the
Shipper Subcommittee, and the interviews with individual shippers are summarized in Table 4.10.
The objective of each action is indicated as it was presented by those who proposed it. The
consensus of shipper support for each action is also indicated, based on the result of debate along
each area carried out at Shipper Association and Task Force meetings as well as from personal
discussion with individual shippers. Primary barriers to each action are similarly identified.
Further actions taken in accordance with each area are indicated to illustrate the different

approaches taken to further evaluate or implement the different proposals at a broader level.

200

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4.5.2 THE WAY AHEAD

The shippers have been actively engaged in the industry’s strategy development process
in the wake of the shipper survey. Several reports have been published summarizing the results
of the survey and have been distributed to members of the Task Force, the shippers, and other
leaders in the industry.125 A series of related articles have also been published in industry
publications, trade journals, and presented at industry meetings. The shippers continue to develop
details of industry actions they have deemed of highest priority through the Shipper’ 5 Association
and through their representatives to the Task Force. The variety survey, as indicated earlier, is
underway as a supplemental shipper-wide information gathering process.

Information on certain industry priorities were further developed through a survey of the
growers and packers. Many of these issues are taken up in the next chapter. An iterative approach
to the development of certain industry strategies continues to be observed, as shippers respond to
the direction and feedback proposed by other segments. Many of the results from the grower-
packer survey have been presented and discussed among the shippers through subsequent Shipper
Association meetings and other communications. Many of the actions that the shippers have
encouraged the industry to move forward on have involved continuous discussion, analysis, and

feedback from different segments and organizations.

 

'25 The two major reports circulated to the industry with a view toward their response and for
their reference were those mentioned at the beginning of this chapter by Ricks and Woods
(1994a, 1994b).

204

CHAPTER 5

RESULTS AND ANALYSIS OF THE APPLE GROWER AND PACKER SURVEY

5.1 OVERVIEW

A major information gathering initiative was compiled by the Michigan Apple Industry
Strategic Planning Task Force, following the comprehensive survey of the fresh shipper segment.
This stage of industry interaction involved soliciting and compiling grower perspectives on issues
pertaining to the strategic planning initiatives being considered by the Task Force and other
industry organizations.

Most packers in Michigan are also growers. Given the wide level of interest in the
perspectives of Michigan packers on industry issues, a special supplementary segment was included
within the grower survey that directly solicited packer responses to several key issues.

This chapter presents the approaches used in formulating the grower and packer survey as
a key component to formulating strategic planning activity at this level. The results of this survey
are presented to convey both grower and packer perspectives, and to link these responses back to
information obtained through the shipper survey.

Perspectives on the competitive situation of the Michigan apple industry are presented.
Industry strengths, industry issues and challenges, and industry opportunities are discussed in light
of survey results. The implications of the competitive situation of the industry as perceived by
growers and packers for formulating viable industry strategy is discussed.

Grower and packer responses reflecting their support for a variety of industry action
alternatives are discussed in the next section of the chapter. These action alternatives were

tentatively formulated through the deliberations of the Task Force, the shipper survey, and through

205

suggestions gathered from pre-survey meetings with each of the major grower organizations.
Varied responses to these action alternatives either strengthen the case for pursuing a particular
course, reveal a need for further consensus building, or strengthen the case for pursuing alternative
approaches or other issues.

A section of the grower survey solicited responses relating to University research and
extension priorities. This section corresponds to a similar section included in the shipper survey.
The results and cross-segment comparisons are presented and discussed to illustrate the relationship
of university research and extension with the broader emerging strategies of the industry.
Discussion is expanded around the responses relating to the importance of the University’s role in
strategic planning and coordinating for the industry.

Industry actions to improve the overall quality of Michigan apples for the fresh market
emerged as main needs to address a critical industry capability both in the grower and in the
shipper surveys. Alternative approaches and variable response to these approaches are discussed
to illustrate the need for consensus building toward a workable industry plan on a major issue. The
role of the Task Force as a facilitating organization with respect to overall quality improvement

is also considered.

5.2 THE APPLE GROWER AND PACKER SURVEY

A survey to investigate and gather broad-based Michigan apple grower and packer
perspectives on strategic issues and actions for the Michigan apple industry was planned to follow
the corresponding survey of the shippers. The information gathered from this survey was intended
obtain broad-based grower and packer information on various industry aspects, including the
evolving agenda developing for the Task Force and the Shippers Association. It was also intended
to provide input from these key industry segments toward identifying the most important industry
issues. Furthermore, the survey was intended to indicate grower and packer support for various
industry actions proposed either by the Task Force, the Shippers Association, or the leadership

within other major industry organizations in the state.

206

This section examines the information gathering process as a tool for facilitating broad
industry discussion and encouraging consensus building with respect to strategic direction. The
content of the survey was chosen purposefully to parallel the content of the shipper survey to
facilitate comparison between these segments. Certain actions or issues would nwd strong support
or recognition among both groups in order to implement a workable industry improvement

program.

5.2.] THE SURVEY APPROACH

A mail survey was chosen to be the primary information gathering instrument. Detailed
personal interviews with each grower and packer was not a feasible survey approach, given the size
of these subsector segments. Focus groups using grower leaders or representative growers was
considered, however the Task Force deemed it important for as many growers as possible to have
an opportunity to offer their perspectives on these industry issues and industry action approaches.
This would enable not only opportunity for wide grower participation and a diversity of
perspective, but would serve the dual purpose of raising overall grower awareness of the Task
Force activities and the need for growers to consider industry-level actions and strategy.

The formation of the survey approach and content began with a draft composed by the
Michigan State University economists, with discussion and input by the Task Force, based in part
on the forming agenda of the Task Force and the results of the shipper survey. The grower
questionnaire draft was discussed with the leadership of the major grower organizations for their
input, including the Michigan Apple Committee, MACMA, the Michigan Apple Research
Committee, the Michigan Pomester’s Association, and the Michigan Apple Promoters. The wide
scope of industry organizations investing ideas and input in the construction of this survey was
intended to raise their interest in the results and possible implications for their respective
organizations.

The structure and format of the survey was designed in an attempt to permit the grower
to quickly provide feedback over a wide scope of industry issues and proposed actions. A SWOT

format similar to the shipper survey was used as an organization format. Growers were given

207

opportunity to provide expanded (open-ended) feedback within each section, but the major thrust
of the survey focused on responding to closed end questions. These questions were developed with
considerable input and pre-testing from the Task Force and various industry organizations such as
the Michigan Apple Committee. The emphasis on specific closed-end questions facilitated the
compilation and summary of a large amount of data from several hundred respondents.

The Task Force desired to have some type of survey of Michigan packers. The importance
of surveying this segment was also reflected by the shippers when they were surveyed. Growers
were asked to indicate whether they were also packers and, if so, were asked to complete the
section for packers as well. Discussions among leadership at the Task Force resulted in a decision
of adding a section to the grower survey specifically targeted to the grower-packer segment.
Responses to each of the major sections of the survey could therefore be sorted to be reflective of
packer-growers and non-packer—growers. The packer section included supplemental questions
considered specific to their packing house operation.

The survey, once formulated to the satisfaction of those on the Task Force, was mailed to
all growers. The mailing list of the Michigan Apple Committee was used. The Michigan Apple
Committee maintains this grower address database for their own activities and agreed to send out
the grower questionnaire as part of an important partnership effort. Industry partnering also
included an agreement by MACMA to share in the cost of the survey, providing funds to cover
a major portion of the mailing expenses.

All growers identified on the MAC mailing list were requested to respond to the survey
questionnaire. The Michigan Apple Committee list was the best available representation of the
entire population of apple growers in the state and, therefore, the survey can be considered to be
circulated over a census.‘26 The survey was mailed to 1250 growers throughout Michigan. A

second mailing followed about six weeks later to those who had not yet responded. Leadership

 

'26 The survey process, as such, generated a non-random response. No statistical testing
between sub—groups within the grower population is therefore appropriate. The response
can, at best, be considered to represent growers who are likely to be involved or have an
interest in industry-level concerns. Some bias toward larger growers appears to be evident
among the respondents. Examination of responses by region indicated little differences in
proportion of growers responding.

208

from various organizations within the Task Force also encouraged their member growers to
participate. The final push to encourage grower participation in this process involved handing out
surveys and promoting the activity at the fall Horticulture Show where many growers were
attending.

The response rate was fairly good, especially considering the length and detail of the
survey, and the fact that the timing of the mailing was during a particularly busy period for many
apple growers. There were 254 usable surveys returned representing about 21,000 acres. The
1991 Michigan Rotational Survey - Fruit conducted by the Michigan Department of Agriculture,
indicated there were 1,300 apple grower operations in the state producing on 58,000 acres. These
figures may actually overstate current numbers. The number of current grower operations may
well be closer to between 1,100 and 1,200 with approximately the same or somewhat less total
acreage as in 1991.

A revised grower count indicates a usable response rate from the Task Force survey of
about 22% (254 of about 1150 active growers). Growers were asked to indicate their acreage in
the Task Force survey. Approximately 21,000 acres were reported to be grown by the respondents.
This represents about 36% (21,000 of about 58,000 total acres) of the acreage in Michigan.

Forty-three of the growers indicated they either owned or operated a packing house.
Current industry estimates indicate there are 100-125 packing houses of any significant size.
Although many growers pack a few of their own apples for minor commercial accounts, most of
the production is concentrated within about 50 packing houses. Thus it appears that the 43
respondents operating a packing house provides strong representation of the total population,

although packers were not required to indicate the pack volume.

5.2.2 THE SURVEY CONTENT
The survey content focused on a broad industry level assessment within an overall strategic
planning framework. A copy of the survey is presented in Appendix C. The major sections,

differing only slightly from the shipper survey, were organized as follows:

209

F!

Strengths of the Michigan Apple Indusz

II. Challenges, Issues, and Limitations Facing the Michigan Apple Industry

III. Opportunities for the Michigan Industry

A. Expansion of Michigan Fresh Apple Markets

B. Expansion of Michigan Processed Apple Markets

C. Development of Stronger Pricing Approaches for Processing
Apples in Other States Similar to MACMA

D. Technical Improvements
IV. Action Alternatives to Improve the Michigan Apple Industry
V. Programs and Priorities for the Michigan Apple Committee and Michigan Apple
Research Committee

V1. MACMA

VII. Research and Extension Needs for the Michigan Apple Industry

VIII. Other Suggestions to Improve the Michigan Apple Industry

IX. General Grower Information

X. Supplemental Questions for Packing House Operators

Grower responses to questions within this survey were utilized to summarize grower
perspectives on the competitive situation of the Michigan apple industry, grower response to
prospective industry actions, and grower feedback on the programs of the major industry

supporting organizations.

5.3 THE COMPETITIVE SITUATION OF THE MICHIGAN APPLE INDUSTRY
Successful subsector strategies are built on the relative and distinctive competencies of that
subsector with a view toward emerging and continuing opportunities, problems, and threats.
Identifying and understanding the nature of these competencies for a complex subsector is not
always a straightforward issue. Traditional basis for competitive advantage for the subsector as a
supplier region may be changing. Certain perceptions of regional subsector capability may not be
well understood by individuals within the subsector due to their lack of exposure to the technical

and institutional interplay between factors primarily taking place within other value-adding stages.

One approach of the Task Force has been to try to evaluate and bring together the
collective judgement and knowledge from diverse perspectives of subsector participants regarding
the competitive situation the Michigan apple industry and opportunities for improved
competitiveness and performance of the subsector. It is intended that broad industry input and

evaluation of the merit and workability of alternative industry strategies can be strengthened by

210

compiling as clear a picture of industry analysis as possible. This goal is pursued by gathering and
evaluating information from a wide variety of sources.

A secondary goal of compiling an ”industry” competitive situation is to explicitly
encourage participants within the subsector to think in terms of broad subsector strategies and
action possibilities that may be useful to address issues that face many of the individuals much in
the same way. Some growers and other industry participants have limited perspectives on what
kinds of coordinated industry actions might be feasible, how these might be practically
implemented, and the potential benefits to the subsector and to individual f'ums within the
subsector. A number of industry leaders, however, recognize the need for collaborative approaches
to address certain kinds of issues and are active in grower groups like MAC, MACMA, Pomesters,
MAP, etc.

The diverse evaluations, ideas, and indications of support for certain actions of the grower
community are assembled in the following sections that deal with the apple industry’s competitive
situation as it is gathered segment by segment by the Task Force. Industry strengths are addressed
followed by internal and external industry issues and challenges, and finally industry opportunities.
These grower responses are summarized with the goal of increasing the understanding of the
consensus perception of growers with respect to the industry’s internal capabilities and its external
environment.

The perspective of packers identified in the grower survey are discussed in each section.
Further, a linkage of the results of the grower survey back to the results of the shipper survey is
made with several objectives. One is to compare and contrast a sense of priorities among different
industry segments. Another is to identify those issues and action alternatives where industry
consensus may have implications for the Task Force or other organizations taking the lead in

implementing certain collaborative action.

5.3.1 GROWERS ON INDUSTRY STRENGTHS
Twelve major areas of potential industry strength were designated on the survey. The areas

of prospective industry strength included on the grower survey represented a collection derived

211

through the deliberations of those on the Task Force and other industry leaders involved in the
survey formulation process. Growers were asked to designate their perception of each of these
areas as either a major, moderate, or minor strength, or not a strength for the Michigan industry.‘27

This section summarizes the grower responses to these various areas of strength or source
of industry advantage traditionally perceived by many to be reflective of Michigan as a supplier
region. The responses of packer-growers and non-packer—growers are also compared. A
comparison to the results of the shipper survey is then presented.

These results may indicate either industry capabilities upon which the industry can build
successful strategies or where particular relative advantages as a supplier region may have eroded.
Goals or strategies contingent on certain capabilities may need to be carefully assessed by the

industry, identifying what it will take to develop improved strategies or competencies where they

may be absent or inadequate.

A Summary of the Grower Perspective

Growers provided their responses reflecting their perceptions of traditional strengths for
the Michigan industry. Given the high interest in grower responses to the survey by acreage
indicated by many industry organizations, the response results are presented in terms of grower
numbers and also by acreage.128

The results are presented here in a somewhat aggregated form to reflect an ordering of

areas that were regarded to be at least moderate strengths for the industry. Detailed responses on

 

I u u

27 Distinguishing between individual perspectives on what constitutes a ”major , moderate”,
or ”minor” strength is clearly difficult given the ambiguity of the categories. The goal in
aggregating grower perspectives is to provide some general impression of overall ranking
for each area.

'28 Growers were asked to indicate their acreage in the survey. They also were asked to
indicate their approximate production in bushels. In a few cases where growers did not
indicate their acreage but indicated production, acreage was estimated by the mean acreage
of all growers within that production class. Surveys which indicated neither acreage or
production were not included in the responses according to acreage. Proportions indicated
in each category reflect the percent of those which responded for which acreage was
reported or could be estimated. Implicit in reporting results in this way is the notion of
one acre representing one vote.

212

the area of industry strengths are referred to in the following discussion, but are presented in

Appendix D.

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Four main areas of major industry strength or advantage for Michigan as a supplier region
that appear to be widely recognized by the growers include (1) location to key markets, (2) mix
of apple varieties, (3) strong combination of major fresh and processing outlets, and (4) university
support for the apple industry. These were regarded as major or moderate strengths for the
Michigan apple industry by 85%-92% of the growers.

Michigan’s proximity to major markets was identified most frequently as a major strength
(60%). Freight cost advantages to mid-westem cities and certain eastern U.S. markets relative to
Washington provide significant cost savings for the Michigan industry. Although selected
opportunities may commend themselves in more distant U.S. or export markets, this freight cost
advantage has resulted in a substantial concentration of Michigan’s customers within a day’s
delivery by truck, especially for fresh.

A diversity of major viable market outlets for both fresh and processing was also widely
regarded as a major strength. Growers assign considerable importance to this capability. Most
growers regularly supply a significant fraction of their product into both fresh and processing
markets. Almost all growers participate in both markets at least to a limited degree. The extent
or emphasis on a particular fresh or processing market may change for a grower from year to year,
but over the economic life of an orchard growers typically direct significant production to both
markets. Relatively strong fresh and processing markets allow for reduced exposure by growers
to negative, market-specific forces influencing relative prices.

Another main advantage recognized for Michigan was the mix of apple varieties. The
main aspect of this advantage relates to Michigan's ability to fill market demand for desirable
varieties within both fresh and processing markets. This may be seen also by growers as a means
by which they can somewhat reduce their own long-term risk. Where several varieties can be
viably grown and marketed by the grower, there may be more market opportunities and somewhat
less risk related to the vagaries of market demand for individual varieties.

The University support with extension and research was indicated most frequently by
growers (43%) to be an area of ”major” strength for the industry, with 84% indicating this to be

a major or at least a ”moderate” strength. The research and extension activities can potentially

215

make significant contributions to the value-generating system, enhancing the overall performance
and competitiveness of the industry.

Technical and managerial improvements with respect to storage were indicated to be an
area of moderate to major strength by most growers. Considerable improvements within the
industry have been realized over the past 20 years in improved storage technology. While regarded
as being somewhat less important sources of industry advantage as the four aforementioned
categories, the storage improvement category was widely recognized as an important strength.‘29

An increasing orientation toward marketing rather than production was regarded primarily
as an area of moderate to major strength for the industry, with 68% ranking it in this fashion.
With some increased market orientation in recent years in the subsector, most growers now view
this as a moderate strength.

Recent packing house modernization in the state was identified by most shippers as a key
emerging strength. Grower responses with respect to this category indicate a substantial
recognition of these improvements as a strength. Most recognize this development as a ”moderate”
source of advantage. Many of the new technical advancements set in place in Michigan packing
houses, however, were implemented within the last few years. The new capabilities emerging
within Michigan relative to other producing regions, particularly regions outside of Washington,
have been a major source of optimism among shippers.

The various organizations serving the industry were regarded by most growers to be areas
of ”moderate strength”, with 64% ranking this as a moderate to major strength. It is difficult to
know which organizations are perceived to provide greater or lesser support from this data .
Individual organizations were indicated to be generally worthwhile in other sections of the survey.

Michigan as a major supplier of bagged fresh apples was primarily regarded as a
”moderate" industry strength, with 65 % of growers ranking it as either a moderate or major

strength. Washington has demonstrated an ability to compete strongly in bagged markets,

 

‘29 A somewhat related emerging capability for Michigan also recognized as significant by the
shippers is the trend toward greater proportions of apples being held in controlled
atmosphere storage. This is discussed in more detail later in this chapter.

216

penetrating to a greater extent a major customer market niche traditionally emphasized by Michigan
shippers.

Modern orchard planting systems were similarly regarded as primarily moderate sources
of industry strength, with 65% indicating this to be at least a moderate source of industry strength.
Despite considerable recent advances in Michigan with extensive planting of modern orchard
planting systems and new varieties, only 18% felt this was a source of “major” strength.

Most growers seem to indicate industry capabilities in the above areas are at or have been
advancing to a level where they can be considered moderate sources of advantage. There appears
to be a perception that there remains either opportunity for further overall capability improvement
or a capability gap between Michigan and some other region.

The areas least regarded in this list as sources of industry strength were the price
competitiveness of the industry and the cost-efficiency of the region. Price competitiveness was
suggested to be a source of moderate or major strength by 59% of the growers, but a major
strength by 16% of the respondents and only 10% when weighted by acreage. The most frequently
designated categories relating to Michigan’s price competitiveness were moderate and minor sources
of strength. Cost efficiency was regarded mostly as an area of minor strength both by frequency
and weighted by acreage. Forty-three percent ranked this as either moderate or major, with 11%
indicating this to be a major strength of the industry.

A subsector such as Michigan apple relies on many capabilities to maintain competitive.
Many of these capabilities are regionally specific and represent broad generalizations of firms
and/or organizations to perform certain activities. It is difficult to infer from this data the dynamics
of some of these industry strengths (and, discussed later, weaknesses) in future approaches should
attempt to bring this dimension into greater focus. Reversing negative trends or taking advantage
of capability growth or momentum are important dimensions to strategic planning. Still, these
responses and rankings provide a sense of perspective of where growers judge Michigan to stand
on a number of traditionally important capabilities.

More detailed analysis and linkage to perceptions indicated by packers and shippers is

provided in the next section.

217

A Summary of the Packer Perspective
The data was sorted into two categories to compare responses from growers who operate
a packing house and those who do not. The responses of the packer versus non-packer—grower to

the questions relating to industry strengths is presented in Table 5.2.

218

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Responses to and rankings of industry strengths differed little on most issues. The top three
areas (location, combination of major fresh & processing markets, and variety mix) were slightly
more frequently perceived as areas of ”major” industry strength in contrast to growers not operating
a packing house. The higher level of importance attached to shipping and a fresh product may
reflect a part of this difference, since most packers presumably emphasize fresh apples.

Interestingly, packers indicate viable fresh and processing markets slightly more frequently
as a major strength (63%) than do non-packer growers (52%) who more likely emphasize either
processing in their mix of fresh and processing. Capability of the region to produce a mix of
varieties was similarly indicated more frequently as a major strength by packers for the fresh
market (62%) than by other growers (51%).

Packers differed somewhat from other growers (56% versus 71% at least ”moderate”) on
the perception of whether or not Michigan was indeed increasing its emphasis on market aspects
rather than production. Packers appear to somewhat more frequently identify this as an area where
improvements need to be made toward a greater overall market orientation.

Packers were slightly more supportive of packing house modernization improvements as
a major source of industry strength (26%) than their non-packer counterparts (21%). Similarly,
packers were somewhat more inclined to indicate the region's status as a major supplier of bagged
apples (24%) than their counterparts (19%).

Packers appear to hold a similar perception to other growers in the area of Michigan's price

competitiveness and cost efficiency for growing.

Linking Observations to the Shipper Survey

Shipper, packer, and grower perspectives on strengths of the Michigan apple industry were
generally consistent. Location (both in terms of proximity to market and climate advantages) and
the ability to viably market a wide mix of apple varieties were widely identified as significant
sources of advantage for Michigan as a supplier region by all three subsector segments. Strong
fresh and processing market alternatives were also ranked as key sources of strength across all

segments of the industry. The consistency with which these advantages were rated among growers,

220

packers, and shippers indicates a general agreement on the industry’s standing with respect to a
number of important capabilities.

Some traditional sources of regional advantage were regarded as currently having lesser
importance or perhaps are perceived as eroding in terms of relative advantage. Michigan’s historic
emphasis and leadership in the bagged fresh apple market was not widely cited by shippers as a
current major source of competitive advantage for Michigan, and was generally only regarded as
a moderate source of strength for the industry by growers and packers.

Michigan firms, particularly in the fresh market, have to some extent in the past penetrated
markets on the basis of lower costs and therefore presenting low prices to buyers. Michigan was
not perceived, however, to be a particularly cost-efficient region by growers. This may be
reflected in their lesser regard of Michigan’s ability to be competitive on prices as an important
strength. Industry actions that may serve to improve the cost efficiency within the region may be
identified. Certainly intersectoral coordinating mechanisms can be investigated that can address
conditions where some costs remain unnecessarily high.

The major industry strengths, however, that are widely recognized serve as an important

basis or reference point upon which subsequent industry-level strategy may be developed.

5.3.2 ISSUES AND CHALLENGES BOTH INTERNAL AND EXTERNAL TO THE
SUBSECTOR

Weaknesses relating to certain overall performance capabilities of a regional industry can
be exposed or made suddenly more urgent by emerging threats that challenge the viability of the
industry in that region. Internal weaknesses of the Michigan apple industry were considered
together with the external threats to the industry as an important dimension of the subsector’s
competitive situation. A series of industry issues or challenges were identified based upon
discussion with industry leaders and were asked of growers in the survey, soliciting their
perspectives on the relative importance of each. The issues chosen for the survey represented those
deemed important for inclusion by the Task Force and the grower organizations, particularly as

they may have bearing on priorities for the industry to develop action alternatives to address them.

221

Each grower was asked to classify an issue as "very important”, ”important”, ”minor
importance”, or ”not important”. This data contributes to the industry’s strategic issue management
program and the clarification of the agenda for the Task Force.

Given the manner in which issues were identified for inclusion to the survey, it is
reasonable to expect that many of the issues would be identified as relatively important to most
growers. The responses in many cases confirm to the Task Force and the industry the perceived

importance of these areas by the grower community.

A Summary of the Grower Perspective

The grower responses to the importance of the eleven specified issues or challenges
included in the survey are presented in Table 5.3. The responses are summarized according to the
frequency by which growers indicated an area to be at least "important". Response weighted by
acreage is also reported in this table, weighting perceived importance by the size of operation (one
acre receives one ”vote”). A table presenting the disaggregated responses is presented in Appendix
D.

Nine of the eleven categories were identified as at least ”important” by the majority of
responses (ten according to acreage). Seven categories were identified by the majority as ”very

important”.

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Almost all of the industry issues that were indicated to be important for the subsector by
leaders on the Task Force, as well those with as the consensus opinion of the shippers, were
regarded on the whole as important to the growers. Eight of the issues were ranked as ”important”
or ”very important” by over 90% of the growers, including responses weighted by acreage. Seven
of these were ranked most frequently as ”very important” by a majority of response.

The most frequently identified ”very important" industry challenge was how to effectively
expand demand for Michigan apples in the highly competitive fresh and processing markets (69%).
Closely related, and also frequently rated “very important”, was a need to raise grower prices
(66%). These responses are likely reflective of the current competitive pressures experienced by
the grower community, the resulting low returns, and hence a frustration with the current status of
grower profitability. The awareness of competitive pressures on Michigan’s traditional markets is
widely demonstrated from these responses. These responses underscore the importance of and
likely positive receptivity to industry actions by growers to enhance the overall competitiveness
of Michigan as a supplier region, expand demand, and increase grower prices.

A need to more effectively compete with apples from the major supplier regions was also
identified by the majority of growers as a ”very important” issue (57%), although it appears that
the greater focus of concern is on expanding demand for Michigan apples more generally.

Threatening legislative positions, regulation, and economic pressures related to pesticides
and pest management were widely identified as very important to the industry. These threats
negatively influence research, development, and production decisions of those manufactm'ing pest
control materials needed for apple production in Michigan. Manufacturers face difficult and costly
procedures to register new materials and re-register those currently manufactured. Opportunities
for manufacturers or others to develop alternatives to current pesticides are often further limited
due to the relatively minor volume supplied to apple producers. This was discussed in some detail
in Chapter 3.

This general area of increasing regulations on pesticides was identified frequently as ”very
important" by the growers (65 %), particularly when weighted by acreage (76%). One might expect

this to be an important issue for most growers. Similarly, the related challenges posed by

224

increasing regulations on pesticides from food safety and environmental concerns was widely
recognized as ”very important” (63%).

The importance of these issues to the viability of the Michigan apple industry has been
quite apparent to most Task Force participants. The grower survey results provide a broad-based
confirmation of grower’s perceptions of this as an important issue and could be viewed as a
mandate from the grower community to place high priority on developing action plans to address
these challenges.

The problems imposed on growers by new labor regulations were widely rated as very
important by the majority of growers. Little difference was reflected in response when weighted
by acreage, indicating that even smaller growers rank this industry challenge as important.

The challenge to improve the overall quality of Michigan fresh apples was also rated by
the majority of growers as very important for the industry, and 96% ranked this area as either
important or very important. These responses also provide a signal to the Task Force to give these
areas high priority on the agenda for further analysis and industry action plan development. The
issue of quality improvement is confirmed as a central theme and high priority in almost every
section of the grower survey.

The identification of varieties that will both be profitable and grow well in Michigan was
also regarded as an important industry need. A strong majority (91%) indicated it to be at least
an ”important" industry issue.

A need to update the equipment and efficiency of some Michigan packing houses was
identified primarily as an ”important” issue (57%). The message to the Task Force from these
responses would seem to be that these are important industry issues or challenges that may well
merit consideration of industry action alternatives to address them if reasonably workable plans can
readily be developed.

The need for more bins, although considered more important by larger growers, was
identified most frequently as an issue of minor importance to the industry. A need for fewer

shippers was also most frequently designated as minor.

225

A Summary of the Packer Perspective

The growers were divided into non-packer and packer groups to evaluate possible
differences between them in the perception of importance of the eleven specified industry issues.
The ranking of issue importance by packer-growers and non-packer growers which were explored
is presented in Table 5 .4.

Packer perceptions of the importance of these industry issues follow closely with non-
packers. The same eight issues, as discussed above, were ranked at least "important” by 88% of
the 43 packers responding.

All packers ranked the issue of expanding demand as at least an ”irnportant” industry issue.
The need to raise grower prices was the area most frequently identified by packers as a ”very
important” industry issue or challenge (72%), followed closely by the development and re-
registration of needed pest-control materials (67%) and increasing regulations on pesticides (64%).

Packers were somewhat less inclined to indicate a need to update equipment and efficiency
in some packing houses as at least ”important” (69% versus 80% of non-packers). Only 26% of
them indicated this to be a ”very important” issue. Following the perspective of the shippers,
tremendous improvements have recently been realized in many of the major Michigan packing
facilities. While continued improvements may be recognized as needed and further innovation

encouraged, this is not ranked as critical as some of the other specified issues by packer-growers

226

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Linking Observations to the Shipper Survey

There were many similarities between the responses of the growers and packers to those
of the shippers.130 All segments recognize the importance of challenges posed to firms in the
Michigan industry relating to expanding demand, raising quality, strengthening returns, meeting
intensifying competition from other regions, addressing environmental and food safety regulations
together with limitations on developing and registered pesticides, labor regulations, and evaluating
apple varieties.

This consensus perspective provides a strong mandate to the Task Force to proceed with
action development plans for the industry in these areas.

Shippers most frequently identified a need to compete more effectively with the other
major U.S. production regions for fresh sales as ”very important”. Not all growers emphasize the
fresh market like the shippers, but again there was wide recognition of this area as a key industry
challenge.

Improving overall quality was identified by 96% of the shippers as at least an important
industry issue (79% indicating it to be ”very important”), consistent with the strong importance
indicated by the grower community. This emerged as one of the most critical industry issues to
the shippers with wide, but somewhat lesser recognition among the packers.‘3 '

Demand expansion was also widely ranked as an important industry challenge. Seventy-
one percent of shippers indicated expanding generic consumption for all apples was a very
important industry issue with strong implications for the eventual demand for Michigan product.
Current industry initiatives such as assessments targeted for marketing and promotion may need

to be expanded in light of the wide recognition of the importance attached to this area. The

 

”0 See the discussion regarding shipper perspectives on industry weaknesses and threats in
section 4.2.2 and 4.2.3.

”I

Shippers would often quip that packers, many of whom pack their own fruit, held the
quality of their own fruit in high regard simply because they grew it.

228

segment surveys each indicate the industry would be very supportive of expanded demand

expansion programs.

5.3.3 INDUSTRY OPPORTUNITIES

The grower segment is uniquely positioned to provide valuable perspectives to the general
industry regarding a variety of opportunities. Most growers are involved in some capacity in both
fresh and processing markets. Although they are not typically relating directly with the retail buyer
of the various fresh and processed apple products, they do relate with a variety of shippers and
processors who relate directly with the retail buyers.

The broad identification of opportunities emerging for the industry plays a key role in
evaluating suitable industry strategies. A broad identification and communication of these
opportunities can serve as a driving mechanism behind initiating and sustaining needed industry
action. It is toward this end that perspectives on relative industry opportunities by the grower
segment are summarized.

Opportunities change and sometimes have a relatively narrow time period within which
they remain viable. Early recognition of them is important, but not always adequate to maintain
competitiveness; action to take advantage of them is also necessary. An objective of this survey
activity, however, is to both facilitate the identification and industry-wide consensus on those
opportunity areas most promising to the industry and then move toward developing industry action
plans that would help the industry be appropriately responsive, particularly in those cases where
certain kinds of collaboration may be necessary to best take advantage of them.

The opportunities were divided in the survey into three major sections. Opportunities were
considered as those relating to emerging demand and competition conditions or those relating to
technical improvements; the opportunity classifications were thus: (1) expansion of Michigan fresh
apple markets, (2) expansion of Michigan processed apple markets, and (3) opportunity for
technical improvements within the industry. The first two categories are consistent with Abell’s
business definition parameters, considering opportunities relating to various customer groups and

customer functions within these broad categories of fresh and processed markets. The third class

229

of opportunities parallels the parameter of technical innovation - alternative or innovative means
for improving the way the industry may be able to improve their product or service to new or
existing customer groups or functions.

A major limitation of the written survey approach for this class of opportunities is that
growers as a group have very limited opportunity to provide detail or to elaborate on other related
industry opportunities. Given time and resource constraints, however, this approach offers some
insight on the growers’ view on a number of current promising prospects for the Michigan apple
industry

Growers were asked to indicate whether a particular area represented an opportunity which
‘ may be more fully exploited in order to strengthen the Michigan apple industry. They were asked
to rank each area along a scale of l to 5, where 1 represented ”considerable opportunity” and 5
represented ”limited opportunity”. A summary of grower responses to the different areas of
opportunity are presented in Table 5.5.

Responses are presented here, for the purposes of aiding positive industry discussion and
providing an overview analysis, by combining ranking levels l and 2 to represent ”considerable”
opportunity. Similarly, 3 represents a ”moderate” opportunity level; 4 and 5, ”limited” opportunity.
The detailed frequency and acreage figures are presented in Appendix D along with a ranking of

the 24 specific opportunities aggregated over all categories.

230

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231

Opportunities Relating to Fresh Markets

Growers generally indicated categories relating to the fresh market as having considerable
opportunity for further industry development. Nine of the ten areas in this category were identified
a presenting a considerable level of opportunity by at least 59% of the growers. Opportunities
relating to improving quality and those tied to the export market were among the highest ranked
in this category with over 80% indicating ”considerable” associated opportunities.

Overall quality improvements may be necessary for the industry as the fresh market
increasingly demands it. The wide recognition of this by growers as an area of opportunity upon
which the industry can build or further exploit has important implications for the nature of suategic
direction chosen by the industry. The strong prospects for improving quality, particularly relating
to fresh apples, is consistent with that of the shippers, recognizing that there currently exists
substantial opportunities for both improving the overall quality the industry provides as well as
expanding market opportunities related to higher quality fruit.

Michigan has not historically been a major supplier to export customers, with the exception
of expanding some supply to Europe. The export success of Washington, changing worldwide
demand conditions, and improving capability for Michigan packing houses to deliver quality makes
this an increasingly promising area. Washington has had success and provided considerable
leadership in developing strong, new apple markets in Mexico and Asia. Michigan shippers may
be well positioned to follow Washington into some of these areas and/or expand exports for
Michigan varieties into alternative, unique export market niches.

Several other U.S. customer groups were ranked as presenting considerable developmental
opportunity for the Michigan industry including U.S. food service, U.S. markets in geographic
markets not traditionally served by Michigan, and the U.S. grocery store markets.

Opportunities relating to U.S. Food service markets were widely ranked as presenting
considerable opportunity for Michigan by 74% of the growers. This was the category rated most
frequently by packers (57%) as representing the highest(category ”1") area of opportunity. Packers

followed non-packers fairly closely in ranking every area of opportunity with respect to the fresh

232

market with the exception of this. No packer surveyed, however, classified food service markets
with either of the lower two opportunity levels.

Growers also widely perceived strong opportunities for developing new customers through
expanding Michigan’s presence as a supplier to other geographic regions of the U.S.. Many
shippers expressed a similar sentiment, particularly within those areas where local supplies are
declining. Growers, in light of these responses, are likely to be supportive of industry promotional
efforts that are targeted to U.S. market regions that have in the past been given less emphasis.

A very important customer group identified with strong prospects for further development
was the U.S. grocery store market. This is already the major customer groups for fresh Michigan
apples. Packaging, merchandising, various quality levels, point-of-purchase materials, etc., are all
functions for which Michigan firms can continue to develop industry plans toward enhancing their
competitive position with grocery stores.

A number of customer functions (see Table 4.6 for selected customer functions specific to
the fresh apple industry) relating to the fresh market were considered. Among those most
frequently ranked by growers as presenting considerable opportunity included increased promotion
for fresh apples. More promotions by the Michigan Apple Committee was mentioned by 74% of
the growers as having ”considerable” opportunity. Opportunity relating to more promotions by
individual shippers was ranked somewhat less; 59% indicating this to be ”considerable”. Grower's
apparently perceive that additional promotional programs would result in expanded demand and
strong returns to the industry, particularly those led by the MAC.

Opportunities relating to higher quality pack offerings for customers, such as trays, cells,
or premium packs, were generally in the higher level categories, but still were indicated to be
somewhat less than the most of the other fresh market areas. Modal response for each area fell
in the level-2 category.

Packers designated trays frequently with the highest (level-1) opportunity level (39%),
reflecting slightly stronger perceptions about the opportunities associated with this customer
function than their non-packer counterparts (30%). As noted in Chapter 4, over half of the

shippers ranked marketing more tray and cell packs as presenting an "outstanding” opportunity for

233

the industry, ranking the area the second highest out of 13. Packers, however, ranked it sixth out
of the ten fresh market opportunity areas in their survey as having the highest area of industry
development potential.

Packers assigned premium packs to the highest opportunity level (level-l) less frequently
(23%) than non-packers (34%). The packing and marketing logistics of such a pack may be of
greater concern to those packing it. The costs of monitoring, enforcing, marketing, etc may be
perceived by packers to be larger relative to potential industry benefits than their non-packer
counterparts.

The perceived opportunities for the industry to build on customer functions related to
bagged apples fell off sharply compared to the other areas considered for the fresh market. This
category was by far the lowest ranking. Only 36% of the growers designated bagged apples to
present ”considerable opportunity” for the industry, with 15% ranking it with level-1.

One reason behind the more pessimistic outlook relating to Michigan's growth in bagged
apples may be the expanding presence of Washington in marketing this product. Shippers,
however, despite strong competition from other regions for this market traditionally dominated by
Michigan firms, see opportunities for large volume sales of bagged apples as a continued major
portion of Michigan’s marketing emphasis, particularly if Michigan can perform as a superior
supplier of bagged apples. With over 80% of Michigan’s fresh product being sold in bags, industry
strategies developed for the Michigan region cannot ignore the importance of the role played by

bagged apples.

Opportunities Relating to Processing Markets

Opportunities and strategies for growth within the processing segment of the apple industry
are of major interest to those involved with the industry’s strategic planning process. Growers
generally were optimistic with regard to the areas specified in the survey relating to the processing
segment. The modal response for 5 of the 6 areas presented indicated general outlook for these

areas to reflect the highest level of opportunity (level-l). Perceived differences in the processing

234

opportunities specified were slight as percentages ranking each area as a ”considerable” opportunity
ranged from 69%—76%

Expanded promotion for processed apple products was identified as presenting
”considerable opportunity” for further industry development by growers, highest through the
Michigan Apple Committee (76%) and somewhat lower through individual processors (69%).

Juice markets were seen by growers to present primarily considerable opportunity for future
industry growth. This category ranked among the highest opportunity areas for the industry when
weighted by acreage; 81% ranked Michigan processing for juice as presenting ”considerable”
opportunity. Products such as apple slices and apple sauce were also regarded with some
optimism, but to a somewhat lesser degree than juice.

Export prospects for processed products were perceived to offer considerable opportunity
for industry growth by most, but to a somewhat lesser extent than fresh exports. The development
of processing opportunities has been largely left up to the individual processors. Some
organizations, such as MACMA, have provided industry support by compiling and commrmieating
important international trade and production data.

The overall perception of processed markets, much like that of fresh markets, was an
expectation of considerable opportunity for further market development. The potential for strong
and growing demand conditions for a wide variety of fresh and processed apple products, as well
as emerging opportunities related to new customer groups, are apparently perceived by most
growers. The means by which individual firms are able to best exploit these market opportunities,
however, is not always immediately apparent. The premise here is that it requires some

combination of firm and industry-level strategy.

Opportunities Relating to Technological Advances
Opportunities in the previous categories emphasized growth or penetration prospects for
a variety of customer groups or functions within each of the two broad markets of fresh and

processing apples. A third category of opportunities focused on the resource or capability base of

235

the industry, considering the growers’ perspectives on opportunities relating to further technical
innovation or industry progress in several key capability areas.

Seven areas of potential industry opportunity relating to technical improvements were
specified on the survey.

The technical production opportunity areas considered, as a group, were generally
considered by growers to offer somewhat less potential for industry growth or development when
compared to demand growth opportunities which focus on fresh or processed customer groups and
functions. Only one area (further advancements in IPM programs) was identified most frequently
as presenting the highest level of opportunity (mode of level-l) for the industry to further build
upon. The other areas, while not summarily dismissed as presenting real prospects for industry
growth, were most frequently identified with the second highest level of prospect (level-2) for
development. ”2

The technical opportunity area identified most frequently as presenting the highest
opportunity for the industry was further advancements in IPM programs 77%. This ranks the
fourth highest of all the specified opportunities considered in the survey. The need for industry
improvements relating to pest management programs and strong prospects for implementing
positive changes emerged as a central message throughout the survey. The high level of importance
of pest management programs as an industry issue'”, representing the highest priority for
University research and extension support‘”, and receiving one of the strongest levels of grower

support for continued expansion135 all reflect the sentiment that this remains an area for which

 

”2 Differences between general opportunity categories is more easily seen on the full table in

Appendix D. The significance of these differences may be slight enough, however, to
provide limited implications for the industry strategic planning activities. There is a
tendency, however, for individuals to magnify the potential of opportunities perceived in
other areas (growers on marketing, for example), while diminishing the prospects for
improvement in their own area.

”3 See Section 5.3.2.

”4 See Section 5.5.

'35 See Section 5.4.

236

further industry actions would receive strong grower support and is perceived to yield potentially
significant dividends.

Technical improvements or modernization in such areas as sprayer equipment, orchard
planting systems, packing houses, and storage were all viewed with approximately equal sentiment
with regard to presenting further opportunity for the industry to enhance its value and
competitiveness.

Maturity information programs have been developed in an attempt to improve the condition
of fruit quality through improved timing of picking. Research and extension efforts have been
directed to develop such programs for growers to facilitate the development of superior harvest
timing that reduce the amount of over-mature fruit delivered to storages and packing houses as well
as providing a supplemental tool growers can draw on to better anticipate their harvest schedule.
Sixty-five percent of the growers indicated this as presenting considerable opportunity upon which
the industry could build.

Shippers hold a somewhat divergent perspective from the growers on the potential
contribution of programs such as multiple picking, a harvesting technique considered to lead to
improved packout quality initiated at the field level. Many shippers indicated considerably more
could be done in these areas, and even among growers there is wide debate on the usefulness and
cost-effectiveness of multiple picking. The divergence of grower response to opportunities for
multiple picking was more than in most areas. There was not a strong consensus on its overall
merit as a cost effective harvesting method. The widely ranging perceptions on the usefulness of
such programs may be indicative of a need for further educational or extension programs for
growers in these areas. Benefit-Cost research that would consider the grower’s harvesting logistics
program, marketing scheme, and marginal revenue returned to investment in multiple picking

programs that were properly implemented appears to be an area of particular need.

Linking Observations to the Shipper Survey
The areas of opportunity most widely designated as most promising for the Michigan apple

industry by growers included those relating to improved quality (particularly for fresh) and market

237

expansion for both fresh and processing. Continued high prospects for further development were
indicated for several key markets (fresh and processed export, food service, grocery) and products
(juice, and to a lesser extent - slices, sauce, and higher quality fresh products).

Shippers generally concurred with grower perceptions of areas and ranking of industry
opportunities, particularly in the areas of prospects for improving quality and growth with key
customers categories. Shippers were slightly more optimistic with respect to industry growth
opportunities building on the technical improvements emerging within Michigan, particularly with
respect to modernized orchards, packing houses, and storage facilities. Shipper perception of
prospects for expanded opportunity for growers to contribute to quality improvements through a
variety of technical production and harvest innovations also seems to somewhat exceed that of
growers.

The implications of these results for industry action and strategy development would
include some of the following. Specific actions and strategies should be formulated, tested, and
implemented in an effort to facilitate the industry’s ability to take advantage of widely perceived
opportunity areas. Building coordinating linkages between segments, formulating explicit industry
programs for such areas as marketing or quality, and facilitating the refinement of the agendas of
key supporting organizations may all be a part of developing or fine tuning the overall capability
of the industry to be competitive toward penetrating or maintaining certain perceived market
opportunities.

Many of these areas of opportunity are readily pursued by individual firms. Others may
require more coordinated industry action. Industry action alternatives are taken up in detail in
section 5.4.

Opportunities that correspond to either changing market conditions or innovations for
improved quality or productivity are important to recognize in a strategic planning process.
Evaluation here has been primarily confined to engaging knowledgeable industry leaders and
consensus of major subsector segments. There is a need, however, for the planning process to be
supported by independent market and production possibilities analysis to further evaluate and rank

opportunities for the industry. The patterns observed in the Task Force discussions, shift-share

238

analysis, and segment surveys provide important points of departure for further analysis, but will

not by themselves typically provide the full or adequate analysis that is ultimately needed.

5.4 INDUSTRY ACTION ALTERNATIVES

The viability of alternative industry strategies is often dependent on broad recognition and
support for certain industry directions and reasonable prospects for developing workable actions
where subsector coordination may be needed. In many cases a general direction may be widely
supported, but the specific appropriate means for propelling the industry toward accomplishing
certain goals may be strongly debated between individuals.

Strong opposition or lukewarm support for a particular initiative held by the majority of
growers or even among a key sub-group may doom the initiative to gaining adequate support
needed for effective subsector action. Widely recognized need for change, including recognized
benefit to the individual, is much more frequently a necessary condition for successful
implementation by a subsector in contrast to strategic planning within a firm. Administration
within a firm can impose certain directions, objectives, or mandate cooperation among individual
persons or divisions in order to implement strategic plans, independent of whether these sub-units
recognize a need or purpose. Alternative actions may be recognized as needful, but individuals
or related individuals within the valve-generating system of a subsector may lack the economic
incentive to initiate or collaborate on them.

The process of developing viable action alternatives best supporting broader strategies is
a critical component to industry strategic planning and differs notably from effective approaches
employed at the firm-level. The subsector almost always lacks the inter-firm hierarchy of authority
to immediately affect changes seen as needed. Marshalling the necessary resources and needed
collective responsiveness to implement particular plans is a process requiring considerable
discussion, consensus building, diplomacy, negotiation, and diligence on the part of those

facilitating the process.

239

This section of the chapter examines the means for identifying possible subsector
improvement actions, developing support for these actions among the grower community, and a
sense of priority for further action development or analysis. The survey approach initiated here
is presented as a tool for facilitating the viable action development process for subsector
improvement as part of a subsector strategic planning framework.

A series of questions were included in the grower survey that sought to assess grower
support for a variety of industry improvement actions. Areas of industry action have been
proposed by many individuals by Task Force members and other industry leaders, including those
which have been debated regarding their merit by many within the Michigan industry for some
time. The industry actions included in the survey represented, in part, those particularly needing
indication of grower support in order to further pursue them. A tentative list of specific actions
was formulated within the Task Force, with subsequent refinements and additions being generated
during meetings with grower organizations and pre—testing. A number of these possible actions
emerged during the course of the shipper interviews.

A list of 26 industry action areas were specified in the survey questionnaire for which the
growers were asked to indicate their degree of support for each by checking one of four levels;

I! II II II

”strongly support , support moderately , not a necessary action”, and ”strongly oppose”.‘36

Related actions were grouped somewhat together. A division of specific action areas into broader
classes is done here, however, to facilitate comparison and to maintain a coherency of presentation.
The general classes for industry action include:

Demand Expansion

Pest Management

Overall Quality Enhancement Through Improved Production Practices
Toward Industry Quality Standards

Varieties

Improving Industry Transactions and Records

Other Industry Actions

 

136

A support class of ”moderately oppose" would have provided a symmetry to the question.
Since prioritization for further developing an action area would be determined according
to the higher level of support, ambiguity among the opposing action classes was not
deemed to be a critical concern.

240

Grower responses to the specific actions are presented in Table 5.6 and 5.7 according to
these general classes. Percentages are reported by grower frequency and weighted by acreage.
Responses are aggregated in Table 5.6, providing a general overview of support by indicating the
percent that ”strongly or moderately” supported an action and those that regarded an action as ”not
a necessary action or strongly opposed”. Table 5.7 essentially provides the same data, but provides
results of responses according to the more specific support category. The modal response for each
action is identified and actions are ordered within each general class according to the frequency

with which they were strongly supported.

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5.4.1 INDUSTRY ACTION ON DEMAND EXPANSION

Industry approaches facilitating demand expansion programs were among the most strongly
supported actions as a group among growers. These included programs to increase the export of
Michigan apples and programs to increase demand domestically.

Sixty-one percent of the growers strongly supported expanding industry export programs,
with 96% in at least moderate support. The specific means by which this objectives might be
accomplished were not raised in the survey.

Stronger linkages have been developed recently between the MAC and the U.S. Apple
Export Council. Shippers involved in the export market, as noted in the previous chapter, seem
to emphasize independent shipper approaches for many aspects of doing business internationally.
Increasing opportunities in a number of international markets, however, continue to develop
favorably for Michigan apples. Expanded programs within the industry to support Michigan’s
participation in these markets may become a higher priority in the future.

Expanding programs to increase domestic demand received similarly strong support among
the growers. The activities of the MAC are currently primarily geared to stimulate demand for
Michigan apples domestically. The grower responses indicate the sense of need and strong support
among growers for continued development of demand expansion programs. Industry effort and
collaborative approaches that can facilitate further activity and success in this area are perceived

as very high priority areas for growers relative to most other actions proposed in the survey.

5.4.2 INDUSTRY ACTION ON PEST MANAGEMENT

Four of the specific industry actions included in the survey related directly to pest
management. Industry action to address pest management issues was one of the areas of highest
focus and a priority for developing indusz action as indicated by the grower responses. The
grower survey results were consistent with earlier discussions within the Task Force identifying this
as a critical issue. The Task Force, recognizing this as a central issue and that there are some

opportunities to develop industry initiative on policies and direction through key national

250

organizations, already had under way a major initiative with the International Apple Institute (IAl)
regarding pest management at the time of the grower survey. The level of grower support for these
kinds of initiatives was asked through the survey.

Eflorts through [AI and other organizations to work with government agencies for realistic
approaches on pest management and pesticide policies was the action item most frequently
indicated as ”strongly supported” of any of the 26 industry actions specified in the grower survey.
Seventy three percent of the growers strongly supported these kinds of initiatives, with 98% at least
moderately supporting. This high level of ranking provides a strong indication to the Task Force
and other supporting institutions regarding the willingness of growers to support further such
initiatives.

Issues of pesticide registration, re-registration, reduction measures, alternative control
measures, food and worker safety, etc., and related incumbent or emerging policies all represent
major forces that growers recognize as having direct and important implications for their
operations. They often feel, however, that they have little recourse or limited ability to effectively
respond to these threats. The opportunity for collective response or action that represents some
measure of rational, realistic workability from the subsector perspective regarding policy positions
and interests that growers view as extreme is widely supported throughout the apple industry.

Another related industry effort also was widely designated as having moderate to strong
support was the continued expansion of IPM programs (96%). The development of pest
management systems that are cost effective and provide adequate control are very important to
growers, especially with the increasingly costly pesticides that they must use with current
technology and market quality requirements. Growers further recognize a need to be committed
to responsible pest management programs as well as a need to develop expanded capabilities
toward viable alternatives to certain chemical control programs.

One idea that has been tried to a limited extent in Washington state and in Europe was
discussed. This action involved one possible approach: expanding the use of pest management
in Michigan by developing a state—wide "reduced pesticide" standard and certification program.

Some shippers in Washington use a label on their fruit that reads ”responsible choice”. It was

251

suggested that perhaps a similar program might be successful in Michigan using some agreed to
standard for what represented ”reduced" pesticide use. The potential merits and dangers of this
approach were strongly debated among shippers and those in the Task Force. It was agreed,
however, to elicit grower opinion on this possibility through the grower survey. Both voluntary
and mandatory versions of a program were queried in the survey.

Interestingly, the most common response to the voluntary program was ”strongly support”,
although only 37% of the growers ranked this approach with strong support. There were 67% of
surveyed growers who at least moderately supporting such a program. Opinions varied widely,
however. Such an approach would require considerable further analysis before being ready for
implementation in Michigan.

The mandatory program drew more strong opposition than any among the 26 specified
industry actions included in the survey. Support for the mandatory program was quite limited; the
modal category was ”strongly oppose” with 40%, while only 14% strongly supporting this
initiative. ' 37

Limited support for this concept over the grower segment implies little prospect for a
successful industry initiative to be developed. The difference in support between a voluntary and
mandatory program, however, illustrates the preferred orientation among individuals toward
participation in programs involving voluntary individual commitments. Several written comments
by growers supporting the mandatory approach indicated voluntary approaches are unlikely to be

sustainable or would adversely affect growers choosing not to participate.

 

”7 A mandatory program, although not presented in detail in the survey, could involve a

variety of approaches. Some sort of state-wide change in pesticide use would possibly be
involved. The thrust generally implies differentiating all of Michigan’s product as somehow
involving ”reduced pesticide” use.

252

5.4.3 QUALITY ENHANCEMENT THROUGH IMPROVED PRODUCTION

PRACTICES

A series of specified action possibilities were included in the survey that primarily
addressed industry approaches to improving quality through improved production practices. A
related series of actions involved efforts toward establishing some manner of industry quality
standard policies intended to help induce certain overall improvements. These approaches are
considered in the next section.

Eight specified actions related to encouraging overall quality improvements through
improving production practices. Support for these actions as a group was relatively strong among
the surveyed growers. With the exception of encouraging growers to multiple pick, these action
were at least moderately supported by 78% to 93% of the growers.

One of the proposed quality improvement initiatives was among the highest supported of
all actions in the survey; expand educational eflorts for grocery stores on how to handle,
refrigerate, and rotate Michigan apples to maintain high quality. Ninety-three percent of the
growers at least moderately supported this approach and 62 % of the growers strongly supported
such an initiative. Educational efforts toward grocery stores may be difficult to accomplish.
Expanding efforts through organizations such as the Michigan Apple Committee, which already
works closely with grocery stores in the areas of promotion and merchandising, may be workable
but is still difficult.

Several actions, while not indicating the specific means by which certain objectives would
be pursued, do indicate relatively specific areas for which industry action may be meaningful to
pursue inasmuch as needed improvements are widely recognized. These include improvements
with respect to reducing bruising, improving fruit size, improving maturity information programs,
and improving storage technology.

A question on continued improvements to reduce bruising in orchards by pickers, forklift
operators, and in packing houses was widely designated with at least moderate support for
developing industry actions (92 %). Most growers, packers, and other industry people, particularly

those associated with the fresh market, recognize that marketing apples with minimum bruising is

253

important for competitive, high performance in fresh markets. This is, in some respects, especially
challenging for Michigan since some of Michigan’s production involves relatively soft or easily
bruised varieties, such as McIntosh and Golden Delicious, requiring special handling. Some minor
bruising is difficult to detect immediately after it occurs, but can be as a significant diminishing
quality characteristic later if seen at retail.

Industry actions addressing bruising and fi'uit size, and to a somewhat lesser degree,
improved maturity information and harvest management, were among the most widely supported
action areas in the category of quality enhancement, as over 86% of growers at least moderately
supported industry efforts to address these areas. Facilitating the implementation of packing house
TQM programs and expanding grower educational programs were related specific actions that have
also received wide support among others in the industry. The successful implementation of such
actions would likely drive further industry reforms in the areas of management for fruit size and
maturity.

Industry efforts toward further improvements in storage technology and storage
management for Michigan varieties were moderately supported by most growers. Strong advances
by individual operators have led wider industry advances in adopting technology in this area
recently. Broader collective actions may not be as pressing with regard to overall improvements
in this area compared to some other dimensions of production and value-adding activities within
the subsector.‘38

CA storage capacity has been expanding, more than doubling in the past 20 years in
Michigan, and greater proportions of fruit are being held in CA rather than in cold storage. '39 Data
from various issues of the Michigan Apple Storage Reports indicates that between 1975-79 40%
of apples in storage on November 1 were in CA rooms with average CA storage at 2.8 million

bushel in Michigan during that period. These figures rose to an average of 5.6 million bushel

 

'38 The Shippers Association, however, in collaboration with the Michigan Apple Committee,
has accomplished reforms in CA storage regulations as a priority agenda item. They had
pushed for regulatory reforms primarily on the basis of their consensus opinion.

'39 Michigan Apple Storage Reports, various issues.

254

during 1988-92, representing 57% of all apples in storage during that period. Prospects and
support for continuing improvements with respect to storage technology, capacity, and quality are
fairly strong within the Michigan apple industry and can be an important component to supporting
broader quality improvement efforts.

Growers were less supportive of industry initiatives that would involve encouraging
growers to multiple pick for needed color, size, and maturity for the fresh market, although the
modal response was still to ”support moderately” (43%).”0 Specific means suggesting how
growers would be encouraged to multiple pick were not indicated in the survey, and most growers
who discussed the issue on the Task Force or with other organizations indicated a willingness to
consider more multiple picking if it can be demonstrated to them that such effort results in returns

exceeding the additional marginal cost to the grower.

5.4.5 TOWARD INDUSTRY QUALITY STANDARDS

A series of actions programs were queried in the survey that had been discussed by
industry leaders as possibilities which could potentially contribute to moving the industry toward
higher quality standards. Each of these approaches would presumably involve some sort of implicit
component that required some degree of credible, traceable commitment to the delivery of higher
quality by individual firms that could somehow be enforced. While not receiving the strongest
support as a class of actions, at least 76% of the growers moderately supported at least one of these
four ideas. The appropriate specific means for ensuring higher quality of apples in Michigan is
widely debated among those throughout the industry, but a substantial majority of growers seem

generally willing to consider some sort of enforceable industry commitment.

 

”0 Some varieties do not ripen evenly on the tree. Ideally, these trees would be picked
several times to ensure desired fruit maturity. Many growers do this already to a limited
extent, particularly on early maturing varieties. Labor constraints and intense peak harvest
schedules limit this practice for many growers, who wind up picking all the fruit from a
tree at once and leave the maturity sorting to the packer.

255

The most widely supported action ideas toward an indusz quality standard was the
development of a state-wide premium grade for fresh apples. Forty-seven percent of the growers
strongly supported developing such a premium and 70% at least moderately supported this.
Support lessened when weighted by acreage (37%), but the modal category remained ”strongly
support”. The relatively high level of grower support shown in the survey indicates that a
substantial majority of growers support the idea, but final evaluation would likely depend on the
specific of the program. The Shippers Association and the Task Force are continuing to consider
this action as a high priority area with potential for aiding the development of an industry quality
improvement program.

State-wide mandatory programs for some defined level of minimum quality were supported
either strongly or moderately by 79% of the growers. The explicit use of minimum firmness as a
part of this standard appears to result in little change in how growers perceive the merit of such
an action relative to a more generally specified mandatory quality management program.

A program that would involve developing earliest permissible harvest dates by variety as
part of an industry maturity standard was discussed by the Task Force and by some grower leaders.
Quality, when considered in terms of flavor of apples, is influenced by when fruit is picked. The
logistics of developing and enforcing such a standard (earliest permissible harvest date) with a
diversity of varieties and varying climatic conditions in the state makes the workability of such a
program difficult according to some. Thirty-three percent of the growers, however, strongly
supported effort to develop such a program, with 75% at least moderately supporting it.

Strong grower support for these kinds of initiatives, while an important component and
perhaps a necessary condition, is not itself sufficient to imply a workable program could be
developed. Industry leadership, representing packers, shippers, and buyers, also need to develop
strong commitment to develop appropriate incentives and demonstrate a commitment to support

such programs.

256

5.4.5 INDUSTRY ACTION ON VARIETIES

Growers were asked about several industry actions relating to further developing
Michigan’s capabilities with respect to apple varieties, including broader industry action relating
to both variety evaluation and development of more varieties. Industry action involving the
comprehensive evaluation of new varieties and strains that are best suited for Michigan's fresh
markets and growing conditions was strongly or moderately supported by 92% of the growers and
strongly supported by 48%.

The modal response shifted somewhat when responses were weighted by acreage, where
36% ”strongly supported” this action, indicating a small difference in support for this action
between sizes of Operation. A simple comparison of responses between growers with smaller and
larger acreages indeed supports this. Smaller growers, those with less than 30 acres, were
significantly more supportive with regard to industry initiative toward comprehensively evaluating
new strains and varieties (57% strongly support) in contrast to larger growers with 30 acres or
more (43% strongly support). '4' Improved industry information on varieties, particularly with many
smaller operations in Michigan, can theoretically lead to greater overall responsiveness to emerging
market signals, particularly with respect to newer varieties.

A market demand analysis and future outlook for varieties and strains, new or otherwise,
that could be developed by the shippers to raise the quality of information available to growers was
widely supported by the shippers. This specific initiative was supported by 71% of the shippers
during their survey. The issue emerged during subsequent Shipper Association meetings as one

142

of the top several actions shippers felt needed to be moved upon immediately. Growers,

particularly the smaller operators, also recognized this as an important industry need. The need

 

'4' The MDA survey in 1991 estimated 61% of growers had less than 30 acres and 50% with
less than 20. The continuing attrition apparent among the smaller growers led to this
division of 30 acres to designate ”smaller” and ”larger” growers. Forty-eight of 85 smaller
growers strongly supported this industry action with 67 of 155 larger growers strongly
supporting. The difference in proportions responding in this way is statistically significant
at the 95% confidence level.

”2 As stated earlier in Chapter 4, several shippers expressed specific concern that growers too

frequently overreact to positive reports about newer varieties that may not be fully

substantiated.

257

to facilitate such a program remained, however, since (a) individual shippers did not want to be
individually exposed for making ”wrong” projections, and (b) a certain amount of coordination and
effort was required to gather the information from other shippers and assemble it in an
”independent” report.

This activity is representative of the usefulness of an organization like the Task Force that
facilitates the development of industry initiatives. Such initiatives are widely seen as needed and
there is broad support for change, but industry reform lies beyond the scope of implementing by
any individual firm. The Task Force has moved on this perceived need by requesting that a survey
on varieties in demand be done by the University. A report is planned to be prepared through the
cooperation of the shippers projecting demand trends of Michigan varieties and strains. Individual
shipper perspectives will be summarized to provide growers and others in the industry the
collective vision of the shippers with respect to these important trends indicating future demand.

The participation and quality of information generated through this process may well be
of a degree that would merit systematic updates of this data. A situation and demand outlook on
varieties and strains could be developed in cooperation with the shippers and combined with
updated data on existing acreage by variety according to the latest MDA orchard survey. This
additional data would ideally improve the basis upon which growers make their long-term planting
decisions in regard to varieties in demand in the market.

One other industry action related directly to varieties, specifically, a question was asked
on , developing more new apple varieties for Michigan. Only 18% of the growers strongly
supported this proposal, with only 11% of the responses by acreage. The sentiment appears to be
consistent with that expressed by many shippers, that there is a lesser need for expanding the
number of varieties grown in the state and a greater need for demand analysis and marketing well

the currently available varieties.

5.4.6 IMPROVING INDUSTRY TRANSACTIONS AND RECORDS
Grower opinions varied widely with regard to two industry actions included with a view

toward improving industry transactions and records.

258

An action receiving strong support in this category was to encourage shippers to charge
a percentage sales fee rather than a fixed price per box. ”3 A proposal to encourage change in this
area was discussed during the shipper survey. The merits of percentage versus fixed price per box
were debated among shippers. Growers similarly failed to indicate a strong preference for industry
change in this regard. Grower support was relatively strong when considering the frequency of
response (68% with at least moderate support), but this support diminished somewhat when
weighted by acreage (58%). Shippers were similarly divided on the merits of both approaches.
This would appear, given the diversity of grower opinion, to be an action best left sorted out by
individual shippers. Further analysis may benefit future consideration of pricing mechanisms most
appropriate for the Michigan situation.

An initiative to encourage packers and shippers to provide growers detailed packout and
return information by blocks to assist removal and planting decisions was viewed with either
moderate support or unnecessary, particularly when weighted by acreage. Growers appear to feel
that generally communication of this information is adequate and/or concerted industry initiative
toward change would return little. Most shippers similarly indicated they provide access to more
performance data by lot or otherwise than growers seem to be interested in. Industry educational
programs, however, that emphasize the usefulness of packout data in economic analysis of blocks
may well further raise the importance of strong informational linkages between packers and

growers.

5.4.7 OTHER INDUSTRY ACTIONS

Developing government cost-sharing or tax incentives for migrant housing investments was
discussed at some grower meetings during the survey pre-testing. This action received mostly
strong support (44%), particularly among responses weighted by acreage (52%). Larger growers

particularly apparently feel the cost squeeze of tighter housing regulations and support industry

 

143

About one-third of the shippers currently charge growers for sales and promotion services
based on a percentage of sales fee. The rest charge a flat rate per box.

259

effort to pursue government support to provide aid for the associated costs. A specific plan or
proposal has not yet been developed to date regarding this proposal. A significant degree of
collective effort would be required to develop the needed lobby strength for such an idea. Some
manner of partnership with other labor-intensive commodity groups might be considered by
organizations like the Task Force in order to affect new policy in this area. Continued pursuit of
this action would benefit from a more detailed economic analysis.

Another action pr0posed related to strengthening grower organization to deal with
important industry issues and representing a grower perspective. The Michigan Association of
Pomesters is one such group that is trying to address this need. There was generally moderate
support for expanding such an institution.

Industry effort that would facilitate growers investing in more bins in anticipation of
expanding Michigan production was also met with mostly moderate support (53%).

Another action was suggested by several shippers and several on the Task Force as a
possible means by which the industry could improve its overall production practice; explore a
shipper-packer-grower initiative to make a transition to plastic bins. Improved overall quality of
fruit and reduced long-run production costs were key objectives behind this proposal. The high
cost of new molds and the cost of industry transition were considered as key factors addressed.
Growers, however, generally regarded this action as not necessary (38%), with only 17% strongly

supporting (9% when weighted by acreage).

5.4.8 AN OVERVIEW OF RESPONSES TO PROPOSED INDUSTRY ACTIONS
By way of summary, the specific industry action areas receiving strong support most
frequently among those listed in the survey included:

0 Efforts through IAI and other organizations to work with government agencies for
realistic approaches on pest management and pesticide policies.

0 Expand educational efforts for grocery stores on how to handle, refrigerate, rotate,
etc. Michigan apples to maintain high quality.

0 Expand programs to increase demand in the U.S. for Michigan apples.

260

0 Expand programs to increase exports of Michigan apples.

0 Continue to expand the use of IPM programs, including scouting, pheromone
traps, weather monitoring, etc.

0 Continued improvements to reduce bruising in orchards by pickers, forklift

operators, and packing houses.

Each of these specific proposed industry action areas were indicated as having ”strong
support” by more than 50% of the growers in the survey, and by over 92% indicating at least
moderate support.I44

Many actions proposed in this process are related. Synergies between certain actions
alternatives may exist or actions may have implications for the viability of other actions. Still other
actions may indirectly induce unintended firm-level responses that may or may not be favorable
to others in the industry. Many actions represent only a single element of a broader set or stream
of related actions intended to support a general strategy, such as an overall set of actions to serve
certain customers demanding particularly high quality.

One shipper, strongly supporting industry movement toward a standard premium grade,
suggested that such a program, once implemented, would be successful because industry people
would find creative ways to make the individual firm adjustments necessary to participate in the
program. New incentives would be in place to change conventional management and production
practices (packing house modernization, storage management, multiple picking, etc.) throughout
the industry. Greater commitment to and increased supplies of higher quality fruit may propel
Michigan as a competitive supplier into a number of other related customer groups or functions.
Whether this would indeed follow as a result of a fresh premium grade program remains to be
seen. This illustrates, however, the interdependence that may be resident between some of these
action alternatives being discussed by the industry.

The objective of this section of the survey, again, was to gather data indicating grower
support for alternative approaches to address areas of expressed need within the industry and also

to identify or confirm the growers’ sense of issue importance and need for industry action. Support

 

”4 Developing some manner of government cost sharing on migrant housing investment

received 52% ”strong support" among growers when weighted by acreage.

261

for different action areas may indicate, to some degree, the workability of an industry-wide
approach and the prospects for successful implementation. Furthermore, the process was designed
to encourage growers to consider with the Task Force in analyzing industry-level approaches to

address areas of widely felt need that were beyond the effective influence of individual firms.

5.5 RESEARCH AND EXTENSION PRIORITIES

The importance of university research and extension as a part of the emerging strategies
of the subsector was discussed in the context of the shipper survey in section 4.4. This issue is
taken up again here in the context of the grower and packer survey to achieve several objectives.

Supplemental information on perceived priority needs for the University support is
developed by including the broad-based grower perspective. This data provides further information
on the relative priorities for University research and extension programs as perceived by the
industry. Perceptions of the University’s role and the relative perceived need for its participation
in the strategic planning and coordination processes for the industry is also examined among

several sub—interests within the industry.

5.5.1 RESULTS FROM THE GROWER SURVEY ON UNIVERSITY RESEARCH AND
EXTENSION

One major component of the grower survey included an inquiry relating to the priority
needs for research and extension toward helping the Michigan apple industry. A series of 18 areas
were included on the survey questionnaire for which growers were asked to rank as an indusz
need that which was ”very important", ”moderately important”, or of ”low importance”.

The areas selected for the survey represented a modified or expanded version of the list
of areas presented to the shippers in their respective survey. Most of the areas represented areas
of expertise either deemed important by those on the Task Force and for which information was

desired on their importance from the grower community. Most are areas of information and

262

expertise traditionally supported by the university. A summary of responses both in terms of

frequency and weighted by acreage is presented in Table 5 .8.

263

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Ten of the eighteen areas were indicated to be ”very important” by a majority of the
growers, including responses weighted by acreage. Packers, as a group, indicated twelve of the
areas to be ”very important”. All but one specified research and extension area were indicated to
be at least ”moderately important” by 86% of the growers. The relatively strong response from
growers on the University as a major strength for the industry is again reflected in the wide variety
of areas deemed to be of high importance and priority for rmch and extension.

Among the areas of highest priority was developing improved pest control methods,
including IPM approaches, that are economically safe and politically acceptable. Specific
categorise of such pest control approaches for disease (82%), insects (68%), and other apple pests
(60%), were separately designated as being very important research and extension areas.

Improving the overall quality of apples produced by Michigan growers was equally
identified with improved pest control methods as a ”very important” area for university research
and extension (72%), including 98% indicating this are to be at least moderately important. The
University can play an important role in public good-type research, supporting overall quality
improvements through such measures as improved maturity information research, as well as
through developing improved past control measurss that reduce damage from disease, insects, and
other pests. The survey results indicate that substantial activities through the University that
facilitate broad adoption of new technologiw and institutional innovation in support of overall
quality improvements would likely be well received by growers and others in the industry.

Demand expansion programs were also identified as areas of high importance for rasearch
and extension. A significant majority indicated expanding domestic (70%) and export (67%)
demand to be a ”very important” priority for the University. These areas may perhaps be seen as
a subset of another category, economics and marketing aspects for Michigan apples, which also
were indicated to be of high priority status by growers. There is thus strong support for the
University at least to continue its support for these areas in response to this data. University
involvement in marketing research in such areas as demand expansion programs, consumer
marketing, generic promotion, and export enhancement and facilitation with raspect to Michigan

applss or apples in a generic sense would be consistent with this expressed priority by the growers.

266

Packers and shippers also indicated high support for university efforts in the area of demand
expansion research and extension. The University might play an important role in support of
evaluating and developing industry strategiss relating to alternative demand expansion approaches.

Labor issues, management, and regulations were identified by the majority (54%) of
growers as a ”very important” priority for research and extension. Respom weighted by acreage
reflected an even greater sense of importance (66%) for this area. Larger growers are typically
impacted more by labor regulations. The importance of University attention to this area was
communicated by all segments of the industry.

University involvement with Strategic planning and coordination for the Michigan apple
industry was identified by the majority of growers (52%), including packers as a sub-group (56%),
as a very important role for the University. It was ranked as moderately or very important by 92%
of the growers. This would appear to be quite strong support for this activity, particularly given
that the University has not typically played a major role in facilitating this kind of an effort.
Grower responses are discussed in more detail with respect to this area in section 5.5.3.

The University has traditionally devoted some resourcas to variety evaluation. Forty-nine
percent of the growers identified the development and evaluation of varieties that are well adapted
to Michigan to be a ”very important” priority for the University. The scope of varieties has in the
past been considered a major source of competitive advantage for Michigan as a supplier region.

Growers and packers even at this juncture widely identify Michigan’s mix of apple varieties as one
of the major strengths of the industry, well above many other potential areas considered in this
survey. The identification of profitable, well-suited varieties for Michigan was considered most
as an ”irnportant” industry issue (see Table 5.3), suggesting this area to relatively high on the
overall agenda for the industry, but not the top issue.

There is an interacting difference in mponse to the University research and extension
priority with respect to varieties between growers operating packing houses and other growers.
Only 39% of the packers indicated this to be ”very important”, while among those without a
packing facility the University’s role was considered ”very important” by 51%. Response weighted

by acreage similarly presented a significant shift in perceived importance of this area as 57%

267

indicated the area to be ”moderately important”. Smaller growers and those without packing
facilities seem somewhat more inclined to view the University as playing a major role in variety
development and evaluation. The importance of the University’s role in this area, while widely
designated as ”very important”, is often supplemental to the research and support activities of
private nurseries.

Maturity, storage, and post-harvest methods have made significant advancss in Michigan
in recent years. The University has provided major research and extension in support of thsse
advancements. As with most categorise, this category represents a wide spectrum of activities.
It may be difficult, therefore, to sort out grower perceptions of priority with respect to specific
elements. Forty-two percent of the growers indicated this to be a very important priority for the
University with the majority (52%) indicating the area to be of moderate importance (94%, at least
moderately important). Growers indicated relatively limited prospects for expanded industry
opportunity in the area of maturity information programs'”

Grower efliciency through new orchard technology was regarded by most growers (54%)
as a ”moderately important” area for University rmch and extension. This is magnified even
more when responses are weighted by acreage (62%). The industry opportunity areas relating to
technical improvements and further innovation were, again, designated by growers as having
somewhat lass potential relative to demand-side opportunitiw. Growers and shippers alike indicate
many technical tools are available for growers to produce the needed quantity and quality.
Improvements in certain types of orchard technology are also well supported by private interests
such as equipment dealers, nurseries, etc.

Fruit farm management was regarded by most growers (53%) to be a ”moderately
important” area for the University.

Development of new types of packs and packaging was identified by the majority of
growers as a ”moderately important” area for the University. This was the one area, however,

where there were significant differencas between the perceptions of growers who were packers and

 

”5 See Section 5.3.3.

268

those who were not. The majority of packers indicated this to be a ”very important” area (51%)
in contrast to non-packers (34%). Packers, of course, are uniquely positioned to evaluate the
importance of the University’s role in new package development. Many of thsee development and
experimental procsesse are quite expensive and therefore unlikely to be taken up by the relatively
smaller packing operations in Michigan.

Packers were less inclined to place high priority on the University to focus rseearch on
improving packing house technology (26% indicated this to be ”very important”), but this may be
more reflective of a perception that much of the technology needed is already developed and
greater marginal returns could be gained by focusing on such areas as package development. This
may also relate to the high priority placed on demand expansion programs.

The development of new types of apple packs and packaging was similarly designated as
primarily of ”moderate importance” (50%). Private sector provision of technical innovation and
marketing support for new packaging is significant within the food industry.

Increasing the production of the Michigan apple crop was dseignated primarily as of
moderate to low importance. Research and extension programs focusing only on increasing yield
was not widely viewed as ”very important”. University programs that helped growers in such areas
as pset management, quality improvement, marketing and demand expansion, labor management,
and industry coordination were regarded most frequently as needing to be top priority areas for

research and extension.

5.5.2 PLACING THESE RESULTS IN CONTEXT

The University commits resources to provide research and extension information for a
variety of clientele and informational users both in and out of agriculture. Even within agriculture,
there exists quite a diversity of intersets. Setting rseearch and extension prioritise is a complex and
dynamic task that is hardly straightforward for University faculties and administrators. Many
programs are developed because they have significant synergies or can be advanced with small

marginal cost in the context of a mix of research and extension activities.

269

Alston, et al, discuss a host of scoring criteria that can be used to sort out priorities for a
broad rseearch agenda. '46 Thsee include factors such as probability of succses, expected net prseent
value and size of the projects, expected influence on yield, production, price, or income stability,
costs of the programs proposed, value of the production for which programs are being developed,
likely extent of industry adoption of the proposed programs or innovations developed, among
several others. The number of factors that should be considered by university decision makers
when prioritizing research and extension priorities, as suggseted by Alston and others, underscore
the complexity of this activity. Rseources allocations are often made with only limited attention
to these scoring components.

The apple industry represents a major commodity for Michigan, but of course many other
commodities and programs need to be considered when allocating rseearch and extension rseourcse.
The return to consumers with respect to rseearch and extension investments is an important factor
that should also be considered. The value of the data compiled over those within the apple
industry is that it provides some quick overview information related to perceived needs for the
research and extension output by some of those who would be utilizing them. Research faculty
seeking to best support the apple industry within the state can incorporate these data, along with
other kinds of information, and with the other scoring criteria, move toward formulating an overall
program that will take into consideration the various expressed needs and indicated prioritise of

these clients.

5.5.3 VARIOUS PERSPECTIVES ON THE UNIVERSITY AND INDUSTRY
STRATEGIC PLANNING

The role of the University as an organization facilitating strategic planning and
coordination for the apple industry as a whole is one that has not received a lot of explicit
attention, particularly with respect to the concept of strategic planning. Given the relatively limited

amount of University research and extension programs in other commodity subsectors in Michigan

 

I46

Alston, Julian M., George W. Norton, and Philip G. Pardy, Science Under Scarcity:
Principlse and Practice for Agricultural Research Evaluation and Priority Setting, (1995).

270

explicitly identified with ”strategic planning”, it is likely that much of the grower perspective
suggesting the degree of importance and priority for industry strategic planning reflects their
perceptions of the activitise and contribution of the Apple Industry Strategic Planning Task Force.
This section investigates potential differences in perceptions among various grower groups
indicating the importance of the University participating in this activity.

Several cross-tabulations were examined with respect to the indicated importance of
strategic planning and a number of other factors. Responsse were compared between growers and
shippers, including a division between packer-growers and growers not operating a packing house.
The indicated level of importance varied only slightly between thsee groups. The majority of each
group (SO-56%) indicated this area to be ”very important" for the University, with 92%-97%

indicating it to be at least moderately important. These results are presented in Table 5.9.

271

Table 5.9 COMPARATIVE INDUSTRY RESPONSES RELATING TO THE
IMPORTANCE OF THE UNIVERSITY'S ROLE IN STRATEGIC
PLANNING AND COORDINATION

 

  
     

 

 

 

 

 

 

" Indicated importance of the University's role in]
strate'c :lannin_
Very Moderately Low
Important Important Importance
Res onse Grou in -Percent- -Percent- -Percent-
.———L——Lg—T________ a
Subsector Level I
Shipperm 50 42 8
GrowerI48 52 4O 8
Packer 56 41 3
Non-Pac ker 5 1 4O 9
University as an Industry I
Strength'49 .
Major 66 33 1
Moderate 45 46 10
Minor or not a strength 35 43 22
Grower Size '
0-29 Acres 49 46 5
30+ Acres 55 36 9 l
Intent to Expand Acreage I
Expanding 61 34 5
Keep about the same 51 40 9
Decreasing acreage or exiting 37 51 11
Market Emphasis l
Primarily fresh l 55 43 1
Both fresh and processed 53 43 4
Primarily Processin 49 32 19

 

 

 

 

Little difference in the importance of the University’s role with regard to strategic planning
and coordination for the apple industry was observed between growers, packers, and shippers.
There was some expectation that perhaps larger growers may identify this as an area of greater
need given their tendency to have relatively more at stake with respect to the long term planning

and direction of the industry.

 

”7 Based on responses from the shipper survey presented in Chapter 4.

I48

Based on the grower survey data.

”9 The cross-categories of University as an Industry Strength, Grower Size, Intent to Expand
Acreage, and Market Emphasis are all based on responses indicated in other sections of
the grower survey.

272

Task Force strategic planing and coordination activitise in conjunction with the University
have to date tended to emphasize frseh market initiatives. No significant differencse were apparent
among those surveyed, however, between those growers indicating different market emphasis.

Cross-tabulations of the survey data indicate that perceptions of the University as a strength
for the apple industry are somewhat correlated to how important a priority growers indicated
strategic planning support by the University to be for the industry. Expressed importance of the
University’s role in strategic planning diminished significantly with more general irnprsesions of
it as a strength. Among growers that identified the University as a ”major strength” upon which
the industry could build for enhancing future competitiveness, 66% indicated this area to be ”very
important” for the University. This figure fell to 45% among those viewing the University as a
”moderate” industry strength and to 35% among those viewing it as minor or not a strength.

The progressiveness and long term commitment to apple industry participants was
hypothesized to be positively related to support for industry strategic planning. Growers were
asked to indicate their near-term planting intentions. While progrsesiveness and long-term
commitment to the industry are not necessarily by definition reflected in a grower’s intentions
(progressive, committed growers can go through periods of reducing acreage) a positive
relationship is assumed to exist generally.

The indication of the University’s role in strategic planning as ”very important” was 61 %
among those expanding acreage, 51% among those keeping about the same, and 37% among those
decreasing or exiting. While not definitive, a positive relationship between grower progrsesiveness
and commitment to the exprsesed importance of industry strategic planning is suggested by thsee
results.

A final point about the grower perceptions of the importance of industry strategic planning
and the University’s role should be noted. The Task Force, in partnership with the University and
other organizations, has not yet developed a long track record of success given the short period of
time it has been in existence. It is reasonable to expect that demonstrated benefits of industry
strategic planning recognized by the growers would have a positive bearing on their expressed

importance of this approach and the University’s role. Continued development of the industry

273

strategic planning process and a clarification of the University’s role in it could well raise grower

support for both.

5.6 A SUMMARY OF GROWER AND PACKER RESPONSES

The grower and packer survey involved an intensive information gathering effort in support
of the strategic planning activities of the industry. Grower and packer perspectivse on the
competitive situation of the industry followed very closely to the perspectives offered by the
shippers. Many of the capabilitise, advantages, opportunities, and issues facing the industry were
similarly prioritized by all three industry segments, with a few differences.

Grower support for a variety of specified industry action areas was consistent with their
ranking of industry issues. While support varied somewhat within certain action areas, such as
actions toward quality enhancement, many actions within each of the major specified areas received
strong support.

Much of this data can provide meaningful assistance to those directly involved with the
Task Force to clarify the agenda needed to facilitate certain industry actions. A summary and
further intersectoral comparisons are presented in the next chapter. The status and direction of a
number of possible industry initiativse examined through the segment surveys are discussed. The
needs for further analysis, strategies for implementation, and other considerations necessary to
successfully advance the strategic planning procses is discussed in the context of the main activitise

being pursued by the Task Force to date.

274

CHAPTER 6
THE STATUS AND DIRECTION OF SUBSECTOR STRATEGIC PLANNING

FOR THE MICHIGAN APPLE SUBSECTOR

6.0 INTRODUCTION

This chapter seeks to summarize and put into context the strategic planning activity that
has been carried out within the Michigan apple subsector to date. Most of the effort to this point,
as reflected in the previous three chapters, has focused on the fresh segment. Some aspects of
strategic planning that have been developed relate directly or indirectly to the procsesirrg segment.
The intent of those involved with this effort is to eventually address processing issues more
explicitly after further progress is realized with the fresh segment. The ultimate goal is to extend
and integrate strategic planning efforts over the entire Michigan subsector.

This chapter will summarize the status and direction of strategic planning in the context
of Michigan apples to date in a number of stages. The first section considers the coalignment of
firm and subsector goals related to the process of strategic planning within the subsector. The
collective effort of individuals within the Michigan apple subsector to carry out a competitive
situation analysis facilitates the identification of key issues or performance gaps, as well as the
identification of subsector-level driving forces and key success factors. These are discussed as
patterns and examined based on the information gathering from industry leaders as well as the
surveys of the segments within the subsector.

The second section considers a number of general action themse have been identified
through the activities of the Michigan Apple Indusz Strategic Planning Task Force and the
surveys of shippers, growers, and packers. The status and direction of these themes is discussed

275

in terms of which actions have emerged as most needful for focused strategic planning efforts and
related areas that may benefit from further analyses.

The third section discusses barriers to implementation with regard to a number of the
priority industry actions. Possible approaches to overcoming these barriers are considered. A
discussion of the status and approachse under consideration by the Michigan apple subsector with
regard to these stages of the current strategic planning efforts is presented.

The fourth section prseents key considerations that have been clarified through the strategic
planning process within the Michigan apple subsector. The importance of involving key
knowledgeable and influential industry leaders throughout is stressed. Consensus building among
individuals and organizations is also a critical task and consideration. A summary of Michigan's
experience in this case is presented. A related consideration emphasized as important to the
procses based on Michigan’s experience is the need to build and maintain organizational linkages
that can facilitate and strengthen industry-wide involvement and overall effectiveness of the
strategic planning process.

The fifth section examines the creation of a sustainable strategic planning system for
Michigan applse. The need for a sustainable system is presented along with some approaches or

mechanisms that can be built upon for the Michigan subsector.

6.1 THE STRATEGY BUILDING CONTEXT FOR MICHIGAN APPLES

The dynamics of a number of competitive factors provided the impetus for certain key
individuals and organizations related to the Michigan apple industry to consider possible
approachse to industry strategic planning. The current and expected influence of these factors on
the viability of the Michigan industry in general were recognized by many to also have specific
bearing on the welfare of their individual firms or organizations. The nature of these issuse,
including increasingly competitive rival production regions, regulatory threats to a workable and
sustainable pset management system for Michigan, changing demands of the marketplace, and rapid
changes in production technology and capability, together prseented a need to develop collaborative

and coordinated approachse for the Michigan apple industry to address them.

276

The initial intent was to address a limited number of current significant and prsesing issuse.
As the procses progrsesed, however, a wide recognition emerged among industry leaders that both
their individual firms and/or organizations and the broader industry could benefit from on-going
collaborative efforts to improve needed capabilitise within the industry through industry strategic
planning efforts. The need for a means or mechanism to facilitate general improvement and
industry rseponsivenses to certain issuse was recognized. It was also recognized that certain wide-
irnpacting threats or opportunitise may be often better addrsesed through some manner of collective
or coordinated action.

Approaches to industry strategic planning developed by the Michigan Apple Industry
Strategic Planning Task Force provide the individual f'n'rns within the Michigan apple industry a
means to identify and evaluate issues, effectively discuss alternative actions, and facilitate the
changes identified as needed by the industry.

Coaligning firm (or trade organization) goals with the broader intersets of the subsector can
be a major challenge, but is also critical for meaningfully engaging comnritrnent to an industry
strategic planning process. The experience of the Michigan firms within the Michigan apple
industry is discussed in the following sections.

A summary of Michigan’s competitive situation is also prseented as part of the context for
crafting industry strategy. Drawing on the experience and discussions of the Task Force, the
shipper survey, and the grower and packer survey, the driving forcse affecting industry change are
considered. Key success factors, particularly relating to the fresh apple segment, are similarly

discussed as part of the competitive situation analysis for the subsector.

6.1.1 ON FIRM AND SUBSECTOR GOALS

A major challenge of strategic planning in the context of a subsector is encouraging
individuals to recognize the implications of major changse that are taking place beyond the borders
of their f'um. It has been argued here that outside forcse, in many cases, influence the viability of
individual firms within the subsector much in the same way, though perhaps not equally. Further,

initiatives facilitating improved system-wide coordination and responsiveness that can result in

277

0V

Vi;

pl’

ir

 

II

overall improvement in the value-adding performance of the system can lead to growth and
viability of the individual f‘ums within the subsector.

Clear and meaningful goals are an important element of the conventional strategic planning
procses for a furn. The activities of various internal divisions within the firm are pursued in such
a way as to achieve thsee goals, and thus goals serve as a filter for the farm Relating the
individual goals of the finn to the goals of the subsector can prseent the classic economic problem
of relating (individual) micromotives to the desired (group) macrobehavior.

In the case of the firms within the Michigan apple subsector, imposing subsector goals on
individual firms in such a way that they are required to supersede the goals of the firm has not
been pursued as workable or appropriate. In most casse, subsector goal development has depended
on the visionary perspective of industry leaders who have recognized that a number of changes at
the industry level could be affected that would be not only in the interest of the subsector as a
whole, but also in the interest of their individual fmn.

An explicit recognition of the interdependence of their economic situation among those
within the Michigan apple industry has been raised through intensive discussion among leaders
involved with the Task Force. Respected industry leaders have committed themselves to the
subsector strategic planning and implementation process. Their dedicated participation is one of
the most important factors to bringing about meaningful changes in the industry.

While an explicit mission statement with supporting goals may not drive the subsector
strategic planning process in the same way as it might for a firm, advancing individual f'urn goals
through the broader subsector planning process can be enough to indirectly sustain the procses at
this higher level. Individual goals may actually, in part, conflict between rivals within the
subsector, but these firms can mutually advance common goals better through cooperation, and
therefore such benefits attract their commitment to the process. When rival shippers, for example,
can both benefit from improved overall quality generated by the industry, and through their
cooperation and participation in the Task Force, they can in their own ways facilitate such a

development better than they rrright be able to independently, they may consent to participate.

278

The approach to encourage broad participation in the subsector strategic planning process
through explicit consideration, discussion, and evaluation among industry leaders of what issuse
commonly or broadly face the Michigan apple industry has lent credibility to the process. The
importance of pursuing industry change through such a collective planning process was made more
apparent among this group as a forum (Task Force meetings) for evaluating the potential impact
of a number of issues was established. The synergy of such a group process has generated
relatively quickly many ideas for positive changse for the Michigan apple subsector and has
facilitated the evaluation of Michigan’s competitive position as a supplier region. The positive
relationship between many of the goals of the Task Force, as it has facilitated the subsector
strategic planning process, and many of the goals of individual firms and organizations

participating in the process has been heightened as the process has unfolded.

6.1.2 SUMMARIZING MICHIGAN'S COMPETITIVE SITUATION

This section discusses a number of factors relating to evaluating Michigan’s competitive
position as a regional apple subsector. Some future considerations relating to evaluating the
competitive situation are also discussed. There is a need for on-going analysis and evaluation with
rsepect to the relative and distinctive capabilities of the Michigan apple subsector. Similarly, the
nature and scope of threats and opportunitise facing the subsector are always changing, as are ways

to address them.

An Internal Capability Assessment

Major effort has been undertaken by the Michigan apple subsector to identify and evaluate
its capabilitise. The discussions and analysis of knowledgeable industry leaders on the Task Force
have been supplemented by information gathered from industry segment surveys and other sourcse.
While capability assessment has focused largely on the fresh segment to date, the goal of the
industry leaders is to engage in a comprehensive evaluation of the entire subsector.

Evaluating the overall capabilitise of the subsector providse important information for the

strategic planning process. Opportunities and threats that face the subsector take on their

279

 

[Ia

SI

 

significance as collective strengths and weaknesses are assessed. Actions can be considered that
can better utilize unique advantages of the subsector to take advantage of certain opportunities or
challenges. Actions can also be considered to shore up weaknesses or develop new or better
resourcse to improve the overall capability of the subsector. Candid evaluation of overall
capabilities can also help to evaluate and prioritize alternative strategies with rsepect to market
goals and alternatives for improving internal capabilities.

The Michigan apple industry has relied on a number of strengths or advantages to achieve
the success that it has. Location to key markets, ability to deliver as wide mix of apple varietise,
strong fresh and processing markets, and to some extent, University research and extension were
identified among some of the key advantagse for the frseh market.

The dynamics of competitive advantage and capability of a subsector have been
emphasized here throughout. A number of emerging strengths for Michigan include improving
technology and modernization within the industry, particularly within packing houses, orchard
planting systems, maturity information, storage, and pest management systems.

An important part of what has been emphasized by the Task Force might be described as
encouraging those throughout the industry to adopt an orientation of continuing progrsesiveness
with respect to their capabilities and changing markets. This includse marketing. Part of the
strategic planning procses has included encouraging a higher degree of rseponsivenses with rsepect
to adopting and developing innovation to improve performance at all stages of marketing and
production within the subsector. Coordination and collective action to facilitate this orientation has
been discussed in the process.

A number of on-going considerations may be important for the Michigan apple subsector
to consider with rsepect to its overall capabilitise. The concept of Key Succses Factors (KSFs) has
not been explicitly employed during competitive situation evaluations to date. This concept is
discussed in detail later in this section, but the concept involves fnst identifying what have been,
are, and are likely to be in the forseeeable future the key capability factors necessary for

succsesfully competing in certain markets by the subsector. It may be useful to explicitly identify

280

thsee for key apple markets (ie, key customer groups and/or customer functions) and examine the
dynamics of the overall capability of Michigan firms with rsepect to these KSFs.

Questions can be raised or evaluations made by industry relating to Michigan’s past
performance with respect to these KSFs. It may be dseirable to benchmark performance against
past performance, the performance of key competitors, or against targets for improvement set by

the industry.

An Assessment of Opportunities and Threats

Many opportunities have been identified by different individuals and segments within the
Michigan apple subsector. Opportunity has been refined during this information gathering procses
somewhat from its usage in the conventional strategic management sense. Opportunity for the
apple subsector has been considered both in terms of market opportunity outside of the influence
subsector as well as opportunity for positive change or innovation within the subsector.

Much of what has been emphasized by the Task Force has been the identification and
pursuit of opportunities that specifically require some degree of intra-industry coordination or
collective effort, although other opportunities that would be primarily pursued by individual finn
action were discussed as well.

Opportunitise were categorized here, particularly with the apple shippers, as those relating
to (a) markets that offered considerable potential but that have traditionally involved relatively
minor participation by Michigan firms, (b) means for improving Michigan competitivenses through
improved technology, coordination, or marketing, and (c) new products. Market opportunity
evaluation and expectations were gathered from growers with regard to a number of customer
groups and customer functions within both frseh and processed markets. Opportunity for technical
improvements and pricing approaches were also considered.

Shippers identified particularly significant opportunities with respect to trays, premium
packs, and the export market, noting many of thsee opportunities would be even more appealing
for Michigan as overall improvements in quality, consistency (year to year), and volume were

realized. The development of some of these opportunitise would likely require various degrees of

281

 

Ct

‘dt

fr

coordination within the industry to overcome certain barriers or better develop Michigan’s
advantages toward thsee markets. Growers were similarly optimistic about opportunities emerging
from quality improvements.

Improved capabilitise often lead to new kinds of opportunitise. One concept that has been
difficult for those involved with the strategic planning process to keep sorted out is the difference
between opportunities for improving a certain capability or product characteristic (such as
deliverable quality) and opportunitise from improving a certain capability or product characteristic.
This distinction can be important with respect to the focus of the analysis. Opportunity for
improving a certain characteristic primarily involvse analysis of technical or institutional
innovation. It focusse also on actions that may be undertaken, collectively or otherwise, to develop
or strengthen capability with a view toward producing a desired product characteristic.” 0

Opportunity from improving a capability or a product characteristic focusse analysis on
the market rather than on production. Such an analysis may commend a parallel analysis on the
production side, but keeping thsee distinctions may aid the over all evaluation of opportunitise for
the subsector.

Threats to the Michigan apple subsector were often discussed in the context of issues
and/or challenges to the subsector. Finding the most meaningful terminology to guide collective
evaluation in subsector strategic planning can be as challenging as analyzing the information itself.
A certain political sensitivity is required throughout the procses. This was found to be particularly
evident when discussing industry weakrrseses and threats.

Threats have been taken here in the context of the subsector represent those factors that
threaten the viability of the subsector. Strategic planning by the subsector is undertaken in part

to collectively derive actions to addrses thsee threats, particularly where individual furn action

 

ISO

This distinction is drawn conceptually from Sharon Oster (1994) where she suggests the
task of any organization is to determine how much time to devote to identifying and
entering attractive existing markets, and how much time to spend cultivating
entrepreneurial ability and high performance within the current organization. Thsee
choices face those involved with strategic planning for the Michigan apple subsector, as
well.

282

offers little opportunity to influence them. Threats, like the capabilities of the subsector, are bset
evaluated as dynamic environmental conditions (economic, regulatory, competitive, etc.), and
should be monitored on an on-going basis. Some sort of modified Strategic Issue Management
(SIM) system may be appropriate.

The major threats currently facing the Michigan apple subsector have been discussed and
analyzed by the industry through the Task Force. Those that are regarded as pressing and with
particularly wide impact include (a) the growth and competitive performance of the Washington
apple industry, (b) a challenging regulatory process relating to key pseticide availability and food
safety issues, (c) increasingly demanding buyers, partly influenced by production and marketing
approachse used by Washington firms, and related to each of the aforementioned (d) lower pricse
persisting relative to growing costs of production. The relatively slow growth of the domestic

market generally has also been mentioned by a number of industry sources.

6.1.3 DRIVING FORCES AFFECTING SUBSECTOR CHANGE

Driving forces represent major economic trends or conditions that have major impact or
bring about change for an industry. While driving forces were not explicitly discussed as such,
the information gathered from knowledgeable industry leaders participating on the Task Force, as
well as the shipper and grower surveys, suggests several such forces that apply to the apple
subsector. Continuously monitoring of such forces should be an important part of a system that
evaluates the competitive situation of the subsector.

Driving forcse may relate to threats, but can also be a source of opportunitise for Michigan
as an apple supplier region. A number of the major driving forces that are impacting the
competitive environment with respect to apples include the following:

0 The large production, strong marketing activities, and high performance of
the Washington apple industry. Washington, as a dominant national and
international supplier region, can significantly influence the competitive
environment. They also can influence buyer expectations with respect to applse

generally and especially quality. Their national promotional campaigns are
designed to influence consumers favorably toward Washington-grown apples.

283

 

6.1.4

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0 Changing technology with respect to packing houses, orchards planting
systems, pest management systems, new varieties, storage, etc. The
sophistication, capability, and cost of thsee technologise has already brought about
considerable change with respect to quality improvements. Technology also
appears to be driving trends toward consolidation and larger operations,
particularly for packing houses.

0 Regional marketing efforts. Michigan, Washington, California, and New York
have all seen increased effort within each of thsee major apple supplier regions to
establish more aggressive marketing and promotional programs in recent years.
Many minor production regions where such collaborative regional efforts have not
been taking place have had downward trending production.

0 The regulatory environment relating to pesticide availability, use, and food
safety. This is a highly politically charged driving force that has a significant
influence on those producing apples.

0 Changing export markets. Growing demand in international markets in various
parts of the world present competitive advantages and disadvantages for various
supplier regions, particularly for frseh applse. Preferences for such characteristics

as quality, price, flavor, and seasonality are among factors that are important to
some of these markets.

6.1.4 KEY SUCCESS FACTORS FOR THE FRESH APPLE SEGMENT

Firm-level strategic management typically involves defining goals and objectives that are
measurable against its capabilities and environment. While a subsector may not emphasize precise,
measurable goals relating to desired subsector performance, it still may be desirable to set goals
and periodically examine whether progrses toward developing certain capabilities, expanding into
certain opportunitise, or addressing broad threats is adequate with a current mix of strategies. The
merit of alternative strategies may well change with the competitive situation of the industry.

The dynamics of industry capabilities were somewhat difficult to elicit from the growers
through this survey. One alternative approach to get deeper into this might be to first identify key
success factors (KSFs).'5 ' The importance of the subsector’s status with respect to a set of strengths

is particularly significant to the extent they would relate directly to these KSFs. These factors

 

'5' See A. Thompson and A. Strickland (pp. 83-88, 1990) on the concept of Key Success
Factors. They indicate only a few factors typically serve as the major determinants of
financial and competitive success in a particular industry (not really in the sense of a
subsector; more a horizontal slice of like competitive firms). They suggest "(k)ey success
factors vary from industry to industry and even from time to time within the same industry
as driving forces and competitive conditions change...rarely does any one industry have
more than three or four key success factors at any one time ".

284

 

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begin to become apparent through the rseponses relating to the competitive situation, but need to
be developed more explicitly. The goal would be to invsetigate these factors, once identified, in
terms of their dynamics and in terms of the subsector’s evolving capabilities, favorable or
otherwise.

Key success factors for producing and marketing fresh apples were not directly identified
as such by those surveyed in the industry, but based on survey results and discussions with key
industry informants, several KSFs seem evident. These might perhaps modified somewhat with

152

further industry analysis and discussion. The dynamics of these KSFs could then be more
explicitly discussed through industry forums.
The key success factors for the frseh channel of an apple supplier region the would appear
to be the following:
0 Adequate, dependable quality with demonstrated commitment by the subsector to maintain
the high quality demanded by consumers of fresh apples.
0 Strong buyer orientation by suppliers that is demonstrated by responsive, flexible service.
The successful region will therefore maintain a strong performance and image of

cooperation with buyers.

0 Ability to rapidly adapt (rseponsivenses) as a supply system to changes in demand driven
opportunities or supply driven changes in production.

0 Dependable supplies of consistent quality available from year to year
c Recognized as a long-season (or year around) supplier region

0 Ability to supply the typse of varietise and packs demanded by the market at a competitive

price
0 Strong industry support for promotions, merchandising, and marketing
0 Modemized planting, production, packing, and shipping systems

These KSFs may be modified somewhat when discussed in specific detail with certain
knowledgeable industry leaders, but they were widely articulated in various degrees through the

surveys and Task Force discussions. The status and dynamics of Michigan as a supplier region

 

'52 Much of the Task Force agenda and orientation of the surveys have focused on the fresh
apple segment. It is likely that somewhat different Key Success Factors may be
recognized for the processing segment.

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with respect to each of these could be investigated by those in the industry more completely with

respect to the following questions:

0 How is the industry progressing on these overall with respect to past performance?
0 How is the industry progressing on these with rsepect to competing supplier regions?
0 Are there specific barriers present or emerging that may impeded performance of the

regional subsector with respect to any of these KSFs?

0 What industry linkages might be developed to improve overall capability and performance
with respect to these KSFs?

0 Are there specific measures or benchmarks the industry should consider that would help
on-going self-evaluation with respect to these KSFs?

6.2 THE STATUS AND DIRECTION OF PRIORITY INDUSTRY ACTIONS

Competitive situation data on the subsector was gathered from the shipper, grower, and
packer segments by the Task Force to provide an informational complement to data gathered from
shippers and secondary sources. Grower recognition of industry needs, support for specific actions,
and unique perspectives on key competitive forcse, all provide insight on the merit and viability
of alternative industry strategies. Grower perspectivse on specific industry actions, each with the
potential of improving the performance of Michigan as an apple supplier region, are the main focus
of the next section.

Data gathered from key industry leaders, including those on the strategic planning Task
Force, as well as information compiled from the various segments of the Michigan apple industry
point to at least four major themes for industry action relating to the fresh segment. The need for
the industry to address thsee areas is highlighted by driving forces and key success factors derived
through the competitive situation analysis for the subsector. Some of these top priority industry
action areas include:

0 Improve Michigan’s overall competitiveness as a supplier region through
improving overall regional performance on quality and the corresponding
image of the industry.

0 Collectively influence pesticide availability, workable pest management

systems, and IPM development favorable to or in consideration of Michigan
growing conditions.

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0 Encourage a variety of demand expansion initiativse.

0 Improve the marketing, evaluation, and information relating to fresh apple

varieties within the Michigan industry.

Implicit in each of thsee areas is the objective to improve the returns to participants within
the subsector by improving the value of the products generated by the system. Improving system
responsiveness to dynamic changes corresponding to each of these areas is a major objective
behind strategic planning undertaken by the Michigan apple industry. Each action area can be
viewed as a component of a subsector competitivenses enhancement program. Specific actions that
support each of these areas have been discussed within a variety of forums within the industry,
including the Task Force.

This chapter discusses further the status of a series of industry-level activitise intended to
support each of thsee broader themse. Certain synergise or simultaneous achievement among thsee
actions can be potentially realized collectively by the subsector. Actions that facilitate quality
improvements within the system, for example, are intended to also facilitate demand expansion.

Implicit in approaches to implement each of these actions is the industry-wide effort to
improve intersectoral and inter-organizational linkages that may facilitate affecting the dseired

changes.

6.2.1 ACTIONS TO IMPROVE OVERALL FRESH APPLE QUALITY

Improving the quality of fresh applse has emerged as one of the top areas of need
identified by those within the Michigan industry. Competition and quality pattem-setting by
Washington, growing domestic and export opportunities that are contingent on relative quality
improvements by Michigan, and the recognized need among those within the industry to improve
Michigan's quality image as a supplier region are among the factors elevating the urgency to
develop workable means to improve Michigan’s quality performance.

There appear to be a number of things Michigan f'ums can do to facilitate overall quality

improvements. Recent progress in this area has been realized within Michigan, particularly in

287

conjunction with technological improvements in orchard planting systems, the packing housse, and
storages.

Consensus on the need for improving overall quality, however, appears to be greater than
consensus on specific approachse appropriate to affect the needed changse. Some of the proposals
that have been strongly supported by many within the industry, while perhaps having the potential
of bringing about the desired effect, have been met with some resistance due to unknown or
uncertain results, including possible side effects.

The quality improvement objective is somewhat complicated by the fact that there are
many ways to improve quality at a number of different levels or activities. Some have proposed
that what is needed is a subsector-wide Total Quality Management program. Efforts to improve
quality can be encouraged throughout the growing, packing, and shipping segments. One
challenge, however, is that each participant involved at each stage must have remunerative
incentive to deliver the extra care in harvseting, handling, packing, etc. Small voluntary changes
or precautions may make a noticeable difference when aggregated over the entire system, but may
be too small to affect micro-level changse.

The idea of a subsector-wide TQM program is an area that is currently receiving
considerable attention from the Task Force. Some have suggested to focus initially on packing
houses. Several considerations must be addressed, however, before this is ready to proceed to an
implementation stage. There is some debate as to whether educational ”quality workshops” would
be enough to bring about the needed changes. Many agree such programs should be part of a
larger package. Other questions of the most meaningful approach have been raised. Should an
outside expert be brought in at the shared expense of the industry or should shippers, leading
packers, and other knowledgeable industry leaders develop TQM guidelinse? What are appropriate
guidelinse that would be seen by most to be workable, attainable, and bring about genuine change?

Packer workshops that could be conducted regionally in the state at on-site progressive
packing facilities were suggested as an approach that might draw a wide audience.

Proposals coming from the shippers regarding actions to address overall quality

improvements included a mix of initiativse that would require either collective or individual effort.

288

Some quality improvements would be realized as a result of market forces bringing about greater
returns for high quality and lower returns for those under-performing with regard to quality. A
proactive stance, however, that accelerated improvements in quality is widely regarded as needed.
A recognition that quality image is something shared in common by all shippers within Michigan
provides an incentive for shippers to consider collective efforts to bring about and communicate
improvements in this area.

The development and adoption of a premium grade for the state is another proposal that
has received wide attention. The merits and dangers of such an approach are the subject of
considerable discussion within the subsector and among Task Force participants. Analysis of the
approaches employed in other regions has been proposed, as well as more careful examination of
possible negative secondary effects. Considerable consensus building remains to be done with this
approach, although some progress seems evident. Further discussion on setting the exact
parameters of such a premium and how such a program would be enforced remain as further issues
that must be resolved.

Further analysis on several other approaches toward improving quality are needed.
Approaches to the practice of multiple picking, with some measure of the marginal cost and benefit
of such a practice, might be helpful to the industry. Refinements to and the use of maturity
information systems would also benefit from such an analysis.

The recognition of a need to improve the overall quality delivered by the industry and the
commitment to develop workable actions to affect the needed changse is evident in the Michigan
apple subsector. This remains one of the foremost agenda items for the Michigan Apple Indusz

Strategic Planning Task Force.

289

6.2.2 ACTIONS ADDRESSING PESTICIDE USE, AVAILABILITY, AND WORKABLE
PEST MANAGEMENT SYSTEMS

A number of industry initiativse have developed through the Task Force relating to the area
of pesticide use and pest management. Two major initiatives are representative of the perceived
importance of this area to the Michigan industry.

A comprehensive pesticide stewardship program was developed through the leadership of
the Task Force. The detail and scope of this plan was considerable and developed in by the
industry in cooperation with MSU faculty and staff.”3 The focus of this effort was to present a
”Michigan Stewardship Plan” for modern pset management, emphasizing needs and judicious use
of pesticides as part of an integrated pest management system.

Industry feedback, exposure, and support for this effort was very strong, in keeping with
their indication of the importance of this area as an industry issue.

Current initiatives include the support of the Task Force behind an industry effort for
additional research support for managing fireblight disease on applse in Michigan. This support
has taken the form of Task Force discussions and support of research funding.

IPM research relating to apples at the Clarksville experiment station has been discussed at
Task Force meetings. Support for grower IPM workshops has also been offered. Discussions
relating to opportunities for Michigan through IR-4 programs, EPA supplemental funding, and

regional IPM centers have also been topics of discussion.

6.2.3 ACTIONS FACILITATING DEMAND EXPANSION
Demand expansion for apples has emerged as one of the top areas of support for further
action on the part of the industry segments surveyed to date. The Michigan Apple Committee, as

the lead organization for facilitating demand expansion efforts for Michigan applse, has considered

 

'53 The Pseticide Stewardship Report is an unpublished document prepared for the Michigan
apple industry by the Michigan Apple Industry Strategic Planning Task Force. It has been
submitted in various forms to leadership at the International Apple Institute, who are turn
cooperating with the EPA.

290

a number of ways to adjust to such industry expressions of need and to alter their program
strategies for greatset effectiveness.

There is some consideration of possible raising the assessment rate on growers to increase
the budget for efforts in the area of demand expansion. This would require wide grower support,
but could potentially address some of the needs expressed.

Some effort has been undertaken by the University, with the support of the MAC, to
continue significant consumer marketing research. This research has sought to identify a number
of consumer preferences and attitudes toward Michigan apples in a number of regional markets.

It appears that the industry has considerable support for continued efforts such as this.

6.2.4 ACTIONS FACILITATING VARIETY EVALUATION

A variety situation and market outlook survey has been initiated in rseponse to needed
actions expressed by shippers, growers, and industry leaders on the Task Force. A significant
amount of information has been collected from the grower survey and a supplemental survey of
the shippers is under way.

Improving certain informational flows throughout the industry has emerged as an important
need. Approachse such as this are easily facilitated by the Task Force. Reports summarizing this
information can presumably aid in the coordination of the supply and demand of the most dseirable

varieties coming out of Michigan in the future.

6.3 TOWARD IMPLEMENTING AND EVALUATING SUBSECTOR ACTIONS
The implementation component to strategic planning for a subsector can be one of the most
challenging. Individual firms, when faced with the actual costs of bring about change or
negotiating on the details of what specific change should involve, may be less supportive of an
otherwise and previously supported change. The experience of the Michigan Apple Industry

Strategic Planning Task Force has not been extensive in this area to date. Much of the process has

291

emphasized issue identification and evaluation of alternative actions to this point. This section
looks toward some of the likely considerations regarding implementing and evaluating actions for
the Michigan apple subsector.

As various actions that have been widely supported have been refined, there has been a
need for on-going consensus building within the industry. The advantage of having recognized
industry leaders involved in the details of the strategic planning process is that they have
considerable experience and analytical ability for what may or may not be a workable approach
to addressing an issue.

Some actions have proceeded through the need and analysis process faster than others.
Those that proceed more quickly to the implementation stage need not be the most important
actions. Incorporating many of the technical advancse in Michigan packing houses, storage, and
orchards into regional promotions, for example, was widely supported. An organization that could
quickly and credibly lead such an activity (the Michigan Apple Committee) was identified.
Shippers and packets were quick to recognize the value of such action, and there has been little
resistance to implementing this suggestion.

Other actions, such as a Michigan premium grade, require considerable analysis and
consensus building. Leading shippers appear willing to consider such an approach, according to
some. The scope of benefits to such a program, however, is not as readily apparent to all who
would be effected. The progress of such an action toward implementation, therefore, has taken
considerably longer. The details of an implementation plan require greater attention.

One group strategy that has been helpful to advance an idea to the next strategic planning
stage is the use of planning groups or subcommittees. Issue focused analysis can narrow the
agenda for such a committee and include individuals who can provide distinctive leadership and
expertise to a particular area. The details and logistics of certain issues can be more rigourously
discussed in these groups. Recommendations are also often more readily received by a larger
group when coming from a group recognized as having a particularly keen vision and leadership

vantage point. The shipper subcommittee has worked very well this way to identify priorities and

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meaningful approaches to both the Task Force and the shipper segment through the Shippers
Association.

It is possible that certain actions may require specialized analysis by experts outside the
on-going strategic planning process. The Task Force, for example, when addressing industry
approaches to a pesticide stewardship plan, brought in University scientists to provide special
analysis and reports to the Task Force on a variety of specialized issues. Market analysts, TQM
experts, and other specialists may need to be appealed to provide input in developing a meaningful,
effective implementation plan.

From time to time the Task Force has required resources for analysis and facilitative roles.
Surveys, travel and expenses of specialists, and the opportunity costs of industry leaders time have
all been invested into the planning process. Further resources may be demanded to implement such
programs as industry workshops, economic analysis of various cultural practices, the dissemination
of various reports to the industry at large, etc.

Evaluating actions that have been, or are in the process of being, implemented is also a
critical component of the strategic planning process. Are changes achieving the desired results?
How might the Michigan industry know? Whether the process is moving forward with a view
toward clearly measurable goals or toward more general objectives, such as with Michigan apples,
there should be an on-going ”gap” analysis. Progress toward narrowing the gap between past

performance and desired performance should be evident.

6.4 KEY CONSIDERATIONS FOR STRATEGIC PLANNING IN THE APPLE
SUBSECTOR

Several key considerations have been clarified as being necessary throughout the strategic
planning process for the Michigan apple industry. While reference has been made to the
importance of these key considerations throughout, specific discussion of some of the experiences
relating to the Michigan apple industry are summarized here. These considerations include (3)

involving industry leaders, (b) consensus building, and (c) building organizational linkages.

293

6.4.1 INVOLVING KEY INDUSTRY LEADERS

It is difficult to conceive of effective strategic planning at the level of an industry without
the explicit commitment and involvement of many of the key industry leaders. The process for
the Michigan apple industry has been very pragmatic and intentionally organized around the
industry agenda as initially recognized by management and leadership from among the most
influential firms and organizations in the industry. A degree of individual discussion was
necessary, in some cases, to clarify the intention and objectives of the Task Force and how the
participation of an individual could provide mutual benefit to the industry and the individual’s
organization.

A certain critical mass appears to have been obtained in being able to attract the needed
key leaders by beginning with a smaller ”planning development" committee. An advantage of
reaching a certain critical mass of involvement is that most key leaders are already oriented toward
monitoring the broader industry picture and quickly recognize the need and potential behind group
efforts such as this that have the wherewithal to affect positive change.

The participation of respected leadership also brings a credibility to the process. Individual
firms and industry organizations are more willing to consider recommendations coming from a
group of recognized leaders. Communications from the Task Force, including the names and
organizations of a wide scope of participating industry leaders, has been shown to carry

considerable influence.

6.4.2 CONSENSUS BUILDING
Consensus building is a critical process throughout the subsector strategic planning process.
Prioritizing issues, developing goals and direction for the industry, evaluating actions, and

implementing strategies all depend on a strong commitment and orientation toward consensus

294

blinding. A number of specific approaches that have been used to obtain broad industry support
and involvement were discussed in Chapter 3354
Knowledgeable industry leaders often have a sense of how to work toward consensus,
recognizing certain approaches that are apt to receive more wide support than others. Strong
consensus behind a recognized needed industry change, which can be built first at the leadership
level, can potentially provide the momentum for actually implementing the change within the

subsector.

6.4.3 BUILDING ORGANIZATIONAL LINKAGES

Building organizational linkages, like consensus building, has been an on-going concern
for the Michigan apple industry throughout the strategic planning process. Representation from
each of the major organizations and segments has been diligently pursued by the Task Force
leadership with a view toward strengthening linkages from the industry planning core back to the
firms and individuals represented. Many of the organizations that have participated in the Task
Force are also related to each other through some kind of linkage.

A strong network of communication can facilitate the consensus building processes
necessary to strategic planning at this level. Support for certain actions can be more easily
marshalled as leaders represented to the Task Force can discuss the deliberations and intentions of
the Task Force with their constituents. Iterative progress toward workable plans can also more
easily proceed with the support of strong linkages.

An ownership of, or at least a voice in, the process has been considered necessary, given
the scope and size of the apple industry in Michigan. Specific meetings with these organizations
have been engaged by Task Force leaders with this in mind. Individuals representing the Task
Force have discussed the Pesticide Stewardship Program, the segment survey questionnaire, shipper
and grower survey results, and other activities of the Task Force in an effort to build organizational

linkages.

 

'54 See Table 3.11.

295

6.5 CREATING A SUSTAINABLE STRATEGIC PLANNING SYSTEM FOR
MICHIGAN APPLES

This last section discusses the importance of creating a sustainable strategic planning
system for Michigan apples. The Michigan Apple Industry Strategic Planning Task Force, as has
been mentioned, is in its relative infancy as an organization. One of its major contributions to the
Michigan apple industry has been to provide an innovative institutional mechanism through which
strategic planning can be carried out at the industry level. The goal has always been to identify
and facilitate actions, particularly those requiring some degree of collaboration or collective effort,
that will improve the performance of the industry.

One premise that is derived from the study of the strategic planning of organizations
generally, and the experience of the Michigan apple industry specifically, is that having a strategic
planning process in place can contribute to a system of subsector activities that are more responsive
to the dynamics of opportunities (for emerging markets without and positive innovations within)
and threats facing the subsector.

An important realization for the Michigan apple industry has been the need for establishing
an on-going means for strategic planning at this level. The experience from working through
issues at the industry level has led many within the industry to give serious consideration as to how
such an activity can be sustained. Issues and opportunities that widely affect the firms in the
Michigan apple industry can be expected to continue to emerge. An on-going orientation is needed
toward encouraging industry-level discussion and analysis of a variety of issues with a view toward
identifying and implementing actions to continuously adapt as an industry.

The process, while yet to develop a long track record of successes, shows promise for
bringing about within the industry a needed vitality, forward and outward orientation, and
commitment to do what it takes to be competitive. The Task Force has served as a useful industry
issue and idea clearinghouse. It has further, in innovative ways, been able to facilitate a greater
degree of responsive decision making within the industry to the dynamic changes it continues to

face.

296

This and preceding chapters have explored, described, and evaluated the experience of the
Michigan apple subsector with respect to its experiences developing a strategic planning process.
This final chapter draws on many of these experiences to propose a general framework for

commodity subsector strategic planning.

297

CHAPTER 7
TOWARD A GENERAL FRAMEWORK FOR

COMMODITY SUBSECTOR STRATEGIC PLANNING

7 .0 INTRODUCTION

Analysis of the process and preliminary results of the strategic planning activities within
the Michigan apple subsector offer some useful, albeit qualified, indications of general principles
of strategic planning that may be applied in the broader context of a commodity subsector in
general. While application of this research has focused primarily on the implications for Michigan
apples, this final chapter considers the possibilities for more generalizable applications.

There are several main objectives of this chapter. Based on the analysis of the experiences
of the Michigan apple subsector and on general principles of strategic planning for the firm,
components of a subsector strategic planning system are developed, analyzed, and discussed. First,
the basic objectives of strategic planning within a commodity subsector are considered. Second,
actual stages or components to the subsector strategic planning process are suggested. The
objectives and specific elements of each component are discussed together with methods, tools, and
approaches that may be suitable for analysis at each stage of strategic planning for a commodity
subsector.

Another main objective of this chapter is to discuss approaches that may be useful, or
considerations that may be necessary, for developing or operationalizing a sustainable subsector
strategic planning system. The unique characteristics of a subsector, as a complex value-generating
system comprised of loosely related production and marketing activities, in comparison to a firm
requires some distinctive approaches to developing industry focus, maintaining industry
commitment, and generating meaningful industry solutions in contrast to single firm strategic

planning and management approaches. The general approaches used in the case of the Michigan

298

apple industry are drawn upon in this discussion as they may be useful for the development of
strategic planning activities in other commodity subsectors.

A number of areas for future research in the area of subsector strategic planning are
suggested. Further linkages between agricultural subsector research and strategic management
research that is evolving in the business academy offer promise for considerable intellectual
synergy, as different tools and conceptual approaches can improve the more general understanding
of systems organizing to be more responsive to outside forces and generating competitive value.

Several points of qualification should be emphasized here with respect to generalizing
principles or approaches for commodity subsectors and strategic planning. Many analysts have
made distinctive and meaningful contributions to the general stock of understanding that has
accumulated with regard to agricultural commodity subsectors. Some attempts have been made
(with somewhat limited success) to make generalizations over subsectors in an attempt to
inductively develop principles of structure, conduct, and performance that could be applied
universally, or at least systematically to subsector systems'”

Collections of subsector analyses have been compiled by other economists with a view
toward considering what generalizations over the universe of subsectors might be feasible. A
collection of analyses was coordinated by Marion and Ward using the structure-conduct-
perforrnance (SCP) paradigm and applied to a variety of commodities. The analysts, in this case,
set out looking for patterns in their cross-section of subsectors; common problems, organizational
features, and coordinating mechanisms that would move the analysts toward making broader
generalizations. Each commodity subsector (or ”case", as they referred to them) was a data point.
Patterns among these points could presumably develop a basis upon which broader principles could
be formulated and applied to the universe of subsectors.

This study of the Michigan apple subsector could presumably be incorporated as another
data point for such an analysis, however this was not the main objective of this research. Marion

and Ward reflect on the usefulness and contribution made by the micro-analysis of each subsector

 

'55 See, for example, the work of Bruce Marion and others (1986, especially pp.185-l96)o

299

subsumed in their ”meta”-study. They emphasize the importance in its own right of understanding
how these subsectors work as individual economic systems. They conclude, however, the
idiosyncratic nature of each commodity subsector precludes rigourous cross-subsector analytics or
definitive statements with regard to general causal relationships that can be applied universally.
Comparing and evaluating the relationship between strategic planning (as a dimension of industry
conduct) and subsector performance within different subsectors in a definitive, generalizable sense
should be similarly regarded.”6

The limited extent to which explicit collective strategic planning has been initiated by firms
and organizations together within a commodity subsector, however, need not limit discussion with
regard to considering how strategic planning activity might be approached or developed in other
subsectors. The research effort presented in this dissertation has focused on developing, applying,
and evaluating a strategic management framework for a single commodity subsector, Michigan
apples. Many of the approaches that have emerged as useful in the Michigan apple subsector may
stimulate the development of parallel approaches by those involved with or considering strategic
planning in other commodities.

Generalizations about components or approaches relating to subsector strategic planning
are not intended to be definitive as they are discussed here. The newness of conceptualizing,
developing, and implementing strategic planning in a practical way at this level to date precludes
developing strong prescriptive measures applicable to every situation. Still, the experiences
observed within the Michigan apple subsector provide a point of departure for developing and
refining a general framework. It may be possible that eventually broad experimentation with

strategic planning approaches, as they may eventually be applied to a variety of commodity

 

'56 Even Marion and Ward concede that the questions answered and generalizable
relationships identified by examining a number of different subsectors were more limited
than what they had initially hoped for. Their conclusion could be summed in their
statement: "...we find that comparative analysis of different subsectors provides rather
tentative conclusions on subsector organization-performance relationships. With our
present knowledge level, normative judgements about different subsectors are hazardous.
It is difficult to evaluate subsector performance in anything but a crude way and even
more difiicult to establish the cause of various levels of performance. ” (Marion, B. and R.
Ward, p.186).

300

subsectors, can solidify or clarify the stock of understanding with regard to strategic planning in

this context.

7.1 COMPONENTS AND TOOLS FOR A SUBSECTOR STRATEGIC PLANNING
SYSTEM

This section of the chapter discusses general components or stages of a strategic planning
system for a commodity subsector. While some of the specific stages relevant to strategic planning
for a subsector may parallel those appropriate for a firm, certain distinctions often exist. Some of
objectives and many of the approaches, analytical tools, and methods are apt to be different for
strategic planning in the context of a subsector.

Several systems or frameworks for strategic planning for a firm have been discussed earlier
in Chapter 2. The framework proposed by Quinn (1980) is adapted here with special consideration
of the strategic planning and implementation process for a subsector.

A general planning and implementation framework is presented here that includes general
components, approaches, objectives, and tools considered necessary to the process. This framework
has been analyzed and adapted based on the strategic planning and implementation experiences.
observed in the case of the Michigan apple subsector. The importance or approaches used for any
given stage or the application of different tools may differ somewhat in the context of another
commodity system. These are presented as a launching point, or initial considerations for those
considering strategic planning initiatives in other subsectors. The general components represent
a series of stages that would likely need to be developed through some means by those who might
consider developing a strategic planning system in the context of another commodity subsector.

A number of important components to subsector strategic planning are discussed here.
These components, including examples of specific elements, component objectives, and tools,
methods and approaches, are presented in Table 7.1. Individual components suggested here for
a subsector conceptually are related, in part, to those comprising a strategic planning system for

an individual firm or organization. Specific elements, objectives, and approaches, however, when

301

considered in the context of strategic planning for the subsector, take on a fairly distinctive

orientation with quite different approaches than might be employed in a corporate planning system.

302

 

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The development and maintenance of subsector goals can be an important component for
the broad task of subsector strategic planning and implementation. Goal development for a system
derived by individuals within that system depends on a recognition of certain common interest or
at least mutually beneficial objectives. The extent to which industry actions are seen to be
consistent with or in support of the goals of an individual participant reflects the degree to which
support for these wider goals can be expected from that individual. Widely recognized system
goals can serve as the rallying point or decision locus for individuals within that system.

Goal development, as a strategic planning component for the firm, often takes on quite
specific definition. The experience of the Michigan apple subsector suggests that in many cases
goal development, in terms of desired performance outcomes, has some advantages to being stated
more generally, in contrast to inflexible or unrealistic hurdles. Measurable progress toward stated
goals may be somewhat more difficult when stated more generally, but the inclusion of many
independent elements within the subsector, each with their own goals, under the umbrella goals of
the subsector may be critical. This would be particularly true where there is little orientation
toward collective action to affect change in the system. System goals defined too narrowly may
unwittingly alienate key participants early in the process, including those who may be needed to
ultimately help affect needed changes for the subsector.'57

In a firm, organizational goals are set by management or major stockholders. In a
subsector, system goals are developed through a consensus of subsector leaders and key subsector
participants. The identification of appropriate goals for the subsector may be facilitated through
industry organizations representing a broad cross-section or through an organization of industry
leaders such as in the Michigan apple subsector Task Force. Group discussion, analysis, consensus
decisions, and emphasis on commonality, with a view toward the driving forces of the subsector

pave the way toward appropriate subsector goal development.

 

'57 This principle need not hold true where a history of cooperation has been evident or where
a lead organization has significant administrative control over resources to implement
strategies.

306

The situational analysis is a major component of strategic planning that can help clarify
the subsector’s competitive position, major problems, and a recognition of the gaps between the
current performance status and the desired goals. This is usually a complex stage even for a firm;
many variables exist that potentially influence the organization’s performance and many areas of
analysis are possible with typically limited resources for monitoring or evaluation. Firm
management typically oversees this analysis for the firm. The subsector often has little
administrative structure to carry out such analysis.

Many larger commodity groups, however, have regional or national organizations that
could track key trends and keep their contingency informed. In many cases, however, there is little
effort to compile data reflecting the subsectors competitive position with a view toward
establishing a context for evaluating alternative strategies or identifying driving forces or key
success factors. The qualitative dimension to this kind of analysis is critical. Few may understand
the internal subsector dynamics or recognize emerging driving forces. The stock of secondary
production and price data may be a useful departure point for this kind of analysis, but is only of
limited usefulness when considered alone.

The SWOT framework can be helpful for evaluating the internal strengths and weaknesses
of the subsector, and how these match up to the opportunities and threats facing the subsector. The
task of working with indusz leaders to systematically identify the competitive situation can
potentially lead to the identification of performance gaps; the difference between where the
subsector is perceived to be currently and where they could or would like to be.

The gap analysis for the subsector, therefore, is an extension of the situational analysis.
It also relates directly to the goal development (which may or may not be an explicit focus of a
strategic planning effort for a subsector). Gaps may be identified in terms of the overall capability
within the subsector (internal to the subsector). Gaps may also be identified relating to desired
performance within particular markets. In many cases, developing strategies to address subsector
capability gaps may be the needed approach to address certain performance gaps relating to key

markets. Developing strategies to improve overall quality (narrowing the gap between current and

307

desired performance) , for example, may help move the subsector closer to the desired performance
level within certain market segments where quality-dependent opportunities seem present.

Issue clarification and prioritization often requires considerable qualitative kinds of analyses
for any kind of organization. Certain management systems may attempt to partially quantify this
activity, but it is inherently dependent on managerial judgement based on the best information at
hand. The fu'm can typically achieve issue clarification through division specialists or an
occasional outside consultant. Prioritization of these issues then is a managerial decision which
may involve the collaborative judgement of a number of management staff of the firm.

This component becomes much more complicated in the context of a subsector. One must
identify and engage individuals who are particularly knowledgeable about the subsector and the
nuances of particular issues. Leadership and independent initiative to assemble individual and
divergent perspectives must be in place for meaningful information to be maintained for a
subsector.

Clarification can often be derived through the use of key industry informants. The
prioritization of issues for industry action is one of the aspects where the subsector can encounter
particular difficulties. The firm can often more clearly sort out an issue in terms of its urgency and
magnitude of impact as it influences its own objective function. The subsector, with its many
independent firms and other participants, may hold widely divergent perspectives with regard to
the urgency or magnitude of an issue for the subsector system. Furthermore, firms may simply not
recognize the importance to their own interest of an issue that appears to primarily impact another
part of the subsector system.

Strategic issue management is frequently used in the context of an individual firm. It is
the task of systematically sorting out all the strategy issues facing the organization. These issues
must be “managed” by key organizational decision makers, since there are typically many of them,
often inter-related, and they routinely change in relative importance. Part of objective behind

systematically managing issues of firm strategy is the need to develop a workable strategy

308

development plan that takes into account the dynamic nature of the strategy issues, each with
differing degrees of urgency and importance, facing the firm.

Strategic issue management can be adapted with some refinements to serve a similar
purpose in the context of a subsector. There is a similar need to sort out strategy issues facing the
subsector. Where possible, industry leaders directly involved in the strategic planning and
implementation process for the subsector need some means for monitoring and prioritizing the
dynamic set of issues facing the subsector as they proceed with the task of helping to craft
appropriate strategies for the subsector. The need to “manage” strategy issues highlights the
dynamic nature of strategic planning and implementation. The task is never done. New issues
emerge. The competitive environment is always changing. Approaches for addressing other issues
that may have worked in the past may also need to be retooled.

Another important dimension to issue prioritization for the subsector not typically realized
in the firm is the prospect for developing workable joint responses to an issue. Cooperation can
be mandated in a firm. Cooperation in a subsector is usually dependent on voluntary commitment.
The sorting process of issues by the subsector for which considerable attention will be directly
devoted must consider the extent to which workable joint actions can be developed as part of its
issue priority criteria. These must also be perceived as sufficiently beneficial to be worth the effort
by a ”critical mass” of industry participants.

Firms will take a variety of approaches to identifying and choosing from among alternative
actions to address an issue or support a strategy. Firm management can delegate plan development
to a select group, provide resources for detailed investigation, request proposals by specified times,
and even employ outside assistance when needed. Certain aspects of this kind of initiative are
considerably more difficult and often less workable for a subsector. Meaningful action
identification for any organization is contingent on a strong understanding of the issues involved,
the potential benefits, costs, and shortcomings, the relationship of a particular action proposal to
other on-going actions, a recognition of implementation barriers, and an anticipation of secondary

effects resulting from imposed changes.

309

It is not always immediately evident in the context of a subsector who should or can
propose or evaluate actions, or what the action alternatives are, that would require broad industry
participation in order to be effective. The experience of the Michigan apple industry suggests there
should be a strong involvement with established, knowledgeable, and visionary industry leaders
for providing input on proposing and/or evaluating actions. Further, a clear and wide recognition
of significant economic gains from the action alternative is often going to be necessary in order
to bring about meaningful industry-wide change. Evaluation at this stage is generally going to be
dependent primarily on qualitative analysis; issues of acceptability, workability, suitability, and
equity, to address an issue are all going to be major components of such an analysis.

An analysis of previous industry experience with regard to a particular issue or
improvement action is often quite useful. Many issues identified as important by those in the
Michigan apple industry have been a challenge to that industry and to other industries for some
time with a variety of remedies considered. Long term production planning, fruit maturity
management, and a premium fresh apple grade are examples of issues for which a variety of
approaches or initiatives have been considered. These are not new issues to production in other
fruit subsectors. Drawing on parallel experiences from approaches developed earlier in the industry
or in other subsectors can speed the development of effective actions by identifying barriers to
anticipate or by focusing on successes elsewhere.”8

Consensus building holds a considerably more central focus for strategic planning among
the many varied individuals and firms within a subsector as compared to a firm. The firm may
require a degree of consensus building among management or divisions, but consensus building
for the subsector will often have to be considered among even the most atomistic levels. In
subsector strategic planning, it is relatively easy for participants who don’t agree with a proposed
improvement action to cease to be involved. They can readily withdraw from the planning

activities or resist implementation of improvement actions. Strong consensus for change is often

 

'58 Some of the approaches behind the formation of the Strategic Planning Task Force itself
as a vehicle for industry improvement, as indicated in Chapter 3, were based in part on
some experiences in other subsectors.

310

the main ingredient required to implement an action. Partial or divided commitment to a particular
industry course may not allow the industry as a whole to develop nor especially to implement a
certain strategy at all.”9 Firm management can often impose certain strategies or actions on its
employees or divisions independent of their support or non-support.

Firms may have a resource development plan to affect certain internal changes. Worker
re-training programs, investment plans, new equipment or technology adoption, implementing
managerial accounting changes, and hiring outside consultants are all examples of how firms invest
and allocate resources to redirect the organization toward developing its capabilities suitable for
new strategies. Firms may have to use retained earnings, sell stock or bonds, or otherwise use its
own resources to affect an internal reorientation.

Such approaches to resource development and allocation are typically much more difficult
and often not workable in the context of a subsector. The need for supporting resources to help
carry out subsector change is still often present. Questions such as who should pay and how
should costs be shared are not always self-evident, however, it is often at this stage that some
actions that seemed to have strong support meet an implementation challenge related to financing
the costs. If significant cost to a new program is perceived as having relatively limited benefits
to only a few firms (ie, expanding industry promotion for a new fresh variety that is marketed by
only a few firms), and wide support is required (such as an assessment increase paid by all
growers), the proposal may fail.

Actions that address high priority industry issues and have been identified, debated, and
worked through by industry leadership, and which generally meet the criteria for action evaluation
(see Table 7.1), are relatively well positioned for successful implementation. The industry
acceptable approach to implementation will depend on the extent to which voluntary or mandatory
participation is necessary. The range of actions may extend from new educational programs,

technical workshops, encouragement from industry leaders to others to consider possible reforms,

 

‘59 Wide participation for such activities as promotional assessments, production or quality
educational programs, or mandatory minimum quality standards are all examples of such
initiatives observed in the Michigan apple industry strategic planning activities.

311

developing and disseminating new information resources or results of economic analyses, to
developing some sort of enforceable legislation.

The stage where change is actually implemented can be especially met by resistance. The
importance of consensus building can be particularly significant at this stage where coalitions for
change may have to be developed. A well-crafted implementation plan considers likely barriers
to implementation and appropriate contingencies. It also considers incentives, enforcement,
leadership behind change, and possible secondary system effects. A means for evaluating industry
action on an on-going basis allows for identification of the effectiveness of actions toward bringing
about desired changes or performance.

Sometimes a set of changes may well be implemented simultaneously as a related set of
action intended to address a similar objective. Educational programs on packing house Total
Quality Management may be coordinated with other quality improvement initiatives, such as
grower workshops on harvest management and maturity information as they relate to improving
quality delivered to the packing house. Both activities support a broader thrust of improving
overall quality and simultaneously orient related segments of the subsector toward overall quality
improvements for the subsector.

A plan for implementing a certain action can be crafted among industry leaders that will
give careful thought to receptivity to or implications of change among those within the subsector.
Some action or aspects may need to take into account the implications for the ultimate buyers of
the products generated. Periodic evaluation of the implemented changes is necessary, with a view
toward how these actions or strategies are moving the subsector or major subsector segments
toward the desired performance level. Flexibility to modify and refine approaches as improvement
actions or strategy implementation is played out is usually desirable. A fair bit of experimentation
with certain actions, with on-going refinements, should be expected. Plans should not be so rigid
as to be difficult to refine or abandon when they fail to deliver the intended effect. Dynamic

adjustments to subsector improvement strategies based upon experiences and reactions are expected.

312

In sum, these general components of subsector strategic planning have been suggested as
dimensions to a strategic planning system that need to be considered when pursuing strategic
planning in the context of a commodity subsector. While the components and objectives are likely
to be similar for most subsectors, the specific tools, methods, and approaches most useful to

analytically develop these components may vary considerably.

7.2 OPERATIONALIZING STRATEGIC PLANNING FOR A SUBSECTOR

This section discusses approaches or considerations that may be useful for those involved
in attempting to operationalize a strategic planning system for a subsector. The considerations
draw heavily upon the experiences within the Michigan apple industry, but represent important
factors that will likely require attention when facilitating this process with other subsectors.

An important foundational consideration that is particularly essential at the beginning of
the strategic planning process is getting committed, knowledgeable, and visionary industry leaders
to recognize a need for such a process and the importance of their leadership input to drive it.
Need for such a process may not always be self-evident. Sometimes a series of factors that can
readily be recognized as broadly influencing the subsector need to precede or attend consideration
of collective action.

The leadership and participation of individuals widely recognized as progressive, visionary,
analytical, and able to influence broad change in the industry are important for several reasons.
They lend a greater credibility to the process. They are also likely to be individuals who best
understand the subsector, its driving forces, major dynamic changes, problems, and feasible action
alternatives for subsector improvement.

The synergy and collective commitment of a group of industry leaders such as these can
raise the expectation among others in the subsector that new ideas can be proposed, discussed, and

possibly implemented through industry leadership. These industry leaders may be leaders within

313

individual grower or non-grower investor-owned firms, trade organizations, cooperative managers,
university research or extension professionals, or others.

Identification and prioritization of issues are also more likely to be recognized by others
in the subsector when they are proposed and evaluated by recognized industry leadership. The
articulation of industry needs and priorities to other organizations outside the subsector, but in a
supporting role, also carries more weight when known to be expressed by highly regarded leaders.

Involvement of key leadership can greatly facilitate the development of a meaningful
competitive situation analysis and the rapid expansion of the stock of possible action approaches
that may be practically employed by the industry to address various issues. The subsector
represents many idiosyncratic activities, relationships, and approaches. These can be quickly
understood and explained by industry leaders as they participate in the analytical processes of
strategic planning for the subsector.

A number of approaches may be useful to engage key industry leadership in the process
of subsector strategic planning. It can be easier to begin with discussing and developing the
concept of industry strategic planning with a relatively small and select group of visionary industry
leaders than a large group of variously committed (or uncommitted) individuals. As momentum
and the objectives of the strategic planning process develop, it may be appropriate to expand the
base of involvement of industry participants.

The task of subsector strategic planning can be very time intensive for those involved. It
may be practical, when some sort of core planning group or task force is involved, to allow for
some degree of leadership rotation. It is desirable to maintain as broad a representation as possible,
but the time commitment involved can lead to major trade-offs between leadership commitment
to the broad industry interests and the interests of their own firm or organization.

Another major consideration necessary for operationalizing subsector strategic planning is
an appropriate institutional or organizational vehicle through which such a process can be
facilitated or most effectively carried out. There is no universally superior organizational

arrangement appropriate for all subsectors. Those considering developing such a process should

314

consider, however, the activities and influence of current organizations, such as subsector or
segment trade associations, promotional commissions, cooperatives, grower organizations, etc.
Some sort of special strategic planning task force may also be appropriate.

It may be a good strategy to initiate a subsector strategic planning process with a well
established and well regarded industry organization. The development of the agenda to focus on
broad, industry issues may require special meetings, outside participation, or otherwise stretching
the conventional agenda of an organization. These factors also need to be considered. The lead
organization must be strongly committed to the overall strategic planning process for the subsector.
It is likely, however, that there will be a synergy between the on-going activities of the lead
organization(s) and strategic planning for the subsector.

An important consideration that is closely related to the organizational arrangement is
administration and staffing needed to facilitate the process. It may be difficult to keep a diverse
group focused on the larger industry needs. Further, guiding discussion toward a consensus,
summarizing discussions, maintaining communications, delegating resources for further analysis,
and many other administrative needs are likely to arise as the process progresses.

The experience within the Michigan apple industry has found that utilizing experienced
extension professionals to be a useful approach to facilitate planning meetings and leading much
of the analysis and communication activity. An advantage of this approach is the minimal stake
in the welfare of any one firm or segment held by an university professional, reducing the
prospects for conflicts of interests in the administration process.

Analysis of the appropriate role for each of the major commodity organizations in the
subsector strategic planning process is also an important consideration. Each organization may take
or share the lead in implementing certain kinds of collective actions, depending on their orientation
to the subsector and their sphere of influence. Typically, some representation or participation will
be routinely elicited from the leadership of these organizations in the strategic planning process.
Industry communications or other industry-level initiatives toward implementing a strategy,

however, may best be accomplished through one of the established commodity organizations.

315

Similar linkages or roles may be necessary to develop with other organizations, such as
commodity groups in other regions or subsectors, national commodity organizations, state
departments of agriculture, or individual specialists. Coalition building between organizations that
can advance common objectives is an essential dimension of strategic planning in the context of
a subsector. This may lead to a need for developing linkages with organizations outside of the
subsector itself, where common interests are more apparent. It may also involve working with
organizations with whom there is only a narrow common interest.”0

Means for widening the scope of participation and discussion beyond the initial group of
industry leaders is another important consideration for subsector strategic planning. Ideally,
industry leadership that are directly involved in the strategy development process would seek to
engage others in the subsector, seeking to develop a broad ownership of the strategy discovery and
development process. Widening the scope of involvement of subsector participants helps to
encourage a heightened awareness of system issues and effects among more individuals and an
ownership of the problem-solving process by a broad base of participants in the subsector. This
can help build momentum for processes geared toward discovering and implementing joint
initiatives by even further expanding the stock of ideas that may involve collective action,
clarifying issues, and coaligning the production and marketing orientation of more individuals
within the subsector.

The subsector strategic planning process, in summary, requires a number of considerations,
many of which may require innovative approaches, depending on the circumstances facing the
subsector. Operationalizing strategic planning, that is, making the process work, is a task that can

expect to require considerable facilitation, discussion, joint analysis, consensus development,

 

'60 IR-4 legislation, for example, that facilitates the joint development of pest management
alternatives between high-value, minor use crops. It attempts to draw on possible size and
scope economies in the pesticide and management research and development process.
Those with primary interests in the apple industry can advance their viability through joint
action with those in a wide variety of other subsectors. IR-4 primarily uses taxpayer
dollars to support this process. More explicit sharing of resources between diverse
commodity groups may be possible to jointly address other issues, perhaps such as labor
management, aspects of storage technology, quality management systems, etc.

316

coalition building, creative resource development, and a constant orienting, or bringing into focus,
the big picture of major subsector issues and driving forces.

Charles Lindblom, in his best known article, ”The Science of ’Muddling Through’”,
emphasized the value of coalition building and focusing on the important in collective policy
building. He states:

”Policy is not made once and for all; it is made and re-made endlessly. Policy-making is

a process of successive approximation to some desired objectives in which what is desired

itself continues to change under reconsideration. Making policy is at best a very rough

process.” '6'

Collective strategy development and implementation for a subsector can be characterized
in much the same way. It is best regarded as an iterative, on-going process. Objectives and
priorities for the subsector can change midstream because of the dynamic and complex setting of
the subsector. Many of the performance objectives for the subsector, therefore, may not be
precisely defined. They may represent more of a successive approximation toward some desired

subsector objectives. The considerations offered here to operationalize strategic planning in a

subsector are suggested with this in mind.

7.3 THE WAY AHEAD FOR SUBSECTOR STRATEGIC PLANNING IN GENERAL

This section discusses areas of need for further inquiry and conceptual development with
regard to strategic planning in a commodity subsector. The orientation of strategic planning in
general is forward-looking, anticipating, and in consideration of the big picture. The relative
newness of strategic planning at this level of analysis (the subsector) suggests many likely areas
of fruitful further research. It is with a view toward some of the lessons learned, new questions

raised, and old questions still unresolved through exploring the concepts and methodological

 

'6' CE. Lindblom, (1959), p 86.

317

approaches of strategic planning in the context of the Michigan apple subsector that these
suggestions are offered.

One of the most direct avenues through which further contribution will be made in this
area is through extending the initiatives and approaches developed in Michigan apples to other
commodities. There is a need to better understand the conditions under which collective strategic
planning is apt to be well received, conditions under which it will be effective, and the
appropriateness of various tools, methods, and approaches given the defining parameters of the
subsector. An expanded number of conditions under which the development and implementation
of strategic planning approaches are applied within different commodities would at least begin to
tentatively point to meaningful patterns.

The observations conveyed here with respect to the activities of the Michigan apple
subsector reflect views of an evolutionary process that has not had a long history, at least under
the rubric of strategic planning. The linkages between the strategic planning activities developed
and changes in subsector performance are tenuous. Many of the plans that have been developed
so far remain to be fully implemented. Further observation of the activities of the Michigan apple
industry would be particularly useful from this point forward, now that many of the institutional
and procedural aspects have been worked out and the task of strategic planning is now more
tangible. Further lessons, refinements, and alternative approaches developed within the Michigan
apple industry with respect to their strategic planning activity will likely be able to later confirm
or clarify much of what has been discussed in this research venture.

Much of planning involves coordination. The issues of coordination for a subsector,
vertical and otherwise, have been widely considered, but continue to present fruitful ground for
research. The identification of coordinating mechanisms within a subsector can improve overall
performance through improving the efficiency of the system; major segments of the value-
generating system can increase its value generated and therefore present itself as more compelling

to buyers or competitive with respect to rival supplier systems. Strategic planning involves explicit

318

exploration for production or coordination synergies by subsector participants that mutually
advances their individual interests with a view toward outside forces and conditions.

Improved subsector coordination, and thus subsector performance, can sometimes be
achieved through the active sharing of ideas among industry leaders. They may need a forum to
present their ideas and feedback, but in many cases the flow of ideas for subsector improvement
just needs some facilitation. Orienting industry leaders (and followers) to work together to develop
workable improvement strategies and to recognize a need to improve subsector coordination can
also be a major component to the subsector strategic planning process.

Strategic planning and coordination appears to provide considerable opportunity for
improving the vertical coordination of a commodity subsector that is composed of primarily small
firms in vertically related value—adding segments. Such vertical coordination may be more easily
achieved where the large, vertically integrated firm dominates. The structure of many commodity
subsectors, however, is such that the initiation of explicit strategic planning and coordination is
needed, and can bring about meaningful change with the right approaches.

Related avenues of research can provide potentially valuable extensions to strategic
planning in a subsector. Group decision making approaches, management information systems,
systems analysis, learning organizations (and other elements of organizational behavior), and other
streams of strategy-formation research that are typically applied to the firm may offer promise for
modified extension to a subsector context.

Many principles have been proposed, conceptual and methodological approaches
considered, and merits and limitations in this thesis with respect to strategic planning in the context
of a subsector. Considerable promise remains for the continued development and fine-tuning of
a successful, sustainable strategic planning system for the Michigan apple industry. Prospects for
extending many of these approaches to other commodity subsectors also seems favorable. Strategic
planning for any organization is a process of constant observing, learning, applying, and evaluating.
It is hoped that this research effort has successfully communicated that while much has been

learned, much remains to be done.

319

APPENDIX A

ON CASE STUDY METHOD

CASE STUDY AS A RESEARCH METHODOLOGY

FOR EXPLORING SUBSECTOR STRATEGIC PLANNING

This appendix elaborates on the use of case studies as a research strategy for exploring a
relatively underdeveloped area of investigation or theory, such as in the case of strategic planning
in the context of a subsector. Discussion follows to describe what case study research is, why it
is a particularly useful methodology in this case, its limitations, and contribution to theory building.

Robert Yin (1981) points to the distinguishing feature or characteristic of the case study
is that it attempts to examine (a) a contemporary phenomenon in its real-er context, especially
when (b) the boundaries between phenomenon and context are not clearly evident. The case study
is a research strategy. It is not characterized by the type of evidence or analysis employed
(qualitative or quantitative), or data collection method (ethnologies, participant observation, etc.).
Rather, the case study is best employed when the analyst is presented with an unusual opportunity
to examine and interact with an actual, contemporary, on-going process in its real-life context.
Such a strategy focuses on understanding the dynamics present within single settings.“$2

Contrast these conceptions of the case study approach with that of Schmid (1989), who

follows Campbell and Stanley (1963) where the case is conceived of as a project (or treatment)

 

'62 K.M. Eisenhardt, (1989). A key feature of the case study research strategy is also
noted by Eisenhardt to be the frequent overlap of data analysis with data collection. It
is not uncommon, therefore, for the research questions to shift during the course of the
research.

320

”’3 The case approach is better conceived as

followed by an observation at one point in time.
simultaneous treatment and observation that can be over a period of time. Case analyses can
include single or multiple case, and can be developed at numerous levels of analysis.164

The advantage of the case study approach is that it lends itself to the task of investigation
of a complex process that contains many uncontrollable variables of unknown importance a priori.
Case studies, according to Yin, can be classed according to their various objectives, including those
that are primarily exploratory, descriptive, or explanatory. The case itself is best regarded as a self-
contained analysis of an often complex or idiosyncratic situation, relationship, or system that seeks
to test an explanation of what is observed rather than a single variable or factor. Following Yin:

”... a case study is not a data point that represents only a single observation. In fact, case

studies as analytic units should be regarded on par with whole experiments, a realization

that provides an important insight for cross-case analysis”‘65

The case study may employ a wide variety of analytical techniques and data types. A
variety of such techniques and data were illustrated in the case of strategic planning in the
Michigan apple subsector. A combination of qualitative (interviews from key industry informants)
and quantitative analysis (market trends, evaluating closed end responses from subsector
participants) were employed in this study.

The synergy between the various data types has been highlighted by Eisenhardt (1989).
She indicates that quantitative evidence can indicate relationships which may not be salient to the

researcher. It can also strengthen or clarify the findings derived from qualitative evidence, which

in its own right can describe or relate idiosyncratic factors that may not be easily quantified. Both

 

‘63 Yin (1984) makes a careful distinction between the case study and quasi-experimental
designs that are characterized by one-shot, post-test-only approaches. He notes the
revision of such incorrect misconceptions later conveyed by Cook & Campbell (1979),
quoting them: "...certainly the case study as normally practiced should not be
demeaned by identification with the one—group post-test-only design. " Yin goes on to
lay out the necessary components to good case study research design toward more
rigourous and methodologically sound cases.

‘64 R.K. Yin (1984).
”’5 R. Yin, (1981), p.62., emphasis his.

321

kinds of evidence are essential and widely employed in the strategic planning process within the
subsector.

Julian Simon notes that the case study provides an indispensable overview of a subject
when little is known about the particular area and that it is the method of choice under such
conditions where it is desirable to obtain a wealth of detail and primary data about the subject of
interest.“5 Furthermore, it is appropriate in the formative stages of investigation when hypotheses
are not fully formed, and to engage in the pursuit of clues or guidelines for further research. His
admonition, however, is for the case worker to investigate objectively and describe what could be
seen or confirmed by another observer.167

A major point of difficulty for related analysis is generalizing or trying to build theory
from individual case studies. Mary Kennedy notes that studies of individual cases allow the
evaluator to learn the intricate details of how a particular treatment may be working, rather than
averaging the effect across a number of cases. She notes further, however, that one serious
drawback to the single-case study approach is the lack of generally accepted rules for drawing
causation and generalization inferences from the data. Inferences and generalization, however, are
always tentative in scientific research, whether large sample statistics are used or not. The strength
of evidence is a matter of judgement. Extensions of knowledge from the specific case to the
general are never done easily, but are important where observable cases are rare or costly to
examine, as may be common in medicine or law.168 The case study approach is clearly limited in
its ability to refute a pre-formulated hypotheses in a controlled or even quasi-controlled manner.
Still, it can serve as a useful point of departure toward the initial shaping of more narrowly defined

hypotheses that can be tried with greater rigour as the problem is later refined as more information

“56 Simon, Julian L., Basic Research Methods in Social Sciences: The Art of Empirical
Investigation, 2nd edition, Random House, New York, New York, 1978.

 

'67 Yin (1984) and Eisenhardt (1989) each suggest a number of ways to further enhance
construct validity for the case, including use of multiple sources of evidence, use of
multiple investigators, and having key informants review drafts of the case study report.

"’8 Kennedy, Mary M., ”Generalizing From Single Case Studies", Evaluation Quarterly,
3(4):661-678 1979.

322

becomes available. Data observed from the case can include complex system inter-relationships
that may or may not be unique to the conditions under which they were observed. Inferences
drawn from these data carry appropriate caveats, however it may be useful to combine observations
from the case study with economic, business, and organization theory, as well as observations from
other related, though not necessarily controlled, cases to compile evidence that can support

inductively derived generalizations.

323

APPENDIX B

MICHIGAN APPLE SHIPPER SURVEY

Michigan Apple Shipper Survey

This survey of Michigan apple shippers is being done at the request of the Michigan Apple
Industry Strategic Planning Task Force and is supported by the Michigan Apple Shippers
Association. An overall goal of the Task Force is to find ways to help improve the Michigan
industry’s competitive position, market growth and profitability for the future. The Task Force
goals also include exploring ways to (a) build on the Michigan industry’s strengths, (b) more fully
exploit the opportunities, (c) reduce the challenges, (d) resolve the issues in a positive manner and
(e) to facilitate the various industry segments working closely together.

The intent of this survey is to obtain information which will help achieve the above goals.
Your ideas and thoughts about the industry, both now and as we look to the future, will be
appreciated as an important part of this overall effort.

We would like to arrange a personal interview with you to get your ideas and responses
to questions like those listed in the attached survey. We do not seek for any information you may
consider proprietary, but want your candid response and suggestions. All results will be treated
with the strictest confidence in any report of research findings. We will be glad to provide you
with a summary of the results upon completion of this study. You may contact either Dr. Don
Ricks (517-355-0145) or Tim Woods (517-355-0134) if you have any questions regarding this
survey at the following address:

Department of Agricultural Econorrrics
23 Agriculture Hall
Michigan State University
E. Lansing, MI 48823
Please note that response to all questions is voluntary, but your thoughts, ideas, and

insights will add to the meaningfulness of results coming out of this study for the benefit of the

industry. We appreciate your willingness to participate in this study.

324

Survey of Michigan Apple Shippers

Strengths or favorable factors for the Michigan apple industgl

What are the most important strengths or favorable factors of the Michigan apple industry
that can be built upon for our industry’s benefit in the future?

Follow-up question:

To what extent do you see the following as strengths for the Michigan industry? Location,
varieties, markets, existing processors, packers, shippers & growers, technological progress,
industry support organizations & programs, etc.

Opportunities for the indusmj

What do you see are some important opportunities that need to be more fully exploited
by the Michigan apple industry?

Response to a list of some industry opportunities

a.

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

The following is a list of some industry opportunities that have been suggested by the
Michigan Apple Industry Task Force discussions. How would you evaluate these in
terms of their realistic potential as attainable goals for the Michigan industry? Why?

What would you suggest are actions that would help the industry to achieve the favorable
opportunities and to build onto the industry strengths?

Outstanding Good Fair Poor

Expanding the sales volume for fresh I] I]
Michigan apples.

Expanding Michigan’s market share for
fresh apples.

Obtaining higher prices for fresh
Michigan apples.

Expanding export markets for fresh
Michigan apples.

Improving the quality of fresh
Michigan apples.

Marketing more tray and cell pack
apples.

D E] El El El Cl
E] E] Cl E] [:1 El
El [3 Cl Cl E] El [3
El Cl E] El El El El

Improving efficiency and quality through
more technically advanced packing
houses.

Cl
E]
El
E1

Mechanical harvesting for processing
apples.

Expanding Michigan's type of pack [j Cl E] El
offerings.

325

3.(Continued)

(10)

(11)

(12)

(13)

(14)
(15)

Expanding the varieties offered by
Michigan

Ref'me/develop the marketing -
merchandising packages for Michigan
apples.

Improved industry education on how
to grow and market top quality apples.

Improved communication and effective
linkages between different segments of
the industry.

Other (Specify)
Other (specify)

 

 

Outstanding

E]

E]

E] [3

Good

E]

E] [3

Fair

E]

[3

Poor

[3

What do you see are the most important issues, challenges, or areas of concern for

the Michigan apple industry?

a. Why are these important?

b. What actions or changes would you suggest that need to be done by the industry

to improve the situation?

(1) What are some obstacles to your suggested improvement actions, and how
might these obstacles be overcome?

(2) Who or what organization should take the lead in stimulating or
accomplishing the needed changes or actions?

326

What is your evaluation of the following industry issues which have been discussed by
the Task Force or have been identified by other apple industry leaders?

 

Very Minor Not
Important Important Importance Important

(1) A need to more effectively compete D E] E] E]

with apples from Wash, N.Y. etc. for

fresh market sales.
(2) A need to improve the overall

quality of Michigan fresh apples. [:1 [j E] E]
(3) A need to raise prices received by

Michigan shippers and growers. E] D [3 Cl
(4) A need to update the equipment and

efliciency of some Michigan packing

houses. D D D D
(5) A need for fewer, larger shippers. E] E] Cl C]
(6) The challenges posed by pesticide,

food safety and environmental Cl C] [j [j

regulations.
(7) A need to more effectively expand

consumption generically for apples. E] [j E] E]
(8) Other (specify) [3 Cl E] El
(9) Other (specifY) C] U D D

 

a. For the above issues that are ranked "important" or "very important” and were not brought
out earlier (in Questions #4,a,b and c),
(1) Why are these important?
(2) What actions or changes are needed?
(3) Who or what organization should take the lead in stimulating or accomplishing
the needed changes?

327

6. Which of the following ideas do you support as a step that would help to improve the
Michigan apple industry’s situation?

Support Not Support

El

CID El El

Cl

a.
b.

C.

(1.

Why would you support or not support these ideas?
For those changes that would be done primarily by individual firm decisions, are
there steps that could be taken to further stimulate the needed changes?

' What do you see as the potential benefits, disadvantages or obstacles from such
an approach?

If you would not support the idea, what would you suggest as an alternative
approach to accomplish the same thing?

CI

Ell] CI El

El

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

Monitor and analyze the progress and success of competing
fresh market regions including Washington, New York, Chile,
etc. in relation to Michigan

Continue expansion of CA storage capacity for Michigan’s
expected larger apple production in the future.

Increase the number of bins for expanding Michigan
production.

Expand total packing house capacity.

Increase efficiency, flexibility, and effectiveness in meeting
buyer-customer needs of the average Michigan packing
house through the adoption of top-notch equipment.

Comprehensively evaluate new varieties and strains that are
best suited for Michigan’s fresh markets and growing conditions.

Further improvements in storage technology, equipment and
storage management for Michigan varieties.

Further improvements in maturity information programs,
implementation and harvest management to get fruit picked
at best times for good storage life and condition.

Develop and implement a system for non-destructive firmness
testing in Michigan packing houses.

Develop a new mandatory program for management of
quality and grade standards, especially for firmness and
maturity by the Michigan industry.

Encourage growers to multiple pick for the needed color,
size and maturity for fresh market.

328

Support Not Support

[:1 [j (12) Continued improvements to reduce bruising in orchards by
pickers and forklift operators and in packing houses through
improved packing line equipment and design for less bruising as
well as more widespread implementation of current know-how
on bruise reduction.

[:1 D (13) Encourage more uniform sizing of Michigan fresh apples
through improved cultural practices, modernized packing house
equipment, and marketing practices.

I] E] (14) Encourage growers to remove and rejuvenate poor varieties
and strains and to plant only the best strains.

[:1 E] (15) Develop a program to pay growers to eliminate poor quality
blocks and strains.

[:I [:I (16) Emphasize and explore special market niches for Michigan
apples.

[:1 I] (17) Increasing the grower assessment for apple research to
finance needed technical and market research projects.

[I D (18) Increasing the grower assessment for promotion and
advertising through the Michigan Apple Committee to further
expand demand for Michigan apples.

(19) A Michigan apple marketing clinic similar to the IAI national

D D marketing clinic in Chicago.

E] [j (20) An association of apple exporters.

329

11. Research and extension needs for the Michigan apple industLy

 

How do you view the priority needs for research and extension to help the Michigan apple
industry in the following areas? Any explanation or reasons for the views indicated above are
encouraged.

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)
(10)
(11)

(12)

(13)

(14)

Expanding grower production of Michigan
apples.

Improving the overall quality of apples
produced by Michigan growers.

Economics and marketing aspects for
Michigan apples.

Improved, safe and politically-acceptable
pest control methods including IPM
approaches.

Improved packing house technology,
equipment and methods.

Improved maturity, storage and post-
harvest methods.

Improved processing technology and
methods.

Varieties that are well-adapted for
Michigan.

Labor issues, management and regulations.

Fruit farm business management.

Expanding domestic and export demand
for Michigan apples.

Improving grower efficiency through new
orchard technology.

Integration and strategic planning for the
Michigan apple industry as a whole.

Others

 

 

330

Very
Important

E] El Cl C]

D C]

DDDDDUD

El

Moderately
Important

DDDDDDDDD DUDE)

DE]

Low
Importance

D

EIDDDDDCIDD DUE!

CID

APPENDIX C
MICHIGAN APPLE GROWER AND PACKER SURVEY

NIICHIGAN APPLE GROWER SURVEY

Conducted at the request of
THE MICHIGAN APPLE INDUSTRY STRATEGIC PLANNING TASK FORCE

STRENGTHS OF THE MICHIGAN APPLE INDUSTRY

Please give your evaluatation of each of the following as a strength of the Michigan apple industry that can be built upon
to Improve the industry for the future. Add comments if you like.

Major Moderate Minor Not a
, , ,, . .-.Smng‘h. . .. , S‘Rns'h r, Strength .. 3"?!8“! .
j (I) Michigan’s location' rn proximity to many metropolitan
. papulationcentecs ..... .. .0 El . D D,
(2) Michigan’s mix of apple varieties. _ Cl C] D C]
(3) A combination of several major nnrket outlets for
,h'esheadpmiaasmlfi. . . . D . D D. . . E3 .
(4) p A cost-efficient region for growing apples. . .- 7 p D Cl C] D
(5) A substantial shift to modern orchard phnting
systems. 7 7. . , _ _ , . EJ . Cl C] D
(6) A major supplier of bagged apples. . . p .. p _ D , , Cl , Cl , ~ Dy
(7) Improvements in packing house modernization
withinthelastfewyears..~ ,_ 7 _ ,D. . D ,_0 El
(8) Improvements in storage techniques and
_ management within the last few years. ' .. Cl . Cl Cl C]
(9) A price competitive industry that helps to increase or
-- , <meintainssiesvolume... ._., .. . DI~ . D . U. U
( 10) An increasing emphasis on market aspects rather
, than production by the Michigan industry. , _ E] El [3 D
(l I) The various apple organintions serving the Michigan
(12) The university support with extension and research
for the apple industry. Cl E] Cl C]

What other features would you regard as important strengths of the Michigan apple industry?

331

II. CHALLENGES, ISSUES, AND LIMITATIONS FACING THE MICHIGAN APPLE INDUSTRY
A. What is your evaluation of the following industry issues which have been discussed by the
Task Force or have been identified by other apple industry leaders? Add comments if you like.

Very Minor Not
_ g _ , . 7 7. Important, Important VImportance Important
Z (l) A need to more efl'ectively compete with ' V ‘ _
...Aaplefraeii’ehvlivfiizaSAIiE-eaa, . ~ 1 . .13-... .. .U ._ _. ..U. M . __ ..EJ ..

(2) A need to improve the overall quality of
Michigan fresh apples. 1:] [:1 Cl C]
' (3) A need to raise prices received by
.Mishisawowars... .  ,._U _, ‘ o D e D.
(4) A need to update the equipment and
efficiency of some Michigan packing [j [j [j [j
_..(5) A need for fewer shippers , _._....I:1 ,. .. .. o . . _ . ‘. 1:1. -4 __D 4.;
(6) The challenges posed by increasing
regulations on pesticides from food safety Cl Cl El [:1

and environmental concerns.

(7) The challenges posed by lack of re

registration of needed pest-control [j [3 D [3
materials and obstacles to registration of
newnratenels. .. . .. .. . ..... .
(8) The problems imposed on growers by new
labor regulations. Cl Cl E] El
(9) The identification of varieties which will .
. be both profitable and grow well in E] [j [3 Cl 1:
Michigan ~ . ............ » , .,-- ..— » . . , . . _ . . .
(10) The issue of how to effectively expand
demand for Michigan apples In highly E] E] El El
. ,_c0mpctltlve fleshed Processinsreekets. ..... ‘ . . ‘ .. V . .. 4 I . V
“(11) Aneedformorebinsintheindustryand E] C] D D

What are other challenges, issues, and limitations which are of high importance for the Michigan apple
industry?

 

 

 

 

 

 

 

332

III. OPPORTUNI'I‘IES l-‘OR llili MICHIGAN APPLE INDUSTRY

A. Indicate the extent to which you consider each of the following areas to be opportunities which may be
more fully exploited in order to strengthen the Michigan apple industry. Add comments if you like.

CONSIDERABLE LIMITED
OPPORTUNITY OPPORTUNITY
Please check one
I 2 3 4 S

1. Expansion of Michigan Fresh Apple Markets

 

 

 

(l) Tray and cell packs C] C] D [:1 D
(2) Bags C] Cl D Cl C]
(3) New premium packages or types of pack Cl E] Cl C] D
(4) Export markets for fresh apples 1:] Cl D C] C]
(5) U.S. grocery store markets 1:] Cl Cl C] D
(6) U.S. food service markets [:1 E] E] E] El
(7) Expanded geographic markets in the U.S. D Cl [:1 D D
(8) More promotions for fresh apples

(a) by the Michigan Apple Committee C] [:1 Cl C] D

(b) by individual shippers [:I D D [J D
(9) Improving the quality of Michigan fi'esh apples [3 Cl [3 C] U
(10) Other Michigan fresh market opportunities?
2. Expansion of Michigan Processed Apple Markets
(1) Apple sauce [:1 Cl 1:] E] El
(2) Slices. [:1 [:1 [:1 C] [:1 _
(3) Juice E] E] El [:1 El '
(4) Export markets for processed apples [:1 [:1 D C] U
(5) More promotion programs for processed apples

(a) by the Michigan Apple Committee I] [:1 Cl C] C]

(b) by individual processors E] El Cl Cl C]

(6) Other Michigan processed market opportunities?

 

 

 

333

 

   

lll. OPPORTUNITIES FOR THE MICHIGAN APPLE INDUSTRY (Continued)

 

 

 

CONSIDERABLE LIMITED
OPPORTUNITY OPPORTUNITY
Please check one
1 2 3 4 5

3. Development of Stronger Pricing Approaches

for Processing Apples in other States C] [3 Cl El El

Similar to MACAIA
Other opportunities for apple industry pricing?
4. Technical Improvements
(1) Continued progress in modernized orchard

planting systems [:1 Cl C] E] C]
(2) Further modernization of

fresh packing houses C] E] D E] El
(3) Further advancements in IPM programs Cl Cl C] D . Cl
(4) Improved sprayer equipment Cl E] El Cl Cl
(5) Continued progress in maturity

information programs Cl Cl Cl Cl Cl
(6) Multiple picking for color, size, and maturity El Cl Cl Cl El
(7) Further modernization of storage

technology and management Cl Cl Cl Cl C]

(8) Other opportunities for technical improvements?

 

 

 

 

B. What are some additional opportunities with considerable potential to benefit the Michigan apple industry
if these are more fully exploited?

 

 

 

 

 

 

 

 

 

334

 

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336

ACTION ALTERNATIVES TO IMPROVE THE MICHIGAN APPLE INDUSTRY (Continued)

What other action alternatives would you suggest as ways to raise grower prices?

What additional action alternatives would you suggest as means to improve and strengthen the Michigan apple
industry?

PROGRAMS AND PRIORITIES FOR THE MICHIGAN APPLE COMMITTEE

Since the Michigan Apple Committee's programs are for the benefit of all Michigan apple growers and are financed
by all growers, the Michigan Apple Industry Strategic Planning Task Force is especially interested in your thoughts
on certain programs. priorities. and issues for the Michigan Apple Committee.

 

 

 

 

A. Programs: Which Michigan Apple
Committee programs do you think NOT A
should be expanded to benefit the STRONGLY SUPPORT NECESSARY STRONGLY
Michigan Industry? SUPPORT MODERATELY ACTION OPPOSE

(1) Expand program emphasis on the fresh I] [j E] [j

_ .m‘rkets- _ t. r, _. .. .. __. _ _ _.

(2) Expand program emphasis on processed E] [j [j E]
markets.

(3) Expand promotional programs for new D E] [j E]
varieties.

(4) Other specific Apple Committee programs which should be expanded?

(5) Any specific Michigan Apple Committee programs which should be de-emphasized?

B. Financing: lf. based on the recommendations of the staff and the boards of the Michigan Apple Committee
and the Michigan Apple Research Committee, there is a need for an increase in the assessment to help market
the Michigan crop and to stay competitive, would you support an increase in the grower assessment to
finance?

NOTA
STRONGLY SUPPORT NECESSARY STRONGLY
_ _ ...... _ _ WWW... MODERATE“ ACTION. 0m“

(l) Increased promotion and advertising
programs by the Michigan Apple [I U U Cl
Committee , .

(2) Technical research such as for
improved cultural practices, orchard C] D E] El

, planting systems. post harvest work. etc.
. (3) Market research such as for consumer

preferences, market needs. demand, I] Cl C] [j
pricing, preferred varieties, etc. _

337

V. PROGRAMS AND PRIORITIES FOR THE MICHIGAN APPLE COMMITTEE (Continued)

(4) If you support an assessment increase, which would you favor: (Check one)
a. C] A phased-in increase over a 3-year period.
b. Cl An immediate increase of the whole amount the first year to provide an expanded program sooner.
(5) Other ideas or suggestions on the financing of promotion and research programs by the Michigan Apple
Committee and Michigan Apple Research Committee:C CC. C C C C C C C C C C C C C C ______C C.._

 

 

 

 

C. What do you consider are some of the important strengths of the Michigan Apple Committee?
D. What do you consider are some of the important limitations or challenges of the Michigan Apple
Committee?

E. Do you believe that the grower assessment monies have overall been worthwhile for:

 

(l) The Michigan Apple Committee Yes C] No C]
(2) The Michigan Apple Research Committee Yes D No C]
F. Do you have other suggestions for the improvement of:
(l) the Michigan Apple CommitteeC_CC_.C_ ,CCC C C CCC C C C C C C C C C C C

(2) thewMiEhigan Apple Research CommitteeC -C C C. C C C. C C CC C C C CCC

 

VI. MACMA
A. Are you a MACMA Apple Division member? Yes D No C]
B. Comments or suggestions on MACMA?C C _C C CC CC C C C C .C C C C C C C

338

VII. RESEARCH AND EXTENSION NEEDS FOR THE MICHIGAN APPLE INDUSTRY

A. How do you view the priority needs for research and extension Very Moderately Low
to help the Michigan apple industry in the following areas? Add Important Important Importance
‘ _ comments ifyou like .. .. - _ _. .. _ _
(I) Improving the overall quality of apples produced by Michigan C] [j {j
. growers. . , - .. . .
(2) Increasing production of the Michigan apple crop. C] E] C]
_ (3) p . Economics and marketing aspects for Michigan apples . . [jg . [:1 El
(4) Improved pest control methods. including IPM approaches, that [:1 [j C]
are economical safe and politically-acceptable .
(a) On major apple diseases such as fire blight,
apple scab, etc. D D D
(b) On insect pests D C] D
(c) 7 On other apple pests V , -. .. N , E] Cl C] ,
(5) Improved packing house technoIogy, equipment and methods [3 El D
( 6) Improved maturity, storage and post-harvest methods. C] E] C]
. (7) . Improved processing technology end methods. . , D _ Cl . D
( 8) Varieties that are well-adapted for Michigan. [:1 E] El
(9) Labor issues. In?”g_‘,999¥.9?d regulations. . [1 Cl U, .
(l0) Fruit farm business management. I] C] I]
, (I I) . Expanding domestic demand for Michigan apples E] Cl C]
(12) Expanding export demand for Michigan apples E] E] El
' (I3) . Improving grower efficiency through new orchard technology. _ C] E] El
(I4) New types of apple packs and packaging C] C] C]
(.15) ‘ Strategic planning and coordination for the Michigan apple [_'_‘| C] D

. , Industry as a whole. , .

(16) Other specific research and extension needs:C _ C CC C. C C C
B. Explanations or reasons for your views on research and extension needs:C C C
C. Suggestions on ways to maintain adequate research and extension staff positions and support resources for the apple
industry: ,, C _ _ C C _,.C C.. C ,C

339

VIII.

IX.

What OTHER SUGGESTIONS do you have to help improve the Michigan apple industry - now and for the future?

GENERAL GROWER INFORMATION

In what county Is your main apple farm operation? C C C C C C C C C C C

Do you consider yourself primarily a fresh market or processing grower? CC C C C C C CWhat is the approximate
percent of your apple crop sold for:

fresh C C% processing C__ C %
Approximately how many acres of apples do you grow? C CC C C _C C C acres.

bearing acres C C C non-bearing acres C C C C

What is your approximate average apple production?

[I] < 5.000 bu. CI 30,000 - 60,000 bu.
[3 5,000 - 10,000 bu. CI 60,000 - 100,000 bu.
CI 10,000 - 30,000 bu. CI 100,000 + bu.

What other crops do you raise in addition to apples?___C__CC__C CC CC CC CC. CC C C C C C C C C

 

How do yOu expect to change your apple acreage within" the next few years? (approximately)

[3 Expand acres CC CC C or percent CC C
C] Keep about the same

Cl Decrease acres C CCC or percent C C

E] Discontinue growing any apples

Do you expect to renovate by replanting some of your apple orchards within the next few years?
Yes D No [I]
If yes. approximately how much? acres CC C or percent C, CC .C

What varieties do you plan to plant in the next few years? C C C C C C C C C C CC CC

 

 

Do you Operate an apple packing house? Yes D No D
If YES, please respond to the questions for packing house operators on the next page

If you have any questions on this survey. you may phone Tim Woods at (517) 355-0134 or Don Ricks at (517) 355-
0l45, who are in the Agricultural Economics Department, Michigan State University.

340

Supplemental Questions for Packing House Operators
If you also operate an apple packing house please answer the following questions:

(1) What kinds of new investments and equipment purchases have you made for your packing
house in the last few years?

(2) Why did you make these changes?

(3) What kinds of new investments, equipment purchases, or other changes do you plan for
your packing house during the next few years?

(4) Why do you feel you will need to make these changes?

(5) What are some of the most important challenges or problems for the packing house part
of your business?

(6) What changes do you believe need to be made in the Michigan apple industry to improve the
quality of fresh Michigan apples?

(7) In your packing house during the next few years do you plan to:
E] Expand the volume packed
E] Keep the volume about the same
I] Decrease the volume packed
El Discontinue packing apples

(8) Other suggestions related to the packing house business or for the broader Michigan apple
industry?

341

APPENDIX D
SUPPORTING DATA TABLES

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BIBLIOGRAPHY

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