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University Microfilms 300 North Z ee b Road Ann Arbor, M ichigan 48106 A X erox E d ucation C o m p an y J 1 72-29,922 ANDERSON, Robert Wallace, 1941MICKIGAN'S PURPLE PLUM INDUSTRY. Michigan State University, Ph.D., 1972 Economics, agricultural U n iv e rs ity M icro film s, A XEROX C om pany , A n n A rb o r, M ich ig an MICHIGAN’S PURPLE PLUM INDUSTRY By Robert Wallace Anderson A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1972 PLEASE Some NOTE: pages may i n d ist inet Filmed University as Microfilms, have print. received. A Xerox Education Company ABSTRACT MICHIGAN’S PURPLE PLUM INDUSTRY By Robert Wallace Anderson This study focused on identifying future problems and prospects in Michigan's purple plum industry. These problems and prospects were identified by reviewing the past and present situations, determining key market vari­ ables and analyzing the marketing and organizational prac­ tices of the industry. Michigan's position in the total U.S. industry is one of rising magnitude and importance. Production has in­ creased from less than 10,000 tons in 1962, to 15,000 tons in the late 1960's and will increase to an estimated 39,000 tons by 1975. Michigan is likely to become the largest pro­ ducing state and will account for 30 to 40 percent of the tota1 U.S. s upply. Washington, Oregon and Idaho are expected to increase production by approximately 10,000 tons which, when combined with Michigan's production, provides a total U.S. supply of slightly over 100,000 tons. This increased production poten­ tial presents the industry with a marketing and supply manage ment problem. Ro ber t W a l l a c e A n d e r s o n Michigan growers and packers had difficulty in marketing the 15,000 ton crop in 1967. In most years, the fresh market handles approximately 30 percent of the avail­ able Michigan supply with the remainder being processed. Packers and Retailers of fresh products believe that, with current prices and marketing programs, sales cannot be ex­ panded. The 13 processors in the state say that they are able to handle the supply increase physically, but, at pres­ ent prices, no profit incentive exists to warrant increases in supply of the processed products. A two stage, least-squares model was used to estimate the price elasticity of demand for both fresh and processed p l ums. Results indicate that both products are price in­ elastic with an elasticity of -.72 for processed and -.69 for fresh p l u m s . This implies that a reduction in price by itself will not significantly increase the volume of sales , nor will it significantly increase returns to the industry. Least-squares regression analysis defined a number of key variables affecting grower and processor prices. fls expected, supply and population were two variables signifi­ cantly affecting p r i c e s . An unexpected result was that the price or quantity of competing fruit, with one exception, did not appear as a significant factor in explaining varia­ tions in prices. The only exception is the grower price for apples for processing. Major problems confronting the Michigan plum industry include inconsistent quality in the marketed products, very Robert Wallace Anderson little product promotion and marketing, a lack of organiza­ tion within the industry and a supply situation which makes the other problems critical in the short run. Product quality may be made more consistent at the market level through the use of a marketing order with strictly enforced quality criteria or by individual efforts of fresh packers. Canned whole plum quality may be made more consistent through a similar marketing order or possibly by creating two quality levels with a price premium for the higher quality. Product promotion and marketing improvement requires a united effort if it is to be effective. industry effort. This requires an A bargaining association or a marketing order are considered as methods of bringing about the d e ­ sired organization. Promotion and advertising are considered as methods of obtaining higher returns if the quality improve­ ments are brought about first. The analysis indicates that quotas present the most effective method of limiting supply for conditions in the plum industry. A storage program would be beneficial in situations where total supplies fluctuated from year to year but based on historical production levels the analysis shows that such a program would not be beneficial to the plum industry under similar conditions. To my loving Wife, Irene ii ACKNOWLEDGMENTS The author is indebted to the Department of Agri­ cultural Economics for providing assistance during his studies at Michigan State University. Sincere gratitude is extended to Dr. James Shaffer for his guidance as major advisor and as thesis co-advisor. Similar gratitude is e x ­ tended to Dr. Donald J. Ricks for his guidance as thesis co­ advisor. The author also appreciated the aid of other m e m ­ bers of the staff particularly Dr. Marvin Hayenga and Dr. Vernon Sorenson who read the manuscript and made several helpful suggestions. The author is especially grateful to his wife, Irene, for her continued support and encouragement throughout the production of this manuscript. Formal recognition is made here of the continuing support provided to the author by his parents. Their support of the author's educational endeavors has been most welcome. TA BLE OF C O N T E N T S P age LIST OF T A B L E S .......................... . .............. vii LIST OF F I G U R E S ........................................ X Chapter I. INTRODUCTION The P r o b l e m ................................... Objectives of the S t u d y ...................... Plan of Thesis . . * ........................ II. 1 2 3 MICHIGAN PURPLE PLUM MARKETING CHANNELS AND PARTICIPANTS G r o w e r s ........... . ............................. 10 Handlers or Receivers ....................... 12 Fresh P a c k e r s .................................... 13 B r o k e r s ...........................................14 Processors . . . . . .......................... 15 Benton Harbor Fruit Market .................. 17 R e t a i l e r s ........................................ 18 Other P a r t i c i p a n t s ............................. 20 Summary . . . . . . 21 III. UNITED STATES PURPLE PLUM INDUSTRY I n t r o d u c t i o n ............................... 22 P r o d u c t i o n ................................... 22 U t i l i z a t i o n ................................... 33 Value of P r o d u c t i o n ............................. 41 Market Location ............................... 49 Production Projection . 51 Projected Production 1971-1975 54 Summary .......................... . . . . . . 66 IV. PRODUCTION PROBLEMS AND COSTS OF GROWING PLUMS IN MICHIGAN ................................. 67 Introduction Production Problems ........................ . 6 7 T e c h n o l o g y ...................................... 71 Page Michigan Costs ............................... Regional Costs of Production . . . . . . . . S u m m a r y ..................................... V. VIEWS AND PROBLEMS OF PROCESSORS Produce Quality ...................... Location of Growers and Processors ........... Processor Market . . . . . C a n n i n g ..................................... P r i c i n g ..................................... Advertising and Promotion .................. Processing Costs ............................... Financial Situation ......................... Excess Supply ................................. ............................ Industry Problems S u m m a r y ....................................... VI. 93 96 96 97 100 101 105 106 Ill 112 116 120 125 128 130 131 ECONOMIC RELATIONSHIPS IN THE PURPLE PLUM SUBSECTOR Canned Plum Consumption .................... Fresh Plum C o n s u m p t i o n ...................... Factors Affecting F.O.B. Prices of Northwestern Canned Purple Plums . . . . Factors Affecting Purple Plum Marketing at the Grower L e v e l ........................ Fresh P l u m s .............................. Plums Sold for P r o c e s s i n g .................. S u m m a r y ..................................... VIII. 91 VIEWS AND PROBLEMS OF RETAILERS, FRESH PACKERS, HANDLERS AND BROKERS Retailing Canned Whole Plums ........... . . Retailing Fresh Purple Plums ........... . . Fresh Packing . . . . . H a n d l i n g ................................. Brokerage . . . . . S u m m a r y ..................................... VII. 74 85 89 134 141 143 157 159 167 172 ALTERNATIVE APPROACHES TO INDUSTRY PROBLEMS The Oversupply Problem ...................... Supply Management Via Marketing Quotas . . . Supply Management Via Storage ............. Quality in Fresh Purple Plums ............. Marketing Order for Fresh Quality I m p r o v e m e n t ................................. Fresh Quality Improvement by Individual Packers ... 176 180 187 194 194 196 Page Quality of Canned Whole Plums ............... P r omo t i o n of T w o Q u a l i t y Levels In Canned Whole Plums . ...................... Fresh Market Expansion ............. Promotion ............. Coordination ................................. Use of the Term " P r u n e " ...................... New Uses for P l u m s .......................... S u m m a r y ........................................ IX.SUMMARY LIST ......................................... OF R E F E R E N C E S ................................. APPENDIX A - Purple Plum Processing Survey . . . . 197 198 200 203 207 208 209 210 211 217 222 LIST OF TABLES Ta ble 1. 2. 3. Page Benton Harbor Plum Sales: Total and Percentage of Michigan Sales 1960-1970 ........................................ 19 Prunes and Plums: Total Production in Principal States (1939-1969) 25 Number of Plum and Prune Trees in Commercial Orchards by Variety, and Year Set, Districts and State, Michigan, 1968 27 4. Plum and Prune Trees by Age and Variety--New Jersey, Pennsylvania, New Y o r k .......................................... 30 5. Number of Prune Trees in the Province of Ontario Reported in the 1966 Survey Compared with Numbers in 1956 and 1961 S u r v e y s .................. * ....................... 32 6. Purple Plum Fresh Sales (Four Major S t a t e s ) .............................................34 7. Purple Plums Sold for C a n n i n g ..................... 36 8. U.S. Canned Purple Plum Pack, Carryin, and Total Annual Supply 1947-1970 . . . . . . . 38 Total U.S. Purple Plum Pack by Sizes 1950-1969 ........................................ 39 Purple Plums Sold for Freezing and Drying Major States 1939-1969 .................. 40 Price Received by Growers for Purple Plums Sold Fresh. Four Major States and the U.S. 1944-1969 (Season Average Price) ................... 42 9. 10. 11. 12. Price Received by Growers for Purple Plums Sold to Processing (except dried) Four Major States and the U.S. 1944-1969 ... 44 Price Re ce i v e d by Growers for all Sales of Purple Plums as Sold 1944-1969 (Season Ave rag e Price) Four M ajo r States and the U . S ...................... . ............... Prices R e c e i v e d by M i c h i g a n F armers for P u r p l e Plums 1944.......... 1969 (Season A v e r a g e Price) 47 Value of Purple Plum Production by States and U.S. 1944-1969 . . . . . 48 U.S. Per C a p i t a C o n s u m p t i o n of Plums, Prunes and Prune Pro duc ts 1930-1969 ............................. 52 U.S. Per C a p i t a Pur ple Plu m P r o d u c t i o n — F r e s h and P r o c e s s e d 1947-1969.. ............................. 53 M i c h i g a n P urp le P l u m B earing T r e e s , Ye arl y Plantings, Production, a n d E s t i m a t e d P r o d u c t i o n 1945-1975 . . . . 56 P l u m Tree Numbers, 65 N o r t h w e s t e r n States Effect of Varying Yields on Costs Per Harvested Bushel for P l u m s , W e s t e r n M i c h i g a n 1970 . . . . . . . . 77 V a r i a b l e C o s t of Gr owing One A c r e of Plums W e s t e r n M i c h i g a n 1970 (average yi e l d o f 7.5 tons) .......... 80 V a r i a b l e C o s t of H arv es t i n g 250 Bushels of Plums (1 Acre), W e s t e r n Michigan, 1970 ........................ 81 Some A v e r a g e E s t i m a t e d M a r k e t i n g Co s t s for Plums Per 1000 Bu sh e l s H a r v e s t e d S o u t h w e s t e r n Michigan, 1970 ................................... 83 St a t e by State C o s t C o m p a r i s o n - Michigan, W a s h i ngt on, Oregon .......... 86 Pr oce s s o r R e s p o n s e s to G rower Re lat i o n Type Q u e s t i o n s .............. 95 Page 26 - 27. 28. Number of Firms Packing Specific Can Sizes, Percentage of Business Represented by P l u m s , and Other Crops P r o c e s s e d ................................. 98 Pounds of Raw Fruit Required and Costs Involved in Canning Purple P l u m s ........... ...................................103 Support for Methods of Expanding ............... Demand for Canned Purple Plums 110 29. Wage Rate, U.S. Per Capita Supply or Process Type Purple Plums, Total U.S. Supply of Purple Plums, and Average Price aid to Growers for Process Type P l u m s ........................... 139 30. Per Capita Income, U.S. Per Capita Fresh Supply of Purple Plums, and Average Price Paid to Growers for Fresh Plums 1954-1969 .......................... 140 31. Actual and Estimated f.o.b. Prices and their Differences for Canned Choice N.W. Purple Plums in Cases of 24, No. 2 1/2 C a n s ............................. 147 32. F.O.B. Prices of Northwestern Canned Purple Plums .......................... 33. . Data for Grower Price Analysis 1957-1969 ........................................ 149 161 34. Actual and Estimated Prices Paid to Growers for Purple Plums Sold Fresh and Sold for P r o c e s s i n g .................... 162 35. Storage Program Cost D a t a ......................... 190 ix L I S T OF F IGU R E S Figure 1. Page Marketing Channels for Process Type P l u m s ............................................ 6 2. Marketing Channels for Fresh Plums 9 3. Number of Growers and Acreage in Major Purple Plum Producing Countries and Location of Processing Plants ............. 11 Purple Plum Growing Regions of the United States ................................... 23 4. . . . . . . 5. Total U.S. Production of Purple Plums (Michigan, Oregon, Washington, Idaho) 1947-1969 and value of U.S. production of purple p l u m s .................................... 50 6. Historical and Projected Bearing Plum Trees in Michigan 1949-1975 .................... 55 Actual and Projected Purple Plum Pro­ duction (Michigan 1949-1975) . . . . 58 7. 8. No. 2 1/2 Heavy Syrup Pack Purple Plums: Actual and Estimated f.o.b. Processor Prices (N.W.) by Years 1954-1969 ....................................... 152 Equation 1 9. No. 2 1/2 Heavy Syrup Pack Purple Plums: Actual and Estimated f.o.b. Processor Prices (N.W.) by Years 1954-1969 Equation 2 ..................................... 152 10. No. 2 1/2 Heavy Syrup Pack Purple Plums: Actual and Estimated f.o.b. Processor Prices (N.W.) by Years 1957-1969 Equation 3 ....................................... 153 11. Fresh Market Plums: Actual and Esti­ mated Price received by Growers 19 571969 165 Figure 12. Pa ge P r o c e s s i n g M a r k e t Plums: Ac tua l and E s t i m a t e d P r i c e re ce i v e d by G rowers 1957-1969 13. ..................................... Northwestern f.o.b. Processor Price for Canned Purple Plums and Storage Program Costs (per case of 24 No. 2 1/2 Cans) ............................. 170 193 CHAPTER I INTRODUCTION The immediate goal of this study was to identify future problems and prospects of the purple plum industry and provide information which can be useful in developing programs and practices to deal with the economic problems of this industry. The Problem Michigan's purple plum industry, facing increased supplies, finds itself confronted with the prospect of sub­ stantially decreasing prices and lower net returns. Heavy plantings several years ago are maturing and, in good crop years, may more than double Michigan's past purple plum production. Fresh plum consumption has declined from four- fifths to one-third pound per capita. Consumption of pro­ cessed plum products has remained approximately steady at less than one-third of a pound per capita. This combination of supply and demand prospects must be dealt with, in some way, during the next decade. Until 1960, Michigan's plum production was valued at slightly over half a million dollars. 1 Since 1960, the 2 annual gross return to Michigan plum growers has more than doubled, exceeding one million dollars per year with the exception of 1961, 1962, and 1964. During this period when Michigan’s plum production doubled in value, the gross re­ turns from total U.S. purple plum production remained rel­ atively constant. Although encouraged by the increased value of their production, Michigan growers are concerned that the lack of producer organization and a wide variation in quality in the industry may lead to reduced returns if the predicted supply increase materializes. In view of this increase in supply, concern exists as to whether the market­ ing channel can handle such an expansion. Purple plums for the purpose of this dissertation are defined as the purple skinned varieties of plums such as the Italian and Stanley (including the Blu f r e ) . These plums are grown mainly in Michigan and the Northwest States of Washington, Oregon and Idaho, with a few grown in New York, Pennsylvania and New Jersey. They are different from the plums or plum prunes grown in California and parts of Oregon which have the high sugar content necessary to p r o ­ duce p r u n e s . While the plum prunes could be substituted for purple plums in the fresh and canned mar k e t s , the prune market has always been much more profitable. Objectives of the Study The problems in the Michigan purple plum industry have stimulated discussion as to the actions necessary for improving the economic position of the entire industry. 3 The purpose of this study is to determine what alternatives are available to the industry as a whole and to individual segments of it. In evaluating the alternatives and the problems to be solved it is necessary to consider the economic environment in which the industry operates, the relationships among growers and between growers and processors, and the characteristics of the institutions involved. Specific objectives of this study are; (1) To describe various segments of the Michigan purple plum industry. (2) To analyze factors affecting prices, and pre­ dict the effect that changes in demand or supply conditions may have on grower and pro­ cessor returns. (3) To analyze marketing and organizational prac­ tices of the industry. (4) To recommend courses of action for the improved economic well-being of Michigan’s purple plum indus t r y . Plan of Thesis Michigan's purple plum industry and its relation­ ship to the U.S. purple plum industry is described. The expected supply of purple plums is then projected through the 1970's. Responses from a survey of Michigan industry participants, designed to determine their current problems and any additional problems that can be expected to occur 4 in the 1970's with the increase in supply, is reported and their implications discussed. All of the processors that can whole plums or make baby food in Michigan were inter­ viewed as well as numerous representatives from other groups within the industry. A statistical analysis is used to de­ termine how significant certain variables are in explaining the demand for purple plums and the prices received by growers and processors. The variables tested are those indicated by industry participants or economic theory as affecting price and demand. Using the re sul ts cal analysis, maj or from the surveys and the s t a t i s t i ­ in du s t r y pro b l e m s are outlined. Selected p r o g r a m s or a l t e r n a t i v e actions th at m i g h t c o n t r i b u t e to the s o l u t i o n of these p r o b l e m s are discussed. CHAPTER II MICHIGAN PURPLE PLUM MARKETING CHANNELS AND PARTICIPANTS As is the case with many fruits and vegetables, two major marketing channels exist for purple p l u m s . The pro­ cessed market accounts for approximately 60-70 percent while the fresh market handles the remainder. Although the pro­ cessing channel buys a few plums from the fresh packers and a number of participants are common to both c h annels, they are considered as separate channels. Processors usually perform a number of functions in the processing channel. They buy directly from growers, process the plums and sell then to retailers under private brand labels, thus bypassing handlers and brokers (Figure 1). These retailers who buy from processors and brokers seldom carry more than a 30 day supply, meaning that processors store the year's inventory as well. Brokers selling to cooperatives or independent chains do not store any of the product. Over 90 percent of the plums entering this channel are made into canned whole plums or baby food.^ Baby food percentages are not reported separately to avoid disclosing individual operations. 5 6 Hotels restaurants Institutions Retail Grocery Military & school lunch N U"l Wholesale Jam & Jelly Processors Institutional Broker o in First Handler >95% la-io) Whole Plum & Baby Food Processors (12) 00 Plua Figure 1. Grower (2500-3000) Marketing Channels for Process Type Plums* \h e percentage indications on the channel lines and numbers In the brackets are approximations made by the author for the 1969 situation. The values in brackets are numbers of participants. Values on the arrows are percent of that group's product going in the direction of the arrow. 7 Within this segment, twelve processors buy nearly 80 per­ cent of their requirements directly from growers. About 11 percent of the plums sold to processors are handled by 8 to 10 receiving or handling firms that buy under agree­ ment with processors. These handlers sell a few to the jam and jelly industry. But because the jam and jelly trade accounts for less than 5 percent of the handlers' plums, this portion of handler volume is rather insignifi2 cant. Approximately 5 to 8 percent of the processor's supply of plums come from the fresh packers as grade-outs. 3 In years when supply is abundant, processors buy fewer grade-outs, because they have sufficient amounts of orchard run fruit which is generally higher quality and available at low p r ice s . Processors market their plums as canned whole purple plums packed in a heavy syrup. A few are marketed in light sugar syrup or v;ater as dietary plums. Approxi­ mately half are sold to the institutional market where processors bid on various sized government contracts or sell directly to private institutions. At the retail level, a 29 or 30 oz. number 2 1/2 can size is most popular. Several smaller miscellaneous Because the jam and jelly trade accounts for a very low percentage of the state's processed plums, of which many are neither Stanley nor Blufre, they receive very little attention here or elsewhere in the thesis. 3 Grade-outs are plums delivered to fresh packers but graded out because of small size. 8 sizes are available. Whole purple plums are the major pro­ duct but several baby food companies (one located in Michi­ gan) market plums as baby food; some jams and jellies are also available from Michigan plums. At present, little or no commercial interest exists for plum baking goods or drinks. Twelve to 18 packers handle between 50 and 60 percent of the volume in the fresh market channel (Figure 2). The Benton Harbor market handles approximately 23 to 35 percent of the remainder. The rest of the plums move directly from growers to roadside stands or from growers to brokers who market through retail outlets. At the other end, consumers buy at roadside fruit stands or retail grocery stores. While exact volume figures are not available, large chain stores do market, by far, the larger share. Many of these packers buy from growers and sell di­ rectly to stores, while others sell to brokers, who in turn sell to cooperatives, chain stores, independent stores and roadside fruit stands. These fruit stands sell their own produce, their neighbors, and what they buy from brokers, packers and the Benton Harbor market. Until recently, the Benton Harbor market has been an important link in the chan­ nel where growers who packed their own plums sold to brokers, fruit stand merchants, retail chains. Lately, independent stores and occasionally to fewer brokers and chains have dealt with the market because the plums sold there are not cooled 4 and have a shorter shelf life. 4 The Benton Harbor market is a wholesale market with no refrigeration facilities. Xn addition, the grower packers 9 Consumer Retail Grocery Roadside Fruit Stand vt o OJ Broker (2 0 - 3 0 ) o 50- Benton Harbor Market o OJ LT\ m V C CVJ O O" CVJ Fresh Packer Grower (12 -1 8 } (25-50) Vi. Lf\ Vs'i o CO Plum 2. 5-17* CO OJ VO Figure Packer Marketing Grower Channels (2 5 0 0 - 3 0 0 0 ) for Fresh Plums T h e p e r c e n t a g e i n d i c a t i o n s on t h e c h a n n e l l i n e s a n d n u m b e r s in t h e b r a c k e t s a r e a p p r o x i m a t i o n s m a d e b y the a u t h o r for t h e p r e s e n t s i t u a t i o n . T h e v a l u e s in b r a c k e t s are n u m b e r s of p a r t i c i p a n t s . Values on the arrows are p e r c e n t o f t h a t g r o u p ’s p r o d u c t g o i n g in th e d i r e c t i o n of the arrow. 10 Growers Most of Michigan's growers are located in the western part of the state (Figure 3). Individual grower size ranges from less than an acre to approximately three hundred a c r e s . According to the 1964 census of Agriculture, there were 3,16 3 farms raising some plums. The next census is expected to show that the number of plum farms have decreased but that their average acreage has increased. Nearly all growers have other fruit crops with plums as a minor part of their total enterprise. Plums, as a crop, have become popular with tart cherry fruit growers. This popularity has occurred because plums sold for processing can be mechanically harvested with the same equipment used in tart cherry shaking. By using a tart cherry harvester on plums, growers spread the overhead costs making possession of such a machine more justifiable on a per unit cost basis. Growers are also able to use the same production equipment for plums as is used for some other fruit c r o p s . Plum growers belong to various fruit crop organiza­ tions and have recently formed an organization through the Michigan Agricultural Cooperative Marketing Association (MACMA) multi-fruits division. With the exception of this new organization and a very few packer cooperatives, they who sell on the market have no cooling facilities and usually market only small quantities of plums. If plums were cooled before being brought to the market, refrigerated trucks and facilities would be necessary. 11 Legend Grand Travers Top Figure ■ Nunbrr of E producing In 1964. Dec tea Figure - Latina ted 1970 Acreage « Location of Procee* lng Plante Source: Aapacta of Michigan 4 & £ lculture Related to the Uaa of L a b o r . Michigan State Unlvaralty Rural Manpower Center Publication. 1971. — Allocated 1970 acreage according to percentage dis­ tribution of 1964 ceneua. iiNiiri 116 k550* F i g u r e 3. N u m b e r of G r owers and A c r e a g e Purple Plum P r o d u c i n g C o u n t i e s and L o c a t i o n cessing Plants. in M a j o r of P r o ­ 12 bargain with other market participants on an individual basis. Growers in the south, because of their bigger plums, sell to the fresh market packers while growers in the north sell mostly to processors. Handlers or Receivers A handler, or what is sometimes referred to as a receiver, is a small company that purchases plums from growers for processors. These companies often handle fresh plums as well, but never buy the plums outright, receiving only what the processor agrees in advance to accept. Approximately eight to ten of these handlers are in operation, usually re­ ceiving plums from less than a dozen small gro w e r s . Their volume is approximately one million pounds each. Processors pay handlers a handling charge and growers receive a price similar to that received directly from the processor. Processors benefit from this arrangement by not having to handle all the small grower accounts and look after small quantities at the factory gates. As a rule, a handler will deliver plums from several growers at one time making a bigger load dently. than if each grower delivered his plums indepen­ Individual handlers may receive for more than one processor each year, but they usually do so with the same set of processors each year. As a rule, handlers operate under a verbal agreement, although one or two written contracts have been used. In addition to plums, they may handle tart cherries, sweet cherries, apples, pears and occasionally peaches. All 13 of these fruits, like plums, require storage facilities, bulk bins, lift trucks, and labor. Most handlers own or have access to cold storage facilities, although they try to deliver the plums before storage is necessary. If they must keep the plums for several days, they will chemically treat the plums to prevent the spread of brown rot. Fresh packers Fresh packers receive, sort by size, grade, chem­ ically treat, cool, and pack plums. Located primarily in the mid and southwestern parts of Michigan, these packers handle Stanley and Blufre purple plums because of their size and color. Individual packers may handle annual quan­ tities ranging from one hundred thousand to one million pounds.^ Some packers are independently owned and handle the plums on consignment, while others operate as a market­ ing cooperative for grower members. Each grower's fruit is graded individually and given a grade of number one or gradeout. Number ones may be sold on the fresh market while grade-outs, those that are small, scarred, split, etc., may be sold or discarded depending on supplies of total p l u m s . Some firms keep each grower's plums separate until final sale and pay the grower according to what was actually re­ ceived minus a packing charge. Other packers average the total receipts for all number one plums and each grower 5 Volume per packer is usually determined by the quan­ tity a packer can sell in a short time because plums will only store for approximately 30 d a y s . 14 receives the same price per unit for number one plums. The former method requires additional book work, but as packers using this system usually buy from only a few growers, this procedure remains feasible. Fresh plum packers all pack apples and may pack pears, peaches, cherries, strawberries and blueberries as well. Plum harvest season occurs in September just prior to early apples when facilities, including labor, are not heavily used for other fruit. Plums do not require any un ­ usual equipment or facilities with the exception of a special plum grader. Recently some firms have been prepackaging the plums in overwrap type containers of varying sizes. Packers buy most of their plums from southwestern growers because size is greater there than in the north. Brokers Brokers dealing in fresh plums have purchased packed „ plums from growers, fresh packers and the Benton Harbor ma r ­ ket and sold them to retail food outlets or roadside fruit stands. Most brokers do not have packing and storage facili­ ties, although a few have acquired these facilities in the last few years. Some of these brokers are branching into the packing business as well, but, until recently, their contri­ bution to the industry was mainly centered around their ability to collect and direct the fresh product to a final market such as wholesale or retail buyers. Their customers include small stores, roadside stands, retail chains and wholesale buyers. Each customer demands a slightly different service, with small 15 stores wanting small quantities, roadside stands riper plums, and wholesale and retail chain buyers needing less mature, cooled p l u m s . Recent changes in the market indicate that more small food stores are now part of a cooperative buying organization with buyers who demand a cooled, less mature plum similar to that required by large chains and wholesalers. Roadside fruit stands, according to industry sources, are de­ creasing in number and becoming more sophisticated. Those re­ maining are using cold storage in which to keep their extra fruit. This means they require a cooled plum. As a result, brokers have found their sales area changing, forcing them to buy more plums from packers and fewer uncooled plums at the Benton Harbor market. Processors 6 The processing sector is composed of 12 plants, 5 in the Traverse City area, 3 in the Hart-Shelby area and 4 in the Benton Harbor-Paw Paw district. ing is carried on by all 12 plants, While plum process­ 5 firms handle approx­ imately 66 percent of the plums processed in the state. firm processes plums exclusively. No All firms handle other fruit crops and in some cases vegetable crops as well. Plums are a minor product for many firms, but the season comes when processing facilities would, in many cases, be idle, prior to g Processors includes one baby food manufacturer and the rest are canned whole plum processing companies. 16 the apple season. By processing p l ums, processors do not add to fixed costs for the plant, and even a small margin above variable costs would be sufficient to warrant a continuation of plum processing. As the supply in Michigan increased, Processors, as a group, increased the quantity processed. While in­ dividual processors have sometimes refused to take more plums than they usually do in a big crop year, the industry, in general, has been able to handle the crop to date. Occa­ sionally, some plums originally destined for processing were diverted to the fresh market, due to low market prices for process type plums. Geographically, processors are not restricted to any one area in obtaining their supply. In the early part of the season, northern processors buy plums in the south and move them north. Later as the northern plums ripen, south­ ern processors buy plums in the north and transport them to the south. Some price differences exist that are usually related to product quality or added delivery costs to the grower. If prices were significantly different, growers would presumably supply their plums to the firm offering the best price. Most processors use fieldmen who work with growers that deal regularly with their company. Processors may be forced to raise prices when their requirements are beyond that available from regular growers; otherwise they usually pay the market price for plums supplied by regular growers. Grower loyalty appears to be based on having 17 received a price similar to that offered by other firms in the past, convenience of delivery, quality regulations, quantity of other fruit sold by a grower to that processor and other less quantifiable reasons. Processors do not use written contracts but work on verbal agreements between the fieldman and the grower. Benton Harbor Fruit Market Benton Harbor Fruit Market public city market, Michigan, 7 refers to a wholesale located in the city of Benton Harbor, to effect the exchange of fruit, vegetables and other produce. At the market, established in 1937, growers sell their produce to brokers, wholesalers or chain store buyers but not to individual consumers. Until recently, growers graded and packed their plums in half bushel units and sold them to buyers, who took them directly to retail outlets for resale in bulk form. Now, as fresh packers have increased in importance, growers have found it advan­ tageous to let these packers grade and pack their plums, thus by-passing the market. A change in buyer requirements has further reduced market volume. All retail buyers now want large volumes of uniform quality, cooled plums which have a longer shelf life. These requirements are difficult to obtain on the Benton Harbor market. 7 J. C. Abbott. Marketing Fruit and Vegetables. FAO marketing guide No. 2, Rome, 19-70. Appendix. 18 At one time the Benton Harbor market handled over 50 percent of Michigan's fresh plums, but now handle approx­ imately 25 percent (Table 1). A further decline is expected as both demand and supply fall off. In the immediate future, large supplies may increase the volume offered, but even with lower prices the demand for uncooled plums is not likely to improve. The convenience, availability and longer shelf life of cooled plums make them more attractive than those sold on the Benton Harbor market. Retailers Retail chain stores account for most of the canned whole plum sales and a big share of fresh sales. Although they often carry from one to three brands of canned plums at one time, they seldom feature them because of the low volume. Some retail units carry brands from the Northwest as well as Michigan brands or occasionally in place of Michigan's brands. The most popular can size for the whole plum packed in heavy syrup is the number 2 1/2 can while the dietary plums are sold in the number 303 can. In fresh sales, retailers switch from Northwestern to Michigan plums as soon as the latter are available. Hydro-cooled plums have become more popular because of the longer shelf life. Fresh plum sales drop off near the end of September due to competing fruit and perhaps because the novelty of fresh fruit is wearing off. 19 e 1. Year Benton Harbor Plum S a l e s : Total and Percentage of Michigan Sales 1960-1970. Total Benton Harbor Sold fresh in Michigan tons tons 1960 1348 .2 2500 52 1961 1272 .6 3200 41 1962 1121. 4 2600 42 1963 1083 .6 2200 50 1964 1890 .0 6600 28 1965 1146 .6 4100 34 1966 1524 .6 5000 30 1967 1297 .8 4600 28 1968 743 .4 3000 23 1969 1767 .5 5200 35 1225 .0 4800 25 Sources: B.H. as % of Mich. Col. 1 Benton Harbor Fruit Market Annual Summary Federal-State Market Survey. C o l . 2 Total volume of plums sold fresh in Michigan as reported by the Michigan Crop Reporting Service. Col. 3 Col. Col. 1. 2 as a percent of 20 Some firms continue to sell plums in bulk, free choice form while others have switched to packages ranging in size from one to ten pounds. Fresh plums are featured or advertised much more often than canned plums. Stores use point of sale adver­ tising as well as printed ads to promote fresh plums. The Northwestern states have a plum promotion organization that supplies retail stores with point of sale materials. Other Participants A number of other participants interact to a lesser degree within the industry. One jam and jelly company o ut­ side of the state was consulted concerning the use of Michi­ gan p l um s . They use very few purple plums and have started replacing other Michigan plum varieties with the Santa Rosa variety from California. Institutional brokers were not contacted separately because it was assumed that their func­ tion is very similar to that reported under the section titled "Brokers." The one baby food company, as mentioned earlier, was included with canning processors to avoid the divulgence of individual firm information. No information was available, nor did time and funds permit the gathering of information on the military and the institutional markets. No roadside fruit stand owners were interviewed, but brief mention was made of these participants under the title of "Brokers." Consumers are discussed in later chapters. 21 Summary A number of trends and forces are affecting changes on the marketing channels. Demand for cooled plums is forc­ ing the decline of the Benton Harbor market as a point of exchange. This in turn forces growers to increase their home packing to include cooling facilities or sell tree run plums directly to packers. The cooling requirement is forcing a similar change in roadside stands, where a number have installed refrigeration. is believed to be declining, While the number of growers their individual acreage is increasing as plums have become a complementary crop with tart cherries. Some retailers have started selling fresh plums in overwrapped trays forcing others to follow and putting some pressure on packers to perform this service. With these exceptions the remaining parts of the channels indicate little change. C H A P T E R III UNITED STATES PURPLE PLUM INDUSTRY Introduction Michigan's plum industry is part of a four state commercial purple plum industry in the United States (Figure 4). Idaho. The other states are Washington, Oregon, and Annual grower revenue from plums in these states is approximately nine million dollars. While small by comparison with such huge fruit industries as a p p l e s , grapes, and peaches, the total revenue is important to the fruit industries in the four states involved. Until recently, purple plums have been lumped together with California's plum and prune industry making it a much larger value and volume crop. This lumping has resulted in the purple plum segment being completely overshadowed by the larger California plum and drying prune industry. Recently more data and information has been available on this industry. The following sections provide some of the more important data now available for the purple plum industry. Production Commercial plum and prune production is most signifi­ cant in California, Oregon, Washington, Idaho, and Michigan. Minor producing statti 23 Figure 4. Purple Plum Growing Regions of the United S ta te s . 24 California specializes in soft-fleshed plums and the rel­ atively firm fleshed prune type plum which is made into a dried prune. The other four states specialize in the firm fleshed prune type plum. These prune type plums require a high sugar content if they are to be made into dried prunes. This excludes Washington, Idaho, Michigan and parts of Oregon where the plum sugar content is too low for making high qual­ ity dried prunes. These four areas sell their plums fresh or canned as purple plums and may be identified as the purple plum subsector.'*' Purple plum production in the U.S. has fluctuated from slightly over 216,000 tons in 1939 to a low of 32,700 tons in 1960 (Table 2). Part of this big drop in production may be explained by the fact that Oregon sells a lot of plums in some years for dried prune making. In addition, Oregon's production fluctuates annually resulting in a few years when supplies are very much above ave r a g e . With the per capita consumption of fresh plums and prunes dropping by 60 percent and the consumption of dried prunes dropping by 75 percent, the demand for prunes has decreased, causing Oregon to reduce their prune production. Even with the reduced production in Oregon, their growing conditions contribute to a substantial supply fluctuation in this state, so the total U.S. supply also fluctuates erratically. A subsector is a "meaningful grouping of economic activities related vertically and horizontally by market relationships." J. D. Shaffer, On the Ccncept of Subsector Studies. Paper presented at the Technical Seminar on Sub­ sector Modeling of Feed and Agricultural Industries, Depart­ ment of A g . Economics, University of Florida, March 30, 1970. 25 2. Prunes and Plums: Total Production in Principal States (1939-1970). Michigan Idaho Washington Oregon 4 State Total 154,300 42,700 69,400 70 ,500 104,000 60,400 92,100 101,100 34,400 48,800 107,700 22,300 59,800 45 ,100 48 ,400 42,500 52,600 59,000 34,000 19,700 44,000 4 ,000 27,400 46,000 6, 300 23,000 28,000 25,000 30,500 11,000 30,300 20,300 216 ,300 88 ,100 118,600 116 ,400 137 ,300 114,000 148 ,000 158,600 99 ,700 93 ,400 166 ,000 52,400 99,700 94 ,500 98 ,100 76,600 105,000 106,900 79,300 60,100 95,900 32,700 76 ,000 92,100 51,900 84 ,300 74 ,200 66 ,200 74 ,700 44 ,000 89,500 46,850 Tons 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 5,600 5,000 5,900 4 ,200 2,500 4,500 1,700 6,000 5 ,200 4,800 7,500 6 ,500 4,600 7,500 6,700 6,300 5,200 4,900 7,300 7 ,800 6,800 8,000 9,000 8,000 10,500 14 ,500 11,500 13,000 15,000 13,000 14,500 10,000 23,500 21,500 21,000 18,200 7 ,800 23,300 28,200 22,400 37,000 20,800 27,100 10,000 22 ,600 24 ,800 20 ,900 12,700 22,200 25,500 22,000 19,100 22 ,600 10,600 20,500 16 ,700 19,000 23,500 21,000 11,000 16,500 6 ,480 17,500 7 ,150 32,900 18 ,900 22,300 23,500 23 ,000 25,800 26,000 29,100 23,100 19,000 23,700 13,600 12,700 17,100 22,100 15,100 25,000 17,500 16,000 13,500 22,500 10,100 19,100 21,400 16,100 23,300 13,700 17,200 12,700 9 ,800 27,200 9,400 ♦Preliminary Source: Fruits Noncitrus by States: Production, Use, Value: Annual Reports. 26 Over the past 30 years when total U.S. production was decreasing, Michigan's production increased. From 19 30 to 1970, Michigan increased its share of the purple plum sub­ sector from less than 5 percent to more than 20 percent. Idaho and Washington have produced more plums than Michigan in the past but have on the average decreased their produc­ tion by approximately 30 percent during that same period. Their production has remained relatively stable during the past ten years; hence Michigan, than they do. in some years, produces more Oregon's production varies depending on the year, but in good years they have outproduced all states. If the predicted production o c c u r s , Michigan could become the leading plum producer. Commercial production in the two areas is dependent on two major plum varieties. mainly of the Italian In the Northwest these consist (Fellenberg) prune and several early maturing varieties derived from it, especially the Richards, Demaris, and Wetherspoon. Other important varieties of European origin include the French Petite prune and the Pres­ ident plum. The Italian prune resembles the Michigan Stanley plum in color and is usually slightly larger. Michigan's Italian prunes are not the Fellenberg variety and are usually much smaller than Stanley plums. Michigan's plum industry is primarily composed of the Stanley prune plum which accounted for 74.8 percent of Michi­ gan's plum trees 3). (according to the 1968 tree survey) (Table A new variety called "Blufre" which became popular in Table 3. Number of Plum and Prune Trees in Commercial Orchards by Variety, and Year Set, Districts and State, Michigan, 1968. Number of Trees by Year Set Variety 1967 1965-66 1963-64 1960-62 1955-59 1950-49 1945-49 1944 £ earlier Trees of all ages State Stanley Blufre Damson German Prune All Others Total All Varieties Stanley All Others Total All Varieties Stanley All Others Total All Varieties Stanley Blufre All Others Total All Varieties Stanley All Others Total All Varieties Source: 165,107 42,786 8,672 2,049 5,126 125,485 19,000 429 1,201 4,394 113,329 447 5,135 1,268 2,346 49,892 94 8,445 113 1,135 32,494 398 7,770 4,237 1,888 12,209 749 104,226 47,281 2,487 3,349 2,141 8,441 1,483 1,990 627,936 135,977 42,605 13,699 19,765 53,144 159,484 223,740 150,509 122,525 59,679 46,787 24,123 839,982 10,790 573 3,088 5,129 179,825 30,171 25,194 25,974 1,227 -- --- 12,802 2,844 34,148 4,521 28,478 9,034 Northwest District 49,981 32,101 8,437 1,761 5,883 430 15,646 38,669 37,512 55,864 8,867 11,363 8,217 209,996 12,848 7,116 4,557 2,175 229,025 30,966 19,964 6,732 259,991 8,509 4,333 33,862 3,548 4,962 28,410 3,763 76,615 6,530 West Central District 37,602 41,862 23,584 289 4,821 1,311 8,510 32,173 83,145 37,891 43,173 28,405 7,925 17,477 724 39,699 44,113 1,889 51,204 38,325 2,915 Southwest District 31,817 34,783 17,089 94 426 17,532 5,441 1,162 4,410 26,126 85,701 92,444 50,511 919 1,943 1,969 972 8,810 1,829 2,862 2,941 10,639 5,695 4,431 195,360 117,966 26,667 -- --- 40,650 21,593 14,204 8,764 339,993 Other District 4,583 6,085 257 158 782 32 347 909 231 179 23,726 6,276 4,840 814 1,256 410 30,002 6,243 Michigan Crop Reporting Service, Michigan 1968 Fruit Tree Survey. 28 the early sixties accounted for 16 percent of the 1968 tree count in Michigan. Blufre*s are a cross between Stanley and President plums, similar in color to Stanley’s and Italian’s and usually bigger than the Stanley in Michigan. Because of their size Blufre's have been used in the fresh market. Stanley plums serve both the fresh and processing markets. A few Damson plums, used mostly for jam and jelly are grown in the state but are meeting stiff competition from California's Santa Rosa plums. Several other varieties including the German prune exist in small numbers but are insignificant in the Mich­ igan market. Blufre plum plantings have increased in the southern part of Michigan which produces for the fresh market and pre­ fers a larger size plum. Nonetheless, even there, with the exception of 1965-1967 planting years, Stanley plums have been more popular. In the Northern district where most plums are sold for processing, 86 percent of the plantings are of the Stanley variety. While plantings of Blufre plums have in­ creased during the six ti e s , some growers and handlers are re­ ported to have encountered sufficient difficulties with growing and handling them, that they are not expected to replace the Stanley. Those difficulties mentioned included a distorted shape in some years, less uniform ripening and breakdown of the flesh soon after picking. has not been documented. The extent of these difficulties Problems with Blufre plums were men­ tioned infrequently by industry people in the surveys. Ontario, New York, New Jersey, and Pennsylvania are minor plum producing areas. Here, as is the case with the 29 major areas, the varieties of Stanley and Italian (Fellenberg) prune plums dominate plantings. Stanleys are slight favorites while no other variety seriously challenges either of the two predominate varieties. New York's plantings are slightly less than 30 percent of the number of trees in Michigan. No statistics are avail­ able on production, utilization or value for New York. Their extension people indicate that a number of the plums go into the baby food industry and the rest are sold as fresh. Ontario's tree numbers are reported here because major Ontario cities are potential markets for Michigan's fresh purple plums. In Ontario the Italian (Fellenberg) variety accounts for slightly over 50 percent of the total tree num­ bers and Stanley’s represent about 41 percent ever, Ontario's tree numbers are decreasing, so than Stanley's. (Table 5). How­ Italian's more If this decrease continues, Michigan might find a market there for more fresh plums. Pennsylvania, with less than fifty thousand trees, has experienced a decrease in new plantings (Table 4). While Stanley plums are the most popular variety in Pennsylvania, they represent less than half of the total tree number. If the planting trend continues, Pennsylvania will not be a ser­ ious competitor in the U.S. purple plum subsector. Several industry people have mentioned that New Jersey has been planting more plum trees. According to a 1966 tree survey, New Jersey had less than fourteen thousand trees at that time (Table 4). Even with a heavy tree planting program, New Jersey is not likely to become a big producer for several years. 30 Table U. Plum and P r u n e Trees V a r i e t y — New Jersey, New Y o r k . Part A - New Jersey: 19*5-66 1-2 years Variety Italian Stanley Hiac. varieties State total* Source: by Age and Pennsylvania, P i n 6 Prune Tree* by Age anti Variety, 1967 Year set or age in 1967 1960-62 1963-66 1955-59 1950-54 5-7 3-4 8-12 13-17 yea rs years years years 1945-49 18-22 yeara 658 37 1,608 25 6,688 7 103 3 748 70 35 37 1,088 1,590 912 78 695 2,733 8,303 1,024 829 Before 1945,23 yrs. 6 over Total all ages 5 147 9,842 22 120 3,847 127 125 13,836 — New Jersey Crop b p o t t l n t Service, 1967 How Jersey Orchard and Vineyard Survey Part B - Pennsylvania; Hunber of F l u e and Prune Trees by V arieties 6 Age Groups 1963-64 1965-66 3-4 1-2 year* . year* Variety 1960-62 5-7 year* 1955-59 8-12 yeara 1950-54 13-17 yeara 1945-49 18-22 yeara 1944 6 earlier 23 yra. 6 over Total trees of all ages 358 40 — 426 1,086 1,622 21 — 18,880 5,230 4,180 3,310 2.525 1,940 1,793 1,685 Stanley Fellenburg Santa Roea Daa s o n York State Wlckeon Shlro President Other varieties 2,079 284 139 a 8 13 103 103 2,231 368 457 16 97 21 180 545 2,782 211 1,355 1,286 32 5 123 934 4.865 1,367 1.333 744 703 179 290 77 4,854 1,639 244 238 331 52 825 26 1,711 1.321 652 592 268 48 253 1.210 963 1.835 2.033 1,700 1.900 319 9,960 Total all v arieties 3.947 4.878 8.363 11.591 9.909 6.745 3.872 49.505 18 23 20 Percent of total Source: 7 10 — 14 Pennsylvania Crop Reporting Service. Pennsylvania Fruit Tree and Grapevloe Survey, 1967. 8 100 31 Tatale U Conti nued Part C - Haw York: Hunber of Plua and Prune Trees by Varieties and Age Croups Variety 19(5 <1 yr) 1961-6* (7-3 yr) 1960-62 (*-6 yr) 1955-59 (7-11 yr) 1950-5* (12-16 yr) Stanley 3, (OS *79 19.707 4.297 16.332 5.2*7 19,277 2,606 17,275 9,843 1,966 — 92* — 1,3*8 253 82* 50 2,139 100 1,150 1,370 53* 130 — 9, 709 27,761 — 1 .*78 2*.769 1 .92* Fellenberg French Danson Burbank Grand Frlae — Shropshire Daasoa Mlsc. Total Source: N n — 1*£JLZ. 7.760 600 1.22b 28,902 York Crop Report ing S ervice: — 31,411 1939 * earlier 27 yr * over Total trees of all ages 15,676 30,317 1,033 11.67* 92,976 6*. 12* 6,186 151 2.060 35 15,*67 591 — — 19*0-49 (17-26 yr) — 1.216 53,5*6 — 510 15,332 3,18* 600 11,921 188,865 N«v York Fruit Tree and Vineyard Survey - 1966. 32 Table 5, Number of Prune Trees in the Province of Ontario Reported in the 196 6 Survey Compared with Numbers in 1956 and 1961 Surveys. Part A: Variety 1956 No trees Stanley 43,296 Italian (Fellenberg) 81,812 German 19,313 Other Varieties 972 TOTAL Part B: 145,393 1961 1966 N o . trees No. trees 42 ,727 45,188 52,245 67 ,611 10,466 6 ,707 1 ,471 2,447 125,712 103,150 1966 as % of 1961 % 94 .55 77.27 64.08 60.11 82.05 Number of Prune Trees in the Province of Ontario Classified by Variety and Age G r o u p . 1 to 7 years Variety Stanley Italian German Other Varieties TOTAL Age Group as a % of Total Trees 8 to 15 years 16 y r s . & over Total No. trees No. trees No. trees No. trees 16,447 42,727 10 ,190 16,090 8 ,682 15 ,532 28,031 52,245 442 2 ,716 3,549 6,707 Var. as a % of Tota 1 Trees % 41.40 50 .62 6 .50 896 281 294 1,471 1 .43 20,210 34 ,619 48,321 103,150 100 .00 19 .59 33 .56 46.85 100.00 Source: Ontario Department of Agriculture and Food, Parliament Buildings, Toronto, Tender Fruits, 1966 Fruit Tree Census Part II. 33 The Stanley prune plum, highly favored by Michigan growers, has become more popular in nearby states, replac­ ing the Italian (Fellenberg) plum. These other states, un­ like Michigan, have had substantial plantings of the Italian type plum. This interest in Stanley plums is apparently based on the fact that Stanley*s are suitable for both the fresh and processing markets. They are also a high producing variety. According to one industry source, some of the growers in the Northwest region are looking at Stanley's as a possible re­ placement for the Italian (Fellenberg). The Northwestern plum season usually precedes that of Michigan by at least one month. Plums from Washington and Oregon are ready to market about August 1 and continue through the end of August. Idaho's season begins in mid-August and lasts through the second week in September. consistent from year to year. These dates are Michigan's plums are ready in the first week of September and usually last until the first of October. Michigan's season overlaps Idaho's season by two weeks and must compete with them for shelf space. Utilization Michigan ranks third behind Idaho and Washington in fresh sales supplying close to one-sixth of the total output of plums sold fresh in the U.S. (Table 6). Oregon has a very erratic fresh production record because their fresh production comes primarily from the Milton-Freewater area which encounters weather problems in most years. While Michigan's share of the fresh market has been slowly increasing, total U.S. fresh 34 6. Purple Plum Fresh Sales Michigan Idaho (Four Major States) Oregon Washington Total U.S. (Four Major States) tons 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 4 ,760 4 ,230 5,030 3,500 2,150 3,560 1,350 4 ,110 4 ,360 4,105 5,615 4 ,720 2,910 4 ,935 4,520 3,235 2 ,560 2 ,410 3,910 3,950 4 ,140 3,460 4 ,300 3,530 3,600 6 ,500 4,100 5,000 4 ,600 3,000 5 ,200 20,500 19,700 19,200 16,800 7 ,300 22,300 26,800 20,800 33,300 18,100 21,100 8,850 19,900 20,900 17,500 12,200a 17,400 2 4 ,750a 21,350a 1 8 ,540a 22,150a 10,370 16,685 13 ,860 12,285 6 ,501 16,071 10,600 12,803 3,740 13,600 19,700 16 ,600 13,200 19,000 17 ,600 17,800 23,600 18,100 13,000 21,200 21,000 4 ,650 10,300 14,900 16,300 4 ,900 17 ,500 6 ,440 4 ,200 2,300 5, 200 1,050 3 ,280 5 ,800 5 ,000 9,150 5 ,700 2 ,200 6 ,650 9,760 1,580 13 ,300 8 ,400 9,600 15 ,000 12 ,300 15,610 13 ,400 10,600 10,830 11,130 10,160 9,470 8 ,010 10,330 13,620 9,850 14,400 12,200 12,340 10 ,900 14,900 7,870 11,800 13,450 8 ,150 13,950 8 ,900 13 ,600 8 ,100 6, 900 18 ,000 58 48 47 54 39 59 65 53 61 54 57 27 41 51 51 30 51 45 41 35 46 22 36 36 29 35 34 31 32 23 38 260 930 030 300 350 270 150 610 490 535 875 690 120 065 940 185 860 800 800 690 390 750 065 640 035 451 771 460 153 400 380 a Includes canned and frozen Source: Fruits Noncitrus by States: Production, Use, Value: Annual Reports. 35 sales have been declining. This downward trend in total U.S. fresh sales, although slow, is cause for concern in Michigan's plum industry, with the expected increase in total production. Competing for a smaller total volume is much more difficult than capturing part of a growing market. Plum sales for processing have fluctuated more than fresh sales. Processing requires plums with a high sugar content not usually attained until the plum is com­ pletely tree ripened. By the time the sugar content is adequate for processing, the fresh market. the plums are already too ripe for Thus the grower must usually decide prior to harvesting whether he will sell fresh or for processing. Usually, fresh market prices are higher, in part reflecting the extra cost of hand picking and handling. As the fresh season comes to a close, prices may drop because of lower plum quality, a decrease in demand and an increase in supply. The supply increase comes from plums originally heading for the process market. This happens when the price for process type plums is much below that available in the fresh market. As the process price is not available until near the end of the fresh season, only a limited quantity of plums, normally sold for processing, end up in the fresh m ar­ ket. The size and shelf life of process type plums usually keeps most of them out of the market. The announced process price usually remains relatively fixed throughout the season. Within the past ten y e a r s , Michigan has taken over second place in processing sales behind Oregon, (Table 7). 36 Table 7. Crop year 1939 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Purple Plums Sold for Canning Michigan 300 420 280 50 400 50 730 250 235 585 1,280 1,290 1, 830 1,860 2,785 2,240 2,250 2 ,500 3 ,630 2,310 4,220 4 ,350 4,270 6, 340 7,135 6, 835 7,050 9,250 8,825 8 ,480 Idaho Washington na na na na na na 800a 900a 200a 1,300 400 1,900 1,800 1, 800 b 2,200 b b b b b 3,500 2 ,570 6,490 5,133 4 ,133 na 3,279 2,670 3,820 tons 8 ,100 7 ,870 3,700 4 ,370 6 ,030 7,700 14,890 9 ,570 4 ,950 4 ,940 3,030 3,220 5 ,690 5,430 4 ,500 8 ,900 4 ,900 3,260 2, 250 5 ,900 1,705 5,900 5, 800 6 ,760 7,200 3 ,600 2 ,560 3,000 2 ,700 9 ,000 Oregon U.S. (total of four states) 10 ,300 28,200 15,500 31 ,000 14,800 19,000 42,200 13,700 9 ,200 21,000 11,000 28,550 18,000 14,500 23,300 17,050 28,050 12 ,400 12,700 18 ,700 1 ,500 12 ,620 22 ,300 265 8 ,100 14 ,600 14 ,400 14,300 800 19,200 18 ,700 36,390 19,480 35,420 21,230 26,750 58,620 24,420 14,585 33,090 15,710 34,960 27,320 23,590 30,585 30,390 35,200 18,160 18,580 26,910 7,425 26,370 34,940 19,855 27 ,568 29 ,168 24 ,010 29,829 14,995 40,500 na not available. Includes some frozen and other. ^Included with fresh sales to avoid disclosure of individual operations. Source: Fruits Noncitrus by States; Production, Use, Value: Annual Reports. 37 Processing sales in Michigan have fluctuated less than in any other state. This may be accounted for by the fact that most of Michigan's northern plums are sold for process­ ing and that area, according to survey responses, has a better than average record for consistent production. Oregon's p ro­ cessing volume has varied drastically from over twenty thou­ sand to less than one thousand tons per year. For Michigan and Oregon, processing sales are more important than fresh sales while the reverse is true in Idaho and Washington. The total annual U.S. pack and carryin of canned whole purple plums indicates the variation in quantity avail­ able for processing on a year to year basis, (Table 8). Carryin stocks, which are the remaining inventory of the p re­ vious years pack, provide additional supplies in short crop years. As a result of this carryin the total U.S. supply of canned whole purple plums remains relatively stable. Purple plums are frozen in small quantities for later processing into baby food and preserves. Michigan and Oregon, still freeze plums Only two states, (Table 10). This use is small and most industry sources report very little poten­ tial for expanding. Michi gan's frozen plums account for less than 10 percent of their total volume, and Oregon's percentage is less than 5 percent. Oregon dries some of their purple plums to make prunes. For this product a high concentration of sugar is needed to produce a high quality prune that will compete with Californian prunes. Oregon is the only state of the four which has the proper sugar content. Their dried prune industry fluctuates 38 8. U.S. Canned Purple Plum Pack, Carry in and Total Annual Supply 1947-1970. Carryin as of June 1 year — 000's of cases, 848* 430* 162* 238* 95 526 433 330 501 525 783 197 260 276 38 382 736 568 562 733 462 518 251 917 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 * Total U.S. Pack Total Supply 24 No. 2 1/2's — 1,816 921 1,830 1,026 2 ,360 1,623 1,399 1,706 1,698 2,330 1,077 1,271 1,701 374 1,637 2 ,060 1,170 1,497 1,729 1,488 1,858 731 2,209 840 2,664 1, 351 1,992 1, 364 2,455 2 ,149 1,832 2,036 2,199 2,855 1,860 1,468 1,961 650 1,675 2 ,442 1,906 2,065 2,291 2,221 2, 320 1,249 2,460 1,757 Estimates Source: Canner Packer, Yearbook Editions 1947-57, Vance Publishing C o r ­ poration, 300 West Adams Street, Chicago, Illinois 60606 Fruit Situation, Economic Re­ search Service, USDA, 1958-1970. 39 Table 9. Crop year 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Total U.S. Purple Plum Pack by Si zes 1950- 1969 . 48/8 oz. 38 130 68 55 50 107 85 73 67 70 18 81 75 49 65 63 48 63 28 90 Case and Can Size 24/2 1/2 24/303 6/10 — 000 's actual cases— 17 630 236 282 611 1,339 208 826 486 158 789 338 481 260 941 192 988 484 727 385 1,251 299 215 536 558 557 280 256 843 719 180 99 141 778 656 353 1,059 793 385 252 636 394 755 533 366 444 317 1,091 738 275 601 962 372 701 385 234 186 548 1,008 899 24/2 27 41 30 12 3 29 2 (a) Misc . 33 70 50 60 15 23 5 4 3 17 1 10 14 — 11 19 19 3 11 17 (a) no longer reported. Source: The Almanac of the Canning, Freezing, Preserving Industries, Edward E . Judge & Son, Seventy-Nine Bond Street, Westminster Maryland 21157. 40 Table 10. Purple Plums Sold for Freezing and Drying Major States 1939-1969. Crop Michigan year Frozen Oregon Frozen Drieda B asis Washington Dried3 Basis Frozen tons 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 — — — — — — — — — 420 95 na na na na na na na na na na na 150 120 150 — 360 615 365 750 950 975 620 100 1,500 11,500 7 ,300 8 ,300 5 ,700 1,100 800 3,300 2,500 2,650 800 2,600 2,400 1, 050 1,550 700 200 500 150 650 1,000 80 275 1,000 600 1 ,450 — 2 ,200 26,500 2 ,500 6 ,400 5 ,900 11,300 4 ,100 7,700 8,200 300 1,500 9,200 700 3,771 2,143 2,457 2, 828 4 ,114 5 ,700 2 ,828 943 5,150 210 2,954 4,641 147 1,660 1, 716 2 ,029 2 ,147 90 2 ,055 2 ,100 100 400 100 600 250 250 250 100 50 200 b — — — 30 400 1,500 1,130 1,750 510 150 150 300 b na not available A p p r o x i m a t e l y 3.5 lbs. of fresh fruit for each pound of dried fruit. ^Reported with canned from this year forward. Source: Fruits Noncitrus by States; Produc­ tion, Use, Value: Annual Reports. 41 annually and is governed to a large degree by what happens in California. Oregon's dried plum volume has fluctuated from a high of 26,500 dried tons in 1939 to a low of 90 dried tons in 1968 (Table 10). Value of Production Michigan, on the average, fresh receives less for plums than any of the other states (Table 11). gan's lower price may be partially explained by that their plums enter the market the at the end of the their Michi­ fact season and are often less uniform in size than plums brought in from the Northwest. A Northwestern federal market order requires that all Washington and Oregon plums shipped to the fresh market have a minimum diameter of 1 1/4 inch and a minimum of 1 1/8 inch in Idaho. Washington fresh prices are usually above those in other states, although this may not be the case for particular years. Oregon, while predominantly a processing production area, receives better fresh prices than Idaho. The size difference mentioned above may account for Idaho’s lower price. Michigan's increase in supply could also account for lower fresh plum prices. As supply increased, Michigan’s historical market may have become saturated, resulting in lower prices. Some of this increase in supply might have been marketed in Northwestern market areas, a fresh marketing program. if Michigan had By marketing some of the increase in other markets, there would be reduced downward pressure 42 11. year 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Price Received by Growers for Purple Plums Sold. Fresh, Four Major States and the U.S. 1944-69 (Season Average Price) Michigan 130.00 140.00 96 .50 110.00 83 .40 58 .00 94 .30 117.00 85.00 109.00 110.00 112.00 130.00 98.00 105.00 110.00 155.00 124.00 134.00 145.00 92 .00 143.00 130.00 142.00 174.00 113.00 Source: Idaho Washington Oregon dollars per ton-96 .00 116 .00 114.00 113 .00 86 .20 114.00 114.00 128.00 104.00 69.00 119.00 104.00 68.80 65.70 85.40 41.50 43.50 62.70 117.00 145.00 120.00 123.00 69 .50 103.00 67 .00 127.00 101.00 73 .00 101.00 110.00 166.00 149.00 112.00 61.70 91.00 82.40 117.00 68 .70 149.00 155 .00 109.00 75.80 131.00 187.00 105 .00 94 .00 91.70 145.00 214.00 199 .00 235.00 133.00 127.00 201.00 93.70 143.00 115.00 148 .00 130.00 182.00 142.00 104.00 116.00 107.00 150.00 176 .00 170.00 119.00 209.00 181.00 165.00 146.00 214.00 180.00 181.00 130 .00 186.00 157.00 Total U.S. 107.00 102.00 113.00 86.50 74 .70 50 .40 124.00 90 .90 94 .00 93.30 148.00 77 .60 119.00 121 .00 149.00 112.00 222.00 158.00 117.00 150.00 122 .00 136.00 177.00 158.00 190.00 155.00 Prices Received by Farmers , Citrus Fruits , Noncitrus Fruits, Tree Nuts 1944-1958, Crop Reporting B o a r d , U S D A , 1944-1958. Noncitrus Fruit Prices by States and United States 1959-1969 Crop Reporting Board, SRS, USDA. 43 on Michigan prices. However, without a marketing program, Michigan plums have encountered generally lower prices than those experienced by the Northwest. For the four states as a group, the average price received for all fresh plums has ranged from a low of $50.40 in 1949 to a high of $222.00 per ton in 1960. This fluctua­ tion indicates the unstable supply situation in the industry. Fortunately this fluctuation has been less drastic in the past ten years, possibly because Michigan's annual production was fairly stable. The price received by all U.S. growers in the past ten years for plums sold to processors has averaged $90.00 per ton less than prices received for fresh plums in that same period. Michigan growers received a higher price for processing plums than either Washington or Oregon growers (Table 12). Idaho processing prices are not available. Some of this price difference may be partially explained by transportation cost differences. Northwestern canned whole plums, to compete in Mid­ western and Eastern markets, must do so on a price basis. This means that Northwestern plums must be available to re­ tailers at prices equal to or only slightly above Michigan prices. Since they have a greater transportation cost, pro­ cessors in the Northwest would have to pay lower prices for raw plums and/or take lower profits if they are to compete with the same processing costs and case yields per ton of plums. The fact that they do compete directly with Michigan processed plums in Michigan indicates that the Northwest, 44 Table 12. Crop year 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Price Received by Growers for Purple Plums Sold to Processing {except dried) Four Major States and the U.S. 1944-1969. (Season Average Price) Michigan na na 89. 20 56 .80 47 .90 52 .00 73.70 96.50 73.60 66.90 79.00 79 .00 85.00 65.00 63 .00 82.00 119.00 81.00 81.00 99 .00 50 .00 75 .00 68 .00 71.00 87.00 62.00 Idaho Washington ---dollars per ton--na 60.00 na 56 .00 67 .60 82.50 59 .10 46 .40 38 .60 40 .00 20 .60 20 .80 82.10 93.10 47 .60 50 .00 45.00 51 .00 39 .00 48.00 47.00 na na 40.00 na 45.00 na 37.00 80.00 na na 39 .00 na 125.00 na 80 .00 na 39.10 na 93.00 na 38.10 na 62.00 82 .00 na na 67.70 na 79.00 na 50 .00 Oregon U.S . 53.20 54 .90 63 .80 58 .80 39.20 20.80 97.50 50.00 51.00 41.70 46.60 41. 20 44 .80 37 .20 90.00 39.60 147.00 80.10 40.10 95.90 51.30 56 .10 51.50 64 .70 105.00 53.90 54 .60 54.70 64 .70 57.60 39.00 20.80 96 .20 49.80 50 .60 41.60 46 .40 40 .50 44 .80 37.30 86 .80 39 .80 129.00 77 .30 39 .50 79 .80 44 .10 59 .10 59 .10 67 .00 81. 40 53 .80 na not available Source: Prices Received by Farmers, Citrus Fruits, Noncitrus Fruits, Tree Nuts 1944-1958, Crop Reporting Board, USDA. 1944-1958, Noncitrus Fruit Prices by States and United States 1959-1969 Crop Reporting Board, SRS, USDA. 45 despite the transportation cost, is able to produce these plums for less or is losing money. Despite receiving higher prices for plums sold to processors, Michigan alternates with Oregon as to who receives the lowest combined fresh and processed price (Table 13). This combined price reached a low of $40.40 per ton in 1949 and a high of $186.00 per ton in 1960 for U.S. growers as a whole. T h e d i f f e r e n c e b e t w e e n M i c h i g a n prices re c ei v e d for fresh p l u m s and for p l u m s sold to p r o c e s s o r s has been i n c r e a s ­ ing (Table 1 4 ) . 1959, the five-year average p r i c e r e ­ Since c ei v ed for fresh m a r k e t plums has b e e n in c re a si n g to the p o i n t w h er e years) for the p e r i o d 1966-69 the average d i f f e r e n c e wa s $67.75 per ton. (only four Some d o u b t e xi s ts as to w h e t h e r pric es q u o t e d for M i c h i g a n fresh m a r k e t p l um s have h a d m a r k e t ­ ing costs such as r emoved or not. pa c k a g i n g , cooling, and t r e a t i n g For p l u m s p a ck e d and so ld by gro wers o n the B e n t o n H a r b o r market, and packaging. grading, the price includes pa yment for g r a d i n g If this the pr i ce he r e ceived is the price repor ted, for p ro d uc t io n only. then it is not Part of this c o n ­ fusion has come a b o u t as a result of a ch a ng e in M i c h i g a n ' s m a r k e t i n g channels; m o r e plums are no w g o i n g di r ec t l y fresh pa ckers before b e i n g sold to re ta i l e r s rather to than through the Be nt on H a r b o r market. Mi c h i g a n ' s total returns ing, w h i l e the other tions and decreases from pl ums have b e e n i n c r e a s ­ t hree states have e x p e r i e n c e d f l u c t u a ­ in re turns (Table 1 5 ) . This in crease w o u l d s e e m to i n dicate t h a t Michi ga n p l um s have some a d v a n ­ tages, the m o s t i m p o r t a n t of w h i c h are a fairly c o n s t a n t supply. 46 Table 13. Price Received by Growers for all Sales of Purple Plums As Sold 1944-1969 (Season average price) Four Major States and the U.S. Cr op year To t al Michigan Idaho Washington Oregon U.S. 78.10 77.10 77.00 78. 50 68 .20 41.60 105.00 67.80 81 .90 69. 70 61.10 67.20 49.40 56.70 97 .20 66.60 163.00 99.60 64 .00 139 .00 82.20 81.40 68.00 93.30 174 .00 67 .00 86 .10 80 .80 85.10 76 .80 65.30 40.40 110.00 70 .40 77.50 74 .70 91. 30 66 .80 78 .20 91.40 127.00 85 .40 186.00 121.00 81.90 123.00 86 .00 98.50 119.00 110 .00 145 .00 100 .00 ---dollars per ton--1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 130.00 140.00 95.00 106.00 81.00 57.50 89.90 111.00 82 .00 96 .70 95.70 96 .10 108.00 85.10 84 .90 99 .40 135.00 102.00 105.00 115 .00 65.20 99 .70 92 .00 93 .00 107.00 81.00 Source: 96.00 85 .20 113.00 67 .20 65.40 40 .30 115.00 67.60 65 .20 70 .70 147.00 59 .00 115.00 106.00 126.00 87 .10 205.00 121.00 84 .50 108 .00 76 .00 93.00 160.00 130.00 128.00 111 .00 95.10 87.30 91.00 89.90 58.90 35 .20 113.00 87 .00 83.20 89 .80 129.00 72 .50 119.00 132.00 170 .00 117.00 215.00 161.00 112.00 142.00 107.00 143.00 189.00 150.00 176.00 141.00 Prices Received by Farmers, Citrus Fruits, Woncitrus Fruits, Tree Nuts 1944-1958, Crop Reporting Board, U S D A . , Noncitrus Fruit Prices by States and United States 1959-1969 Crop Reporting Board, SRS, USDA. 47 Table 14. Crop year 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Prices Received by Michigan Farmers for Purple Plums 1944-1969 (Season average price) Fresh Sales 130 .00 140.00 96 .50 110 .00 83.40 58 .00 94. 30 117.00 85.00 109.00 110.00 112.00 130.00 98.00 105.00 110.00 155.00 124.00 134.00 145.00 92 .00 143 .00 130.00 142.00 174 .00 113.00 Processed Sales All Sales dollars per ton-130 .00 na na 140.00 95 .00 89 .20 106.00 56 .80 81.00 47 .90 57. 50 52 .00 89.90 73.70 1 1 1 .00 96 .50 82 .00 73.60 96 .70 66.90 95.70 79 .00 96 .10 79 .00 108 .00 85 .00 85 .10 65 .00 84 .90 63 .00 99 .40 82 .00 135 .00 119.00 102 .00 81 .00 105 .00 81.00 115 .00 99.00 65 .20 50.00 99 .70 75.00 92 .00 68 .00 93.00 71 .00 107.00 87 .00 81 .00 62 .00 Difference3 T5 k25 375 325 2T5 225 ITS *9 50 51 52 53 56 55 56 5T 58 59 60 61 62 63 66 65 66 67 66 69 TO 71 72 T3 76 T5 Tear Source: Table 18 Figure 6* Historical and Projected Bearing Plum Trees in Michigan 1949-1975. Table 18. Crop year Michigan Purple Plum Bearing Trees, Yearly Plantings, Production, and Estimated Production, 1945-1975. New plantings Bearing Trees Change in No. Bearing Trees No. of treesa No, of trees No. of trees Actual Production Tons Projected Production Tons B 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 9,357 9,357 9,357 9,357 9,357 11,936 11,936 11,936 11,936 11,936 24,505 24,505 24,505 24,505 24,505 50,169 50,169 50,169 111,870 111,870 79,742 79,742 267,000 280,000 284,000 284,000 287,000 277,000 269,000 256,000 254,000 254,000 256,000 258,000 260,000 263,000 265,000 275,000 295,000 310,000 335,000 375,000 420,000 470,000 13,000 4,000 --- -6,000 -1,000 -8,000 -13,000 -2,000 --- 2,000 2,000 2,000 3,000 2,000 10,000 20,000 15,000 25,000 40,000 45,000 50,000 1,700 6,000 5,200 4,800 7,500 6,500 4,600 7,500 6,700 6,300 5,200 4,900 7,300 7,800 6,800 8,000 9,000 8,000 10,500 14,500 11,500 13,000 --------------------------------------------- 53,144 40,QQOb 40,000® 40,000b 40,000b 1967 1968 1969 1970 1971 1972 1973 1974 1975 --------------- --- 520,000 565,000 600,000 6 3 0 ,000c 655 ,000c 675 ,000c 680,000® 674,000 668,000d 50,000 45,000 35,000 30,000 25,000 20,000 5,000 -6,000 -6,000 15,000 13,000 14 ,500 lQ,000e ----------------- --- 21,109 21,749 21,906 21,713 21,519 - _ _ - - - - — - — 24,201 27,974 31,757 35,666 39,063 dTree plantings were reported for a group of years and have been re­ ported here as being planted in equal numbers for each of the years involved. ^Rough industry estimates of new plantings. £ Estimates based on plantings actually reported up to 1967. According to earlier plantings, newly planted trees appear as bearing trees approximately five years later. J These values use the estimates in column one as reported by Footnote b, G 1970 was a short crop year due to weather conditions. Source: Col. 1 Col. 2 Col. 3 Col. 4 Col. 5 Michigan Crop Reporting Service: "1968 Fruit Free Survey," April, 1969. Michigan Crop Reporting Service: Michigan Agricul­ tural Statistics 1970. Absolute annual change in column 2. Fruits Noncitrus by States; Production, Use, Value: Annual Reports. Estimates using alternatives A and B respectively as described in the text. Tern* 2k,000 22,000 20,000 18,000 (J1 16,000 00 Ik,000 12,000 10,000 fl.ooo 6,000 It ,000 tn T a 52 53 5k 55 56 5T ' » » * 6 0 6l "62 63 6k 65 66 6? 68 69 70 Tl T2 T3 Tk T5' Y«*r Sourc*: T i M « 18, C o l w k Figure 7. Actual and Projected Purple Plum Production (Michigan 1949-1975). 59 as possible. To achieve this, two approaches are used to estimate the supply for the years 1971-1975. These alter­ native estimation procedures are explained in this section with the necessary assumptions. Assumptions are necessary for such variables as weather, disease, tree removal and green drop. Weather e x ­ tremes are generally excluded, although a production esti­ mate based on historical supply usually includes a weather factor. A similar situation exists with disease problems such as a heavy infestation of the Black Knot disease. Here the use of historical data is assumed to include the effects of disease. Supply projection further assumes that neither a tree removal nor a green drop program occurs in the pro­ jected period. Both of these are justified on the ground that tree removal now, results in the loss of growers' in­ vestments and a green drop program usually requires an or ­ ganized supply management program which, at present, is non-existent. Alternative A Using reported new tree plantings which were available until 1967, the number of bearing trees was estimated on an annual basis (Table 18). The annual increase in the number of bearing trees was assumed to follow a pattern as evidenced by the period 1960-1969. For the period 1968-1971, new plant­ ings were estimated at 40,000 per year. This is based on rough industry estimates as no factual counts are available. 60 This planting level is sufficient to maintain 600,000 bearing trees if new trees have a five year non-bearing period, and a tree life of 20 years. This assumes that 200,000 non-bearing trees are needed to maintain 600,000 bearing trees. Estimates of annual tree plantings after 1971 become nearly impossible, because the expected increase in production with the anticipated low prices may cause growers to reconsider their planting pro­ gram. This will be even more true if growers are made aware of the fact that supply is expected to increase and likely to be accompanied by low p r i c e s . After estimating the number of bearing trees per year, 1964 was selected as a base year when 375,000 bearing trees were recorded. An index was created by expressing the number of bearing trees in each year as a percent of those bearing in 1964. This index was multiplied by the average annual pro­ duction for the period 1962-1967, which was 12,083 tons, yield­ ing the estimated annual production as shown in column 5, part 3 A of Table 18. An average production value was used to allow for some weather variation and an increase in production as the trees mature. Alternative B A l t e r n a t i v e B uses a m a turity s c al e w h i c h indicates th e e x p e c t e d p e r c e n t of m a t u r e yield per acre in e a c h y e ar 3 An example of alternative A is the year 1972. To obtain the estimate, take the number of bearing trees from column 2 which is 675,000 and express it as a percent of the number of trees in 1964 which is 375,000. The percentage is 61 after planting. 4 For example, a four year old plum tree can be expected to yield 10 percent of its fully mature potential. This maturity scale is used assuming a mature production level 5 of 6 tons per acre. At 60 pounds per bushel, 6 tons repre­ sents 200 bushels per acre which, according to many growers, is exceeded by good mature orchards. Six tons per acre is above the State average yield per acre but represents produc­ tion for a mature orchard. An earlier study used a yield of 7.5 tons per acre for an above average p r o d u c e r W h i l e most new orchards have slightly more trees, 98 trees per acre were used to convert number of bearing trees to number of bearing acres. This value is arrived at by averaging the number of bearing trees reported with the number of bearing acres for the period 1965-1969,^ „ 675.000 _ Then take this index and multiply it by the 375.000 ' average production for the years 1962-1967 as follows: 1.8 x 12,083 = 21749 tons. This is the estimated production. Other years may be determined in a similar fashion. 4 D. J. Ricks, P. P. Larsen, and R. G. Wheeler, Inputs and Relative Yields for Youncj Orchards, Cooperative Extension Service, Fact sheet for Michigan Agriculture, January, 1961. 5 A mature yield of 6 tons was used after talking with growers and extension people. The reference listed in the preceding footnote suggests a 7 ton per acre yield for high standard mature trees. The 6 ton value may be more re­ liable for all mature trees and if a bit low it may compensate somewhat for unrecorded tree removals. ^Stephen Harsh, Myron P. Kelsey, and Glen A n t l e , Eco­ nomics of Plum Production in Western Michigan, Agricultural Economics Report No. 162, Department of Agricultural Economics, Michigan State University, May 1970, pp. 10. 7 Michigan Agricultural Statistics, Michigan Department of Agriculture, July 1970, pp. 22. 62 A twenty year period was used to estimate each years' g production. Trees twelve years or older were assumed to be fully mature bearing at the rate of 6 tons per acre. As each new year was added, the twenty year old trees were dropped. In some cases, orchards last longer than twenty years but horticultural sources indicate that twenty years is an average life span. g An example using alternative B for the year 1972. Year No. of Trees or from column Years 1 Table 18 19521960 158,333 1961 50,169 1962 50,169 1963 1 1 1 ,870 1964 111 ,870 1965 79,742 1966 79,742 1967 53,144 1968 40 ,000 1969 40,000 1970 40 ,000 1971 40,000 No. of Acres Maturity Tons Estimated (No. of level per Production trees/98) (percent) acre Col 2 x Col 158,333=1616 98 50,169= 98 50,169= 98 111,870= 98 111,870= 98 79,742= 98 79,742= 98 53,144= 98 40,000= 98 40,000= 98 40,000= 98 40,000= 98 100 6.0 95 5.7 90 5.4 75 4.5 60 3.6 50 3.0 30 1.8 20 1.2 10 .6 0 0 0 0 0 0 4 63 Estimates from the two alternatives differ only slightly for 1971 but by 1975 alternative B suggests a yield which is almost double that predicted by alternative A {Table 18). This difference can be explained by the fact that B gives more weight to the maturity of the trees. Alternative A used an average period in which the trees are assumed to be uniformly distributed between new and old trees. With the heavy plantings in the short period of four y e a r s , such an assumption will not be valid. When the 400/000 trees reach maturity, over two-thirds of the trees will be at a mature bearing age, whereas during the period 1962-1967 there were only about one-third fully mature. Although alternative A ignores the big plantings in a short period it does provide a conservative estimate that may occur if the big plantings don't come to full maturity because of disease or removal. These results indicate that Michigan's future purple plum production can range from a low of 21,000 tons to a high of 39,000 tons during the 1972-75 period. An important factor that could affect the Michigan supply is the type of rootstock used. Plum trees are usually grown on myroblin plum or peach rootstocks. Some growers prefer peach rootstock because trees bear earlier and heavier on a peach base. Myroblin supporters point out that plum trees on peach stock do not last nearly as long, possibly only as long as ten good bearing years. Results from differ­ ent rootstocks appear to depend on location, in many cases, with myroblin standing out as the long term stock. Unfor­ tunately, statistics indicating which rootstock was used for 64 the heavy plantings of the early 1960's are not available. If they were predominately peach stock, the total life of these orchards may be shorter than anticipated. This would mean that a bigger supply might materialize in the short run but not be as long lasting. If market demand is expanded on the basis that a big supply will be available for a long period of time, then a shorter tree life could prove very costly to the industry. After spending money and time to develop the market channels and expand demand, a supply less than that needed to meet demand would mean unfulfilled orders and a loss of consumer interest. As the supply increases and the market is expanded, attention should be directed to main­ taining the desired supply level. This will require accurate planting statistics, including types of rootstock used. Since Michigan is only part of the total purple plum subsector, it is necessary to estimate production in the Northwestern states. Assuming that 25 percent non-bearing trees are needed to maintain a constant bearing acreage in the Northwest, available data indicates that Washington and Oregon can be expected to increase their bearing tree numbers by 14 and 25 percent respectively, with Idaho's bearing acre­ age remaining relatively stable (Table 19). This increase in bearing acreage was reported in the 1964 census and will reach full maturity between 1973 and 1976 assuming, as in Michigan, a twelve year growth period to full maturity. As was the case with future production in Michigan, two ways were used to arrive at an estimated annual yield. The first approach is to use production figures in the 65 1962-1967 period to arrive at an average value and increase this value by 25 percent for Oregon and 14 percent for Washington. Table 19. Plum Tree Numbers, Northwestern States Oregon Washington Idaho 000's of trees Bearing Trees Non-bearing Trees 1954 1959 1964 1,290 1,026 801 435 276 339 299 296 363 1954 123 255 394 30 95 133 63 87 89 10 25 49 6 24 39 21 29 24 1959 1964 Non-bearing Trees as percentage of Bearing Trees 1954 1959 1964 Source: U.S. Department of Agriculture, Crop Reporting Board. This will result in a uniform value for each year since in­ dividual annual plantings are not available. An alternative method is to assume that those non-bearing trees reported in 1964 were evenly planted over the previous five years then use the maturity scale worked out for Michigan, to approx­ imate annual production. But Michigan's maturity scale is not completely applicable to the Northwest. By using the former method a conservative production estimate becomes available. 66 Using this conservative method described above, Idaho's production should remain close to the six year aver­ age of 17,950 tons while Washington increases to approximately 19/8 36 tons and Oregon to approximately 33,0 82 tons. Their total projected production is estimated to be 70,871 tons com­ pared with the six year average for 1962-1967 or 61,816 tons. Total U.S. production in the 1 970's, according to the above estimates, will be in the range of 8 8,850-92,777 tons with Michigan accounting for approximately 24 percent. Mar­ keting this supply will be a challenge for the total U.S. purple plum industry and particularly for Michigan where much of the increase in production is expected to occur. Summary This chapter reveals a number of facts necessary for market planning in the 1970's. 400,000 It shows that approximately trees were planted in the four year span of 1963-1966. Because of the delay between planting and full maturity, these trees will just be entering full production in the early 1970's. Given their existence and level of maturity, they will provide Michigan with at least twice and maybe four times as many plums as in 1970. When this quantity is added to that expected from the Northwest states, the total U.S. supply will be double that of 19 70 and 2 3 percent above the average pro­ duction for the last fifteen years. With most of the increase in production within this state, Michigan could become the largest purple plum producing state. As a result, most of the adaptation to increased supplies will have to come from Michigan. C H A P T E R IV PRODUCTION PROBLEMS AND COSTS OF GROWING PLUMS IN MICHIGAN Introduction This chapter discusses current cultural problems and costs affecting the economic position of Michigan purple plum growers. P r o d u c t i o n Problems Plums, as with all fruit, are dependent upon such weather conditions as late spring frosts which kill the flower b u d s , cold and damp weather that retards pollina­ tion, or high winds and rain just prior to harvest that may result in crop failure. With the exception of 1970, Michigan's plums have managed to survive most of the weather conditions. According to growers, plums have an advantage over some fruit crops in that they can withstand cooler tem­ peratures and damper soils. Recent plantings have tended to be on good fruit locations of light soil, even temperature, and a frost free elevation. As a minor enterprise, plums had often been poorly located on land left over from other fruits. Yields may increase as a result of this change in planting location. 68 A major disease which threatens plum trees is Black Knot, a growth which often girdles the limb, causing the external part of the branch to die. If loft uncontrolled it spreads quickly within the orchard and to nearby orchards. Some growers have had good success in controlling this dis­ ease by using lime sulfer early in the season, although the presence of mites may prevent use of this method. Pruning of infected areas plus the use of Zineb has worked for some growers. Very few growers report having no Black Knot. According to growers, if the Black Knot disease were to go unchecked it could force the removal of some or­ chards or at least reduce their output. This possibility will become more important when supplies increase putting pressure on prices. As growers try to reduce costs, many may stop their Black Knot treatment. The result may be a drop in supply similar to what might occur if a supply man­ agement program were instituted. While an epidemic of Black Knot may serve as a means of limiting supply, it is irre­ versible in that heavily infected orchards must usually be removed. To help overcome this disease, growers say they require a better chemical than currently exists. Brown rot was mentioned as a very serious problem encountered by growers. plums alone.^ This disease is not peculiar to It is prevalent among most stone fruits. It may reduce fruit set, kill or blight twigs or destroy ^How to Recognize and Control Brown Pot of stone Fruits, Extension Folder F-262, Michigan State University, Cooperative Extension Service. 69 the crop prior to harvest. This disease attacks the plum fruit by causing it to rot while the fruit is on the tree, in transit or in the market. Brown rot spreads very quickly under warm moist conditions. Infection is most likely to occur during bloom or just prior to harvest. Blossom and before harvest sprays are recommended control procedures. Unfortunately none of the chemicals currently in use guar­ antee complete control. As a result this disease threatens Michigan’s entire fresh plum industry. Brown rot, by causing the fruit to rot, reduces the quality of the plum for processing and for the fresh market. Even if plums appear not to be infected at the packer level, they may start rotting on the retail counter or shortly after a consumer buys them. If consumers are exposed to infected fruit they may not buy plums again or possibly reduce their future purchases. If the retailer has to destroy plums be ­ cause they start rotting, he may discontinue selling Michigan plums. As more plums become available fresh packers will be attempting to expand the fresh market season through storage. If the plums have brown rot disease present, they will rot in storage causing a production and storage loss to growers. addition, In if consumer demand for fresh plums is to be expanded, occurrences of brown rot at the consumer level should be avoided if at all possible. Several chemicals are used to treat plums in an effort to impede the development of the brown rot spores. This treatment is not totally effective and is expensive. Development of a better chemical to control brown rot is very important to the purple plum industry. 70 Stanley purple plums have a problem with fruit drop­ ping early in the season. ova dieing. This is apparently caused by the While this is not serious in years of a big supply or in areas where growers want larger p l u m s , it is a problem for short supply seasons and southwestern growers who usually have adequate plum size. Some growers are in­ terested in looking for a material that would prevent the fruit from dropping even if the ova aborts. In light of the oncoming supply, this problem has a low priority. Peach borer is a minor problem for most plum growers. Growers may control it by proper spraying of Thiodan. This chemical is costly and growers are interested in a cheaper chemical. Stanley and Blufre plums require a pollenizing var­ iety. If all Stanley's or all Blufre are planted in a block, they may pollinate themselves, however, best results will occur if these two varieties are mixed or if some other pollinating variety is included. 2 The disadvantage of having to use a pollinator is that two varieties of plums are in the same block. Both varieties are usually not ripe at the same time nor can they be marketed together. Blufre are not very good for processing and ripen about one week after the Stanley. If other varieties of plums are used there is usually very little demand for the fruit. In addition to having a poor market, pollinators require valuable orchard space and reauce mechanical harvesting efficiency. Improved varieties or strains might remove this problem. Nurseries Catalog for Commercial and Nurseries, I n c . 71 Plum size is a problem for most Michigan growers. Fresh growers in particular require a good sized plum if they are to compete with Northwestern plums. Northern Michigan growers have difficulty some years in attaining the minimum size accepted by processors. Some growers have attempted thinning their plums using the mechanical shakers that are later used for harvest. The problem with this method is that when plums are shook they do not fall until several days later making it difficult to know whether sufficient plums have been dropped. A chemical thinner has not yet been developed, but a chemical of this nature is being developed for other fruits and may eventually be of use to the plum industry. rigation and fertilization. Size may be improved through ir­ Michigan growers do not usually irrigate, but have been fertilizing to improve size. It is not known at this time whether irrigation in Michigan would pay. Pruning will reduce the number of plums but should in­ crease the average size making the crop more acceptable on the fresh market. The possibility of adopting practices to improve size becomes important as one of the possible activ­ ities to expand the demand for fresh p l u m s . Technology Plum technology, with the exception of harvesting, has remained relatively unchanged. Since plum growing ac­ tivities are similar to those of many other fruits, new technology adopted in other areas is often transferred to plums directly. For example, spraying and pruning equipment is usually directly transferable. 72 Technological advancement in plum harvesting is a by-product of a development in tart cherry harvesting. Many plum growers have access to a mechanical harvester of either the limb or trunk type. As a result, a large per­ centage of plums sold directly for processing in Michigan are mechanically harvested, and a small but growing percent of plums for the fresh market are mechanically harvested. This mechanical harvesting has increased the limb and trash content that must be removed before the plums can be used. Some growers have indicated that mechanical harvesting may be removing too many spurs, thus decreasing future produc­ tion. Both problems may diminish as growers become more experienced at shaking trees, and orchards are mechanically harvested on a continual basis. Growers and extension peo­ ple believe that for the first two or three years of mechan­ ical harvesting, old branches and spurs not removed during pruning will have accumulated and drop during mechanical harvesting. Successful mechanical harvesting of fresh market plums is more difficult than harvesting plums for processing. Less severe shaking, stronger trash blowers and more labor are required in fresh mechanical harvesting. not buy bruised or marked fresh p l u m s . Consumers will Because they are such a tender fruit, plums may be bruised when they land on each other or when they strike limbs during harvest and from their own weight while in storage. Better trash removal reduces the chance of spurs or twigs damaging the plum surface in storage and in transit to packers. Extra labor is needed to 73 remove the plums from the harvester before they pile up and crush one another. The shakers now in use, unless cautiously run, cause most of the plums to drop at one shake. cause bruising as they fall on each other. This may Additional re ­ search appears necessary to improve the mechanical harvester for fresh harvesting. Because mechanical harvesting usually makes possible lower container, transport and storage costs than are usually encountered in hand picking, it is particularly important that an improved mechanical harvester be developed. In addi­ tion to lowering these three costs an improved harvester may cut back the grading costs which have been higher for mechan­ ically picked plums than for hand picked plums. These savings possibilities will encourage further improvements, however, a producer supported research effort might lead to speedier re­ sults. Development of a mechanical harvester to satisfactorily harvest plums for the fresh market may be aided by the develop­ ment of a chemical that will retard plum dropping. At present Michigan State horticultural department has such a chemical but cost makes its use prohibitive. Once an economically priced chemical becomes available, mechanical harvester use may become even more widespread. Unfortunately, fresh and process-type plums are not usually ready to harvest at the same time or it might be efficient to harvest them all together and sort out the large, firm, unmarked plums for the fresh market. Fresh plums are picked at a lower level of maturity to ensure a longer storage 74 and shelf life. Besides, most processors want plums to be fairly ripe before they are picked for canning. Michigan Costs Investment in new plum trees usually occurs when the grower feels that the returns from such an investment will at least equal the returns from the next best oppor­ tunity. Once a grower has committed himself to growing plums, he incurs some fixed costs. For example, the trees are a cost once the grower buys them. As a result, if a grower can obtain any return to his fixed costs, he will continue to grow plums. A low or negative salvage value is a characteristic of most tree fruit crops and accounts for some of the reluctance of growers to stop producing a fruit when returns do not cover total c o s t s . Hence in the short run, most growers try to at least cover the variable costs Cost data is important information necessary to ex­ plain grower response to falling prices. Growers may c on­ tinue to pro d u c e , not only when returns do not cover total costs, but even when they are not covering current variable costs because of the negative salvage value of their orchards or an expectation of better prices in the future. If returns were to fall below variable costs and growers continued their production, emphasis would have to be placed on the future expectations concerning the market and r e t u r n s . Growers may expect the demand for plums to increase and/or other growers to go out of business. Both of these expectations may keep 75 growers in the plum business longer than returns warrant. Grower expectations are difficult to determine and almost impossible to quantify. However, costs in relation to prices received will influence grower behavior. Estimated production costs for the Michigan purple plum industry have been provided in a recent M.S.U. publication. 3 Several tables have been reproduced here from that publication showing variable growing costs, variable harvest costs, and the effect of varying yields on costs per harvested bushel. The cost data referred to in this section were col­ lected from producers attending special meetings for this pur­ pose. As a result, these costs may reflect lower than average plum production c o s t s . In compiling these costs per bushel, an average yield of 250 bushels or 7.5 tons per acre was assumed. This yield is above the average recorded yield per acre for Michigan and may indicate that the growers present at these meetings were above average. If this is the case, the costs may be low and the yield higher than that experienced by many Michigan growers. Since costs will differ from grower to grower, and according to orchard maturity, a set of costs such as these will only serve as an indication of the actual cost situation and should not be considered as completely representative of all g r o w e r s . Growers reported in 1970 that the total cost of produc­ ing 7.5 tons of purple plums was approximately $60.0 0 per ton. 3 Stephen B. Harsh, Myron P. Kelsey, and Glen Antle, Economics of Plum Production in Western Michigan, Agricultural Economics Report No. 162, Michigan State University, May 1970. 76 This total cost includes a $40.00 variable and $20.00 fixed cost {Table 20). With these costs, growers would require at least $60.00 per ton or 3 cents per pound to at least meet all costs. Prices received by growers in Michigan have been b e ­ low $60.00 per ton for processed plums for only four years since 1944 and in only one year for fresh plums (Table 14). This indicates that these Michigan growers experiencing the yield and costs mentioned above have received a profit in most years- In the short run, prices as low as $40.00 per ton would allow them to cover variable c o s t s . If these are above average growers, they may not represent the situation experienced by many growers. Con­ sider a grower with a yield of only 4.5 tons per acre or approximately 150 bushels. Under these conditions the e s t i ­ mated total cost rose to $83.00 per ton of which approximately $50.00 was variable. Since 1964, the price received for plums sold to processors has been lower than $83,000 per ton, except for 1968 when yields were very low in the U.S. This means that these growers have not been covering total costs. In 1964, they barely covered their variable costs when the price for processing plums dropped to $50.00 per ton. These growers not covering total costs may be e x pect­ ing their position to change, either with a yield or price increase, or they may have no alternative available for their resources that would return them more than they are now re­ ceiving. If the latter is the case, they are more or less trapped in their situation. If they want to make a change to Table 20. Effect of Varying Yields on Costs Per Harvested Bushel for Plums, Western Michigan 1970. Harvest yield per acre Variable growing Variable harvest* Total Variable growing & harvesting Fixed growing & harvesting Total growing & harvesting 150 bu. $.72 $0.76 $1.48 $1.04 $2.52 200 bu. .54 0 .76 1.30 0.78 2.02 250 bu. .43 0.76 1.19 0.63 1.82 300 bu. .36 0.76 1.12 0.53 1.64 350 bu. .32 0.76 1.08 0.45 1.53 *The variable cost per bushel is assumed for study purposes to be constant for different yields. Hov;ever, in reality, the cost per bushel will most likely increase somewhat for yields less than 250 bushels per acre and decrease somewhat for yields over 250 bushels per acre. Source: Stephen B. Harsh, Myron P. Kelsey, and Glen Antle, Economics of Plum Production in Western Michigan, Agricultural Economics Report No. 162, Michigan State University, May 1970. 78 some other crop, there is a cost for removing the trees and starting up a new crop, with no assurance that the other crop will have higher returns. In their present situation, they at least cover some of their fixed costs and can hope for a year when prices will once more exceed total costs. When growers are unsure of the returns from plums a drop in new plantings would be expected. If a grower did not expect to cover total cost and make some profit, he would not likely plant new trees. This should eventually remove the less efficient producers as they would likely discontinue planting first. Grower decisions on planting and removing trees de­ pends upon market conditions at the time of the decision. When a grower has fruit land available for planting, he con­ siders the alternatives available and the returns to each. He bases his decision on the market conditions prevailing at that time. If total costs are covered and the profit is above that available from the next best opportunity, then he will plant plums. Later, if market conditions change, the grower will make a new decision. If he expects prices to in­ crease he may try to reduce variable costs or not harvest for a season, but if he expects prices to be low for some time, he may consider removing the orchard. His removal decision will depend upon whether he expects returns over the remain­ ing life of the orchard to be below variable costs including the cost of orchard removal. Industry response to a price reduction often takes the form, as suggested above, of cost reduction. In plums, 79 one method of reducing costs is to reduce cultural practices (Table 21)- By not trimming, removing brush or spraying herbicides, growers may save as much as $40.00 per acre or $5.35 per ton. Of course, such action may lower yields. If yield decreases below 7.5 tons per acre, the saving per acre from reduced cultural practices may be much less than the loss from a lower yield. While supplies would decline from these changes in production practices, it is not suggested as a reasonable approach to the problem of excess supply and low prices. Instead, such a practice is a potential hazard or side effect of low prices. Growers who reduce their cultural practices could easily experience very low yields and perma­ nently reduce the potential of their orchard. A question arises as to what is the minimum price below which growers will not harvest plums? In general, growers will not harvest if the cost of harvesting per ton was above the grower price of plums. For a 7.5 ton or 250 bushel yield, this means the price must be at least $25.08 per ton based upon the cost estimates of Kelsey and Harsh (Table 22). The harvest cost is often higher than $25.08 per ton for lower yields and would require a higher price to cover this additional cost if they were to be harvested. 4 Unfortunately, no data is available on harvest costs for low yields. Individual growers should calculate their harvest cost per acre, then estimate the expected yield from the orchard. If the price of plums is so low that the returns do not cover harvest cost, he should not harvest. This is especially important in young orchards that have not reached their mature production level. 80 Table 21. Variable Cost of Growing One Acre of Plums Western Michigan 1970 (Average yield of 7.5 t o ns). Operation Labor Machinery Material Total T r immi ng 26.10 3.54 — 29.64 Brush removal 2.24 .83 — 3 .07 Fertili zation 1.12 .45 8 .70 10.27 Herbicides 1.34 .40 3 .32 5.07 Spraying 6 .05 6 .99 37 .29 50.33 Mowing 1.57 .83 Other — Total variable 38.42 — 2.40 — — 6.85 13.05 49 .31 107.63 Growing costs Source: Economics of__Plum Production in Western Michigan. Agricultural Economics Report No. 162, Stephen Harsh, Myron P. Kelsey, Glen A n t l e , Michigan State University, May 1970. Table 22. Variable Cost of Harvesting 250 Bushels of Plums (1 A c r e ) , Western Michigan, 1970- Type Full time labor Piece work with crew boss Amount 12 h r s . 250 bu. Wage rate Costs $2.24 $ 26.80 $0,606 /bu. Total labor cost 178.30 Total variable cost to harvest 250 bu. Source: $151.50 $189.54 Hours of use Cost/ unit use 3 plow tractor 4 $.95 $3.80 Lift 4 .24 .96 2 plow tractor 4 .68 2.72 .08 2.56 Equip. used Cost Truck 32 mi. Ladders 1 acre .22 Boxes 1 acre .98 Total 11.24 Variable cost per bushel $0.76 Economics of Plum Production in Western Michigan. Agricul­ tural Economics Report No. 162, Stephen Harsh, Myron P. Kelsey, Glen Antle, Michigan State University. 82 To date, the lowest processing price has been $47.90 per ton meaning that the plum crop would be harvested every year and that all of the variable costs have been covered every year. The recent reduction, but continual planting of plums, reflects an assessment of costs and prices by growers. Heavy plantings in the 1963-1966 period are partially explained by the above average plum prices in the preceding years, lower returns in other crops and the advent of mechanical harvesters. Mechanical harvesting substantially lowered the cost of grow­ ing plums which, when combined with higher prices, expected increase in plantings. led to the Plantings since 1966 have tapered off from the high of 100,000 per year in the 1963-1966 period, but have remained above that number needed to just re­ place the existing orchard. Fresh market plums have a marketing cost which is usu­ ally encountered by growers. Some grade and pack their own, some sell through packing firms on a packed fruit price minus costs basis, while others sell directly to a packer for a price based upon orchard run fruit. Those growers who pack their own will have grading and container costs plus a transportation cost to the place of sale which in many cases will be the Benton Harbor market. Many of these growers do not cool, store or chemically treat their plums. As a result, their market costs are likely to be lower than those of a packing house. If a grower delivers to a packer who performs all of the above actions, the total marketing cost from the grower to the retail store has been approximately $45.00 per ton or $1.36 per bushel {Table 23). This $45.00 marketing cost raises 83 Table 23. Some Average Estimated Marketing Costs for Plums Per 1000 Bushel Harvested (Grade Equals 85 percent #1) Southwestern Michi­ gan, 1970. Item Cos t Grading Charge 9 $ .4 2 /bu. $420 .00 Hydro Cooling @ .20/bu. $200.00 1/2 Bushel Container @ .30 .60/bu. $600.00 Storage .20/bu. $200.00 6 percent Commission on Sales @ ,18/bu. $180.00 Total cost15 Cost per bushel packed out — $1600 .00 $1.60 Cost per harvested bushel at 85 percent #la -- $1.36 The remaining 15 percent are grade-outs and are usually discarded. ^Does not include transportation costs to retail outlets. Source: Economics of Plum Production in Western Michigan, Agricultural Economics Report No. 162, Stephen Harsh, Myron P. Kelsey, Glen Antle, Michigan State University, May 1970. 84 the total cost from $60.00 to $105.00 per ton or approxi­ mately $3.20 per bushel of orchard run fruit. Meanwhile, prices at the grower level have, with the exception of 1964, been over $105.00 per ton for every year since 1958. The average price for Michigan fresh plums has been $130.50 per ton for the period 1958-1969. As a result, a fresh grower with a production and marketing cost of $105.00 per ton has been making money in the fresh market. According to this cost schedule, fresh plum growers require slightly more than 5C per pound to cover total costs. If the marketing costs are added as variable costs, total variable cost amounts to $85.00 per ton or 4.25 cents per pound. Michigan fresh prices have exceeded this price in every year but two since 1944 (Table 14). This indicates that growers can profitably market fresh plums on a long term basis at a price of $105.00 or more per ton and on a short term basis at a price of $85.00 or more per ton if costs don't change. The difference between costs and re­ turns in the fresh market suggests that it may be to growers advantage to lower market prices, increasing the volume of plums sold. Total revenue would be increased if demand is price elastic. if the total revenue in the fresh market ex ­ pands with a lower price, the problem of expanding demand to provide a profitable market for the increased supplies will be much less difficult. 5 In the marketing costs, the 6% commission on Sales may normally be called a fixed cost, but if a grower does not market any plums he does not usually pay for the upkeep of the packing facilities. 85 Regional Costs of Production It is most difficult to make meaningful comparisons of production costs between Washington, Oregon, and Michigan because of the different methods used to determine c o s t s . The cost comparison is further complicated since Washington growers irrigate and prop their trees. Several adjustments have been made to make these costs comparable. Although Michigan has a lower variable cost for cul­ tural operations and a cost for harvesting similar to that of the other states, their fixed costs are much higher re­ sulting in a total production cost higher than either Wash­ ington or Oregon (Table 24). The high fixed cost for Michi­ gan is accentuated by the lower average yield per acre. Washington has a higher yield per acre over which to spread fixed costs. While Oregon has a lower yield per acre, their total fixed costs per acre are much lower than those for Michigan. According to the variable costs reported here, Michi­ gan growers are very competitive. Their variable costs are approximately $3.50 per ton less than Oregon's and approxi­ mately $5.80 per ton less than Washington costs. With these cost differences, Michigan growers are in a position to try to increase their average yield through additional cultural practices, such as irrigation, more prunning or heavier fer­ tilization. It may be possible for Michigan growers to raise their average yield per acre by these practices for a small increase in the variable cost level. If the increase in 86 Table 24. State by State Cost Comparison--Michigan, Washington, Oregon Part A. Variable Cost of Cultural Operations (dollars per acre) Operation Labor (cultural)3 Fertilizer (materials) Spray (materials) Machinery (Repair, fuel, oil, upkeep) Cover-crop Seed Irrigation Other Total cost/acre Total cost/ton Michigan Washington Oregon 38.42 124.40c 32.40 8.70 40.62 12.00 20.50 6.50 18.05 13.05 — — 6.85 107.64 14.35d . 64.40D — 18.00 3.00 242.30 20.19e 31.10 1.50 — — 89.55 17.91f Michigan uses a labor cost of $2.24/hour for full time, $1.74 for hourly and $.606/hour for piece work. Washington and Oregon use a labor cost of $3.00/ hour for the operator and $2.55/hour for hired labor. ^Authors report this may be lowered in final report. Includes irrigating, and propping activities not included in other state labor c o s t s . ^Assumed an average yield of 7.5 tons per acre. 6 Used an average yield of 12 tons per acre. ^Used a yield of 5 tons per acre. 87 Table 24 Continued Part B. Variable Cost of Harvesting 8 Tons of Plums Operation Michigan Washington Harvest Labor (includes piece work with Boss, Picking, Haul­ ing , e t c .) $188.36a $191 .40b Harvest Equipment costs and extras 11.24 32.60 12.25 199 .60 224.00 181.85 24 .95 28.00 22.73 Total cost Cost per ton Oregon $169.60° Estimated from a reported 7.5 tons per acre harvest cost. u Estimated from a reported 12 ton per acre harvest cost. CAssumes a picking cost of $20.00/ton and a hauling cost of $1.20 per ton. 88 Table 24 C o n t i n u e d Part C. Fixed and Total Costs Per Acre Itern Taxes Interest (on investment) Michigan Washington $ 10.00 $ 15.00a 42 .00 116.25b Oregon $ 6.00 59.50 Depreciation 104 .64 Total Fixed Cost 156 .64 131.25 69 .20 20.88 10 .93 13.84 463.88 597.55 340 .60 60 .18 59.12 54 .48 Fixed Cost per ton Total production cost/acre Cost per ton — 3.70° a lncludes personal and real property. ^Includes interest, overhead and depreciation. Small charge for overhead only. Source: (1) Stephen B. Harsh, Myron P. Kelsey, and Glen Antle, Economics of Plum Pro­ duction in Western Michigan, Agricul­ tural Economics Report No. 162, Michi­ gan State University, May 1970. (2) Ken Brown and Jim Ballard, "Pre­ liminary Italian Prune Enterprise Data Sheet," (Unpublished, Yakima Valley, Washington, April 1971) . (3) Ken Brown, "Preliminary Prune En­ terprise Data Sheet," (Unpublished, Willamette Valley, Oregon State Uni­ versity, Cooperative Extension Ser­ vice , 1971). (4) Idaho data not available. 89 v a r i a b l e cost is less than the d e c r e a s e s ulting f ro m a n increase in y ield, in fi x e d cost, re­ then M i c h i g a n p ro d uc e rs w o u l d b e c o m e e v e n more c o m p e t i t i v e as their total c o s t per un it d e c l i n e s . H a r v e s t costs in the t h re e areas are v e r y similar v a r y i n g o n l y slightly, mechanical harvesters a c c o r d i n g to the c o st of in e a c h state. labor and At p r esent, the c os t to h a n d p i c k is very s i milar to th at of m e c h a n i c a l h a r v e s t ­ ing b e c a u s e of the high c o s t of machinery. Summ ary In spite of a nu m be r of cu l t u r a l problems, partic­ u la r ly those of d i sease a n d the ne ed for p o l l i n i z i n g v a r i e ­ ties, p u r p l e p l u m growers those in o t h e r states. P u r p l e plums in M i c h i g a n are c o m p e t i t i v e w i t h in M i c h i g a n have p r o d u c e d c o n s i s t e n t yiel ds on l ow d a m p soils a n d a p p e a r to be m o r e weather conditions r e s i s t a n t to than o t h e r M i c h i g a n fruit crops. recent p l a n t i n g s on higher More l oc a ti o ns are e x p e c t e d to lead to h i g h e r yields. B r o w n r ot a n d the B l a c k Kn ot d i se a s e s q u a l i t y of the fruit and the res pectively. W i t h o u t i m p r o v e d c he m ic a ls t h r e a t e n the life e x p e c t a n c y of the o r c h a r d it is do u b t f u l w h e t h e r g r o w e r s can c o m p l e t e l y c o n t r o l b r o w n rot. Substan­ tial however, i m p r o v e m e n t in bro wn r o t c o n t r o l can be made, w i t h p r e s e n t l y a va i l a b l e t e c h n o lo g y- B l a c k K n o t can be r e ­ d u c e d to e c o n o m i c i n s i g n i f i c a n c e w i t h p r e s e n t te ch nology. 90 Plum size, pollinizing varieties and ova abortion in Stanley plums are additional grower problems. Many Michigan plums are excluded from the fresh market by virtue of their size. This size may be improved through increased fertiliza­ tion and prunning or by irrigation. Both of the major varie­ ties require pollinating plum varieties to be grown with them. These other varieties do not ripen at the same time, reducing mechanical harvesting efficiency and except for Stanley and Blufre varieties, encounter a low demand. Ova abortion in Stanley plums, while a minor problem,is important in short crop years when a lot of the fruit drop before maturing. Plums sold for processing have been mechanically har­ vested for some t i m e , but mechanical harvesting of fresh mar­ ket plums is just in the early stages of development. Plum damage, loss of tree spurs and excess trash are problems con­ fronted by fresh mechanical harvesters. Above average growers, with yields of approximately 7.5 tons per acre, have been experiencing profits while growers with yields of 4.5 tons per acre have not been covering total costs, nor in some years even covering variable costs. Despite not covering variable costs, these growers are not encouraged to reduce cultural practices because of the adverse effect ex ­ pected on yields. For the above average producer average variable costs were found to be $40.00 per ton to grow and har­ vest the crop. Fresh marketing required an additional $45.00 per ton to cover storage, packing, grading and cooling. The cost of producing plums in Michigan, while slightly above that in Washington and Oregon, was found to be competitive. CHAPTER V VIEWS AND PROBLEMS OF PROCESSORS Processing firms buy approximately 70 percent of Michigan's purple plums. About 75 percent of these are canned whole, and about 25 percent made into baby food and preserves. If the supply continues to grow, as all signs indicate, canners and baby food producers will have to pro­ cess and market roughly 60 percent of the increase. To determine whether the present firms in the field can handle the anticipated increase, this study interviewed all Michi­ gan firms that hot pack whole plums or make baby food. survey had two objectives: The (1) to obtain detailed informa­ tion on the industry's problems and (2) to determine alterna­ tive ways in which the firms might handle the expected in­ crease while keeping or improving their economic viability. Produce Quality For canning of high quality, plums must be of uniform size and good color, and must be mature and free of disease. For several reasons, most processors prefer plums with a diam eter of 1 1/8 inches to 1 1/2 inches. First, they keep with­ in this range because they want to pack a certain number in each can, since the number dictates the number of individual servings. In a #10, for instance, although they may pack from 50 to 90 plums, they prefer to pack 70-90; similarly, 92 although they sometimes pack from 12 to 23 in a #2 1/2 can, they prefer 14 to 17. Second, uniformly sized plums are more appealing than a mixture of large and small plums, b e ­ cause, according to processors, the small plums suggest a lower quality fruit. Other problems are brown rot, immature plums, and lack of color. If processing is delayed, brown rot may attack an entire shipment. Immature plums can reduce sales because they are tough-skinned, difficult to eat and often have a poor flavor. Color is important chiefly because gov­ ernment regulations require a strong purple for top grades. Several processors suggested the idea of trying to persuade the government to change the regulations on color because, according to taste panels, Michigan plums are at least as tasty as the better colored Northwestern plums. Besides these problems, the industry admits that the physical characteristics of the plum itself cause difficul­ ties. Even the minimum sized plum is a mouthful, and its tough skin makes it hard to cut. Moreover, since all canned plums have pits, the consumer must either chew the meat off the pit or try to cut the meat off. On the other hand, sev­ eral processors claim that cooking the plum with the pit provides more flavor and prevents the fruit from breaking down. In any case, in as much as no present machine can re­ move the pit without mashing the plum, the processors have no choice in this m a t t e r . Although several new plum products have been suggested recently, such as plum pie and plum nectar, none have been 93 successful to d ate.^ The consequent lack of variety in products makes it necessary for the industry either to cooperate in finding new products or to concentrate on improving its efficiency with its present products. Location of Growers and Processors Most processors buy their plums from a number of different growers, large and small. The following five counties, each with a substantial number of growers, supply five or more processors: Kent and Oceania Leelanau, Mason, Grand Traverse, (Figure 3) . Since plums can be transported long distances, some growers sell to firms outside their county, a few to processors as far away as 250 miles. Most growers, however, ship to processors no more than 50 miles away. Processors consistently buy from a large number of growers, apparently to minimize the risk of a crop failure. For instance, three of the 15 large firms buy from 100 or more growers, and nine buy from 50 or more. Most of their growers, however, sell only small quantities. One firm buys approximately 2/3 of its supply from five growers and the re­ maining 1/3 from approximately 95 others. Two firms obtained over half their supply from five gro w e r s . For some firms their top five growers produced between 200 and 400 tons. ^Glen G. Antle, and W. Smith Greig, The Potentials for Plum P i e , Agricultural Economics Report No. 146, Depart­ ment of Agricultural Economics, Michigan state University, August 1969. 94 All processors deal with growers on an informal basis, omitting the use of formal written contracts. They reacted to the suggestion of written contracts by saying that quantities and prices would have to be negotiated each year, which makes long term quantity and price deter­ mined contracts unavailable. Even though arrangements are informal, processors support market information groups that provide all sides of the marketing picture because these groups acquaint growers and processors with market condi­ tions for each year. Processor reactions to the first plum market infor­ mation program were mixed. While this program, started by MACMA in 1970, had not reached a number of processors, they did respond by indicating how other MACMA fruit programs have worked. Their comments indicated that while MACMA*s programs provide factual, informative material that aids in providing a stable uniform market, their apparently uncompromisable statements, unrealistic price demands, lack of awareness of the implications of their predictions, insuffi­ cient market research and failure to always consider other market conditions make them ineffective in establishing price. Responses to questions on contracts, custom process­ ing, and joint ownership agreements with growers show that processors are reluctant to contract under a price formula but will, in some cases, custom process or enter into joint ownership programs (Table 25). Contracts with grower assoc­ iations would have to include delivery specifications, 95 Table 25. Processor Responses to Grower Relation Type Qu e stions. Question 1. Would you be willing to offer a contract to growers for several years which included a specified price for­ mula? No. Responding Yes No. Responding No No Response 1 13 0 2. Have you ever contracted for plums? 6 8 0 8 3 3 8 6 0 5 9 0 3. W o u l d you s i g n a c o n ­ tract with a grow ers association? 4. W o u l d you be w i l l i n g to c u s t o m p r o c e s s plums for growers? 5. W o u l d y o u be interested in p r o c e s s i n g plums on a joint v e n t u r e basis with growers? 96 quality criteria, quantity and a price negotiating arrange­ ment. Those five firms willing to enter a joint ownership arrangement will only do so on a cost plus basis meaning that processors are reluctant to share the risk with growers, preferring instead to own the plums outright or custom pro­ cess. One processor has started a joint ownership venture, but was reluctant to provide details until there is some indication as to its possible success. Processor Market Michigan's canned plums compete for a share of the U.S. canned whole plum market. Although two of Michigan's processors have national brands, they do not necessarily sell Michigan produced plums in all parts of the U.S., as they have processing plants in the Northwest as well. Michi­ gan canned plums compete mainly in the Midwestern and Eastern sections of the U.S. market. Sales have been reported in Detroit, Philadelphia, New York, Chicago and Nashville as well as in the states of Nebraska, Florida and Texas. These same processors indicate that the Eastern market is the largest regional market in the U.S. for plums. Canning The canning of whole purple plums involves equipment similar to that in canning other fruits such as sorting and grading facilities, syrup tanks, and closing machines. Plums do require a stemmer which in many cases is a bean destemmer. 97 especially since mechanical harvesting has raised the in­ cidence of stems. Canning purple plums represents less than 2 percent of business and for the most part involves the #2 1/2 and #10 size cans (Table 26). In addition to canning these plums, all firms process tart cherries and many process other crops especially sweet cherries, apples, blueberries, and asparagus. With the plum season between that of tart cherries and apples, many firms have their equipment avail­ able for processing which provides a means of spreading overhead. If a firm has a hot pack line for any products, they can use it for purple plums even if they have never processed plums before. The ease with which firms may under­ take the canning of plums and the responses of those already in the business reveal that the physical capacity exists with which to handle the increase in supply. Ten of the 14 firms have maintained or increased the quantity of plums processed over the past ten years. Two firms quit altogether because of low returns and the loss of a market for their canned whole plums. Pricing According to processors, the supply of plums in the Northwest, competing fruit, and total available carryin of canned plums all affect the price received by processors for canned plums. If the Northwest has a big supply, baby food and whole plum processors with plants in Michigan and the Northwest will process plums out there, lowering the demand Table 26, 1. 2. 3. Number of Firms Packing Specific Can Sizes, Percentage of Business Rep­ resented by Plums, and Other Crops Processed. Number of firms packing each size and the percent of the total processed by these firms can size No. of firms Percent of Volume in 1970 Percent of total business represented by plums Percent N o . of firms 8 oz. # 303 2 1 4.6 # 2 1/2 1 0- 2% 2+-9% 10 0 # 10 10 53.6 6 41.4 10 - 20 % 4 VO Other major fruit and vegetable crops processed by these firms Crop: No. of firms Crop: No. of firms: Tart cherries 14 Sweet cherries 11 Apples Blueberries 10 8 Peaches 00 Strawberries Pears Other fruit Asparagus Tomatoes Other vegetables 1 4 8 4 3 99 and price for Michigan's plums. In addition, if North­ western firms have a cheap supply of plums they will be able to transport canned plums east and compete with Michi­ gan processors at lower prices. Theoretically, all compet­ ing fruit such as pears, peaches, applesauce, apricots and fruit cocktail are potential but not perfect substitutes for whole plums in consumer purchases. And finally, the other factor most frequently mentioned as influencing plum prices was that of canned whole plum carryin. Because canned plums may be stored for up to two years, unsold quantities, as of the first of June, constitute part of the available supply for the next season. If carryin quantity is high, processors would expect a lower price for new canned p l u m s . To obtain their desired supply of fruit at competi­ tive prices, processors establish some grower-processor loyalty as well as offer prices similar to those offered by other processors. If a grower sells to a processor in short supply years, that processor will purchase from him in big crop years and in some big crop years increase the average quantity purchased. With big crop years becoming more fre­ quent, processors are experiencing a degree of oligopsony bargaining power. This means that if growers are unhappy with a particular processor's price, they may have no alter­ native market available. In addition to dealing primarily with growers on a regular basis, processors offer very sim­ ilar prices. The maximum price differences per pound reported 100 by processors on an individual basis for the three years 1968-1970 were as follows: 1969 and .25 cents in 1970. 2 cents in 1968, 1.25 cents in These variations depend in part on whether the grower must deliver their own plums or whether the firm will pick up the plums. Advertising and Promotion Processors do very little advertising or product promotion for canned purple p l u m s . Although seven of four­ teen firms favor advertising, only two firms reported spend­ ing funds on specific advertising of plums. However, sev­ eral others, marketing under a national brand label, indi­ cated some indirect promotion through brand advertising. This lack of interest in advertising is attributed to the unimportance of purple plums to most processing firms, the low sales volume and high cost of advertising. If an advertising program for the industry is under­ taken, half of the processors favor a strictly Michigan pro­ gram and half favor a combined Northwest-Michigan program. Eight of the fourteen firms felt that processors should con­ tribute if an industry wide advertising program is estab­ lished. Contributions, according to ten of the fourteen processors, would have to be mandatory for such a program to be properly financed. None of the fourteen processors mentioned using m er­ chandising agents at present for purple plum promotion, but eight firms were in favor of using this means of promotion in an industry sponsored program. Merchandising agents would 101 call o n c h a i n stores and i n s t i t u t i o n a l buyers in an att e m p t to get wider acceptance, g r e a t e r dis tribution, and m o r e shelf space for p l u m s . The s u g g e s t i o n of u s i n g a cen tra l sales a g e n c y as a means of p r o m o t i o n and a w a y of inc rea sin g returns industry e n c o u n t e r e d a mi xed reactionthe idea had merit, feasible, Five firms to the thought four t h o u g h t it to be c o m p l e t e l y i n ­ four oth ers were u n d e c i d e d w hil e one p r o c e s s o r wo u l d make no comment. for pr oce sso rs While it may be found to be illegal to collude and sell as one, farm a cooper ati ve, growers co u l d retaining o w n e r s h i p of the plums, and sell through a central agency. Under a central sales agency, w h e t h e r run by p r o ­ cessors or pro duc ers , all br and s of a similar q u a l i t y w o u l d sell for the same price and all the agency, sales w o u l d be h a n d l e d by r e m o v i n g special p r o c e s s o r qu an t i t y or pr i c e deals and in e f f e c t creating a mo nopoly. monopoly, the a g e n c y would be sale prices to retailers. O p e r a t i n g as a in a p o s i t i o n to set w h o l e ­ T h e s e prices w o u l d d e p e n d u pon the same v a r i a b l e s now a f f e c t i n g pro ces sor prices of N o r t h ­ w e s t supply, carryin, and M i c h i g a n supply but it w o u l d move the i n t e r - p r o c e s s o r pri ce c o m p e t i t i o n by M i c h i g a n re­ firms. Processing C o s t s V a r i a t i o n s in the c o s t of p r o c e s s i n g d e p e n d upon how he avy a syrup is used, c o n t a i n e r quality, a n d total o v e r h e a d . labor efficiency, While not all firms p r o v i d e d c o s t figures 102 for the survey, over half did, providing a range of costs and a means of determining the importance of such inputs as sugar, labor, containers, and overhead. By looking at the average costs per case, we can see that sugar, container, and overhead costs are substan­ tial (Table 27) . Since a case of #2 1/2 plums requires 30 pounds of raw fruit, which at $60.00 per ton or 3 cents per pound would cost $.90, these costs per case are each greater than or almost equal to the raw product cost per case. A similar situation exists for the size ten cases. Sugar c o s t s , while slightly below the raw product cost in this illustration, vary and may be above or below the raw product cost at 3 cents per pound. On a percentage basis , with a raw product cost of 3 cents per pound added to the average cost of $4.17 per #2 1/2 case, the cans represent 30 percent of this total cost while the raw fruit accounts for approximately 18 pe r ­ cent. Overhead costs, likewise, exceed raw product cost per case. And a similar situation exists for a #10 case. This cost structure points out the fact that the raw pro­ duct represents only a small part of the final product. Consequently a change in grower price of one cent from 3 to 4 cents, per pound, which represents a 33 percent in­ crease in price at the grower level, means a change from $5.07 per case of #2 1/2 plums to $5.37 per case or a 6 percent change in price at the processor level. The im­ plication is that since raw product cost is not a major part of the final cost and where a large percentage change 103 Table 27. Pounds of Raw Fruit Required and Costs In­ volved in Canning Purple Plums. Part A: Quantity of raw fruit necessary to produce one case of fruit. 8 oz . No. of Pounds of Raw Plumsa 7-9 Can size #303 #2 1/2 16.5-19 29-31 #10 26 .5-30 Processors reported that the quantity varies with the sugar used and condition of the plums. Part B: Costs Involved in Canning Purple Plums cluding Raw Product Cost)^. (Ex­ Cost Range Cost Range Average Cost Average per case of cost/case per case of per case of 24, #2 1/2 of 24,#2 1/2 6, #10's 6, #10's Sugar Cans dollars per case .68-.99 .76-1.00 .842 1.44-1.63 1.52 .91-1.20 .786 1.035 Carton .115-.125 .121 ,097-.130 .12 Labor .31-.605 .448 .25- .50 .344 Overhead0 1.165-1.30 1.239 1.23-1.40 1.345 Total 3.79-4.55 4 .17 3 .17-3.91 3.63 Eight firms replied with cost figures for #10 con­ tainers while four reported costs for the #2 1/2 can size. Only six firms provided overhead costs. cOverhead costs were not reported separately but are the differences between the total cost reported and the first four costs listed. 104 at the grower level results in a relatively small change at the retail level, it may be possible to obtain higher prices at the grower level. An increase in price at the grower level would not occur without strong representation on the grower *s behalf. Although it may appear that a price increase at the grower level, with its limited effect on retail prices, could be passed on to consumers, processors are reluctant to increase the price paid to producers. Unlike the situa­ tion in cans and sugar, where reduced purchases by indivi­ dual processors do not affect the prices, a cut back in pur­ chases by individual processors directly affects raw product price in the area. In years of average or above average production, many growers are looking for a market for their plums. If their local processor won't buy them, they are forced to sell to another area usually causing a downward pressure on prices in that area. As a result, processors can favorably affect the price of the raw product. Despite the lack of control over can costs and the high cost of cans, processors indicated very little interest in jointly or individually owning a can making company. According to processors, the high volume necessary for a profitable container company and the variety of containers needed in the processing industry makes a container company unpro f i table. Labor costs represent approximately 10 percent of the processors' cost excluding the raw product cost or less than 9 percent if the raw product cost is included for a 105 case of #2 1/2 size cans. Labor costs vary from firm to firm according to the technology employed and the e f f i­ ciency of the operation. This difference from firm to firm is illustrated by the wide range of labor costs re­ ported . Financial Situation Indebtedness and credit availability were two means of providing an indication of the financial soundness of the processing industry. To measure indebtedness processors were asked to indicate what percent of their operating cap­ ital was borrowed on an annual basis. Unfortunately indivi­ dual firms defined operating capital in a number of differ­ ent ways making the responses very rough indications of money borrowed. They reported borrowing from 33 to 75 per­ cent of their total operating requirements. Although these rough estimates reveal a wide range in the percentage of capital borrowed, they do support the responses on credit availability. Firm responses to the q u e s t i o n of w h e t h e r less c o s t l y and better f i n a n c i n g a r r a n g e m e n t s woul d e n c o u r a g e t h e m to pack more plums or e xpan d t h e i r operations cated, with one excepti on, a f f e c t pack size. indi­ that f i n a n c i n g costs d i d n o t A n d o n l y two firms, one of w h i c h also m e n t i o n e d cr edi t a v a i l a b i l i t y as a fac tor in d e t e r m i n i n g p a c k size, r epo r t e d financial c o s t as a reason for not e x p a n d i n g p l u m pack. One other f i r m rep orted that c redit a v a i l a b i l i t y a ffe c t e d p a c k size. A c c o r d i n g to t h e s e replies 106 the cost and availability of credit are not important limiting fac­ tors affecting the size of plum pack. Closely related to the problem of credit availability is that of firm financing. Survey responses to the question of whether underfinanced firms presented a problem to the industry indicate that while underfinanced firms might cut prices there appeared to be no firms in this position at present. As an indication of the profitability of plums, processors were asked to indicate whether average net return differed from their other processing enterprise. With one exception plum returns were reported as either just covering their total costs or yielding returns similar to the average returns experienced by other products. One firm reported losing money on plums. According to processors, plums are a small part of most enterprises and contribute to keeping down overhead costs by making use of idle equipment during a period when other products are not available for processing. All but one processor said they plan to continue plum processing if returns con­ tinue as they are. Excess Supply The Michigan purple plum industry's ability to handle an increase in supply is critical if the industry is to economically handle the 21-39,000 tons of plums produced annually in the sev­ enties . Since approximately 70 percent of the crop has been pro­ cessed, processors' analysis of the industry's ability to handle a supply increase is considered very important. Under present conditions, processors believe that addi­ tional supplies would have to be left unharvested. These p r o ­ cessors say that even with lower priced raw fruit the change in 107 retail p r i c e of the pro d u c t w o u l d be so small in cr e a s e in sales is likely. This means that only a small that gro wer s w o u l d r e ­ ceive less for their crop and still not find a m a r k e t for the en tir e crop. As a result, they m i g h t be b e t t e r to just h a r v e s t a p o r t i o n of the c r o p and keep p ric es f r o m falling to the h a r ­ vest c o s t level. Su ppl y manage men t, through ac reage co ntrol or h a r v e s t r e ­ st rictions, was p r o p o s e d in the survey as one m e t h o d of h a n d l i n g ex ces s supply. en t h u s ias tic . P r o c e s s o r r eac t i o n to this idea was less than U n s u c c e s s f u l use of supply m a n a g e m e n t in oth er areas m a d e processors p e s s imi sti c a b o u t its s uccess here. For supply m a n a g e m e n t to work, other p l u m g r o w i n g regions w o u l d hav e to be inc l u d e d as well. In addition, the e x i s t e n c e of sub sti tut es wo uld be a limiting factor on the r etur ns that could be e x p e c t e d from c o n t r o l l i n g supply. ov e r c o m e W h i l e e a c h of these c ond iti ons c o u l d be they do ind icate that su ppl y m a n a g e m e n t w o u l d not be an easy m e t h o d to use in o v e r c o m i n g the sup ply problem. No t all p r o c e s s o r s b eli eved that excess s u p p l y w o u l d be d e t r i m e n t a l to the industry. h i g h e s t quality plums the pr oduct. T h e y s u g g e s t e d m a r k e t i n g o n l y the and in so doi ng e x p a n d d e m a n d for m o r e of A v a i l a b i l i t y of o n l y high q u a l i t y plums w o u l d e n ­ c o u r a g e co nsumers to increase their c o n s u m p t i o n by hav ing be t t e r tasting plums and fewer ex per ien ces w i t h low q u a l i t y products. An a d d i t i o n a l a d v a n t a g e from m a r k e t i n g o n l y h i g h q u a l i t y plums wo uld be realized f r o m a general a d v e r t i s i n g program . situatio ns, In mos t industry w i d e a d v e r t i s i n g is not r e c o m m e n d e d w h e r e co n s u m e r s e n c o u n t e r a h i g h d egr ee of q u a l i t y va ria tio n. W i t h an increas e in supply the indus try c o u l d b e more s ele cti ve in q u a l i t y 108 Although excess supplies can be detrimental to an industry, the quantity marketed does affect total returns to the industry. of demand. This effect depends upon the elasticity To determine what effect an increase in supply will have upon returns this elasticity of demand must be determined. A later chapter attempts to determine this elasticity. Once processors are aware of how an increase in supply will affect returns under present conditions, they may adjust their processing accordingly or alter the demand situation through a promotional type of program. When industry supply increases, processors indicated they would not increase their processing unless returns per case were maintained at or near current levels. As this supply increase approaches the expected range of 21-39,000 tons, processors expect lower raw product prices, possibly as low as, or lower than, 2 cents per pound. This price is above the grower harvest cost of $1.25 per pound mentioned in Chapter IV. Processors suggested that growers might reduce the supply by removing some trees, planting fewer trees and not marketing the entire crop. Tree removal would likely involve inefficient, low yielding and possibly diseased orchards. Indications are that fewer trees have been planted in the last few years. However, as long as growers receive returns that more than cover harvest costs, they have marketed all of their crop. If some of the crop is to be left un­ marketed, a marketing regulation of some type will have to be used or the price will have to drop below the harvest cost. 109 When asked whether retail prices would respond to decreases in prices at the grower and processor level, re­ sulting from an increase in supply, processors were pessi­ mistic, indicating that in their opinion retail prices have always been slow to move. This is understandable as we saw earlier where a one cent change in raw product price was a very significant price change at the grower level but quite insignificant at the wholesale level and even more in­ significant at the retail level. The fact that the raw pro­ duct cost in the final product is such a small percent of the total cost explains why many agricultural based products do not fluctuate in prices at the retail level to the same degree as the price fluctuates at the producer level. All processors were asked to indicate, from a list provided, what activities they believed would be effective in increasing demand. While quality was not mentioned in the list, there was an opportunity for an activity involving quality to be added. However only one firm did so (Table 28). Their responses suggest that advertising and promotion com­ bined with new products provide the greatest opportunity for expanding the demand for canned whole plums E v e n though p roc ess ors , on an i n d i v i d u a l basis, m a y not have a ready s o l u t i o n to the sup ply problem, sent a p o s i t i v e they r e p r e ­ force that if com bi n e d w i t h p rod u c e r e ffo rts may e f f e c t i v e l y alt er the m a r k e t situation. tween these two groups Cooperation be­ at the very m i n i m u m can reduce costs and im prove the e f f i c i e n c y of the industry. 110 Table 28. Support for Methods of Ex­ panding Demand for Canned Purple P l u m s . Method Number a Lower prices 3 Advertising & promotion 7 New products 6 Stabilize supplies 4 Central selling 3 Exports 2 Additional promotion to institutions (Hospitals, Colleges, etc.) 4 Other 1 (Quality improvement) Processors were provided with a list of methods and asked to indicate what methods they thought would best expand demand. Ill Industry Problems A l t h o u y h a n u m b e r of probl ems w e r e covered w i t h earlier sections of the q u e s t i o n n a i r e , the final q u e s t i o n asked each pr ocessor lems that, to me n t i o n any a n d all industry p r o b ­ in their opinions, re quire ind u s t r y attentio n* Many of these pro blems w e r e dis cuss ed e a r l i e r in this chapter b u t are lis ted h e r e as an i n d i c a t i o n of the r ang e of pro b l e m s c o n f r o n t i n g processors. The industry p a r t i c i p a n t s , first three proble ms particularly listed b e l o w w e r e m e n t i o n e d by at least two processors. The list is as fol­ lows : (a) Q u a l i t y is a p r o b l e m at both the grower and p r o ­ cessor l e v e l . (b) Prices at the r e t a i l level do n o t change b y as m u c h nor as often as prices at the g r o w e r level. (c) Industry o r g a n i z a t i o n and c o o p e r a t i o n is i n s u f f i ­ ci ent to h a n d l e the i n d u s t r y ’s problems. (d) Process ors feel the G o v e r n m e n t cou ld help in surplus ye a r s by b u y i n g m o r e plums b u t appears r e l u c t a n t to do s o . (e) Ex pan din g the d e m a n d for p u r p l e continue to be a pro blem b e c a u s e (canned w hol e plums) plums is a n d wi ll the p r o d u c t fo rm has a n u m b e r of u n d e s i r a b l e characteristics. (f) Some pr o c e s s o r s a ppa ren tly b id at below c o s t for some g o v e r n m e n t c ont racts c r e a t i n g har dship other proce s s o r s . for 112 (g) Committee buying, rather than having one buyer as in the past, at the retail level has created a problem because these committees are less respon­ sive to market changes and less knowledgeable of market conditions. (h) The government color regulation discriminates against Michigan p l u m s . Ci) A heavy syrup pack has become more difficult to sell to a calorie conscious public. (j) The wide variation in plum count of #10 cans is a problem to consumers who require a specific number of servings per can. (k) The average consumer is unfamiliar with canned plums. (1) There is a lack of Michigan plum promotion. (m) There is a fluctuating supply. (n) Can prices are too high. (o) Plums may be a luxury item and therefore more susceptible to economic changes. Summary Michigan's processing industry, handling approxi­ mately 70 percent of the state's purple plum supply, must overcome a number of problems if they are to economically handle the increase in supply. Many of these problems such as low quality, high input costs, and oversupply are common among other industry participants. However, such problems 113 as advertising or promotion, pricing policy, and market expansion involve the processors more directly than other participants. Plum quality and size, determined in part by di s ­ eases and growing conditions, are a major problem to pr o ­ cessors as well as to growers because of their affect on final product quality and sale of that product. lowing contribute to the quality problem: The fol­ brown rot, a disease causing a breakdown of the plum, immaturity, a joint producer-processor harvesting problem and unevenly ripened fruit caused by diseased trees. Even though size, unlike raw plum quality, does not affect the final product quality it does influence sales in two ways. First, many consumers require a certain number of uniformly sized plums per container to provide them with a constant number of individual servings. For example, institutional consumers prefer the #10 can to have between 70 and 90 plums per can. And second, size is a problem to sales even when the plums are small. For example, the minimum size plum, with a di­ ameter of 1 1/8 inch, is a mouthful and requires cutting prior to being eaten. This cutting requirement is often made difficult by immature, tough skinned and under-cooked plums. As a result, canned whole plums meet with a degree of consumer sales resistance because of size problems. All industry participants have input cost problems and processors are no exception. is the can cost. Of particular importance This cost represents approximately 30 percent of the total cost of a case of #2 1/2 plums when the 114 raw product cost is 3 cents per pound. In this particular cost situation, processors have no control over the input cost. Running a canning company to lower this cost in processors' opinion, would however, not be economical for processors alone because of the volume needed for a profit­ able container company and the variety of can sizes needed by processors. Another cost, over which processors have little effect, is sugar which is approximately equal to raw product cost at 3 cents per pound. The raw product cost at 3 cents per pound represents 18 percent of the total cost. P h y s i c a l l y handling the problem, in s u p p l y is no but m a r k e t i n g the a d d i t i o n a l vo lum e of pr od u c t is. lower raw the effect o n retail prices w i l l be minor. So sales will n o t pr ice changes final A l t h o u g h an i ncr e a s e in supply w i l l p r o d u c t prices, motion, increase likely i n c r e a s e s i g n i f i c a n t l y due to at the grower level. Without additional p r o ­ new p r o d u c t s or some o t h e r action to in cre a s e demand, processors p r e d i c t the increase that the c u r r e n t market c a n n o t use all of in supply. This m ean s some of the crop will have to be l e f t unharvested. Even t h o u g h pr o c e s s o r s are in a p o s i t i o n from add iti ona l sales of p r o c e s s e d plums, very little a d v e r t i s i n g or pro mot ion . to be n e f i t they carry out Much of this d i s ­ interest is c r e d i t e d to the s m a l l volume of t h e i r sales re pre sen ted by plums and the h i g h cost of advertis ing . firms use m e r c h a n d i s i n g age nts tion of a c e n t r a l ing from full No for pr omo tio n a n d the s u g g e s ­ sales a g e n c y m et with a m i x e d reaction r a n g ­ s u p p o r t to no support. 115 While processing and promotion costs affect their pricing policy, processors indicate that grower prices depend, for the most part, on the supply of plums in Michi­ gan and the Northwest, competing fruit and total available carryin. Northwestern supply is of particular importance as it accounts for approximately 75 percent of the total U.S. purple plum industry. Competing fruit, although im­ perfect substitutes, affect the sale of plums, by virtue of their prices and availability. A big carryin, the supply of canned whole plums remaining from the previous year, re­ sults in lower raw product prices . Closely related to the promotion aspect is that of market expansion into cities and states not now receiving Michigan canned whole plums. At present, sales have been reported in Detroit, Philadelphia, New York, Chicago, and Nashville as well as the states of Nebraska, Florida and Texas. Indications are that the Eastern market in the U.S. represents the largest regional market. In their relations with growers, processors deal on an informal basis with many growers both large and small. By dealing with many growers they minimize the risk of a crop failure affecting their total supply. Contractual agreements, with the exception of one joint ownership agree­ ment, are on an informal basis. C H A P T E R VI VIEWS AND PROBLEMS OF RETAILERS, FRESH PACKERS, HANDLERS AND BROKERS In order to gain an understanding of the industry and problems as perceived by a number of important partici­ pants in the subsector, tailers, interviews were conducted with re ­ fresh p a c k e r s , handlers and brokers. These were not structured surveys, rather a series of open-ended ques­ tions were used during each interview to encourage a full discussion of individual problems and how those problems were related to the industry as a whole. The firms were selected to provide a range of situations and viewpoints. However, no attempt was made at systematic random sampling. The following sections report the findings and implications of these interviews. Retailing Canned Whole Plums To learn more about the sale of canned plums and the problems of increasing sales, eight major food chains, with stores in Michigan, were interviewed. Each food chain had a canned fruit buyer handling the purchase and promo­ tion of plums. This was the individual interviewed. All buyers indicated that, in Michigan, whole plums are one of the slowest moving canned fruit regularly handled. 116 117 One buyer indicated that for every can of plums sold in the chain, four cans of the next least popular fruit and forty cans of the most popular fruit were sold. They indicated that the low volume may be partially explained by low priced competing products such as peaches and consumer eating habits which seldom include whole canned plums. These people were then asked how price affected their stocking the product and the volume sold. Responses indicated that volume would drop off even more if prices increased. Any further reduction in volume would cause three chains to d is­ continue selling plums altogether. Retailers use volume as a basic criteria in allotting display space, although not nec­ essarily location of facings, as plums were displayed along­ side other more popular fruit. Despite the low volume of sales, four firms carry two or more brands, with two of the other four firms interviewed occasionally featuring a second brand. Two firms sell only Northwestern plums while one firm sells only Michigan plums. The others usually keep at least one brand from each area in stock. Because of their low volume, whole plums are seldom featured by chain stores in their attempts to attract c us­ tomers. One buyer indicated that, with most canned fruit, any extra volume left over from a feature moves quickly at regular prices, but such is not the case for plums. He also observed that consumer purchases of plums, after a feature, do not increase as much as do purchases of other fruits after a feature. This might indicate that a plum feature does not 118 attract new consumers but rather effects regular buyer in­ ventories. Consequently, retail chains tend not to feature whole plums, although they will feature plums if processors give the retail chain a special deal such as a lower price. Retailers price plums according to some combination of competition and profit. A large, store to store, varia­ tion in retail price was observed in the Lansing area where during February and March, prices ranged from 28 to 45 cents per #2 1/2 can. Most of the stores observed were charging between 29 and 33 cents per can. The buyer for the chain charging 45 cents said that, according to his costs, 45 cents per can was not out of order. He did indicate that sales were very low. Retail buyers believe that quality and price are the major factors to be considered in expanding demand. At the processor level, plums are sold under the quality class­ ifications of "fancy" or "choice" with "fancy" being of higher quality. However, this distinction is not carried through to the consumer, although a few brands indicate that their plums are "grade A," others give no indication of quality. Even though retailers pay less for "choice" plums, some of their pricing is such that a choice can of plums in one chain may cost more than a can of fancy plums in another chain. As a result, consumers cannot depend on price alone to indicate quality. In selecting some product brands, unless they have their own brand which is automatically carried, retailers sometimes use a consumer taste panel to determine which 119 brand has the best quality. Although none of the buyers had used a panel to select their plum brands, possibly because of the low volume, several buyers believe the Northwest has better quality, while others feel that Michigan has as good or better quality. They base their quality judgments on the number of complaints they receive about under-cooked, tough skinned and poorly flavored plums. Buyers point out that, with the variation in quality, advertising of whole plums as a consumer food item is risky, especially if consumers buy or receive a low quality plum. Most buyers thought that improving quality and making it uniform throughout the industry were requirements for demand expansion. Once the quality problem is solved, retailers m en­ tion consumer education as the next required step. Most re­ tailers felt that consumers lacked knowledge of how and when to serve canned purple plums. This outlook was their personal view concerning consumer response to purple p l u m s . They also indicated that, with many homes not serving canned plums, much of the next generation will not be familiar with the product. One buyer, having had experience in New York State, indicated that consumers there bought plums on a regular basis, not on impulse as seems to be the case in Michigan. Even if quality and consumer education are improved, the price of the product must be kept in line with other canned fruit such as peaches, pears, fruit cocktail, and apricots. One buyer suggested selling plums in a smaller can but raise the price per ounce to allow for more returns to the 120 industry. He also suggested that with a smaller can they could feature plums at four cans for a dollar. Finally, retailers pointed out that there are many products competing for their shelf space. A product with­ out sufficient demand or volume will be replaced by some other product. In the past, some products have been carried to provide the consumer with a complete line, but with the increase in product numbers and cost of space, retailers in­ dicate that more low volume products will have to be dropped unless they have a very high markup. From these comments it is clear that retailers will not be promoting plum sales. Retailing Fresh Purple Plums Retail produce buyers were, for the most part, more optimistic about expanding their market than their canned fruit counterparts. Six produce buyers from Michigan food chain stores provided information on the sale of fresh purple plums. Five of the six firms sell Northwestern purple plums prior to the start of Michigan's season in early September, but transfer to Michigan plums as soon as they become available. Two retail buyers indicated that Northwestern plums are bigger, more uniformly sized and better graded. This uniformity may be explained by the existence of a federal marketing order that controls quality and size in the North­ west. Also, fruit which is shipped for long distances is usually better graded. Two other buyers said that Michigan, because of their market proximity, can allow their plums to 121 tree ripen more than growers in the Northwest, who must transport their plums a longer distance to the market. Thus Michigan growers are able to provide consumers with a better tasting plum than can Northwestern growers. Despite Michigan's lack of regulated quality con­ trol and the distance travelled by Northwestern plums, re­ tail buyers said they have no problems handling purple plums except for isolated cases of fruit breakdown. They did men­ tion such quality problems as scars, fruit breakdown (internal browning or brown rot) and maturity which affect sales but not necessarily the physical handling of plums. Maturity and scar problems could be removed with improved picking schedules and grading, while breakdown may be impeded through adequate cool­ ing procedures. In addition to preventing breakdown, buyers mentioned that cooling increases the shelf life of plums. Although hydro-cooling of fresh plums is a fairly recent practice, all buyers were familiar with this method. Those buyers re­ ceiving hydro-cooled plums appeared to assume that proper hydro-cooling techniques were being followed in every situa­ tion which, according to some growers and packers, is not the case. Apparently some firms using hydro-coolers do not keep the temperature as low as required. However, retailers, by dealing with reputable firms, may avoid encountering this particular problem. Hydro-cooling as a technique is only better than other methods if properly conducted. These retail buyers indicated a demand for quality requiring hydro-cooling. 122 This means that small growers in the future will most likely have to enlarge their operation to pay for a hydro-cooling system or sell through a packer who has the equipment. Buyers were questioned concerning their experience with breakdown in Michigan's Stanley and Blufre purple plums. Industry sources had indicated some problems of this nature with Blufre. Two buyers indicated that Blufre's better size and taste overcame any problems the variety might have with breakdown. The other two buyers favored Stanley's for their staying qualities and uniform appearance. Based on these re­ plies neither variety would seem to have a clear advantage in the fresh market. Buyers were asked whether an increase in stems would create any marketing problems for them. Although three buyers indicated that they prefer fewer rather than more stems, none of the buyers said they would reject a load of plums because of the number of stems present. However, one buyer cautioned that an increase in the number of stems might result in more skin breakage and bruising. Consumer packaging changes, according to retail buyers, have been the most recent fresh purple plum marketing improve­ ment. Half of the retail chains interviewed had switched from bulk sales to 1, 2, 3 or 10 pound, pre-wrapped consumer pack­ ages. With each firm usually featuring one size, consumers are provided with alternative sizes similar to packages of­ fered by other fruits such as apples. Benefits from pre-wrapped, consumer packaging were reported to be a decrease in store handling costs, a speed up 123 of consumer shopping, and less fruit bruising by consumers. This sales method requires uniform, high quality plums to gain the confidence of consumers. Buyers also mentioned that consumers appear reluctant to buy packages of plums containing a wide variation in individual plum size. To date, most of the chains have done their own packaging, but indicated their interest in buying the ser­ vice from packers. Other firms, not now selling in these overwrap packages, were interested in switching from the bulk to overwrap, but lack packaging facilities. One firm reported overwrapping Michigan plums but not Northwestern because the added packaging cost on Northwestern plums makes them too expensive. This implies that pre-wrapped packag­ ing could be a feature of Michigan's plums and not available in Northwestern plums. One buyer suggested that fruit pack­ ing firms in the state which are not now packing plums might do so, as the crop comes when many packing facilities are not busy with other fruit. Packers and retailers have been able to agree on who pays for the packaging of apples and through negotiation could come to some agreement on plum overwrapping. Produce buyers had several suggestions as to how sales might be increased. To begin with, they thought that as supply increases, the lower prices would increase s a les. Two buyers added that if quality were maintained with the lower prices, the sales increase might be fairly signifi­ cant. According to buyers, plum sales drop off near the end of Michigan's season possibly because of a drop in 124 quality and possibly because consumers are becoming tired of fresh plums. To overcome this weakening of consumer de­ mand, buyers suggest some consumer education and point of sale advertising. They point out that the Northwest has point of sale materials, although more materials could be used each year if available. One buyer suggested a promotion program centered around a Michigan plum week. He had no idea of how effec­ tive this would be nor of how to run it, but suggested a pattern similar to that run by other fruit programs. Another area where more consumer education appears appropriate is that of consumer handling after purchase. Three firms advertise that plums keep longer if kept in a cool place, but should be allowed to sit at room tempera­ ture for best taste results. One chain provides store managers with a circular entitled "facts on plums" for in­ store education. Featuring a medium or small size plum was mentioned by one buyer as a means of increasing sales. This chain would carry a large size all the time but run a feature on medium or small size plums. This would require that packers size their plums, but should be investigated by packers and retailers to determine its potential profitability. Although chemical residues have not been a problem in fresh plum sales, retailers warn of the potential reaction of consumers. Recent consumer awareness of the dangers from various chemicals make consumers reluctant to purchase a 125 product showing any evidence of residue deposit- If residue evidence were not present at all, buyers believe that sales might increase slightly. Fresh Packing Fresh packing is an important feature in the market­ ing of approximately 30 percent of Michigan's total purple plum production. Nine of approximately 18 fresh packing firms were interviewed to obtain a description of this seg­ ment of the industry. Fresh packers, through the abreast use of of crop size and maturity. fieldmen, keep Their knowledge of crop size is used in establishing the price paid to producers and maturity information is used to anticipate harvesting dates. Because fresh plums are often stored for at least a short period of time, the maturity at harvest time is par­ ticularly important. ciently Overripe plums will not have a suffi­ long shelf life and a plum picked too early will have insufficient sugar and flavor. Either situation is detri­ mental to sales. By scheduling or being aware of harvest dates, packers may be able to reduce the time between the harvesting and cooling of plums. If harvested plums are left uncooled, they will continue to ripen causing them to become soft and possi­ bly unsalable. This heat may be removed with ice water, reg­ ular refrigeration or hydro—coo l i n g . Recently, hydro-cooling has increased in popularity as a means of cooling. 126 Since packers deal with growers on an informal basis, growers often have several different company fieldmen visit them each year. Most growers apparently deal with the same packers from year to year depending in part on location of the packer and in part on returns obtained in the previous year. However, these fieldmen by helping growers with pro­ duction problems may convince them to sell through their packing firms in any given year. The distance between grower and packer is particularly important as it affects the time between harvesting and cooling unless the grower has cooling facilities and uses them before transporting the plums. Occasionally packers will not sell for a particular grower, especially if a fieldman finds the grower picking immature plums, continually overfilling containers or in some cases mechanically harvesting. A grower that habitually picks immature plums forces the packer to jeopardize future sales by trying to sell these immature plums. Overfilling requires additional grading to remove damaged fruit which in­ creases costs. And mechanical harvesting in many cases in­ creases damage to the plums resulting in a higher grading cost. Packing requires equipment similar to that used with other fruit. This includes chemicals for the control of brown rot, half-bushel containers and labor. Major fresh plum markets for Michigan packers are the cities of Chicago and Detroit. A few are sold to other major cities in the east as well as to the provinces of Ontario and Manitoba in Canada. 127 Fresh packers encounter several product problems of which Brown rot is the most serious. If Brown rot is not detected before the plums are received and sprayed with chemical controls, the fruit may become unsalable. These chemicals leave a residue on the plums and containers which may lower consumer acceptance at the retail level. As men­ tioned in the previous section, retailers fear that, if the residues are noticed by the public, decline. fresh fruit sales will Without chemical treatment, Brown rot will likely ruin the fruit. Two other problems encountered by packers are fruit size and breakdown. To compete with Northwestern plums on a size basis, Michigan plums must have a minimum diameter of 1 1/8 inch. This size is difficult to attain, particularly in Northern Michigan. The problem of breakdown was mentioned by several packers as occurring more often in the Blufre variety causing some sales resistance to that variety. Al ­ though retailers indicated above that breakdown in Blufre is not particularly serious. Packers suggest that the following will be very im­ portant if the demand for fresh plums is to be expanded: A more uniform sizing of plums, strict regulations on maturity, a change in consumer packaging, better grading of plums and avoidance of marketing overripe fruit. As the supply increases, size, quality and maturity standards are expected to become more strict. Some packers believe that sales could increase using different packaging and stricter standards while others believe the increase, if any, would be very slight. 128 Packers, as a group or individually, might increase Michigan plum sales through the establishment of a set of quality standards. The success of this idea would depend not on complete adherence by all packers, but rather the establishment and promotion of reasonable standards for im­ proved quality so that retail units would buy from packers adhering to the standards. This standard might include such areas as chemical treatment, sizing and maturity. Of course, any packer supplying poor quality fresh plums affects the future demand for plums and would still be a problem in this attempt to improve sales. Handling Handlers assemble them to plums canners, handling about from growers and transfer 11 percent of the plums p ur­ chased by canning and baby food processors in the last few years. state, Approximately ten firms operate as handlers in the three of which were questioned concerning their prob­ lems and industry outlook. While they have the physical capacity with which to handle the increase in supply, handlers, based on past e x ­ perience, were pessimistic about processors accepting more plums as the supply increases. Their experience has shown that processors will buy a few more plums in big supply years if these big supply gether. years do not occur very closeto ­ Thus a prolonged period of increased supplies, in their opinions, will not be met by increased processor pu r ­ chases . 129 Brown rot and plum size are problems faced by handlers as well as other industry participants. Brown rot becomes a problem if a handler has to hold the plums several days be ­ fore the processor will accept shipment. Some handlers apply chemicals if Brown rot threatens but try to avoid this extra expense by delivering before treatment becomes necessary. Plum size is a problem in big crop years when plums are usu­ ally smaller and processors are reluctant to accept small plums. In this situation growers pressure handlers to accept small plums while processors sometimes reject a load of small plums from handlers leaving the handler in the difficult posi­ tion of telling the producer his plums have been rejected. Trash, caused by mechanical harvesting, for handlers. is a problem As with the size problem, processors sometimes reject plums with too much trash present, to relate this news to the producer. forcing the handler Thus handlers are forced to turn down a grower's plums or risk incurring transportation costs and the possibility that a processor may stop taking any plums from that particular handler. It is hoped that improved harvesting techniques may decrease the trash content and re ­ move this particular problem. Handlers complain that processors have two sets of quality criteria. In short crop years, processors apparently accept almost anything, but in big crop years become very particular. As a result, growers deliver according to their own interpretation of quality requirements and are shocked to find their plums rejected in some years while in other years 130 very low quality plums are accepted. Consequently, handlers strongly recommended a set of quality standards to be applied at their level. Finally, handlers suggest that processors could d e ­ crease their plum losses by scheduling harvest and delivery dates. At present, many processors have large quantities of plums delivered to their factories at one time. Usually, this results in fruit decay and a financial loss to the pro­ cessor, who will likely pass the extra cost on to growers by reducing the price. The advent of mechanical harvestors, allowing growers to harvest all their plums in a very short period of time, is likely to compound this problem. Handlers suggest that processors keep in close touch with handlers and major growers prior to harvest to schedule harvest and d e ­ livery of plums. For this to work, processors will require some information concerning quantities available or expected from each source. fieldmen. This is usually available from their own If a large quantity of plums had to be harvested at one time and the processors' facilities could not handle them, storage facilities could be arranged for the oversupply. The ultimate result should be a lower loss in fruit from spoilage and a higher quality processed product resulting from a better quality raw product. Brokerage Brokers coordinate movement of the product between processor or packer and wholesalers and sometimes between wholesalers and retailers. By outlining the merits of a 131 product and how the retailer may benefit from it, a broker is, in fact, a type of merchandising agent. Without brokers, wholesalers would have to find their own retailers while brokers, by dealing with many retailers, provide wholesalers with a number of market outlets. By combining fresh fruit with vegetables, brokers selling fresh plums are exposed to a number of retailers which puts them in a position to promote additional sales of fresh plums. Some of these fresh brokers have expanded their operations by doing their own packing. They apparently started packing and cooling plums when it became apparent that uncooled Benton Harbor plums were becoming more diffi­ cult to sell. They still handle plums for other packers as well as their own plums. Their biggest problem is deter­ mining whether the plums they buy will keep until resold by retailers. Since canned plums are a small volume product, canned product brokers put very little emphasis on their movement. In fact, some processors by-pass these brokers by selling directly to retail o u t l e t s . Canned product brokers showed little interest in expanding their efforts on plums. Summary This survey of retailers, fresh packers, handlers, and brokers reveals that industry participants believe c on­ sistent product quality is essential if a demand expansion program is to be successful. Retailers of canned plums point to the variation in quality from can to can and lack of 132 quality distinction at the consumer level as handicaps to any demand expansion program. Fresh plum retailers say that even though Michigan's plums are tree-ripened and sweet tasting, the well graded, top quality, and uniformly sized Northwestern plum is easier to promote and sell. This charge against Michigan plums, of inconsistent quality, is further supported by packers and handlers who complain of maturity and disease problems. Other problems include a low volume of canned sales compared with other retail fruit sales, adequate cooling, and fruit damage during harvesting. According to retail merchandisers of canned products, plums are the slowest mov­ ing fruit, with one retailer reporting that for every case of plums sold, the chain sells four cases of the next least popular fruit and 25 cases of the most popular fruit. If volume continues to remain low or declines while others in­ crease, indications are that plums might be discontinued by some chains. Fresh retail buyers are familiar with and favor hydro-cooling of plums, however industry sources indicate that not all firms using hydro-cooling are using it properly, meaning that some plums are reaching the market with a below average shelf-life expectancy. Fruit damage from mechanical harvesting and overloading of containers was reported by packers as contributing to higher packing costs. Two suggestions for industry improvement included that of improved scheduling of deliveries of raw plums to processors and increased use of pre-wrapped containers in 133 the sale of fresh plums. Handlers believe that fruit spoil­ age may be reduced and canned plum quality improved if pro­ cessors, through storage or delivery limitation, reduce the time between delivery and processing. plums remain in uncooled storage areas. At present, delivered Retailers indicate that use of the pre-wrapped package can decrease store handl­ ing costs, lower consumer shopping time and result in less consumer bruising of the product. C H A P T E R VII ECONOMIC RELATIONSHIPS IN THE PURPLE PLUM SUBSECTOR The objective of this Chapter is to quantify, where possible, the relationships among market factors in the pur­ ple plum subsector. Included in this quantification is a measurement of the influence of such key factors as plum supply, personal income, population and supply of competing fruit on prices received by growers and processors. Price elasticity of demand values are also estimated for fresh and processed plums. Ordinary and two stage least square regres­ sion models are used in quantifying these relationships. Re­ sults from this quantification are then used in Chapter VIII along with the earlier descriptive information, to provide an analysis of selected alternatives to various problems facing the subsector. Canned Plum Consumption Industry sources have indicated that the largest con­ sumers of canned whole plums are elderly and of Jewish culture, while young married couples buy few plums. One retail source, having had experience in New York State, suggested that the large Jewish community in New York State accounts, in part, for New York State's canned plum sales exceeding those of 135 Michigan. Evidence of low Michigan sales is also provided by a study for the period 1952-58 in which less than 2 percent of the families responding to a consumer survey, representa­ tive of a Michigan city, bought canned plums in any one year.'*' Even though age and cultural background appear to affect de­ mand for canned plums, adequate data quantifying these rela­ tionships are not available. Retailers report that retail programs promoting fruit through increased advertising or price reductions usually at­ tract a number of new consumers to the featured product, both during and after the feature, but not in the case of canned plums. If regular buyers just stocked up on plums during the sale, volume would decline after the sale because no new buyers were introduced to the product and the regular buyers would have an adequate supply on hand. For a product to interest new consumers during a price feature, the product must be attrac­ tive to the consumer. If it is price elastic, a drop in prices will result in a greater number of sales and an increase in total returns to the industry. If industry sources are correct in reporting that canned plum sales do not increase appreciably with a decrease in price, then it is expected that the price elasticity of demand for canned plums will be relatively in­ elastic . "'■James D. Shaffer, Consumer Purchase Patterns for Individual Fresh, Frozen and Canned Fruits and Vegetables. M.S.U. Consumer Panel 1952-1958, Michigan State University, Department of Agricultural Economics, p. 27. 136 The method used to estimate price elasticity of de­ mand involves the use of a two stage least squares model. (2SLS) A 2SLS model is used because this type of model allows for interaction between the fresh and canned markets. For example, when fresh sales are low, fresh prices will be high attracting plums normally sold for processing and thus forcing the price of plums sold for processing to increase. Although the full model is described below, only the results for the canned whole plums are reported here. Results for fresh sales appear in the next section. A number of variables are included in the model, how­ ever, only the results from equations A and B with prices as the key variables are reported here. The quantity of fresh plums demanded is affected by the price paid to growers for fresh plums directly and by the price paid to growers for plums sold for processing. These two prices are both used because a given portion of every year's crop is too small for the fresh market, thus creating a separate market and price. If the price for these processing plums is sufficiently high, then plums that could go into the fresh market may be attracted to the processing market. And if fresh plum prices were high and process plum price were low, fresh plum consumers might buy some of the plums that could go to either market. Income is expected to be positively related to the demand for fresh plums. The higher the income the higher the demand for fresh plums. In equation B a similar explanation holds for the in­ clusion of both prices as variables. Equation C introduces wages as a factor affecting the supply of plums. As wages 137 increase, the supply of plums is expected to decrease. Prices in equation C are expected to inversely affect the supply. Equations D, E and F are identities. The prices paid to growers for fresh and process type plums are distinct for that portion of the production that cannot enter the fresh market. Some very large plums are not well suited to processing as processors strive for a given num­ ber of plums per container, hence a distinct portion of the production is suited for the fresh market only. Plums sold on the fresh market are usually hand picked and chemically treated which raises the cost. Thus the two prices over the entire season are related but never the same. The model used is as follows: (A) Fresh Qd* = f (Price F * , Income, Price P*) (B) Process Qd* = F (Price P * , Income, Price F*) (C) F Quantity S* = F (Price F * , Wage, Price P*) (D) P Quantity S* = Total Prod. (E) F Quantity s* - Fresh Qd* (F) P Quantity s* - Process Qd* * — - F. Quantity S*) endogenous variables. Where: Fresh Qd = Total U.S. supply per capita of fresh purple plums from the four major states (tons) (Table 30, c o l . 2). Price F = Average price, in 1969 dollars, paid to growers for purple plums sold on the fresh market in the U.S. (dollars per ton) (Table 30, col. 3). 138 income = D i s p o s a b l e pe r s o n a l c u r r e n t prices income per c a p i t a l (expressed in dollars) in (Table 30, c o l . 1 ) . Price P = Average price, in 1969 dollars, received by growers for purple plums sold to processing (dollars per ton) (Table 12, col. 6). Process Qd = Total U.S. supply per capita of purple plums sold for canning Wage (tons) (Table 7, col. 6). = M i c h i g a n F a r m w a g e rate p e r hour, w i t h o u t room a n d b oa r d (Table 29, col. 1). The data in log farm yielded a lower standard error of the e s t i m a t e and a h i g h e r form. Consequently only R 2 than did the data in n on - l o g the log results are re p o r t e d for e qu a t i o n s A and B below. Process-type plum demand results are as follows: Equation A Log p ro c e s s Qd=0.087 - 0.722 log P r i c e P + 0.4 30 log Inco me ■ (1.277) (0.381) (0.445) 0.435 log Price F (0.607) R 2 = .5946 R2 = 0.4933 Std. Error of E s t i m a t e = 0.1333 d = 2.795 d = D u r b i n - W a t s o n S t at istic P a r e n t h e s i s c o n t a i n the s t a n d a r d errors. Degrees of freedom 15 The estimated price elasticity of demand for processtype plums is -.722. This indicates an inelastic price 139 Table 29. Mage Rate, U.S. Per Capita Supply of Process Type Purple Plums, Total U.S. Supply of Purple Plums, and Average Price Paid to Growers for Process Type Plums. Total per capita supply of purple Marketing plums sold for year Mage processing (Mich., June-May current $'s Idaho, Ore . , Wash.) dollars lbs. Total U.S. Supply of Purple Plums (all uses) fresh and process tons Average U.S. Price received by growers for process type plums current dollars dollars/tons 1954 .783 .400 60770 36. 33 1955 .798 .375 82250 31.71 1956 .830 .430 81000 35.08 1957 .838 .217 59960 29. 20 1958 .830 .212 54270 67.97 1959 .638 .307 73300 31.16 1960 .838 .081 30175 101.01 1961 .858 .293 62435 60.53 1962 .861 .381 71580 30. 93 1963 .877 .212 48990 62.49 1964 .885 .294 63019 34.53 1965 .940 .311 63939 46.28 1966 1.034 .256 55470 46.28 1967 1.104 .321 61982 52.46 1968 1.190 .157 38395 63. 76 1969 1. 292 .423 78880 42.12 Source: Col. 1 Michigan Crop Report Service: Michigan Agri­ cultural Statistics, Annual Reports. Col. 2 and 3: Fruits Non-Citrus by States; Production, Use, Value: Annual Reports. (Total process supply divided by U.S. population Table 32, Col. 4). Col. 4 Table 12, Col. 5, deflated to 1969 dollars by a value of 127.7. 140 Table 30. Marketing year June-May 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Per Capita Income, U.S. Per Capita Fresh Supply of Purple Plums, and Average Price Paid to Growers for Fresh Plums, 1954-1969. Per Capita disposable income current $ 's dollars 1,582 1,660 1,741 1,803 1,825 1,904 1,937 1,983 2,064 2 ,136 2,280 2,432 2,599 2,744 2,939 3,108 Source: Total U.S. Per Capita supply of fresh purple plums (Mich., Idaho, O r e ., W a s h .) lbs . .366 .619 .536 .481 .404 .517 .249 .389 .389 .304 .364 .355 .317 .321 .231 ,375 Average price received by growers for fresh purple plums U.S. dollars/ton 115.89 60 .76 93 .18 94 .75 116.67 87 .70 173 .84 123.72 91.62 117 .46 95. 53 106 .49 138.60 123.72 148.78 121.37 Col.l Current issue, The Handbook of Basic Economic Statistics (by the Economic Statistics Bureau) Col.2 Fruits Noncitrus by States, Pro­ duction, Use Value: Annual Re­ ports (total fresh supply divided by U.S. population, Table 32, col. 4). C ol.3 Noncitrus Fruit Prices, by States and United States Crop Report Board, S R S , USDA (deflated to 1969 dollars using a value of 127.7). 141 e l as t ic i ty of d e m a n d mean ing t h a t a price i n c r e a s e results price in an i n c r e a s e in total revenue. typically The e x t e n t of the increase p o s s i b l e before r e t u r n s would d e c l i n e de pends upon the pr ice a nd qu a ntity range co v e r e d by the time series used to d e v e l o p the e l a s t i c i t i e s . Low v a l u e s for each of the c o e f f ic i en t s that the c r o s s - e l a s t i c i t y values, zero, al t h o u g h not n e c e s s a r i l y are low. These results cantly i nd i cates imply that sales will n o t b e s i g n i f i ­ i n cr e as e d t h r o u g h a policy o f price re d uc t io n . out an a l t e r n a t i v e p r og r a m to e x p a n d demand, With­ the indus tr y can e xp e ct to e x p e r i e n c e very little growth. Fr esh P l u m C o n s u m p t i o n I nd ustry sources b e l i e v e t h a t no one s e g m e n t of the p o p u l a t i o n p r e d o m i n a t e s in the c o n s u m p t i o n of f r e s h plums. A l t h o u g h all se g m e n t s apparen t ly c on s u m e fresh plums, s um p t i o n per c a p i t a con­ is not very h i g h as one s u r v e y shows that less than 2.5 p e r c e n t of the fa m i l i e s r e s p o n d i n g to a M i c h i g a n 2 c o n s u m e r su r v e y b o u g h t fresh p l u m s in any one ye ar. A l t h o u g h a number of fr e sh fruits are a v a i l a b l e in plum season, p e a c h e s and apples ar e ava ilable q u a n t i t i e s and are b el i e v e d to be largest the major c o m p e t i t i o n . p eaches and a p pl e s are major s u b s t i t u t e s 2 in the for plum s, If then James D. Shaffer, C o n s u m e r Purchase P a t t e r n s for Individual Fresh, F r o z e n and C a n n e d Fruits and V e g e t a b l e s , M.S.U. C o n s u m e r P a n e l 1952-1958, M i c h i g a n State Unive rsity, D e p a r t m e n t of A g r i c u l t u r a l E c o n o m i c s , p. 27. 142 consumers will have to be attracted to plums and away from these products. One method of doing this might be a reduction in plum prices. This idea was supported by one retailer who believes that smaller plums could be featured at low prices and result in a substantial increase in sales. This same retailer would keep regular sized plums on hand but use the smaller, low priced plums as a feature to attract consumers away from other fruit. Fresh plum demand results are as follows: Equation B Log Fresh Qd = 2.226 - 0.692 log Price F - 0.315 log Income (0.516) (0.245) (0.180) 0.115 log Price P. (0.154) = .8251 = .7813 Std. E r r o r of Es t imate 0.0539 d = 1.689 d = Durbin-Watson Statistic Parenthesis contain the standard error Degree of freedom 15. These results indicate that the price elasticity of demand for fresh whole plums is -.692. This degree of in­ elasticity resembles very closely that found above for processtype plums and contradicts the belief of one retailer who be ­ lieved that lower prices would result in an increase in total returns to the industry. As was the case for the process-type plum results, the cross elasticities are irrelevant. 143 A c c o r d i n g to the d eg r ee of p ri c e po li cy i nc l uding a s l ig h t increase total returns to the industry. inelasticity, a in prices should increase However, such a p ol i cy would re s ul t in a r e du c ed v o l u m e of sales. F ac t or s A f f e c t i n g F.O.B. Prices of N o r t h w e s t e r n C a n n e d Purple Plums A n a na lysis of factors a f f e c t i n g f.o.b. pr i ce s of N o r t h w e s t e r n canned p lu m s is made he re b e c a u s e the M i c h i g a n price is b e l i e v e d to be cl osely r e l a t e d to that of the Horthw es t 's and data on M i c h i g a n prices are not available. 3 Re­ tailers i n di c at e that the d e l i v e r e d p r i c e of M i c h i g a n c anned plums to M i c h i g a n retail stores is o n l y s l ightly less than the d e l i v e r e d price of N o r t h w e s t e r n c a n n e d plums. R e a l i z i n g that N o r t h w e s t e r n plums e n c o u n t e r a hi gh t r a n s p o r t a t i o n cost, likely th at M i c h i g a n ' s f.o.b. above the N o r t h w e s t e r n f.o.b. price for c a nn e d plums price. it is is slightly It is also b e l i e v e d that an e x p l a n a t i o n of the v ar ia b l e s c a u s i n g price v a r i a t i o n s in N o r t h w e s t e r n plums wi ll al so e x p l a i n m u c h of the v a r i a t i o n in M i c h i g a n c an n ed p l u m prices. This a n al y s i s then, aid M i c h i g a n pr o ce s so r s by select i ng at t e m p t s to from all the va r iables that h a v e been m e n t i o n e d those v a r i a b l e s that si g n i f i c a n t l y af fe ct the price. The supply of p l u m s a va i la b le a n um b er of c h a r a c te r is t ic s. 3 for c a nning d e p e n d s upon To b e g i n with, the total U.S. The smallness of M i c h i g a n ' s c a n n e d plums i nd u s t r y in the p a s t is p erhaps p a r t of the r e as o n for M i c h i g a n prices not b eing re corded. 144 supply of plums is usually fixed in any one year just prior to harvest. Even if prices were to increase to several times the original price, no more plums could be grown that year. Fertilizer, irrigation and prunning practices could increase the supply in the year following a price increase but new trees would take five years to start bearing and approximately ten years to approach maturity. Although the total supply of plums available in any one year is usually fixed, not all pur­ ple plums go into processing. The fresh market handles between 50 and 70 percent of the supply depending upon the production level in any one year. However, total annual production is ex­ pected to be one major variable as it provides an upper limit to the available supply. Another measure of plum supply is the total U.S. pack of canned purple p l u m s . It is this measure that reports exactly what quantity of the total supply has been canned in any one year. When the values for this variable become available, it is too late to make any changes in the supply of canned whole plums. Because this variable is a measure of supply it was tested to determine how important it is in explaining price variations. As total pack and total production are closely correlated only one variable will eventually be used, however it is important that the most significant variable be used. Because this analysis involves Northwestern f.o.b. prices, the total U.S. supply variable was divided into a Northwestern supply variable and a Michigan supply variable. It was thought that Northwestern plum production, by itself. 145 m i g h t e xp l a i n mo re of the v a r i a t i o n in price t h a n if M i c h i ­ gan's p r o d u c t i o n was i n cl u d e d as is the case w i t h U.S. supp ly variable. the total If the N o r t h w e s t e r n v a r i a b l e is mo r e s i g n i f i ca n t than the total U.S. su pply va r iable, it w ould i nd icate that h i s t o r i c a l l y M i c h i g a n p r o d u c t i o n has not b e e n an i m po r t a n t va r i a b l e in d e t e r m i n i n g N o r t h w e s t e r n plum prices. C a r r y i n o f c a n n e d plums al so a supp ly v a ri a b l e is ex p ec t e d Car ryin, in s to r a g e w h e n the new crop is b e comes part of the a v a i l a b l e supply and to be i n ve r s e l y re l a t e d to the price. Income, pos a b l e to processors, a f fe ct i ng the price of plums. the q u a n t i t y of c a n n e d plums a bo u t to be packed, is, a c c o r d i n g in the form of real d i s p o s a b l e a n d as a d i s ­ income index, was c h e c k e d as a va r i a b l e pla i n some of the v a r i a t i o n in price. that may e x ­ Price is e x pe c t e d to vary d i re c t l y w i t h income. P o p u l a t i o n is a v a r i a b l e a f f e c t i n g the d e m a n d for plums and h e n c e the price of p l u m s . As p o p u l a t i o n i n c r e a s e s , a ss uming per c a p i t a c o n s u m p t i o n re mains constant, for pu r pl e plums and h en c e the p r i c e is likely the de m a n d to increase. Thus the r e l a t i o n s h i p is e x p e c t e d to be positive. An d finally, industry so u rces m e n t i o n e d that c o m p e t i n g fruits such as peaches, tail have an pears, apricots, a pp l es and fruit c o c k ­ ffect o n the p r i c e of c a nn e d plums. c o m p e t i n g fruits w a s tested i n d i v i d u a l l y be using Each of the the q u a n t i t y p a c k e d du r i n g the y e a r and their c o m b i n e d e f f e c t was tested by c o n s t r u c t i n g a w e i g h t e d price index. The v a r i a b l e s ing fruit, of supply, d e s c r i b e d above, income, p o p u l a t i o n and c o m p e t ­ r e p r e s e n t the q u a n t i f i a b l e v a ri a bl e s 146 which are believed accountable for much of the variation in the price of Northwestern canned purple plums. The extent of their accountability was estimated using ordinary least squares regression. Results from these estimates are re­ ported below in three equations which numerically relate the more significant variables. Equation (1) (log Pf)= .4654 - 0.2676 (0.465) (0.033) = .9010 d R^ - .8774 (log N) - 0.0786 (0.017) Std. Estimate = 0.0214 = 1.55 Equation (2) (log Pf) = 1.1418 - 0.2707 (0.147) (0.033) = .9017 d Error of (log C) + 0.3919(log I (0.199) R^ = .8774 (log N) - 0.0801 (0.017) (log C) + 0.0952(lo< (0.049) Std. Error of Estimate = 0.0214 =1.55 Equation (3) Pf = 0.3454 - 0.0019C - 0.0012T + 0.0376U (1.420) (0.000) (0.000) (0.008) R^ = .8929 d R^ = .8571 Std. Error of Estimate = 0.2549 = 1.997 d = Durbin-Watson Statistic Standard errors are set out in parentheses . Where: Pf = price in dollars per case of 24 #2 1/2 cans of choice N.W. canned purple plums plants) Table 31/ Col. 1. (f.o.b. Northwestern processing Table 31. Actual and Estimated F.O.B. Prices and Their Differences for Canned Choice N.W. Purple Plums in Cases of 24, No. 2 1/2 Cans. (1954-1969 for Equation 1 and 2, 1957-1969 for Equation 3). Mktg. year Actual (a) Est.Price(b) Diff.(b) Est. Price(c) Diff. actual Est. Price Diff. actual June-May Price Equa. 1 actual-est. 1 Equa. 2 minus Est. 2(c) Equa. 3(d) minus Est. 3(d) — -dollars per case— 4.38 3.89 3.88 4.15 5.08 4.34 6.12 5.50 4.32 5.02 4.45 4.64 4.77 4.82 5.91 4.79 -.18 .19 .05 -.12 -.05 .18 .08 -.11 -.14 .35 .20 -.30 -.28 -.20 .09 .31 4.41 3.91 3.89 4.16 5.09 4.32 6.11 5.48 4.28 4.98 4.42 4.63 4.77 4.83 5.95 4.83 -.21 .17 .04 -.13 -.06 .20 .09 -.09 -.10 .39 .23 -.29 -.28 -.21 .05 .27 4.11 5.08 4.55 6.24 5.26 4.22 4.74 4.75 4.57 4.63 4.77 6.11 4.89 -.08 -.05 -.03 -.04 .13 -.04 .63 -.10 -.23 -.14 -.15 -.11 .21 Source: (a) Canning trade, simple 12 month, June-May average of 1st report of each montha (except 1955 where the monthly price for Sept., Nov., Dec., Jan., Feb., Mar., Apr., and May is the price for N.W. fancy in 2 1/2 cans minus 50 cents per case. The same applies for June, July, and Aug. of 1956. The monthly price used for Sept. and Oct. of 1956 was the mean price of that reported). (b) Estimates and differences using Equation 1. (c) Estimates and differences using Equation 2. (d) Estimates and differences using Equation 3. ^ o determine whether weighing by shipment would improve on f.o.b. prices, the years 19611969 were weighed for the shipping periods of June 1-Nov. 1, Nov. 1-Jan, 1, Jan. 1-Apr. 1, Apr. 1-June 1, using a simple average of the monthly prices in each period times the shipments per period. The difference between thevt'd. and unweighed prices for eight of the years was lessthan2 cents per case. The other year had a 9 cent difference. Since it is difficult to obtain shipmentsfor the yearsprior to 1961, this n Vt -i,' e i rrtT-t 1 a i/t V i 147 4.20 4.08 3.93 4.03 5.03 4.52 6.20 5.39 4.18 5.37 4.65 4.34 4.49 4.62 6.00 5.10 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 148 C = Carryin stocks (June 1) of all canned purple plums converted to #2 1/2 basis in terms of cases of 24 (000' s of cases). Table 32, Col. 1. N = Total Northwest purple plum production (000’s of tons) Table 32, Col. 2. U = U.S. population as reported on January 1st, The Handbook of Basic Economic Statistics (by the Eco­ nomic Statistics Bureau) millions, Table D = U.S. disposable personal income = 100). T = (1947-48 32, Col. 4. - 1949-50 Table 32, Col. 5. Total annual U.S. purple plum pack of all sizes con­ verted to a #2 1/2 basis (000‘s of 32, Col. cases of 24) Table 3. Usually only one equation would be needed to report the findings, but in this case the available data did not yield consistent results when slight changes were made in the data. Equations one and two, although equally efficient in explain­ ing canned plum price variation, were made necessary by the fact that the variables of population and income were both found to be significant variables but incompatible correlated) in the same equation. (highly Their inclusion in one equation resulted in very high variances and covariances of the B'S (B=estimated regression coefficient). Equation three differs from equations one and two in that it uses only the last thirteen years from 1957-1969. This shorter period was used because the data for the years 1955 and 1956 had to be adjusted as described in Table 31. Equation three might still Table 32. Marketing year F.O.B. Prices of Northwestern Canned Purple Plums Total carryover Total N.W. of canned purple purple plum plums, June 1 production choice, #2 1/2 basis 000's of cases 330 501 525 783 197 260 276 38 382 736 568 562 733 462 518 251 Footnotes: or Sources: 70.3 99.8 102.0 72.0 52.3 89.1 24.7 67.7 86.3 41.6 71.6 62.7 53.2 59.7 27,3 75.0 000's of cases 1706 1698 2330 1077 1271 1701 374 1637 2060 1170 1497 1729 1488 1858 731 2209 Total U.S. population on Jan. 1 of next year Index U.S. disposable personal income millions index 164.6 167.5 170.6 173.5 176.4 179.4 182.3 185.3 188.2 190.9 193.5 195.8 198.0 200.2 202 .3 204 .4 140.4 151.1 160.0 165.8 174.7 182.6 188.2 199.5 208.9 222.9 240.5 262.4 280.8 301.4 322.7 350.2 Col. 1 National Canners Association Monthly Reports (1954-57 from Canner Packer) Col. 2 Fruits noncitrus by States, Production, Use, V a l u e : Annual Reports Col. 3 Same as Col. 1 Col. 4 Current issue , the Handbook of Basic Economic Statistics (by the Economic Statistics Bureau) Col. 5 Based on income data reported in the current issues of Eco­ nomic Indicators, (Council of Economic Advisors) expressed as percentages with 1947-48 to 1949-50 = 100. (Billions of dollars). 149 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 0 0 0 Js Of T Total U.S. purple plum pack, all sizes {#2 1/2 basis) 150 not have been necessary had it yielded the same variables as equations one and two. However, the significant supply v a r ­ iable in equation three differs from that in equations one and two* The fact that equation one analyzes a more recent period in which improved transportation and Michigan produc­ tion became significant, may account for the appearance of a different supply variable. All equations were run using data in the log and non-log form. below. Only the most significant results are reported These results indicate that all three equations are approximately equally adept at explaining approximately 90 percent of the variation in Northwestern f.o.b. price of canned purple plums. For example, equation one has an R .893 indicating that the three variables of carryin, 2 of total pack and population together account for 89.3 percent of the variation in the annual average price of canned p l u m s. Be­ cause of their high intercorrelation, the variables of p o p ­ ulation and disposable income appear to be interchangeable without any explanatory loss.Actual f.o.b. prices and the estimated prices using these equations are presented in Table 31 (p. 147). The accuracy of these equations may be seen by o b ­ serving the actual and estimated values plotted in graphical form (Figures 8, 9, 10). The fact that the estimated values follow the actual values very closely for each equation illus­ trates the accuracy referred to above. 151 Figure 8. No. 2 1/2 heavy syrup pack purple plums: Actua and estimated f.o.b. processor prices {N.W.) by years 1954-1969 Equation 1. Figure 9. No. 2 1/2 heavy syrup pack purple plums: Actus and estimated f.o.b. processor prices (N.W.) bj years 1954-1969 Equation 2. 152 (*■ /caM o f tU/Ha 2 in yEET 7 6 Vt/ctc* of 2>i/Ho t 5 li YKAK Figures 8, 9 153 7 6 5 tl 3 1957 Figure 10. 60 61 66 66 No. 2 1/2 heavy syrup pack purple plums: Actual and estimated f.o.b. processor prices (N.W.) by years 1957-1969 Equation 3. 154 Only one variable, carryin, appears as a significant variable in all three equations- This is expected as carryin represents a previous commitment by processors- As expected, carryin varies inversely with the price--higher stocks asso­ ciated with lower prices and lower stocks with higher prices. Total Northwestern plum production and total U.S. plum pack proved to be the significant variables representing the current supply of purple plums. Total Northwestern pro­ duction was the significant variable for the equations repre­ senting the earlier data. This is logical in view of the fact that Michigan's production was not very important in the years of 1954, 1955 and 1956, and when these years were added to the data they weighed the data in favor of the earlier per­ iod. However, with Michigan's production becoming increas­ ingly significant, and with the three earlier years being dropped, total U.S. pack became the significant supply variable in Equation 3. Although industry sources mentioned competing fruit as a significant market variable affecting price, the regres­ sion results did not support this hypothesis. None of the competing fruits tested proved to be significant in explaining variations in the f.o.b. price of canned plums. One reason for this unexpected result may be that consumers treat plums as a specialty product, buying it occasionally, regardless of the availability or price of other fruits. An example, using current values of the independent, price-determining variables will best illustrate the use of 155 these equations to predict the price of plums for a given year. Values for 1970 have become available including the actual f.o.b. price of choice Northwestern canned purple plums. The actual f.o.b. price is $5.46 per case of 24 No. 2 1/2 size cans. The total carryover as of June 1 for the marketing year 1970 was 917,000 cases. This value was avail­ able prior to the 1970 processing season from the National Canners Association bulletin. While the actual value for total Northwest production in 1970, of 36,850 tons is used in this example, estimates may be obtained from the U.S. Depart­ ment of Agriculture crop estimates and used in the equations to provide an estimate of the future price. Total U.S. purple plum pack data is not available prior to the processing season, thus making Equation 3 less useful as a predictive indicator prior to processing commitments, but is available soon after the end of the season providing processors with a means of estimating what they can expect to receive as an average price for their product over the entire marketing season. In this example the total pack of 840,000 cases for 1970 is available for use. A population value of 206 million people and an in­ come index value of 372.1 are available prior to processing and are used here. Remembering that the actual average price in the 1970 marketing year was $5.46 the three equations yielded the follow­ ing results: Equation 1 Price= .4654 - 0.2676 0.3919 (log 36.85) (log 206.0) - 0.0786 (log 917) + 156 = .4654 - 0.2676 (1.56644) - 0.0786 (2.96237) + 0.3919 (2.31175) = .4654 - .41917 - .23284 + .90597 = .71936 - $5.24 Equation 2 Price= 1.1418 - 0.2707 + .0952 (log 917) (log 372.1) = 1.1418 - 0.2707 + .0952 (log 36.85) - 0.0801 (1.56644) - 0.0801 (2.96237) (2.57066) = 1.1418 - .42403 - .23728 + .24472 .72521 = $5.31 Equation 3 Prices 0.3454 - 0.0019C - 0.0012T + 0.0376U = 0.3454 - 0.0019(917) - 0.0012(840) + 0.0376(206) = 0.3454 - 1.7423 - 1.0080 + 7.7456 = $5.34 As was expected, all three equations estimated a price very close to that actually realized (which was $5.46) . Equa­ tion 3, although not of use prior to processing coirmiitments, provided the nearest estimate. However, all three estimates are within an acceptable range and would be of value to pro­ cessors as an estimate of future income. By using new data for each year, as it becomes avail­ able, processors may use these equations to help them decide on pack size and/or to estimate gross income from the product 157 already packed. Naturally these equations cannot be expected to estimate the price exactly# as some variables may be e x ­ cluded. These excluded variables in normal years might have very little effect on prices but occasionally they may force an adjustment. For example, if quality were extremely poor in a particular year, people using the equation would have to make adjustments without the help of the equation as quality is not a separate variable in the equations. Factors Affectiny Purple Plum Marketing at the Grower Level Some debate exists as confronted by a single market to whether Michigan growers are or by two separate markets. Those fresh packers and processors supporting the single m ar­ ket theory say that growers may sell to either the fresh or processing market depending upon the quality and size of a growers crop at harvest. However many fresh packers argue that growers wishing to sell in the fresh market must commit themselves early in the season, have adequate size, follow a detailed spraying schedule and pick at a specific maturity. Some processors also argue that plums picked for the fresh market do not make top quality canned whole plums. One study by Canute A. McLean attempted to explain the variation in average prices received for all plum sales with the following equation. 4 4 Canute A. McLean, Price Analysis, and Alternative Methods of Marketing Plums in Michigan (unpublished M.S. paper, Michigan State University, 1970). 158 P f = 111.82480 - 4.27542 A - 0.34877 B + 0.94039 C where: = Michigan growers price of plums for all sales at the farm level in dollars per ton. A = Michigan plum production in 1000 tons. B = Plum production of the Northwestern states plus canners carryover stock expressed as fresh equiv­ alent C (1000 t o ns). = U.S. apple growers price for canning and freezing sales/ expressed in dollars per ton. McLean found that the variables of Michigan plum p ro­ duction, U.S. apple growers price for canning and freezing apples, and Northwestern purple plum production combined with canners carryover stock expressed in fresh equivalents, accounted for approximately 8 3 percent of the variation in the average price received by Michigan growers for all plum sales. Using this equation, McLean indicated that if the Northwest produc­ tion plus carryover reaches 68,200 tons when Michigan production is 21,900 tons and the U.S. apple price is $47.00 per ton, the average price received by Michigan growers for all plum sales would reach a low of $38.61.^ Although his equation does not account for inflation, such a price is lower than any price 5 Canute A. McLean, Price Analysis, and Alternative Methods of Marketing Plums in Michigan (unpublished M.S. paper, Michigan State University, 1970), p. 34. 159 experienced by growers in the past. Because this price would be significantly below the cost of growing a ton of plums as reported in Chapter IV, and mean that many growers would lose large sums of money, it is very important that the estimate be as exact as possible. For this reason and because a num­ ber of industry people expressed the belief that two markets exist, an attempt is made at explaining the variation in prices encountered in both the fresh and processed markets using separate equations. Since demand at the grower level is derived demand, the same factors apply as were tested in the previous section dealing with the f.o.b. price of canned whole plums. For this analysis the supply variable was tested in the form used in the last section as well as being broken into two separate var­ iables of fresh and processing supply. tested using the price paid to growers. Competing fruit were As was the case in pre­ vious sections, equations were run using log and non-log data with only the most significant equation reported herein. Fresh Plums According to Equation 4, grower prices for fresh plums are determined to a large degree by the total Northwest fresh supply of purple plums, Michigan total purple plum production, U.S. population and the price paid to U.S. apple growers for canning and freezing sales. the years 1957-1969. Relationships were estimated for 160 Equation 4 Pf 1 = -140.7191 - 1.6683X- 2- 8.3193X,3 + 1.8071X.4 + 1.2144X-5 (82.729) (0.000) (1.529) (0.561) (0.321) R 2 - .9492 “2 R = 0.9237 Std. Error of Estimate= 6.6146 d=2 d = Durbin-Watson statistic Standard errors are set out in parentheses Where: = price in dollars per ton received by growers for purpl* plums sold on the fresh market. (Table 34, Col. 1) X^ = total Northwest fresh supply of purple plums tons) (000*s of (Table 33, Col. 2). X^ = Michigan total purple plum production (000*s of t o n s ) . (Table 33, C o l . 3). = U.S. population as reported on January 1st by the Council of Economic Advisors (millions) (Table 33, C o l . 4). = U.S. apple growers price for canning and freezing sales (dollars per ton) (Table 33, Col. 5). Results from Equation 4 show the extent of the influence of each of the significant variables. As might be expected, Michigan's total production has the greatest influence, as a one thousand ton increase in production will result in a reduction in grower price of $8.14 per ton. Although of less significance, the Northwest supply of fresh plums, likewise, adversely affects grower prices to the extent that a one thousand ton increase in this supply variable is associated with a price reduction of $1.70 per ton. Each of the other two variables, population and U.S. apple growers price, were positively related to grower Table 33. Marketing year June-May 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Data for Grower Price Analysis, 1957-1969, Total N.W. Purple Plum Production (000’s of tons) Total N.W. Fresh Plum Supply (000's of tons) 72.0 52.3 89.1 24.7 67.7 86.3 41.6 71.6 62.7 53.2 59.7 27.3 75.0 Source: Total Michigan Purple Plum Production (000's of tons) 37.9 31.7 42.3 19.3 31.7 34.3 25.4 29.6 30.7 26.5 27.6 20.4 33.2 Col. 1 2 2 Col. 4 Col. 5 Total U.S. Population on Jan 1 of Next Year (millions) 173.5 176.4 179.4 182.3 185.3 188.2 190.9 193.5 195.8 198.0 200.0 202.3 204.4 7.3 7.8 6.8 8.0 9.0 8.0 10.5 14.5 11.5 13.0 15.0 13.0 14.5 44.50 35.80 42.80 57.40 44.00 49.20 56.00 43.40 54.80 57.60 70.40 75.30 58.30 Fruits Noncitrus by States Production, Use, Value: " •' ” •• M " 11 " " " 11 ” Grower's Price for Canning and Freezing Apples U.S. Average (dollars/ton) " w Annual Reports. 11 11 " " . Current Issues, The Handbook of Basic Economics Statistics (by the Economic Statistics Bureau). Season Average Price for Canning and Freezing Apples, United States, SRS, U S D A . Table 34. Actual and Estimated Prices Paid to Growers for Purple Plums Sold Fresh and Sold for Processing {dollars per ton). Marketing Year June-May 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Source: Michigan Grower Fresh Price Estimated Grower Fresh Price Difference Actual Minus Estimated (Fresh) Michigan Grower Process Price Estimated Grower Process Price 98.00 105.00 110.00 155.00 124.00 134.00 145.00 92.00 143.00 130.00 142.00 174.00 113.00 102.91 103.69 108.39 159.69 119.78 135.30 142.57 91.73 132.82 134.74 135.80 174.12 123.47 -4.91 1.31 1.61 -4.69 4.22 -1.30 2.43 0.27 10.18 -4.74 6.20 -0.12 -10.47 65.00 63.00 82.00 119.00 81.00 81.00 99.00 50.00 75.00 68.00 71.00 87.00 62.00 71.94 69.94 80.04 110.85 71.67 83.74 83.68 48,97 73.60 71.37 67.25 100.84 64.81 Col. Col. Col. Col. Col. Col. 1 Noncitrus Fruit Prices, By States 2 Estimated from Equation 4. 3 Column one minus column two. 4 Noncitrus Fruit Prices, By States 5 Estimated using Equation 5. 6 Column four minus column five. Difference Actual Minus Estimated Process -6.94 -6.94 1.96 8.15 9.33 -2.74 15.32 1.03 1.40 -3.37 3.75 -13.84 -2.81 and United States. and United States. 163 prices— an increase in population of one million is associated with a $1.81 per ton increase in growers price and a $1.00 per ton increase in apple growers price is associated with a $1.21 per ton increase in plum p r i c e s . The appearance of U.S. apple grower price as a signifi­ cant variable in Equation 4 requires further explanation. Ap ­ ples are marketed in Michigan at about the same time as purple plums providing direct competition for the consumers fresh fruit dollar and the fresh packer's space. competes with canned purple plums. Applesauce also This is the logic used to explain the appearance of apple grower price as a significant variable in explaining the price received by growers for plums sold to the fresh or to the processing market. Population as a variable in this equation includes some income and time effects. Because income and population are closely correlated, both could not be included. As for time trend, when tested as a separate variable it was not significant, but what little effect it has will be lumped in with the popu­ lation coefficient. An R 2 (coefficient of multiple determination) of .949 indicates that the four independent variables of total North­ west supply of fresh plums, total Michigan production, U.S. population, and the U.S. apple growers price for canning and freezing sales explain 94.9 percent of the variation in the dependent variable, which in this case is the grower price of fresh plums. This R 2 value of .949 indicates a high degree of accuracy which may be observed by comparing the actual values 164 with those estimated using Equation 4. This comparison is illustrated in Figure 11 and reported in Table 34. As can be seen in Figure 11 the estimated prices are very close to the real prices experienced in the market. An equation with as high an R 2 as that found in Equation 4 could be expected to be particularly effective in predicting future prices if the same relationships between the independent and dependent variables continue to hold. Using 1970 data, which has just become available, it is poss­ ible to determine how reliable Equation 4 would have been for 1970. Then using production projections for 1975 and estimates for the other variables it is possible to predict what growers can expect in the way of prices in 1975 if present market re­ lationships continue. 1970 Estimate: The following values were used for the independent variables in Equation 4. Total Northwest fresh production of 21.3 thousand tons, total Michigan production of 10,000 tons, a population value of 206 million and a U.S. apple growers price of $48.80 per ton. These are all actual values. Most predictions would use estimates as will be the case for the 197 5 example. Price Fresh = -140.7191 - 1.6683X., - 8.3193X-5 + 1.8071X.4 + Z 1.2144X5 = -140.7191 - 1.6683 (206) + 1.2144 (21.3) - 8.3193 (10) + 1.8071 (48.80) = -140.7191 - 35.5348 - 83.193 + 372.26 +■ 59.26 = $172.07 165 170 160 dollars P*r ton 1» no loo 90 60 Figure 11. 61 6? 68 Fresh Market Plums: Actual and estimated price received by growers 1957-1969. 166 According to Equation 4, the estimated price could be $172.07 per ton when in fact the actual price for 1970 was $150.00 per ton. This difference may be partially ex­ plained by the unusual year. In 1970 there was an extremely short supply of plums accompanied by a very big supply of apples. As a result, the U.S. apple growers price was very low, providing some incentive for consumers to switch to apples in preference to expensive plums. Results using 1970 data indicate the importance of considering factors other than those included in the equation. In this case, o t h e r factors i n cl u d e d an u nu s u a l l y low supply c o u p l e d w i t h a n u n us u al l y low apple p r ic e and the fact that M i c h i g a n p r o d u c e r s wi ll r e q u i r e a larger share of the m a r k e t if they are to m a r k e t all they p r o d u c e in the n e x t few years. 1975 Estimate: Equation 4 may be used to predict what the price of plums might be in 1975 if present market conditions hold. 1975 price using Equation 4 is as follows: The Using a projected production level for the Northwest of 71,000 tons (Chapter III) and assuming that, as in the past, half the crop will be sold fresh, then the value for the variable X 2 will be 3 5.5 thousand tons. Michigan's total production according to Table 18 is expected to be approximately 39,000 tons which is the value used for favorable . The population in 1975, if it continues to gain at approximately 2 million per year, will be approximate) 216 million. And according to Tomek^ an apple price of $68.00 ^ W i l l i a m G. T o m e k , Apples Uses, tion. in the U.S.: F a r m Prices and 1947-1975, C or n e l l U n i v e r s i t y A g r i c u l t u r a l E x p e r i m e n t S t a ­ N e w York. State C o l l e a e of A g r i c ul tu r e, N.Y., July 1968. 167 per ton will prevail. Using these values and Equation 4 the estimated 1975 price is a negative $51.48 as shown be­ low : Price Fresh = 140.7191 - 1.6683X2 - 8.3193X3 + 1.8071X4 + 1.2144) = 140.7191 - 1.6683(35.5) - 8.3193(39) + 1.8071(216) +1.2144(68) = 140.7191 - 59.2246 - 324.4453 :390.3336 :82.5792 =-$51.48 A negative price for purple plums is unrealistic and will not occur. However, what this example illustrates is that under current market conditions not all of Michigan’s supply can be marketed at realistic prices. This means that the quantity marketed will have to be reduced until the price reaches $25.08 which was established in Chapter IV as the har­ vesting cost per ton for an average producer, and/or programs to expand the demand will have Supply restriction and to be effective. other alternatives to this prob­ lem are discussed in Chapter VIII. Plums Sold for P r o c e s s i n g Total Northwest purple plum production, Michigan purple plum production, U.S. population and price for canning and freezing the U.S. apple growers sales account for 83percent of the variation in prices received by Michigan growers for plums sold for processing (Equation 5). for the year 1957-1969. Relationships were estimated 168 Equation 5 (log pp ) = -4.3656 - 0.2512 (log x ^ (4.0143) (0.1073) +3.0797 (log x 4 ) + 0.4173 (2.0667) R^ = 0.8305 - 1.0369 (log x 3) (0.2937) (log x 5 ) (0.3289) = 0.7457 Std. Error of Estimate 0.0488 d = 1.73 d = Durbin-Watson statistic Standard errors are set out in parentheses Where : P P = price in dollars per ton paid to growers for purple plums sold for processing (Table 34/ Col. = total Northwest purple plum production 4). (000's of tons) (Table 33, Col. 1). = Michigan total purple plum production (000's of tons) (Table 33, C o l . 3) . = U.S. population as reported on January 1st by the Council of Economic Advisors Col. (millions) (Table 33, 4). X^ = U.S. apple growers price for canning and freezing sales (dollars per ton) (Table 33, Col. 5). With the exception of total Northwest production, which re­ places total Northwest fresh supply of purple plums. Equations 4 and 5 are similar with respect to the variables included. Substitution of total Northwest production for total Northwest fresh supply is a logical change as processing represents a 169 residual market where supply depends on the entire supply and not just that portion suitable for the fresh market* If the fresh market wasn't available, growers could pick their plums later and sell their, for processing. A similar explanation to that provided for the variables in Equation 4 holds for the variables in this equation. Results from Equation 5 appear in Table 34 and are illustrated in Figure 12. Both the Table and the Figure show that Equation 5 was able to explain less of the price varia­ tion in grower price for processing than did Equation 4 in ex ­ plaining the grower price for fresh plums. efficient, Despite being less the variables in Equation 5 account for 83 percent of the variation in price. As was the case with Equation 4, Equation 5 may be used to predict future prices, assuming that current market conditions hold. Hence, Equation 5 will be used with actual data to indicate what the price would have been in 1970, then estimates will be used to indicate the price for 1975. Similar data sources and data are applicable from the examples using Equation 4. The results for these two examples are as follows: 1970 Estimate: The values used are 36.8 thousand tons for total North­ west production, 10.0 thousand tons for Michigan production, a population of 206 million and an apple price of $48.80. log Pp = -4.3656 - 0.2512 (log (log x^) + 0.4173 = -4.3656 - 0.2512 - 1.0369 (log x 3) + 3.0797 (log x^) (log 36.8) (log 206) + 0.4173 - 1.0369 (log 48.80) (log 10) + 3.0797 170 l?o 110 ICO 90 dollar* P*r ■ ton So TO 60 Figure 12. 66 66 69 TEAR Processing Market Plums: Actual and Estimated price received by growers 1957-1969. 171 = -4.3656 - 0.2512 (2.3139) + 0.4173 (1.5658) - 1.0369 (1.0000) + 3.0797 (1.6812) = -4.3656 - .3933 - 1.0369 + 7.1257 + .7016 log Pp= 2.0315 Price = $107.50 According to Equation 5, the grower price should be $107.50 per ton when, in fact, it was $104.00 per ton. This estimate for the 1970 grower price for processing is much closer to the actual price than was the 1970 fresh price es­ timate in the previous section. The result is in spite of the fact that Equation 4 historically explained more of the variation in prices than did Equation 5. reader is advised to keep m Consequently, the mind that a higher R always result in a better estimate. 2 does not In this particular situa­ tion the four variables included had a greater than usual ef­ fect on processing price, hence the estimate was very close to the actual. 1975 Estimate: Values used for this estimate include 71 thousand tons for total Northwest production, 39 thousand tons for Michigan production, a population value of 216 million and an apple price of 68 dollars per ton. log P P = -4.3656 - 0.2512 (log 71) - 1.0369 (log 39) + 3.0797 (log 216) + 0.4173 = -4.3656 - 0.2512 (1.85126) (2.33445) + 0.4173 = (log 68) - 1.0369 (1.59106) + 3.0797 (1.8325) -4.3656 - 0.4684 - 1.6498 +7.1894 + 0.7647 172 log P P Price = 1.47030 = $29.50 According to Equation 5, prices for plums sold for processing will be $29.50 per ton if present market conditions continue as they are and the estimated values for each variable materialize. If the price offered for fresh plums declines be­ low $29.50, many fresh growers will likely direct their plums to the processing market, thus the price may drop below $29.50 per ton. It is noted here that the two market theory analyzes a historical period in which the percent sold on the fresh mar­ ket remained fairly constant. If low fresh prices resulted in large quantities, that could normally be marketed on the fresh market, entering the process market, this equation would likely be much less accurate. This may occur under the supply condi­ tions predicted for 1975, thus making this estimate of $29.50 inappropriate. Summary Results from using a two Stage Least Squares (2SLS) regression model on the demand for fresh and process type fruit indicate that both forms of purple plums are relatively price inelastic. The price elasticity of demand for process type plums was found to be -.722 while the value for fresh plums was -.692. These values show that sales of purple plums in either fresh or processed form respond very little to price changes. 173 Total Northwest production, total U.S. pack, carryin, population and disposable income were all found to be signifi­ cant variables in explaining the f.o.b. price of Northwestern canned purple plums. Not all of these variables appear in the same explanatory equation because of their high intercorrela­ tion. When the variables of total Northwest production and carryin were combined with either population or income, but not both, they accounted for slightly more than 90 percent of the variation in price. Substituting total U.S. pack for total Northwest production in combination with the variables of carryin and population explained approximately 89 percent of the varia­ tion in price. Although this study is mainly concerned with Michigan f.o.b. prices, the lack of price data made a similar analysis impossible for Michigan. Analysis of the Northwestern f.o.b. price is justified on the assumption that those variables af­ fecting the Northwestern f.o.b. price would be similar if not the same as the variables affecting Michigan prices. Despite a belief to the contrary by industry processors, the price or supply of competing fruit was not found to be a significant variable affecting the f.o.b. price of canned whole Northwestern purple plums at the wholesale level. One final area of price analysis was at the Michigan grower level where two market theories exist. One theory as­ sumes that the fresh and process market are equally available to growers while the other hypothesis supports the idea of two markets recognizing that fresh market growers could delay 174 harvest and enter the process market. This second hypothesis suggests that the fresh market is not usually available to process type growers. Price analysis of each theory found variables that ex ­ plained 83 percent of the variation in Michigan grower price received for all plums, which represents the one market hy­ pothesis, and variables that explained approximately 95 percent of the fresh price and 83 percent of the process price in the second hypothesis. Michigan plum production. Northwestern plum production plus carryover expressed as fresh equivalents and the U.S. apple growers price for canning and freezing sales were the variables found to be significant in explaining 83 percent of the "one market" price. Michigan production, total North­ west fresh supply, population and the U.S. apple growers price for canning and freezing sales were the significant variables accounting for 94.9 percent of the variation in the grower price of fresh plums while total Northwest production, Michigan pro­ duction, population and the U.S. apple growers price for canning and freezing sales were the significant variables accounting for 8 3.0 percent of the variation in grower process prices. Based on the amount of the variation explained using the two market hypothesis, it would appear to be beneficial to use the two market theory. Assuming that present market conditions hold and using estimates for each of the variables, these two equations from the two market hypothesis indicate that the fresh price in 1975 would be negative if the entire Michigan crop is marketed and that the price for process type plums would drop to 175 approximately $30.00 per ton. Naturally the fresh price will not become negative as growers would not harvest for less than $25.00 per ton; with a higher and positive process price they would sell on the process market. These predictions in­ fer that not all of Michigan's anticipated production can be marketed at a profitable price under present market conditions. C H A P T E R VI II ALTERNATIVE APPROACHES TO INDUSTRY PROBLEMS The Oversupply Problem Industry participants, as a group, express concern over what affect the impending increase in supply of Michi­ gan plums will have on the industry. While confident that existing facilities can physically handle the increase, they have expressed doubt over the markets' ability to ab­ sorb the increase and the resulting effect on prices and returns. They say that the industry has had some difficulty, as evidenced by sharply reduced prices, in marketing large crops in the past when a large crop was between 13,000 and 15.000 tons. With the expected increase in the crop to 21.000 tons or more, they anticipate even greater marketing problems. The impact of this increase in supply may be illus­ trated by looking at the effect on grower prices. By assum­ ing a value approximately equivalent to current market con­ ditions for each of the variables in equations four and five of Chapter VII, this impact can be seen. used include a population of 210 million, The values total Northwestern plum production of 60,000 tons, a Northwest fresh plum supply 177 of 30,000 tons and a U.S. apple grower's price of $50.00 per ton. Three separate production levels will be used for Michigan plum production, which is the other independent variable included in each equation, to provide an estimation of how different levels of production would affect prices. One example is worked out in full detail and the results of the other two production levels are summarized. They are as follows : A. Where: Pf — Price to fresh growers (4) P f = -140.7191 - 1.6683X2 - 8.3193X3 +1.8071X.4 + 1.2144XC 5 (1) Where Michigan production equals 18,000 tons P f = -140.72 - 1.6683(30) +1.807(210) - 8.3193(18) + 1,2144(50) = -140.72 - 50.05 - 149.75 + 379.49 + 60.72 = $98.69 per ton (2) Where Michigan production equals 20,000 tons, the price to growers for fresh plums would be $82.05 per ton. (3) Where Michigan production equals 22,000 tons, the price to growers was found to be $65.42 per ton. B. Where; Pp = Price received by growers selling for processing. 178 (5) P P = -4.3656 - 0.2512 In X, - 1.0369 In X, ^ + 3.0797 In X.4 + 0.4173 In 5 (1) Where Michigan production is 18,000 tons Pp = -4.3656 - 0.2512 ln(60) - 1.0369 ln(18) + 3.0797 I n (210) + 0.4173 = -4.3656 - 0.2512(1.7782) +- 3.0797(2.3222) - 1.0369(1.2553) + 0.4173(1.6990) = -4.3656 - .44668 - 1.3016 + 7.1517 + .70899 = 1.7468 = $55.82 per ton (2) Where Michigan production is 20,000 tons, the price to growers selling process-type plums was found to be $50.05 per ton. (3) Where Michigan production is 22,000 tons, the price was found to be $45.34. Growers selling for processing would have their harvest and growing variable costs ($40.00) covered at $45.34 per ton but fresh plum growers could not cover their variable costs, which are $85.00, at the low price of $65.47 per ton (Chapter I V ) . In this situation some fresh growers might divert their plums to the processing market by allowing them to mature and be mechanically harvested. This would lower prices in the processing market until net returns were equal in each market. In the short run, growers will continue to grow plums as long as there appears to be some chance of prices increasing if variable costs can be covered. However, supply projections indicate that the level of supply under 179 assumed orchard removal rates will continue at or above these levels for a number of years. According to this cost and price situation, growers could not remain economically viable in the long run. Indications are that some impact from the increase in supply could be felt in 1971. Tree plantings indicate that large numbers of trees were planted in the period of 1963-1966, which will be reaching maturity in the early 1970's. Meanwhile, supply has been increasing at a fairly steady pace since the early 1960’s. Most recent tree surveys indicate that no substantial number of trees have been removed in Michigan because of disease or other reasons. This further substantiates the fact that a significant increase in supply is forthcoming. This increase could easily have occurred in 1970, but weather conditions caused a somewhat lower yield than expected. If the weather permits, the tree numbers and maturity are such that purple plum production in Michigan could reach approximately 21,000 tons in the early 1970's. There are a number of ways in which the industry might handle this supply. One approach is to do nothing. In this event, prices would fall to a level where some higher cost growers would not only fail to cover their fixed costs but some of their variable costs would not be covered as well- However, because of high fixed costs, the cost of removal and the fluctuating nature of supplies and prices, few growers would likely remove orchards in the short run. Their actions would also depend upon the opportunity costs 180 involved in leaving the orchard in. A number of growers, for whom the plum enterprise is small and who do not depend on purple plums for a major part of their income, might con­ tinue to grow them. However, the producers who rely upon plums as a major part of their operation, unless they were extremely efficient, would be forced out of the plum business as prices dropped to where they could not cover total variable costs in the long run. This approach could force the industry into a cyclical situation where a big supply would drive prices down forcing growers out of the industry. Fewer growers would result in lower supplies and higher prices which in turn might encourage growers to re-enter the industry. A few growers might make a profit from this situation but many growers would incur financial losses. Such an economically unstable industry is not beneficial to the growers nor to the other participants. Two alternative ways of handling the supply problem are analyzed in depth in the following sections. Supply Management Via Marketing Quotas The excess supply may be handled with a Michigan or National marketing limitation program which would maintain minimum industry price, increase gross income and reduce price instability. program would involve controlling The the amount of plums marketed so that the market price would not go below a minimum price level. This minimum price would be set by a marketing committee that would consider the cost of production, competition from the Northwest, the 181 threat, of substitutes and other related factors. After the minimum price is set, a quota system, using marketing certif­ icates, could be implemented to control the volume allowed on the market. If a producer did not receive a certificate for a certain portion of his production, he could not market that portion of his production which would usually be left unharvested. This program requires an industry or govern­ ment agency to police the delivery of purple plums by growers. Under this type of program, the market price would be paid only for the production allowed on the market. A mar­ keting committee would establish a quota system and set the quantity each y e a r . The committee could alter the quantities right up until harvest time depending upon market and supply conditions. Market response to the program will vary according to the actions taken. If the minimum price established by the Michigan program is sufficiently high so that growers in other areas can more than cover the transportation costs of moving plums to Michigan, they will do so, raising the avail­ able supply in Michigan. This increase in supply will mean lower quotas for Michigan growers or lower pric e s . Not only would high prices encourage additional supplies, but if passed on to consumers, could, despite an inelastic price elasticity, result in slightly reduced sales of purple plums at the retail level. The threat of an increase in supply from other states and a decrease in sales will serve to keep the program from setting prices that force purple plums to lose 182 their market. Hence, it is m o r e e c o n o m ic a ll y s o u n d to c o n s i d e r a p r o g r a m including O re g on , Washing t on , Idaho, N ew Y o r k and M i ch i g an . A p r o g r a m including the five above m e n t i o n e d states w o u l d require o r g a n i z a t i o n in e a c h state. the three N o r t h w e s t e r n states or ders. share to have all only are o rg a n i z e d w i t h ma r ke t i n g Once M i c h i g a n and Ne w Y o r k become o r g a n i z e d , w o u l d be p os sible p ro g r a m . At present, it fi ve states w o r k o n such a One p r o b l e m of a n a t i o n a l p r o g r a m w o u l d be ma r k e t for each state. The relationships illustrated in Chapter VII are used here to indicate how price and quantity could be es ­ tablished to maximize total returns to growers. Prices that would cover average total costs according to Chapter IV, in the long run, were used as minimum prices. Equations four and five from Chapter VII were then used to determine what volume of plums could be sold and still maintain prices of $105.00 per ton for fresh and $60.00 per ton for processed plums. These two equations were also used to determine at what production level total returns would be maximized. The total returns were determined by assuming that 40 percent of Michigan's production would be sold on the fresh market and 60 percent at processing p r i c e s T h e independent variables of the equation were assumed to have the following values: U.S. apple growers price of $50.00 per ton, population of ^These percentages are very close to the average per­ centages of Michigan's total crop that has gone to each mar­ ket over the ten years from 1960-1969. 183 210 million, total Northwest production of 60,000 tons# and a total Northwest supply of fresh plums of 30,000 tons. Re­ sults using equations four and five indicate that, under present market conditions, 17,000 tons of Michigan plums would result in a fresh price of $107.06 per ton and a price to growers for process type plums of $59.24 per ton. The results further indicate that gross returns to growers would be maximized at 15,000 tons which would mean a fresh price of $123.70 per ton and a price of $67.44 per ton for i processing plums. 2 Even though a production level of 15,000 tons maxi­ mizes revenue, it may not be the best quantity at which to limit marketing. A price of $123.70 per ton for fresh plums and a price of $67.44 per ton for process type plums may en­ courage supplies from other states or encourage additional plantings within Michigan. On the other hand, marketing 17,000 tons covers the average total cost and returns only a normal profit to growers. This same program might include a two price system and a quality improvement scheme. In situations where demand elasticities differ, the volume marketed could be adjusted to take advantage of differences in individual markets. At pres­ ent, a two price system has limited possibilities as the price elasticity of demand for fresh and processed purple plums are 2 The difference in price paid for fresh and process type plums is accounted for by the additional cost of $45.00 per ton for marketing fresh plums and the fact that some plums cannot be sold in the fresh market because of their size. 184 simi lar. As for quality improvement, t a b l i s h e d to li m it deliv eries, once a p r o g r a m is e s ­ on ly minor ch a n g e s are n e e d e d to h a v e plums d e l i v e r e d a c c o r d i n g to a q u a l i t y criteria. For example, a grower m i gh t b e allowed to d e l i v e r b e y o n d his q u o t a tonnage, all of w h i c h w o u l d be graded, in to several grades, with o n l y po s si b ly the top grades b eing ac cepted. M a r k e t d e m a n d and supply c o n d i t i o n s w o u l d d e t e r m i n e w h a t m i n i m u m grade was acceptable. A p r o g r a m of this ty p e m i g h t include a number of stipulations that wo u ld d i s c o u r a g e growers overproducing. For example, from continually if quotas had to be en forced, the q u a n t i t y a l l o w e d on the m a r k e t could be s e t so that t h e p r i c e re c e i v e d pe r ton only c o v e r e d slightly mo re than the a v e r a g e v a ri a b l e co s t of h a r v e s t i n g . This s t i p u l a t i o n m e a n s th at growers w o u l d not be a s s u r e d of profits h a r v e s t e d re g a rd l es s of the supply. a lw a ys O therwise, if the q u o t a g u a r a n t e e d a p r o f i t a b l e retu rn for that quantity m a r k e t ed , ye ar s, for the p l um s an d the p o s s i b i l i t y of higher re t u r n s it m i g h t pa y more g r o w e r s in other to start p r o d u c i n g plums. C o v e r i n g only the average v a r i a b l e cost of h a r v e s t w o u l d not be a goal of the program, in the event th at supplies of the quotas. b u t rather a p r e v e n t a t i v e p o s i t i o n i n c r e a s e and lead to c o nt i n u a l use T h e goal w o u l d be to cover a v e r a g e total costs. E v e n co v e r i n g a v e r a g e total c o s t s may result in a t t r a c t i n g new p l a n t i n g s e s p e c i a l l y if o t h e r e n te r pr i se s r e t u r n less t h a n a n o r m a l profit. T h e s e factors indicate the d i f f i c u l t y in a r ­ b i t r a r i l y e s t a b l i s h i n g a m a r k e t price. 185 New or expanding growers might be discouraged from planting new orchards by stipulating that quotas may only be filled from mature orchards or orchards planted before a certain date. The definition of a mature orchard could vary depending upon the supply needed and the age of the State's bearing trees. The program could specify that all growers register new plantings. This would keep the program up to date on production possibilities and serve as an in ­ dication of when some action might be necessary to limit supply. In addition to maximizing total short run returns to growers and reducing price instability, this program has a number of other benefits. By allowing growers to produce as many as they wish, it provides a reserve which may be drawn upon until harvest time. This reserve might be used in years when Northwestern production was initially predicted as being high, but resulted in a short supply. Since Michigan harvests later than the Northwest, quotas could be adjusted. The program would also remove the necessity of incurring h ar­ vest costs for those plums not covered by market certificates. Before producers would purposely produce above their quotas, they would have to have some indication that quotas could reasonably be expected to change in mid-season fairly frequently. If quotas rarely changed in mid-season, the added cost of producing, but not harvesting extra fruit would be very unlikely to be covered. A grower would also have to have an orchard that produced good sized fruit in years when 186 some marginal areas had small sized fruit. The returns to such a program would have to be worked out by individual growers. A shortcoming of the program is that it does not provide reserves to handle short supply situations. Under this type of program there is no carry-over available for short crop years as there would be with a storage type p r o ­ gram. In view of the benefits described above and the fact that the crop has only been in limited supply for two of the last sixteen years, this shortcoming does not appear to be serious. By including the Northwest and New York, this program could be expanded from the Michigan to the federal level. The major benefit of this expansion is that it would have a greater control over supplies entering the market. Similar problems would arise with respect to new planting and sub­ stitutes . Supplies from other regions would be less of a problem under the federal approach. Legislation drafted and expected to be introduced in the Michigan Legislature and the National Congress, if passed, will authorize the creation of a producers associa­ tion that can deal with most, if not all, producer problems discussed above. According to this legislation, once a producer organization has the support of a specified percent of the producers or of a specified percent of the total p ro­ duction, it may be recognized as an accredited producer association. An accredited association will have the authority 187 to manage the supply of that commodity. Such management will include bargaining for prices/ terms of sale, quality, quantity and transactions involving products and services utilized by one party and provided to the other party. One of the major problems removed by this legisla­ tion will be that of the free rider problem. At present all commodity organizations with the exception of marketing orders, are voluntary, meaning that an improvement in product price, brought about by an individual group effort, benefits members and nonmembers alike, with the nonmembers bearing none of the costs. Free-riders or nonmenbers also place supply management and quality control programs in jeopardy. Under the new leg­ islation, all producers will be forced to adhere to quality restrictions and supply management programs once established by the organization. Supply Management Via Storage One method of handling fluctuating supplies is a storage program where excess supplies are canned and stored until years when supplies are limited. Processors and growers together or growers alone would arrange to have plums processed and stored in processor or private warehouses. In short crop years when prices more than covered the additional cost of such a program, these plums would be sold on the market. Having a consistent supply would also enable the industry to maintain its market in short supply years. The purpose of such a program would be to reduce the fluctuation in supply and make prices more stable. By reducing 188 the fluctuation in supply, a storage program would assure the industry of a steady supply upon which to build demand. Such a program might force market prices up in big crop years through storage of part of the crop and keep prices from going extremely high in short crop years by selling the stored pro­ duct. More stable prices may encourage continual and greater usage of canned whole plums. One important factor to examine in determining the feasibility of such a program is the storability of the pro­ duct. According to processors, the storage life of canned purple plums depends upon the quality of the can. Most cans are good for eighteen months of storage; a higher quality can could extend the storage period to approximately three years. The plums themselves when packed in heavy syrup, as most are, will usually retain their quality for at least three years. To ensure that the stored plums are rotated into the market each year, an agreement would have to be made with processors to move the stored plums each year. This is nec­ essary to keep the plums in storage less than eighteen months old. A cost to move the old fruit out and the new in plus some compensation to processors for selling the older fruit would be necessary. This means a two cent per case cost annually, above the one cent per case per month for storage discussed below.^ 3 Storage and "in and out" cost estimates were obtained from commercial warehouses and represent 1970 costs. 189 Even though a product may be stored it may not be economically sound to do so. Processors indicate that can­ ning the raw plums cost approximately §4.17 per case. Assum­ ing a 10 percent profit margin for processors, a raw product cost of 90 cents per case (based upon a grower price of $60.00 per ton), an interest cost of 6 percent and total storage plus removal costs of approximately 10 cents per case per eight month storage period, the total cost approaches $5.62 per case (Table 35). If raw product cost is based upon what it would cost to harvest the plums, the average cost would drop to ap­ proximately $5.09. While most of these costs occur during normal proces­ sing, a few are increased or created as a result of the storage program. With no storage program a processor has processing and raw product costs. If a grower group hired this work done, these costs would occur, although the raw product cost might be lower if growers agreed to accept a minimum price equal to average variable harvest costs. Growers might only accept the lower price if they had an agreement whereby they could share in the profits of a storage program. By hiring a processing firm to can the plums, the grower organization would pay a profit margin to processors. This profit margin becomes a cost of the storage program because processors would normally not receive a profit until after the sale and then it would depend upon the price they receive. Lower storage costs might be encountered by a regular processor making use of idle ware­ house facilities, but a storage program would have to pay the 190 Table 35. Storage Program Cost Data Minimum cost Item Average cost Maximum cost dollars per case of 24 No. 2 1/2 size cans Cost of processing 3.790 4.170 4.550 Minimum raw product cost3 .375 .375 .375 Processor profit at 10% of processor cost .379 .417 .455 Additional raw product cost .525 .525 .525 Interest at 6% on total cost .031 .033 .035 Cost to put case into and remove from storage .020 .020 .020 .080 .080 1_ 8 months storage at 1 cent/mo.C Total Cost .080 $5,200 $5,620 $6,040 The price required by growers to cover harvest costs of $25.00 per ton (Table 22). The additional raw product price covers all costs including fixed costs for growers but does not cover harvest cost which is the minimum cost mentioned in footnote a. c By looking at the monthly prices * it was determined that if a short crop is predicted, canned prices begin to rise in June, meaning that storage would have to be for at least 8 months (October-May). 191 going rate for storage facilities. If the 10 percent pro­ cessor profit margin is counted as a variable cost along with the interest and storage fee the approximate cost of the storage program is 50 cents per case. Historically, an annual average U.S. pack of 1,450,000 cases with an average carryin of 450,000 cases would have yielded an average per case price of $5.70. This is above the $5.62 necessary to cover average total costs d e ­ fined above. However, the past sixteen years also indicate that for each additional 100,000 cases packed, the price drops by 12 cents per c a s e .^ If the industry is confident that additional plums packed for storage will in fact end up 5 in storage, the twelve cent reduction may not occur. But, for each 100,000 cases of carryin, the price declines by 19 cents per case. And with additional carryin available in storage, the market may react by immediately offering lower prices. For example, if the storage program had 200,000 cases on hand, buyers on the market would be aware of the available supply and offer lower prices, unless the storage group offered assurance that this additional supply was not available until prices reached a certain level. Only two of the past sixteen years had total pack and carryin conditions necessary to force the price above $5.62 4 5 S ee e q ua t io n Three, C h a p t e r VII. A m a r k e t i n g o r d e r c o u l d be used to a s s u r e that plums p ro c es s ed for storage w o u l d r e m a i n in storage u nt i l prices re ached a p r e d e t e r m i n e d level. 192 per case (Figure 13). This means that a storage program in most years would not have been able to cover costs. For the two high price years of 1960 and 1968, stored supplies, beyond what was available at processors, of 300,000 and 200,000 cases respectively, would have brought the price back to $5.62. This assumes that price drops by 19 cents per 100,000 cases of carryin as mentioned earlier. Consequently a storage program with 300,000 cases would have been needed to ensure that prices did not exceed $5.62 in any one year of the past sixteen years and for the storage program to make money on a one year basis but not cover costs incurred in normal crop y e a r s . Based on this analysis, a storage program of this type is not recommended at this time. In the first place overall supplies were only sufficiently short to force prices above the average cost of processing and storing a case for two of the sixteen years. Secondly, a storage cost of 14 cents per case per year plus a 3 cent per case interest charge and some compensation to processors for exchanging the plums annually would be necessary every year. Thus, it costs roughly 20 cents per case per year for a storage program that would have had only two payback periods in sixteen years . Even at the minimum case cost the price only exceeded it in four of the sixteen years (Figure 13). Finally, the payback at this price of $5.62 would only cover the cost of one years storage. 7.00 F.o.b. PrU* 6.00 AVERAGE COST S'a/C»l* MINIMUM COST^ 5 .0 0 4 .0 0 3 .0 0 2 .00 1 .00 f " 1954 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 YEAR Include* * ulntnum raw product coat far hirve*clnj only. Figure 13. Northwestern f.o.b. Processor Price for Canned Purple Plums and Storage Program Costs (per case of 24 No. 2 1/2 C a n s ) . 194 Q u a l i t y in F r e s h Pu r p l e Plums Indus tr y s ources have i n d i c a t e d that the uneven q u a l i t y of M i c h i g a n ’s fresh plums plac es the s tate's i n d u s ­ try at a c o m p e t i t i v e d i s a d v a n t a g e v is - a - v i s The N o r t h w e s t uses a m a r k e t i n g o r d e r of the plums r ea c h i n g varies the market. to i m prove the q u a l i t y In Michigan, fr om pa c ke r to packer and e nc o un t er s c i s m c o n c e r n i n g va r i a b l e size. indi cate the Northwest. quality retailer criti­ I n dustry s ou rces that N o r t h w e s t e r n plums are well k n o w n in New Y o rk for their q uality w h i l e both M i c h i g a n and N e w York e n c o u n t e r of i n c o n s i s t e n t quality. If q u a l i t y were improved, m i g h t be e n c o u r a g e d to buy more addition, prob lems consumers fresh M i c h i g a n plums. In an a d v e r t i s i n g p r o g r a m c o u l d be u s e d to p r omote the c o n s u m p t i o n of r e a s o n a b l y sure g e t go o d plums. fresh plums if the industry could be that consumers a t t r a c t e d by p r o m o t i o n wo u l d T wo meth ods of improving q u a l i t y are d e al t w i t h below. M a r k e t i n g Order for Fresh Q ua l i t y I m p r o ve m en t Q ua l it y handled i m p r o v e m e n t in the through a state m ar k et i ng order. this o rder w o ul d be to ensure r ea ching fresh m ar k et may bo legally Th e ma jor goal of th at all M i c h i g a n purple plums the m a r k e t are of high q u a l i t y and u n i f o r m size. This w o u l d be b r o u g h t about by e s t a b l i s h i n g or der to d e fi n e and en f o r c e a set of qual ity a state m a r k e t i n g and size criteria. T he s t r u c t u r e and c ri t e r i a of the p r o p o s e d m a r k e t i n g o r d e r co u ld be s i m i l a r to that used in the W a s h i n g t o n - O r e g o n 195 pru n e m a rk e t i n g order. d u r i n g any period, ity, R e g u l a t i o n s in the o r d e r w o u l d limit, the s h i p m e n t of any p a r t i c u l a r size, q u a l ­ m at u r i t y or p a c k of pu r pl e plums. C r i t e r i a w o u l d also be i n c l u d e d to re g u l a t e size, capacity, weight, m a r k e t i n g of contain e rs . size, C r i t e r i a would d e p e n d upon quality, ma r k e t c o n d i t i o n s and s u p p l y of the p r o d u c t as d ec i d e d up on b y a c o mm i t t e e of industry people. State d i m e n s i o n s and A F e d e r a l or Fe deral- Inspection S e r v i c e c o u l d be the r e g u l a t o r y bo dy which enforces these r e g u l a t i o n s . One of the m o s t i m p o r t a n t factors t h a t could be i m ­ p r o v e d under this p r o g r a m is s i z e of fruit. m i n i m u m size limit, By setting a the order c o u l d improve the average size of M i c h i g a n plums b e i n g o f f e r e d in the m a rket. be e c o n o m i c a l l y w i s e be a p r e m i u m size, to set t w o size limits. po ssibly for use in sales It may even One size w o u l d to other areas such as New York state, w hi l e a second size c o u l d be smaller and for use in local markets. It may not be p o s s i b l e to s e p a r a t e the markets, there may be a d v a n t a g e s however, h a v i n g a p r emium size a v a i l a b l e for sale. For example, to some i n d i v i d u a l s w a n t si ze and are w i l l i n g to pay a hi g he r price. Thi s w o u l d raise re t ur n s to the industry a n d n o t reduce sales. In ad dition, w i t h i nc r e a s e d s u p p l i e s availa bl e , a size r e s t r i c ­ tion w o u l d keep m o r e plums o u t of the fresh market. Benefits of su ch a p r o g r a m result f r o m the e s t a b l i s h ­ m e n t of a uniform, to e n s u r e sumers, high q u a l i t y product. that i m ma t u r e By u s i n g inspection, and d i s e a s e d plums do not reach c o n ­ the p r o g r a m w ou l d c r e a t e an improved r e p u t a t i o n for 196 M i c h i g a n purp le plums. Once c o ns u m e r s are c o n f i d e n t that all M i c h i g a n purple pl ums are of top quality, be e x p e c t e d to increase. sales might Once the i nd ustry can a s su r e the m a r k e t that m o s t plums rea ching the m a r k e t are of top qu ality, an a d v e r t i s i n g p r o g r a m w o u l d e n c o u r a g e co n su m er s to try plums, quality. only to find them, in some cases, It is not p o s s i b l e to m e a s u r e u n i f o r m quality, the b e n e f i t s of mo re but ch a in store s o urces western plum quality is very high, ind icate that N o r t h ­ and that the N o r t h w e s t e f f e c t i v e l y uses a m a r k e t i n g o r de r for q ua l i t y and p r o m o t i o n a l The of low improvement fund collection. im p or t an c e of c a n n o t be o v e r e m p h a s i z e d . fruit q u a l i t y in m a r k e t e xp a n s i o n C o ns u me rs b a s e their future c o n ­ s u m p t i o n d e c i s i o n s on p r o d u c t q u a l i t y wh i le re ta il ou t lets try to handle only those products w i t h a long shelf By in t ro d uc i ng a q u a l i t y program, life. M i c h i g a n may ev e nt u a l l y a t t a i n a q u a l i t y r e p u t a t i o n similar to that e n j o y e d by the Northwest. F r e s h Qu a li t y Im p r o v e m e n t By Individual Packers A n individual pa c ke r a pp roach mi g ht be used as an alternative quality to a formal marketing o r d e r improvement. Si milar crite r ia to bring about to that d e s c r i b e d for the q ua l i t y m a r k e t i n g order w o u l d be d i v i d u a l packers. T he i r purpose followed by i n ­ in e s t a b l i s h i n g a q u al i ty c r i t e r i a w o u l d be to b e n e f i t from an increase r etailers. in sales to Retailers w o u l d b enefit by h av i ng h i gh e r quality fr uit and less spoi lage. 197 Even though this alternative has fewer administra­ tive and inspection enforcement problems, it has three major shortcomings. One major drawback is that since it is volun­ tary, not all packers will adopt the criteria. The result is that some low quality, immature plums will reach the market, adversely affecting future sales of all purple plums. Without the entire industry supporting the program or being forced to adhere to it, Michigan cannot establish a state­ wide reputation for high quality. And finally, the free rider problem encourages some packers to ignore quality yet enjoy higher pri c e s . These three shortcomings make the in­ dividual approach unattractive for long run industry develop­ ment . Quality of Canned Whole Plums Retailers and processors mentioned that variation in the quality of canned whole plums is detrimental to the e x ­ pansion of demand. They indicated that tough skinned, u n der­ cooked, sour, and very small plums are encountered all too often by canned plum consumers. Processors are aware of occasions when their pack is below what would be considered fancy quality but do nothing about it. Processors also in­ dicate that sometimes the pack is of a lower quality because the plums were immature or small. Retailers sometimes buy according to a processors quality reputation, and at other times they buy the least expensive plums available. The re ­ sult is that consumers may have several brands of plums avail­ able at the retail outlets and, if not warned that some are 198 of inferior quality, could purchase the low quality product. Unfortunately price is not a clear indication of quality be­ cause some large chains sell top quality plums at prices charged by other stores for low quality plums. If this problem is not overcome, the expansion of demand for canned whole plums is likely to be very difficult. Promotion of Two Quality Levels In Canned Whole Plums The existence of at least two levels of quality in canned whole plums, which to date has been a detriment to the industry, may be used to increase sales and thus become beneficial to the industry. Two levels of quality are re ­ ferred to as "choice" and "fancy" grades. Although only two levels are recognized, a wide variation exists within each of these two quality levels which suggests the possi­ bility of additional quality levels. Even these two quality levels are not used on an industry wide basis as some p ro­ cessors do not differentiate on the label as to whether the contents are choice or fancy. In a year when plum supply and quality are high, much of the pack will be fancy, the upper quality level. In years of limited supply, processors accept nearly all available plums meaning that the average quality level is lower and thus more choice plums are packed. Lower quality would probably not be as detrimental to the industry if it met "choice” standards and was advertised as such. But often, processors do not indicate which quality level is being sold and the price in some cases is identical 199 for choice or fancy. In this situation, consumers have not received quality commensurate with price. Consequently new customers, paying top price for a lower quality, may not purchase plums again and regular consumers may reduce their purchases. On the assumption that at least two quality levels are unavoidable, which appears likely according to historical variations in quality, it may be possible to promote two quality levels to the benefit of the industry- By clearly identifying all plums as fancy or choice and ensuring that predetermined quality standards are met for each, try may promote both qualities. the indus­ The "fancy" quality would be higher priced and possibly used in specials where new con­ sumers are expected to be trying plums for the first time. If a consumer is introduced to a high quality plum on their first test, they might be more likely to purchase additional plums. To regular consumers, the two quality levels would provide them with an opportunity to trade off between quality and price. Success of such a program depends upon consumer pref­ erence for two grades, their response to promotion and their transfer from the lower to the higher quality product. three reactions are very difficult to predict. All Perhaps it would be possible to test the sale of two quality levels in several markets, in an effort to assess consumer response. If present consumers just switch from the one grade to the other very little will be gained by the industry. Prior to 200 undertaking such a program it may be necessary to develop an effective advertising and promotional design to get the message to consumers. The major cost of this program would be for promo­ tion. A processor would require an increase in the volume of plum sales and/or a higher price for his top quality plums if he hoped to make a profit from the venture. Processors and the industry stand to benefit from such a program under the following conditions. Processors increase their profits if they sell more canned plums. The industry expands demand if new consumers are attracted by the promotion. If consumers simply switch from the lower quality to the higher quality plums and no new consumers enter the market then the consumers will receive most of the benefits of the program. If consumers start demanding higher quality and paying for it, then other processors will be forced to publicize the difference in the quality of their plums. Once the top quality brands have established their reputation, the industry may use this reputation in promoting increased consumption of purple plums. By advertising that new consumers should buy high quality plums, the industry might have a qreater chance of these consumers developing a plum buying habit. Fresli Market Expansion Expansion of fresh plum sales might be used to solve part of the industry's excess supply problem. While sales 201 could be increased by means of increased advertising, im­ proved quality, and lower prices, a change in consumer package also appears to have substantial possibilities for expanding fresh demand. This probably would need to be done at the individual packing firm level. The suggested package change is aimed at overcoming the problems encountered in bulk selling, such as bruising by consumers, time required for consumer selection, indivi­ dual weighing for each consumer, and lack of available quality for consumers. At present a number of retail firms still sell In what is defined as bulk, free choice form. For this sales system, consumers pick and choose individual plums from a counter containing a quantity of loose plums. As they decide upon what plums to choose, they squeeze and bruise others, take up counter space and leave the damaged fruit on top presenting a poor product appearance for the next consumer. Under the proposed package change, which is being used by a number of retail outlets, individual overwrapped trays of specified weights would be used. These would be stacked on a counter, have uniform quality throughout and be weighed prior to store placement. So all consumers do is see the plums on display through the see-through top, and select a tray. They may check a few trays but if they are assured of the quality within, they will not do this very often. An added advantage is that the trays carry easier in shopping containers. 202 The cost of packaging is greater for this method than for bulk packaging, but a number of savings are e n ­ countered when this method is used. Two packers who have wrapped three pound trays indicate that the additional packaging costs, including the extra labor, adds up to approximately four cents per pound or a range of $1.25 to $1.50 per carton of twelve, three pound trays. Even though some retailers use their own packing facilities now, they, and others who do not have facilities, indicate an interest in having packing firms do the packaging. Packers agreed that since they already have the plums on grading belts, additional handling would be avoided and savings available if they do the packaging. This method of packaging is ex­ pected to significantly reduce retail spoilage from bulk sales. An additional saving at the retail level is from the labor costs saved from reduced weighing by sales people. This assumes that weighing is less costly at the packer's where labor is often less expensive and more efficiently organized for this function. Consumer acceptance of the overwrapped package is dependent, for the most part, upon the three factors of quality, size and price. They must be confident of receiv­ ing high quality plums especially when they are unable to handle them individually. Since small and large plums mixed together in one package meet with sales resistance {according to retail produce people) it appears advisable that each container have plums that are of similar size. 203 Finally, the higher price of packaged plums, despite the fact that plums are relatively price inelastic, will likely reduce sales if it is out of line with respect to prices of other fresh fruit. Benefits of the new packaging technique may accrue to the industry as a whole, to packers, consumers. to retailers and to The industry benefits if more plums are sold which would expand the demand for fresh plums at the farm level. This increase in sales could help handle some of the supply increase in Michigan. Packers benefit in that they are paid to perform an additional service which will enlarge their operation. volume. They would also benefit from increased Retailers benefit by having consumers spend less time in the produce section which allows them to handle larger numbers of consumers. By using overwrap packages, retail pro­ duce departments cut down on labor costs as trays are usually easier to look after than bulk sales which require weighing and piling. Trays are easier to move into and out of storage if retail units should decide to refrigerate their plums. Consumers save on time and are likely to have a better chance of finding unbruised plums. Promotion While the Northwest has not led the way in consumer packaging changes, they have led the way in fresh plum pro­ motional activity. Their program includes the use of news media such as newspapers, television and radio, employment 204 of seasonal dealer service people, distribution of point of sale materials, and a number of consumer surveys. The news media are used for advertisements during plum season to make consumers aware of the product. Dealer service men, hired for six to eight weeks during the fresh plum season, are used predominately in the Boston area. terials, Point of sale m a ­ for in-store displays, are distributed to all re­ tail outlets. Consumer surveys are used in large market areas such as New York city to determine what consumers like and dislike about fresh p l u m s . Their promotional program is financed by a mandatory tax on each ton of plums sold to the fresh market in each of the three Northwestern states. Combining their individual efforts into one program avoids duplication of administration costs and efforts as well as providing a larger financial base from which to work. Washington State taxes at the rate of $1.50 per ton, Idaho at the rate of $1.60 per ton and Oregon contributes a lump sum from their own state organiza­ tion. The size of the annual budget varies but was reported to be $29,225 in 1967 and $41,964 in 1964.6 Michigan producers might consider joining the North­ western program, starting a similar program on their own or join with other Eastern states, such as New York, in a program ^Fred H. Westburg, "Comments on 1967 Fresh Northwest Purple Prune Plum Promotion," Trans 73rd Ann. Mtg., Idaho State Hort. S o c ., pp. 54-56. 205 similar to that in the Northwest. Joining the Northwestern program or forming a group in the East would likely result in less promotional duplication, and provide more funds for the program. However, a joint program would not likely stress particular features of Michigan p l u m s . A joint promotion program may be a profitable alter­ native in handling the immediate problem of excess supply. Recognizing that producers have already invested in producing the trees, which have a negative salvage value, and that de­ mand can be expanded by attracting new consumers and/or having old consumers increase consumption, a promotion program to attract new consumers warrants investigation. Before such a program can be recommended some information is required con­ cerning how many consumers must be attracted, what would the cost of attracting them be and what returns can be expected from such a program. Estimation of the number of new consumers required to consume the expected increase in supply, so that current prices continue at their present levels, is difficult. It was reported in Chapter VII that less than 2 percent of the population buy canned plums and less than 2.5 percent of the population buy fresh plums in any one year. According to these values, the average annual supply of plums to date of approximately 70-80,000 tons has been consumed by this snail portion of the population. Assuming that each new consumer consumes slightly fewer plums per capita than do established consumers, the industry may require approximately 1.5 percent of the remaining population as new consumers. It may be 206 possible to sample some present plum consumers and divide them into recent and established consumers to determine whether the quantity consumed annually differs. Once the number of new consumers required is established the promo­ tion industry can be consulted for estimates on the cost of the required promotion. Returns that can be directly attributed to a pro­ motional program depend, in part, upon what other market factors change. If the total increase in supply is marketed under present conditions the price of plums will decline significantly as indicated in Chapter VII. Now if a promo­ tion program were introduced with none of the other market factors such as quality, acreage, and weather changing and if prices did not fall when the entire supply was marketed, then the difference between the recent average price for plums and the predicted price for plums would be the gross return to promotion. If the gross return exceeded the cost as determined from above, the program would be advisable. But as supply increases, it is unreasonable to expect that all other market factors will remain unchanged. However, it is reasonable to assume that for the next one or two years other market factors are not likely to have an immediate effect upon the supply and price situation. Consequently, if a promotion program can maintain the historical prices for the next one or two years at a cost of less than the e x ­ pected price drop without the program, then the entire U.S. industry would be advised to adopt such a program. 207 Coordination The lack of coordination among participants was reported as an industry problem by members of all groups. Survey reports indicated a number of situations where the lack of coordination adversely affected the performance of the industry. Handlers complained that processors, by not scheduling deliveries, cause a loss through fruit decay which makes the fruit unusable or lowers the quality of the final product. Processors complained that growers do not notify their fieldmen prior to harvesting and, in some cases, delivery. On the other hand, growers complain that packer and processor fieldmen are not sufficiently aware of the crop's maturity when they recommend harvest dates. Retailers indicate a desire to buy plums wrapped in specific package sizes but that packers have been slow to fulfill this desire. Packers, for their part, complain that retailers have not been willing to pay for the additional cost of overwrapping. These examples illustrate the existence of coordination problems. A lower quality product and poorer performance are the result of this type of problem. Poor scheduling results in plums not being cooled immediately after being picked. As a result, disease spreads faster, and they may become overripe, causing a lower quality canned product. Any delay in removing heat or chemically treating harvested plums for disease will result in lower fresli quality and a shorter shelf life. ation of wrapping equipment by retail units appears as a duplication of facilities and possibly unnecessary. Oper­ 208 An information program that points out the areas where improved coordination could benefit participants might help the industry overcome this problem. A group, possibly including members from all parts of the industry, running a coordinating program might help the participants overcome the problems by suggesting ways to improve the situation or by helping the participants work together to reach an agree­ ment . Perhaps MACMA or a similar organization could serve the industry by coordinating deliveries from their members to processors. They could assure processor's quantities of plums at the exact times required, thus reducing spoilage and quality loss. If plums had to be harvested before processors were ready, MACMA could arrange for storage. would not deal directly with growers, Processors instead MACMA would be responsible for seeing that growers were compensated for the additional costs of storage and handling. They are partic­ ularly suited for handling this problem, because they repre­ sent many growers who sell directly to processors and already negotiate with processors on prices. Other organizations may already exist or need to be formed that can solve other parts of the coordination problem. Use of the Term "Prune" The decline in the popularity of dried prunes makes the use of the term "prune" by the purple plum industry ques­ tionable. The purple plum industry has called their product prunes or prune plums because the same type of plums in parts 209 of Oregon are made into prunes. However, the remainder of the purple plum producing areas cannot make quality prunes from their purple plums and hence the term may not apply. It might be beneficial to use the term if prunes were popu­ lar with consumers. However, industry sources indicate that consumers associate prunes with a laxative. At present, the prune industry, itself, is trying to overcome this image, thus it appears unwise for the purple plum industry to use the term prune with its adverse connotation. It is recommended that the industry use and promote the term "purple plum" when referring to its product. New Uses for Plums The continued availability of large, low cost supplies of purple plums could lead to the development of a number of new uses. Supplies are expected to continue at the new levels for some time, partly because of the trees already planted and partly because they are highly complementary with tart cherries. Using much of the same growing and harvesting equipment as they do for cherries, growers can make additional use of their labor, equipment and management resources during the plum season. By virtue of this complementarity and because plums are one of the easier fruits to grow, production can be expected to continue to increase. As labor continues to become a problem in the fruit industry, growers may switch from crops which cannot now be mechanized to the mechanized plum industry if they foresee any prospects of reasonable returns. Given that this 210 occurrence is already taking place, it appears likely that other uses for plums will be found. These could take the form of desserts, party snacks, special appetizing dishes, drinks and a number of other food products. With such a cheap source of input, any popular new products could be especially profitable to the developer and the industry. Summary This Chapter has reviewed a number of the problems confronting the industry and analyzed a few alternatives that might aid in dealing with the problems. The problems covered included supply, quality, demand expansion, coordin­ ation and terminology. Alternatives analyzed were a market­ ing quota, a storage program, a marketing order, packaging, promotion and organizations to improve coordination. Promotion offers an immediate opportunity of expand­ ing demand while the marketing board approach could provide a mechanism for supply management, quality improvement through coordination and grading plus a tax to provide new product research funds. Recognizing that the industry has invested in new orchards, which have a negative salvage value, emphasis is placed on those programs that will increase demand in the immediate future. quality control. This includes promotion, packaging and It is in the immediate future when the new orchards are at peak production levels that the industry will lose the most if demand is not expanded and prices maintained. C H A P T E R IX SUMMARY Michigan's purple plum industry is now contributing over one million dollars annually to Michigan farmers and has increased its production from five to slightly over 20 percent of total U.S. purple plum production. In ab­ solute terms, Michigan now produces between 10 and 15 thou­ sand tons while the states of Washington, Oregon and Idaho produce approximately 50 to 60 thousand tons. Michigan's production is expected to continue increasing until at least 1975, reaching 39 thousand tons. Increasing at a slower rate, Northwestern production is expected to be 71 thousand tons by 1975. In years when Michigan production was 15 thousand tons, prices declined significantly indicat­ ing that if present market conditions continue, the additional supply expected by 1975 will result in even lower prices. Two major varieties, both suitable for the fresh and processed markets, dominate U.S. purple plum production. the Northwest, the Italian (Fellenberg) In prune predominates while the Stanley prune plum accounts for approximately 7 5 percent of Michigan's production. Blufre, derived from the Stanley prune plum, is a recently developed variety that be­ came popular in Michigan in the late 1960's. 211 212 Purple plums are marketed either as fresh fruit, or as processed products— canned whole plums, preserves or baby food. Idaho and Washington market over half of their plums on the fresh market while Michigan and Oregon dominate the processed market. In Michigan, 6 0 to 70 percent of the plums enter the processing market. The remaining 30 to 40 percent are sold as fresh plums through retail stores and roadside stands. To date, Michigan plum sales have covered a limited area. Their processed plum sales have been mostly in the Midwest with a few in the Northeastern part of the U.S. Fresh sales have been centered in a few large cities of the Midwest and Northeast. A few fresh plums have been sold in Canada. Those Michigan growers who obtain yields greater than 7.5 tons per acre, have been making a profit, while growers with yields of less than 4.5 tons per acre have not covered average variable costs of $40.00 tons in some years. Those growers experiencing yields of 7.5 tons per acre or more were found to be competitive on a cost basis with Washington and O r egon. Fresh and final product quality, according to pro­ cessors, retailers, fresh packers, handlers and brokers, is the major problem that must be overcome if the Michigan in­ dustry is to handle the increase in supply. In canned whole plums, tough skinned, immature or sour plums are a major problem requiring better control at the processing and har­ vesting level. Retailers say that even though Michigan's 213 fresh plums are tree ripened and have a sweet taste, the well graded, top quality, and uniformly sized Northwestern plum is easier to promote and sell. Improved quality con­ trol and responsibility for quality is necessary by all in­ dustry participants if the problem of poor quality in Michi­ gan plums is to be overcome. Price elasticities of demand for both fresh and processed products are relatively inelastic. A price elas­ ticity of demand of -.722 for processed plums indicates a lack of response to price changes. This means that a price reduction will not significantly alter the problem of a huge supply. In the fresh market, a price elasticity of demand of -.692, slightly lower than that for the processed product, also indicates that lower prices will not solve the volume problem. These results imply that the increase in Michigan production cannot be handled by price reductions. Recognizing that Michigan's canned whole plums com­ pete with canned plums from the Northwest and that price data were not available for Michigan canned plums, a price analysis was carried out to determine which variables significantly affect the processors' plums. f.o.b. price for Northwestern canned Results indicate that total Northvrestern production, total U.S. pack, carryin, population and disposable income are all significant variables. Population and income were closely correlated as were total Northwestern production and total U.S. pack. Combinations of these five variables e x ­ plained approximately 90 percent of the variation in f.o.b. price. If current market conditions continue, Michigan 214 processors may use these equations and the historical differ­ ence existing between Northwestern and Michigan prices to estimate what price to expect for their plums. A price analysis was performed on grower prices to determine the variables which produce most of the changes in grower prices. This analysis indicated that approximately 95 percent of the change in fresh plum prices could be accounted for by the variables of total Michigan production, total Northwest fresh supply, population and the U.S. canning and freezing apple prices. When "total Northwest fresh supply" was replaced by "total Northwestern production," these same variables explained 83 percent of the price variation for plums sold to processors. If present market conditions re­ main, growers may use these relationships to estimate plum prices prior to harvest. By estimating what prices they can expect to receive based on historical relationship, producers will have a realistic price level to strive for in negotiations with processors. They will also have some indication of the profitability of marketing the entire crop. While confident that existing facilities can physically handle the increase in supply, industry participants are of the opinion that demand is currently insufficient to handle the supply without a significant drop in prices and lower re­ turns per unit. Faced with this supply situation, the industry has a number of options. They could do nothing and force in­ efficient high cost growers out of the industry. Under this option, all growers will encounter low prices and low returns. 215 The second alternative involves the industry initiating a marketing quota scheme, allowing growers to market only that quantity which would attract a predetermined minimum price. All marketing would be controlled by a marketing agency which would assign quotas to each grower based on predetermined demand and supply conditions. This program would maximize short run returns, reduce price instability and provide a seasonal reserve from which only the highest quality plums would reach the market. Another alternative, if supply were to fluctuate according to a cycle, would be a storage program of the processed plums. Present supply fluctuations do not warrant such a program. Other alternatives which may help overcome the supply problem involve demand expansion through new products and promotion. If a demand expansion program is to be successful, the quality problem must be solved. One means of improving quality would be by inspection under a marketing order similar to the one in the Northwest. By stressing that there are two levels of quality in canned plums, increased sales could re­ sult and part of the quality problem in the processing sector would be eliminated. Specific delivery schedules among growers, truckers and processors may also improve the quality of final products. Improvement of existing products and the development of new products depends upon the research funds available. At present, industry participants indicate few, if any, funds available in this area. Perhaps if the industry organized itself in Michigan, some progress might be made in funding research. 216 Although many Michigan plum people use the term "prune” when referring to purple plums, this association with the prune industry may not be beneficial to the purple plum industry. An industry that requires expansion such as the purple plum industry, itself with an industry is not often well advised to link {such as the prune industry) experiencing a decline in sales. that is It may be advisable to dis­ continue the use of the term "prune" in the Michigan purple plum industry. In summary, Michigan's purple plum industry faces a substantial supply increase in the near future. By expanding the demand for existing products, developing new products and actively organizing the industry, they may be able to with­ stand the pressures which this supply surge will create and ultimately become a better organized, profitable and growing industry. LIST OF REFERENCES LIST OF REFERENCES Antle, Glen G. and Greig, Smith W. "The Potentials for Plum P i e ." Agricultural Economics Report Number 1 4 6 , Michigan State University, August,1969. Bolin, H. R. and Porter J. L. "Stabilize Color of Fresh Prune Juice." Reprinted from Food ProcessingMarketing , Laboratory, USDA Western Regional Research, Albany, California, July, 1967. Brown, Kenneth N. Preliminary Prunes Enterprise Data Sheet, Willamette Valley, Oregon State University, Cooperative Extension Service, 1971. Brown, Kenneth N., and Ballard, Jin. Preliminary Italian Prune Enterprise Data Sheet, Uakima Valley, Wash­ ington, April, 1971. Bylin, James E. "Canned-Fruit Firms Eye Retail Resistance Warily as They Chart Further Price Rises." Wall Street Journal, Monday, October 5, 1970. Cooperative Extension Service. "Black Knot of Plum and Cherry." Extension Bulletin E-469, Farm Sciences Series, Michigan State University, October, 1964. "How to Recognize and Control Brown Rot of Stone Fruits." Extension Folder F-262, Michigan State Universi t y , ________ . "Prunes Enterprise Data Sheet." University, February, 1964. Oregon State ________ . "Washington State Commodity Sheet." EM 2 393, College of Agriculture, Washington State University, March,1969. Dennis, Carlton C. "Michigan Fruit Production, Importance and Location." Special Bulletin 441, Agricultural Experiment Station, Michigan State University, 1962. Evaluation of Plums and Prunes - A P a n e l . Transactions of the 71st Annual Meetings of the Idaho State Horticul tural Society, Boise, Idaho, December, 1965. 218 Ferguson, C. E. Hicrceconomic Theory. Richard I'/. Irwin^ I n c . , 196 3. Homewood Illinois: Forker, Olan D., and Dominick, Bennett A., Jr. "Toward the Year 1 9 8 5 Fruit Production and Utilization." Special Cornell Series Number 7, New York State College of Agriculture, Cornell University, 1969. Franklin, DeLance F., and Kochan, Walter J. "CA Storage of Italian Prunes." Transactions of the 71st Annual Meetings of Idaho State Horticultural Society, Boise, Idaho, December, 1965. Franklin, DeLance F., and Kochan, Walter J. "A So-called Internal Disorder in the 1962 Idaho Italian Prune Crop." Transactions of the 68th Annual Meeting of the Idaho State Horticultural Society, 1962, p. 42. Gaston, H. P.; Hed d e n , S. L.; and Levin, J. H. "Mechanizing the Harvest of Plums." Article 42-72, Reprinted from the Quarterly Bulletin of the Michigan Agricul­ tural Experiment Station, Michigan State University, Vol. 42, No. 4, pp. 779-783, May, 1960. Groder, Roland H. "Prune Marketing in Oregon." Oregon State University Extension Service, Oregon State University, May, 1967. Harsh, Stephen, Kelsey, Myron P.; and Antle, Glen. "Economics of Plum Production in Western Michigan." Agricul­ tural Economics Report No. 162, Michigan State University, May, 1970. Helton, A. W. "Cytospora - Canker of Prunes." Bulletin 254, Idaho Agricultural Experiment Station, University of Idaho, February, 1956. Hill, L. D. "The Bargaining Potential in the Michigan Asparagus Industry." Unpublished Ph.D. thesis, Michigan State University, 1963. Hill, R. P. "Resource Use and Returns on Michigan Fruit Farms." Unpublished Ph.D. thesis, Michigan State University, 1968 . Kearl, C. D., and Snyder, Darwin P. "Cash Crops and Fruit Costs and Returns from Farm Cost Accounts." AE Res. 325, Cornell University Agricultural Experiment S t a ­ tion, Cornell University, December, 1970. Kochan, Walter J. "Italian Prune Research - 1967." Trans­ actions of the 7 3rd Annual Meeting of the Idaho State Horticultural Society, Agricultural Experiment Station, University of Idaho, November, 1967. 219 ________ . "Responses of Prunes to Nitrogen Fertilizer." Transactions of the 71st Annual Meetings of the Idaho State Horticultural Society, Boise, Idaho, December, 1965. ________ . "Results of the Prune Storage Study." T r a ns­ actions of the 68th Annual Meeting, Idaho State Horticultural Society, Boise, Idaho, November, 1962. ________ . "Some Fruit to the 75th cultural Station, Physiological Responses of Italian Prune Mechanical Harvesting." Transactions of Annual Meeting of the Idaho State Horti­ Society, University of Idaho Experiment November, 1969. ________ , Verner, Leif; Kam a l , Abdul, and Braun, Ronald. "Control of Fruit Dropping in Italian Prunes by Foliar Sprays of 2, 4, 5-TP." Bulletin No. 378, Idaho Agricultural Experiment Station, University of Idaho, March, 1962. McLean, Canute A. "Price Analysis, and Alternative Methods of Marketing Plums in Michigan." Unpublished M.S. paper, Michigan State University, 1970. Oregon Processed Prune and Plum Growers Commission. "A Report of Prune Field Day." Oregon State University, M a y , 19 67. Pubols, Ben H. "Trends in the Plum and Prune Industry." The Fruit Situation. TFS-155, Economic and Statistical Analysis Division, Economic Research Service, June, 1965. Proebsting, E. L. "Growth Regulator Effects on 'Early Italian' Prunes - 1970." I A R E C , Irrigated Agricul­ ture Research and Extension Center, Prosser, Wash­ ington, October, 1970. ________ . "Miscellaneous Experiments with 'Early Italian’ Prunes - 1970." IAREC, Irrigated Agriculture Re­ search and Extension Center, Prosser, Washington, October, 1970. _________ . "Survey of C o m m e r c i a l l y H a r v e s t e d Early It ali an Prunes - 1970." IAREC, Irrigated Agriculture Re ­ search and Extension Center, Prosser, Washington, Oc tober, 1970. ________ , and Fogle, H. W. "Prune Leaf Curl and Gum Spot as Influenced by Crop Load." Reprinted from Wash­ ington State Horticultural Association Proceeding 53: 83-86, 1957, Irrigation Experiment Station, Prosser, Washington. 220 _________ , and Mills, H. H. "Effect of Gibberellic Acid and Other Growth Regulators on Quality of Early Italian Prunes (Prunus domestica, L .)." Reprinted from pro­ ceedings of the American Society for Horticultural Science Vol. 89, 1966. Irrigated Agriculture Re­ search and Extension Center, Prosser, Washington. _________ , and Mills, Harlan H. "Effects of 2-Chloroethane Phosphanic Acid and Its Interaction with Gibberellic Acid on Quality of Early Italian Prunes." J . Arner. Soc. Hort. S c i . 94: 443-446, Irrigated Agricultural Research and Extension Center, Washington State Uni­ versity, July, 1969. _________ , and Mills, Harlan H. "1963 Studies on Effect of 2, 4, 5-TP on Yield and Quality of Early Italian Prunes." Stations Circular 432, Washington Agricul­ tural Experiment Stations, Washington State Univer­ sity, June, 196 4. Ricks, D. J.; Larsen, R. P.; and Wheeler, R. G. "Inputs and Relative Yield for Young Orchards." Fact Sheet, File 26.4, Departments of Agricultural Economics and Horticulture, Michigan State University, January, 1961. Severn, Ken. "Prune Advertising Report." Transactions of the 75th Annual Meeting of the Idaho State Horti­ cultural Society, Boise, Idaho, November, 1969. Shaffer, James D. Consumer Purchase Patterns for Individual Fresh, Frozen and Canned Fruits and Vegetables^ Department of Agricultural Economics, Michigan State University Consumer Panel 1952-1958, Bulletin No. 8. . On the Concept of Subsector Studies. Paper pre­ sented to the Technical Seminar on Subsector Modeling of Food and Agricultural Industries, Department of Ag. Economics, University of Florida, March 30, 1970. Shurtleff, Cecil. "Experiences in Shaking Prunes." Trans­ actions of the 75th Annual Meeting of the Idaho State Horticultural Society, Boise, Idaho, November, 1969. Shurtleff, Cecil. What Happened to the Prune Deal and How to Prevent This in the Future." Transactions of the 75th Annual Meeting of the Idaho State Horticultural Society, Boise, Idaho, November, 1969. Stebbins, Robert L. "Mechanical Harvesting of Prunes in Oregon." FS 132, Cooperative Extension Service, Oregon State University, February, 1968. 221 Swanson, J. P.; Garrett, J. R.; and Zuroske, C. H. "Grower’s Estimates of Production C o s t s , Cherries Peaches, Pears and Plums." Yakima Valley, 1962 and 1963, Sta­ tions Circular 452, Washington Agricultural Experiment Stations, Washington State University, May, 1965. Tucker, Lowell R. "Fertilization of Apple and Prune Orchards in Idaho." Bulletin No. 226, Agricultural Experiment Station, Department of Horticulture, University of Idaho, December, 1938. T u key, Ronald B. "Prunes for Approximation of the Economic Structure in Production." Extension Horticulture, Washington State University, March, 1968. U.S. Department of Agriculture. Homemaker Use of Opinions About Selected Fruits and Fruit Products. Marketing Research Report No. 76 5, Washington D.C Statistical Reporting Service, August, 1966 Verner, Leif; Kochan, W. J.; L o n e y , C. E.; Moore, D. C.; and Kamal, A. L. "Internal Browning of Fresh Italian Prunes." Research Bulletin No. 56, Agricultural Experiment Station, Department of Horticulture, Un i ­ versity of Idaho, November, 196 2. Weber, Jack. "The Cost of Producing Fresh Prunes in Idaho." Transactions of the 6 8th Annual Meeting, Idaho State Horticultural Society, Boise, Idaho, November, 1962. Weber, John H. "The Idaho Prune Industry Production Costs." Bulletin No. 400, April, 1963. Weber, John H. "The Market and Price for Idaho Fresh Prunes. Bulletin 404, Idaho Agriculture Experiment Station, University of Idaho, April, 1963. Westberg, Fred H. "Comments on 1967 Fresh Northwest Purple Prune Plum Promotion." Transactions of the 7 3rd Annual Meeting of the Idaho State Horticultural Society, Boise, Idaho, November, 1967. Worthington, O. J. "Measurements of Quality Factors of Canned Purple Plums." Reprinted from the 49th Annual Report of the Oregon State Horticultural Socie ty, 1957, Food and Dairy Technology Dept., Oregon State College, Corvallis, Oregon. Yost, George. "The Future of Fresh Prune Advertising." Transactions of the 71st Annual Meetings of the Idaho State Horticultural Society, Boise, Idaho, December, 1965. a p p e n d ix APPENDIX A PURPLE PLUM PROCESSING SURVEY Company N a m e : Address: Name of Person Interviewed D ate: Section 1 1. What percent of your total fruit and vegetable processing business is represented by plums?______________________ 2. What percent of your plums were processed into #10 cans ______ #303 cans______ #2 1/2 cans ? What other products did you make from purple plums and their percent?____________________________________________________ 3. How many lbs. of raw fruit are needed to produce one case of each of the following sizes? #10 l b s . #303_____ lbs. Other (specify)____ l b s . #2 1/2 ___ lbs. 4. What range in plum sizes is best for plum canning?________ Would you be willing to pay more for plums if they were sized before you bought them? Yes No __ , 5. What plum count do you strive for in each of the following can sizes? #10 ____ #303____ #2 1/2 . 6. What are the most serious problems in raw product plum quality for processing?______________________________________ 7. Do you have your own label or do you use private labels? your own % private %. 8. How do you sell your plum products? sales % Company staff %. 222 Brokers % Direct 223 9. Should the Michigan plum industry undertake an advertising and promotion program on an industry-wide basis? yes___ no no opinion______ .II such a program were initiated should Michigan do it alone or in cooperation with the Northwest industry efforts? Michigan alone Michigan and Northwest . 10. Does your firm make a specific expenditure for promotion and advertising of plums? Yes No . If you have a total advertising and promotion budget, what part of it is for plums?________ ? 11. Approximately how much_did your firm spend on tising during 1969 1970_______ ? 12. What percent of this advertising budget did you use for promotional allowances? _______________ television ____ __________ radio_______ _______________ magazines _______________ other 13. Do you favor the advertising and promotion of plums other than by brand? Yes No ___ . With contributions by (a) Growers? Yes No (b) Processors? Yes No . 14. Should funds for processor sponsored programs be based on voluntary or mandatory contributions? Voluntary_____ Mandatory ___. Would you contribute voluntarily? Yes___ No . What percent of Michigan's plum processors would contribute? %. 15. Of the funds collected for industry advertising and promo­ tion, should any funds be spent for field merchandising men to call on chain stores and institutional buyers in an attempt to get wider acceptance, greater distribution, and more shelf space for plums? Yes No ___ . 16. plum adver­ Should new product development in plums be the primary responsibility of individual processors for their own use or should there be an industry-wide approach to the problem? Individual processor Industry-wide____ Both ____ . 17. If industry wide, who should finance it? Grower s______________ Processors___________ Others (specify)__________. 18. If an industry sponsored new product development project were started would your firm contribute money to support it? Yes No 224 Do you have any funds budgeted specifically for new product development in plums? Yes No . If yes, how much?_______ . If no, was there some work as a part of your total product line development?_______ 20. Would your firm be better off with many small plum processors or a few large processors? Many small firms Few large f i r m s _____ . 21. Do small and underfinanced processors result in undesir­ ably low prices in the processed plum market? Yes No ___ . If y e s , have these processors been going out of business or merging with other firms? Yes No . 22. Do you think a sales association or centralized sales firm would increase returns from canned purple plum products? Yes __ No ___ Unsure . 23. Have you merged with or acquired other processing opera­ tions in the past five years? Merged with______ Acquired . What merger or acquisition was involved?______________ _ 19. 24. Have you increased your plum processing capacity in the past five years? Yes No Have you increased the quantity of plums processed in the last five years? Yes No ___ . 25. Does a large firm have a particular advantage over a small firm in plum processing? Yes No . If yes, do the advantages lie in the area of Ta) p r o c e s s i n g costs (b) p r o c u r e m e n t c o s t s (c) m a r k e t i n g and sales advantages . Does a large firm have disadvantages? Yes No . IF yes , what?__________________________________ 26. From your standpoint as a processor, what are the major advantages and disadvantages of a growers market information program? Advantages_______________________________________________________ Disadvantages________________________________________________ 27. How would you evaluate the Hacma plum program?________________ 28. Would you be willing to offer a contract to growers for several years which included a specified price formula? Yes No . If no, would a contract with an escape clause for unusual years encourage you to offer a contract to growers? Yes No Have you ever contracted for plums? Yes No . iF y e s , when and for what period of time? 225 29. Would you sign a contract with a growers association for their plums? Yes No . If yes, what conditions would you require in the contract?______________________ If n o , why 30. Would you be willing to custom process plums for growers? Yes No . 31. Based on 1970 costs, how much per case would you have charged a grower coop to process 6 500 cases of #2 1/2 size cans?______________________ 32. What other raw products do you process in your plant? Tart cherries Apples Pe a c h e s Strawberries___ Sweet cherries Pears Blueberries Tomatoes Asparagus Other fruit Other vegetables______— —-_______ 33. Approximately how many plums did you process in the following years? 1970 lbs. 1969 lbs. 1968 1967 lbs. 1966 lbs. lbs. 34. What was the average price per pound paid by your firm for raw plums in the following years? 1970 1969_____ 1968_____ 1967_____ 1966______. 35. What are the important factors that determine what you receive for processed plums?_______________________________ 36. How do you establish the price that you offer to producers ?__________________________________________ Section 2 37. Have you any equipment and facilities used exclusively for plums? Yes No . If yes, what is it?________ _______________ .If no, is there another crop which you could economically process at the same time of the year in place of plums?_____________________ 38. Are there any potential new uses for plums that processors need help in developing? Yes No ___ If yes, what? 39. How long may canned plum products be stored without a significant loss in quality?___________________________ Does labor availability restrict your processing? Yes___ No * How much additional temporary labor is needed for plum processing? _______ Have you introduced any labor saving technology recently in your plum processing enter­ prise? Yes No . If yes, what?________________________ Has there been any demand for a pitted canned purple plum? Yes No . What are the advantages of pitted canned plums?______________________________________________ What are the disadvantages? Do you have any plum pitters? Yes __ No About what percent of your total operating capital does your firm usually borrow?____________ ? Does credit availability or high interest rates limit the quantity of plums your firm packs? Yes No . In what geographic area do you sell most of your plum products?__________________________________________________ From what counties do you obtain most of your plums? How far away is your most distant supplier?^_______ What percent of your plums do you buy directly from growers?__________________ % Who else do you buy from and how much?______________ How many growers do you usually buy from (average for last three years you bought plums)? ___ ____________ How many tons do you receive from your five largest growers as a group?_______________________________________ If you did not can cherries would this affect your plum processing? Yes No . if yes, how__________________ What determines how many plums your firm processes in a given year? (a) available supply_____ (b) your evaluation of market demand (c) price_of raw plums_____ (d) govern­ ment contracts (e) financing (f) quantities dictated by central office______________ . 227 50. If (f) in question 49, how does the central office make this decision and what decision process is used to change it?_________________________________________________ 51. If raw product supplies were more stable, would that encourage you to expand your average pluir pack? Yes No Section 3 52. What are your sugar costs per case? #2 1/2 #10 #303 . 53. What do your containers cost? Cans: #10 #2 1/2 Carton: for packing______ . Would it be economical For a group of processors to own a container company? Yes No ___. If yes, would you be interested in taking part Tn such an enterprise? Yes No ____ . 54. What are your direct labor costs per case of? #10's_____ #303* s______ #2 1/2 's______ . Labor costs for other units________________ . 55. What is your total cost per case excluding raw product cost? #10 's______ #303 ’s #2 1/2 's _____ other sizes 56. How profitable is the plum processing part of your industry? Above average______ average____ break even losing_____ . Section 4 57. Do you think there is any potential for significant market expansion of plums? Yes No No opinion_ If yes, how can this best be exploited? (a) lower prices (b) advertising and promotion (c) new products (d) stabilize supplies (e) central selling of plum products_____ (f)exports______ (g) in­ stitutions (h) Other (specify) 58. In your opinion what market factors most seriously affect canned purple plum sales?___________________ 228 59. If more plums were available and market conditions warranted, could your plant physically process more plums? Yes No . If yes, what is the maximum quantity you c o u l d p r o c e s s without altering your plant?__________________________________________________. 60. Is the cost of expansion the only factor preventing you from expanding? Yes No . 61. Would less costly and better financing arrangements encourage you to process more plum products? Yes No . 62. If you processed more plums would you hire more labor or cut back your processing of other products? Hire more labor Cut back others Both_______ . 63. Would you be interested in processing plums on a joint venture basis with growers? Yes No . If yes, under what terms? If no, is there some special situation where you would?______________________________________________________ 64. If in the future growers produce an oversupply of plums when an adequate market doesn't exist for all the pro­ duction, what should be done with the surplus?_________ 65. Would the entire plum industry be better off if producers limited their production through a supply management organization? Yes No_____ No opinion__________ Why? Michigan statistical tree counts indicate that purple plum new tree plantings increased significantly between 1963 and 1967. If these trees are allowed to mature and the current level of tree removal remains constant, the supply of purple plums in Michigan is expected to double (and possibly triple). With favorable weather conditions the supply of purple plums can be expected to be in the 24-27,000 ton range by the mid 1970's, compared with the 12-15,000 ton range of the past five years. Assume for these next few questions that it is the mid 1 9 7 0 's and that plum production has reached the 24-27,000 ton range and that production will continue at that level for several years. Northwestern statistics indicate that in the mid 1970's their plum production will be about 60,000 tons which is up from their average annual produc­ tion of around 50,000 tons. 229 66. Under these conditions would your firm process more plums? Yes No . Would your firm plan to process more plums annually over the next five years? Yes___ No . Would your firm increase its plum marketing expenditures? Yes No Would your firm make plums a bigger part of its totaloperations? Yes No What other changes would your firm make?_________________ 67. Based on this supply level what do you think the price of raw plums would be? , what would the selling price of plums be?______________ . What effect would these prices have on processor returns?__________________________ _______ 7 How would these factors {prices and large supplies) affect the number of processors processing plums?________________________________ What do you think the industry as a whole should do? What do you think growers should do? 68. Faced with this level of supply should some means of supply management be set up? Yes No . If yes, what and by w ho?_______________________________________ If the farm price of raw plums declines should the govern­ ment guarantee a minimum price to farmers? Yes No . 69. From your experience are there any other problems or relationships among major groups of the plum industry that we should give consideration to?_______________________