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_*§—______-_

This is to certify that the

thesis entitled

AN ECONOMIC ANALYSIS OF
THE U.S. MINT OIL SUBSECTOR

presented by

Alan David Borst

has been accepted towards fulfillment

of the requirements for
N S Agricultural
‘ ° ' degree in W

MM

Major professor I I

SYN/855'

Date

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AN ECONOMIC ANALYSIS OF THE U.S. MINT OIL SUBSECTOR

by

Alan David Borst

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

MASTER OF SCIENCE

Department of Agricultural Economics

1988

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Spear;
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ABSTRACT

AN ECONOMIC ANALYSIS OF THE U.S. MINT OIL SUBSECTOR

BY

Alan David Borst

This thesis first describes the structure and basic
conditions of the U.S. mint oil subsector. The basic orderly
marketing problem of the subsector - supply and price cycling
at the grower level - is examined. The buyer’s role as
market developer and quality controller is described.

Second, alternative coordination mechanisms (e.g. grower
cooperative associations, forward contracts) are considered
within the context of the subsector.

Finally, the performance of the markets for farwest
peppermint and Spearmint oil are comparatively analyzed to
determine if the federal volume control marketing order for
farwest Spearmint oil has made the market more orderly.

The evidence indicates that the order has stabilized
Spearmint oil prices at levels that allow the typical grower
to cover his costs of production. The impact of the order on

production instability is less clear.

gr

Sh

re

ACKNOWLEDGMENTS

I wish to thank all of the people who helped me with my
graduate studies. I am particularly grateful to James
Shaffer for providing invaluable guidance and support as my
research assistantship supervisor and major professor. I am
also indebted to Donald Ricks, a member of my guidance
committee, for his encouragement, insights and constructive
criticism. Melvyn Lacy is also to be thanked for serving on
my examination committee where he provided an important and
unique perspective.

I am grateful to the Agricultural Marketing Service of the
0.5. Department of Agriculture and the Michigan Agricultural
Experiment Station for their support of this thesis research.
Special thanks go to Harold Ricker and Clarence Harris of the
Market Research and Development Division - Agricultural
Marketing Service for their support.

I wish to express my sincere appreciation to Carl Eicher
for the guidance that he provided to me as an undergraduate
and in my first months as a graduate student. Finally, I
wish to especially thank my parents, Jack and Carol Borst,

for their encouragement and support.

iii

TABLE OF CONTENTS

1. Introduction

Overview and Identification of Subsector Participants
Orderly Marketing in the U.S. Mint Oil Subsector

2. Basic Conditions in the U.S. Mint Oil Subsector

Production Trends

Consumption Characteristics

U.S. Mint Oil Subsector Uncertainties
Characteristics of the Supply and Price Cycles
World Trade Conditions

U.S. Government Regulations and Policies

3. Industrial Structure, Conduct and the Organization
of the U.S. Mint Oil Subsector

Industry Concentrations

Conditions of Entry, Exit, and Competition
Product Characteristics

Degree of Specialization and Diversification
Vertical Integration

Collective Organizations

Frequency of Purchases and Sales

Technical Characteristics

Structure of Authority, Rights, and Control
Information System

Exchange Institutions

Risk Sharing Institutions and Arrangements
Research and Development

4. Alternative Coordination Mechanisms for the Growers
and Buyers of U.S. Mint Oil

Overview: The Balance of Market Power Between the
Growers and Buyers in the U.S. Mint Oil Subsector

Cooperative Marketing and Bargaining Associations

Anti-trust Law and the Courts

Federal Marketing Order Programs

Futures Markets

Forward Contract Reporting Systems

Full Participation Forward Contract Markets

State Marketing Orders

Conclusion

iv

Page

16
25
28
33
36

37

37
45
55
56
57
58
59
59
64
65
68
69
7O

72

72
73
81
83
87
89
91
95
95

5. The Farwest Spearmint Oil Marketing Order and the
U.S. Mint Oil Subsector

Orderly Marketing Problems in the U.S. Mint Oil
Subsector
A Simple Recursive Model of Supply and Demand in the
Farwest Scotch Spearmint Oil Subsector
Description of the Marketing Order
The Economics of Volume Control Programs
Performance Measures of the Farwest Spearmint and
Peppermint Oil Markets
Identification of Spearmint Order Proponents and
Opponents
Other Producer Allotment Programs
Criticisms of the Order
Implications of the Order for Farwest Spearmint Grower
Welfare

6. Summary and Conclusions
Bibliography

Appendices

97

97

98
102
106
111
143
145
149
169
172
179

182

LIST OF TABLES

Table Page
2.1 U.S. Peppermint Production Trends 14
2.2 U.S. Spearmint Production Trends 15
2.3 Distribution of U.S. Peppermint Consumption 18
2.4 Distribution of U.S. Spearmint Consumption 19
2.5 U.S. Peppermint Oil Imports and Exports 21
2.6 U.S. Spearmint Oil Imports and Exports 24
2.7 U.S. Grower Stocks of Unsold Peppermint Oil as a
Percentage of Total Supply 31
2.8 U.S. Grower Stocks of Unsold Spearmint Oil as a
Percentage of Total Supply 32
2.9 U.S. Peppermint Oil World Trade 34
2.10 U.S. Spearmint Oil World Trade 35
3.1 Concentration in the U.S. Chewing Gum Industry 43
4.1 U.S. Mint Oil Cooperative Marketing Associations 74

5.1 INS Price Analysis of Farwest Peppermint and Spearmint

Oils 115
5.2 INS Production Analysis of Farwest Peppermint and
Spearmint Oils 116
5.3 Farwest Mint Oil Surplus Stocks as a Percentage of Total
Supply 119
5.4 Breakdown of Scotch and Native Surplus Stocks 119
5.5 Farwest Mint Oil Prices (Nominal) 119
5.6 Farwest Mint Oil Grower Stocks of Unsold Mint Oil as a
Percentage of Total Supply 140
5.7 Total Base and Allotment Transfers 152
5.8 First and Second Cut Farwest Native and Scotch Spearmint
Oil Production 163
A.1 Equation 1 Statistics A1
A.2 Equation 2 Statistics A1
A.3 Equation 3 Statistics A1
B.l Willamette Peppermint Historical Data Bl
B.2 Yakima Peppermint Historical Data 83
B.3 Madras Peppermint Historical Data B5
B.4 Farwest Scotch Spearmint Historical Data B7
B.5 Farwest Scotch Spearmint Historical Data (lst Cut) B9
B.6 Farwest Scotch Spearmint Historical Data (2nd Cut) B9
B.7 Farwest Native Spearmint Historical Data B10
B.8 Farwest Native Spearmint Historical Data (lst Cut) B12
B.9 Farwest Native Spearmint Historical Data (2nd Cut) B12
B.10 Eastern Oregon and Idaho Peppermint Historical Data B13
B.11 Midwest Peppermint Historical Data B14
B.12 Midwest Scotch Spearmint Historical Data B15

vi

8.13
B. 14
8.15
8.16

B.17

Midwest Native Spearmint Historical Data B16

Mint Growers of the United States in the 1980’s B17
Distribution of Mint Oil Purchases by U.S. Mint Oil
Dealers 817
Estimated Distribution of U.S. Mint Oil Usage
in 1986 B17
Grower Sales of Farwest Spearmint Oil and Exports of
U.S. Spearmint Oil by Month Jan 85-Dec 86 B18

vii

LIST OF FIGURES

Figure Page
1.1 The U.S. Mint Oil Subsector 2
2.1 U.S. Peppermint Oil Production by Region 1965-86 11
2.2 U.S. Spearmint Oil Production by Region 1965-86 12
3.1 Distribution of Mint Growers by State 1986 38
3.2 Buyer Market Shares 40
3.3 Distribution of U.S. Mint Oil Usage 1986 42
3.4 Exports and Grower Sales of Farwest Spearmint Oil by
Month Jan85-Dec86 60
5.1 U.S. Peppermint Oil Prices 1967-86 113
5.2 U.S. Spearmint Oil Prices 1967-86 114
5.3 Farwest Scotch Spearmint Oil: Supply and Price Cycles
1967-86 121
5.4 Farwest Scotch Spearmint Oil: Consumption and Price
Cycles 1967-86 122
5.5 Willamette Peppermint Oil: Supply and Price Cycles
1967-86 123
5.6 Yakima Peppermint Oil: Supply and Price Cycles
1967-86 124
5.7 Madras Peppermint Oil: Supply and Price Cycles
1967-86 125
5.8 Willamette Peppermint Oil: Break Even and Average
Grower Prices 1975-86 127
5.9 Yakima Peppermint Oil: Break Even and Average Grower
Prices 1975-86 128
5.10 Madras Peppermint Oil: Break Even and Average Grower
Prices 1975-86 129
5.11 Farwest Scotch Spearmint Oil: Break Even and Average
Grower Prices 1975-86 130
5.12 Farwest Native Spearmint Oil: Break Even and Average
Grower Prices 1975-86 131
5.13 Willamette Peppermint Oil: Annual Usage and Carryout
1967-86 134
5.14 Yakima Peppermint Oil: Annual Usage and Carryout
1967-86 135
5.15 Madras Peppermint Oil: Annual Usage and Carryout
1967-86 136
5.16 Farwest Scotch Spearmint Oil: Annual Usage and
Carryout 1967-86 137
5.17 Farwest Native Spearmint Oil: Annual Usage and
Carryout 1967-86 138
5.18 Farwest Scotch Acreage Response to Class 1 Saleable
Percentages 1980-86 141
5.19 Farwest Native Acreage Response to Class 3 Saleable

Percentages 1980-86

viii

142

CHAPTER ONE

INTRODUCTION

Ovezyiew and Identification of the Subsector Participants

The U.S. mint oil subsector is composed of three major
industrial levels: the growers, the buyers, and the
industrial users. Figure 141 illustrates the vertical and
horizontal organization of the subsector, with arrows tracing
the flow of U.S. mint oils from grower to market.

At the grower level the mint plants are planted, raised,
harvested, and distilled. The exact timing of these
activities depends on the conditions of the various
production areas, e.g. whether the mint is harvested once or
twice in a year, weather conditions, and other factors.

During the weeks of early spring the grower plants the
mint crop by dropping stolons, also called runners, in rows.
Mint is grown as a perennial, and fields have a productive
life of three to five years.

The grower may or may not choose to plant new mint in any
given year. Through the weeks of late spring and early
summer he cares for the mint fields, keeping them irrigated,
fertilized, and free of weeds and pests.

From July to September he harvests the mint plants and
distills the oil from the hay. The grower cuts his mint

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3
mint hay is left in rows to dry for 24 to 36 hours. The hay
is then collected, chopped, and blown into a distilling tub.

The mint oil is extracted by running steam through the
tub, which vaporizes the oil. The steam and mint oil vapor
and then condensed, and the pure mint oil is separated by
flotation. After the distillation process is complete the
oil is stored in drums.

There are four major mint oil buyers in the U.S.: the A.M.
Todd Co., Labbeemint, Wm. Leman Co., and I.P. Callison and
Sons. There are also a number of small buyers in the farwest
production regions of Washington and Oregon.

Buyers offer many services to the growers. They provide
drums for oil storage. They also pick up the oil at harvest
time from the grower’s farm, or from a local receiving
station, and transport it by truck to their warehouse.

The buyers offer forward contracts to growers who have
developed a reputation for consistently producing high
quality oil. These contracts, which specify oil type,
quality, amount, and price, guarantee the grower that he will
receive payment for his oil at harvest time.

If the market is weak and if the oil has not been
contracted for, then the buyer will store the grower's oil
and pay him when the oil is sold. Buyers provide market
information to the grower upon request.

Buyers also provide many services to the industrial users.

The most important one is serving as the quality controllers

4
of the mint oil subsector. They serve this function in two
ways: (1) they only offer forward contracts to growers who
consistently produce high quality oil; and (2) they check
the conditions of the growers’ fields throughout the season.
Field inspection enables the buyers to better predict the
quality of each grower's mint oil production.

When the oil is purchased from a grower a sample is drawn
from each drum. The samples are then chemically analyzed in
the buyer laboratory to check for the presence of
adulterating substances, such as weed residues. Laboratory
tests also provide information about the levels of certain
chemical components of the mint oil which are responsible for
certain flavor characteristics.

The final assessment of mint oil quality, however, is
based on the subjective judgement of the flavorist, or
tester, who is employed by the buyer. They analyze the
quality of each sample based on its odor and flavor.

The buyer blends and bulks the mint oils in accordance
with the individual user's specifications. They also
purchase and store large quantities of the types of mint oils
that are preferred by the major industrial users.. Thus, the
buyers maintain inventories for the users, and provide them
with regular supplies of high quality and uniformly flavored
mint oil.

The demand for mint oils is ultimately derived from the

demand for consumer products which utilize mint flavoring.

S
The manufacturers of chewing gum, toothpaste, and mouthwash
are by far the largest users of mint oil.

In 1971 it was estimated that 55% of peppermint oil and
47% of Spearmint oil consumed in the U.S. was used by the
chewing gum industry, while 34% and 50%, respectively, was
used by manufacturers of oral hygiene products (Greenhalgh,
p.56). Subsector participants that were interviewed believe
that these percentages have not significantly changed since
1971.

The major industrial users in the U.S. are Procter &
Gamble, Colgate-Palmolive, Lifesavers, Wrigley, and Whrner-
Lambert. In addition, large quantities of U.S. mint oil are
exported to foreign users, mostly in Western Europe and
Japan.

Flavor houses also purchase relatively small quantities of
U.S. mint oils from buyers, who function as wholesalers to
smaller oil users. These flavor houses are mostly based in
New York City. The flavor houses sell to manufacturers of
confectionery products, medicines, liqueurs, ice cream,
flavored toothpicks, jellies, and other consumer products.

Manufacturers of confectionery products use about 10% of
the peppermint oil and 1% of the Spearmint oil that is
consumed in the U.S. while all the other small users combined

use about 1% and 2%, respectively (Greenhalgh, p.56).

6
Orderiy Marketing in the U.S. Mint Oii Subsector

A study team of university agricultural economists who
recently examined federal marketing orders for fruits,
vegetables, and specialty crops, defined orderly marketing as
the "matching of supply' with. potential demand. at prices
reflecting the costs of producing and marketing the commodity
by typical well-managed firms in the industry" (Polopolus et.
al [L.‘V). The U.S. Spearmint and peppermint oil markets at
the grower level have been among the most "disorderly" in the
U.S.

A recent dissertation on agricultural market instability
ranked 105 agricultural commodity markets from the least to
the most stable. Both price and production instability
between 1950 and 1983 were factored into the ranking. The
Spearmint oil market was found to be the ninth most unstable
while the peppermint oil market was the 32nd most unstable
(Dalziell, p.73).

Mint growers have tended to over-respond to price signals.
Consequently, there has been a market cycle of large grower
stocks of unsold mint oil and depressed prices for a number
of years, and then shortages and high prices in subsequent
years.

The wide fluctuations in supply and prices that result
from this cycle create liquidity problems for some growers,
particularly those with a heavy debt load. Moreover, growers

have been less able to weather these cycles in recent years

7
because of the decline of the prices of many alternative
crops.

There is some evidence that in years of oversupply and low
prices the season average grower price of mint oil has failed
to cover the average mint grower's cost of production. This
is difficult to determine, however, because of the
controversial nature of cost of production figures.

Costs of production vary significantly between individual
mint growers, even in the same area. What gets included and
excluded as a cost is also a source of controversy.
Nevertheless, the issue of grower equity is an element of the
disorderly U.S. mint oil markets.

The framework of this thesis is the subsector structure,
conduct and performance paradigm, which is diagramed in The
Organization and. Performance of the U.S. Food System
(Marion., et. al, p.55). Chapters two and three are based
upon this diagram.

The data and information that is used in this thesis was
obtained from interviews with mint oil buyers, personnel from
the farwest Spearmint oil marketing order, and other
subsector participants including cooperative extension
personnel, mint researchers, and mint growers. It was also
obtained from secondary sources including USDA reports, U.S.
Department of Commerce - Bureau of the Census Reports,

Cooperative Extension Bulletins, and other publications.

8

In chapters two and three the basic conditions, structure,
and conduct of the U.S. mint oil subsector is described. In
chapter four the history of grower efforts to increase their
market power is reviewed, and the potential alternatives that
are available to the growers are analyzed.

In chapter five the performance of the farwest peppermint
and Spearmint oil markets is comparatively analyzed in order
to determine if the volume control order has made the
Spearmint oil market more orderly. The three criteria that
are used in the analysis are as follows:

(1) The stability of mint oil prices and supply over a
period of marketing years.

(2) The difference between average mint oil prices that
growers receive and their average cost of production
within each marketing year.

(3) The balance between mint oil supply and demand within
each marketing year.

CHAPTER TWO

BASIC CONDITIONS IN THE
U.S. MINT OIL SUBSECTOR

Wade

There are two mint oil production regions in the U.S., the
midwest (Indiana, Michigan, and Wisconsin) and the farwest
(Washington, Oregon, and Idaho). Since the 1940’s production
has shifted from the midwest toward the farwest region.

Farwest peppermint oil production surpassed midwest
production in the late 1940's while farwest Spearmint oil
production surpassed midwest production in the late 1950’s
(Cramer, p.30, 34). These shifts in production have been
caused by several factors, including the extent of
Verticillium wilt disease in the midwest soils and the lower
costs of production and greater net returns in the farwest
(Cramer, p.57, 98).

Mint oil is differentiated by production region.
Flavorists have found that each major producing area has its
own distinct flavor characteristics because of the different
balance in the oil components. This is due in large part to
environmental factors, such as the length and quality of
sunlight and the soil type.

It is also due to the unique husbandry practices of the
growers of each region with respect to irrigation,
fertilizers, the timing of the harvest, and other elements of
mint production (Greenhalgh, p. 16).

9

10
The buyers classify mint oils by the following production

areas:

(1) Willamette Valley Peppermint Oil, from the Willamette
valley in eastern Oregon:

(2) Yakima Peppermint Oil, from the Yakima valley in
south-central Washington:

(3) Madras Peppermint Oil, from central Oregon;
(4) Idaho Peppermint Oil, from eastern Oregon and Idaho:

(5) Midwest Peppermint Oil, from Indiana, Wisconsin, and
Michigan:

(6) Farwest Scotch Spearmint Oil, first and second
cutting, from Washington, Idaho, and Oregon;

(7) Farwest Native Spearmint Oil, first and second
cutting, from Washington, Idaho, and Oregon:

(8) Midwest Scotch Spearmint Oil, from Indiana,
Wisconsin, and Michigan:

(9) Midwest Native Spearmint Oil, from Indiana and
Wisconsin.

Figures 2.1 and 2.2 show the distribution of U.S.
peppermint and spearmint oil production, respectively,
between regions from 1965 to 1986. U.S. peppermint oil
production has fluctuated between 3 and 5 million pounds,
with an average of around 4 million.

U.S. spearmint oil production has been much more unstable,
ranging between .5 and 2 million pounds through 1976, then

ranging between 1.5 and 3.5 million from 1977 to

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13
1986. U.S. spearmint production has averaged about 2 million
pounds during the 1965-86 period.

Willamette and Midwest peppermint oils have remained
relatively constant at about 30% and 15% of total U.S.
peppermint oil production, respectively (Table 2.1). Yakima
oil declined from about 40% in the mid 1960’s to about 15% in
the 1970’s, although it has risen to about 20% in the 1980’s.
Madras oil increased from about 20% in the mid-1960’s to 25%
during the 1970's, although it has since declined to around
15% in the 1980’s. Idaho oil has steadily increased from
approximately 8% to 18% during the 1965-86 time period.

Midwest scotch oil has ranged between 15% and 20% of total
U.S. spearmint production, while midwest native has remained
constant at about 5% (Table 2.2). Total farwest scotch oil
has declined from around 45% in the late 1960’s to around 35%
since 1976 (Table 2.2).

First cut scotch oil has ranged around 30% since the early
1970’s. Second cut scotch oil declined from around 8% in the
late 1960's to about 1% during the 1970’s. Since the
establishment of the farwest spearmint oil marketing order in
1980, however, second cut scotch oil has increased to around
5%.

Total farwest native oil has increased from about 30% in
the late 1960’s to between 40% and 50% since then. First cut
native has ranged between 20% and 30% while second cut native

oil has averaged about 15% since the early 1970’s.

5 yr

5 yr

5 yr

Year
1967
1968
1969
1970
1971

1972
1973
1974
1975
1976

1977
1978
1979
1980
1981

1982
1983
1984
1985
1986

TABLE 2.1

Production

4,552,000
4,265,000
4,904,000
5,250,000
3,852,000

4,564,600

3,023,000
3,371,000
3,470,200
3,691,400
3,778,100

3,466,740

4,482,000
5,743,500
5,170,600
4,894,000
4,393,000

4,936.620

4,028,000
3,845,000
4,513,000
4,185,000
4,376,000

4,189,400

Hnl1anette
23.82
27.52
27.42
30.82
33.02

28.52

37.72
35.92
28.62
33.22
31.32

33.32

33.22
26.62
31.32
33.32
34.92

31.92

31.82
27.32
27.02
28.42
26.92

28.32

14

U.S. PEPPERHINT PRODUCTION TRENDS

Yakima
41.82
30.52
25.72
18.92
14.32

26.22

12.92
11.82
15.12
14.72
14.02

13.72

16.82
18.12
14.92
15.62
13.92

15.92

16.82
19.52
22.02
27.32
22.12

21.52

1967-86

Madras
15.92
18.32
20.52
21.32
24.12

20.02

26.62
27.62
28.22
25.72
26.72

27.02

26.92
27.72
24.42
20.12
17.12

23.22

15.12
16.32
17.02
16.92
17.72

16.62

Idaho
5.82
8.22

10.22
9.72
9.92

8.82

10.92
10.72
12.82
11.52
10.62

11.32

11.12
16.02
14.12
16.92
17.72

15.12

14.82
14.22
16.82
17.72
20.22

16.82

Midwest
12.72
15.52
16.32
19.22
18.82

16.52

11.92
13.92
15.22
14.92
17.42

14.72

12.02
11.72
15.32
14.12
16.42

13.92

21.42
22.82
17.32

9.72
13.02

16.82

Year
1967
1968
1969
1970
1971

1972
1973
1974
1975
1976

1977
1978
1979
1980
1981

1982
1983
1984
1985
1986

5 yr Avg.

Production
1,715,700
1,381,000
1,734,000
2,141,800
1,853,700

1,765,240

1,402,800
1,377,400
1,773,400
1,894,900
1,959,000

1,681,500

2,431,100
3,684,800
2,148,2

2,306,439
2,129,099

2.539.928

1.422.119
1,613,779
2,081,414
2,386,338
2,862,953

2,073,321

FH Scotch
Ist Cut
38.52
39.22
40.82
41.02
34.72

38.82

25.22
27.82
28.02
29.82
33.42

28.82

38.02
41.62
35.72
26.42
23.72

33.12

31.72
32.62
28.72
30.02
28.62

30.32

TABLE 2.2 U.S. SPEARHINT PRODUCTION TRENDS

FH Scotch
2nd Cut
14.82
6.52
8.32
4.82
3.52

7.62

1.12
0.72
1.82
1.02
2.12

1.32

1.12
4.12
0.92
0.82
1.02

1.62

1.22
4.22
6.32
3.32
7.82

4.52

1967-86

EH Native
Ist Cut
24.72
23.52
20.42
17.52
22.12

21.62

32.52
31.62
33.02
34.52
29.52

32.22

29.52
25.22
24.42
33.22
28.72

28.22

20.22
20.62
21.72
29.52
24.62

23.32

FH Native
2nd Cut
9.02
9.62
1.22
5.32
9.12

6.92

14.52
13.32
17.72
13.12
14.32

14.62

15.82
15.12
12.82
22.12
27.62

18.72

13.52
10.92
14.92
17.22
19.32

15.22

NH Scotch
7.92
14.32
21.72
23.22
24.32

18.32

19.92
19.42
13.32
15.02
16.32

16.82

13.12
12.02
21.22
12.92
13.22

14.52

24.22
23.72
21.92
15.62
15.42

20.22

MN Native
5.12
6.82
7.72
8.22
6.32

16
Consumption Characteristics

Tho world Market for Hint oil and
lint Flavored Consumer Products

The demand for ‘U.S. mint. oil and. for“ the :major' mint
flavored consumer products - chewing gum, toothpaste, and
mouthwash - is expected to grow slowly in the high income
developed country markets. Population growth in these
countries is low.

In addition, these consumer products have low income
elasticities of demand in the: developed. country ‘markets.
There is a limit as to how often a consumer wishes to chew
gum or brush his teeth. Moreover, the developed country
markets for these products are near saturation (Greenhalgh
p.54).

In some of the major overseas developed country markets,
notably Western Europe, natural U.S. mint oils are being
supplanted by cheaper synthetic and foreign produced mint
oils. Consumers in Western Europe are considered to be less
discriminating of mint flavoring than are consumers in the
U.S. and Japan.

Demand for U.S. mint oil and the major mint flavored
consumer products in developing country markets, however, is
expected to grow somewhat more rapidly, particularly among
the Newly Industrialized Countries (NIC's) of South-East
Asia.

There is a relatively high rate of population growth in

most of the developing countries. Moreover, some of them-

17
the NIC's in particular -are experiencing rapid growth in per
capita income. Chewing gum and oral hygiene products have
higher income elasticities of demand in these economies
(Greenhalgh p.54).

Nevertheless, the U.S., Western Europe and Japan will
continue to be the major markets of U.S. mint oil and mint
flavored consumer products for the foreseeable future.
Considering the entire world market, the demand for U.S.
natural mint oils is expected to grow quite slowly for the
foreseeable future.

Consumption of U.S. peppermint oil has ranged between 3.5
and 5 ndllion pounds since 1965 (Table 2.3), while
consumption of U.S. spearmint oil has averaged between 1.5
and 2.5 million pounds (Table 2.4). These tables show that
the distribution of U.S. peppermint oil and spearmint oil
consumption has closely followed the production distributions

reported above.

Substitutes

There are three potential substitutes for natural U.S.
peppermint oil - cornmint oil, synthetic peppermint oil, and
imported peppermint oil. Two exist for natural U.S.
spearmint oil - synthetic spearmint oil and imported
spearmint oil.

Cornmint oil is a cheaper substitute that is obtained from

several varieties of the Mentha arvensis plant. The

18

TABLE 2.3 DISTRIBUTION OF U.S. PEPPERMINT CONSUMPTION 1967-86

Total Usage Hillamette Yakuna Madras Idaho Midwest
4.292.000 25.22 38.02 16.82 6.32 13.72
3,999,600 29.02 27.02 19.52 8.82 15.82
4,368,400 28.72 29.12 17.02 10.72 14.62
5,381,000 28.22 23.12 20.42 9.02 19.22
4,378,000 32.52 19.52 23.32 9.52 15.32
4,483,800 28.72 27.32 19.42 8.92 15.72
3,327,000 34.82 12.42 28.32 10.62 13.82
3,480,000 35.72 11.32 27.42 10.32 15.32
3.162.200 31.92 8.12 29.92 13.52 16.72
4,095,400 30.02 20.52 24.52 10.82 14.22
3,755,100 31.42 14.22 27.02 10.42 17.02
3,563,940 32.72 13.32 27.42 11.12 15.42
4,483,000 33.12 16.72 26.82 10.82 12.62
4,884,500 28.32 18.02 23.82 16.42 13.02
4,022,600 26.72 16.32 22.72 17.52 16.72
4,161,000 28.72 16.32 17.62 18.92 18.42
4,561,000 27.12 15.92 25.72 17.62 13.72
4,422,420 28.92 16.62 23.32 16.22 14.92
4,912,000 35.52 15.72 19.82 13.72 15.22
4,192,000 27.12 18.42 18.32 14.62 21.52
4,473,000 32.82 17.52 18.12 14.52 17.12
4,581,000 34.92 23.92 15.82 15.32 10.22
5,079,000 24.32 26.32 15.72 20.72 13.12

4,647,400 30.92 20.42 17.52 15.82 15.42

19

TABLE 2.4 DISTRIBUTION OF U.S. SPEARNINT CONSUMPTION 1967-86
FH Scotch FH Scotch FH Native FH Native

Total Usage Ist Cut 2nd Cut Ist Cut 2nd Cut NH Scotch NH Native
1,613,500 40.72 14.42 25.92 5.12 8.22 5.62
1,221,100 41.62 4.02 24.42 6.32 16.12 7.52
1.863.200 38.72 10.42 19.62 6.52 18.42 6.52
1.627.700 34.32 4.12 15.72 5.82 30.12 10.12
1,777,700 36.22 3.62 23.02 9.52 22.82 4.82
1,620,640 38.32 7.32 21.72 6.62 19.12 6.92
1.922.800 33.42 2.52 27.42 12.12 18.02 6.62
1,566,400 28.22 1.82 32.92 12.92 17.72 6.42
1.524.400 32.62 2.12 27.12 16.52 15.32 6.52
1,936,700 26.62 1.02 37.02 13.12 15.62 6.72
2.179.200 32.32 1.92 31.62 15.52 14.12 4.72
1,825,900 30.62 1.82 31.22 14.02 16.12 6.22
2.038.100 34.72 0.82 29.82 16.52 15.12 3.12
2,693,800 37.02 0.22 28.42 18.82 12.72 2.82
2,167,029 35.12 2.22 27.02 12.32 18.82 4.72
1,986,409 37.42 1.62 23.62 16.32 15.92 5.22
2,082,751 34.72 3.42 28.32 16.12 12.12 5.42
2.193.618 35.82 1.62 27.42 16.02 14.92 4.32
1,903,765 30.12 2.32 24.22 13.52 23.52 6.42
2.340.617 28.72 2.42 24.42 20.92 17.72 5.82
2,154,984 28.32 5.32 23.32 16.52 21.22 5.42
2,142,546 34.92 5.72 22.12 15.52 16.92 4.92
2,212,481 25.92 5.02 24.52 19.22 19.22 6.32

2,150,879 29.62 4.12 23.72 17.12 19.72 5.82

20
major producers of cornmint oil are Brazil, Paraguay, and
China (Greenhalgh p. 23-6). Cornmint oil is blended with
natural peppermint oils and sold to some industrial users.

Synthetic mint oils are also cheaper substitutes that are
primarily manufactured by the Haarmann & Reimer Corporation
of West Germany and the Glidden-Durkee Division of the SCM
Corporation. Natural peppermint and spearmint oils are each
composed of several hundred distinct compounds (peppermint
contains approximately 1500 identifiable compounds).

The manufacturers of synthetic mint oil have attempted to
isolate the few hundred components that are responsible for
flavor, and to use these in their production. As with
cornmint, synthetic mint oils are blended with natural oils.

Imported mint oils are also cheaper substitutes. The
Soviet Union, Bulgaria, China, France, and Morocco all
produce small quantities of natural peppermint oil. China is
the only significant foreign producer of spearmint oil.

Neither cornmint oil nor the synthetic mint oils have
captured a significant share of the U.S. mint oil market.
U.S. cornmint oil imports have been, on average, between 10%
and 15% of the size of total U.S. peppermint oil usage since
the early 1970's (Table 2.5). U.S. cornmint imports have
been unstable, however, and do not threaten the domestic U.S.

peppermint oil market. There are no statistics on synthetic

21

TABLE 2.5 U.S. PEPPERHINT OIL IMPORTS AND EXPORTS
Fiscal Year (Oct-Sept)

U.S. Pepper-int U.S. Cornnint U.S. Peppermint

Oil Imports Oil Imports Oil Exports
as 3 Percentage as a Percentage as a Percentage

of Total U.S. of Total U.S. of Total U.S.

Peppermint Peppermint Peppermint

Year Consumption Consumption Consumption
1967 - - 34.62
1968 - - 42.92
1969 - - 40.42
1970 0.12 5.82 34.52
1971 0.22 5.32 51.12
Avg. 0.12 2.22 40.72
1972 0.42 11.22 68.12
1973 0.22 13.32 68.62
1974 0.22 23.72 81.92
1975 0.22 2.82 39.42
1976 0.72 9.02 50.42
Avg. 0.32 12.02 61.72
1977 0.62 17.32 47.92
1978 0.12 9.92 43.12
1979 0.22 10.62 70.92
1980 0.22 15.42 63.62
1981 0.12 10.12 46.82
Avg. 0.22 12.62 54.52
1982 0.12 10.22 43.02
1983 0.42 15.12 . 49.82
1984 0.12 14.92 46.92
1985 0.22 7.72 41.62
1986 2.02 4.22 41.42

Avg. 0.62 10.42 48.42

22
mint oil usage in the U.S. It is thought to be very small,
although increasing in recent years.

The major users are very hesitant to change flavor
formulas for their established consumer products. Moreover,
U.S. labelling laws discourage use of these substitutes. All
consumer products flavored with either substitute must
indicate it on the label.

None of the substitutes has been of comparable quality to
the natural oils. Cornmint oil, in particular, has a much
harsher fiavor, and can only substitute for peppermint oil in
a limited number of products.

Nevertheless, some of the major' users’ newer’ consumer
products are being flavored with these substitutes. Warner-
Lambert’s "Chewels" sugar free, liquid center peppermint and
spearmint gums, for example, are each flavored with synthetic
mint oil.

Synthetic mint oils have been more successful in foreign
markets. In 1983 a spokesman for Haarmann & Reimer declared
that it was the goal of the corporation to capture 20% of the
peppermint and spearmint world market by 1987 (Chemical
Marketing Reporter, 5/23/83, p.25). It is impossible to
determine if they were successful because statistics are not
available.

Synthetic mint oils have been around for many years, but
their quality has been improving in recent years. They offer

a number of advantages over natural mint oils including lower

23
cost, more uniform (though not yet comparable) quality, and
almost unlimited availability.

Cornmint oil has also been more successful in foreign
markets. It is a relatively inexpensive substitute because
it is produced in countries with low costs of labor and
production. It is widely accepted as a substitute flavoring
in some markets. Indeed, cornmint and peppermint oil are not
even differentiated in much of Europe (Greenhalgh, p.14).

Foreign natural mint oils have .not 'traditionally' been
significant substitutes in either the U.S. or world markets
because of the low volume that is produced, and the even
lower volume that is traded. In addition, foreign mint oils
have not been comparable in quality to those from the U.S.
The flavor of peppermint and spearmint oils varies greatly
between countries.

The most significant foreign producer' of mint oil in
recent years has been China. In the 1980’s there has been a
sharp, but intermittent increase in U.S. and world imports of
spearmint oil from China. U.S. imports of Chinese spearmint
oil have been, on average, about 3.5% the size of total U.S.
spearmint oil consumption since 1980, while ‘virtually no
spearmint oil was imported before that time (Table 2.6).

The quality of Chinese spearmint oil is not comparable to
that produced in the U.S. The major buyers and users still
consider it to be a cheaper, lower quality oil. Moreover,

China has yet to establish itself as a stable

24

TABLE 5.6 U.S. SPEARMINT OIL IMPORTS ANO EXPORTS
Fiscal Year (Oct-Sept)

U.S. Spearmint U.S. Spearmint
Oil Imports Oil Exports
as a Percentage as a Percentage
of Total U.S. of Total U.S.
Spearmint Spear-int
Consumption of Consumption
1967 - 30.92
1968 - 41.92
. 1969 - 24.82
1970 - 15.12
1971 - 35.52
5 yr Avg. - 28.82
1972 - 35.32
1973 - 45.12
1974 - 53.32
1975 - 54.92
1976 - 53.42
5 yr Avg. - 48.42
1977 — 38.82
1978 0.02 40.12
1979 0.22 49.62
1980 0.32 48.52
1981 2.42 60.12
5 yr Avg. 0.72 47.42
1982 5.32 50.32
1983 3.42 30.62
1984 5.32 39.52
1985 3.22 37.12
1986 1.22 42.82

5 yr Avg. 3.72 40.12

25
producer. Large scale spearmint oil production in China only
began in the late 1970’s.

Chinese spearmint oil can substitute for some of the lower
quality U.S. spearmint oils in the "junk oil market". It is
not likely, however, to be a serious threat to most of the
domestic markets of U.S. natural spearmint oil producers for
the foreseeable future. In overseas markets, however,
particularly in Western Europe, it may become competitive
with U.S. spearmint oils more rapidly.

U.S. peppermint oil imports ranged from .1% to .7% the
size of total U.S. peppermint oil usage between 1970 and
1985. In 1986, however, they increased to 2%. In contrast,
approximately 40% to 60% of U.S. mint oils have been exported

in recent years (Tables 2.5, 2.6).

0.8 ' 0' Subsecto Uncertainties

Uncertainty in the mint oil subsector originates from both
the demand and the supply side. Sudden major increases in
demand for mint oil can produce demand shocks. These
increases most often occur when new mint flavored consumer
products are introduced. Pump toothpaste, tartar control
toothpaste and mouthwash, and sugar-free gum flavored with
aspartame are all ‘mint flavored. products that. have been
developed in recent years.

Mint oil production shortfalls resulting from diseases,

pests or severe weather conditions can produce supply shocks.

26
One major source of uncertainty on the supply side are fungal
based plant diseases. The most serious of these is
Verticillium wilt. This soil borne fungus will strike a
field if the grower does not rotate the mint with other crops
about every three years (Lacy, et. a1, p.7).

It will remain for 10 years or longer once its established
in the soil, even if the field is kept fallow. Entire
production areas have been devastated by this fungus which
has been infesting mint fields throughout the history of the
subsector.

Murray’s Mitcham and Todd's Mitcham are two varieties of
peppermint which have been developed with some resistance to
wilt. They are two of the most significant developments of
the U.S. mint oil subsector research system. In addition,
native spearmint possesses a strong natural resistance to
wilt, unlike the scotch spearmint variety. These resistant
varieties are widely grown in wilt-afflicted production
areas. Other fungi that damage mint crops are mint rust and
mint anthracnose.

A number' of other pests damage mint plants including
nematodes, mint flea beetles, mint looper caterpillars, cut
worms and spider mites.

Another major source of supply side uncertainty are
weather conditions. Heavy rains and flooding can "drown"
mint stolons, particularly in the midwest production region,

and fields may be lost. Heavy rains during the harvest

27
period when the mint plants are drying in the fields can lead
to oil losses through leeching.

High winds can cause damage to the mint plants, and can
also cause severe erosion in the muck soils of the midwest,
particularly if the soils are dry. Drought can also lead to
losses in mint oil production, as mint plants require large
quantities of water. This is especially a problem in the
farwest where mint production is more dependent on irrigation
from reservoirs.

Uncertainty and instability in the U.S. mint oil subsector
is much more likely to originate on the supply side than on
the demand side. Fluctuations in yield and acreage from
season to season tend to be larger than fluctuations in the
amount purchased by buyers.

The amount purchased at the buyer level fluctuates more
from year to year than at the user level because of
speculative demand. The buyers profit from the subsector
cycles, described below, by building up their inventories of
mint oil during high supply/low price periods, and selling
off their inventories to users during low supply/high price
periods.

Uncertainty and risk in an agricultural subsector raises

production costs in a number of ways, including (Warman):

28

- raising the minimum rate of return necessary to keep
risk averse growers in production.

- raising the interest rates that lenders ‘will charge
growers, or limiting the amount of credit that growers may
be loaned.

— making' it more difficult for* growers to iefficiently
allocate their resources.

Characteristics of the Supply and Price Cycles

The expected future price of a mint oil, which is based on
that mint oil’s gag; price behavior, is a major determinant
of the current supply of that mint oil (Greenhalgh, p.12,
66). In turn, the current total supply of a mint oil,
composed of current production and the carryover stocks from
previous crops, is the most important determinant of the
current price for that mint oil (Greenhalgh, p.2, 67). Thus,
growers production decisions are based upon past mint oil
prices, while current prices are based upon current supply.
This is the basis of the supply and price cycles that occur
in the U.S. mint oil subsector.

An econometric recursive model of supply and demand in the
farwest scotch spearmint oil market (1971 - 1986) was run and
reported on in chapter five. The model shows that farwest
scotch oil prices of three and four years earlier were
strongly and positively correlated with the current farwest
scotch oil supply for the 15 year period. The model also
shows that current supply was significantly and negatively

correlated with current prices during these years.

29

An inspection of figures 5.3, 5.5, 5.6, and 5.7 will
confirm the existence of this cycle, with some variation
between markets, for the three largest farwest peppermint
production regions and for farwest scotch oil. From
approximately 1967 to 1971 supplies were large and prices
were low. Then from 1972 to 1977 supplies were relatively
small and prices were high. Between 1978 and the early
1980’s both peppermint and spearmint oil supplies were very
large. During this time peppermint oil prices were low,
however, while after 1980 spearmint oil prices were
stabilized at a higher than market level by the volume
control programs of the federal marketing order.

In the last few years peppermint oil stocks have been
significantly‘ declining as the market approaches the low
supply/high price phase of the cycle. Spearmint oil supplies
and prices, on the other hand, appear to have stabilized.
There is no indication that the cycle remains in the
spearmint oil market, although supply shocks related to
weather and other natural causes will continue to raise the
price of spearmint oil from time to time.

Large stocks of unsold mint oils are available to the
buyers on the spot market in many years. If a demand or
supply shock occurs, however, or if supply starts to run too
low for a particular type of oil then the .buyers will

encourage production by raising prices and offering forward

30
contracts with attractive terms to some of the growers of
that oil.

Growers of that oil, whether they have forward contracts
or not, tend to respond to the strong market by overplanting.
Since mint plants are perennials that have a production life
of three to five years there will be a surplus of that crop
for a number of years.

Then when another supply or demand shock occurs, or when
prices have been low enough for long enough that the growers
rip the mint plants out of their fields or decide not to
plant new ones, the high supply/low price phase of the cycle
will give way to the low supply/high price phase. Then when
buyers see a need for more oil production they will again
offer higher prices and forward contracts, and the cycle will
start over. This is the nature of the supply and price
cycles that have existed in the U.S. mint oil subsector.

Another way to view the supply cycle is to look at the
levels of unsold grower stocks from year to year. Grower
stocks of unsold peppermint oils from the different regions
are listed as a percentage of the total supply of each of
those oils (Table 2.7).

Grower stocks of the various types of spearmint oils are
similarly listed (Table 2.8). These tables show the cycling
of the unsold grower stocks of mint oil over time. An

inspection of figures 5.13 - 5.17 illustrates the

31

TABLE 2.7 U.S. GRONER STOCKS OF UNSOLO PEPPERMINT
OIL AS A PERCENTAGE Of TOTAL SUPPLY 1967-86

Year Total Hillamette Yakima Madras Idaho Midwest
1967 9.52 1.42 19.32 0.02 0.02 7.02
1968 15.22 2.62 36.12 0.02 0.02 10.42
1969 22.22 8.92 32.12 26.12 6.42 26.92
1970 17.22 12.62 22.02 20.42 10.72 16.82
1971 11.92 4.62 5.32 15.72 5.22 28.32
5 yr Avg. 15.22 6.02 23.02 12.42 4.52 17.92
1972 8.02 4.12 5.72 5.02 0.02 26.32
1973 4.92 1.62 7.12 2.82 0.62 15.92
1974 13.42 0.42 54.02 6.12 4.52 16.42
1975 2.02 0.02 0.62 0.62 0.72 10.72
1976 2.82 0.42 0.22 0.12 3.22 12.02
5 yr Avg. 6.22 1.32 13.52 2.92 1.82 16.32
1977 2.32 0.62 0.72 0.72 4.92 9.32
1978 16.52 8.32 15.92 27.22 15.12 13.02
1979 34.42 38.42 30.22 46.12 18.92 24.02
1980 40.62 48.02 35.12 58.52 20.62 15.12
1981 37.02 53.12 26.12 34.32 18.32 26.92
5 yr Avg. 26.22 29.72 21.62 33.42 15.52 17.72
1982 26.82 35.02 17.02 20.22 13.22 31.72
1983 25.72 42.82 15.02 11.92 5.72 26.22
1984 24.92 29.22 30.32 6.92 18.42 30.52
1985 19.22 10.82 26.32 6.02 21.12 36.92

1986 7.12 10.22 1.72 2.92 2.22 21.02

(D

W

5 yr

Year
1967
1968
1969
1970
1971

Avg.

1972
1973
1974
1975
1976

1977
1978
1979
1980
1981

1982
1983
1984
1985
1986

32

TABLE 2.8 U.S. GRONER STOCKS OF UNSOLD SPEARMINT
OIL AS A PERCENTAGE OF TOTAL SUPPLY 1967-86

Total
7.62
19.42
8.12
29.42
29.82

18.92

10.82
2.82
16.22
11.52
1.42

8.62

17.32
34.52
39.22
46.42
45.92

40.22
19.22
18.32
25.32
38.32

28.32

FH Scotch
lst Cut
1.52
7.92
4.02
38.52
35.22

17.52

8.52
0.02
0.02
8.82
0.02

3.52

23.42
43.02
50.02
45.72
36.02

39.62

3 .22
17.02
17.12
11.22
37.22

23.12

FH Scotch
2nd Cut
8.72
56.32
6.52
42.92
43.72

31.62

27.42
0.02
0.02
0.02
0.02

5.52

36.92
96.02
72.62
78.22
47.62

66.32

45.72
46.22
35.52
14.02
54.62

39.22

FH Native
Ist Cut
3.62
12.32
7.62
37.02
26.82

17.52

13.22
0.02
29.52
13.52
0.02

11.22

15.22
26.22
26.62
52.02
47.32

33.52

43.72
17.22
12.02
38.72
46.22

31.62

EN Native

2nd Cut
47.32
62.72
19.92
34.82
22.82

37.52

7.92
0.02
20.12
18.32
0.02

9.32

12.52
16.32
28.92
47.72
62.02

33.52

65.12
25.52
25.72
37.92
43.82

39.62

MN Scotch
8.32
6.22
12.12
9.82
19.62

11.22

8.52
7.72
10.02
2.32
6.12

6.92

8.92
27.72
30.52
33.62
43.02

28.72

15.92
11.32
10.02
14.22
15.22

13.32

MN Native
0.02
2.12
9.62
13.22
39.02

12.82

16.02
18.02
24.42
17.22
10.62

17.22

16.02
10.62
12.02
13.32
18.72

14.12

23.42
18.12
29.92
31.62
19.72

24.52

33
fluctuations of these stocks for some of the farwest mint
oils.

Demand at the grower level is relatively more stable than
supply from year to year. An inspection of figures 5.13-
5.17 will confirm this for the three largest farwest
peppermint oil markets and for the farwest spearmint oils. A
comparison of figures 5.3 and 5.4 further illustrates this

for the farwest scotch spearmint oil market.

World Trade Conditions

There is a large world market for natural U.S. mint oils.
The major importers are Western EurOpe and Japan, although
some of the newly industrialized countries have become larger
importers in recent years. The United Kingdom has been the
largest importer since the 1960’s, while Japan has been the
fastest growing importer during that time (Greenhalgh,
p.104).

France, W. Germany, Mexico, and Canada have been the next
largest markets for U.S. mint oil. Import barriers have not
had a major distorting effect on the world mint oil trade
(Greenhalgh, p.76).

U.S. mint oil exports experienced steady growth during the
1965-80 period, while U.S. mint oil imports were
insignificant (Tables 2.9, 2.10). Since 1980 U.S. mint oil
exports have stabilized at slightly lower levels while

imports have increased, but still remain insignificant. Both

Year
1965
1966
1867
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1879
1980
1981
1982
1983
1884
1985
1986

U.S. Exports
Voiume 1L0.)

1,474,613
1,383,977
1,505,458
1,878,427
1,655,037
1,951,131
2,540,023
2,226,641
2,408,598
2,197,177
1,602,709
2,193,993
2,022,981
2,507,316
2,755,957
2,207,233
2,085,623
2,407,496
2,197,512
1,891,443
1,896,536
2,322,177

Value (3)
7,916,511
7,345,088
8,356,800
11,035,887
8,746,665
8,440,688
12,185,467
11,440,451
15,086,557
18,144,847
20,488,581
31,338,561
31,053,448
33,121,726
31,685,000
24,731,000
23,931,000
27,720,000
26,751,000
24,057,000
24,668,000

34

TABLE 2.9 U.S. PEPPERMINT OIL HORLD TRADE

Average

Price/Lb.
$5.37
$5.31
$6.22
$5.88
$5.89
$4.33
$4.80
$5.14
$6.26
$8.71
$12.79
$14.28
$15.35
$13.21
11.50
$11.20
$11.47
$11.51
$12.17
12.72
$13.01

Source: U.S. Department of Commerce. Bureau of the

Census.

FT-410

YEAR Volume 1L5.)

1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986

378,000
360.000
251.000
330,000
331,000

29.000
441,000
664,000
443,000
151,000
582,000
741,000
337,000
459,000
584,000
547,000
446,000

53.000
633.000
293.000
201.000

U.S. Imports of Cornmint 0.1

Value ($1

472,000

489,000

813,000
1,419,000
2,494,000

655,000
1,925,000
2,713,000
1,333,000
1,793,000
2,057,000
1,930,000
1,952,000
2,884,000
2,995,000
1,469,000

727,000

Average
Price/Lb.

Source:

U.S. Imports

YEAR Volume (Lb.)

1965
1966
1867
1968
1969
1870
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1881
1882
1983
1984
1985
1986

5.000
16,000

7,000
9,000
33,000
18,000
6,000
6.600
11,000
6,600
6,600
15,000
6,600
9,000
104,000

Value (3)

71,000
108,000

88,000
179,000
226,000
275,000
115,000
100,000
153,000
105,000

5,000
145,000
223,000
172,000
437,000

Average
Price/Lb.

$14.20
$6.75

$12.57
$19.89

$6.85
$15.28
$19.83
$15.15
$13.91
$15.91
$14.39

$9.67
$33.79
$19.11

$4.20

USDA, Foreign Agrictural Trade of the United
STATES - FATUS (1970-86)

Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986

Source: U.S. Department of Commerce, Bureau of the Census.

U.S. Exports
Volume (Lb.)

554,732
451,412
479,626
588,664
652,458
631,855
848,118
842,121
1,101,181
981,942
861,308
1,167,419
995,906
1,040,074
1,352,846
1,184,492
1,027,765
906,566
762,460
878.879
820.186
936.292

Value ($1
2,797,377
2,534,911
3,195,914
4,163,432
4,456,398
3,105,940
4,844,922
4,671,861
6,575,851
8,155,857
9,143,100
12,881,300
13,091,400
12,276,800
13,527,500
13,482,521
12,208,599
12,108,901
10,497,829
12,180,918
12,365,923
13,448,912

35

TABLE 2.10 U.S. SPEARMINT OIL HORLD TRADE

Average

Price/Lb.
$5.04
$5.62
$6.66
$7.07
$6.83
$4.92
$5.71
$5.55
$5.97
$8.31
$10.62
$11.03
$13.15
$11.80
$10.00
$11.38
$11.88
$13.36
$13.77
$13.86
$15.08
$14.36

1980
1981
1982
1983
1984
1985
1986
1987

FT—410

11,310
60,410
104,851
54,365
159,153
24,949
25,074
37,808

Value ($)
82,490
423,793
631,929
289,587
841,358
152,667
172,114
152,792

U.S. Imports from the P.R. of China

(The only other significant

exporter of spearmint oil)
Year Volume (Pounds

Average
Price/Lb.
$7.29
$7.02
$6.03
$5.33
$5.29
$6.12
$6.86
$4.04

36
U.S. peppermint and spearmint oil export markets have behaved

similarly.

U.S, Governmen; Regulations and Eoiicies

The U.S. government does offer the U.S. mint oil subsector
some protection. As of 1979 there was a 12.5% ad valorem
duty on natural peppermint oil imports and a 3% ad valorem
duty on natural spearmint oil imports.

In addition, there is a 25% ad valorem duty on all natural
mint oils imported from centrally planned economies. The
U.S. also imposes import duties on synthetic mint oil
imports, though the specific duty depends on the materials
used in the manufacture of the oil (Greenhalgh, p.76).

Labelling requirements in the U.S. also favor natural mint
oils. The USDA has ruled that under the Pure Food and Drug
Act all consumer products that are labelled 'peppermint’ must
contain natural peppermint oil.

Although no import duties are imposed on cornmint, all
consumer products that are flavored with it must indicate
this on the label. Furthermore, U.S. food labelling laws
require that manufacturers of consumer products distinguish
on their labels between natural and artificial mint oils
(Greenhalgh, p.56). These actions have inhibited

manufacturers from using imported or synthetic mint oils.

CHAPTER THREE

INDUSTRIAL STRUCTURE, CONDUCT, AND THE
ORGANIZATION OF THE U.S. MINT OIL SUBSECTOR

Industry Concentrations
number and Size of Growers

In 1962 there were around 1200 mint growers in the U.S.
(Cramer, p.64). 131 1968 there ‘were about 1000 (Landing
p.196). Today there are approximately 700 mint growers.
There have always been about twice as many growers of
peppermint as spearmint, although many growers produce both.
Figure 3.1 shows the current distribution of growers in each
state.

In 1962, according to USDA estimates, the average U.S.
mint grower planted about 52 acres of mint, and produced
around 2920 pounds of mint oil. In 1968 the average grower
planted about 103 acres of mint, and produced around 6000
pounds of oil. In 1986 the average grower planted about 161
acres of mint, and produced around 10,340 pounds of oil.

In summary, U.S. mint oil growers have been concentrating
over the last 20 years. The number of mint growers has been
decreasing while the quantity of oil that each produces has
been increasing. There are still too many mint growers,
however, for any individual grower to have significant
bargaining power in his transactions with mint oil buyers
(Greenhalgh, p.19). Indeed, as will be covered in chapter
three, no grppp of mint growers has ever been able to Figure

37

11’ §\\\

A 1 1 L

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39
form a successful cooperative marketing association with

which to increase their bargaining power.

number and Size of Buyers

Buyers have always been the most concentrated industrial
level of the U.S. mint oil subsector. In 1964 the four firm
concentration ratio for U.S. mint oil buyers was 100% while
it is currently about 89% (Fig. 3.2). The market shares of
the U.S. mint oil buyers- labeled as A, B, C, D, E, and
others -are illustrated over time in fig. 3.2.

In the last 23 years A’s share of the market has steadily
declined while the market shares of B and the newer, smaller
buyers (others) have increased. C’s share has remained
relatively stable over that time. E, the largest of the
newer buyers, has replaced D as the fourth largest buyer
within the last 15 years (Cramer, p.2; Greenhalgh, p.109;
Estimates).

Using William G. Shepard’s industrial classification
scheme, the structure of the buyer industry has evolved from
a "dominant firm" oligopoly (One firm holding 50% or more of
the market) to a "tight" oligopoly (Four largest firms
holding 60% or more of the market)(Caves, p.10).

Over the last 23 years a number of smaller buyers have
emerged, while an anti-trust lawsuit against Todd and the
five major U.S. users was settled out of court in favor of

the growers. The anti-trust suit is explained in more detail

40

Market Share

Ao¢5

§p

38.3
as §o

n..0r:io “w.m

aovalvu
%0 am so. 70...!

wc<mn JDDXMA mzbnmm

 

gomv

41
in chapter four. These events have clearly had an impact on

the change in buyer market shares.

Number and size of Industrial Users

There are a large number of domestic and foreign mint oil
users. The five U38. corporations that were noted
previously, however, have long dominated the domestic market
for U.S. mint oils. These five major users, labeled as A, B,
C, D, and E in figure 3.3, consumed about 75% of non-exported
U.S. mint oil in 1986.

The chewing gum industry, which uses the largest volume of
U.S. mint oil, has consistently been one of the most
concentrated industries in the U.S. Data from the Bureau of
the Census indicates that the industry’s four-firm
concentration ratio has been 85% or greater since the early
1950's (Table 3.1). Moreover, in 1982, the last year for
which data was collected, the ratio of 95% was at its highest
level since 1935.

The number of U.S. chewing gum manufacturers has been
declining over time. In 1947 there were 35 manufacturers, in
1963 there were 20, in 1977 there were 14, and by 1982 there
were just 9. Three manufacturers, however, have dominated
the industry since WW II.

Wrigley has long been the largest manufacturer with an
estimated 41% of the U.S. market in 1985 (N.Y. Times,

12/25/86, p.48). Warner-Lambert, whose line of chewing gum

. . a e e 1

~\\

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

TABLE 3.1 CONCENTRATION IN THE U.S. CHEHING GUM INDUSTRY

Total Value

Chewing Gum of Shipments
Years Companies (million $) 4FCR
1947 35 $148.30 70
1954 27 $158.10 86
1958 24 $184.30 89
1963 20 $244.80 90
1966 - $281.70 88
1967 19 $303.70 86
1970 - $407.70 85
1972 15 $382.60 87
1977 14 $566.50 93
1982 9 $915.30 95

Source: U.S. Department of Commerce, Bureau of the Census, 1982 Census
of Manufacturers, MCBZ 5-7 Table 5, p.7-8. April 1986

44
includes Dentyne and Trident, has maintained the number two
position with an estimated 26% of the market in 1985.
Lifesavers, whose line of chewing gum includes Beech-nut and
Care Free, is the third largest U.S. manufacturer with an
estimated 16% of the U.S. market in 1985.

Although the concentration ratio has consistently been
high, the individual market share of U.S. chewing gum
manufacturers has shifted over time. In 1975 Warner-Lambert
was estimated by some industry sources to be even with
Wrigley at 40% of the market, while other sources had W-L
slightly behind Wrigley, but closing the gap (Advertising
Age, 12/15/75, p.2). By 1985, however, Wrigley had
reestablished its dominance by holding 41% of the market,
while W-L’s share had declined to 26%.

The oral hygiene products industry, which uses the second
largest volume of U.S. mint oil, has also been a highly
concentrated industry. The two major oral hygiene products
that are flavored with mint oil are toothpaste and mouthwash.
Colgate -Palmolive and Procter & Gamble have long dominated
the toothpaste market.

During 1984 and 1985 Colgate and P&G’s Crest together held
about 60% of the U.S. toothpaste market (Advertising Age,
9/4/86, p.570). Colgate had held the number one position in
the U.S. market until 1955 when Crest won the American Dental

Association seal of approval. Since that time Crest has been

45
number one, holding approximately 40% of the market during
the late 1970’s.

By December 1984 Colgate had increased its share to 28%
and had pulled to within 3% of Crest, whose share had
declined to 31% (Advertising Age, 9/4/86, p.870). By late
1985, however, Crest had regained its dominance with around
38% of the market, while Colgate had declined to about 22%.

The user level of the U.S. mint oil subsector is quite
concentrated, with 5 large corporations currently purchasing
about 75% of non-exported U.S. mint oil. Furthermore, the
users’ industries are highly concentrated, with three
manufacturers controlling about 84% of the U.S. chewing gum
market and two controlling about 60% of the U.S. toothpaste
market.

Statistics on the U.S. mouthwash market could not be
located, but the major users dominate here as well. Procter
& Gamble's Scope is the number one mouthwash while Warner-
Lambert's Listermint also controls a large share of the
market. In addition, Colgate-Palmolive has recently

introduced peppermint and spearmint oil mouthwash.

Congipions of Entry, Exit and Competition

One major barrier to entry and exit at the grower level is
the relatively high ratio of fixed to variable costs that are
required for mint production (Cramer, p.63). In the Yakima

valley' of Washington approximately’ 1/3 of’ the jproduction

46
costs of peppermint and native spearmint oil, and 45% of the
production costs of scotch spearmint oil are fixed costs
(Hinman and Griffin, 1986, p.11, 18, 25, 32; 1982, p.8, 12).

Mint production is highly capital- and skill-intensive,
and the equipment and techniques used have a high degree of
asset specificity, particularly those related to mint oil
distillation (Lacy, et.al, p.17).

Mitigating this barrier, however, is the fact that a
grower may hire other more established growers to do custom
work, particularly at harvest and distillation time. By
relying upon growers who have already invested in the
necessary equipment, the new grower may delay or avoid the
need to purchase some of the more expensive equipment needed
for mint oil production. The grower may also purchase the
equipment cooperatively with other growers.

One of the major fixed costs is that of establishing the
mint crop in the first year. Beyond the first year the yield
increases as the plants send out runners, and mature from
"row" mint to "meadow" mint. Moreover, after the
establishment year second cuttings become possible in some
regions.

The amortized establishment costs, figured over the normal
producing life of the crop, amount to between $150 and $300
an acre in the farwest (Hinman and Griffin, 1986, p.11, 18,
25, 32: 1982, p.8, 12). The normal producing life in the

farwest, including the establishment year, is about three

47
years for scotch spearmint, five years for native spearmint,
and four to five years for peppermint.

The fixed cost of an established crop of mint does serve
as a barrier to exit in the short run. In times of low
prices a grower is more likely to reduce or stop his planting
of new mint rather than to rip out his established crop.
Moreover, there are fewer profitable alternative crops for
the mint grower to switch to in recent years.

Another barrier to entry is the marketing order covering
farwest spearmint growers, which limits net new entry on an
annual basis to 1/2 of 1% of the industry. An individual
wishing to enter the farwest spearmint oil industry could try
to do so by entering his name in an annual lottery where the
marketing order administrative committee selects eight new
growers, or he could purchase an established grower’s base,
although the price of that base is currently around $7 a
pound.

There are other limiting factors that growers face from
time to time. Soils in traditional mint production areas
tend to develop Verticillium wilt disease which may force
growers to change to other crops or seek new sites, thus
suitable soils may be in short supply in certain production
areas. Another limiting factor can be the shortage of
suitable mint root stock (Greenhalgh, p.30).

The major barrier to entry at the buyer level is the

conservative, traditional nature of the major users. They

48
have developed close business relationships with the major
established buyers since around the turn of the century, and
they are wary of accepting new suppliers of mint oil. The
users have invested large amounts of time and capital into
developing a market for their mint-flavored consumer
products.

They fear any changes that could affect the uniformity or
quality of the mint oil used to flavor those products because
they perceive that such changes could lower the demand for
their products (Greenhalgh, p.17, 53-4). The users have
consistently received good service and high quality, uniform
mint oil from the established buyers, and they are not
willing to risk the market share of their products by
experimenting with new suppliers.

Some growers, particularly the established, high quality
ones, are also wary of doing business with new buyers. They
are confident that when they sign a forward contract with one
of the established buyers that they will get paid at the end
of the season. There is always the risk that a new buyer
will default on its forward contracts with growers if it
cannot establish a sufficiently large clientele of users.

There are a number of small buyers who have survived for
the last 10 years with very low market shares (3% or less).
A few have been around for the last 20 years. Only one has
grown to secure a major position in the mint buyer industry.

One small buyer has depended upon the business of a major

49
overseas client, while others have survived by supplying mint
oil to the flavor houses and N.Y. wholesalers, who in turn
sell to small users.

Only after the anti-trust settlement of 1975 have some of
the small buyers been able to supply mint oil to the major
users. Moreover, some subsector participants allege that
since the lapse of the settlement in 1985 the major users are
planning to stop purchasing supplies from the small buyers.

Some subsector participants have described the U.S. mint
oil subsector as a "mature" one that has stabilized in size,
and that has little room for more buyers. Others claim that
overcapacity already exists at the buyer level, and that some
of the smaller buyers will be failing in the near future. No
subsector participants who were interviewed predicted a
period of expansion at the buyer level for the foreseeable
future. During the late 1970’s the Glidden-Durkee division
of the SCM Corporation entered the mint oil buyer industry.
The venture failed, however, in a short time.

Some subsector participants allege that the large
industrial users and the major mint oil buyers collude to
exert undue control over the subsector. If these allegations
are true, then this would certainly constitute a serious
barrier to entry at both the buyer and user levels. No
evidence was, found, however, that user-buyer collusion is

occurring at this time.

1111'

U
CI

tc

50

As with the growers, a major barrier to exit for buyers is
the high fixed costs and asset specificity of their equipment
and techniques. The processing equipment, the flavorists,
the distribution network, and the rest of the buyer industry
is designed to operate within the modern U.S. mint oil
subsector. Although some of the major buyers process other
essential oils, there are few alternative uses for most of
the buyer's assets.

The major barrier to entry at the user level is product
differentiation, which is principally done through aggressive
advertising and promotion campaigns. Most major
manufacturers of consumer goods prefer to compete on non-
price factors, such as advertising. Connor and his
associates observe that "even fools can match price cuts, but
successful product ... differentiation may be very difficult
to overcome" (Connor, et. al, p.232). They conclude that
"advertising that is successful in differentiating a product
allows higher prices, higher profits and easier access to
store shelves, and creates barriers to entry" (Connor, et.
al, p.232).

The major U.S. chewing gum and oral hygiene product
manufacturers have historically competed with product
differentiation through advertising and promotion, rather
than through price levels. In 1899 all of the large U.S.
chewing gum manufacturers merged into the American Chicle Co.

to form a near cartel.

51

The only major manufacturer not to join was a latecomer to
the industry, the William Wrigley Co. Following a strategy
of aggressive promotion, however, Wrigley overtook American
Chicle and became the leading chewing gum company (Connor,
et. al, p.47). Wrigley has sent chewing gum samples to every
name in every telephone book in the U.S. on at least two
occasions.

The rivalry between Wrigley and American Chicle, which
became a subsidiary of Warner-Lambert in 1962, has continued
to the present. The competition between these two large
corporations has been based upon product differentiation
since the turn of the century. R.J. Reynolds’ Nabisco, which
acquired Beech-nut and Lifesavers, has emerged as a third
competitor.

Advertising intensity is a measure indicating the
importance of advertising in an industry, and is defined as
industry advertising expenditures as a percentage of industry
value of shipments. In 1977 U.S. chewing gum manufacturers
had an advertising intensity of 5.4%, which was the third
highest of any U.S. food manufacturing industry, behind
distilled liquor and breakfast cereals (Connor, et. al,
p.149).

In 1984 and 1985 Wrigley spent $70 million and $82
million, respectively, on advertising which was 16.8% and
18.5% of their total U.S. sales (Advertising Age, 9/4/86,

p.Sl67). In 1984 Wrigley introduced Extra sugar-free gum,

52
and backed it with a $16 million dollar advertising campaign.
American Chicle responded with an 18% increase in advertising
expenditures for its Trident brand, the leading sugar-free
gum (Advertising Age, 9/4/86, p.8166).

In the early 1980’s Colgate launched a large advertising
campaign in an effort to overtake Crest in the U.S.
toothpaste market. Colgate advertising expenditures peaked
in 1983 at $34 million (Advertising Age, 9/4/86, p.870). As
was noted above, Colgate pulled to wdthin three percentage
points of Crest. In 1985, however, as Colgate’s campaign was
winding down, P&G increased advertising expenditure for Crest
to $50 million. By the end of 1985 P&G had almost
reestablished the market share lead that it had over Colgate
in the late 1970’s.

In 1985 U.S. oral hygiene products manufacturers spent a
total of $252.8 million on advertising for toothpaste,
mouthwash, and other dental supplies (Advertising Age,
11/3/86, p.336). This is about 25% of the $1 billion in
annual sales of these products (Advertising .Age, 9/4/86,
p.Sl42). P&G, the largest advertiser, spent $64.5 million,
which amounted to 25.5% of total advertising (Advertising
Age, 11/3/86, p.536). C-P, the second largest, spent $44.8
million for 17.7%. W-L, the third largest, spent $32.3
million for 12.8%.

Another major barrier to entry at the user level is

product proliferation. This occurs when an established

53
manufacturer' of’ a igiven product starts ‘producing related
products to ’fill’ the various segments of the market. The
manufacturer usually supports the new product with a large
advertising campaign.

Product proliferation offers three major advantages to an
established manufacturer (Connor, et. al, p.234). Firstly,
its market share is likely to increase when it appeals to new
consumers in different market segments. Secondly, by filling
these various segments, it leaves fewer market niches for
entering firms, and therefore raises barriers to entry.
Finally, the new products will occupy limited retail space,
and thus leave less room for new products at the retail
level.

There are a number of segments of the chewing gum market
including regular, sugar-free, and bubble gum. There are
also segments based on the shape of the gum. Wrigley’s
chewing gums are long, flat sticks while American Chicle’s
Dentyne and Trident gums are shorter, thicker sticks. In an
effort to challenge the leader, American Chicle developed
Sticklets, a long flat stick gum. It introduced the gum in
1985 and supported it with an $8.4 million advertising
campaign (Advertising Age, 9/4/86, p.8166). In 1984, as is
stated above, Wrigley entered the sugar-free segment of the
gum market with Extra and backed it with a $16 million

advertising campaign.

54

There are several segments in the toothpaste market
including' the regular fluoride ‘toothpastes, the *whiteners
(for tobacco stains and the like), and, most recently, the
tartar-control brands. There are also segments based on
packaging, such as the new "pump" toothpastes. The first
pump dispenser toothpaste marketed in the U.S. was
Minnetonka’s Check-Up, which held just 1% to 2% of the U.S.
market in 1984 (Advertising Age, 11/8/85, p.70). P&G,
however, quickly started producing Crest pump toothpaste in
1985, and backed it with a $25 million advertising campaign
(Advertising Age, 9/4/86, p.Sl42).

Thus, all of the major users are large corporations that
support each of their products with heavy advertising
campaigns. Moreover, they produce ‘many' related. consumer
products for various market segments. 'This product
differentiation and proliferation make entry into the chewing
gum and oral hygiene products industries very difficult.

Users have high barriers to exit with established mint
flavored consumer products. They have invested considerable
resources and time into developing markets for their
established consumer products, and they are apprehensive
about any changes in the ingredients of their flavor
formulas.

It is reasonable to predict, however, that if U.S. natural
mint oil prices remain high enough for long enough users will

consider the use of natural and synthetic or foreign mint oil

55
blends. Moreover, as synthetic and foreign mint oils improve
in quality and availability, U.S. natural mint oils will be

increasingly threatened.

Erodugp Characteristics
Perishebility

Mint oil, if properly stored, can last for approximately
ten years. Buyers have the facilities to store the oil for
this long, while individual growers are only able to keep it
for about three years at their farms. In practice the buyers

store almost all of the grower’s stocks of unsold oil.

Quality Requirements

The buyers require that the growers raise and harvest mint
in fields that are free from weeds and grass, and that they
will only use herbicides, fungicides, and insecticides
registered by the USDA for use in mint fields. Residues from
grass and weeds will adulterate the oil, and lower its
quality. Residues from non-registered agricultural
chemicals, if detected in the oil by federal inspectors, will
result in fines and/or penalties for the grower.

Growers who ignore either of these requirements will find
that their mint oil will be of low quality, and that they
will receive lower prices for their oil, if indeed they can

sell it at all. Furthermore, only growers who develop a

56
solid reputation by following these guidelines year after
year will receive forward contracts from the major buyers.
Buyers must consistently deliver uniformly flavored oils
to the major users. The users develop flavor formulas over
time which are based on a specific quality and blend of mint

oils.

Differentiation

The assessment of mint oils is fundamentally a subjective
judgement made by flavorists, usually employed by buyers, who
after extensive training and experience can analyze the
quality of a mint oil based on its odor and taste
(Greenhalgh, p. 16). Chemical and physical tests are
performed to measure some elements of mint oil quality, but
only broad classifications result from such tests. As stated
in chapter two, mint oils are also differentiated by

production region.

Degree of Specializatiop and Diversification

Almost all mint growers produce some other crops. It is
important that mint be rotated with other crops or else
Verticillium wilt will infect the field. Common alternative
crops for mint growers include potatoes, sugar beets, wheat,
corn, soy beans, alfalfa, hay, beans, and other vegetables
(Greenhalgh, p.12, 20). Although the equipment and

techniques involved in mint production are highly specific

57

assets, mint growers will alter their crop mix if other crops
are providing higher returns than mint (Greenhalgh, p.12).

The largest buyers are relatively diversified operations
which supply a number of materials other than mint oils to
industrial users, including other essential oils and
botanical drugs. The smaller buyers, however, .are more
specialized and concentrate on the processing and marketing

of natural mint oils.

V ' a te at'o

There is little vertical integration in the U.S. mint oil
subsector. The three industrial levels - grower, buyer, and
user - are all quite distinct. There are no mint oil grower
marketing cooperatives that extend up to the other levels.

Only two mint oil buyers, Labbeemint and El Reyo Farms,
are involved in operations at the grower level. Moreover,
none of the buyers are significant manufacturers of consumer
goods. Finally, the major users are all large corporations
which are not significantly operating at either the buyer or

grower levels.

Collecrive Organizations

There are no formal trade associations among the users or
the buyers. At the grower level there are three types of

collective organizations; the federal marketing order,

58
several regional grower associations, and. the state ‘mint
commissions.

The farwest spearmint growers have established a federal
volume control marketing order. Each grower is assigned an
allotment, which is based on his oil sales during a base
period. An administrative committee, composed of elected
growers, proposes regulations that limit. the. quantity’ of
farwest spearmint oil which may be marketed in a given year.

These regulations, which become binding' when ‘they’ are
approved by the Secretary of Agriculture, specify the total
saleable quantity of spearmint oil which may be marketed that
year, and the appropriate allotment percentage which each
grower may produce.

Any quantity of spearmint oil that an individual grower
produces above the specified percentage of his allotment is
placed into a reserve pool, and may not be sold that
marketing year. The marketing order will be covered in
greater detail in chapter five.

There are a number of grower associations in the midwest
and farwest production regions, including among others the
Indiana Mint Growers Association, the Central Oregon
Peppermint Growers Association, and the Washington Mint
Growers Association.

These associations mostly serve a social and educational
role. Some have provided funds to the Mint Industry Research

Council to help fund mint research, although in recent years

59
the State Mint Commissions have taken over this function. A
more detailed treatment of the state mint commissions will be

given later.

F e en 0 u c ases and Sale

The buyers purchase most of their spearmint oil from July
to October, around the time of harvest and distillation
(Figure 3.4). Spearmint oil is purchased throughout the
year, however, and sometimes large purchases are made during
the off months as can be seen in January 1986.

Buyers export spearmint oil to foreign users throughout
the year without any significant seasonal pattern (Figure
3.4). The same can be concluded for U.S. peppermint oil.
Information is not available on buyers’ monthly sales of U.S.

mint oil to domestic users.

Iegnpicai Characreristics
rector Intensity in the 0.8. Mint Oil Subsector

A series of cost of production studies were done for some
farwest mint oil production regions between 1978 and 1986.

These studies were used to derive the following rough

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61
estimates of the factor shares of farwest mint oil production

costs at the grower level:

Capital 37%
Custom Services 33%
Land 15%
Labor 10%
Management 5%

Capital costs include all equipment, depreciation, and
interest costs. Custom services includes items such as
aerial insecticide treatments, fertilization, spraying, and
harvest and distillation.

The capital inputs used by those providing the custom
services, such as agricultural chemicals, were included in
the service share of the cost of production. Land costs are
figured as the opportunity cost of net rent and land taxes.

Labor costs include both the work of the grower and of
hired help. Management costs are estimated as a specified
percentage of gross returns by the authors of the various
production cost studies.

Mint oil production has become :more capital intensive
since the early 1970’s. Many tasks which used to require
labor, such as weeding, are now done with machines. These
factor intensities have remained relatively constant for
farwest mint oils since 1975.

Some very expensive equipment is used at the buyer level

including gas liquid chromatographs to analyze mint oil

62
samples and large fractionators and other redistillation
equipment to refine and blend mint oils. No information was
located with which to estimate factor shares of production

costs at the buyer or user levels.

Minimu- Bfficient Firm size

It is difficult to measure a minimum efficient size for
mint growers, buyers, or users. This section will estimate
them based upon the smallest viable firms that currently
exist at each industrial level. The minimum efficient size
of a mint grower has been a controversial concept in recent
years for reasons that will be considered in chapter five.

A mint grower’s initial investment in mint oil production
can be minimized by having other growers custom plant,
harvest, and distill the crop. Moreover, almost all mint
growers produce other crops. The farwest spearmint oil
marketing order estimates that growers are economically
viable with as little production as 1,200 to 1,800 pounds of
mint oil a year.

The major mint buyers are relatively large organizations

which offer a variety of services. Each has a staff of
flavorists, field ‘men, warehouse ‘workers, and other
personnel. The three largest buyers each handle over

1,000,000 pounds of mint oil a year. Nevertheless, there are
some full time mint buyers that handle less that 100,000

pounds of mint oil a year.

63

Some individuals in Washington that are part time buyers
handle just a few thousand pounds a year. Although many
users prefer to get the services that the larger buyers
offer, some individuals successfully handle mint oil with
just a still and a minimum of equipment.

As was previously noted in the section on "conditions of
entry, exit, and competition", however, the buyer level.of
the subsector is considered to be stabilized or even
contracting. The larger buyers have more resources and
greater staying power for periods of low mint oil demand.
The future of some of the small buyers may be in question.

The minimum efficient scale (MES) is an estimate of the
minimum volume a plant would have to produce, expressed as a
percentage of total industry shipments, to cover its minimum
unit costs. The MES firm corresponds to the lowest point on
the U-shaped long run average cost curve (Connor, et.al,
p.93).

In 1972 it was estimated that the MES of a chewing gum
plant would be 19.2% of total U.S. chewing gum shipments
(Connor, et al, p.155). This was by far the largest estimate
of MES for any food manufacturing category in the table, and
would mean that there is only room for five efficient chewing
gum manufacturers in the U.S.

The MES of a confectionery plant, by contrast, was only
.64%. No MES estimates are available for other user

industries, although there would clearly be a wide range.

64
While the dominant users are all large corporations, there

are hundreds of smaller users.

Subsector Structure:
srrpcture of Authority, Rights, and Controi

Subsector participants that were interviewed have
presented three different descriptions of the authority
structure of the subsector. One portrays the subsector as
being controlled by the major buyers and users, who together
collude to exert influence over both the price and production
of U.S. mint oil.

Another describes the buyer and user levels of the
subsector as being intensely competitive, and operating in a
manner similar to the economic ideal of perfect competition.

Finally, one portrays the buyer and user levels as being a
"bilateral oligopoly" where no collusion occurs, but where
most of the market power resides because of the structure of
the current subsector. The evidence indicates that the last
description is the most accurate. In all of the above
descriptions the growers are assumed to be too numerous and
small to individually exert significant market power.

The ’top down’ authority structure of the U.S. mint oil
subsector that has evolved throughout this century has
repeatedly been the subject of controversy. As is described
in chapter four, an anti-trust action, an FTC investigation,

and several attempts by growers to cooperatively organize

65
have occurred this century in response to this authority
structure. Lander’s Americap Essence documents the evolution
of this authority structure through the late 1960’s.

In the last 20 years, as is noted above, growers have
gained market power relative to the buyers. Moreover, power
and market share among the buyers have become more evenly
distributed and the number of buyers has increased. All of
these events have lead to a more competitive subsector where
authority is more evenly distributed at all industrial

levels.

In 0 at'o ste

All agricultural subsectors have some type of system to
disseminate basic production and market information to the
various participants. The central actor in the U.S. mint oil
subsector information system is the buyer.

The major buyers all maintain a staff of fieldmen who
report on production and market conditions in their areas.
The central office then aggregates this information and uses
it to develop estimates. Prior to 1975 the buyers provided
production and. market information, based upon their
estimates, to both the users and the growers with whom they
were dealing. Since that time, however, several changes have
occurred at the grower level.

Prior to 1975 many growers questioned the accuracy and

timing of the buyers’ information. They alleged that some

66
buyers were consistently underestimating current and
projected market prices and overestimating current and
projected mint oil production and stocks to scare growers
into selling for lower' prices (Landing, p.75, figure 37,
p.126).

As part of the 1975 anti-trust settlement the A.M. Todd
Co. agreed to mail estimates of production, yield, acreage,
grower stocks of unsold oil, and general market conditions to
all U.S. mint growers for 10 years. Acreage reports have
been distributed in June while production reports have been
distributed in November.

Most subsector participants that were interviewed believe
that Todd’s estimates have been reasonably. accurate.
Moreover, all mint growers have been receiving the same
information. Although the settlement lapsed in 1985 Todd has
continued to mail the estimates.

Another change occurred in 1980 when the farwest spearmint
oil federal marketing order was established. The order’s
administrative committee and personnel have been keeping
records on farwest spearmint oil production, acreage, yield,
sales, and grower stocks of unsold mint oil. Moreover, they
have been collecting data from the USDA on spearmint oil
exports and prices.

Through personal contacts, meetings, and mailings the

order personnel have been disseminating the information to

67
the farwest spearmint growers. Thus records, in addition to
estimates, are now available for farwest spearmint oil.

The USDA has been publishing basic market and production
information since before WW II. Several problems exist,
however, with the USDA data.

(1) The statistics are historical, rather than current or
projected, so they are of limited use to the mint grower.

(2) The price and production data are differentiated by
state rather than by production region. The USDA "Oregon"
peppermint oil statistics, for instance, cover the
Willamette, Madras, and some of the Idaho peppermint oil
production areas.

(3) The statistics also fail to differentiate between the
two varieties of spearmint, scotch and native. Since 1978
the USDA Washington price data has distinguished between
these varieties, but all of the other spearmint data remains
aggregated.

(3) The USDA and Department of Commerce statistics on
U.S. mint oil exports are failing to distinguish between the
port of entry and the port of final destination. Thus, mint
oil going to other Western European nations, for example, may
be registered as going to the Netherlands if Rotterdam is the

port of entry.

68
Exghangg Insriturions

Two markets exist for mint oil at the grower level, the
forward contract market and the spot market. In general, the
growers with the best reputation for consistently producing
high. quality' oil will be offered forward. contracts on (a
specified percentage of their production.

Forward contracts are also used as incentives in order to
stimulate the production of mint oil when mint oil supply is
low and prices are high. Some forward contracts are made
during the season while others cover a specified quantity of
production for up to three years. The price is usually
determined at the signing of the contract.

Since 1980 approximately 45% to 75% of scotch oil
production has been covered by forward contracts while
between 40% and 60% of native oil production has been
covered. About 1/2 of the scotch oil forward contracts have
been concluded before the fall of the previous year, that is
before planting time, while native oil has rarely been
forward contracted before the production year. Similar
proportions of farwest peppermint oils .have Jbeen forward
contracted in recent years.

In March 1987, when farwest spearmint growers were first
getting into the field, approximately 20% of farwest native
and scotch spearmint oil was under forward contract.

In May 1987, a few months into the season, about 20% of

the farwest native oil remained under forward contract while

69
the proportion for farwest scotch oil had increased to around
60%.

By July almost 80% of farwest scotch was under forward
contract. This was because one or more of the major
industrial users was in need of farwest scotch spearmint oil,
and the buyers were competing to get growers of scotch
spearmint under forward contract.

Forward contracts and the spot market also exist at the
buyer level. Users and buyers may conclude forward
contracts, or users may purchase oil from buyers on spot
terms. Major users usually deal with more than one buyer at

a time for contingency purposes.

Risk Sharing Inspitutions and Arrangements

Many growers produce mint oil under forward contract with
a buyer. This reduces the marketing risks of the grower by
assuring him a market for his oil at a specified price.
These forward contracts give the buyer the right to purchase
a specified quantity of the grower’s oil, but do not make the
grower liable for production shortfalls. Thus, the buyers
insulate some of the growers from fluctuations in user demand
by offering these forward contracts.

The buyers also insulate their user clients from supply
shocks that occur at the grower level by maintaining large
stocks of mint oils for them. Whether held by the buyer or

directly by the user, the largest U.S. users prefer to have

7O
access to sufficient stock for 18-24 months production, while
the remaining large users like sufficient stocks for at least

six months production (Greenhalgh, p.54).

Rese n eve 0 men

The Mint Industry Research Council (MIRC) is an
organization of users, buyers, and growers which funds mint
production research programs at land grant universities and
other places. The major users and buyers have contributed
most of its funds, although the growers have been increasing
their contributions in recent years through the assessments
they pay to the state mint oil marketing orders.

Five of the six major mint oil producing states have state
mint oil marketing orders, or commissions as they are called
in some states. Washington, Oregon, Idaho, Michigan, and
Wisconsin all have similar state orders, while Indiana
growers are in the process of voting on one at this writing.
They are established by an affirmative grower ‘vote, and
operated by an elected committee of grower-members. Every
few years a referendum is held to reaffirm the mint growers’
support.

The commissions collect an assessment of a few pennies on
each pound of mint oil which the buyer purchases. The buyer
then deducts the assessment from the grower’s payment. The

commission sends some of its funds to the MIRC and spends the

71
rest on various research projects that are deemed to be
useful to the mint industry.

This system of mint production research has done much to
improve the yields and quality of 0:8. mint oil production.
It has resulted in the introduction of varieties of mint that
have a higher resistance to wilt disease, thus alleviating
one of the major limiting factors of mint production.

Researchers have helped growers to develop better weeding
and pest control practices, and this has in turn allowed them

to produce better quality oil.

CHAPTER FOUR

ALTERNATIVE COORDINATION MECHANISMS FOR
THE GROWERS AND BUYERS OF U.S. MINT OIL

OveIView; The Balance of Market PowerrBetween the
Growers and Buyers in the U.S. Mint Oil Subsector

Throughout the history of the U.S. mint oil subsector
there has been the perception among many growers that the
buyers have "unfair" market power. As described in chapter
three the buyers and the users operate as a bilateral
oligopoly while the growers are too numerous and small for
any one of them to have any significant market power.

The orderly marketing problems described in chapter one
are the major performance problems associated with the
current organization of the U.S. mint oil subsector. The
supply of mint oil available in the U.S. does not appear to
be consistently matching demand at prices which cover the
typical well-managed grower’s cost of production.

Years of high spearmint oil prices and short supply are
being followed by years of relatively low prices and excess
supply. It is the opinion of many subsector participants and
observers that more balanced market power between the growers
and the buyers would alleviate some of these performance
problems.

Since around the turn of the century many dissatisfied
growers have sought to redress this imbalance. Some have

attempted to do this by weakening the market position of the

72

73
buyers and the users through, for example, anti-trust suits.
Most have sought to redress the imbalance by strengthening
the position of the growers through such means as cooperative
marketing associations and federal marketing orders.

This chapter’ analyzes the alternative imechanisms 'which
growers have attempted to use, or could potentially use to
better balance the market power of the growers and the
buyers. The likely impact of each mechanism on the
performance of the subsector and its implications for grower-

buyer transactions will be examined.

Cooperative Marketing and Bargaining Associations

The mint oil subsector' has a long history‘ of grower
attempts. to organize cooperative :marketing' and. bargaining
associations. Some of the major attempts that were made this
century are listed in table 4.1.

Landing-documents the history of these associations in
detail (Landing, 1969). He found that each association
failed in a relatively short time, and that none of them had
any clear success in raising the price of their oil by
withholding it from the market.

In 1968 the National Farmers Organization (NFO) organized
Washington peppermint growers for bargaining purposes. The
NFO tried to withhold the 1969 Washington peppermint crop

until the buyers met their price (Price, p.8).

74

TABLE 4.1

U.S. MINT OIL COOPERATIVE MARKETING ASSOCIATIONS

Association (State)

1.

10.

11.

American Society of Equity:
Essential Oil and Mint Growers Branch
(Michigan)

Willamette Valley Mint Growers Association
(Oregon)

St. Joseph Valley Mint Growers Cooperative
Association

(Indiana)

Oregon Cooperative Marketing Association

Woodland Mint Growers Incorporated
(Washington)

Federal Farm Board
(Indiana)

Michigan Peppermint Growers Association

Mint Growers Cooperative
(Indiana)

Washington State Mint Growers, Inc.

National Farmers Organization-Peppermint
(Washington)

Spearmint Bargaining Association
(Washington)

Sources: Landing, pp. 73, 83, 95, 116, 118, 126,

Price, p. 8.

 

1917

1925-27

1926

1927

1930

1936-37

1937

1949-51

1968-69

1968-70

129, 190:

75

Groups of growers drove up to some of the buyers’
warehouses and threatened to withdraw their unsold stocks of
peppermint oil which had been stored for them by the buyers.
Some of the unsold stocks were removed by the growers. There
was a large peppermint crop in Oregon, however, and the price
of Washington peppermint oil did not rise that year (Price,
p.8).

Some of the observers of the NFO effort described it as
being poorly planned and emotional. Growers felt it was
‘time to act‘, but they were not well organized, and their
effort was not effective. The peppermint oil bargaining
association failed that year because the buyers simply bought
larger quantities of Oregon peppermint oil.

In 1968 Washington spearmint growers formed. a farwest
spearmint oil bargaining association. A substantial amount
of spearmint oil was withheld from the market during the 1970
season. A member of the association claims that growers were
withholding 65% of the total supply of farwest spearmint oil.
Estimates of the major buyers, however, indicate that
somewhere between 57% and 64% of the total supply was sold
that year.

In order to strengthen the position of the bargaining
association, some of the ‘members petitioned the USDA to
establish a volume control marketing order, similar to the

one that is currently operating for farwest spearmint oil.

76

Such an order, in combination with the bargaining
association, would have allowed grower-members to
collectively market their oil to buyers while grower non-
members in the marketing order area would have been
prohibited from selling more than their annual allotment of
oil.

Under a marketing order with a reserve pool and producer
allotment program, such as the current spearmint oil order,
each grower is issued a base quantity; Each. year the
administrative committee of the order estimates total demand
for spearmint oil and divides this by the total base
quantities of all growers. The resulting quotient is the
annual allotment percentage. Each grower is then prohibited
from selling more than this percentage of his individual base
quantity.

Thus, if a number of growers choose to withhold their oil
for a higher price, other growers may still only sell the
permitted percentage of their base quantities. A more
detailed explanation on how the spearmint oil order operates
is given in the beginning of chapter five.

No marketing order proposal was accepted by the
Agricultural Marketing Service (AMS), however, and the buyers
simply bought larger quantities of spearmint oil from non-
member growers. The bargaining association was terminated.

Landing cites several problems that have plagued the

associations. 'The most significant problem has been

77

dissension among the growers. In every attempt to organize
an association there were a significant number of growers who
refused to participate. Furthermore, there were others who
bailed out and sold their supply to the buyers at the first
sign of market decline. Many growers have felt that
cooperatives should only serve an educational function, and
that marketing should be left up to the individual.

Another serious problem has been the difference in the
quality and value of the mint oil that was produced by
different growers in the same production region, as well as
the difference that existed for oil from different regions.

Some of the efforts to establish cooperative marketing,
particularly the earlier ones, suffered because of the
association’s failure to recognize these differences. Some
of the associations would store all of their members’ oil
together in a pool, and the superior grower would receive the
same price for his oil as the inferior one. This practice
alienated many of the superior growers.

The regional price differences for mint oil also created
trouble for some of the associations. Sometimes mint growers
from one production region could not elicit support from
growers in other regions because they could not agree on the
prices at which to sell their oil.

In addition, because mint oils may be stored for up to ten
years the users and. buyers are able to :maintain larger

inventories than most users of other commodities. These

78
inventories allow the buyers and users to survive a
prospective bargaining association’s effort to withhold mint
oil from the market for a number of years.

Mint oil bargaining associations have consistently failed
to improve the market position of growers. Such associations
could strengthen the position of grower-members if non-
members were prohibited from undercutting the associations
with increased. oil sales, but short. of 'this 'they' appear
unlikely to succeed.

There is currently talk among some farwest spearmint
growers of establishing a cooperative bargaining association.
Growers contemplating' ‘this, however, should. carefully
consider the consequences of combining such an association
with their federal volume control marketing order.

The major disadvantage of establishing a mint oil
bargaining association is that it would strengthen the
charges of spearmint order critics that the growers are using
the order to develop unfair monopoly power.

In 1975 a Federal Trade Commission staff report on
agricultural cooperatives observed that single cooperative
marketing associations dominated regional or national markets
in the milk, lemon, orange, cranberry, clingstone jpeach,
Bartlett pear, walnut, Concord grape, almond, raisin, prune,
and winter celery subsectors. Furthermore, it noted that all
of these commodities, except for Concord grapes, were covered

by federal or state marketing orders.

79

The report concluded that these cooperatives required
close scrutiny because they could use the marketing orders
for market manipulations with undesirable economic effects
(Comptroller General, 1979, p.16).

In 1979 a General Accounting Office report on agricultural
cooperatives concluded that the potential for abuse of market
power’ was greatest for commodities which had. a dominant
cooperative and a volume control marketing order (Comptroller
General, 1979, p.20).

On the other hand, it would increase the collective power
of the farwest spearmint grower-members by allowing them to
deal with the buyers through a single agent, the association.
The advantage of this is that it would reduce the potential
for the buyers to manipulate individual growers.

Some subsector participants assert that buyers have given
individual growers misleading or incorrect market and price
information which has caused the growers to sell their oil at
a low price or to overplant. The writer was told of one
particular buyer of farwest spearmint oil who, some years
ago, would offer individual growers "special deals."

One season some of the growers got together to compare
their oil sales and found that each had been given the same
deal. Moreover, they discovered that the "deals" were more
special for the buyer, as they had each received relatively

low prices for their oil.

80

In recent years, however, buyer manipulation of individual
growers does not appear to have been a significant problem.
Most subsector' participants that. were interviewed. believe
that the buyers have been giving individual growers accurate
market information upon request.

In addition, Todd has been sending production and acreage
information to all U.S. mint growers since the 1975 anti-
trust settlement.

Finally, spearmint order personnel have been keeping track
of unsold farwest spearmint oil grower stocks, acreage, and
production, and has been trying to keep the growers informed
throughout the year.

Since the inception of the marketing order in 1980 the
growers have been doing relatively well. As is covered in
chapter five, grower prices have been stabilized around the
cost of production for farwest scotch and native spearmint
oil.

Given the positive performance of the marketing order and
the lack of unfair buyer practices, it would appear that
market power is currently quite balanced between the growers
and the buyers. Thus there does not appear to be any need
for a bargaining association at the present time.
Furthermore, the establishment of such an association could
result in an anti-trust lawsuit against the grower-members,

and could also jeopardize the status of the order.

81

The formation of a bargaining association could be a
logical next step, however, if growers determine that unfair
trading practices develop in coming years. In addition, it
could provide important countervailing power if the buyers
and users concentrate further.

It was suggested some 25 years ago that growers could
bypass the buyer level and sell directly to the users through
a cooperative marketing association (Cramer p.103). This is
unlikely to succeed at the present time. The biggest barrier
to entry that a mint oil cooperative marketing association
would face today is the conservative nature of the major

industrial users.

Anti-trust Law and the Court§

On more than one occasion mint growers have turned to
federal anti-trust laws and regulations to redress what they
considered to be an imbalance in market power between the
mint oil buyers and users on the one hand, and the growers on
the other.

In 1935 a group of Michigan peppermint growers accused the
A.M. Todd company of having a monopoly of the Michigan mint
oil business. They appealed to their congressmen, Fred L.
Crawford of Saginaw. Crawford then wrote the Federal Trade
Commission (FTC) and got them to start an

investigation.

82

Crawford stated that growers in Michigan were forced to
sell to Todd because there were no other firms in the mint
growing areas to purchase their oil (Landing,p.126).

The FTC conducted an investigation which included
discussions with growers, and some of the major oil buyers
and users. In April 1936 it completed its investigation and
found that no monopoly existed. The FTC concluded that
certain growers were dissatisfied with the lower prices they
had received from Todd for their lower quality oil.

In 1966 and 1967 Jack Labbee, the largest spearmint grower
in the U.S., did not believe that the buyers were fairly
competing to purchase his oil. He tried to sell his oil
directly to the major users, but had no success.

In 1970 he started a class action civil lawsuit against
the major users: Colgate-Palmolive, Wrigley, Procter &
Gamble, Lifesavers, and Warner-Lambert - and the major buyer:
A.M. Todd. He charged that Todd and the major users were
violating the Sherman anti-trust act.

One by one the major users settled out of court until
Wrigley and Todd were the only remaining defendants. Those
two eventually settled out of court with the growers in 1975.
The out of court settlements involved a ‘total award of
approximately $13 million to the growers.

The users also agreed to open their doors to two new mint

oil suppliers if they could qualify. It was also agreed that

83
the two major users, Colgate-Palmolive and Wrigley, would
make their purchases of mint oil public for 10 years.

Finally, as has been noted above, it required that Todd
would send growers mint acreage reports in June and
production reports in November for 10 years. As described
above in the section on concentration the lawsuit had a
significant impact upon the structure of the mint oil
subsector.

The anti-trust suit was both expensive and time consuming
for all parties involved, and it created bitter feelings on
both sides. Nevertheless, no event or mechanism before or
since, with the possible exception of the 1980 spearmint
order, has done more to change the structure of the U.S. mint
oil subsector.

A civil lawsuit is a drastic measure that will only be
taken when opposing sides cannot resolve their differences in
other ways, but parties from both sides have agreed that it
was effective in making the subsector more competitive at

both the buyer and user levels.

Eederai Marketing Qrder Programs

Marketing orders are legal mechanisms under which the U.S.
Secretary of Agriculture may issue regulations that are
binding on all handlers of a certain fruit , vegetable , or

specialty commodity in a specified geographic area.

84

The Agricultural Marketing Agreement Act of 1937 is the
enabling legislation which allows growers to establish an
order by referendum, subject to the approval and regulation
of the Secretary of Agriculture. The AMS is the USDA Service
responsible for regulating marketing orders.

There are three major types of marketing orders: Those
which provide market support, such as advertising and
promotion programs or research programs; those which control
the quality of the commodity being marketed; and those which
control the volume of the commodity which may be marketed.
Volume control marketing orders are the only type that are
relevant for U.S. mint growers.

A marketing order advertising and promotion program would
serve no function for mint growers because mint oils are
specialty industrial commodities which are purchased by a
very small number of buyers and industrial users. The users
already heavily advertise their consumer products which use
mint oils, including Wrigley’s chewing gum, Scope mouthwash,
and Colgate toothpaste. They also do marketing research and
development for products using mint oil, including new
product development.

Order production research programs would be duplicating
the work of the state mint marketing orders, which already
collect assessments from growers. Some of the assessments
are sent to the MIRC while the remainder is spent on mint

production research projects relevant to the state.

85

Quality control programs would also serve little purpose
because mint oil "quality" is not something which can be
defined or measured as easily as it can for most other
commodities. Mint oil cannot be graded like eggs or apples.

Buyers already inspect the growers’ fields throughout the
growing season and. grant forward contracts to those who
produce the best quality cflJ” The large buyers chemically
analyze the oil they purchase, and have flavorists who judge
the quality by taste and odor. The buyers already serve as
the quality inspectors and enforcers of the subsector.

This leaves volume control programs. The federal farwest
spearmint oil marketing order currently operates with a
reserve pool and a producer allotment program. This
marketing order, and its impact on the U.S. mint oil
subsector will be the subject of the next chapter.

Over the past 25 years there have been at least four
attempts to establish a volume control marketing order for
mint oils. In the early 1960’s some mint growers approached
George Stachwich, a marketing extension specialist at
Michigan State University, who helped them design an order
for spearmint oil growers in Michigan and Indiana. There was
insufficient grower support, however, and the order was not
established.

In 1971 a group of spearmint growers in Washington
attempted to establish a volume control marketing order. The

AMS, however, continued to return the proposal stating that

86
it needed to be altered to be acceptable. The growers became
discouraged with these returned proposals, which they
perceived as being too "watered down" to be effective. The
order died before it ever came to a vote.

In July 1979 a group of farwest spearmint growers again
tried to establish a volume control marketing order. The
Carter administration proved to be warmer to the idea than
the Nixon administration, and the proposed order was found
acceptable by the AMS. A referendum was held where the
growers voted in favor of the order, and it was established.

In February 1982 a group of peppermint growers petitioned
the USDA to approve a federal marketing order for peppermint
oil. Peppermint oil growers in the Northwest were seeking to
reduce their large price depressing carryover as the
spearmint oil growers had been doing with their order.

A proposal was formally submitted in June 1982, outlining
a producer allotment, reserve pool order similar to that
established for farwest spearmint oil. The USDA rejected
the proposal on the grounds that it did not meet USDA
guideline criteria for producer allotment programs.

Vernon Highley, the administrator of the AMS at that time,
wrote a May 23, 1983 letter to the peppermint growers in
which he stated the reasons for the rejection.

"(T)here is objection to allotment type programs, such as

the hop and spearmint marketing orders, which do not allow

producers to freely enter the industry and sell their

product. These programs will have to be modified over a
period of five years to phase out all such

87

barriers....Like the hops and spearmint marketing orders

the (peppermint) proposal contains constraints on the free

entry of producers into the industry. We would be glad to
consider any revised proposal from you which overcomes
this obstacle."

Since 1985 the hops and tart cherry volume control orders
have been disbanded, and the spearmint order has been amended
to allow new grower entry. Some USDA personnel report that
the environment for federal volume control marketing orders

has become a little more comfortable since Richard Lyng has

replaced John Block as the Secretary of Agriculture.

Futures Markets

The extreme price fluctuation in the market for U.S. mint
oils is a major performance problem at the grower level.
Mint growers who are producing without forward contracts are
vulnerable to sudden downward shifts in the spot market price
of mint oil. Futures markets offer some degree of price
assurance to growers of some types of commodities. They also
relay information about what speculators think the prices
will be in the future.

There is no futures market for mint oils at the present
time. One of the buyers pointed out that the main reason for
this is that mint oils are not a homogenous good. Moreover,
they are not easily graded commodities. .Assessments of
quality are, for the most part, subjective.

The value of mint oil may vary significantly depending

upon the needs of an industrial user. What may be poor

88
quality for one user may be good quality for another. This
characteristic of the mint oils makes it very difficult to
draw up a standard futures contract for them, or to establish
some kind of a listed price at which the oil is selling at
any one time.

Another characteristic of the mint oils is that they are
relatively small, specialty commodities which are purchased,
for the most part, by a small number of buyers and large
industrial users. Under these conditions trading volume is
limited, and a futures market is unlikely to be formed. It
is not likely that a futures market for mint oils would
significantly improve the performance of the U.S. mint oil

subsector.

o o t ac te a 'ves

The current system of forward. contracting ‘between 'the
buyers and the quality growers, as described in chapter
three, was initiated to ensure that the industrial users
would have a stable supply of good quality oil for the
future.

In 1926 the Beech-Nut Co. empowered the A.M. Todd Co. to
forward contract with selected growers on a three year basis
for the first 50 per cent of the crop at specified prices
(Landing p.120). The remainder of the mint oil that was
needed would be purchased on the spot market at the

prevailing market price.

89
This buyer policy of forward contracting with the quality
growers has been maintained to the present day. Two
alternative forward contract systems are (1) a forward
contract reporting system and (2) a full participation

forward contract market.

F a d a e o ' s ems

One alternative to the current system of forward
contracting between mint growers and buyers would. be to
establish a forward contract reporting system. Currently
forward contracts are consummated in private. With a
reporting system, specified terms and prices of any forward
contract would be posted and made available to all growers.

Armbruster and Helmuth have written a paper dealing with
forward contract price reporting for fruits and vegetables.
They observe that extensive forward contract price reporting
already occurs for some commodities, such as California wine
grapes and apples for processing (Armbruster and Helmuth,
p.6). The contract terms and prices for these commodities
are reported through the AMS Fruit and Vegetable market news
program.

Armbruster and Helmuth make the case that contract
information has the characteristics of a public good. They
observe that it is costly to gather, but that once it is

gathered it has relatively minor distribution costs.

90

They also note that it can be shared by a large number of
parties without reducing the amount available to any
individual. Finally, the authors assert that such a system
would be helpful to the smaller buyers and growers in the
subsector because they have less resources to search for
market information than the larger firms and farms
(Armbruster and Helmuth, p.5).

The authors argue that such a system would help alleviate
some of the problems caused by rumors and unreliable
information. They also note that such a system would provide
an objective historical record of contract prices and terms
(Armbruster and Helmuth, p.6).

None of the subsector participants that were questioned
believed that such a system would improve the performance of
the U.S. mint oil subsector. Some of them declared that they
would never cooperate with contract reporting, while others
felt they could adjust, but that such a system would serve no
function.

They argued that contract prices and terms tend to spread
very quickly on "the grapevine" within a locality.
Furthermore, it was noted that the growers can call any of
the buyers on any’ day and. get accurate, current market
information.

Finally, some buyers and growers felt that such a

reporting system would be a serious invasion of their

91
privacy, and that contract information should remain
confidential.

The costs of production, frequency of harvests, and other
factors vary widely between mint production regions. T h i 5
makes it difficult to meaningfully compare contracts beyond a
local area.

It does not appear that a forward contract price reporting
system would significantly improve the performance of the

U.S. mint oil subsector at this time.

Full Participation Forward Contract Markerg

In chapter two the nature of the production and marketing
cycles of the U.S. mint oil subsector was explained. The
growers bear much of the cost of maintaining stocks for the
buyers and users by producing more oil than is used in most
years. The unsold oil, which is stored in the buyers’
warehouses, is oil that the buyers need not purchase until
the day it is to be sold to users.

One way to theoretically improve the match of mint oil
supply with buyer demand would be to establish a full
participation forward contract market for U.S. mint oils.
Under such a system, all buyers would have to forward
contract before the planting season for all mint oil to be
purchased in that year.

This would guarantee the grower a market for his oil at a

known price, and would allow him to better compare the value

92
of mint to alternative crops. The buyers are one level
closer to the consumer market, and would clearly be more
capable than the growers of predicting future demand for mint
oils.

Kauffman and Shaffer have written a paper on forward
contract markets in which they outline some of the potential
benefits and limitations of such a system. The authors
conclude that an integrated forward contract market, covering
all the industrial levels of the subsector, would do more to
improve the market performance than such a system at just one
industrial level (Kauffman and Shaffer, p.7).

This makes sense for the mint oil subsector. An
integrated forward contract market that also required the
users to forward contract mint oil supplies from the buyers
would probably work more effectively. This is so because the
users are probably better able to predict their future demand
for mint oils than the buyers.

Most of the mint oil forward contracts that are currently
used contain clauses which state that no liability’ will
accrue to the grower due to the failure of his crop. Such
escape clauses could be maintained in this new forward
contract system.

A potential advantage of a full participation forward
contract market over a federal volume control marketing order

is that the buyers would be able to purchase all of the

93
production of the better producers before purchasing any of
the production of the producers of poorer quality oil.

A producer allotment program, such as the one currently in
effect for farwest spearmint oil, prohibits any grower from
marketing more than a specified percentage of his allotment
base. This aspect of the producer allotment program will be
covered more thoroughly in the next chapter.

The flip side of this ’advantage’, however, is that buyers
would have the power to discriminate against growers for
reasons other than mint oil quality considerations.

A forward contract market system.‘would. also stimulate
growers to compete for forward contracts while discouraging
any grower from producing what he could not sell at harvest
time. This could potentially lead to more efficient resource
use in the U.S. mint oil subsector.

Buyers and major users, however, benefit from the
existence of large grower stocks of unsold mint oil because
it lessens their demand for inventory purchases and it
weakens the bargaining power of individual growers.

One problem with this type of market arrangement is that
natural mint oils could lose their status as preferred market
flavors. Substitutes such as synthetic mint oils, cornmint
oil imports, or foreign peppermint and spearmint oil imports
could be purchased by buyers and users whenever there was a
need for mint oils not supplied by contracting. Users prefer

natural mint oils, but may increase their use of substitutes

94
if they offer greater surplus stocks for times of supply or
demand shocks.

If some kind of restrictions were not placed on the
marketing of these mint oil substitutes then natural U.S.
mint oils could lose a significant share of the mint oil
market. One possible solution would be to require buyers and
users to forward contract for their imports of foreign mint
oils or purchases of synthetic mint oils.

Most of the buyers that were interviewed expressed
opposition to the idea of a full participation forward
contract market system for mint oils. Some, however,
believed that it couLd be made to work while one concluded
that it would make the buyer’s job easier.

There are currently no full participation forward contract
market systems in the U.S. Enabling legislation of some kind
to authorize such a system would have to be passed, and
interest groups would surely make this difficult.

There are many design details that would have to be worked
out in order to effectively implement such a system. It
would probably be easier to design for mint, however, than
for most other agricultural commodities due to the large
amount of mint oil that is already produced under forward
contract and the relatively simple organization of the
subsector.

In theory such a system would transfer price risk from the

grower to the buyer or the user. It is difficult to say

95
whether or not such a system, in practice, would improve the
performance of the 048. mint oil subsector because no such

system has ever existed in any other subsector.

Stare Marketing Orders

The state mint oil marketing orders, or state mint
commissions as some of them are known, are part of a very
successful production research system, as has been. noted
above. None of the state orders, however, currently perform
any marketing functions. In fact, volume control activities
of any kind are expressly prohibited by most of the orders.

No single state could significantly influence the price of
mint oil through volume controls. Moreover, multiple volume
control programs through state orders would be difficult to
administer and coordinate, and would offer no advantage over

a federal volume control marketing order.

Conciusiog

The settlement of the anti-trust lawsuit in 1975 has
significantly increased competition at the buyer level.
Moreover, farwest spearmint growers have increased their
market power by establishing a volume control marketing order
in 1980.

Over the last 20 years the main growth in U.S. mint oil
production has been in the farwest. During this time, the

farwest growers have been far more active than the midwest

96
growers in efforts to redress the grower-buyer market power
imbalance. Moreover, the farwest spearmint growers have had
more success than the farwest peppermint growers in
organizing themselves. A comparison of the farwest spearmint
oil markets with the farwest peppermint oil markets will be

the subject of the next chapter.

CHAPTER FIVE

THE FARWEST SPEARMINT OIL FEDERAL MARKETING
ORDER AND THE U.S. MINT OIL SUBSECTOR

Orderly Marketing Prpblems in rhe U.S. Min; Oil Subsector

Orderly marketing problems in the U.S. mint oil subsector
are covered in a section of chapter one. To briefly
summarize, however, the mint oil markets in the U.S. have
been cyclical because growers have been over-responding to
price signals. Thus, years of high prices and short supplies
have been followed by years of relatively low prices and
excess supplies.

This has caused liquidity problems for many mint growers,
especially in recent years when prices of many alternative
crops have been depressed.

In response to this situation spearmint growers in the
Northwest established a federal volume control marketing
order. It was their goal to better balance spearmint oil
supply with demand each marketing year at prices that more
consistently covered the costs of production of typical mint
growers. The controversy over how to determine what these

costs are is noted in chapter one.

97

98

An Simple Recursive Model of Supply and Demand
in the Farwest Scotch Spearmint Oil Subsector

Economic Rationale of Model

A recursive econometric model of supply and demand in the
farwest scotch spearmint oil market (1971-86) was designed
and run so that estimates could be made of the price
elasticities of supply and demand, and the price flexibility.
There was insufficient data on season average grower prices
to create a similar model for farwest native spearmint oil.

The economic rationale of the model was presented in
chapter two in the section on supply and price cycles. It
was the conclusion of a previous mint oil study that past
price behavior would influence current supply, and that
current supply, in turn, would influence. current jprices,
which would, in turn, influence future supply, and so forth
(Greenhalgh). This would explain the supply and price cycles

that occur in U.S. mint oil markets at the grower level.

Model Design

(1) Supply equation - Using ordinary least squares
regression, past season average farwest scotch prices were
tested as independent variables with current marketable
supply of farwest scotch oil (FWSMKT) as the dependent
variable. The season average prices of four and three years
past (P t-4, P t—3) were found to be “statistically

significant at the .01 level.

99

The average of P t-4 and P t-3 (FWSPAG) was used for the
final model, based on the idea that growers would consider
past averages when making future production decisions. This
equation was used to estimate the price elasticity of supply
for farwest scotch.

(2) Demand Equation - It was hypothesized that as a
dependent variable, current season average farwest scotch
price (AVGSPR) would be determined by both supply and demand
side variables. This equation was used to estimate the price
flexibility of farwest scotch.

The average of current marketable farwest scotch supply
and the marketable supply from the past year (FWSMAG) was
selected as an independent variable from the supply side.

The annual U.S. population between the ages of 5 and 34
(POP34) was selected as an independent variable from the
demand side because this is the demographic group that
consumes the largest quantity of goods flavored with mint
oil, notably gum, candy, and mouthwash.

Years were entered chronologically ' (TIME) as an
independent variable to describe trends or the effects of
omitted variables such as the development of new consumer
products that use mint oil, or changes in taste and diet.
All three independent variables were statistically
significant at .01 level.

(3) A third equation outside the recursive model was run

in order to estimate the price elasticity of demand. The

100
current annual buyer purchases of farwest scotch oil at the
grower level (FWSDEM) was selected as a dependent variable
while the current season average farwest scotch price

(AVGSPR) was selected as an independent variable.

Results

The supply equation had an adjusted R-squared of .71 while
the demand equation had an adjusted R-squared of .86. This
indicates that the independent variables in the equations are
highly correlated with the dependent variables. Given the
economic rationale of the model described above and in
chapter two the relatively "high" adjusted R-squareds
indicate that the model has "good" explanatory power.

The third equation had an adjusted R-squared of .26 which
clearly indicates that some important independent variables
were omitted. This is not surprising considering the mixed
objectives of the buyers, particularly their speculative
demand. They could very well increase their purchases of
mint oil when prices were rising if they expected that they
could sell it for an even higher price at a latter time.

In addition, the buyers’ desire to meet the supply needs
of their user—clients may require them to make large
purchases when prices are rising. This could occur, for
instance, if a demand shock were brought about by the

introduction of a new consumer product that uses mint oil.

101

The three equations were tested for autocorrelation with
Durbin-Watson statistics. At the .05 level, no
autocorrelation was indicated for the supply and demand
equations. The D-W statistic for the third equation was
inconclusive.

Using the means of the values of the dependent variables,
the price elasticities of supply and demand were estimated to
be 1.12 and .30, respectively, while the price flexibility
with respect to supply was estimated to be .83. Some of the
parameter coefficient estimates of the model were used as
impact multipliers to estimate the following economic
relationships:

(1) A $1.00 change in the average of t-4 and t-3 farwest

scotch season average prices leads to a 60,600 lbs. change

in the same direction of t farwest scotch supply.

(2) A 100,000 lbs. change in the average of t-l and t

farwest scotch supply leads to a $1.55 change in the

opposite direction of the t farwest scotch season average
price.

(3) A $1.00 change in the t farwest scotch season average

price leads to an 11,600 lbs. change in the opposite
direction of t farwest scotch demand.

Conclusion

The model supports the proposition that the supply and
price cycles of the farwest scotch spearmint oil market are
caused by the lagged over-response of growers to price
signals. Moreover, it is apparent that buyer demand for
scotch oil is very inelastic. This is what economic theory

would predict of an industrial commodity like spearmint oil

102
that has no close substitutes. The unwillingness of
industrial users to use mint oil substitutes has already been
covered.

The "cobweb" theorem of supply-demand interaction seems to
fit the description of farwest scotch market quite closely.
It assumes that growers respond positiveLy to past prices,
that a lag exists between past prices and supply response,
and that prices are determined by current supply (Ferris and
Thompson, p.39).

There are three supply-demand conditions described by the
theorem - constant amplitude of price and supply cycles,
converging cycles, or exploding cycles (Ferris and Thompson,
p.39-40). The latter describes the farwest scotch spearmint
oil market.

Explosive cycles result when the price elasticity of
supply is greater than the price elasticity of demand. This
was certainly the case in the farwest scotch market before
the marketing order. An inspection of figure 5.3 will
confirm that between 1967 and the early 1980’s the supply and

price cycles were becoming of increasing amplitude.

De ' 'o o h ket'n 0 de

The farwest spearmint oil federal marketing order operates
with two major volume control mechanisms - a producer
allotment program and a reserve pool. There are two classes

of spearmint oil which are covered by the marketing order-

103
class one, scotch spearmint oil, and class three, native
spearmint oil. Class two, second cut scotch spearmint oil,
was discontinued in 1983. The order is run by the Spearmint
Oil Administrative Committee (hereafter referred to as the
committee), which is composed of seven elected growers and
one public member.

When the order was established in 1980 each farwest
spearmint oil grower was issued an allotment base certificate
for one or both classes of spearmint oil. The base for each
grower was determined by the highest of the following
alternatives.

(1) The average annual number of pounds of that class of

oil sold during any two marketing years of the

representative base period (1977, 1978, and 1979 marketing
years.)

(2) The average volume of that class of oil sold during

the representative period plus 1/3 of the grower’s surplus

stock of that class of oil as of April 14, 1980.

(3) The quantity of that class of oil sold during the

1979 marketing year, plus the entire grower’s surplus

stock of that class of oil as of April 14, 1980.

On or before February 15 the committee will recommend to
the Secretary of Agriculture a saleable quantity and
allotment percentage for each class of oil for the upcoming
marketing year (June 1-May 31). The saleable quantity for
each class of oil is the total volume of that oil which
growers may sell during the marketing year.

The allotment percentage for each class of oil is derived

by dividing the saleable quantity by the total allotment

base. Each grower is then issued an annual allotment

104
certificate in pounds for the applicable class of oil, which
is calculated by multiplying the grower’s allotment base by
the applicable allotment percentage.

By November 1 the committee will identify any oil that
individual growers have produced above the volume specified
on their annual allotment certificates. This excess oil is
placed into a reserve pool which is administered by the
committee.

The reserve pool oil may not be sold that marketing year
unless the committee decides that it is appropriate to open
up the pool. There is a reserve pool for each class of oil.

A grower who produces less oil than his annual allotment
may fill his deficiency by purchasing another grower’s excess
production before October 15. He may also fill his
deficiency by taking out excess oil from the reserve pool
that he previously produced. Thus, growers with large
volumes of excess oil in the reserve pool at the beginning of
a season usually take it out and sell it as part of their
annual allotment that marketing year.

A grower is free to sell any of his base, or rent his base
for a year (by selling his annual allotment). In 1987 base
for each class of oil was selling for about $7 a pound, and
annual allotments were selling for about 10% of the market
value of the oil, around $1.50 a pound for scotch and $1.00 a

pound for native.

105

Only growers who intend to produce spearmint oil may
purchase base. If spearmint oil is not produced in the two
years following the purchase, the committee will revoke the
base from the owner.

If a grower produced less oil than his annual allotment
during a season he would have a choice of either selling the
remaining allotment or purchasing excess oil from other
growers to fill it. The grower’s choice would probably
depend upon the quality of excess oil that was available, and
the price he could get for it relative to the price he could
get for his remaining allotment.

The grower’s right to sell allotment and base is highly
controversial. Many opponents of producer allotment programs
believe that established growers reap large ‘profits from
selling their "rights" to produce or sell a commodity to new
or expanding growers.

The criticisms of the spearmint oil order relating to base
and allotment sales are covered in a section below. In
addition, there is a section on past producer allotment
programs that reviews the problems associated with base and
allotment sales in the hops and tobacco subsectors.

Most of the subsector participants that were interviewed
concluded that forward contracting between buyers and growers
had not been significantly affected by the existence of the

order. The buyers’ desire to contract for the purchase of

106
the best quality spearmint oil before harvest has not

diminished since 1980.

The Ecpnomics of Volume Conrrol Programs

In order to succeed a volume control program must solve
five major problems. It must be able to (Osbourne, p.835):
(1) determine the appropriate level of total supply:

(2) efficiently and equitably allocate marketable supply
among members;

(3) predict, and if possible discourage production by
non-members;

(4) detect cheating by members;

(5) deter members from cheating.

This section will describe how' the spearmint oil volume
control marketing order has dealt with each of these issues.

What constitutes an "appropriate" level of total
production depends upon the goals of the volume control
program. The major goal of producer cartels is to maximize.
member profits. The major goal of federal marketing order
volume control programs for fruits, vegetables, and specialty
crops, however, is to achieve "orderly marketing."

Section Two of the American Agricultural Marketing Act of
1937 (AAMA), the enabling legislation of federal marketing
orders, prohibits any order from maintaining grower prices
above parity. The concept of parity prices, however, has
become outmoded because its definition does not adequately

factor in the great increases in productivity that have

107
occurred in the U.S. agricultural sector since the 1910-14
base period.

Although it remains in much of the permanent federal
agricultural legislation, the standard of parity prices is
gradually being replaced by a less precise but more
appropriate standard of equity - the costs of production
(Polopolus et. al., p.12).

In the case of the spearmint order the "appropriate" level
of marketable supply is that which supports average grower
spearmint oil prices at "break-even" levels for typical well-
managed growers.

If marketable supply is significantly less than this level
monopoly profits will begin to accrue to growers and the USDA
will demand the reserve pools be opened in the short run and
that saleable quantities be increased in the following year.

If, on the other hand, marketable supply is significantly
more than this level then there will be widespread financial
distress in the industry, and the USDA will be likely to
approve smaller saleable quantities.

As explained in chapter two, demand for spearmint oil at
the user level is relatively stable because demand for
consumer products that use spearmint oil is expected to grow
slowly for the foreseeable future. The demand at the buyer
level is less stable because of buyer speculation about

levels of grower stocks and prices at the grower level.

108

It is the large price-depressing grower stocks of unsold
spearmint oil that the order seeks to eliminate with its
volume controls in the short run. However, by raising and
stabilizing grower prices during the high supply/low price
phases of the supply and price cycles, the order discourages
the production cutbacks and higher prices that usually follow
this period. The effectiveness of the order in arresting the
spearmint oil market and production cycles is considered
below.

The committee determines the saleable quantities for both
class one and three spearmint oil as follows:

(1) Trade demand (Estimated from the average of the
previous five years’ demand.)

(2) Plus desirable carry-out (The committee realizes the
importance of maintaining some surplus quantity to deal
with supply or demand shocks.)

(3) Equals the total supply of class one or three
spearmint oil needed for that marketing year.

(4) Minus the surplus stocks of unsold oil that are
projected to carry over from the previous year.

(5) Equals the saleable quantity of class one or three
spearmint oil that is needed.

The committee then divides these quantities by the total

bases to determine the allotment percentages for each class

of oil.
The committee basically preserves the pre-1980
distribution of spearmint oil production. It does not

redistribute the base quantities that were originally issued

to individual growers. In recent years, however,

109
disproportionately large amounts of new base have been issued
to the smallest growers. The committee has determined that
it is important to increase the size of the smallest
baseholders in order to ensure their economic viability.

In addition, it is attempting to bring the smallest
established baseholders up to the average size of producers
that were receiving base for the first timed This is
necessary because some of the initial members of the order
only qualified for minimal quantities of base when it was
first issued in 1980.

The amount of base currently being issued through the
annual lottery to first time growers, however, is figured not
by alternative base year formulas, but rather by
considerations of minimum efficient firm size.

The committee and order personnel stay informed of
spearmint oil production in China, the midwest, and South
Dakota -through USDA reports, buyer estimates, and other
sources. There is only one grower in South Dakota, but in
some years he has produced up to 100,000 pounds of scotch oil
since the order’s establishment.

Due to the grower’s proximity to the Northwest, his oil is
the closest substitute available to class one spearmint oil.
This has been a source of some concern to the order in recent
years. It was not believed that mint could survive the harsh
winters of South Dakota. Nevertheless, the AMS marketing

specialist for the spearmint order stated that it is too late

110
to extend the boundaries of the order, thus annexation of the
grower is not likely to occur.

Some baseholders are apparently selling excess production
in violation of marketing order regulations. There is
evidence that up to 24 drums of farwest native oil were sold
to a buyer as midwest native oil earlier this year. In
situations such as these, the committee hires an investigator
to determine if a violation has occurred.

If there is evidence that a marketing order violation has
occurred then the case is turned over to USDA Office of
Investigation, who gathers information in preparation for
prosecution. The U.S. attorney can then prosecute the grower
in federal district court. In 1986 the criminal penalty for
selling reserve pool oil was raised from $500 to $5000 a
count. Moreover, the buyer may also seek civil damages.

The committee has approved some recommendations that call
for stricter enforcement of order regulations. Order
personnel will scrutinize acreage, crop conditions, and
harvest through frequent visits to individual growers and
aerial inspection. In addition, order personnel may inspect
a grower’s oil at any time during normal business hours.
Finally, the order has strict reporting procedures that all

buyers and growers are obligated to follow.

111

Performance Measures of the Farwest
Spearmint and Peppermint Oil Markets

The performance of farwest scotch and native spearmint
growers and Willamette, Yakima, and Madras peppermint growers
will be analyzed on the basis of three criteria which are
related to issues of stability, equity, and resource
allocation, respectively:

(1) The stability of mint oil prices and supply over a
period of marketing years.

(2) The difference between average mint oil prices that
growers receive and their average cost of production
within each marketing year.

(3) The balance between mint oil supply and demand within
each marketing year.

These performance criteria are drawn from the definition of
orderly marketing presented in chapter one.

The Willamette, Yakima, and Madras peppermint oil
production regions are the three largest of the four in the
farwest. The Eastern Oregon and Idaho peppermint oil
production region, which is the smallest, is being excluded
because of an absence of data on average costs of production.

Although some differences do exist between farwest
spearmint and peppermint growers, which will be discussed
below, a comparative analysis of the two will tell a great
deal about the major difference - the federal volume control

marketing order.

112
Criteria 1

U.S. spearmint and peppermint oil price cycles have been
similar between 1967 and 1986 (Figures 5.1, 5.2). Table 5.1
contains a series of INS values measuring the instability of
farwest mint oil prices before and after 1980. The prices
used to calculate these INS values were the open spot market
and contract prices recorded around March of each marketing
year, and the prices recorded at the season’s close around
October of each marketing year. These prices are all in 1986
constant dollars, and are listed in the B appendix for each
mint oil.

The INS measure may be defined as the variance of annual
percentage changes (Dalziell, p.50). This measure
exponentially detrends any series, thus measuring zero
variance when a variable changes in the same direction by a
constant percentage from period to period.

The economic rationale for this measure is that subsector
participants can adapt to constant increases or decreases
over time, but will have more difficulty dealing with widely
fluctuating period to period changes (Dalziell, p.51).

From 1965 to 1979 scotch and native spearmint oils had the
most unstable prices of any of the farwest mint oils (Table
5.1). The farwest mint oils are ranked from the most to the
least stable. Since the establishment of the marketing order
in 1980 scotch and native spearmint oil prices have been the

most stable (Table 5.1).

113

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115
Although all farwest mint oil prices have become more
stable since 1980, the volume control programs have clearly
made spearmint oil prices more stable than they would have
been in the absence of the order. All of the buyers that

were interviewed confirmed that the. order’ has stabilized

spearmint oil prices.

TABLE 5.1

INS PRICE ANALYSIS OF FARWEST PEPPERMINT AND SPEARMINT OILS

FWS FWN YAKIMA WILLAMETTE IDAHO MADRAS
RANK (6) (5) (4) (1) (3) (2)
1965-79 .2838 .1650 .1329 .1031 .1068 .1061
1980-86 .0073 .0182 .0603 .0317 .0558 .0313

RANK

(1)

(2)

(6)

(4)

(5) (3)

RANK

1965-79

1980-86

RANK

116

TABLE 5.2

INS PRODUCTION ANALYSIS OF FARWEST

FWS

(6)

.1499

.0256

(2)

PEPPERMINT AND SPEARMINT OILS

FWN
(5)
.1353

.2078

(5)

YAKIMA
(4)
.0843

.0314

(4)

WILLAMETTE
(1)
.0266

.0135

(1)

IDAHO
(3)
.0636

.0360

(5)

MADRAS
(2)
.0355

.0268

(3)

117

Since the establishment of the order in 1980 scotch oil
production. has become :much. more stable while native oil
production has become more unstable (Table 5.2). The
production of farwest spearmint oils is naturally more
unstable than that of farwest peppermint oils because they
are more often second-cut and because they are produced in a
more concentrated area, and are thus more susceptible to
supply shocks from poor weather or soil conditions
(Greenhalgh, p.12, 30). Almost all farwest spearmint oil is
produced in the Yakima valley of south-central Washington.
Moreover, the least stable of the farwest peppermints, Yakima
oil, is the only peppermint oil that is significantly second
cut.

In 1986 surplus stocks of Willamette, Yakima, and Madras
peppermint oils were each at their lowest level in nine years
(Figures 5.13 - 5.15). Willamette stocks were down from 35%
in 1982 to 10% in 1986, while Yakima and Madras declined from
17% and 20%, respectively, to 2% and 3% (Table 5.3).

In 1987 prices have increased for all of these peppermint
oils, while the amount covered by forward contracts has also
increased. Thus, the low supply/high price phase of the
cycle has begun for the farwest peppermint oils.

Since 1980 the available surplus stocks of unsold scotch
and native oils have been reduced from their 1978-79 highs
and have stabilized at approximately equilibrium, or

"pipeline", levels (Figures 5.16 - 5.17). When surplus

118
stocks rise above this level prices fall as it becomes a
buyer’s market. When stocks fall below this level, however,
buyers begin to fear an impending shortage, speculators begin
to buy, and prices rise.

During the 1982-87 period the average size of available
scotch and native surplus stocks, the carry out, has remained
at the intermediate levels of approximately 12% and 7%,
respectively (Table 5.4). A. comparison of the standard
deviation figures in tables 5.3 and 5.4 show that the
spearmint oil carry out stocks have been less variable than
those of the peppermint oils.

Even if the spearmint carry out stocks do run low, the
existence of reserve pool oil which may be made available by
the committee at any time mitigates buyer fears of shortages
and removes incentives for speculators. Moreover, with
farwest spearmint growers consistently receiving prices that
cover their cost of production, users and buyers have no
reason to expect acreage reductions. Thus, production
instability from acreage fluctuations is likely to be reduced
under the order.

Average nominal grower scotch and native prices that have
ranged between $14.00 - $14.70 and $9.00 - $10.00,
respectively, during the 1982-86 period (Table 5.5).

The supply and price cycles in the farwest scotch,

Willamette, Yakima, and Madras markets are illustrated in

119

TABLE 5.3 FARHEST HINT OIL SURPLUS STOCKS AS A PERCENTAGE OF TOTAL SUPPLY

Hillamette Yakima Hadras FHS FUN

1982 35.02 17.02 20.22 34.22 53.92

1983 42.82 15.02 11.92 20.32 21.22

1984 29.22 30.32 6.92 20.72 18.22

1985 10.82 26.32 6.02 11.62 38.42

1986 10.22 1.72 2.92 40.82 45.12

Average 25.62 18.12 9.62 25.62 35.42

Std. DCVIBTIOH 13.02 10.02 6.12 10.52 13.72

TABLE 5.4 BREAKDOHN OF SCOTCH ANO NATIVE SURPLUS STOCKS

Carry Out Reserve P001

FHS FHN FHS FHN

1982 19.22 9.92 15.02 44.02

1983 15.22 3.62 5.12 17.62

1984 9.52 2.92 11.22 15.42

1985 8.22 11.72 3.42 26.72

1986 7.42 4.22 33.42 40.92

Average 11.92 6.52 13.62 28.92

Std. Oev:at:on 4.62 3.62 10.82 11.72
CoeffICIent of

Variation 38.32 56.02 78.82 40.52

TABLE 5.5 FARHEST HINT OIL PRICES (Nomnnal)

1982
1983
1984
1985
1986

Average

Std. Oevuatnon
Coeffecuent of
Variation

Hullamette
$8.50
$10.00
$9.75
$11.00
$11.50

$10.15
$1.04

10.32

Yakima
$9.00
$10.50
$10.00
$8.00
$7.50

$9.00
$1.14

12.72

Madras

$9.25
$11.00
$12.00
$12.50
$13.00

$11.55
$1.33

11.52

FHS
$14.70
$14.70
$14.50
$14.50
$14.00

$14.48
$0.26

1.82

FHN
$9.00
$9.50

$10.00
$9.70
$9.00

$9.44
$0.39

4.22

120
figures 5.3, 5.5, 5.6, and 5.7, respectively. These confirm
that the scotch cycles have stabilized while the peppermint
oil markets have not. A comparison of figures 5.3 and 5.4
illustrates the econometric model's conclusion that the price
elasticity of supply is significantly higher than the price
elasticity of demand at the grower level.

The volume controls of the marketing order can be thought
of as lowering the price elasticity of supply, and thus
reducing the "exploding cobweb" cycles. Moreover, by
reducing available grower stocks of unsold spearmint oil the
volume controls have raised the price flexibility - i.e. made
grower prices more immediately responsive to changes in
supply. Large stocks of mint oil have had the effect of
lowering price flexibility in the past (Greenhalgh, p.66).

Thus, both scotch and native oil markets appear to have
stabilized with average grower prices at approximately
average break-even levels and carry out stocks sufficiently
stabilized to maintain those prices. Farwest peppermint oil

markets, on the other hand, continue to be cyclical.

CRITERIA 2

Following the high prices of the mid-1970's farwest mint
growers overplanted. Beginning with 1978 and extending into
the 1980’s, there were large carryout stocks of unsold oil in
all of the farwest mint oil markets. Figures 5.13 - 5.17

show this for the five farwest mint oil markets.

121

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126

The overplanting became apparent to buyers during 1977 and
1978, when season average prices fell below the estimated
average cost of production in all five of these markets. A
comparison of figures 5.8, 5.9, and 5.10 with 5.11 and 5.12
show that scotch and native oil prices were the quickest to
recover from these declines and that they have each
stabilized at about their break-even levels, while peppermint
oil prices have been more variable and have remained below
their break-even levels.

The break-even prices in these figures are both
controversial and inexact. As is noted in the front of the
spearmint cost of production study, an individual grower's
costs of production will vary both over time and with those
of other growers.

The break-even prices that are used in these figures do
account for both changes in yield and net changes in the
price level of major agricultural inputs over time. They are
average figures, however, that cannot account for differences
in farm site, grower experience and capability, or other
differences that exist between individual growers.

The average production cost per acre for each of the five
mint oils in a single year was taken from two Oregon and two
Washington Cooperative Extension Bulletins (Gingrich and
Matzat; Hinman and Griffin, 1982; Hinman and Griffin, 1986:

and Weber and Holst).

127

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132

These costs were then adjusted for inflation with the USDA
prices paid by farmers index for production items, interests,
taxes, and wage rates for the years 1975 to 1986. This
produced the 1975-86 annual average production costs per acre
for each of the five production areas.

Each of these figures was then divided 'by the actual
average yield of the respective production area to derive the
annual average break—even prices. The input mix for farwest
mint growers has remained relatively constant over this time.
All of these figures are in nominal dollars.

A buyer estimated that a grower who did everything that
the cost of production studies specified. would. have had
yields that were 15% to 30% greater than average. In view of
this, "revised" break-even prices were also figured in the
same way as above, except that each annual average production
cost per acre was divided by yield figures that were 15% and
30% greater than average.

It should be noted that scotch and native oil prices have
been maintained, for the most part, at the "revised" break-
even levels and that apparently farwest spearmint growers
are, on average, at least covering their costs. This
indicates that the revised break-even levels may be more
accurate.

Although the average mint grower may have lower yields, he
will also have lower costs because he is not doing everything

that is assumed in the cost of production study. In any

133
event, the break-even levels in the figures should be
considered as only approximate estimates of the true average

break-even levels.

Criteria 3

It is the goal of the spearmint order administrative
committee to balance supply and demand with an appropriate
carry out to maintain market stability. It is more efficient
if growers produce close to their annual saleable allotments
and the reserve pool is small.

If there is excess production above the saleable quantity
in the industry, then the reserve pool absorbs the surplus,
and mint oil goes unsold. Although buyers pay most of the
storage cost, there is still an opportunity cost associated
with large stores of unsold mint oil.

A comparison of the average stock figures for the five
mint oil markets in table 5.3 and a comparison of figures
5.13 - 5.17 show that during the 1982-86 period a larger
percentage of total farwest peppermint, oil supplies ‘were
consumed than those of total farwest spearmint oil.

Scotch oil supply was closer to demand, on average, than
native oil supply during the 1982-86 period. In fact, scotch
and Willamette peppermint oils were comparable, with
approximately 75% of both oil supplies being consumed during
the period, while total scotch stocks were less variable.

Yakima and Madras oils have had the smallest stocks, with an

134

(Million!)

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139
average of 18% and 10%, respectively, during the 1982-86
period.

A comparison of the 5 year averages in table 5.6 indicates
that farwest spearmint oil stocks have tended to be larger
than those of farwest peppermint oils, with some exceptions,
even in the years prior to 1980. Moreover, farwest spearmint
growers had excellent growing conditions. and. higher' than
average yields in 1986 when there were huge increases in the
size of both scotch and native oil reserve pools.

Figures 5.18 and 5.19 show that farwest spearmint growers
have responded to the saleable percentages of the producer
allotment program. A comparison of figures 5.16 and 5.17,
however, show that scotch growers have produced far less
excess oil than native growers.

First cut acreage has more closely followed the movement
of the saleable percentage than second cut acreage for both
types of spearmint oils. This is predictable, given the

lower marginal costs of second cutting.

CONCLUSION

Both farwest spearmint oil markets have stabilized with
prices at about break-even levels and appropriate available
stock levels to maintain those prices. Moreover, there is no
evidence that spearmint oil prices or stocks will cycle in

the foreseeable future. Although a higher percentage of the

140

TABLE 5.6 FARHEST HINT OIL GROHER STOCKS 0F
UNSOLD HINT 01L AS A PERCENTAGE OF TOTAL SUPPLY

5 yr

Year Hullanette Yakima Madras FHS FHN

1967 1.41 19.31 0.01 3.51 15.11
1968 2.61 36.11 0.01 16.11 31.31
1969 8.91 32.11 26.11 4.61 11.01
1970 12.61 22.01 20.41 39.01 36.41
1971 4.61 5.31 15.71 36.11 25.71
Avg. 6.01 23.01 12.41 19.91 23.91
1972 4.11 5.71 5.01 10.11 11.61
1973 1.61 7.11 2.81 0.01 0.01
1974 0.41 54.01 6.11 0.01 26.21
1975 0.01 0.61 0.61 8.51 14.81
1976 0.41 0.21 0.11 0.01 0.01
Avg. 1.31 13.51 2.91 3.71 10.51
1977 0.61 0.71 0.71 23.81 14.31
1978 8.31 15.91 27.21 47.41 22.61
1979 38.41 30.21 46.11 52.31 27.31
1980 48.01 35.11 58.51 48.81 50.31
1981 53.11 26.11 34.31 37.31 53.81
Avg. 29.71 21.61 33.41 41.91 33.71
1982 35.01 17.01 20.21 34.21 53.91
1983 42.81 15.01 11.91 20.31 21.21
1984 29.21 30.31 6.91 20.71 18.21
1985 10.81 26.31 6.01 11.61 38.41
1986 10.21 1.71 2.91 40.81 45.11
Avg. 25.61 18.11 9.61 25.61 35.41

141

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143
total farwest native and scotch spearmint supply has gone
unsold, this percentage was generally higher before the
marketing order.

The farwest peppermint oil markets have been more volatile
with both prices and stocks in greater fluctuation. Between
1982 and 1986 prices in all three farwest peppermint oil
markets were below the break-even levels. Furthermore, with
low stock levels and prices rising, the cycle is clearly
still present in the peppermint oil markets.

On the basis of the above analysis farwest spearmint oil
markets have performed better than those of farwest
peppermint oil since the establishment of the farwest

spearmint oil marketing order.

Identification of Spearmint Order Proponents and Opponents

The major proponents of the order are the farwest
spearmint growers, the vast majority of whom voted to
establish it and continue to support it. They perceive that
the order is both raising and stabilizing their returns. The
manager and personnel of the order, and some of the AMS
personnel who work with the order are also supporters.

A number of proponents support the order because they
believe that it is a legitimate mechanism for better
balancing the market power between the many small growers and
the few large buyers. These individuals tend to believe that

the loss of freedom for the individual to make marketing

144
decisions is more than made up for by the improved
coordination of the farwest spearmint grower industry as a
whole.

The primary opponents of the order are the major buyers,
who vigorously opposed its establishment. The order weakens
their market power relative to the growers. Most of the
buyers identified themselves as believers in the "free
market" system who see the marketing order as unjustified
government interference with their businesses.

In addition, some buyers resent. the jprice stabilizing
effect of the order which interferes with their speculative
activities. Some of the buyers established themselves
through mint oil speculation, and have continued to profit
from it.

A dozen or so dissatisfied farwest spearmint growers also
oppose the order. Most of these growers assert that they,
like the buyers, are opposed to the volume control marketing
order because it interferes with the "free market".

A number of federal government officials have expressed
opposition to volume control marketing orders in principle,
including some of the Office of Management and Budget, the
Small Business Administration, the Federal Trade Commission,
and the Department of Justice.

The general philosophy of many of the opponents is that
the spearmint order constitutes an unjustified interference

with the "free market" and the individual rights of the

145

grower to market as much mint oil as he wishes. They do not
believe that any government mandated volume control program
could possibly improve the coordination. of ‘the industry.
Many of the opponents also question the effect of the order
on the subsector in the long run, even if it does raise and
stabilize grower returns in the short run.

This thesis concentrated at the grower and buyer levels,
and did not investigate user' positions on the marketing

order.

Otheerroducer Allotment Programs

Tw0 major producer allotment programs that preceded the
spearmint order are the tobacco program, dating from 1938,
and the hops order, which existed from 1966 to 1985. The
tobacco program. consists of price supports, acreage
allotments (production rights) and marketing quotas
(marketing rights). A 1982 General Accounting Office (GAO)
study examined tobacco growers in six major production areas.

It found that within these areas 68% of the owners of
tobacco production and marketing rights were not active
tobacco growers, but rather "were retired farmers; widows of
farmers; and nonfarming owners such as doctors, teachers,
realtors, truck drivers, government employees, and

construction workers" (U.S. Comptroller General, 1982, p.i,

9).

146

In a leasing situation tobacco is produced and marketed on
another farm in the same county while in a rental situation
it is produced and marketed from the owner’s base farm.
Leasing was first authorized in 1961 when it was estimated
that about 2% of allotment/quota owners would lease their
rights to others. The study found that in the early 1980’s
42% of the owners were leasing and 26% were renting their
allotments and/or quotas to those who actually produced and
marketed the tobacco.

The study found. that. in. the early 1980’s. owners 'were
leasing their allotments and/or quotas for 25 cents to 90
cents a pound while in rental situations owners were taking
approximately 40 cents to 50 cents per pound of tobacco sales
(U.S. Comptroller General, 1982, p.i, 12).

The GAO study concludes that active tobacco growers are no
longer the primary beneficiaries of the tobacco program and
that the majority of such growers have higher costs of
production due to the expense of leasing or rental of quotas
(U.S. Comptroller General, 1982, p.iii, 22).

It also notes that the allotments and quotas have
contributed to higher U.S. tobacco prices by restricting the
available supply, which in turn has caused U.S. tobacco to
become less competitive in world markets (U.S. Comptroller
General, 1982, p.22). Foreign tobacco has been taking an
increasing share of both the world and U.S. markets in recent

years.

147

Finally, the report argues that the tobacco program’ s
higher prices and consequent loss of markets have forced
reductions in marketing quotas during the late 1970’s and
early 1980's. Thus, although the unit price of tobacco may
be higher under the program, the report concludes that total
grower income may have fallen because of quota reductions.

The U.S. hops industry is similar to the 033. spearmint
oil industry in that production is largely forward
contracted; the demand for hops is derived from a small
number of large industrial users (primarily brewers); demand
at the grower level is inelastic; hops represents a very
small percentage of the final consumer good (beer); hops is a
perennial crop with high capital investment requirements for
the grower; and hops has high production and processing costs
per acre (Folwell, et. al., 1982, p.18). The hops industry,
like the spearmint oil industry, is subject to a high degree
of price and acreage instability.

The hops order was similar to the spearmint oil order. It
had a producer allotment program and a reserve pool for
excess production, and it covered growers in Washington,
Oregon, Idaho, and California. Studies of the hops order
conclude that it had stabilized both acreage and price
(Folwell, 1982, p.3, 4; Folwell, et. al., 1985, p.31).

They also found that the hops administrative committee had
"not unduly restricted the flow of U.S. produced hops to the

market" (Folwell, 1982, p.3). The studies conclude that

148
although the order did enhance U.S. hops prices it had no
significant impact on consumer prices of beer. They also
found that the order did not significantly affect U.S. hops
export markets, which were increasing in size during its
tenure (Folwell, 1982, p.5, 7).

Many aspects of the hops order, however, were
controversial.

(1) Those hops growers who originally received base in
1966 continued to receive new issues of base at no cost while
new hops growers had to rent or purchase base from them. In
1980 allotments were rented at around 15 cents a pound, about
10% of the market value of hops (Folwell, 1985, p.5).

(2) As with tobacco, many baseholders were not hops
growers. In fact, some breweries were vertically integrating
by purchasing base. Thus some individuals and corporations
that had purchased base were not active producers, the
intended beneficiaries of the marketing order.

(3) There was no limit on the frequency that allotments
or base could be transferred. Therefore, an active market
for base and allotment existed where either could be
exchanged daily. This encouraged the purchase of base and
allotment by non-producers.

(4) There was no limit on the tenure of the committee
members. This disturbed many observers of the industry who
believed that committee membership should change every few

years.

149

(5) Some industry observers believe that the order was
poorly managed. Shortly before its demise the committee
started a lawsuit against the Secretary of Agriculture. In
1982 a consultant proposed a number of reforms to the hops
administrative committee to deal with these sources of
controversy (Folwell, 1982, p. 8-13).

The spearmint oil committee was careful to adopt rules
that minimized these sources of controversy. It sets aside
new issues of base each year for new growers equal to 1/2 of
1% of total base for each class of spearmint oil.

The committee also certifies that all owners of base are
active spearmint growers and revokes the base of all owners
who are not. All growers that purchase base must produce
their allotment of spearmint for two years or else they will
have their base revoked. It was also decided that committee
members are prohibited from serving two consecutive two year

terms.

Criripisms of the Order

There are three major categories of spearmint order
criticisms. Those relating to the producer allotment and
reserve pool programs, those relating to the order’s
"infringement" on the buyer level of the subsector, and those
relating to the long run effects of the marketing order.

Each of these categories will be considered below.

150

A number of criticisms relate to the producer allotment
program, with its use of base and annual allotments.

(1) Some opponents charge that established farwest
spearmint growers are reaping substantial profits from the
sale of base and allotments.

The critics note that the cost of base or allotments must
be considered as a new cost of producing farwest spearmint
oil for the grower wishing to enter the industry, or for the
established grower wishing to expand his sales. Only the
small number of established or new growers who are issued a
small quantity of base from an annual lottery have no such
cost.

Some agricultural economists argue that base and
allotments must, at least at times, have value. The
Polopolus report, a recent study of federal marketing orders
for fruits, vegetables, and specialty crops, concluded that
"allotments have no meaning unless they assume some value, at
least periodically" (Polopolus, et.al. p.30). Raymond
Folwell, a professor of agricultural economics at the
University of Washington, shares this view (Folwell, 1985,
p.8):

"In the case of ... commodities such as mint ... the value

of government programs ... is transferrable and attached

to the allotment or base. Despite any efforts by
government or industry groups to reduce the value of such
programs to zero, it will never happen because of the fact
that the allotment (or base) is a scarce item and will
have ”some" economic value. The only way in which
(allotments or base) ... will have zero value is either to

render the programs completely ineffective or do away with
them entirely.

151

Folwell goes on to conclude that (Ibid):

"the challenge faced by industries ... which have a

producer allotment program is to minimize the value of the

allotment and still maintain the aspects of the program
which achieve the orderly marketing objectives."

Significant sale of allotments to newly entering growers,
who have start up costs, in contrast to sales to existing
growers, who may capture additional economies of scale, may
indicate a need for adjusting the order. The Polopolus
report asserted that:

”evidence of significant sale or rental of allotments to

newly entering growers as opposed to expansion of existing

producers, would be prima facie evidence of the existence
of the potential for supranormal profits and would support
an argument to modify the regulation to reduce barriers to

entry" (Polopolus, et.al. p.30).

Since the establishment of the order in 1980, however, only
5.4% of total base and 11.7% of total annual allotments have
been sold (Table 5.7).

All spearmint oil baseholders are active spearmint
growers, in contrast to the tobacco program and hops order,
where many baseholders were not active growers.

In addition, some new spearmint growers are being issued
base every year, as opposed to the hops subsector where all
new growers had to purchase base from the growers who were
originally issued base at no charge.

Thus, in contrast to the tobacco and hops programs, the
base and allotments of the spearmint oil order have only been

traded in small volumes between active spearmint growers.

Nevertheless, base and allotments do presently have a market

Years
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87

Totals

Source: Marketing Order

Total Base
3,240,844
3,291,849
3,295,129
3,351,201
3,384,364
3,413,591
3,442,005

23,418,983

Base

Transferred

207,812
204,880
242,242
248,667
178,183
127,257
55,163
1,264,204

152

TABLE 5.7 TOTAL BASE ANO ALLOTHENT TRANSFERS

Percentage
6.411
6.221
7.351
7.421
5.261
3.731
1.601
5.401

Total
Allotment
2,539,597
1,421,261

502,609
1,817,214
1,527,953
1,791,297
1,572,192

11,172,123

Deficiency

Transferred

329,661
262,237
79,116
244,970
184,762
144,484
59,075
1,304,305

Percentage
12.981
18.451
15.741
13.481
12.091

8.071
3.761
11.671

153
value, and are a significant initial or recurrent cost of
production, respectively, to the growers who must purchase
them.

As is noted above, in 1987 allotments were selling for
about 10% of the market value of the crop while base was
selling for about $7 a pound. A pound of base, however, only
entitles the grower to sell one half pound of spearmint oil,
or even less, in a given year, depending on the annual
allotment percentage.

The existence of high base and allotment values may
indicate that a producer allotment program has created high
barriers to entry and thus allowed growers to earn
supranormal profits (Polopolus, et.al. p.29-30). The analyst
examining the order must make a value judgment in determining
what constitutes a "high" base or allotment value.

The 1982 USDA Guidelines for Fruit, Vegetable, and
Specialty Crop Marketing Orders noted that a recent study
concluded "that producer allotment programs have the
potential for reducing open competition by restricting
the entry of new producers" (Comptroller General, 1985,
p.82). The Guidelines further stated the intention of the
USDA to eliminate all barriers to entry in federal marketing
orders within the next five years.

The committee is currently considering some proposals that
would reduce the market value of base and eliminate the

market value of allotments:

154

(1) One proposal would limit the transfer of base to

either' sons, daughters, or’ ‘their' spouses, or' 'to

individuals who have purchased the spearmint producing
assets of the grower.

(2) Another proposal would require all growers who are

deficient in production to transfer their excess allotment

back to the committee, who would then issue it to other
growers who have reserve pool oil.
Thus, although only a small percentage of total base and
allotments have been sold, the committee is concerned, and is
considering rules that would reduce the market value of the
base and allotments.

Both the AMS marketing specialist for spearmint oil and
the manager of the order support the idea of reducing the
market value of base and allotments, although the latter is
skeptical that it could be done without some kind of
loopholes. The manager argues that base and allotments have

value and that growers will figure out ways to capitalize

that value.

(2) Another criticism of the order is that it is a
bureaucratic nuisance. It has raised transaction costs
between buyers and growers. Before the order large amounts

of the business transaction could be done over the phone,
while now the extra paper work means more has to be done on
the spot.

Before 1980 buyers could purchase oil by the barrel, while
now they have to split some barrels because of the precise

quantities that growers are permitted to sell. Moreover, the

155
committee approved a plan to increase scrutiny of growers
this year.

(3) Critics of the order also argue that the allotments
issued to new growers are not large enough to be economically
viable. One buyer has estimated that a new grower of scotch
and native spearmint in the farwest would have to produce at '
least 4,000 and 6900 pounds a year, respectively, to be
economically viable.

The buyer asserted that any new spearmint grower ‘who
produced less than these quantities could not afford to
invest in the necessary spearmint root stock and special
field equipment.

The farwest spearmint marketing order, however, estimates
that a new grower of scotch and native spearmint in the
farwest would have to produce only 1,200 and 1,800 pounds a
year, respectively, to be economically viable. The personnel
of the order assert that small growers have minimal initial
investment costs because of their ability to have their crop
custom planted and harvested.

In the farwest most of the new spearmint growers have
survived, and even profited, with the small allotments that
the order has issued them. Moreover, the committee has been
increasing the base of the smaller growers faster than the
larger growers in recent years to make them even more

economically secure.

156

(4) Critics of the order allege that the total bases are
inflated for both native and scotch spearmint oil. This is
true, but of little importance. It looks bad. when an
allotment percentage is set at 40% instead of 80%. It brings
to mind the image of spearmint growers leaving 60% of their
land idle, but this is not the case.

The three alternative criteria for initially determining
the individual growers’ base quantities used oil sales and
stocks, rather than production figures, during a three year
base period. Moreover, the base period included some of the
largest production and sale years in recent subsector
history. Thus, the base figures are larger than the quantity
of mint oil that growers have been typically producing. In
fact, the base figures are inflated by about 50%.

The only significance of these inflated bases is that a
grower must purchase two pounds of base to sell one pound, or
even less, of spearmint oil. Therefore, while the price of
base is about $7 a pound, it costs more than $14 to get the
right to actually sell a pound.

If the bases were deflated, however, it is likely that the
price of base would simply rise to $14 a pound. In any
event, the committee is currently considering a proposal that
would reduce the total base quantities by 50%.

(5) Another criticism of the order is that it maintains
significant monopoly power by severely limiting entry into

the industry. Each year, new growers are only issued 1/2 of

157
1% of the total base quantities. The issue of grower entry
is particularly controversial among buyers and government
critics. It was a serious criticism of the now defunct hops
marketing order, which allowed no net entry.

There is no evidence that the order is currently
exercising significant monopolistic power. The analysis on
grower returns above indicates that scotch and native oil
prices have been stabilized at about the average cost of
production, even assuming 30% higher than average yields.

In addition, the committee is «currently' considering' a
proposal that would open up additional base to new growers
when the average of the most recent three years sales
exceeded the total allotment base.

If the cost of production studies are significantly
overstating the average breakeven prices, as some Ibuyers
charge, then there may be evidence of monopoly profits.

It is in the interest of these buyers to do their own
studies or surveys and to present their own cost of
production figures to the order and AMS personnel.
Otherwise, policymakers must use the current cost of
production studies as their standards, since there are no
alternative figures.

There are two major factors which limit the market power
of the order: (1) The existence of substitutes and
alternative sources of supply for industrial users of

spearmint oil: and (2) the supervision of the USDA.

158

Midwest, synthetic, and Chinese spearmint oil are each
available to users if prices for farwest spearmint become too
high. Imports of Chinese spearmint oil have sporadically
increased since the late 1970’s, averaging about 3.5% of
total U.S. consumption of domestic spearmint oil during the
1982-86 period (Table 2.5).

The midwest spearmint oils’ share of total U.S. spearmint
oil consumption has increased from an average of about 19%
during the 1977-81 period to 26% during the 1982-86 period
(Table 2.4). Midwest scotch has increased its share by 5%
during the latter period while midwest native has increased
about 1%. Midwest scotch oil is more substitutable with
farwest scotch than midwest native oil is with farwest
native.

The AMS, the agency in charge of supervising federal
marketing orders, carefully reviews proposed spearmint order
regulations and advises the committee on its activities.

(6) Some opponents of the order assert that buyers and
users do not differentiate between available spearmint oil
and that which is in the reserve pool. Pool oil is only made
available by the committee to meet demand or supply shocks.
The existence of a large reserve pool may lower buyer and
user demand for oil inventories if they perceive that the
pool oil will become available before prices rise too

sharply.

159

It clearly does not, however, depress the price to the
level it would be if all the oil were dumped on the market.
If it did, the order would be completely ineffective and no
one would be concerned about its power to raise prices.

Another set of criticisms relate to the order's potential
"infringement" on the buyer level of the subsector. (1)
Some of the major buyers allege that order personnel are
travelling to major U.S. users' offices in an attempt to
promote farwest spearmint. oil. Moreover, there is some
speculation that order personnel may soon be going overseas
to promote their oil to foreign users.

These buyers argue that the order should stay out of
marketing and promotion activities. They fear that
inexperienced order personnel may disturb delicate
relationships that have been established between themselves
and some of the major foreign and domestic users over a
number of years.

These buyers point out that they have been very successful
at establishing and maintaining large foreign and domestic
markets for farwest spearmint oil, and that they have
invested considerable time and resources into those markets.
They believe that it is in the best interest of farwest
spearmint growers if they, rather than order personnel,
handle the marketing and promotion of farwest spearmint oils.

The order personnel counter that they are not directly

promoting farwest spearmint oils, but rather attempting to

160
mitigate any user fears about the marketing order. They
maintain that visits to users are only to promote a better
understanding of the order's functions and structure. They
also deny that they have any current plans to engage in any
foreign promotion activities.

The buyers continue to profit from healthy farwest
spearmint oil markets, and have every incentive to maintain
them. They have been very successful at establishing and
maintaining those markets, and it is probably in the best
interest of growers that they continue to handle marketing
and promotion activities. There is no evidence, however,
that the order is engaging in any such activities at this
time.

The order is controversial and widely misunderstood. Most
buyers vehemently opposed the order when it was established,
and although they have come to accept it, they are not
supportive of it. Uncertainty about the functions and
structure of the order could cause problems in farwest
spearmint oil markets, and thus public relations trips that
are undertaken by management or committee members seem
appropriate.

(2) Some buyers are also critical of the classes of
spearmint oil that are specified by the order. They argue
that first and second cut scotch and native spearmint oils
should each have had separate classes when the order was

established.

161

Buyers have traditionally placed a premium on first cut
spearmint oils, which are considered to be of higher quality,
because they are preferred by many users (Greenhalgh, p. 12,
17). In addition, second cuttings can be detrimental to the
crop’s long run productivity and quality. Scotch spearmint
is less hardy than native, and is especially susceptible to
winterkill after a second cutting.

Buyers observe that farwest mint growers have been
increasing production of second cut spearmint oils since the
establishment of the order in 1980. They argue that the
order is forcing more second cut oil onto the market because
of limits on the volume of spearmint oil, first or second
cut, which may be sold in a given year. In effect, the order
is pressuring buyers to discard the distinction between first
and second cut farwest spearmint oils.

The total saleable quantity is figured to allow each
grower to sell most of his production, with an acceptable
carry over for contingencies. Each grower can then second
cut, at less expense than the first cut, and know that the
buyer will have to purchase a good deal of it.

Even if the buyer does reject it and it goes into grower
stocks or the reserve pool, it will likely appear as saleable
oil in the following year. If large stocks of unsold second
cut spearmint oils do accumulate, the order will reduce the
saleable quantities for following years until an acceptable

portion of those stocks have been purchased by buyers.

162

Table 5.8 indicates that between 1972 and 1981 second cut
farwest scotch oil production was about 4% of total farwest
scotch oil production. Since 1982 second cut scotch has
increased to about 13%. During the 1967-71 period, however,
second cut scotch oil amounted to about 16% of total farwest
scotch oil production.

Meanwhile, second cut native oil has remained, on average,
at about 39% of total farwest native oil production since the
mid-1970’s. Thus, there is no evidence that the production
of second cut farwest spearmint oils have significantly
increased beyond historical levels since the establishment of
the marketing order.

In addition, buyers and order personnel have each reported
that the quality of second cut farwest spearmint oils has
been increasing in recent years with improvements in weeding
and overall field care, making the distinction between first
and second cut oils less importanta ‘While the quality
distinction has been decreasing, the overall quality of
farwest spearmint oils appear to be increasing. In effect,
farwest spearmint oils are becoming more homogeneous. This
has implications for the farwest spearmint oil industry.

One obvious effect of the order's volume control programs
has been to strengthen growers bargaining power over price.

However, it has also given growers more power to

163

TABLE 5.8 FIRST AND SECOND CUT FARHEST NATIVE AND SCOTCH SPEARMINT OIL PRODUCTION 1967-86

5yr

Ln

yr

Year EHS Prod. F85 1 Prod. FHS 2 Prod. FHN Prod. FHN 1 Prod. FHN 2 Prod.

1967 914500 72.21 27.81 579200 73.21 26.81
1968 632000 85.81 14.21 457000 70.91 29.11
1969 851000 83.21 16.81 374000 94.41 5.61
1970 980700 89.51 10.51 488700 76.81 23.21
1971 707300 90.91 9.11 579100 70.71 29.31
Avg. 817,100 84.31 15.71 495600 77.21 22.81
1972 368500 95.81 4.21 659600 69.11 30.91
1973 392500 97.41 2.61 618600 70.51 29.51
1974 528500 94.01 6.01 899900 65.11 34.91
1975 584900 96.71 3.31 901800 72.61 27.41
1976 694800 94.11 5.91 858200 67.41 32.61
Avg. 513,840 95.61 4.41 787620 68.91 31.11
1977 950000 97.11 2.91 1100200 65.11 34.91
1978 1683000 91.11 8.91 1485700 62.41 37.61
1979 786000 97.71 2.31 799300 65.51 34.51
1980 628681 96.91 3.11 1274758 60.01 40.01
1981 526782 95.81 21 1199317 51.01 49.01
Avg. 914,893 95.71 4.31 1171855 60.81 39.21
1982 467236 96.41 3.61 478883 60.01 40.01
1983 592808 88.71 11.31 508971 65.31 34.71
1984 727677 82.11 17.91 761737 59.41 40.61
1985 793051 90.21 9.81 1116287 63.11 38.91
1986 1041634 78.51 21.51 1256319 56.11 43.91
Avg. 724,481 87.21 12.81 824439 60.81 39.21

164
influence the subsector classifications of farwest spearmint
oil, which is perhaps a more serious "infringement" on the
buyer level than marketing and promotion activities.
Although second cuttings are not yet at unusually high
levels, the order potentially has the power to force more
second cut oils onto the market.

As has been stated, the major users are conservative and
are hesitant to change their flavor formulas. First cut
spearmint oils are a premium class of mint oils that fill a
certain market niche for users.

It is more difficult for imported or synthetic spearmint
oils to compete with specialized classes of U.S. mint oils
than it is to compete with "homogenized" U.S. mint oil.
Moreover, the buyers, and ultimately the users, have the
right to classify mint oils as they wish, particularly as
long as real quality differences are perceived to exist.

Some buyers are particularly concerned about the order’s
repeal of class two, second cut scotch spearmint oil, in
1983. Class two was originally adopted to appease Idaho and
Oregon growers, who predominantly grow scotch spearmint.
These growers had never second cut their scotch, and they
feared that Washington scotch growers, who had, would receive
inflated bases.

In 1983, however, these growers supported the repeal of
class two base because they wanted to start second cutting

their own scotch. Some of the buyers argue that there is

165
still a significant quality difference: between first. and
second cut scotch oil, and that class two base should be
reinstated.

A third series of criticisms relates to the long term
effects of the order. (1) Some critics charge that the
order’s stabilization of grower prices will damage the
farwest spearmint oil industry.

One critic asserts that users prefer a fluctuating market
where mint oil can be purchased and stocked cheaply during
market lows. Some growers, buyers and users will profit in
such a market by making correct decisions about when to buy,
stock, or sell mint oil.

This speculation, however, and the cycles that come with
it will hurt some growers - especially those who are new,
small, or highly in debt. Moreover, some subsector
participants assert that users prefer to have stable mint oil
production and prices to ensure regular supplies and a
healthy mint grower industry.

(2) Critics of the order also argue that its support of
higher spearmint oil prices will stimulate the research and
production of substitutes such as synthetic spearmint oils,
and will stifle the development of new spearmint flavored
consumer products.

To date, however, the order has supported farwest
spearmint oil prices that are, in real terms, among the

lowest in 20 years. Furthermore, in the absence of the order

166
during the mid-1970’s, prices reached unprecedented high
levels.

It is true that extended periods of extremely high
spearmint oil prices would stimulate research on synthetics
and eventually lead users to seek substitutes, but it is
unlikely that the committee could, or would wish to, set
saleable quantities at a low enough level to maintain such
prices.

The committee members have large investments in the
farwest spearmint oil industry, and it is in their interests
to keep it healthy in the long run. Even if the committee
did propose unduly low salable quantities, the USDA would be
likely to reject them.

(3) Another criticism of the order is that the volume
controls will stifle new demand for farwest spearmint oils.
Some buyers assert that potential users look for abundant
supplies when they are considering different flavoring agents
to use in their consumer products.

An agent such as spearmint oil will only be selected, the
argument goes, if there is a large enough surplus to
accommodate the growth in demand caused by the entry of the
new consumer product.

It is important that the committee factor in an adequate
surplus into its saleable quantity calculations in order to
deal with demand and supply shocks. For the 1986 marketing

year the committee decided that 75,000 pounds would be an

167
adequate carry over. In addition, the committee can deal
with supply shortfalls by opening up the reserve pool, as it
did for native oil in both 1983 and 1984.

It is not possible to determine the number of potential
users that have been, or will be, driven off by the volume
control programs. There has been no shortage of available
farwest scotch or native oil, however, since 1980.

In fact, Wrigley has introduced sugar-free Extra chewing
gum since 1980, and has chosen to use a blend of natural and
artificial peppermint oil for the peppermint gum while it is
using natural spearmint oil for the spearmint gum.

Wrigley may be using midwestern spearmint oil but, as with
Warner-Lambert's Chewels, the case does point out the appeal
of synthetic mint oils. As its quality improves synthetic
mint will increasingly threaten natural U.S. mint oils in
both the U.S. and world mint oil markets, whether there is an
order or not.

(4) Critics of the order also charge that it insulates
growers from competition by severely limiting entry. This,
it is argued, blocks opportunities for new, innovative
growers. Established growers may become more set in their
ways, and may not work as hard without the stimulus of
competition. In the long run, it is feared, the industry may
become stagnant and rigid.

Proponents of the order, however, assert that as the

grower’s position in the industry becomes more secure, he

168
will be more willing to make major investments in his farm.
They also point out that individual farwest spearmint growers
still compete with each other for forward contracts and for
high prices.

If an established grower adopts an innovation that lowers
his cost of production or raises the quality and value of his
oil, it is reasonable to assume that other growers will
readily adopt it.

Proponents also observe that new entry is limited, not
prohibited, and that a small number of new growers do enter
the industry every year. The demand for natural U.S. mint
oil is expected to grow quite slowly for the foreseeable
future, and the order would be rendered ineffective if entry
were not limited.

Buyers have not reported any decrease in farwest spearmint
oil quality since the establishment of the order in 1980.
Indeed, quality is reported to be improving. It is difficult
to project what the industry will look like in the long run,
but there is currently no evidence to indicate that it will
become stagnant and rigid.

(5) Assuming that the spearmint order is justified and
effective at the current time, some critics argue that its
establishment created vested interests that will make the
order irreversible. At best, it is argued, the order will
outlive its usefulness while, at worst, it may become

corrupt.

169

The demise of the hops and tart cherry orders, however,
show the mortality of volume control marketing orders. The
spearmint committee has taken steps to make their order more
acceptable than the one for hops, but it is still
controversial.

The market value of the base that individual farwest
spearmint growers currently hold does create incentives to
maintain the order for reasons other than creating’ more
orderly mint oil markets.

However, if the committee follows through on proposals now
being considered to reduce the market value for base and
annual allotments then much of the incentive to maintain the
order for purposes of price enhancement rather than price
stability will disappear.

The spearmint order has the only active producer allotment
program of any of the 49 federal marketing orders, and its
critics are many. It is unlikely that it could survive for
long after it ceased contributing to the orderly marketing of

the U.S. mint oil subsector.

Implicaripgs of the Marketing Order

es ea owe Wel re
There are three alternative positions that spearmint
grower could be in: (1) with issued base in the order: (2)
with purchased base or allotment in the order; or (3) without

the order.

170

The grower who is issued base will clearly be economically
better off than the grower who must purchase or rent it. He
can produce and sell his spearmint oil in a relatively stable
market, and upon retirement may leave his base to his
children or sell it for a considerable sum while having paid
nothing for it in the first place.

The grower who purchases base, however, is making an
investment which must be economically evaluated like any
other investment. The grower must judge whether he would be
better off investing his capital in spearmint production,
rather than alternative crop production or even non-
agricultural investments.

The grower who rents base (by purchasing an annual
allotment) avoids the large initial investment, but. pays
large recurrent costs while failing to develop any equity.
The grower who purchases base or allotment gets the same
economic benefits as the established grower, but with higher
costs.

The individual grower operating without the order may or
may not be economically better off than the other two. If he
is a superior grower that regularly sold all the oil he
produced at a premium price then he may be limited by the
order. A marginal grower, however, who has had trouble
selling his supply of oil from year to year will have his
market share more sheltered than it would be in the pre-1980

market.

171

The spearmint grower within the order also has to pay
assessments to the order, and comply with its administrative
requirements.

Finally, some growers had profited from speculation while
the stability that the order has brought has reduced
opportunities in this area.

The average grower, however, has been receiving higher
prices for his spearmint oil since the establishment of the
order. .All subsector participants that. were interviewed
concluded that farwest spearmint growers have been receiving
higher prices for their oil since 1980 than they would have
in the absence of the order; IMoreover, the order’ has
apparently arrested the supply and price cycles that were
seriously hurting many growers.

The costs of instability noted in chapter two, including
credit difficulties and poor resource allocation from
planning under uncertainty, are all reduced in a more stable
market. The management and committee of the order also keep
growers informed throughout the season.

The strong support of the farwest spearmint growers for
their marketing order clearly indicates that they believe

they are better off with the order.

CHAPTER SIX

SUMMARY AND CONCLUSIONS

The U.S. mint oil subsector' has ‘undergone significant
structural change in the last 20 ‘years. .An anti-trust
lawsuit initiated by farwest mint growers was settled out of
court in their favor. As a result, the number of buyers has
increased, the market share of the major buyers has become
more evenly distributed, and the market power of the buyers
has been reduced. Meanwhile, the farwest spearmint growers
established a volume control marketing order that has
increased their market power.

U.S. mint oil markets have historically been cyclical,
with grower prices shifting above and below break-even
levels. New, small, or heavily indebted mint growers are the
least able to weather the low price phases of these cycles.
Many growers have had more problems with the cycles in recent
years, however, because of the low returns of alternative
crops.

The farwest spearmint oil marketing order has improved the
position of farwest spearmint growers by stabilizing their
returns at approximately’ breakeven levels. Mbreovery by
increasing the security of the individual mint grower and by
limiting the quantity of spearmint oil he can sell, the order
has apparently arrested the cyclical nature of the market.

The less cyclical spearmint oil market will make planning

172

173
easier at the user and buyer level, while speculative
activities will be reduced.

The order has been less successful in :matching total
supply with total demand from season to season, particularly
in the farwest native ‘markets This criteria should be
carefully examined in future evaluations of the marketing
order.

There are several characteristics of the farwest spearmint
oil market that allowed the order to be so effective. A
review of these characteristics will help to identify
generalizations about the order which may be relevant to
other agricultural subsectors.

(1) Farwest spearmint is a relatively small agricultural
industry that is concentrated in a small area. There are
only about 250 farwest spearmint growers, most of whom are
concentrated in the Yakima valley of Washington. This makes
it easier for order personnel to maintain contact with the
growers, to keep track of acreage and production, and to
enforce regulations.

The size of the industry also has implications for its
unity. A larger industry with more diverse interests is
likely to have more dissension, and more compromise among
growers will be necessary to get it approved. In the tart
cherry order, for example, growers were from a number of
states, and there was more dissension than there was in the

case of farwest spearmint. Indeed, the tart cherry order was

174
dissolved, in part, because of dissension among growers from
different production regions.

(2) Farwest spearmint oils are distinguishable from
midwest and foreign spearmint oils. This makes it more
difficult for farwest growers to cheat by selling excess
production as oil from another source. This lack of perfect
substitutes also means farwest spearmint oil is more
difficult to replace in flavor formulas.

(3) The demand for farwest spearmint oil is very stable.
Its demand is, in large part, derived from a small number of
large corporations producing mouthwash, toothpaste, and
chewing gum. The demand for these products is relatively
price inelastic, and many of their major markets are near
saturation. As a result, the spearmint oil subsector is a
"mature" subsector where growth in demand is slow and steady.

Because instability comes primarily from the supply side,
with individual growers over responding to price signals, the
order's producer allotment and reserve jpool jprograms are
highly appropriate. :n1 a high growth agricultural industry
with unstable demand it would be very difficult for the order
committee to predict future demand, and thus to set
appropriate saleable quantities.

(4) Farwest spearmint is a perennial crop, and its
production involves highly specific assets and fixed costs.
One of the greatest fixed costs are the establishment costs

of the crop. Growers who over respond to high prices and

175
overplant will not rip out their spearmint as long as they
can cover annual variable costs, and therefore the
overproduction will be likely to last for the life of the
crop. This contributes to the cyclical nature of the
spearmint oil subsector. Many other perennial commodities
have similar cycles.

(5) There is great deal of support for the order among
farwest spearmint growers, most of whom are familiar with
collective marketing activities. Five years before the
establishment of the order, a large number of them were
involved in a class action anti-trust lawsuit against the
largest buyer and the major users while ten years before many
of them were involved in an unsuccessful cooperative
bargaining association. Only a small number of farwest
growers have come out in opposition to the order.

(6) The management and committee members have been
careful to listen to criticisms of the order, and open-minded
in considering or adopting a number of reforms. In doing
this, they have avoided much of the controversy that plagued
the hops order. None of the opponents of the spearmint order
that were interviewed questioned the ethics of its personnel
or committee members. The management of the spearmint order
notes that the committee has shown its "good intentions" by
setting appropriate saleable quantities and by twice opening

up the native oil reserve pool when supply was low.

176

The following are recommendations that the committee may
consider; (1) Class two oil base should be reinstated to
keep first and second cut scotch oil differentiated. This
would allow farwest spearmint growers to better meet the
needs of the buyers and users, who currently differentiate
first and second cut scotch oil.

(2) The committee should give serious consideration to
proposed rule changes that will reduce the market value of
base and allotment. In the long run, as more and more base
is sold, it becomes an added cost of production. Any higher
returns that are generated by the producer allotment program
are capitalized through the sale of base and allotments, and
are thus one time gains. This was a serious problem with the
tobacco allotment program.

(3) The order should at least maintain the 1/2 of 1% new
entry. Low entry is one of the most controversial aspects of
the spearmint oil order. The committee should also approve
proposals calling for current base quantities to be deflated
and for any increases in base necessary to meet demand to be
distributed, in part, to new growers.

There is disagreement among buyers and the order regarding
the validity of break-even figures from a recent Washington
cooperative extension farwest spearmint oil cost of
production study. Buyers should consider presenting their
criticisms of the study, and hopefully some of their own

average break-even figures to the AMS and to the Committee.

177

It is break-even figures, rather than parity figures, that
are used to evaluate the level of current spearmint oil
prices. The committee considers current price levels,
relative to "break-even levels”, when it proposes saleable
quantity regulations, and USDA personnel consider them when
they approve or disapprove the regulations. It should be
noted that some of the conclusions of this thesis regarding
the success of the marketing order are based, in part, on the
cooperative extension break-even figures.

The major U.S. mint oil buyers have greatly contributed to
the development of the modern U.S. mint oil subsector. Since
around the turn of the century they have pioneered new
production areas, aggressively developed new markets, and
taken the lead in developing and funding a production
research system that has lowered the production costs and
raised the quality of natural U.S. mint oils. The A.M. Todd
Co. deserves special note for the subsector leadership it has
displayed over the last century.

Farwest peppermint oil growers proposed a similar federal
volume control order in 1982 when it was rejected by the USDA
before a referendum was held. With the low supply/high price
phase of the market cycle approaching farwest peppermint oil
growers may not support a marketing order in the near future,
but at some point they may wish to try again.

It is likely that a volume control order similar to the

one for spearmint oil would create more orderly marketing

178
conditions in the U.S. peppermint oil subsector. The
peppermint oil and spearmint oil subsectors are similar
enough that the results of the spearmint order could be

generalized to farwest peppermint growers.

BIBLIOGRAPHY

Adrgrrisipg_ggg, November 3, 1986. p.536
v 's’ e, September 4, 1986. p.570, 5142, 5.166-7.
ve 's'n , November 8, 1985. p.70
v 's e, December 15, 1975. p.2

Armbruster, Walter and Helmuth, John. (1981), Coptragt Price

0 n 0 ts an ve t b es, Agricultural Marketing
Service, USDA.

Bureau of the Census, Department of Commerce. (1986), 1982
Census of Manufacturers, "Concentration Ratios in
Manufacturing", Subject Series MC82-S-7.

Connor, John, et. al. (1985) The Food Manufacturing
Industries, Lexington Books; Lexington, Massachusetts.

Cramer, Gail. (1964), Economic Relationships in the Oil of
e e ' t n O' S ea ' ndust 'es, Unpublished

Master’s Thesis, Michigan State University.

Dalziell, Ian. (1985), Sources of A 'cultura Market
Infirgpiliry, Ph. D. Dissertation, Michigan State University.

Farwest Spearmint Oil Administrative Committee. (1980-86),

Fargest Spearmint Qii Marketing Policy Statement, An Annual

Document, Pasco, WA.

Ferris, Jake and. Thompson, Stanley. (Fall 1987), ABC-843
Commodity Market Analysis Class Packet.

Folwell, Raymond., et. al., (1985), "The Federal Hop
Marketing Order and Volume-Control Behavior", Agricultural
Egonpmips Research, Volume 37, No.4, Fall 1985., USDA ERS.,
p. 17-32.

Folwell, Raymond., et. al., (1982), United States Hop

us n he Vo ume Cont o rovisions of t e United
firgres Eegergi flop Marketing Order, Agricultural Research

Center: Washington State University. XT 0097.

Folwell, Raymond. (1982), "The U.S. Hop Marketing Order: The
Price of Success is Misunderstanding", 82-1.

Gingrich, Gale., and Matzat, James. (1979), "Mint-

179

180

Willamette Valley", Cost of Production Extension Bulletin,
Oregon State University Extension Service.

 

Greenhalgh, Peter. (1979), The Markets for Mint Oils and

Mgmrhgi, G-126. Tropical Products Institute: London,

England.

Hinman, Herbert., and Griffin, James. (1982), st 0
t! ' 1'.- one ' odu ',. --..- t - a. .a Va 1- ,

Extension Bulletin 1029, Cooperative Extension: Washington
State University.

Hinman, Herbert., and Griffin, James. (1986), 1986 Cost of
ES srahiis hin ng and Producing Nariv e and Scotch Spearmint in the

w a V Wash 0 , Extension. Bulletin 0956,
Cooperative Extension: Washington State University.

 

Kauffman, Daniel., and Shaffer, James. (1985), "Forward
Contract Markets: Can They Improve Coordination of Supply
and Demand?,"

The Pgrm and Popg Sysrgm in Tramsirioh, Paper FS-40.

Lacy, Melvyn., et. al. (1981?), int roduct on in the
higwgstgrm uniteg States, North Central Regional Extension

Publication No. 155, Cooperative Extension Service; Michigan
State University.

Landing, James. (1969), e 'ca sse ce: 'sto 0 he

Peppermint and Spearmint Industries in the United States,
A.M. Todd Foundation; Kalamazoo, MI.

 

Marion, Bruce, et. al. (1986), The Organization and
Perfprmahge pf the g.§, Poog Sysrem, Lexington Books:

Lexington, Massachusetts.

Osbourne, D.K. "Cartel Problems," The American Economic
ngigw, December 1976. p. 836

"Peppermint Oil Production is Reduced, Giving Synthetic
Product an Opportunity," Chemical Marketing Reporter, 23 May
1983, p. 5, 25.

Polopolus, Leo. et. al. (1987), Criteria For Evaluating
e a ket'n Order5° u'ts Ve etables Nuts and

Spegigiry Cpmmodiries, Economic Research Service; USDA.

Price, David. (1973), Demand and Supply of U.S. Mint Oil,
Bulletin 782. Washington Agricultural Experiment Station;
Washington State University.

"Spearmint Oil Price Increases As USDA Completes Review, "

thmigal hark grimg Reporter, 4 January 1982, p. 15

181

U.S. Code of Federal Regulations, 7. Ch.IX (1-1-86 edition).
Agricultural Marketing Service, USDA. Part 985-Marketing
Order Regulating the Handling of Spearmint Oil Produced in
the Farwest, pp. 753-766.

U. S. Comptroller General. (1979), Peporr to the Cpngrese:
Weed COQer'BUt SomeJesilee Ne_ed to be
Beeelyeg, U. S. General Accounting Office, CED-79-106.

 

 

U.S. Comptroller General. (1985), Report to the Congress:

e o e o a ke 'n Ord s ' stab 's 'n nd a' ta'nin
Qrgeriy marherimg gongiriehs, U.S. General Accounting Office,
RCED 85-57.

U.S. Comptroller General. (1982), Iobacep Program's
Prpduerioh Rights and Effects pm Qompetirioh, U.S. General

Accounting Office, CED-82-70.

”Volatile Mint Prices are Expected," Journal of Commerce and
Cgmmercial, Vol. 356, 19 April 1983, p. 22B.

Warman, Marc. Draft of an unpublished paper on the spearmint
oil marketing order.

Weber, Michael., and Holst, David. (1978), "Mint - Jefferson
County", Cost of Production Extension Bulletin, Oregon State
University Extension Service.

APPENDICES

 

182

APPENDIX A

Tables A.1, A.2, and A.3 contain the statistical results
of equations 1, 2, and 3 from the recursive econometric model
that was covered in chapter five.

183

A1

Table A1
Equation 1 Statistics

SHPL 1971 - 1986
16 Obeervetnone
LS // Dependent Veruable ae FHSHKT

VARIABLE COEFFICIENT STD. ERROR T-STAT. Z-TAIL 516.
C -116711.11 186331.15 —0.6263639 0.541
FHSPAG 60602.863 9805.3841 6.1805700 0.000
R-equered 0.731798 Mean of dependent var 982397.6
AdJueted R-equared 0.712641 5.0. of dependent var 415107.5
5.5. of regreeeuon 222522.2 Sum of eqoared reeid 6.930+11
Durban-Heteon etat 1.622221 F-etatietnc 38.19945
Log lukeluhood -218.6393

Table A2 Equation 2 Statistics

SHPL 1971 - 1986
16 Observatnons
L5 // Dependent Varnable as AVGSPR

VARIABLE COEFFICIENT STD. ERROR T-STAT. 2-TAIL 516.
C 4775.7365 726.74227 6.5714308 0.000
FHSHAG -1.5450-05 1.8560-06 -8.3216299 0.000
TIME -2.5653723 0.3931722 -6.5248056 0.000
P0934 0.0029657 0.0004918 6.0303371 0.000
R-eqoared 0.884156 Mean of dependent var 18.22250
AdJueted R-eouared 0.855195 5.0. of dependent var 6.317742
5.E. of regreeeuon 2.404108 Sum of squared resid 69.35679
DurbIn-Hateon stat 2.256418 F-statietic 30.52915
Log lukelchood -34.43642
Table A3 Equation 3 Statistics
SHPL 1971 - 1986
16 Observataons
L5 // Dependent Varuable as FHSDEH
VARIABLE COEFFICIENT 5T0. ERROR T-STAT. 2-TAIL SIG.
C 924099.25 90001.962 10.267546 0.000
AVGSPR -11607.412 4662.2785 -2.4790093 0.027
R-eqwared 0.305055 Mean of dependent var 712583.2
Adjusted R-SQUared .255416 5.0. of dependent var 132772.5
5.E. of regre55non 114868.4 Sum of souared reSad 1.84D+11
Ourbon-Hateon stat 1.168386 F-statlst-c 6.145487
Log Inhelnhood "208.0176

3"“-3"--".‘=183388III=8333l38====3:33-33::2::==-ca=a:==:===:==::==

184

APPENDIX B

This appendix contains various data and statistics
relating to the U.S. mint oil subsector. Unless a source is
cited, the data in this appendix has been drawn from
estimates of subsector sources, notably the major buyers and
the marketing order.

 

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986

TABLE 8.1

Carry In

0

194,000
140,000

NOMINAL PRICES

Average
$5.75
$6.00
$6.00
$5.00
$4.45
$3.50
$4.00
$5.50
$10.00
$15.00
$13.50
$13.50
$15.00
$12.00
$10.00

$9.00

$8.00

$8.50
$10.00

$9.75
$11.00
$11.50

Production

609,000

786,000
1,084,000
1,175,000
1,343,000
1,618,000
1,270,000
1,140,000
1,211,000

991,600
1,226,000
1,182,300

1135

81

Total Oil
609,000
786,000

1,095,000

1,190,000

1,374,000

1,740,000

1,490,000

1,208,000

1,261,000

1,011,600

1,230,000

1,182,300

1,493,700

1,534,500

1,747,800

2,302,000

2,637,000

2,682,000

1,988,000

2,069,000

1,792,000

1,372,000

Close
$7.00
$7.00
$6.00
$5.00
$4.25
$3.00
$5.00
$6.25
$15.00
$20.00
$14.25
$20.00
$15.50
$9.00
$9.00
$8.00
$7.50
$10.50
$12.00
$11.00
$11.00
$12.00

HILLAHETTE PEPPERMINT HISTORICAL DATA

Usage
609,000
775,000

1,080,000

1986 PRICES

Average
$19.98
$20.27
$19.70
$15.76
$13.31

$9.88
$10.83
$14.42
$24.67
$33.35
$27.50
$26.00
$27.14
$20.17
$15.11
$11.98

$9.64

$9.66
$11.01
$10.29
$11.21

Acres
11,450
15,500
16,530
18,930
22,000
22,800
20,500
19,000
20,000
19,509
19,701
21,497
26,124
29,743
30,673
29,181
22,455
18,449
16,102
17,743
16,514
16,814
18,015

Open
$19.11
$20.27
$19.70
$15.76
$14.21

$9.88
$10.15
$13.10
$12.34
$22.23
$27.50
$26.00
$26.24
$22.69
$15.11
$13.31
$12.06

$9.09
$10.46
$10.29

$9.94
$11.00

Yield
53
51
66
62
61
71
62
60
61
51
62
55
57
51
53
56
68
69
65
69
72
70

Close
$24.33
$23.65
$19.70
$15.76
$12.71

$8.47
$13.54
$16.38
$37.01
$44.47
$29.03
$38.52
$28.05
$15.13
$13.60
$10.65

$9.04
$11.93
$13.21
$11.61
$11.21
$12.00

1136

 

TABLE 8.1 (Cont d.) 82
Nominal Cost Noeinal Revised Break Even Prices
of Production Break Even Real Break Assuming Yields are:

Years Per Acre Price/Pound Even Prices 151 Higher 301 Higher
1975 $671.99 $10.80 $22.00 $9.39 $8.31
1976 $717.29 $13.04 $25.12 $11.34 $10.03
1977 $755.04 $13.25 $23.97 $11.52 $10.19
1978 $822.99 $16.05 $26.97 $13.95 $12.34
1979 $943.80 $17.86 $26.98 $15.53 $13.74
1980 $1,049.51 $18.79 $25.00 $16.34 $14.45
1981 $1,140.11 $16.72 $20.16 $14.54 $12.86
1982 $1,177.86 $16.95 $19.25 $14.74 $13.04
1983 $1,200.51 $18.43 $20.28 $16.02 $14.18
1984 $1,215.61 $17.69 $18.68 $15.39 $13.61
1985 $1,185.41 $16.48 $16.80 $14.33 $12.68
1986 $1,140.11 $16.27 $16.27 $14.15 $12.52

 

 

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986

Carry In

0
0
120,000
390.000
610,400
600,000

mmg

O

9

§§§§§§§

.

\

4
2
30
300
5
1
5

§

166,

N

as
§§§§§§

J

342,000
391,000
23,000

NOMINAL PRICES

Average
$4.50
$4.50
$4.50
$4.50
$4.50
$4.00
$3.75
$4.75

$12.00
$12.00
$10.00
$14.95
$14.50
$8.00
$9.00
$8.50
$8.50
$9.00
$10.50
$10.00
$8.00
$7.50

Production

H
h-
C

23 86
---‘\1

84981595"
§§§§§§§§§§§§

-

5?

$

753,300
1,040,500
772,200
765,000
610,000
676,000
749,000
991,000
1,143,000
967,000

Open
$3.50
$4.00
$4.50
$4.50
$4.50
$4.00
$3.75
$4.50
$5.00

$10.00
$10.00
$12.00
$15.00
$12.00
$10.00
$10.00
$9.00
$7.75
$8.50
$9.00
$9.00
$7.00

1137

Total Oil
1,100,000
1,487,500
2,021,000
1,690,000
1,871,400
1,594,000
900,000
438,000
422,000
555,400
844,400
532,500
754,300
1,045,500
938,200
1,048,000
978,000
931,000
907,000
1,127,000
1,485,000
1,358,000

Close
$6.25
$6.00
$5.00
$4.75
$4.50
$4.50
$4.75
$6.50
$15.00
$15.00
$12.00
$20.00
$10.00
$7.00
$7.75
$8.50
$8.00
$11.00
$12.00
$10.00
$6.75
$11.00

83

TABLE 8.2 YAKIHA PEPPERHINT HISTORICAL DATA

8

1986 PRICES

Average
$15.64
$15.20
$14.78
$14.18
$13.46
$11.29
$10.15
$12.45
$29.61
$26.68
$20.37
$28.80
$26.24
$13.45
$13.60
$11.31
$10.25
$10.22
$11.56
$10.56

$8.15
$7.50

Acres
13,500
18,575
20,500
20,000
19,430
14,200

8,000

6,400
6,676
7,035
8,383
10,463
15,684
13,319
10,755
7,658
8,275
9,136
11,885
13,254
10,667
11,286

Open
$12.16
$13.51
$14.78
$14.18
$13.46
$11.29
$10.15
$11.79
$12.34
$22.23
$20.37
$23.11
$27.14
$20.17
$15.11
$13.31
$10.85

$8.80
$9.35
$9.50
$9.17
$7.00

Yield
81

93
65
65
70
69
60
62
79
77
63
72
66
58
71
80
82
82
B3
86
91

Close
$21.72
$20.27
$16.42
$14.97
$13.46
$12.71
$12.86
$17.04
$37.01
$33.35
$24.45
$38.52
$18.09
$11.76
$11.71
$11.31

$9.64
$12.50
$13.21
$10.56

$6.88
$11.00

1138
TABLE 8.2 (Cont'd.) B4

 

(Rill Irrigation) (Side Roll Irrigation) (Rill (Side Roll
Nominal Cost Nominal Nominal Cost Noeinal Irrigation) Irrigation)
of Production Break Even of Production Break Even Real Break Real Break
Years Per Acre Price/Pound Per Acre Price/Pound Even Prices Even Prices
1975 $642.99 $8.31 $661.91 $8.55 $16.93 $17.43
1976 $686.33 $10.91 $706.53 $11.23 $21.01 $21.63
1977 $722.46 $10.03 $743.71 $10.33 $18.16 $18.69
1978 $787.48 $11.87 $810.65 $12.22 $19.95 $20.54
1979 $903.07 $15.58 $929.64 $16.03 $23.53 $24.22
1980 $1,004.22 $14.12 $1,033.76 $14.53 $18.79 $19.34
1981 $1,090.91 $13.70 $1,123.01 $14.10 $16.51 $17.00
1982 $1,127.03 $13.80 $1,160.19 $14.20 $15.67 $16.13
1983 $1,148.71 $14.01 $1,182.50 $14.42 $15.42 $15.87
1984 $1,163.16 $13.95 $1,197.38 $14.36 $14.73 $15.16
1985 $1,134.26 $13.15 $1,167.63 $13.54 $13.41 $13.80
1986 $1,090.91 $12.03 $1,123.01 $12.39 $12.03 $12.39
Revised Break Even Prices Assuning Yields .
151 Higher 301 Higher 151 Higher 301 Higher
Years (Rilll (Rill) (Side Roll) (Side Roll)
1975 $7.23 $6.39 $7.44 $6.58
1976 $9.48 $8.39 $9.76 $8.64
1977 $8.73 $7.72 $8.98 $7.95
1978 $10.32 $9.13 $10.63 $9.40
1979 $13.54 $11.98 $13.94 $12.33
1980 $12.28 $10.86 $12.64 $11.18
1981 $11.91 $10.53 $12.26 $10.84
1982 $12.00 $10.61 $12.35 $10.92
1983 $12.18 $10.78 $12.54 $11.10
1984 $12.13 $10.73 $12.49 $11.05
1985 $11.44 $10.12 $11.77 $10.42
1986 $10.46 $9.26 $10.77 $9.53

 

 

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986

Carry In

NOMINAL
PRICES
Average
$5.25
$5.50
$5.50
$5.00
$4.50
$3.45
$3.85
$5.00
$10.00
$15.00
$13.50
$18.00
$14.50
$12.00
$9.00
$8.75
$8.25
$9.25
$11.00
$12.00
$12.50
$13.00

Production

360,000
436,000
723,000
780,000
1,003,000
1,120,000
928,000
803,000
931,000
980,100
949,400
1,010,600
1,207,500
1,589,500
1,261,500
982,000
752,000
609,000
625,000
765,000
708,000
776,000

1139

85

TABLE B.3 HAORAS PEPPERHINT HISTORICAL DATA

Total Oil
360,000
436,000
723,000
780,000

1,003,000

1,382,000

1,210,000
993,000
981,000

1,007,100

1,010,400

1,016,600

1,208,500

1,598,500

1,696,500

1,764,000

1,784,000

1,221,000
872,000
869,000
768,000
822,000

Close
$5.25
$5.50
$5.50
$5.00
$4.00
$3.00
$5.00
$6.50
$16.00
$17.50
$15.00
$20.00
$15.00
$7.00
$8.50
$8.00
$7.50
$12.00
$12.00
$13.00
$13.00
$14.00

Usage
360,000
436,000
723,000
780,000
741,000

1,100,000
1,020,000
943,000
954,000
946,100
1,004,400
1,015,600
1,199,500
1,163,500
914,500
732,000
1,172,000
974,000
768,000
809,000
722,000
798,000

1986
PRICES
Average
$18.24
$18.58
$18.06
$15.76
$13.46
$9.74
$10.42
$13.10
$24.67
$33.35
$27.50
$34.67
$26.24
$20.17
$13.60
$11.64
$9.95
$10.51
$12.11
$12.67
$12.74
$13.00

Acres

6,050

7,600

9,450
14,130
16,700
18,000
14,000
14,600
16,500
16,128
19,066
19,280
25,521
27,302
22,365
16,880
12,559
10,067
10,638
15,119
14,396
14,093
14,928

Open
$18.24
$18.58
$18.06
$15.76
$14.21

$9.88
$10.15
$13.10
$12.34
$22.23
$27.50
$26.00
$25.33
$23.53
$13.60
$12.64
$10.85

$9.09
$10.46
$12.67
$12.23
$12.00

Yield
60
57
77
55
60
62
66
55
56
61
50
52
47
58

58
60
60
59
51
49
55

Close
$18.24
$18.58
$18.06
$15.76
$11.96

$8.47
$13.54
$17.04
$39.48
$38.91
$30.56
$38.52
$27.14
$11.76
$12.84
$10.65

$9.04
$13.63
$13.21
$13.72
$13.25
$14.00

 

 

“I Year. Lu :1)--

IIIIIIlllllll---——-

IABLE 8.3 (6061' C

 

Years
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986

1130

TABLE B.3 (Cont'd.) B6
Nominal Cost Noeinal Revised Break Even Prices
of Production Break Even Real Break Assuming Yields are:

Years Per Acre Price/Pound Even Prices 151 Higher 301 Higher
1975 565.50 $11.36 $23.14 $9.88 $8.74
1976 $603.62 $11.52 $22.18 $10.01 $8.86
1977 $635.39 $13.43 $24.30 $11.68 $10.33
1978 $692.58 $11.90 $19.99 $10.34 $9.15
1979 $794.24 $14.08 $21.27 $12.24 $10.83
1980 $883.20 $15.18 $20.20 $13.20 $11.68
1981 $959.45 $16.02 $19.32 $13.93 $12.33
1982 $991.22 $16.39 $18.61 $14.25 $12.60
1983 $1,010.28 $17.20 $18.92 $14.95 $13.23
1984 $1,022.99 $20.22 $21.34 $17.58 $15.55
1985 $997.57 $20.28 $20.67 $17.64 $15.60
1986 $959.45 $17.42 $17.42 $15.15 $13.40

 

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1975
1977
1978
1979
1980
1981
1982
1983
1884
1985
2988

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
2986

Carry 1n

83,360
7,000
32,300
107,000
43,900
400,000
400,000
78,000
0

0
50,000
0
226,000
905,000
884,171
737,459
463,659
180,342
139,191
86,870
80,857
85,481

NCHINAL PRICES

Average

$5.00
$4.75
$4.75
$4.75
$4.75
$4.95
$10.30
$10.50
$15.00
$15.00
$14.50
$8.50
$8.10
$10.00
$12.00
$14.70
$14.70
$14.50
$14.50
$14.00

Production

405,840
578,400
914,500
632,000
851,000
980,700
707,300
368,500
392,500
528,500
584,900
694,800
950,000

1,683,000

786,000
628,681
526,782
467,236
592,808
727,677
793,051

1,041,634

1591

87

Total Oil

661,760
921,500
664,300
958,000

1,024,600
1,107,300

768,500
470,500
528,500
584,900
744,800
950,000

1,909,000
1,691,000
1,512,852
1,265,147

938,890
914,276
913,486
982,461

1,155,853

Close
$9.00
$9.00
$5.00
$4.50
$4.50
$4.50
$4.75
$6.00
$15.00
$18.00
$18.00
$20.00
$10.00
$4.00
$9.50
$10.00
$15.00
$14.25
$15.00
$15.00
$14.00
$14.50

TABLE 8.4 FARHEST SCOTCH SPEARHINT HISTORICAL DATA

Usage
654,760
889,200
557,300
914,100
624,600
707,300
690,500
470,500
528,500
534,900
744,800
724,000

1,004,000

808,829
774,487
793,493
617,422
728,467
724,078
888,242
683,815

1986 PRICES

Average

$16.42
$14.97
$14.21
$13.41
$12.86
$12.97
$25.41
$23.35
$30.56
$28.89
$26.24
$14.29
$12.24
$13.31
$14.47
$16.70
$16.18
$15.31
$14.78
$14.00

Acres
5,894
11,149
16,663
12,171
18,491
16,818
12,359
7,477
7,382
8,905
9,988
11,945
17,473
24,255
15,213
9,955
8,826
7,085
9,702
10,349
11,858
12,031

Open
$12.16
$16.89
$16.42
$15.76
$14.95
$13.41
$12.86
$12.45
$13.57
$12.23
$30.56
$24.08
$27.14
$23.53

$4.53
$13.31
$14.47
$17.61
$15.41
$14.78
$15.29
$14.00

Yield
69
52
55
52
46
58
57
49
53
59
S9
58
54
69
52
63
60
66
61
70
67
87

Close
$31.28
$30.41
$16.42
$14.18
$13.46
$12.71
$12.86
$15.73
$37.01
$40.02
$36.67
$38.52
$18.09

$6.72
$14.35
$13.31
$18.08
$16.19
$16.51
$15.83
$14.27
$14.50

 

_w

} iM1£ 8.4 lCont‘d.

l

(Ril

Non

of P
Years
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986

Be

Vears
1975
1975
1977
1973
197%
1980
1931
1982
1982
1884
198
199
186

1192

TABLE 8.4 (Cont‘d.) 88
(Rill Irrigation) (Side Roll Irrigation) (Rill (Side Roll
Nominal Cost Nominal Noainal Cost Nominal Irrigation) Irrigation)
of Production Break Even of Production Break Even Real Break Real Break
Years Per Acre Price/Pound Per Acre Price/Pound Even Price Even Price
1975 $649.21 $11.08 $678.83 $11.59 $22.57 $23.60
1976 $692.98 $11.57 $724.59 $12.10 $22.29 $23.31
1977 $729.45 $13.18 $762.73 $13.78 $23.85 $24.94
1978 $795.10 $11.28 $831.37 $11.80 $18.96 $19.83
1979 $911.81 $17.48 $953.41 $18.28 $26.41 $27.61
1980 $1,013.94 $16.15 $1,060.19 $16.88 $21.48 $22.46
1981 $1,101.47 $18.05 $1,151.72 $18.88 $21.76 $22.76
1982 $1,137.94 $17.00 $1,189.86 $17.78 $19.32 $20.20
1983 1,159.83 $18.31 $1,212.74 $19.14 $20.15 $21.07
1984 $1,174.42 $16.38 $1,227.99 $17.12 $17.29 $18.08
1985 $1,145.24 $16.34 $1,197.48 $17.09 $16.66 $17.42
1986 $1,101.47 $12.84 $1,151.72 $13.43 $12.84 $13.43
Revised Break Even Prices ASSuning Yields are:
152 Higher 301 Higher 152 Higher 302 Higher Saleable
Years (Rill) (Rill) (Side Roll) (Side Roll) Production Reserve Pool
1975 $9.64 $8.52 $10.08 $8.91
1976 $10.06 $8.90 $10.52 $9.31
1977 $11.46 $10.14 $11.98 $10.60
1978 $9.81 $8.68 $10.26 $9.08
1979 $15.20 $13.45 $15.89 $14.06
1980 $14.04 $12.42 $14.68 $12.99 0
1981 $15.70 $13.89 $16.41 $14.52 627,775 906
1982 $14.79 $13.08 $15.46 $13.68 519,693 7,995
1983 $15.92 $14.08 $16.65 $14.73 334,105 141,126
1984 $14.24 $12.60 $14.89 $13.17 687,316 46,618
1985 $14.21 $12.57 $14.86 $13.14 671,755 102,540
1986 $11.16 $9.88 $11.67 $10.33 862,229 33,362
1987 688,439 386,557

TAE

Years
1965
1966
1967
1968

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

 

 

 

TABLE

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
I982
1983
1984
1985
1986
1987

1£93
89

TABLE 8.5 FARHEST SCOTCH SPEARHINT OIL HISTORICAL DATA (lst Cut)

Years Carry In Production Total Oil Annual Usage Acres Yield
1965 - 385,840 - - 5,323 72
1966 63,360 451,500 514,860 508,860 7,523 60
1967 6,000 660,300 666,300 656,300 9,400 70
1968 10,000 542,000 552,000 508,200 9,600 56
1969 43,800 707,800 751,600 721,200 14,400 49
1970 30,400 877,600 908,000 558,000 13,273 66
1971 350,000 643,000 993,000 643,000 10,628 61
1972 350,000 352,900 702,900 642,900 7,065 50
1973 60,000 382,400 442,400 442,400 7,030 54
1974 0 496,900 496,900 496,900 8,015 62
1975 0 565,500 565,500 515,500 9,652 59
1976 50,000 654,000 704,000 704,000 10,922 60
1977 0 922,900 922,900 706,900 16,676 55
1978 216,000 1,533,700 1,749,700 997,700 21,766 70
1979 752,000 767,700 1,519,700 759,896 14,718 52
1980 759804 609,278 1,369,082 743,159 9,702 63
1981 25924 504,616 1,130,540 722,985 8,270 61
1982 407555 450,246 857,801 573,425 6,728 67
1983 254376 525,539 809,915 672,368 8,296 63
1984 137547 597,111 734,658 608,792 8,327 72
1985 125866 715,401 841,267 746,816 10,208 70
1986 94450 817,646 912,096 573,044 9,531 86
1987 339053 8,020

(65-69 Acreage are
TABLE 8.6 FARHEST SCOTCH SPEARHINT OIL HISTORICAL DATA Interpolated froa Production

(2nd Cut) Assuming 35 Lb. Yields/Acre)
Years Carry In Production Total Oil Annual Usage Acres Yield
1965 - 20,000 - - 571 -
1966 20,000 126,900 146,900 145,900 3,626 -
1967 1,000 254,2 255,200 232,900 7,263 -
1968 22,300 90,000 112,300 49,100 2,571 -
1969 63,200 143,200 206,400 192,900 4,091 -
1970 13,500 103,100 116,600 66,600 3,545 29
1971 50,000 64,300 114,300 64,300 1,731 37
1972 50,000 15,600 65,600 47,600 412 38
1973 18,000 10,100 28,100 28,100 352 29
1974 0 31,600 31,600 31,600 890 36
1975 0 19,400 19,400 19,400 336 58
1976 0 40,800 40,800 40,800 1,023 40
1977 0 27,100 27,100 17,100 797 34
1978 10,000 149,300 159,300 6,300 2,489 60
1979 153,000 18,300 171,300 46,933 495 37
1980 124367 19,403 143,770 31,328 253 77
1981 112441 22,166 134,607 70,508 556 40
1982 64099 16,990 81,089 43,997 357 48
1983 37092 67,269 104,361 56,099 1,406 48
1984 48262 130,566 178,828 115,284 2,022 65
1985 63544 77,650 141,194 121,426 1,650 47
1986 19769 223,988 243,757 110,771 2,500 90
1987 132985

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
198?
198
198
196
190

TA

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Carry In
0
10,000
88,900
171,100
60,000
200,000
200,000
100,000
0
236,000
168,200
0
157,000
371,000
320,000
791,487
695,793
153,330
48,488
29,891
153,039
74,581

NOHINAL PRICES

Average

$4.75
$4.25
$3.90
$4.00

Production

105,000
247,500
579,200
457,000
374,000
488,700
579,100
659,600
618,600
899,900
901,800
858,2
1,100,200
1,485,700
799,300
1,274,758
1,199,317
478,883
508,971
761,737
1,116,287
1,256,319

Open

93:88:
$3 29 29 $3 23 53

8888882;

88888888

88

$8.00

1594

810

Total 011

247,500
589,200
545,900
545,100
548,700
779,100
859,600
718,600
899,900
1,137,800
1,026,400
1,100,200
1,642,700
1,170,300
1,594,758
2,002,153
1,555,778
1,347,406
1,047,993
1,307,372
1,758,387

TABLE B.7 FARHEST NATIVE SPEARHINT HISTORICAL OATA

Usage

237,500
500,300
374,800
485,100
348,700
579,100
759,600
718,600
663,900
969,600
1,026,400
943,200
1,271,700
850,300
791,922
925,258
717,343
1,061,150
856,908
805,304
964,666

1986 PRICES

Average

$15.60
$13.39
$11.01
$10.83

Acres
1,731
5,497
8,609
7,556
5,967
8,042
9,667
10,681
10,152
13,797
11,189
13,208
15,498
23,002
13,545
18,659
16,455
5,284
7,664
11,113
14,687
14,160

Open
$13.90
$16.89
$16.42
$14.18
$13.46
$11.29
$10.83
$10.48

$9.87
$17.79
$12.22
$13.48
$18.09
$13.45
$15.11
$11.98

$9.64
$10.22
$10.46
$10.03
$10.19

$8.00

Yield
61
45
67
60
63
61
60
62
61
65
81
65
71
65
59
68
73
91
66
69
76
89

Close
$31.28
$27.03
$14.78
$12.61
$10.47
$10.59
$10.83
$18.35
$19.74
$15.56
$14.26
$23.11
$10.86

$5.88
$12.08
$11.98
$10.85
$11.36
$11.56
$11.61

$9.68
$10.00

1595

811
(Rill Irrigation) (Side Roll Irrigation) (Rill (Side Roll
Nominal Cost Nominal Nominal Cost Noninal Irrigation) Irrigation)
of Production Break Even of Production Break Even Real Break Real Break
Years Per Acre Price/Pound Per Acre Price/Pound Even Price Even Price
1975 $742.34 $6.08 $769.26 $6.30 $12.39 $12.84
1976 $792.38 $7.09 $821.12 $7.35 $13.66 $14.16
1977 $834.09 $7.29 $864.34 $7.55 $13.19 $13.67
1978 $909.15 $8.50 $942.13 $8.81 $14.29 $14.81
1979 $1,042.61 $12.18 $1,080.42 $12.62 $18.40 $19.07
1980 $1,159.38 $11.05 $1,201.43 $11.45 $14.71 $15.24
1981 $1,259.47 $9.77 $1,305.15 $10.12 $11.77 $12.20
1982 $1,301.17 $8.62 $1,348.37 $8.93 $9.79 $10.15
1983 $1,326.20 $13.49 $1,374.30 $13.98 $14.84 $15.38
2984 $1,342.88 $11.86 $1,391.58 $12.29 $12.52 $12.97
1985 $1,309.52 $10.40 $1,357.01 $10.78 $10.60 $10.99
1986 $1,259.47 $8.05 $1,305.15 $8.34 $8.05 $8.34
Revised Break Even Prices Assuming Yields .
151 Higher 30X Higher 152 Higher 30% Higher Saleable
Years (Rill) (Rill) (Side Roll) (Side Roll) Production Reserve Pool
1975 $5.29 $4.68 $5.48 $4.85
1976 $6.17 $5.46 $6.39 $5.65
1977 $6.34 $5.61 $6.57 $5.81
1978 $7.39 $6.54 $7.66 $6.78
1979 $10.59 $9.37 $10.98 $9.71
1980 $9.61 $8.50 $9.96 $8.81 0
1981 $8.49 $7.51 $8.80 $7.79 1,263,409 11,349
1982 $7.49 $6.63 $7.77 $6.87 829,564 381,102
1983 $11.73 $10.37 $12.15 $10.75 174,880 685,105
1984 $10.31 $9.12 $10.69 $9.45 956,308 237,768
1985 $9.04 $8.00 $9.37 $8.29 838,311 161,194
1986 $7.00 $6.19 $7.26 $6.42 928,452 349,029
1987 886,208 719,140

Years
1965
1966
1967
1966
196E
197C
1971
1972
1972
1974
1975
197E
197]
1971
197$
1981
198i
198:

1984
1985
1981
198‘

Year

198

198

1196
812

TABLE B.8 FARHEST NATIVE SPEARMINT OIL HISTORICAL DATA (1st Cut)

Years Carry In Production Total Oil Annual Usage Acres Yield
1965 - 98,000 - - 1,575 62
1966 0 176,700 176,700 166,700 3,924 45
1967 10,000 424,000 434,000 418,500 5,160 82
1968 15,500 324,000 339,500 297,900 4,600 70
1969 41,600 353,000 394,600 364,600 5,500 64
1970 30,000 375,100 405,100 255,100 5,045 74
1971 150,000 409,700 559,700 409,700 5,929 69
1972 150,000 456,100 606,100 526,100 6,410 71
1973 80,000 435,900 515,900 515,900 6,780 64
1974 0 585,900 585,900 412,900 7,884 74
1975 173,000 654,500 827,500 716,200 7,389 89
1976 111,300 578,100 689,400 689,400 7,683 75
1977 0 716,500 716,500 607,500 9,615 75
1978 109,000 927,800 1,036,800 764,800 13,893 67
1979 272,000 523,900 795,900 584,171 9,338 56
1980 211729 764,854 976,583 468,446 12,153 63
1981 508138 611,651 1,119,789 589,788 9,300 66
1982 530001 287,329 817,331 459,814 3,172 91
1983 357517 332,310 689,827 571,508 5,176 64
1984 118319 452,549 570,868 502,366 6,728 67
1985 68502 704,711 773,213 473,678 8,866 79
1986 299535 705,153 1,004,688 540,965 8,032 88
1987 463723 6,137

(65-69 Acreage are
TABLE B.9 FARHEST NATIVE SPEAREINT OIL HISTORICAL DATA Interpolated from Production

(2nd Cut) Assuming 45 Lb. Yields/Acre)
Years Carry In Production Total Oil Annual Usage Acres Yield
1965 - 7,000 - - 156 -
1966 0 70,800 70,800 70,800 1,573 -
1967 0 155,200 155,200 81,800 3,449 -
1968 73,400 133,000 206,400 76,900 2,956 -
1969 29,500 21,000 150,500 120,500 467 -
1970 30,000 113,600 143,600 93,600 2,997 38
1971 50,000 169,400 219,400 169,400 3,738 45
1972 50,000 203,500 253,500 233,500 4,271 48
1973 20,000 182,700 202,700 202,700 3,372 54
1974 0 314,000 314,000 251,000 5,913 53
1975 63,000 247,300 310,300 253,400 3,800 65
1976 56,900 280,100 337,000 337,000 5,525 51
1977 0 383,700 383,700 335,700 5,883 65
1978 48,000 557,900 605,900 506,900 9,109 61
1979 99,000 275,400 374,400 266,129 4,207 65
1980 108271 509.904 618,175 323,476 6,506 78
1981 294698 587,666 882,364 335,470 7,155 82
1982 546894 191,554 738,447 257,529 2,112 91
1983 480918 176,661 657,579 489,642 2,488 71
1984 167937 309,188 477,125 354,542 4,385 71
1985 22583 411,576 534,159 331,626 5,821 71
1986 202533 551,166 753,699 423,701 6,128 90
1987 329998

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
I976
1977
1976
1979
1980
1981
I982
1983
1984
I985
I986

Carry In

N
.-

88888088800800

23 23 83

fl

:3 [3 L0 23 ho

NOMINAL
PRICES
Average
$5.25
$5.25
$5.25
$3.00
$4.50
$3.00
$3.75
$5.50
$9.50
$15.00
$13.00
$15.00
$14.30
$7.50
$8.50
$8.50
$8.00
$8.25
$10.00
$9.50
$8.50
$9.00

Production

121,000
183,000
265,000
351,000
500,000
508,000
381,000
330,000
382,000
444,400
423,300
401,500
496,700
917,900
727,300
827,000
778,000
598,000
547,000
758,000
741,000
888,000

$13.50

88888888
ES 29 29 29 CH 23 23 EB

1197

813

Total Oil

121,000
183,000
272,000
351,000
500,000
540,000
439,000
353,000
362,000
446,400
443,300
404,500
509,700
942,900
869,300
991,000
982,000
778,000
650,000
795,000
887,000

1,073,000

Close
$5.50
$5.50
$5.25
$5.00
$4.00
$3.00
$5.00
$6.00
$15.00
$15.00
$13.50
$16.50
$14.50
$5.50
$8.00
$7.50
$7.50
$12.25
$11.00
$10.00
$6.75
$10.00

TABLE 8.10 EASTERN OREGON AND IDAHO PEPPERMINT HISTORICAL DATA

Usage
121,000
176,000
272,000
351,000
468,000
482,000
416,000
353,000
360,000
426,400
440,300
391,500
484,700
800,900
705,300
787,000
802,000
675,000
613,000
649,000
700,000

1,049,000

1986
PRICES
Average
$18.24
$17.74
$17.24
$15.76
$13.46
$8.47
$10.15
$14.42
$23.44
$33.35
$26.48
$28.89
$26.24
$12.60
$12.84
$11.31
$9.64
$9.37
$11.01
$10.03
$8.66

Acres
2,080
3,750
4,550
7,050
7,700
7,400
6,200
5,500
6,300
7,585
8,987
8,602
12,705
14,216
11,943
11,890
10,377
8,391
7,719
10,280
11,702
11,162
12,248

Opening Spot
or Contract

Price
$18.24
$17.74
$17.24
$15.76
$13.46

$9.18
$10.15
$13.10
$12.34
$22.23
$20.37
$25.04
$24.43
$22.69
$13.60
$11.98
$10.85

$8.80
$9.35
$10.03
$9.68
$8.00

Yield
58
49
58
50
65
69
61

57
59
47
47
39
65
61
70
75
71
71
74
63
79

Price Movement

During

the Season

$19.11
$18.58
$17.24
$15.76
$11.96

$8.47
$13.54
$15.73
$37.01
$33.35
$27.50
$31.78
$26.24

$9.24
$12.08

$9.98

$9.04
$13.92
$12.11
$10.56

$6.88
$10.00

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
_ 1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Year:
1965
1961
1961
1961
1965
197i
197
197
197'
197
197'
197
197
197
197‘
198
198
198
198.
198.
1981
1381
198‘.

Years
1965
1966
1967
I968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

TABLE 8.11

Carry In

51,000
44,000
73,000
234,000
209,000
264,000
164,000
101,000
103,000
70,000
87,000
58,000
95,000
212,000
136,000
231,000
347,000
320,000
335,000
273,000
177,000

NOMINAL PRICES

Average
$10.00
$8.00
$8.20
$7.75
$6.65
$4.50
$4.50
$6.00
$9.35
$12.50
$13.50
$15.00
$16.50
$13.80
$13.90
$14.00
$14.00
$12.50
$10.30
$11.00
$12.00
$14.00

Production

292,000
540,000
579,000
659,000
797,000

1,010,000

723,000
360,000
470,000
528,700
548,300
656,200
535,800
670,100
788,800
690,000
722,000
863,000
875,000
780,000
405,000
569,000

1198

814

PIDHEST PEPPERHINT HISTORICAL DATA

Total Oil

630,000
703,000
870,000

1,244,000

932,000
624,000
634,000
629,700
651,300
726,200
622,800
728,100
883,800
902,000
858,000

1,094,000
1,222,000
1,100,000

740,000
842,000

Close
$8.00
$8.00
$7.75
$7.75
$6.25
$4.50
$4.75
$7.00
$12.00
$15.00
$15.00
$18.00
$17.50
$12.00
$12.00
$14.00
$13.00
$10.50
$15.00
$13.00
$10.00
$15.00

Usage

586,000
630,000
636,000

1,035,000

668,000
460,000
533,000
526,700
581,300
639,200
564,800
633,100
671,800
766,000
627,000
747,000
902,000
765,000
467,000
665,000

1986 PRICES

Average
$34.75
$27.03
$26.93
$24.43
$19.89
$12.71
$12.18
$15.73
$23.07
$27.79
$27.50
$28.89
$29.85
$23.19
$21.00
$18.63
$16.88
$14.20
$11.34
$11.61
$12.23

Acres
11,059
15,327
15,707
15,649
16,987
19,458
15,407
13,879
11,691
14,376
15,709
17,352
17,669
19,803
20,961
22,723
21,642
21,454
20,951
18,656
14,391
16,445
16,210

Open
$34.75
$27.03
$27.09
$24.43
$20.19
$12.71
$12.18
$15.73
$20.97
$22.23
$27.50
$26.00
$27.14
$23.53
$21.15
$18.63
$16.88
$15.90
$10.18
$10.03
$15.29
$13.00

Yield
26
35
37
42
47
52
47
26
40
37
35
38
30
34
38
30
33
40
42
42
28
35

Close
$27.80
$27.03
$25.45
$24.43
$18.69
$12.71
$12.86
$18.35
$29.61
$33.35
$30.56
$34.67
$31.66
$20.17
$18.13
$18.63
$15.67
$11.93
$16.51
$13.72
$10.19
$15.00

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1962
1983
1984
1985
1386
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
I985

I987

Carry In

10.000
12.000
13,000
47,000
53,000
99,000
32,000
23,000
26,000
7,000
20,000
30,000
131,000
179,000
160,000
189,000
85,000
53,000
51,000
60,000
76,000

NOHIVAL PRICES

Average

$8.00
$8.00

$14.00
$14.00
$14.00
$14.00

$14.00

Production

44,500

74,300
135,000
198,000
378,000
496,400
451,300
279,300
267,800
236,000
283,400
319,400
318,000
443,500
455,000
297,000
280,000
344,000
383,000
455,000
372,000
441,000

Open
$7.00
$7.00
$8.00
$8.00
$8.00
$5.50
$4.50
$5.50
$5.50

$10.00
$15.00
$15.00
$15.00
$14.00
$14.00
$14.00
$14.00
$14.00
$12.00
$14.00
$15.00
$14.00

1199

815

Total Oil

145,000
210,000
389,000
543,400
504,300
378,300
299,800
259,000
309,400
326,400
338,000
473,500
586,000
476,000
440,000
533,000
468,000
508,000
423,000
501,000

CIose
$9.00
$9.50
$8.00
$8.00
$6.00
$4.50
$4.00
$7.00
$15.00
$18.00
$16.50
$20.00
$20.00
$8.00
$14.00
$14.00
$14.00
$13.00
$15.00
$14.00
$13.00
$14.00

TABLE B.12 HIDHEST SCOTCH SPEARMINT HISTORICAL DATA

Usage

133,000
197,000
342,000
490,400
405,300
346,300
276,800
233,000
302,400
306,400
308,000
342,500
407,000
316,000
251,000
448,000
415,000
457,000
363,000
425,000

1986 PRICES

Average

$26.27
$25.21

$21.15
$18.63
$16.88
$14.78

$14.00

Acres

2,900
4,800
7,900
10,177
9,762
8,725
8,605
9,173
8,674
9,879
11,236
12,100
10,830
9,126
8,512
9,695
10,098
11,667
11,988
13,706
12,923

Open
$24.33
$23.65
$26.27
$25.21
$23.93
$15.53
$12.18
$14.42
$13.57
$22.23
$30.56
$28.89
$27.14
$23.53
$21.15
$18.63
$16.88
$15.90
$13.21
$14.78
$15.29
$14.00

Yield

47
41
48
49
46
32
31
26
33
32
28
37
42
33
33
35
38
39
31
32

Close
$31.28
$32.10
$26.27
$25.21
$17.95
$12.71
$10.83
$18.35
$37.01
$40.02
$33.61
$38.52
$36.19
$13.45
$21.15
$18.63
$16.88
$14.77
$16.51
$14.78
$13.25
$14.00

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1975
1977
1978
1973
1980
1981
1982
1983
1984
1985

1987

 

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1382
1983
1984
1985
1986
1987

Years
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

Carry In

4,000
0
2,000
13,000
25,000
55,000
24,000
22,000
32,000
27,000
12,000
12,000
9,000
14,000
16,000
26,000
37,000
30,000
50,000
49,000
34,000

NOMINAL PRICES

Average

$9.00
$9.00
$9.00
$5.00
$5.00

$9.00
$9.00

$15.00
$15.00

$16.00

Production

25,200
49,600
87,000
94,000
133,000
176,000
116,000
95,400
98,500
109,000
124,800
86,600
62,900
72,600
107,900
106,000
123,000
132,000
129,000
137,000
105,000
124,000

2()O

816

Total 011

91,000

94,000
135,000
189,000
141,000
150,400
122,500
131,000
156,800
113,600

74,900
84,600
116,900
120,000
139,000
158,000
166,000
167,000
155,000
173,000

Close
$10.00
$10.00

$9.00

$9.00
$9.00
$5.00
$5.00
$6.00
$9.00
$9.00
$9.00
$12.00
$15.00
$15.00
$15.00
$16.00
$16.00
$15.00
$15.00
$13.50
$10.00
$10.50

TABLE 8.13 HIDHEST NATIVE SPEARMINT HISTORICAL DATA

Usage

91,000

92,000
122,000
164,000

86,000
126,400
100,500

99,000
129,800
101,600

62,900

75,600
102,900
104,000
113,000
121,000
136,000
117,000
106,000
139,000

1986 PRICES

Average

$29.56
$28.36
$26.92
$14.12
$13.54

$20.01
$18.33

$25.21
$22.66

$19.29

Acres

2,900
2,800
3,600
4,717
4,388
3,382
2,924
3,355
3,391
2,735
2,839
3,425
3,778
3,818
4,138
3,911
4,013
4,329
3,889
3,477
2,809

Open
$24.33
$23.65
$29.56
$28.36
$26.92
$14.12
$13.54
$13.10
$17.27
$20.01
$18.33
$17.33
$21.71
$25.21
$22.66
$19.96
$19.29
$18.18
$15.41
$12.67
$12.23

$8.00

Yield

30
34
37
37
27
28
34
32
37
32
24
21
29
28
30
34
32
32
27
36

Close
$34.75
$33.79
$29.56
$28.36
$26.92
$14.12
$13.54
$15.73
$22.21
$20.01
$18.33
$23.11
$27.14
$25.21
$22.66
$21.29
$19.29
$17.04
$16.51
$14.25
$10.19
$10.50

Spt or Bot
Peppermin
Tota

Spt or Bot
Peppermir
Tot:

Othe

TABLE 8.18
DISTRIBUTI(
01L USAGE 1

2()l
817

TABLE 8.14 HINT GROHERS Of THE UNITED STATES IN THE 1980's

Oregon Hashington Idaho Indiana

50! or Both 20 120 54 N/A
Peppermint 243 50 46 N/A
Total 263 170 100 65
Montana Nevada Utah South Dakota

Sat or 80th 0 3 2 l
Peppermint 9 0 0 0
Total 9 3 2 1

Sources: Estimates are from State Departments of Agriculture,

TABLE 8.15 DISTRIBUTION OF HINT OIL
PURCHASES BY U.S. HINT OIL DEALERS

1964 1966-69 1970-73 1987

A 50 43 37 31

B 30 24 24 26

C 15 15 18 24

O 5 10 9 2

E e 4 4 8
Others - 8 13 9

e Firm E's market share is combined with others until 1987
Sources: 1964, Cramer p.2: 1966-73, Greenhalgh p.109;
1987, Buver Estimates

'ABLE 8.16 E TIHATEO
OISTRIBUTION OF U.S. HINT
OIL USAGE IN 1986

172
14X
72
32
32
Others 141
Export 422

MOFWCIJD

Total 1002

Source: Industry Estimates

Michigan
N/A

N/A

63

Ohio
N/A
N/A

1

Hisconsin
N/A

N/A

59

Others
N/A
N/A

16

United States

692

tate Hint Commissions, and Buyer estimates.

2(92

818
TABLE 8.17 GROHER SALES OF FARHEST
SPEARMINT OIL AND EXPORTS OE U.S.
SPEARHINT OIL BY HONTH JAN 85-DEC 86
Honth Class 1 FHS Class 3 FHN Exports
J 4,511 6,175 43,651
F 5,718 10,251 76,517
H 2,025 3,249 49,608
A 4,775 0 88,096
H 12,779 12,301 61,649
J 23,716 10,053 59,809
J 186,178 227,371 52,505
A 217,341 72,695 45,664
5 125,553 163,840 82,304
0 188,862 113,030 48,852
N 29,801 76,876 134,588
0 18.517 12,073 76,925
J 9,517 22,939 94,660
F 4,752 45,224 68,945
H 51,438 30,728 123,955
A 3,573 16,913 74,597
H 2,969 13,560 63,414
J 49,318 32,863 81,073
J 301,119 290,979 41,497
A 157,939 6,546 108,352
5 102,869 177,579 60,226
0 50,583 107,393 108,196
N 3,329 363 38,006
D 557 55.659 73,371
Total 1,557,737 1,509,258 1,756,460
Source: Harketing Order