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The B.C. mushroom industry : an analysis of demand and supply Huang, Hsin Chung 1988

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THE B.C. MUSHROOM INDUSTRY: AN ANALYSIS OF DEMAND AND SUPPLY By H s i n Chung Huang B.Sc., The U n i v e r s i t y  o f B r i t i s h Columbia, 1985  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE in THE FACULTY OF GRADUATE STUDIES Department o f A g r i c u l t u r a l Economics  We accept t h i s t h e s i s as conforming to the required  standard  THE UNIVERSITY OF BRITISH COLUMBIA October 1988 © H s i n Chung Huang, 1988  In presenting  this thesis in partial fulfilment of the requirements for an advanced  degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department  or  by  his  or  her  representatives.  It  is  understood  that  copying  or  publication of this thesis for financial gain shall not be allowed without my written permission.  Department of  A g r i c u l t u r a l Economics  The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 D a t e  DE-6(3/81)  October 13, 1988  ABSTRACT  The  mushroom  industry  d i s t r i b u t e s through Money's  This  through  study  industry , 1  Columbia  markets  and  a c e n t r a l s e l l i n g agency under t h e trademark  Mushrooms.  control,  i n British  This  member  owned  agency  p r o d u c t i o n area quotas,  analyses i n order  t h e market  exercises  on member p r o d u c t i o n .  behavior  to ascertain  also  o f t h e B.C. mushroom  whether producers  collectively  e x e r c i s e monopoly c o n t r o l over t h e i n d u s t r y . The main s t r u c t u r a l components o f t h e i n d u s t r y in  a mathematical  model  using  a partial  are described  equilibrium  The parameters which a f f e c t demand a r e estimated w i t h equations.  Supply- i s formulated  subject  a  Fuction.  to  A  Constant major  by m i n i m i z i n g  Elasticity  feature  of  econometric  a cost  Substitution  i n supply  analysis.  i s the  function  Production  joint-product  r e l a t i o n s h i p between mushrooms which a r e s o l d f r e s h and mushrooms which a r e s o l d processed.  Policy  implications  a r i s i n g from t h e  s t r u c t u r e o f t h e i n d u s t r y and i t s observed b e h a v i o r i n t h e market are then  analysed.  The econometric  a n a l y s i s i n d i c a t e s t h a t t h e demand f o r f r e s h  mushrooms i n B.C. over t h e p e r i o d  1982 t o 1986 was i n f l u e n c e d by  own p r i c e , a d v e r t i s i n g and t h e p r i c e o f a complement, beef. ability  of the association  confirmed by t h e r e s u l t s .  to set prices  i n t h e f r e s h market i s  I n t h e processed market, i t was found  In this study, mushroom refers marketed v a r i e t y "Agaricus B i s p o r u s " . 1  The  to  the  commercially  iii that  imported p r o c e s s e d mushrooms are v e r y c l o s e s u b s t i t u t e s  domestic  processed  processed  mushroom  mushrooms. demand  The  are  factors  consumer  which  income,  for  influence  and  price  of  i s formulated w i t h  two  imported p r o c e s s e d mushrooms. A mathematical model o f the opposing  models  of  monopoly power. actual  The  market  behavior  behavior  -perfect  competition,  The  in  the  r e s u l t s support a model o f B.C.  mushroom  prices  indicates  above c o m p e t i t i v e that  production.  the  levels.  production  In a d d i t i o n ,  quota  i s not  a  That  is,  association, the  binding  analysis input  on  T h e r e f o r e , g i v e n the e x i s t i n g p r o d u c t i o n technology,  no s o c i e t a l w e l f a r e g a i n s can be r e a l i z e d by a l l o c a t i o n o f quota i n the B.C. It  competitive  industry.  producers do not c o l l e c t i v e l y , through the marketing set  and  model generated r e s u l t s are then compared t o  market d a t a .  market  industry  i s concluded t h a t the  mushroom  i n c r e a s i n g the  total  industry.  c e n t r a l i z e d marketing of mushrooms  i n B.C.  p r o v i d e s b e n e f i t s t o producers through s c a l e economies i n  inputs  and  in  powers t h a t  marketing/distribution.  the  association  amongst members has difficulties.  has  However,  several  recently placed  S p e c i f i c a l l y , the  growers  forming t h e i r own increase of  opting  out  the  low  patronage,  of  marketing agency.  i n volume o f i l l e g a l illegal  sales,  limited  a v a i l a b l e to enforce cooperation association  prices  p r o d u c t i o n ) f o r p r o c e s s e d mushrooms i n 1986 in  the  the  ( r e l a t i v e to cost has  recently  association  There was  s a l e s i n 1986. and  in financial  competitive  in  of  resulted favour  of  also a significant The  reduced volume  pressure  from  the  iv newly  formed  marketing agency  members o f the a s s o c i a t i o n .  has  resulted  i n lower p r i c e s f o r  V  TABLE OF CONTENTS ABSTRACT  i i V  TABLE OF CONTENTS LIST OF TABLES  viii  LIST OF FIGURES  ix X  ACKNOWLEDGEMENTS CHAPTER 1.  INTRODUCTION  1  1.1  Problem Statement  3  1.2  O b j e c t i v e s o f t h e Study  3  1.3  Research Procedure  4  1.4  T h e s i s Guide  5  1.5  H i s t o r y o f t h e B.C. Mushroom I n d u s t r y  6  1.6  S t r u c t u r e o f t h e B.C. Mushroom I n d u s t r y  8  1.6.1  Marketing Board  9  1.6.2  F r a s e r V a l l e y Mushroom Growers Association  1.6.3  P r o d u c t i o n Technology a t t h e Producer L e v e l  Co-operative  9 11  1.7  Growth o f t h e N a t i o n a l I n d u s t r y  12  1.8  Unique Features o f t h e B.C. I n d u s t r y  16  1.9  Comparison o f t h e B.C. I n d u s t r y w i t h Rest o f Canada  18  1.10  P r i c i n g Conduct i n t h e B.C. Mushroom I n d u s t r y  1.11  Recent Developments 1.11.1 B a r r i e r s t o E n t r y i n t h e B.C. Mushroom Industry  22  1.11.2  24  P r o d u c t i o n Withdrawal  . .  20 22  vi  2.  3.  1.11.3  The Marketing C o n t r a c t and Problems o f Enforcement  25  1.11.4  Factors A f f e c t i n g the V i a b i l i t y F.V.M.G.C.A  26  of the  A MATHEMATICAL MODEL OF THE B.C. MUSHROOM INDUSTRY . . .  28  2.1  Demand Model  29  2.2  Supply Model  34  2.3  M o d e l l i n g Market E q u i l i b r i u m  36  2.4  The Concept o f Consumer S u r p l u s  38  2.5  F i n a n c i a l A n a l y s i s o f P r o d u c t i o n Quota  39  CONSUMER DEMAND THEORY, ECONOMETRIC MODELLING AND ESTIMATION  45  3.1  Consumer Demand Theory  45  3.1.1  C l a s s i c a l Consumer Demand Theory  46  3.1.2  E x t e n s i o n o f t h e C l a s s i c a l Theory o f  3.1.3 3.2  3.3  Consumer Demand  49  S i n g l e E q u a t i o n Demand E s t i m a t i o n  50  The Demand f o r Mushrooms i n B.C  52  3.2.1  Demand f o r F r e s h Mushrooms  52  3.2.2  A d v e r t i s i n g and Demand  56  3.2.3 Demand f o r Processed Mushrooms Econometric E s t i m a t i o n and R e s u l t s o f Demand f o r Mushrooms  64  3.3.1  F r e s h Demand Equations  64  3.3.2  Demand E l a s t i c i t i e s  70  3.3.3  Processed Demand Equations  72  3.3.4  E l a s t i c i t y of Price F l e x i b i l i t y f o r Processed Mushrooms  73  f o r F r e s h Mushrooms . .  61  vii 3.4  4.  Cost o f P r o d u c t i o n Model  75  3.4.1  Assumptions  76  3.4.2  The Cost o f P r o d u c t i o n Model  80  3.4.3  R e s u l t s o f t h e Cost o f P r o d u c t i o n Model . .  85  RESULTS OF THE MATHEMATICAL MODEL OF THE BRITISH COLUMBIA MUSHROOM INDUSTRY  5.  . .  86  . . . .  87  4.1  Monopoly v e r s u s Competitive P r i c i n g ,  1986  4.2  Monopoly v e r s u s Competitive P r i c i n g ,  1983 t o 1986  4.3  The Payback P e r i o d f o r Quota  SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS 5.1  Summary and C o n c l u s i o n s  5.2  Policy Implications  93 95 98 98 100  5.2.1  The Problem o f Processed Mushroom Imports . 101  5.2.2  Producer U n i t y  104  BIBILIOGRAPHY  106  APPENDIX A  108  APPENDIX B  I l l  viii LIST OF TABLES T a b l e 1.1  T o t a l Growing Area, P r o d u c t i o n , and Y i e l d o f Mushrooms i n Canada  13  T a b l e 1.2  T o t a l P r o d u c t i o n and Value o f Mushrooms i n B.C. .  15  T a b l e 1.3  T o t a l P r o d u c t i o n and Value o f Mushrooms i n Canada  15  TABLE 1.4  C a p i t a l Investment and Y i e l d s , p e r square of  foot  Growing Area, f o r B.C. and t h e Rest o f Canada  T a b l e 3.1  R e s t r i c t i o n s on t h e System o f Demand Equations  T a b l e 3.2  Econometric Estimates o f F r e s h Mushroom Demand L i n e a r and Stock Adjustment Models Econometric E s t i m a t e s o f F r e s h Mushroom Demand Cumulative E f f e c t s and Koyck Lag Models Demand E l a s t i c i t i e s f o r F r e s h Mushrooms  T a b l e 3.3 T a b l e 3.4  19 .  48 66 67  C a l c u l a t e d a t t h e Means  70  T a b l e 3.5  P r i c e Dependent Demand Model  72  T a b l e 3.5  C o e f f i c i e n t s of Price F l e x i b i l i t i e s  f o r Processed  Demand F u n c t i o n , C a l c u l a t e d a t t h e Means  . . . .  74  . . .  89  T a b l e 4.1  Market Q u a n t i t y , P r i c e , Input L e v e l s , 1986  T a b l e 4.2  Monopoly P r i c i n g Model, w i t h Quota C o n s t r a i n t , 1986 Competitive P r i c i n g Model, w i t h Quota C o n s t r a i n t , 1986 Competitive P r i c i n g Model, no Quota C o n s t r a i n t , 1986  89  I n d u s t r y Welfare E f f e c t s o f Moving from Competitive t o Monopoly P r i c i n g , w i t h C u r r e n t Quota, 1986  90  T a b l e 4.3 T a b l e 4.4 T a b l e 4.5  89 89  ix LIST OF FIGURES F i g u r e 1.1  The B.C. Mushroom Industry  F i g u r e 2.1  B.C. Fresh Market Demand  31  F i g u r e 2.2  Fresh Market Demand (out o f B.C.)  31  F i g u r e 2.3  Derived Demand by Other P r o c e s s o r s  31  F i g u r e 2.4  Derived Demand f o r B.C. Processed  31  F i g u r e 2.5  Welfare E f f e c t s o f Supply C o n t r o l  38  F i g u r e 3.1  I n d i f f e r e n c e Curve f o r t h e U t i l i t y F u n c t i o n  F i g u r e 4.1  "Optimal" Prices  F i g u r e 4.2  1986  2  (1)  46  P r i c e s as a Percentage o f A c t u a l  "Optimal" Q u a n t i t i e s a Percentage o f A c t u a l Quantities  94 94  X  ACKNOWLEDGEMENTS  I would  like  Tim H a z l e d i n e , Johnson. for  t o thank the members o f my  thesis  committee,  John Graham, George Kennedy, J i m Forbes,  Thanks  h i s generous  e s p e c i a l l y t o Tim, contributions  to  my this  main  thesis  thesis.  and  Dick  supervisor, I  benefitted  g r e a t l y from h i s support and enthusiasm. Thanks  are  also  due  to Rick  Barichello,  who  obtained  the  funding f o r t h i s p r o j e c t . Most  of  supported me  a l l , I would  like  from t h e b e g i n n i n g .  t o thank my  parents,  who  have  CHAPTER 1  INTRODUCTION  The mushroom i n d u s t r y i n B r i t i s h Columbia Canada  that  agency.  markets  Most  and d i s t r i b u t e s  producers  i n B.C.  i s t h e o n l y one i n  through  belong  a  central  selling  to the Fraser  Mushroom Grower's C o o p e r a t i v e A s s o c i a t i o n  Valley  (F.V.M.G.C.A.).  This  member owned agency i s r e s p o n s i b l e f o r d i s t r i b u t i o n o f a l l f r e s h and  processed  association "Money's  mushrooms  i n t h e agency  has an a g g r e s s i v e marketing  Mushrooms"  mushrooms  cultivated  in  has  B.C.  become  almost  Mushrooms  are  area.  2  The  campaign; t h e trademark synonymous also  with  processed  fresh  i n the  a s s o c i a t i o n ' s own cannery and marketed under t h e Money's l a b e l i n every p r o v i n c e o f Canada. operates  a  farm  In a d d i t i o n , t h e a s s o c i a t i o n owns and  i n southern  Alberta  which  serves  the  local  market. In  1986,  approximately  total  34.8  mushroom  million  pounds  production of  which  marketed as f r e s h and 51 p e r c e n t as p r o c e s s e d .  in 49  B.C.  percent  was was  T o t a l crop v a l u e  Non-member producers operate o u t s i d e t h e Lower Mainland and a r e not s u b j e c t t o t h e r u l e s and r e g u l a t i o n s o f t h e B r i t i s h Columbia Mushroom Marketing Board. Non-member producers accounted f o r l e s s than 5 % o f t o t a l B.C. p r o d u c t i o n i n 1986. 2  1  2 at  t h e wholesale  level  p l a c e s mushrooms f i r s t  was 36.2 m i l l i o n  This  figure  i n terms o f v e g e t a b l e crop v a l u e i n B.C.  For Canada, mushrooms a r e ranked behind p o t a t o e s  dollars.  second  i n v e g e t a b l e crop v a l u e ,  ( S t a t i s t i c s Canada 22-203, 22-008).  For 1986, a breakdown o f t h e p r o d u c t i o n and disappearance o f mushrooms by end use i s p r o v i d e d i n F i g u r e 1.1 below.  TOTAL PRODUCTION 34.8 MILLION LBS.  FRESH  PROCESSED  49 %  51 %  OUT  OTHER  F.V.M.G.C.A.  OF B.C.  PROCESSORS  CANNERY  12 %  6 %  F i g u r e 1.1 The B.C. Mushroom I n d u s t r y 1986  45 %  3 1.1  Problem  The unique  Statement  B.C. mushroom  i n Canada.  i n d u s t r y has two f e a t u r e s which makes i t  The i n d u s t r y  area o f p r o d u c t i o n .  i s regulated  side,  implications  restrictions  resources,  on t h e  A l s o , producers c o l l e c t i v e l y own and support  a s i n g l e marketing agent, t h e F.V.M.G.C.A. important  by quotas  f o r producer  returns.  on p r o d u c t i o n area  and t h e r e f o r e a f f e c t  These  may  f e a t u r e s have  On t h e p r o d u c t i o n distort  t h e use o f  the cost of production.  marketing  side,  the p r i c e  (or q u a n t i t y ) i n t h e market.  On t h e  producer r e t u r n s may be enhanced by c o n t r o l l i n g  The magnitude o f t h e b e n e f i t s t o t h e producer from t h e quota depends on t h e s t r u c t u r e o f t h e market and t h e degree o f c o n t r o l that  producers  collectively  marketing agency,  are able  t o exert,  through t h e  on t h e market f o r mushrooms.  To q u a n t i t a t i v e l y a s s e s s t h e degree o f producer c o n t r o l over the mushroom market i n B.C., a model o f t h e i n d u s t r y ,  describing  the main s t r u c t u r a l r e l a t i o n s h i p s which a f f e c t s u p p l y and demand, can be f o r m u l a t e d .  1.2  O b j e c t i v e s o f t h e Study  The main o b j e c t i v e o f t h i s study i s t o a n a l y s e t h e quota on production whether  area  i n t h e B.C. mushroom  producers  use t h e quota  c o n t r o l over t h e i n d u s t r y .  industry,  t o exercise  and  monopoly  determine pricing  4 Sub-objectives  f o r t h i s study a r e :  (1)  To d e s c r i b e t h e B.C. mushroom i n d u s t r y  (2)  To c o n s t r u c t mushroom  (3)  To  a cost  model  f o r t h e B.C.  industry.  formulate  describing for  of production  and  estimate  t h e market  mushrooms  forces  i n produced  an which  econometric  model  a f f e c t t h e demand  i n B.C.  This  will  include  demand f u n c t i o n s f o r f r e s h and p r o c e s s e d mushrooms. well,  estimates of various  demand e l a s t i c i t i e s  As  w i l l be  computed. (4)  To formulate a mathematical model o f t h e B.C. mushroom industry,  incorporating  the r e s u l t s  production  and demand models, w i t h p a r t i c u l a r emphasis  on t h e e f f e c t s o f t h e p r o d u c t i o n (5)  of the cost  of  quota.  To use t h i s model t o a n a l y s e t h e w e l f a r e  implications  a r i s i n g from t h e s t r u c t u r e o f t h e i n d u s t r y . (6)  To  draw  policy  implications  f o r the  B.C.  mushroom  the  mushroom  industry.  1.3  Research Procedure  To industry analysis.  achieve  the  i n B.C. w i l l Using  demand and supply  objectives  outlined  be modelled  economic  theory,  using  above, a partial  the v a r i a b l e s  o f mushrooms i n B.C. w i l l  models o f market b e h a v i o r w i l l  be examined.  equilibrium which  affect  be s p e c i f i e d . Perfect  Two  competition  5 will  be  model.  modelled  by  equating  price  Monopoly b e h a v i o r w i l l  and  marginal  be modelled  cost  by e q u a t i n g  in  the  marginal  revenue t o marginal c o s t . The  parameters which  econometric  relationships.  affect A  demand w i l l  numerical  be  estimated  estimate  o f the  with  effect  t h a t p r i c e has on the q u a n t i t y o f mushrooms demanded by consumers w i l l then be c a l c u l a t e d , h o l d i n g a l l o t h e r v a r i a b l e s c o n s t a n t . The  parameters which a f f e c t supply w i l l be modelled  l i n e a r c o s t f u n c t i o n , minimized of  Substitution  (CES)  s u b j e c t t o a Constant  production  minimization  problem,  output l e v e l ,  p r i c e of i n p u t s , e l a s t i c i t y  inputs,  returns  and  parameters which are  then  will  are  a  to  function  can  as  parameters.  neccessary  to  specify  the  a  of  estimated.  Specifically,  From be  Elasticity the  cost  derived  with  of s u b s t i t u t i o n between  scale  cost  Some  of  the  supply f u n c t i o n production  model  be e s t i m a t e d i n o r d e r t o o b t a i n v a l u e s f o r p r i c e s of i n p u t s  i n the s u p p l y f u n c t i o n . to  supply  function.  using a  s c a l e and e l a s t i c i t y  A range o f p l a u s i b l e v a l u e s f o r r e t u r n s o f s u b s t i t u t i o n w i l l be assumed, based  on  p e r s o n a l communication w i t h producers i n the i n d u s t r y . A c t u a l market data w i l l then be used t o c a l i b r a t e the model, and market c l e a r i n g p r i c e s and q u a n t i t i e s are c a l c u l a t e d f o r the two  1.4  models o f market behavior, p e r f e c t c o m p e t i t i o n and monopoly.  T h e s i s Guide  The p l a n o f t h i s study i s as f o l l o w s :  6 Chapter including Chapter  1 i s a description  some  with  the national  industry.  In  2, a mathematical model o f t h e B.C. mushroom i n d u s t r y i s  formulated,  with  Specifically, quota  comparisons  o f t h e B.C. mushroom i n d u s t r y ,  has  manner.  particular  the  analysis  enabled A  emphasis  partial  on  the production  will  determine  the industry  t o behave  equilibrium analysis  whether in a  quota.  production monopolistic  i s employed  f o r two  models o f market b e h a v i o r - p e r f e c t c o m p e t i t i o n and monopoly.  The  parameters  are  estimated consumer mushrooms  which  i n Chapter demand  Demand  estimated.  mathematical model  needed  3.  theory.  produced  equations. are  are  in  f o r mushrooms  In B.C.  section is  Section i n B.C.  2.  discussion of  market  demand f o r  using  econometric  and p r o c e s s e d  mushrooms  4 presents  a cost  The c o s t  of inputs  of production a r e used  as  f u n c t i o n i n t h e mathematical model  The r e s u l t s o f t h e mathematical model o f i n Chapter  4.  Chapter 5  a d i s c u s s i o n o f t h e c o n c l u s i o n s and p o l i c y i m p l i c a t i o n s which  a r i s e from t h e r e s u l t s o f t h i s  1.5  two,  model  t h e parameters f o r demand i n t h e  the B.C. mushroom i n d u s t r y a r e presented is  mathematical  estimated  functions f o r fresh  parameters f o r t h e p r o d u c t i o n d e s c r i b e d i n Chapter  the  S e c t i o n one i s a b r i e f  These p r o v i d e  model.  in  study.  H i s t o r y o f t h e B.C. Mushroom I n d u s t r y  Mushrooms were c u l t i v a t e d o f t h e F.V.M.G.C.A.  i n B.C. l o n g b e f o r e t h e formation  In 1928, W i l l i a m T. Money, one o f t h e f i r s t  7 growers, also  started  a farm  i n operation  collective  i n Burnaby.  throughout  agreement  Several  the Fraser  was made amongst  o t h e r farms were  Valley.  I n 1931 a  t h e growers  t o a l l o w W.  Money t o t a k e over marketing o f mushrooms.  The agreement enabled  producers  mushroom  to  concentrate  full-time  on  production,  l e a v i n g t h e j o b o f s a l e s and promotion t o W. Money. By 1936, p r o d u c t i o n had reached a p o i n t where f r e s h mushroom supply exceeded formed  demand.  As a r e s u l t ,  t o p r o v i d e an a l t e r n a t i v e means o f marketing t h e s u r p l u s  t h a t c o u l d n o t be s o l d i n t h e f r e s h When W. Money r e t i r e d to  t h e Money Canning Co. was  market.  i n 1956, t h e F.V.M.G.C.A. was formed  take over d i s t r i b u t i o n  o f mushrooms.  The trademark  Money's  Mushrooms was purchased a t t h e same time f o r marketing o f f r e s h mushrooms. In  1963, s e v e r a l  new  growers  formed  Huntingdon Mushroom Company, which marketed w i t h t h e F.V.M.G.C.A. called  the United  their  own  company,  i n d i r e c t competition  I n 1964, y e t another company was formed,  Mushroom  Growers.  A  quote  from  Walter  L o e f f l e r , a producer who has been i n t h e i n d u s t r y f o r many y e a r s , summarizes t h e s i t u a t i o n , prices  dropped  " Competition was f i e r c e  drastically.  and mushroom  Many went out o f b u s i n e s s - o t h e r s  were b a r e l y hanging on". In 1966, t h e B.C. Mushroom Marketing Board formed  t o b r i n g producers t o g e t h e r under  (B.C.M.M.B.) was  a collective  marketing  umbrella and p u t an end t o t h e i n s t a b i l i t y which was a t t h a t time characteristic  of the industry.  The F.V.M.G.C.A. was chosen t o  8 be  the sole  marketing  selling  agency  f o r producers  i n B.C.  Packing and  c o s t s were f i n a n c e d by a commission on s a l e s o f member  production. Restrictions  on e n t r y  o f new producers,  i n t h e form o f  quotas on a r e a o f p r o d u c t i o n , were i n t r o d u c e d i n 1976.  Producers  were  with the  required  to register  existing  production  area  B.C.M.M.B., and a l i c e n s i n g f e e f o r quota was u t i l i z e d as a means of  raising  own p a c k i n g In  capital  t o f i n a n c e t h e purchase o f t h e a s s o c i a t i o n ' s  facilities.  1979, t h e F.V.M.G.C.A. opened i t s own p r o c e s s i n g p l a n t  w i t h t h e a s s i s t a n c e o f an ARDSA g r a n t .  The Money's Trademark f o r  p r o c e s s e d mushrooms, which was s t i l l under p r i v a t e ownership, was also  purchased. In  1982, p r o d u c t i o n  growing demand quota,  f o r f r e s h mushrooms.  f o r expansion,  new producers.  were  increased  Of t h e t o t a l  t o meet  s t o c k o f new  and t h e remaining  No new producers  5 percent  for potential  entered t h e i n d u s t r y .  S t r u c t u r e o f t h e B.C. Mushroom I n d u s t r y  The levels, the  quotas  95 p e r c e n t was t o be a l l o c a t e d t o e x i s t i n g producers who  applied  1.6  area  B.C. mushroom  t h e Marketing  producers.  industry  can be s p l i t  Board, t h e producer  up i n t o  three  owned a s s o c i a t i o n ,  and  9 1.6.1  Marketing Board  The the  B.C. Mushroom Marketing  mushroom  industry  i n B.C.  Board i s t h e g o v e r n i n g body o f The board  between t h e government and t h e mushroom board's d u t i e s footage  of  include  growing  acts  as t h e l i a i s o n  industry.  Some o f t h e  l i c e n s i n g producers, and l i c e n s i n g square area.  To  finance  i t s activities,  the  B.CM.M.B. has a l e v y p e r pound o f p r o d u c t i o n  ( i n 1986, 1/3 cent  per pound).  t o sign a contract  promising  Every y e a r producers a r e r e q u i r e d  to deliver  100 p e r c e n t  of production  d e s i g n a t e d s e l l i n g agency, t h e F.V.M.G.C.A.  t o t h e board's  Members o f t h e board  are e l e c t e d from producers.  1.6.2  F r a s e r V a l l e y Mushroom Growers C o - o p e r a t i v e  The It  F.V.M.G.C.A. i s a member owned c o o p e r a t i v e  i s controlled  elected  Association  from  by a Board  producers  of Directors,  i n the industry.  association.  whose  members a r e  The nature  of the  a s s o c i a t i o n as a grower's c o o p e r a t i v e exempts i t from income t a x , because  a l l income  members. the  which  i s earned  i s distributed  back t o  A l l o c a t i o n o f growing area t o members i s determined by  association. The  association  retailers, products label)  sells  and p r o c e s s o r s  canned  as w e l l  fresh (e.g.,  mushrooms Campbell's  by t h e a s s o c i a t i o n as through v a r i o u s  are sold  t o w h o l e s a l e r s and Soup). directly  Processed (Money's  s a l e s agents as no name brands  10 (e.g., S c o t c h Buy). Each month r e c e i p t s after  deducting  a  from  commission  mushrooms d e l i v e r e d d u r i n g greater  than  sales  the  t o cover  t h a t month.  actual  association with a p r o f i t . a t t h e end o f t h e y e a r .  a r e d i s t r i b u t e d t o growers operating  expenses f o r  The commission i s u s u a l l y  operating  expenses,  leaving  the  T h i s p r o f i t i s d i s t r i b u t e d t o members  Each member's share o f t h e d i s t r i b u t i o n  i s based on t h e volume o f patronage. Members o f t h e a s s o c i a t i o n each  square  foot  1986)  to  finance  facilities markets  of  of licensed  growing  acquisition  the  members'  a r e assessed a one time f e e f o r  of  the  F.V.M.G.C.A.  production  and  area  In  ( $1.00 p e r f t  member  return,  provides  owned the  growing  2  in  capital  association supplies  at  cost. The  association  also  operates  p r o v i d e s compost t o growers a t c o s t . significance economically  to  smaller  feasible  to  producers produce  a  This  service  who  would  their  enlargening the scale of t h e i r operation. required  to  production requires  produce  of  this  compost  input  is a  composting  own  which  i s of special not  find  compost  i t  without  The c a p i t a l investment  i s quite  very  wharf  large.  specialized  Also,  process  e x c e l l e n t management and t e c h n i c a l s k i l l s .  the which  In a d d i t i o n ,  producers enjoy t h e advantages o f not h a v i n g t o compete w i t h each other  f o r purchase  of of a  very  important  p r o d u c t i o n o f compost, namely horse manure. the  majority  o f producers  choose  t o purchase  input  used  i n the  F o r t h e s e reasons, compost  from t h e  wharf.  Any p r o f i t s which  a r e made by t h e composting wharf a r e  a l s o d i s t r i b u t e d back t o u s e r s o f t h e f a c i l i t y ,  p r o r a t a , a t the  end o f each y e a r .  1.6.3  P r o d u c t i o n Technology a t t h e Producer L e v e l  Mushrooms controlled half  are  grown  conditions.  An  t o t h r e e months.  weeks,  followed  growing  cycle,  mushrooms  grow  year  round  average  indoors  crop c y c l e  The p r e p a r a t o r y  of cropping.  a l l of  material  must  be  lasts  highly  two and a  stage u s u a l l y  by s i x weeks the  under  lasts six  A t t h e end o f each  substrate  on  which  c l e a n e d out o f t h e b u i l d i n g s  and  the new  m a t e r i a l loaded i n f o r t h e next c y c l e . Several usually way,  growing  weekly  mushrooms  rooms  (eg. l o a d  a r e employed  a building  on  a  rotation  every S a t u r d a y ) .  a r e cropped on a c o n t i n u a l b a s i s ,  basis, In t h i s  the production  from growing rooms which a r e c l e a n e d out b e i n g r e p l a c e d by rooms which  a r e ready  mushrooms The its  The  variation  i n supply o f  from week t o week i s s m a l l . l a g between t h e time a p r o d u c t i o n d e c i s i o n  realization  vegetable  crops  implication to  f o r harvesting.  factors  consumer production  ( s i x weeks) which  are  i s quite grown  short  on  an  i n comparison annual  o f a l l t h i s may be reduced v a r i a b i l i t y which  tastes)  a r e exogenous t o t h e producer because  producers  can  i s made and  quite  basis.  to The  i n p r i c e due  (e.g., quickly  changing adjust  l e v e l s by s t e p p i n g up/down t h e l e n g t h o f t h e growing  12 cycle.  However, i n the  upper bound (fixed  capital  c o s t s which are  l i m i t a t i o n s place  farm) and  on the s i z e of the adjustments.  t o want t o v a r y p r o d u c t i o n  an  a lower bound  incurred regardless  employment o f e x i s t i n g l a b o u r e r s of  capital  (the maximum c a p a c i t y o f the  o f production) likely  s h o r t run,  o f the  level  Producers are  not  d r a m a t i c a l l y , as c o n t i n u i t y i n i s d e s i r a b l e from the  viewpoint  stability. Mushrooms which are s o l d on the f r e s h market are produced as  a  joint  product w i t h  market.  That  mushrooms which are  is,  the  produced s e p a r a t e l y .  two  The  s o l d on  categories  of  the  processed  mushrooms  d i f f e r e n c e between f r e s h and  are  processed  mushrooms i s based on a measure of q u a l i t y as determined by shape,  and  quality  colour  level  criteria.  are  graded  Mushrooms for  sale  which  into  meet  the  the  size,  a  minimum  fresh  market.  Mushrooms which are below t h i s l e v e l o f q u a l i t y are Production  not  processed.  o f mushrooms always i n v o l v e s a c e r t a i n p r o p o r t i o n  total  which  does  not  meet the  fresh quality c r i t e r i a .  producer p r i c e s f o r f r e s h mushrooms i s h i g h e r mushrooms,  producers  strive  to  obtain  as  than f o r  high  a  of As  processed  proportion  of  f r e s h as p o s s i b l e .  1.7  Growth o f the N a t i o n a l  Mushrooms with  are  produced  major producing  Ontario.  In  1985,  Industry  centres  production  in  almost  every  i n southwestern i n Ontario  was  region B.C.  of  and  estimated  Canada, southern t o be  55  13 percent  of t o t a l  Canadian p r o d u c t i o n .  B.C.'s share  of  domestic  p r o d u c t i o n was 30 p e r c e n t . Between  1975  approximately  and  160 p e r c e n t ,  o n l y 42.9 p e r c e n t a  result  of productivity  existing  domestic  with  growing  production  increased  an i n c r e a s e i n growing  (see T a b l e 1.1).  f o o t o f c u l t i v a t e d area of  1985,  by  area o f  T h i s p r o d u c t i o n i n c r e a s e was  increases  i n terms  of l b s per  square  (2.57 t o 3.93) and more i n t e n s i f i e d usage  area.  The number  o f crops  c u l t i v a t e d has  i n c r e a s e d from 3.45 t o 4.93 crops p e r year.  T a b l e 1.1  year  T o t a l Growing Area, P r o d u c t i o n , and Y i e l d o f Mushrooms i n Canada total lbs  total area  1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975  6574 6124 6017 6838 6710 N/A N/A 5573 5422 4913 4601  c  99411 92325 82613 78512 72112 64517 54584 51230 46150 43782 40798  crops per y r  lbs per f1  a  3.93 3.84 3.75 3.59 3.66 N/A N/A 3.50 3.54 3.38 3.45  3.85 3.92 3.67 3.20 2.94 N/A N/A 2.62 2.40 2.64 2.57  Source: S t a t i s t i c s Canada (22-003) Mushroom Growers Survey (annual) c a l c u l a t e d , t o t a l area h a r v e s t e d / t o t a l area c u l t i v a t e d ^ c a l c u l a t e d , t o t a l l b s / t o t a l area h a r v e s t e d N/A, data not a v a i l a b l e a  C  Increased  production  has been  channeled  t o both  processed  14 and  f r e s h markets, however c l o s e r  regional  market  between  disappearance 1980-1981,  a t 12.5 t o 13 m i l l i o n  stable  fresh  In  market  demand  o f mushrooms  but has  steady  levels  reveal  since  i n B.C.  that  time  pounds a n n u a l l y .  may  be  increased  The  remained relatively  due t o t h e c u r r e n t l y  high  o f consumption b e i n g c l o s e t h e l i m i t s o f consumer demand.  1985, p e r c a p i t a  consumption  i n B.C. was  n a t i o n a l average was 3.1 l b s . In f a c t ,  fresh  market  expansion  appear  4.3  l b s while the  consumption i n t h e g r e a t e r  Vancouver area i s c u r r e n t l y t h e h i g h e s t for  o f t h e data  differences.  Fresh sharply  inspection  i n t h e world.  Potential  t o be e x c e l l e n t  in  eastern  Canada, as disappearance o f f r e s h mushrooms have i n c r e a s e d average  annual  rate  o f approximately  15 p e r c e n t  a t an  over t h e l a s t  decade. Nationally, strong been  processed mushroom disappearance has e x h i b i t e d a  upward t r e n d . supplied  Korea,  China  processed  by and  However, much o f t h e i n c r e a s e d  imports  from  Taiwan.  quantities  have  Pacific  In  Rim  eastern  virtually  countries  Canada,  remained  In B.C., processed q u a n t i t i e s have i n c r e a s e d  (Table  1.2), but t h e p r e s s u r e  decline  i n recent  years.  such  as  domestically  unchanged  1975.  o f imports  demand has  since  dramatically  has caused  prices to  Over 73 p e r c e n t o f domestic demand f o r  p r o c e s s e d mushrooms was s u p p l i e d  by imports i n 1985.  T a b l e 1.2  year 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975  T o t a l P r o d u c t i o n and Value o f Mushrooms i n B.C  FRESH quantity •000 l b 15332 15492 14506 13092 12624 11372 9479 9576 7361 6319 5321  value •000$  price per l b  25871 24679 21026 18517 16648 12616 9615 8744 6610 5189 3859  1.69 1.59 1.45 1.41 1.32 1.11 1.01 0.91 0.90 0.82 0.73  a  PROCESSED quantity '000 l b  value •000$  17063 15734 16346 11999 6948 6487 4534 3545 3549 1797 1926  11085 9990 10071 7988 5299 4663 3245 2125 2131 896 949  price per l b ' 0.65 0.63 0.62 0.67 0.76 0.72 0.72 0.60 0.60 0.50 0.49  Source: S t a t i s t i c s Canada (22-003) Mushroom Growers Survey (annual) a  wholesale  p r i c e , c a l c u l a t e d as v a l u e / q u a n t i t y  T a b l e 1.3 T o t a l P r o d u c t i o n and Value o f Mushrooms i n Canada ( e x c l u d i n g B.C.)  year 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975  FRESH quantity '000 l b 54520 49869 40884 39271 38640 35329 31522 28397 23723 21886 17348  value •000$  price per l b  77577 70504 56821 52819 49540 39780 33619 27191 21681 17788 13374  1.42 1.41 1.39 1.34 1.28 1.13 1.07 0.96 0.91 0.81 0.77  a  PROCESSED quantity '000 l b  value '000$  price per l b  12496 11230 10877 14150 13900 10823 9049 9712 11517 13780 16202  9726 8900 8204 10975 11077 8624 6745 6362 6868 7232 8025  0.78 0.79 0.75 0.78 0.80 0.79 0.75 0.66 0.60 0.52 0.50  Source: S t a t i s t i c s Canada (22-003) Mushroom Growers Survey (annual) a  wholesale  p r i c e , c a l c u l a t e d as v a l u e / q u a n t i t y  a  16 1.8  Unique F e a t u r e s of the B.C.  Centralized  Industry  marketing/sales/promotion  through  V a l l e y Mushroom Grower's C o o p e r a t i v e A s s o c i a t i o n widespread  acceptance  essential  commodity  a b i l i t y o f the  of  in  mushrooms  the  vegetable  high  industry  levels  resulted  retailers  section  of  as  in an  stores.  The  consumption  f a c t o r which  closeness  In  addition,  f r e s h market. i s not  owned by the The of  sold  fresh  on  not  the  association  fresh  i n t o the  the  given  the  relatively  a  mushrooms  year  control  processing  over p r i c e s  plant  in  product  which i s  in  s u p p l i e s more than 90 B.C.  i n d u s t r i e s which  round b a s i s .  The  It  production  small  expansion  one  to  quantities  t h r e a t t o the  capacity  is  i s able  a r r i v e from the U n i t e d S t a t e s  l a r g e r shipments i n t o B.C. market  i n B.C.  consumed  y e t pose a s e r i o u s  American  has  also  association.  mushroom i n d u s t r y  percent) t h a t do  important  and  T h i s i s made p o s s i b l e by d i v e r t i n g any  v e g e t a b l e commodity so  i s very  (Vancouver  of  s h e l f l i f e mushrooms have i n comparison t o o t h e r v e g e t a b l e  crops.  that  centre  The  retail  the  urban  B.C.  mainland) f a c i l i t a t e s e f f i c i e n t d e l i v e r y o f the product t o  short  large  in  lower  a  a  of  s i n g l e most important reason f o r  the  outlets,  to  food  has  Fraser  i n d u s t r y t o supply mushrooms on a y e a r round b a s i s  w i t h r e g u l a r i t y i s probably the the  by  the  of  percent the  consistently  do  ( l e s s than  10  (Washington, Oregon)  f r e s h market i n B.C.,  i s currently  not  enough t o  In a d d i t i o n , the p o t e n t i a l f o r  i s much g r e a t e r  i n the  few  U.S.  Pacific  as  supply fresh  Northwest  17 than  i n B.C.,  highest  per capita  i n North America.  favored per  where  consumption  Imports  i s already  from t h e U.S. a r e c u r r e n t l y  by a low t a r i f f o f only 5 p e r c e n t ad valorem p l u s  pound.  In c o n t r a s t ,  the  5 cents  mushrooms going from B.C. i n t o t h e U.S.  face a t a r i f f o f 25 p e r c e n t p l u s 5 c e n t s p e r pound. The small, the  existence  family  of the a s s o c i a t i o n  operated farms t o be e c o n o m i c a l l y v i a b l e .  facilities  that  the a s s o c i a t i o n  have t o package, market the each  has made i t p o s s i b l e f o r  association producer  and d e l i v e r  operated  compost  to invest  each  farm  would  i t s own p r o d u c t i o n .  wharf e l i m i n a t e s  i n the c a p i t a l  prepare t h i s major i n p u t . have t o i n c r e a s e  provides,  Without  Also,  t h e need f o r  equipment  required  to  Undoubtedly, many B.C. producers would  i n s i z e t o take advantage o f s c a l e economies i f  the s e r v i c e s p r o v i d e d by t h e a s s o c i a t i o n were not a v a i l a b l e . Mushroom  production  p r o d u c t i o n quotas producers.  control have  productivity  per u n i t  t h e r e s u l t i s an i n d u s t r y  over q u a n t i t i e s  increased  capital  i s controlled  and  by a l l o c a t i n g  i n terms o f square footage o f growing area t o  Since  variable,  i n B.C.  of c u l t i v a t e d  which does not e x h i b i t  which a r e p l a c e d  on t h e market.  as a r e s u l t o f ongoing t e c h n i c a l crop  management.  area i s  This  firm  Yields  innovations i n  trend  of  increasing  p r o d u c t i v i t y shows no s i g n o f slowing down, p a r t i c u l a r l y i n l i g h t of  continuing  delayed etc. deciding  release In  research nutrient  addition,  on  hybrid  supplementation,  each  the intensiveness  new  producer  has  strains  of  shorter some  mushrooms,  crop  cycles,  flexibility  in  o f usage f o r e x i s t i n g square footage.  18 1.9  Comparison o f t h e B.C. I n d u s t r y w i t h Rest o f Canada  Mushroom farms i n t h e r e s t o f Canada a r e predominantly f i r m type o p e r a t i o n s . counterparts, which  marketing. with  This  the l a r g e s t  1986,  the  producers  o f a farm  production,  i s particularly volume  packing true  o f mushroom  Mushroom  into  individual  and  Growers  than  farms  i n the other  their  facilities  provinces  B.C. c o u n t e r p a r t s ,  as each  reported  In 24  area.  growing  investment  provinces.  The B.C. per unit  The data  of c u l t i v a t e d  p e r square f o o t  area  than  the other  f i g u r e s have been c a l c u l a t e d , and  o f a c o n s i s t e n t l y lower c a p i t a l  Mushroom p r o d u c t i o n  investment  than the  3  i s a labour  costs, p a r t i c u l a r l y  increase p r o d u c t i v i t y . 6.53  and  f o r B.C. does not i n c l u d e c a p i t a l v a l u e o f  r e s t o f Canada s t i l l h o l d t r u e .  production  packaging  i n d u s t r y c o n s i s t e n t l y has a s m a l l e r  the F.V.M.G.C.A., but a d j u s t e d results  capital  farm must have  f o r a l l phases o f p r o d u c t i o n ,  of  from  i n Canada.  a r e more  Table 1.4 compares c a p i t a l investment  the  and  the province  Association  marketing.  capital  shipping,  i n Ontario,  production  units  i n O n t a r i o , compared t o 73 i n B.C.  intensive own  in  Canadian  Mushroom  its  The farms a r e much l a r g e r than t h e i r B.C.  enabling d i v i s i o n  specialize  large  i n t e n s i v e process.  labour, have motivated  Rising  farmers t o  In B.C. y i e l d s p e r square f o o t i n c r e a s e d  i n 1975 t o 15.09 i n 1985  (Table  1.4).  Many  -'Adjusted f i g u r e s a r e not r e p o r t e d , as c a p i t a l the a s s o c i a t i o n f a c i l i t i e s i s c o n f i d e n t i a l .  capital  value f o r  19 innovations allowed  have  savings  intensification  been  i n labour i n the  c a p i t a l investment investment $ 13.85  the  the  last  enhancements  i n d u s t r y i s apparent  decade  stages  cropping  i n the  have  Capital  increases i n  In B.C., i n 1975  capital to  1.4).  i n n o v a t i o n s have  o n l y been r e a l i z e d  o f mushroom p r o d u c t i o n . stage  which  in yield.  f o o t i n c r e a s e d from $ 5.77  (Table  However, these  for  and  in  per u n i t o f c u l t i v a t e d a r e a .  per square  i n 1985  preparatory  adopted  Labour  have remained unchanged.  i n the  requirements Harvesting  is  the s i n g l e most l a b o u r i n t e n s i v e stage, w i t h c o s t s t h a t can range from 15 t o 20 p e r c e n t of t o t a l p r o d u c t i o n c o s t s .  TABLE 1.4  year 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975  C a p i t a l Investment and Y i e l d s , per square f o o t o f Growing Area, f o r B.C. and the Rest o f Canada  BRITISH COLUMBIA cap/ft lb/ft/year 2 a  $ 13.85 12.24 14.55 14.33 13.85 N/A N/A 8.54 7.72 6.77 5.77  c  15.09 14.50 14.56 11.83 9.32 N/A N/A 7.83 6.63 5.88 6.53  2 b  REST OF CANADA cap/ft b/ft/year 2 a  $ 24.73  23.51 23.07 19.78 20.27 N/A N/A 12.29 9.72 9.17 8.22  2 b  15.14 15.39 13.28 11.33 11.39 N/A N/A 7.96 6.92 7.14 6.32  Source: S t a t i s t i c s Canada (22 -003) Mushroom Growers Survey (annual) c a l c u l a t e d , v a l u e c a p i t a l / r e g i s t e r e d growing a r e a data f o r B.C. does not i n c l u d e c a p i t a l v a l u e of the F.V.M.G.C.A. f o r reasons of c o n f i d e n t i a l i t y ^ c a l c u l a t e d , t o t a l p r o d u c t i o n / r e g i s t e r e d growing area N/A data not a v a i l a b l e a  C  the  Mechanized h a r v e s t i n g , used  i n some c o u n t r i e s which process  bulk  is  of  Canadian Product  their  production,  producers which  processing.  because  of  their  i s mechanically Processed  currently fresh  harvested  not  feasible  market  is  for  orientation.  only  suitable  mushrooms must compete w i t h  for  lower  price  a t t r a c t i v e than the  fresh  imports,  making t h a t market much l e s s  market.  S i n c e o n l y 29 p e r c e n t of Canadian p r o d u c t i o n i n 1985  processed,  adoption  of  such  technology  is  not  was  economically  feasible. Even  in  B.C.,  production  in  harvesting  would  producers.  The  technology  could  where  1986  slightly  was  not  processed,  be  be  capital  than  50  adoption  economically  additional only  more  f i n a n c e d by  of  feasible  investment the  percent  of  mechanized for  smaller  required for this  larger  producers,  as  s c a l e economies are i n v o l v e d . The  processed  mushroom  residual  market  for  Competing  imports  are  relative  to  the  the  mushroom  i n Canada  product  which  cannot  currently  priced  at  domestic  p r o c e s s e d mushrooms.  market  cost  of  i s essentially be  sold  levels  production  fresh.  which are for  a  fresh  low and  For t h i s reason, the c o n t i n u e d v i a b i l i t y of  industry i s very  much  dependent  on  sales to  the  power  set  f r e s h market.  1.10  P r i c i n g Conduct i n the B.C.  The  B.C.  Mushroom  Marketing  Mushroom I n d u s t r y  Board  has  the  to  21 prices  a t t h e wholesale  level,  influenced  by two f a c t o r s :  not  the association's  under  prices  are  affected  but i t s p r i c i n g  (a) t h e q u a n t i t y  by  control  prices  of  and  behaviour i s  t h a t must be s o l d i s  (b) p r o c e s s e d  competing  mushroom  imports.  The  a s s o c i a t i o n o p e r a t e s i n t h e f o l l o w i n g manner: 1. Mushrooms a r e graded f o r f r e s h and p r o c e s s e d q u a l i t i e s a t the  farm  level  and  shipped  i n bulk  containers  t o the  cooperative. 2. Upon r e c e i p t , plant  t h e mushrooms a r e graded a t t h e packaging  t o ensure u n i f o r m i t y  i n grading  standards  fora l l  producers. 3. F r e s h q u a l i t y mushrooms a r e packaged and s o l d t o r e t a i l c h a i n o u t l e t s and wholesale d i s t r i b u t o r s a t a p r i c e f i x e d by  the B r i t i s h  price  applies  Columbia Mushroom Marketing t o a l l customers  and i s r e v i s e d  t w i c e a year, as market c o n d i t i o n s 4.  Board.  This  once o r  change.  F r e s h q u a l i t y mushrooms which have not s o l d on t h e f r e s h market  are  pooled  with  processing  transferred  t o t h e cannery  processors,  such as Campbell's.  storable, It  excess  facility  of  fresh  t o process  market  product  or sold  to  and other  F r e s h mushrooms a r e not  as they have a s h e l f l i f e  i s the a b i l i t y  grade  of only  mushrooms  requirements  that  a few days.  which  are i n  enables the  a s s o c i a t i o n t o e x e r c i s e p r i c e s e t t i n g powers i n t h e f r e s h market. 5. Pool  prices  are established  f o r each  grade,  based  on  a c t u a l q u a n t i t i e s s o l d on t h e market.  Producers  receive  payment based on t h e q u a n t i t i e s o f each grade they have shipped  t o the association.  Thus t h e q u a n t i t y  produced and shipped o f each grade d i f f e r s actually  s o l d , but a l l producers r e c e i v e  that i s  from what i s  t h e same p r i c e  f o r t h e r e s p e c t i v e grades because o f p r i c e p o o l i n g . eliminates  the  need  to  keep  track  of  This  individual  producer's product as i t i s p l a c e d onto t h e market.  1.11  Recent Developments  In  recent  mushroom  years,  industry  production  some  with  changes  respect  to  have  taken  place  the b a r r i e r s  i n the  to  entry,  cutback, and problems w i t h t h e u n i t y o f members i n t h e  association.  Taken  together,  these  events  have  had  a  d e s t a b i l i z i n g i n f l u e n c e on t h e i n d u s t r y .  1.11.1  The B.C.  B a r r i e r s t o E n t r y i n t h e B.C. Mushroom  o r i g i n o f a u n i f i e d marketing umbrella f o r producers i n  began  However,  Industry  with  the inception  t h e mushroom  management  control  industry  until  1972.  o f t h e F.V.M.G.C.A. i n B.C. was  i n 1956.  n o t under  Prior to that,  supply  producers were  a b l e t o f r e e l y e n t e r and e x i t t h e i n d u s t r y . Recent  developments  pertaining  t o t h e extent  of  supply  management i n t h e mushroom i n d u s t r y have r e s u l t e d i n a new p o l i c y  from  the B r i t i s h  Columbia  Ministry  of Agriculture.  January 1, 1986, any i n d i v i d u a l who a p p l i e s can  t o produce mushrooms  o b t a i n a permit from t h e B r i t i s h Columbia Mushroom Marketing  Board.  No  restrictions  are placed  p r o d u c t i o n t h a t may be a p p l i e d The  change  individuals system  i n policy  thrust  on t h e square  was  a  result  o f complaints  on t h e i n a c c e s s i b i l i t y o f t h e i n d u s t r y  who d i d not belong  t o t h e F.V.M.G.C.A.  1  supply  new p o l i c y management  f o r the B r i t i s h  any i n d i v i d u a l  individual buying  can g a i n  membership  still  important  be  marketed  implications,  F.V.M.G.C.A.  l e v e l of  mushroom  industry.  mushrooms,  t h e F.V.M.G.C.A.  member's shares  a l l mushrooms  the actual  t o produce  into  right  choice.  Columbia  has t h e r i g h t  out an e x i s t i n g  addition,  the  has not y e t a f f e c t e d  to  The main  o f t h e argument was c e n t e r e d around t h e i n d i v i d u a l s  The  from  C r i t i c i s m of the existing  t o earn a l i v i n g i n t h e o c c u p a t i o n o f h i s / h e r  While  footage o f  for.  o u t s i d e t h e F.V.M.G.C.A.  was focussed  individuals  must  Effective  no  without  i n the association.  In  grown i n t h e B.C. lower mainland  area  through  t h e F.V.M.G.C.A.  This  has  because w h i l e non-members have access t o  facilities,  they  are  under  the  following  restrictions: 1. Compost, a major i n p u t supplied compost  i n t h e p r o d u c t i o n p r o c e s s i s not  t o non-members. wharf  cannot  The a s s o c i a t i o n  handle  any e x t r a  f e e l s that the  capacity  without  a d v e r s e l y a f f e c t i n g e x i s t i n g members. 2.  Growing  supplies  (pesticides,  spawn,  e t c . ) are  24 a v a i l a b l e t o non-members a t a 35 p e r c e n t 3.  A  10  percent  non-member  surcharge  product  on g r o s s  which  is  surcharge.  delivery  marketed  credit for through  the  association. 4. No q u a r t e r l y o r annual d i v i d e n d payout t o non-members  The  restrictions,  deterrent  to  preferential  new  stability  from  entrants,  treatment  association.  apart  are  an e f f e c t i v e  designed  because o f t h e i r  Additionally,  of prices  being  there  give  members  invested c a p i t a l  is  i n t h e market,  to  economic  a  desire  a goal  to  which  may  i n the promote be  best  achieved by m a i n t a i n i n g a s i n g l e s e l l i n g agent f o r mushrooms.  1.11.2  P r o d u c t i o n Withdrawal  Consumption o f f r e s h mushrooms i n B.C. has been stable f o r several years.  relatively  T o t a l p r o d u c t i o n o f mushrooms has a l s o  been s t a b l e , w i t h o n l y moderate i n c r e a s e s o f l e s s than 5 percent for  the years  1984  to  1986.  As  total  production  mushrooms exceeds market demand, t h e s u r p l u s has been to  the processed  market.  The processed  i n 1986,  imported  the s i t u a t i o n  changed  channeled  costs of production,  dramatically.  P r i c e s of  processed mushrooms d e c l i n e d c o n s i d e r a b l y , mainly due t o  p r i c e r e d u c t i o n s on shipments from mainland China. domestic  fresh  market, up u n t i l 1985,  p r o v i d e d a r e t u r n s u f f i c i e n t t o cover t o t a l but  of  processed  product  eroded  to levels  The p r i c e f o r  below  production  costs. both  Some producers,  f r e s h and  1985,  processed  mushrooms and  were f a c e d w i t h l o s s e s i n In 1987,  of  a f t e r a year o f s t r o n g market p r i c e s f o r  a d e c i s i o n was  high  l e v e l s of p r o f i t  in  1986.  made by producers  t o s e t up a system  v o l u n t a r y p r o d u c t i o n withdrawal f o r a temporary p e r i o d o f s i x  months, w i t h market  an  option  conditions  volunteered  for  to  were  still  this  F.V.M.G.C.A. of $ 0.25  reapply  for a  f u r t h e r s i x months i f  unfavourable.  program  received  Producers payment  who  from  the  per square f o o t o f growing area s e t a s i d e  (adequate t o cover f i x e d c o s t s f o r most p r o d u c e r s ) . All aside  producers  from  were t o  sales.  The  finance t h i s  i n t e n t of  q u a n t i t i e s o f mushrooms going  the  plan, plan  by  was  i n t o processed  s e t t i n g money to  reduce  grade, w h i l e  s u p p l y i n g as much f r e s h grade as the market would absorb. feasible in  the  as  a s h o r t run s o l u t i o n , t h i s p l a n cannot be  l o n g run without  association  requires  a  the still  While  sustained  i n c r e a s i n g the s a l e s commission, as minimum  volume  of  member  the  patronage  to  cover c o s t s o f o p e r a t i o n . P r o d u c t i o n withdrawal was 1987,  total  s i m i l a r t o 1983  1.11.3  production production  The Marketing  The industry  continued well  i n i t i a t e d March 1,  decreased  approximately  20  By  May,  percent,  levels.  C o n t r a c t and Problems o f Enforcement  problems of b o o t l e g g i n g  attest  1987.  to  the  fact  that  i n the B.C.  poor  mushroom  enforcement  of  a  26 marketing  contract  results  i n abuse o f t h e system,  particularly  when producer p r i c e s a r e depressed r e l a t i v e t o normal y e a r s . Bootlegging,  or the i l l e g a l  sales  o f mushrooms  from t h e  farm, i s a problem which has had a d e s t a b i l i z i n g i n f l u e n c e on t h e industry  i n recent  themselves  to  association. discourage  years.  deliver  100  Growers percent  However, no system  abuse  Directors  court.  o f t h e marketing  contract.  This  prove  was  were  the  association,  extremely  average  I n 1985, s e v e r a l  being  brought t o  as a r e s u l t  an e f f e c t i v e  of  illegal  d e t e r r e n t , as  difficult.  1987, t h e combination o f s e v e r a l f a c t o r s l e d t o a r i f t i n with  several  t h e i r annual marketing been  t o the  t o damages which t h e  m o n i t o r i n g producer b o o t l e g g i n g i s extremely In  product  and subsequently  incurred  f a r from  binding  t o t h e a t t e n t i o n o f t h e Board  o f t h e F.V.M.G.C.A.,  could  contract  their  I n a l l cases, p e n a l t y was l i m i t e d  association sales.  of  a  o f p e n a l t i e s was i n s t i t u t e d t o  cases o f b o o t l e g g i n g were brought of  sign  price  bootlegging effectively  producers  contracts.  activity control  i n 1986.  resulting  the  i n a v e r y low  In a d d i t i o n ,  and t h e i n a b i l i t y i t was  n o t t o renew  Processed mushroom p r i c e s had  low t h e p r e v i o u s year, f o r producers  choosing  increase i n  of the association to  source  of  much  producer  dissatisfaction.  1.11.4  The  F a c t o r s A f f e c t i n g t h e V i a b i l i t y o f t h e F.V.M.G.C.A.  fixity  of  factor  inputs  i n the f a c i l i t i e s  of the  F.V.M.G.C.A. makes i t c r u c i a l t h a t t h e volume o f member patronage not  be s u b j e c t  revenue,  as  to large do  many  fluctuations. other  marketing  percentage commission on s a l e s . required Capital level  The F.V.M.G.C.A. agencies,  obtains  through  a  A minimum l e v e l o f patronage i s  i n o r d e r t o generate s u f f i c i e n t revenue t o c o v e r c o s t s . a c q u i s i t i o n s a r e u s u a l l y made on t h e b a s i s  of a c t i v i t y .  Labour  requirements  i n f l e x i b i l i t y as union labour The  current  vulnerable  some downward  i s employed.  structure  t o members  exhibit  o f a planned  leaving  of  the  F.V.M.G.C.A.  the a s s o c i a t i o n .  makes i t  The marketing  c o n t r a c t t h a t a l l members s i g n i s renewed on an annual b a s i s . In a d d i t i o n ,  several  producers have r e c e n t l y  obtained a l i c e n s e  t o a l s o a c t as a s e l l i n g agent, e f f e c t i v e October 15, 1988. court  decision  suit.  The  bootlegging, voluntary  makes i t p o s s i b l e  decrease members  production  in financial  i n volume leaving  This  f o r o t h e r producers t o f o l l o w of  business  the association,  as  a  result  of  and t h e ongoing  withdrawal program, have p u t t h e a s s o c i a t i o n  difficulties.  CHAPTER 2  A MATHEMATICAL MODEL OF THE B.C. MUSHROOM INDUSTRY  In in  this  chapter,  a mathematical  model o f demand and supply  t h e B.C. mushroom i n d u s t r y i s presented.  used  t o determine  producers  collectively  equilibrium model  whether t h e market exercise  analysis w i l l  solves  be  i s c o m p e t i t i v e , o r whether  monopoly  be employed.  f o r a r e : market  The model w i l l  power.  A  partial  The v a r i a b l e s which the  clearing  price  and  quantity of  mushrooms, and q u a n t i t y o f i n p u t s used i n t h e p r o d u c t i o n p r o c e s s . All  other  variables,  such  as consumer  income,  prices  o f other  by l i n e a r  equations  goods, e t c . , a r e h e l d c o n s t a n t . Market demand f o r mushrooms i s modelled i n p r i c e and q u a n t i t y . minimizing Elasticity The followed  a  producer  Market supply o f mushrooms i s modelled by cost  of Substitution demand  model  function,  subject  to  a  Constant  (CES) p r o d u c t i o n technology.  i s presented  i n section  by t h e supply model i n s e c t i o n  the m o d e l l i n g o f market e q u i l i b r i u m .  2.  1.  This i s  Section 3 outlines  In s e c t i o n 4, a d i s c u s s i o n  of w e l f a r e measurement u s i n g t h e concept o f consumer and producer surplus  i s presented.  a g r i c u l t u r a l quota  Lastly,  i n section  i s presented. 28  5, an a n a l y s i s o f an  29 2.1  Demand Model  The demand four  f o r mushrooms produced  sub-markets  according  to  i n B.C. i s d i v i d e d  the d i f f e r e n t  categories  into for  consumption: 1. R e t a i l demand f o r mushrooms consumed f r e s h i n B.C. 2. Export demand f o r mushrooms consumed  fresh  o u t s i d e o f B.C. 3. D e r i v e d demand f o r mushrooms by o t h e r p r o c e s s o r s , such as Campbell•s. 4. D e r i v e d demand f o r mushrooms p r o c e s s e d by t h e F.V.M.G.C.A. and s o l d i n Canada.  Fresh  mushroom  demand  i n B.C.  modelled as a l i n e a r f u n c t i o n (1) X  f  = c - bP  a t the r e t a i l  level  is  i n p r i c e and q u a n t i t y :  f  where Xf = q u a n t i t y  o f f r e s h mushrooms demanded  Pf = r e t a i l p r i c e o f f r e s h mushrooms Export demand f o r f r e s h mushrooms shipped out o f B.C. i s assumed to  be p e r f e c t l y  sold  t o other  elastic processors  a t 1986 p r i c e s . are also  Similarly,  assumed  t o have  mushrooms perfectly  e l a s t i c demand a t 1986 p r i c e s . (2)  PI = PI  (3)  P2 = P2 where PI and P2 a r e 1986 wholesale p r i c e s f o r f r e s h mushrooms s o l d o u t s i d e B.C. and mushrooms s o l d t o  30 processors These  respectively  assumptions  a r e made  i n the i n t e r e s t  of simplifying  the model, as separate e s t i m a t i o n o f these two submarkets i s not possible  due t o data  limitations.  These  two markets  a c t as  r e s i d u a l markets f o r f r e s h mushrooms which cannot be s o l d i n B.C. Also,  these  two markets make up l e s s  than  20 p e r c e n t  p r o d u c t i o n i n B.C., so any e r r o r i n t r o d u c e d by t h e s e  of t o t a l  assumptions  s h o u l d n o t a f f e c t s e r i o u s l y t h e r e s u l t s o f t h e model. D e r i v e d demand f o r mushrooms processed by t h e a s s o c i a t i o n i s assumed t o be p e r f e c t l y e l a s t i c a t 1986 p r i c e (4)  levels:  Pp - Pp" where Pp = wholesale p r i c e o f mushrooms p r o c e s s e d by the F.V.M.G.C.A.  That  i s , t h e B.C. mushroom  p r o c e s s e d mushroom market.  industry  two  processed  reasons,  based  taker  i n the  The p r i c e f o r mushrooms processed i n  B.C. i s assumed t o be determined imported  i s a price  mushrooms.  l a r g e l y by p r i c e s  T h i s assumption  on t h e econometric  o f competing  i s justified for  r e s u l t s presented l a t e r i n  c h a p t e r 3: 1. Near import  one  t o one  correspondence  between  domestic  and  price.  2. Q u a n t i t y v a r i a b l e  not s i g n i f i c a n t l y d i f f e r e n t  i n t h e p r i c e dependent r e g r e s s i o n e q u a t i o n . domestic  level  statistically  o f processed measurable  p r o c e s s e d mushrooms.  mushroom  effect  from  zero  That i s , t h e  p r o d u c t i o n has no  on t h e p r i c e  l e v e l of  A  diagramatic  i s presented  r e p r e s e n t a t i o n o f t h e B.C. mushroom i n d u s t r y  i n F i g u r e s 2.1 t o 2.4 below:  Quantity  X  wholesale  X  farm  (lbs)  F i g u r e 2.1 B.C. F r e s h Market Demand  X wholesale  X farm  Quantity (lbs)  F i g u r e 2.3 D e r i v e d Demand by Other P r o c e s s o r s  X  wholesale  X  farm  Quantity (lbs) F i g u r e 2.2 F r e s h Market Demand (out o f B.C.)  X  whnlpsale  X  farm  Quantity (lbs)  F i g u r e 2.4 D e r i v e d Demand f o r B.C. Processed  Fresh product.  and processed The f r e s h  mushrooms  mushrooms  a r e produced  are s p l i t  into  two  as  a  joint  components,  s a l e s w i t h i n B.C. and s a l e s o u t s i d e o f B.C. (5) (6)  X  f  = aX  X f l = klX  where:  X = t o t a l p r o d u c t i o n o f mushrooms i n B.C., f r e s h and processed Xf = q u a n t i t y o f f r e s h mushrooms marketed as f r e s h i n B.C. a = p r o p o r t i o n o f X which i s marketed as f r e s h w i t h i n B.C. X f l = q u a n t i t y o f f r e s h mushrooms marketed as f r e s h o u t s i d e o f B.C. k l = p r o p o r t i o n o f X which i s marketed as f r e s h o u t s i d e o f B.C.  Processed  mushrooms  mushrooms shipped  are also  split  into  two  components,  t o o t h e r p r o c e s s o r s and mushrooms processed a t  the F.V.M.G.C.A. (7)  Xp2 = k2X  (8)  Xp  = (l-a-kl-k2)X  where  Xp2 =  q u a n t i t y o f processed  mushrooms  shipped  to other processors k2 =  proportion  of X  which  i s shipped  to  other processors Xp =  quantity  o f processed  by t h e F.V.M.G.C.A.  mushrooms  canned  The  industry  average  weighted  combination  markets,  adjusted  price  received  by  producers  is a  o f t h e p r i c e s o b t a i n e d i n t h e f o u r separate  f o r t h e w h o l e s a l e - r e t a i l margin and  marketing  costs: (9) P = a[(Pf-M)(1-CF)]  + k l [ P l ( l - C F l ) ] + k2[P2(l-CP)]  + (l-a-kl-k2)[P (1-CP)] p  where M =  R e t a i l - W h o l e s a l e margin  CF =  Commission  (as a f r a c t i o n o f one) on f r e s h  mushrooms s o l d i n B.C. CF1 =  Commission on f r e s h mushrooms s o l d o u t s i d e o f B.C.  CP =  Commission  on  mushrooms  destined  for  processing From (1), t h e p r i c e Pf can be expressed as f o l l o w s (10) P  f  Substituting  =  (c-X )/b  =  (c-aX)/b  f  (10) i n t o  (9) and r e a r r a n g i n g terms g i v e s  (11) P = (ac/b-aM)(1-CF) + k l [ P l ( l - C F l ) ] + [k2P2 + ( l - a - k l - k 2 - ) P ] ( 1 - C P ) + a / b ( l - C F ) X 2  p  The  total  revenue  f u n c t i o n (TR) i s o b t a i n e d  by m u l t i p l y i n g t h e  p r i c e f u n c t i o n w i t h t o t a l q u a n t i t y s o l d X: (12) TR = dX - f X  2  where d = (ac/b-aM)(1-CF) + k l [ P I ( 1 - C F 1 ) ] +  [k2P2+(l-a-kl-k2)P ](1-CP) p  f = a /b(l-CF) 2  Finally,  marginal  revenue  (MR)  i s obtained  by  differentiating  34 t o t a l revenue w i t h r e s p e c t t o q u a n t i t y X: (13) MR = 6TR/6X = d - 2fX  2.2  Supply Model  On t h e supply s i d e , p r o d u c t i o n modelled u s i n g  a CES technology  i s assumed t o be  (Arrow e t a l . ) .  "reasonably"  The p r o d u c t i o n  function i s : (14) X = G(DK + (1-D)L)" /P V  where X = t o t a l  production  K = l e v e l of fixed  inputs  L = l e v e l of v a r i a b l e inputs D = d i s t r i b u t i o n parameter G = scaling factor v = r e t u r n s t o s c a l e parameter p = s u b s t i t u t i o n parameter Fixed  inputs  a r e mainly  composed  of buildings  and  equipment.  V a r i a b l e i n p u t s i n c l u d e a l l i n p u t s which a r e purchased f o r use i n the  production  process  and whose l e v e l s  of u t i l i z a t i o n  may  be  v a r i e d as economic c o n d i t i o n s change. The  c o e f f i c i e n t G i s a s c a l i n g f a c t o r which v a r i e s a c c o r d i n g  t o t h e u n i t s i n which output Returns  to  scale  and i n p u t s a r e measured.  i s captured  by  t h e parameter  v.  An  i n c r e a s e i n both i n p u t s by a f a c t o r 9 would r e s u l t i n an i n c r e a s e in  output  increasing  of G . v  returns  Therefore,  the production  t o s c a l e technology  function exhibits  when v  > 1,  decreasing  r e t u r n s t o s c a l e when v < 1, and c o n s t a n t r e t u r n s t o s c a l e when v = 1. The CES  c o e f f i c i e n t p i s a s u b s t i t u t i o n parameter.  production function  functions,  depending  encompasses a whole f a m i l y  on t h e v a l u e o f p.  This  the d e r i v a t i o n o f t h e e l a s t i c i t y o f s u b s t i t u t i o n  In f a c t , the of production  i s apparent  from  (Walters, p.286)  between i n p u t s K and L: (15) The  b = e l a s t i c i t y of s u b s t i t u t i o n = l/(l+p)  higher  the value  substitution.  of  The v a l u e  p,  the  lower  o f p cannot  approaches -1, t h e e l a s t i c i t y  the  be l e s s  elasticity  than  -1.  of  As p  o f s u b s t i t u t i o n tends t o i n f i n i t y .  At t h e o t h e r extreme, as p approaches i n f i n i t y , t h e e l a s t i c i t y o f subsititution  approaches  c o e f f i c i e n t s , or Leontief  zero,  as  technology.  in  the  case  of  fixed  When p = 0, t h e e l a s t i c i t y  of s u b s t i t u t i o n i s 1 g i v i n g r i s e t o a Cobb Douglas technology. The  d i s t r i b u t i o n parameter D, t o g e t h e r w i t h t h e s u b s t i t u t i o n  parameter factors.  p  determines  the  distribution  income  To see t h i s , t h e s o l u t i o n f o r a c o m p e t i t i v e  where t h e m a r g i n a l r a t e o f s u b s t i t u t i o n  between  equilibrium  i s equal t o t h e r a t i o o f  factor p r i c e s gives r e s u l t s i n the following al,  of  expression  (Arrow e t  p.233), (16)  WL/RK = D/(1-D)*(K/L)P  When t h e s u b s t i t u t i o n  parameter i s equal t o 0, ( u n i t  elasticity  of s u b s t i t i o n between i n p u t s ) , t h e d i s t r i b u t i o n o f income between K and L does not v a r y w i t h t h e f a c t o r r a t i o K/L. deviation  o f p from  zero,  The g r e a t e r t h e  t h e g r e a t e r t h e impact  factor  ratios  have on t h e d i s t r i b u t i o n o f income. The  unit  price  o f inputs  i s assumed  r e s p e c t t o q u a n t i t y o f i n p u t s purchased. (17)  t o be c o n s t a n t  with  Total cost i s :  C = RK + WL  where R = u n i t c o s t o f f i x e d  input  W = u n i t cost of v a r i a b l e input The  cost  function  function (14).  can be minimized  The d e t a i l s  subject  a r e presented  t o the production  i n Appendix A.  The  r e s u l t i s a minimum c o s t f u n c t i o n , w i t h c o s t o f i n p u t s , G, D, and quantity  of inputs  as parameters.  This  i s i n fact  a  supply  function. (18)  C-hat = G - V v l / v ( P + l ) / P x  e  where e = D ( V ( P + l ) ) R ( P / ( P + l ) ) + ( i - ) ( V ( P + l ) ) ( P / ( P ) ) + 1  W  D  Finally,  marginal  cost  (MC) i s o b t a i n e d  by d i f f e r e n t i a t i n g t h e  c o s t f u n c t i o n w i t h r e s p e c t t o output X. (19) MC = 6C-hat/6X = G - V v  2.3  / v e  (P+l)/Px(l-v)/v  M o d e l l i n g Market E q u i l i b r i u m  The  welfare  examined.  At  modelled  by  marginal  revenue  effects one  of  extreme,  setting  industry  (equation  two  market  monopolistic production  (13)) i s equal  (19)).  The  situations market  can be  behavior  a t the l e v e l t o marginal extreme,  where  cost of  production  (equation  competition,  i s modelled by s e t t i n g market p r i c e (equation (11))  equal t o m a r g i n a l c o s t o f p r o d u c t i o n .  other  is  perfect  The with  competitive  pricing  decision  works  r e t u r n s t o s c a l e l e s s than o r equal  competitive  cost  is  below  average  occurs  cost.  In  when  to unity.  p r i c i n g d e c i s i o n e x i s t s f o r an  scale industry i f production  well  dealing  However,  no  increasing returns  to  i n the r e g i o n where marginal such  a  situation,  there  is  i n c e n t i v e t o produce the marginal u n i t when p r i c e i s g r e a t e r than m a r g i n a l c o s t , even though such p r o d u c t i o n price  is  less  therefore  than  result  producers,  average  in  trying  exit  to  cost.  of  equate  A  i s i n the r e g i o n where  competitive  some  firms  price  with  from  market  the  marginal  would  industry cost,  as  incur  losses. If all  increasing returns to scale characterized production  relevant  would  be  a  ranges single  of  production,  firm.  Such  a  the  eventual  firm  would  market  then  be  for  outcome able  to  e x e r c i s e monopoly power i n the market. However, certain  i f increasing  portion  e q u i l i b r i u m may to  scale  are  of  the  returns supply  scale  curve,  exist  then  a  only  for  neutral.  This  possibility  s e t t i n g p r i c e equal  i n c r e a s i n g r e t u r n s t o s c a l e are R e s t r i c t i o n s on the  competitive  area  supply  quotas,  are  is to  explored  in  involved. o f mushrooms, through the use incorporated  into  the  model  f i x e d l e v e l of  input,  fixed  (see  appropriate  Appendix  A) .  measure of the  the  average c o s t when  s o l v i n g f o r a s o l u t i o n s u b j e c t t o a constant K  a  e x i s t a t some p o i n t near the r e g i o n where r e t u r n s  mathematical model by  production  to  The  level  quantity  of  of  resources  input  K  of by  fixed is  an  whose l e v e l  of  38 usage i s d i s t o r t e d due t o t h e e x i s t e n c e o f t h e quotas on area o f production.  2.4  The Concept o f Consumer Surplus  Discussion of the welfare  i m p l i c a t i o n s o f supply  t y p i c a l l y make use o f t h e concept o f economic s u r p l u s .  management In  F i g u r e 2.1, l i n e a r demand D and supply S f u n c t i o n s a r e shown.  s  Price D  o Quantity F i g u r e 2.5 Source:  Welfare E f f e c t s o f Supply C o n t r o l  Barichello  (1985)  The is  the  consumer s u r p l u s i s d e f i n e d as the area P'cP.  s e l l i n g t o i n d i v i d u a l consumers a t s e q u e n t i a l l y  lower p r i c e s .  In  at  clearing price.  one  market  demand  curve  and  consumer s u r p l u s .  a competitive  above  the  market, consumers buy Therefore,  price  Similarly,  area  line PcO  produced, but  curve  the  the  can  be  a l l units  area  under  argued  to  the be  a  i s a producer s u r p l u s i n  sense t h a t the producers r e c e i v e the  unit  area  e x t r a revenue t h a t a p e r f e c t l y d i s c r i m i n a t i n g monopolist  c o u l d e x t r a c t by  the  This  same p r i c e P f o r  costs of production  l i e below the  every supply  S. R e s t r i c t i o n o f p r o d u c t i o n t o the q u a n t i t y Q g i v e s r i s e t o : 1) l o s s i n consumer s u r p l u s PacP ii)  l o s s i n producer s u r p l u s  bed  . . . . 111) The  net  g a i n i n producer s u r p l u s PabP  effect  called  ^\  i s a welfare  "deadweight  imposition  of  the  l o s s of  triangle  quota  i f the  loss". gain  loss  bed.  2.5  F i n a n c i a l A n a l y s i s of P r o d u c t i o n  The  ownership o f quota w i l l  supply  restriction  units  of  results  production.  area  adc,  which  Producers  i s the gain  so  from  PabP more than o f f s e t s  the  Quota  have a v a l u e  attached  t o i t as  i n g r e a t e r than normal p r o f i t s on a l l  Producers  who  already  have  a  quota  a l l o c a t i o n but wish t o i n c r e a s e p r o d u c t i o n would o b t a i n b e n e f i t s o f magnitude 'ad' on marginal  u n i t s o f output.  Assuming t h a t the  quota  can be d e f i n e d  market  f o r quota  producers present  i n terms  which  of production,  i s sold  i f a  on an i n c r e m e n t a l  competitive  basis  exists,  would be w i l l i n g t o pay a p r i c e up t o t h e expected net  value  quota.  (NPV) o f p r i c e  The  marginal  "ad" f o r each  benefits  of  quota  additional ownership  unit of would  be  r e f l e c t e d i n t h e market p r i c e f o r quota. If  the  average  no  market excess  equilibrium profit  to  i s competitive,  be  obtained  at  there  i s on  t h e margin,  as  p r o d u c t i o n c o n t i n u e s up t o t h e l e v e l where marginal c o s t i s equal to price. units  Therefore,  of production  lower marginal  no v a l u e w i l l quota,  unless  i n a well  allows  marginal  the higher  t o a lower marginal  Such a s i t u a t i o n  f u n c t i o n i n g market cost  marginal  t h e p r o s p e c t i v e buyer has a  c o s t than t h e i n d u s t r y average.  would be remedied  quota  be a s s o c i a t e d w i t h  producer  c o s t producer.  f o r quota  to s e l l  part  which of h i s  The quota market would  reduce marginal r e n t s towards zero. However, market,  as  produce. quota  quota  ownership  That  total  Therefore, entrant  quota  on a v a l u e  in a  i s essentially  which  can  be  revenue  and  total  t h e market  into  of  take  a  competitive license  to  i s , there are inframarginal rents associated with  ownership  between  can s t i l l  price  approximated cost  f o r quota  t h e i n d u s t r y would  by  the d i f f e r e n c e  of production  (profit).  which  to a  be r e l a t e d  i s sold  new  t o the b e n e f i t s of  entry i n t o the industry. The v a l u a t i o n o f quota as t h e b e n e f i t from marginal u n i t s o f p r o d u c t i o n i n a supply r e s t r i c t e d market i s separate and d i s t i n c t  from  the  valuation  of  quota  otherwise c o m p e t i t i v e market. marginal  as  a  production  I t i s important  license  in  an  t o d i s t i n g u i s h the  r e n t s of the former from the i n f r a m a r g i n a l r e n t s of the  latter. The fashion over  market as  a  time.  detailed  price  for  financial The  quota  can  be  analysed  a s s e t which p r o v i d e s  following discussion i s a brief  a n a l y t i c a l method t h a t B a r i c h e l l o  analysis  a  of  marketing  net  present  quota  in  the  i n the  flow  of  same  returns  summary o f  the  (1984) employs i n h i s  British  Columbia  dairy  industry. The following  value  of  an  asset  is  defined  by  the  formula,  (1) P  = 2 F /(l+r )  q  t  t  t  where Pg = net p r e s e n t v a l u e of quota = quota p r i c e F t = b e n e f i t a t time t from one u n i t o f a s s e t r-£ = d i s c o u n t r a t e a t time t N = expected As  presented,  the  l i f e of the a s s e t  equation  which i s seldom a v a i l a b l e t o the quota purchase d e c i s i o n . would  be  to  assume  a  requires  analyst/farmer  P  q  = 2  constant  contemplating  level  over  time  of  a  equation both  the  The e q u a t i o n becomes  F/U+rjt  The quota investment can be s o l v e d f o r any one are known.  information  A u s e f u l s i m p l i f i c a t i o n o f the  d i s c o u n t r a t e and the b e n e f i t s of quota. (2)  detailed  can now  be t r e a t e d as an a n n u i t y , which  of Pg,  F, r , o r N when the o t h e r t h r e e  A producer would s o l v e f o r P Q , g i v e n h i s knowledge of  42 the o t h e r v a r i a b l e s . In a market where quota i s r e n t e d , the magnitude o f v a r i a b l e F i s directly is  no market  r e l a t e d t o the r e n t a l r a t e o f quota. f o r quota r e n t a l ,  Where t h e r e  the magnitude o f the b e n e f i t  can  be approximated by the s i z e o f "ad" i n F i g u r e 1.  However, t h e r e  may  which  be  additional  benefits  to  quota  c a p t u r e d by the measures mentioned can  be  found  i n the  tax  ownership  above.  system.  One  Producers  are  permitted to  from  though  quota does not d e p r e c i a t e and i n f a c t u s u a l l y  value.  income an allowance f o r d e p r e c i a t i o n o f quota,  Although t h i s  upon r e s a l e  t a x advantage  not  source o f b e n e f i t  deduct  in  are  even  appreciates  i s p a r t i a l l y recaptured  o f the quota through t a x a t i o n o f c a p i t a l  g a i n s , the  net r e s u l t i s the e q u i v a l e n t o f an i n t e r e s t f r e e l o a n which grows i n s i z e as d e p r e c i a t i o n i s c l a i m e d u n t i l the quota i s s o l d . Another capital  source  gains.  of  benefit  T h i s may  arise  i s the  from the i n s t i t u t i o n a l  r e g u l a t i o n s which e x i s t i n the i n d u s t r y . situation  i n which  the  industry  level  o r d e r t o accomodate demand growth. among e x i s t i n g members. result  of  possibility  of  future  rules  and  An example would be the o f quota  The new  i s increased i n  quota may  be shared  S i n c e the i n c r e a s e i n quota l e v e l s i s a  demand growth,  t h e r e i s no  decrease  i n the v a l u e o f  e x i s t i n g quota, and t h e r e f o r e any a d d i t i o n a l quota can be t r e a t e d as a c a p i t a l g a i n r e s u l t i n g from ownership o f the o r i g i n a l quota. Quota  prices  advances the  which  value  of  may  also  appreciate  as  a  result  of  technological  decrease the c o s t o f p r o d u c t i o n , t h u s benefits  i f producer  prices  are  not  increasing adjusted  downwards.  The  e x p e c t a t i o n of c a p i t a l g a i n s may  be  incorporated  i n t o the v a l u a t i o n o f quota by s u b t r a c t i n g from the d i s c o u n t  rate  a v a r i a b l e g, the expected r a t e o f growth o f i n the p r i c e of the quota. The a  d i s c o u n t r a t e r i s the o p p o r t u n i t y r a t e o f i n t e r e s t t h a t  producer  can  investment.  expect  to  T h i s r a t e may  owning  quota.  earn be  on  the  adjusted  Returns  to  next  best  to r e f l e c t  agricultural  alternative  the  perceived  risk  of  production  vary  g r e a t l y from year t o year as a r e s u l t o f b i o l o g i c a l f a c t o r s  beyond the producer's c o n t r o l , such as y i e l d s , d i s e a s e , etc.  by  weather,  Input p r i c e s are v a r i a b l e , as are output p r i c e s .  r u l e s and new  r e g u l a t i o n s which govern the  government  regulations.  i n d u s t r y may  Also,  be  Consumer groups may  can  the  modified lobby  for  lower p r i c e s and p a r t i a l or f u l l d i s m a n t l i n g o f the quota system. These and other r i s k s which would r e s u l t i n l o s s o f b e n e f i t s from ownership o f quota can be i m p l i c i t l y i n c l u d e d i n the v a l u a t i o n of quota by a d j u s t i n g upwards the d i s c o u n t r a t e r . Alternatively, quota  may  be  the  time h o r i z o n  shortened.  "payback p e r i o d " ,  the  This  N  f o r expected l i f e  corresponds  to  the  notion  number of time p e r i o d s neccessary  b e n e f i t s o f an a s s e t t o equal  of  the  of  a  f o r the  the market p r i c e o f the a s s e t .  A  r i s k i e r a s s e t would command a s h o r t e r payback p e r i o d than another a s s e t w i t h the same p r i c e but w i t h a more c e r t a i n r a t e o f r e t u r n . To  summarize  expression  the  methodology,  the  final  f o r the net present v a l u e o f quota i s  (4) P * q  = S F/U+r-gjt  form  of  the  44 where  P* q  = P  q  adjusted f o r tax b e n e f i t s  g = expected r a t e of a p p r e c i a t i o n o f quota p r i c e  CHAPTER 3  CONSUMER DEMAND THEORY, ECONOMETRIC MODELLING AND ESTIMATION  This  chapter  parameters model  needed  presented  consumer  focuses  demand  on t h e methodology  f o r t h e demand i n Chapter  theory  2.  section First,  i s presented  f o r obtaining the  of the a  brief  i n section  mathematical overview  1.  of  Section 2  p r e s e n t s t h e f o r m u l a t i o n o f econometric equations t o e s t i m a t e the demand f o r mushrooms produced of t h e econometric  i n B.C.  In s e c t i o n 3, t h e r e s u l t s  equations a r e presented.  Lastly,  i n section  4, a c o s t o f p r o d u c t i o n model i s s p e c i f i e d .  3.1  Consumer Demand  A history be  found  Theory  o f t h e development o f consumer demand t h e o r y can  i n Hassan  and Johnson  (Hassan  and Johnson,  pp. 2-4) .  Much o f t h e o r g a n i z a t i o n and content f o r t h e d i s c u s s i o n t o f o l l o w is  borrowed  from  Hassan and Johnson, and Deaton and Muellbauer.  I t i s i n t e n d e d t o be a b r i e f d i s c u s s i o n o f some o f t h e i s s u e s i n demand t h e o r y as they p e r t a i n t o t h i s  45  study.  46 3.1.1  C l a s s i c a l Consumer Demand Theory  The  cornerstone  o f the  classical  theory  o f consumer demand  i s the u t i l i t y f u n c t i o n , (1) where u of  u =  u(q)  i s the  goods q =  utility [qj_], an  v a r i o u s commodities. the  utility  strictly  or  s a t i s f a c t i o n derived  from  n-element column v e c t o r  consumption  of q u a n t i t i e s of  R e s t r i c t i o n s on the c u r v a t u r e p r o p e r t i e s of  function,  namely  quasi-concave,  and  that  twice  i t is  strictly  continuously  increasing,  differentiable,  r e s u l t i n a w e l l i n d i f f e r e n c e curve. These consistency c h o i c e can the  restrictions o f c h o i c e by be  acceptance  formulated of  which  are the  necessary consumer.  in A  order  s e t of  to  the  assure  s i x axioms of  (Deaton and Muelbauer 1980, i s equivalent  to  pp.  existance  26-30), of  the  I n d i f f e r e n c e Curve f o r the U t i l i t y F u n c t i o n  (1)  u t i l i t y function.  Quantity of  q2  Q u a n t i t y of q l F i g u r e 3.1  47 Consumer demand i s s u b j e c t t o a l i n e a r budget c o n s t r a i n t , (2)  p'q = m  where p = [ p j j i s an n-element column v e c t o r i s the vector Lagrange,  product o f p t r a n s p o s e and q.  the u t i l i t y  function  o f p r i c e s , and p'q U s i n g t h e method o f  (1) can be maximized  subject t o  the budget c o n s t r a i n t ( 2 ) , (3)  L(q,/i) = u(q) - /i(p'q - m)  Where n i s t h e Lagrangian m u l t i p l i e r , which has an i n t e r p r e t a t i o n as  the marginal  order conditions  utility  income.  The  first  f o r a maximum a r e :  (4a)  u-L -  (4b)  p'q - m = 0  Where  of the constraint,  up = 0  i s the p a r t i a l  derivative of u t i l i t y  u with respect t o  q. The  set of f i r s t  2n+2 v a r i a b l e s . solved  From  order conditions this,  a unique  i n terms o f p r i c e s and income.  p r o v i d e s n+l e q u a t i o n s i n s e t of equations  can be  The s o l u t i o n comprises a  s e t o f "demand e q u a t i o n s " ,  the  (5)  qi = qi(Pi,...,P ,m)  (6)  ix = M(PI# • • • ,Pn' )  i = l,...,n  n  m  Assumning  the existance  fact  they  that  satisfy  o f a s e t o f demand t h e budget  constraint  functions (5), (2) p l a c e s  a  r e s t r i c t i o n on t h e f u n c t i o n s q-^, (7) This  2 Piqi(p,m) = m  i s commonly  referred  t o as t h e "adding  up  restriction".  Another i m p l i c a t i o n o f t h e budget c o n s t r a i n t concerns t h e e f f e c t  48 of for  o v e r a l l p r i c e l e v e l on demand.  F o r any p o s i t i v e number 6, and  a l l i from 1 t o n, (8)  qi(ep,em) = qi(p,m)  Homogeneity illusion".  of  degree  zero  implies  an  absence  of  "money  I f a l l p r i c e s and income a r e t w i c e as h i g h ,  overall  demand remains unchanged, because o n l y t h e a b s o l u t e p r i c e has  changed, not t h e r e l a t i v e p r i c e  weak assumption, of  goods which  level.  High  level.  but i t i s not t r i v i a l , have  an appeal  profile  luxury  because  items,  level  T h i s i s o f course a  as examples may be found of t h e i r  such  absolute  price  as diamonds and o t h e r  j e w e l r y a r e an example. Manipulation of the f i r s t  o r d e r c o n d i t i o n s (4) y i e l d  r e s t r i c t i o n s on t h e s e t o f demand e q u a t i o n s .  further  These a r e presented  i n T a b l e 3.1 below.  T a b l e 3.1  R e s t r i c t i o n s on t h e System o f Demand  Restriction  Name  S Wj[Oi = 1  Engel  S w-jeij = - WJ  Cournot  e  i  j  = Wj/Wi *  e  i  j -  WJ (n^ - n-j)  Equations  Aggregation Aggregation  Symmetry R e l a t i o n  S eij =  -r>i  Source:  Hassan and Johnson (1976), p.11  Homogeneity C o n d i t i o n Table 1  The Engel a g g r e g a t i o n c o n d i t i o n s t a t e s t h a t t h e weighted of  income e l a s t i c i t i e s  w i t h weights  proportion of total) i s unity.  Cournot  w^ = P i q i / m  sum  (expenditure  a g g r e g a t i o n expresses t h e  weighted  sum  of  price  elasticities  e^j  in  column  n e g a t i v e o f e x p e n d i t u r e p r o p o r t i o n on commodity j . relation  the  symmetry  L a s t l y , the homogeneity  is  c o n d i t i o n i s a re-statement  (8), i n terms o f e l a s t i c i t i e s . In  a  The  as  i m p l i e s t h a t the m a t r i x o f c r o s s - p r i c e e l a s t i c i t i e s  symmetrical. of  j  summary, the c l a s s i c a l t h e o r y o f consumer demand p r o v i d e s  complete  set  of  demand  equations  maximization o f a consumer u t i l i t y constraint. all  which  function  The demand f u n c t i o n s r e l a t e  are  obtained  from  s u b j e c t t o a budget  q u a n t i t i e s consumed t o  commodity p r i c e s and income.  Given n commodities, t h e r e are  n d i r e c t p r i c e e l a s t i c i t i e s , n -n  c r o s s - p r i c e e l a s t i c i t i e s , and n  2  income e l a s t i c i t i e s ,  f o r a t o t a l o f n +n parameters t h a t need t o 2  be e s t i m a t e d a t the same time. By imposing the r e s t r i c t i o n s which are o u t l i n e d i n T a b l e 3.1 and  the  budget  reduced.  The  parameters. number This  by  constraint, symmetry  Cournot n-1,  number  of  to  the  relation  and  number allows a  parameters  reduction  Engel a g g r e g a t i o n f u r t h e r  ^ ( n + n ) - l remaining 2  parameters  of  is still  independent  too  large  to  can  of  be  h(n -n) 2  reduce  this  parameters. allow  direct  e s t i m a t i o n o f a complete demand e q u a t i o n s .  3.1.2  E x t e n s i o n o f the C l a s s i c a l Theory o f Consumer Demand  In  o r d e r t o e s t i m a t e the parameters  equations, including  further this,  restrictions  make  ad  hoc  are  o f the  required.  assumptions  by  s e t o f demand Many  omitting  studies, certain  variables this needs  i n t h e demand f u n c t i o n s .  method  i s that  the bias  t o be e v a l u a t e d  results.  The u n f o r t u n a t e  introduced  i n order  drawback o f  by these  t o assess  restrictions  the v a l i d i t y  As a s o l u t i o n t o t h e u n r e s t r i c t e d equations  of the  cannot be  computed, t h e r e i s , i n g e n e r a l , no b a s i s from which t o assess t h e bias  of  additional  restrictions.  The  results  are  therefore  dependent on t h e r e s t r i c t i o n s which a r e a p p l i e d . The working  a l t e r n a t i v e t o ad hoc e s t i m a t i o n of the c l a s s i c a l  theory  i s a systematic r e -  o f consumer  demand.  What i s  needed a r e more r e s t r i c t i o n s on t h e b a s i c t h e o r e t i c a l groundwork; that  i s , more  current  restrictive  research  efforts  behavioral  i n demand  assumptions.  theory  Much  i s centered  of  about a  more s p e c i a l i z e d u t i l i t y f u n c t i o n . One w i d e l y  used assumption  Many  published  form  of separability  their  results  (e.g.,  S i n g l e Equation  of  this  chapter,  implicitly  underlying  theory  some  t o compare  ad hoc s p e c i f i c a t i o n s  which  Demand E s t i m a t i o n  estimation  estimation  employ  study.  i n the l i t e r a t u r e .  sections  and Johnson)  and i t i s u s e f u l  f i n d i n g s against the simpler,  Econometric used  Hassan  assumption,  w i l l be employed i n t h i s  3.1.3  i s the notion of s e p a r a b i l i t y .  o f s i n g l e equation From  the d i s c u s s i o n  i t i s clear  contains  o f consumer  some  that  strong  behavior.  demand i s w i d e l y i n the  previous  single  equation  assumptions As  an  on t h e  example, t h e  f o l l o w i n g demand equation i s o f t e n used, (9)  q i = a + bm + 2 i j P j e  +  u  i  i = l,...,n  where u^ i s a d i s t u r b a n c e term. Some assumptions which a r e i m p l i e d by (9) a r e : 1. The j summation  index does not i n c l u d e a l l commodities,  even w i t h i n t h e same group limit  (e.g., a l l v e g e t a b l e s ) .  The  k-[ means t h a t t h e r e s t o f t h e n-k^ parameters a r e  f o r c e d t o be zero.  While  t h e r e s u l t i n g b i a s may be zero  f o r u n r e l a t e d goods (e.g., v e g e t a b l e s and c a r s ) , t h e b i a s may n o t be t r i v i a l  f o r goods which a r e c l o s e s u b s t i t u t e s  o r complements. 2. P r i c e i s t h e dependent v a r i a b l e , and a l l t h e o t h e r hand  side  variables  equilibrium  a r e exogenous.  i s generally  p r i c e and q u a n t i t y .  determined  In  right  t h e market,  simultaneously i n  Other b e h a v i o r a l e q u a t i o n s may need  t o be estimated s i m u l t a n e o u s l y , as n o t a l l t h e v a r i a b l e s on t h e r i g h t hand s i d e a r e completely exogenous t o p r i c e . T h i s i s t h e problem o f simultaneous  Functional  form  consumer behaviour. the  literature,  Engel the  i m p l i e s some  form  F o r example, t h e double  violates  aggregation double  also  t h e Engel  equation b i a s .  of r e s t r i c t i o n  l o g form, p o p u l a r i n  aggregation  criterion.  i s a p p l i e d t o a system o f equations  log functional  form,  on  a l l income  If  employing  elasticities  are  f o r c e d t o equal one (Yoshihara, p.261). In g e n e r a l , s i n g l e equation e s t i m a t i o n imposes  restrictions  52 on t h e f u n c t i o n estimated. (Table 1)  I n a d d i t i o n , not a l l t h e r e s t r i c t i o n s  which a r e a v a i l a b l e from economic t h e o r y a r e employed.  However, time methods.  and data l i m i t a t i o n s o f t e n d i c t a t e s i n g l e  Single  equation  estimates  are useful  equation  i f the bias  introduced i s not too large.  3.2  The Demand f o r Mushrooms i n B.C.  The  demand  f o r mushrooms  conveniently s p l i t bulk  of fresh  heavily Valley of  fresh  regions  in  B.C.  can be  i n t o two components, f r e s h and processed.  mushroom  populated region  produced  consumption  areas  o f Greater  (lower mainland).  mushrooms  limits  o f Canada.  i n B.C. i s c e n t e r e d Vancouver  i n the  and t h e F r a s e r  The r e l a t i v e l y s h o r t s h e l f  marketing  The  o f B.C. mushrooms  I n c o n t r a s t , B.C. p r o c e s s e d  life  i n other  mushrooms a r e  marketed i n every p r o v i n c e o f Canada.  3.2.1  Demand f o r F r e s h Mushrooms  The F.V.M.G.C.A. i s t h e s o l e s e l l i n g agent mushrooms.  As t h e l o c a l  f r e s h product accounts  f o r B.C. produced f o r more than 90  p e r c e n t o f B.C. consumption, t h e F.V.M.G.C.A. i s a p r i c e Therefore,  price  i s an  exogenous  variable  setter.  and t h e dependant  v a r i a b l e f o r f r e s h mushroom demand i s t h e q u a n t i t y consumed. From  the discussion i n the previous  demand theory, t h e o t h e r determinants  section  on consumer  o f demand i n c l u d e p r i c e s o f  53 substitutes,  complements,  and income.  The demand  f o r fresh  mushrooms i n B.C. i s formulated as f o l l o w s : (1)  CONSUMP = f(PIFV, CPIB, RINCO, RAD, TREND, DUMMY) where CONSUMP = p e r c a p i t a  consumption (lbs/capita/month) o f  f r e s h mushrooms i n B.C. PIFV = r e a l  price  retail  index  level  of fresh  minus  real  mushrooms a t t h e price  index f o r  vegetables CPIB = r e a l  consumer p r i c e index o f beef f o r Canada  (1981=100) RINCO = r e a l l a b o u r income f o r B.C. ($/month) RAD = r e a l  advertising  promotion  expenditures,  ($/capita/month)  media for  and fresh  mushrooms TREND = time t r e n d , Jan.1983=1...Sept. 1986=57 DUMMY = dummy v a r i a b l e s d e n o t i n g s e a s o n a l i t y i n each month o f t h e year Data  on these v a r i a b l e s  from January  were  (except  available  1982 t o September 1986.  December)  on a monthly  basis  Values f o r CPIB, RINCO, and  RAD have been a d j u s t e d by t h e consumer p r i c e index f o r a l l goods i n Vancouver, 1981=100, t o o b t a i n r e a l v a l u e s . was  constructed  constructed  into  as  follows.  The  price  an index w i t h base y e a r  the consumer p r i c e index f o r a l l goods. index  f o r Vancouver, 1981=100 was a l s o  The v a r i a b l e PIFV f o r mushrooms  was  1981, and d e f l a t e d by  A fresh vegetable p r i c e deflated  by t h e consumer  54 p r i c e index f o r a l l goods.  The d i f f e r e n c e was then taken between  the mushroom r e a l p r i c e index and t h e v e g e t a b l e r e a l p r i c e Appendix B c o n t a i n s a l i s t i n g o f some o f t h e v a r i a b l e s A priori,  t h e standard assumptions based  index.  used . 4  on economic theory  state that the c o e f f i c i e n t for: 1. Own  Price  i s negative.  normal good. be  a  Mushrooms  In a d d i t i o n ,  substitute  a r e assumed  f r e s h mushrooms a r e thought t o  f o r fresh  vegetables.  As t h e p r i c e  difference  between mushrooms and o t h e r  increases,  the quantity  demanded decreases.  negative.  Mushrooms  2. CPIB  is  t o be  are  fresh  vegetables  believed  to  be  complement t o beef. 3. RINCO i s p o s i t i v e . income  increases,  Mushrooms a r e a s u p e r i o r more  i s available  good.  As  f o r e x p e n d i t u r e on  goods which t h e consumer d e s i r e s more o f . 4 . RAD  i s positive.  increase In  a  Advertising  fresh  recent  B.C.  mushrooms  particularly included  consumer  survey  steak,  usage o f mushrooms  and w i t h  salads.  i n s a l a d s i s captured  by t h e  t h e two major uses  a r e as an accompaniment  t o meat  The v a r i a b l e  dishes, CPIB i s  f o r steak p r i c e s . i n the variable  The PIFV,  between p r i c e i n d i c e s f o r f r e s h mushrooms and a l l  T h e data on some o f t h e v a r i a b l e s t h e r e f o r e cannot be l i s t e d . 4  commissioned  that  i n t h e demand equation as a proxy  the d i f f e r e n c e  i s expected t o  consumption.  F.V.M.G.C.A. (Marketrend) , i t was found for  mushrooms  i s c o n f i d e n t i a l , and  55 fresh vegetables. Advertising an  extensive  1982  and  been a l l l o c a t e d  B.C.  The  name  1986,  brand  comercials.  e x p e n d i t u r e s on  greater  than  On  average,  occured  The  "Money's  Mushrooms"  receives  magazines a r t i c l e s ,  advertising  advertising  in  commercial c o s t s may  run  for  limitation,  any are  is  the year  variable  month.  often paid months  the  best  For  is  monthly  This  variable  advertising television  the  commercials  Despite  available  measure  included,  in  and  actual  example,  immediately, but  afterwards.  regular  r a d i o spots,  f o r f r e s h mushrooms.  given  several it  for  $1,000,000 each  i s not n e c e s s a r i l y i n d i c a t i v e of the a c t u a l amount o f that  presently  f o r promotion o f f r e s h mushrooms produced i n  exposure i n newspapers ads, t.v.  i n the model, as t h e r e i s  on-going promotion campaign.  y e a r s between has  i s included  this  of  major  advertising  expenditure. An  income  variable  is  hypothesis that  increases  i n disposable  consumption  fresh  disposable variable  of  income f o r B.C. RINCO,  disposable  mushrooms.  labour  on  to  income r e s u l t data  were  was  chosen  as  the  i n higher  available  a monthly o r q u a r t e r l y  income,  test  for  basis.  The  proxy  for  a  income.  Monthly  dummy v a r i a b l e s  are  component(s) which i s not e x p l a i n e d model.  No  order  used  to  capture  any  seasonal  by the o t h e r v a r i a b l e s i n the  In p a r t i c u l a r , i n s p e c t i o n of monthly f r e s h mushroom s a l e s  data r e v e a l s a marked d e c l i n e i n q u a n t i t i e s s o l d i n the months of February,  September  and  October  of  each  year.  No  plausible  explanation a  dummy  i s a v a i l a b l e f o r d e c l i n e i n September and  variable  quantity  sold  is  used  i n the  for  both  months.  month o f February can  October,  so  decline  in  The  l i k e l y be  attributed  t o fewer days i n t h a t month. A  trend  change  in  variable  is  consumption  included  which  is  independent v a r i a b l e s i n c l u d e d Time  and  data  restrictions relationships most  obvious  necessary  by  with  not  exclusion,  any  pattern  by  the  to  necessitated  complement  explored  processed  limitations.  i n the mushroom  exclusion  and  substitute  demand model. prices,  Also,  a  reliable  processed  a v a i l a b l e on mushrooms was  i n d i c a t i o n of  mushroom p r i c e s  a monthly b a s i s . only  available  retail  for  imports  Further, f o r 44  prices  3.2.2  into  B.C.  one  The  r o l e that  that  deserves  and  were  observations,  13  month.  were  p r i c e of l o c a l  made t o exclude processed p r i c e s i n the  Advertising  made  g i v e n month  i n that  were a v a i l a b l e f o r o t h e r v a r i a b l e s i n f r e s h demand. was  was  The  Processed mushrooms are a  s t o r a b l e commodity, t h e r e f o r e wholesale p r i c e s i n any not  other  Processed mushroom p r i c e s  o n l y a v a i l a b l e a t the wholesale l e v e l .  are  of  i n the model.  respect not  capture explained  limitations  which are  data  to  not  processed fewer than  The  decision  f r e s h demand model.  Demand  advertising special  plays  i n the  attention.  d i f f i c u l t t o model f o r s e v e r a l  reasons.  demand  Advertising  function effects  is are  57 The not  appropriate  clear.  The  newspaper  to  sufficient  squares  using  expenditure  advertising  on  However,  information  the the  on  a  t.v.,  or  of  the  rarely  has  effectiveness researcher  these v a r i a b l e s  Usually,  d o l l a r s as  radio,  data  measure,  is  to  attempt  limitations  dictate  but  this  i s , at  differences  that  exist  best,  approximation.  response  may  bearing  regression.  Another problem  only  a  expenditure.  least  o n l y an  quantify  type o f media employed, such as  c e r t a i n l y has  advertising access  u n i t w i t h which t o  of  lies  individuals  i n the to  advertising.  Different  respond d i f f e r e n t l y t o a d v e r t i s i n g , but also  respond d i f f e r e n t l y t o  in  the  people  not  a p a r t i c u l a r person  r e p e t i t i o n o f the  same s t i m u l u s  depending on o t h e r f a c t o r s which are too complex t o model. Lastly, advertising thought  to  important (b)  how  follows, ease o f The  in  effects  issues does  the  are  persist  arise:  this  absence  difficult  longer  than  of  to  the  the  above  model  current  because time  problems, they  period.  (a) what i s the magnitude o f the  change  a l l variables  over  other  time.  In  the  than  advertising  i s the  simplest  Two  effect,  discussion are  are  that  omitted  for  exposition. "direct  advertising are  even  included  lag"  model  effectiveness  over time.  way  of  estimating  Lagged a d v e r t i s i n g  i n the equation as independent v a r i a b l e s :  (1) Yt = o a  +  s  b  j t-j x  +  e  t  where: y^ = demand a t time t x-t-_j = a d v e r t i s i n g e x p e n d i t u r e s a t time t - j  values  58 e-t = s p h e r i c a l d i s t u r b a n c e  term  (identically  d i s t r i b u t e d , w i t h mean 0 and v a r i a n c e Specification  of  the  lag  d e c i s i o n by the r e s e a r c h e r .  length  I f the  n  requires  a  than  the  true  lag  length,  a d d i t i o n a l lagged v a l u e s may The of  the  l a g l e n g t h chosen i s s h o r t e r  least  squares  However, t h i s  Specifically,  are  lagged  (the  uses  this  and  Waugh, and  Significant  weighting  approach  effectiveness  pp. 168-71). assumption  cannot  estimates  of  multicollinearity). ( l a r g e standard  be The  errors),  is be  a  weighted  Past  values  Kinnucan. length  scheme must be that  the  reliably  of the  moving are  average  specified  as  a  S t u d i e s t h a t have used t h i s method  d e c i s i o n must be made about the appropriate  ordinary  asymptotically.  for advertising.  Nerlove  (Johnson,  i n p r a c t i c e , the  become i n e f f i c i e n t  stock or "goodwill" v a r i a b l e . include  of  exogenous v a r i a b l e s i s o f t e n v i o l a t e d .  problem  approach  representation  estimates  a d v e r t i s i n g v a r i a b l e s are o f t e n found t o  unbiased  Another  of  s i g n i f i c a n c e of  assumptions  valid  i s seldom the case and  estimates  but are s t i l l  standard  regression  collinear  resulting  an  the  If n is  be used.  when the  o f independence among the  highly  t e s t s of  above procedure r e s u l t s i n e f f i c i e n t , unbiased coefficients  2  subjective  than the t r u e l a g l e n g t h , t r u n c a t i o n b i a s would r e s u l t . longer  a ).  Again,  of the  duration  parameters may  subjective  l a g , and  chosen.  derived  a  The of  from be  as w e l l , limitation  advertising the  obtained  results. even i f  the a c t u a l d u r a t i o n i s s h o r t e r than the moving average because of  59 aggregation The  p.346).  distributed  estimating model  (Clarke,  l a g family  advertising  (Koyck)  o f models  effectiveness.  i s very  useful.  a r e used  widely f o r  In p a r t i c u l a r ,  I t circumvents  t h e Koyck  t h e problem  of  m u l t i c o l l i n e a r i t y by imposing a s t r u c t u r e on t h e manner i n which past values of advertising in  a  reduction  estimated.  outlays a f f e c t  i n t h e number  demand.  o f parameters  This  that  results  need  The model i s d e r i v e d from (1) and assumptions  t o be that:  1. n i s i n f i n i t e 2. t h e c o e f f i c i e n t b t d e c l i n e s e x p o n e n t i a l l y w i t h such t h a t Equation  0 < 9 < 1 and  parameter  bj = © b j _ !  (1) reduces t o :  (2)  yt = a v  The  t  =  e  Q  + 9y _ t  t -  e  1  + b x Q  t  + v  t  t-l  parameter  9  represents  a d v e r t i s i n g over time.  the  The reduced form  decaying  effect  of  (2) can a l s o be d e r i v e d  from a h y p o t h e s i s o f a d a p t i v e e x p e c t a t i o n s (Johnson, p.348). A  related  reduced structure derived  form  model i s the  from  a  time  as  term.  different  (2) ,  adjustment but  with  The p a r t i a l  hypothesis  The c a r r y o v e r e f f e c t  of  a  model. much  adjustment rational  In t h i s case, t h e i n e r t i a  t changing  very  i n t e r p r e t a t i o n o f 9 would  little  from  The  simpler model i s  behaviour  ( r e p r e s e n t e d by t h e l a g  v a r i a b l e ) , i s not a l l due t o a d v e r t i s i n g  Koyck model. in  same  f o r the error  (Johnson, p.349). dependent  i s the p a r t i a l  as  i n the  i s a t t r i b u t e d t o demand  demand  i n time  t-1.  The  therefore include other v a r i a b l e s  such  60 as p r i c e , product  loyalty,etc.  The p a r t i a l adjustment process may be s p e c i f i e d as (3) y That  " y t - i = ©(Yt* " Y t - l )  t  i s , t h e d i f f e r e n c e between  previous  period  is a  fraction  + u  t  c u r r e n t p e r i o d demand  and t h e  9  between  of the difference  o p t i m a l , d e s i r e d c u r r e n t p e r i o d demand y^* and p r e v i o u s p e r i o d demand. In  contrast  adjustment  to  models,  the  which  adaptive  expectations  are derived  from  and  models  partial with  an  e x p e c t a t i o n s mechanism, a t h i r d type o f d i s t r i b u t e d l a g model can be p o s t u l a t e d which i s d r i v e n s o l e l y by an a u t o r e g r e s s i v e e r r o r . The cumulative  e f f e c t s model ( G r i l i c h e s ) has assumptions:  i) Yt = o + a  ii) u iii)  t  a  x  t  + u  t  = eu _! + e t  t  0 < G < 1  Combining these assumptions r e s u l t s i n : (4)  y  t  = a  Q  + ax  t  + eax^^.  + c y t ^+ e  t  Noting t h a t (4) i s v e r y s i m i l a r t o ( 2 ) , C l a r k e (p.352) suggests a test  equation: (5)  yt = A v  t  = e  Q  t  + Ax  t  + Bxt.! + C y t - x + v  t  - Det.i  The r e s u l t s can be c a t e g o r i z e d as f o l l o w s :  Adaptive Expectations  (Koyck)  B=0  C=D  P a r t i a l Adjustment  B=0  D=0  Cumulative E f f e c t s  B=-AC  D=0  61 A  discussion  of  the  results  obtained  from  regression  a n a l y s i s o f t h e t h r e e d i f f e r e n t models above i s p r e s e n t e d i n s e c t i o n 3 o f t h i s chapter.  3.2.3  Demand f o r Processed Mushrooms  Processed province  mushrooms  i n Canada.  More than  mushrooms a r e processed. processed from  mushrooms  Pacific  Unlike  includes  Rim c o u n t r i e s .  total quantities local  produced  product  i n B.C.  50 p e r c e n t  are sold  i n every  of l o c a l l y  produced  t h e f r e s h market, t h e demand f o r  a significant  quantity  The market p r i c e  i s influenced  (import and domestic) a v a i l a b l e .  i s distinguishable  from imports,  o f imports by  The q u a l i t y o f  allowing  a  small  p r i c e premium f o r Money's name brand. Processed market demand i s not modelled as  the fresh  market.  i n t h e same manner  The endogenous v a r i a b l e  i n t h e processed  market i s p r i c e , which i s determined i n t h e market. contrast by the  to price  the s e l l e r . processed  formation  In a d d i t i o n , market,  This  f o r f r e s h grade, where p r i c e inventory  an o p t i o n  which  i sin i s set  management i s p o s s i b l e i n i s not a v a i l a b l e  i n the  f r e s h market. The  market  f o r B.C.  processed  mushrooms  in  Canada  modelled as a p r i c e f u n c t i o n , w i t h v a r i a b l e s as d e s c r i b e d An  appropriate  model  using  price  ( I n t r i l i g a t o r , p.224) i s as f o l l o w s :  as  the  dependent  is  above. variable  62 (7)  CPRICED = f(CCONSBC, CPRICEI, PINV, RPDI) where CPRICED = r e a l p r i c e of B.C. the wholesale CCONSBC = C a n a d i a n  canned product  ($/lb) a t  level  consumption  of  B.C.  product  (lb/capita/month) CPRICEI = r e a l p r i c e of imported wholesale  product  level  PINV = processed i n v e n t o r i e s o f B.C. RPDI = Canadian  The 1983  product  r e a l per c a p i t a d i s p o s a b l e income  v a r i a b l e s are a v a i l a b l e on a monthly b a s i s from  to  September  adjusted Canada  ($/lb) a t the  by  the  1986.  Price  Consumer  Price  for Index  (1981=100) t o o b t a i n r e a l  processed for  values.  mushrooms  Processed RPDI was  the Consumer P r i c e Index f o r A l l Items i n Canada Canadian  price  function,  function  because  mushrooms was  i s estimated,  data  for  not a v a i l a b l e .  of the v a r i a b l e s  B.C.  instead  Foods  was in  a d j u s t e d by  (1981=100).  of  consumption  January  a  B.C.  of  A  price  processed  Appendix B c o n t a i n s a l i s t  o f some  used . 5  A p r i o r i , the expected s i g n o f the c o e f f i c i e n t f o r : 1. CCONSBC i s n e g a t i v e .  Processed  mushrooms are  a  normal  good. 2. CPRICEI i s p o s i t i v e .  T h e d a t a on some of t h e r e f o r e cannot be l i s t e d . 5  A h i g h e r imported  the  variables  p r i c e permits a  i s confidential,  and  h i g h e r B.C. p r i c e . 3. PINV  i s negative.  effect  on  inventories,  Large  price.  i n v e n t o r i e s have a d e p r e s s i n g  That  i s , in  order  p r i c e must a l s o be lowered,  to  reduce  a l l else  being  constant. 4. RPDI  i s positive.  Processed  mushrooms  are a superior  good. As the  i n the previous discussion of exclusion r e s t r i c t i o n s i n  f r e s h mushroom demand model, an obvious  fresh  mushroom  price,  was  excluded  due  substitute variable, t o data  limitations.  Wholesale f r e s h mushroom p r i c e s were not a v a i l a b l e on a monthly basis.  A l s o , p r i c e s o f processed mushrooms f o r o t h e r r e g i o n s o f  Canada were not a v a i l a b l e on a monthly b a s i s . An  inventory variable  association Inventory  is  actively  l e v e l s comprise  quantities.  i s included engaged  as t h e l o c a l  in  inventory  producers' management.  a s i g n i f i c a n t level of t o t a l  processed  In 1986, a year w i t h v e r y weak p r o c e s s e d p r i c e s i n  the market, monthly i n v e n t o r y l e v e l s were on average  as h i g h as  monthly s a l e s o f processed mushrooms. Import p r o c e s s e d p r i c e s a r e i n c l u d e d as t h e import share o f domestic  sales  i s very  Canadian  processed  high.  market  was  In  1985,  offshore  73  percent  product.  of the Imported  mushrooms a r e b e l i e v e d t o be a v e r y c l o s e s u b s t i t u t e f o r domestic p r o c e s s e d mushrooms.  64 3.3  Econometric  In  the  regressions (White). form.  following were  The A  E s t i m a t i o n and R e s u l t s o f Demand f o r Mushrooms  discussion  obtained  using  of  the  results,  all  r e g r e s s i o n package  equations were estimated u s i n g a l i n e a r  priori,  economic  theory  of  does  not  the  SHAZAM  functional  indicate  which  f u n c t i o n a l form i s the most a p p r o p r i a t e .  3.3.1  F r e s h Demand Equations  The  v a r i o u s l a g models d i s c u s s e d i n the p r e v i o u s s e c t i o n  demand were estimated.  In T a b l e  3.2,  the r e s u l t s  for a  on  simple  model without l a g v a r i a b l e s , and the P a r t i a l Adjustment model are presented.  The r e s u l t s f o r the t e s t e q u a t i o n  (5), the  E f f e c t s , and Koyck Model are presented i n the T a b l e In  Table  allowances  3.2,  f o r the  the  results  for a  dynamic, i n t e r - p e r i o d  are p r e s e n t e d .  T h i s estimate w i l l  as  from  a base case  models.  The  simple  independent  v a r i a t i o n i n the dependent model.  e x p l a i n 73.7  H: 0  was  2.02).  advertising  o f the  percent  A l l the independent  other of  the  variables,  s i g n i f i c a n t a t a 90  The t e s t of the n u l l h y p t h e s i s :  RINCO i s s t a t i s t i c a l l y  rejected  any  i t i s provided  results  except r e a l income (RINCO), are s t a t i s t i c a l l y percent l e v e l .  of  be b i a s e d but  variables  3.3.  model without  effects  which t o compare the  Cumulative  at  the  5 percent  d i f f e r e n t from critical  level  zero (t  c  a  i  c  < t  c  r  it  =  65 The Table  Stock  (Partial)  .  The o v e r a l l  3.2  better  than  the  correlation be  used  simple  as  correlation  the  significant  lagged  The r e s u l t s  of  calcultated available As  lagged  level.  3.3  variables  .  As  h  crucial  t o t h e Cumulative  the  estimated  d i d indeed  still  have  result  predicts  (5)).  there  Also,  statistically  first  cannot i s no  Effects  (LCONS) and lagged a d v e r t i s i n g  The  i n the  be test  autocorrelation.  equation  does  is  order  (LRAD) a r e not re-run  with  parameter  RHO  an  RHO  is  implying the o r i g i n a l  serial correlation  not support  model,  (column 2 i n  autocorrelation  first  equation  Adjustment  statistic  regression,  equation  which  serial  statistically  are presented  ( t - s t a t = -4.31),  model,  no  An  (5) without any c o r r e c t i o n f o r  Durbin's  particular  significant,  This  shows  The P a r t i a l  statistically significant  residuals.  cannot  model.  i s not  o f f i r s t order s e r i a l c o r r e l a t i o n  3.3).  for serial  dependent  (LCONS)  i n the r e s i d u a l s  lagged consumption  Table  test  marginaly  However, t h e c r u c i a l v a r i a b l e f o r  f o r t h e presence o f  statistically  i s only  usual  statistic,  consumption  for this  both  assumption  Durbin-h  f o r t e s t equation  Table  presented i n  rejected.  correlation  column  model  The  in a  a t t h e 95 p e r c e n t  model i s t h e r e f o r e  i s also  t h e Durbin-Watson s t a t i s t i c ,  i n the residuals.  model,  serial  model.  i t i s biased test,  model  f i t of t h i s  i n the residuals,  alternate  this  Adjustment  the Current  the value  of  to  t h e lagged  advertising  not s i g n i f i c a n t l y d i f f e r e n t  be  i n the Effects  zero  (D=0 i n  variable  LRAD i s  from  zero.  The  66 Cumulative  E f f e c t s model i s t h e r e f o r e r e j e c t e d .  T a b l e 3.2  Econometric E s t i m a t e s o f F r e s h Mushroom Demand L i n e a r and Stock Adjustment Models LINEAR MODEL  STOCK ADJUSTMENT  LCONS RAD RINCO MVINDEX CPIB TREND1 FE SE OC CONSTANT  Durbin-Watson Durbin-h R-Square Adj  4.32E-01 (2.22)** 1.43E-06 (0.01) -9.40E-04 (-2.47)** -1.96E-03 (-1.93)* 1.59E-03 (7.28)** -2.69E-02 (-2.69)** -4.29E-02 (-3.9)** -4.25E-02 (-3.5)** 0.445 (3.4)** 1.73 N/A 0.737  NOTE: t - s t a t i s t i c s i n b r a c k e t s ** s i g n i f i c a n t a t 95 % * s i g n i f i c a n t a t 90 %  0.149 (1.22) 0.438 (2.25)** 1.50E-05 (2.26)** -8.17E-04 (-2.09)** -1.82E-03 (-1.78)* 1.33E-03 (4.34)** -2.83E-02 (-2.82)** -4.09E-02 (-3.7)** -3.66E-02 (-2.81)** 0.382 (2.74)** 2.01 -0.19 0.740  T a b l e 3.3  Econometric Estimates o f F r e s h Mushroom Demand Cumulative E f f e c t s and Koyck Lag Models CUMULATIVE EFFECTS OLS AUTO  LCONS RAD LRAD RINCO LRINCO MVINDEX LMVINDEX CPIB LCPIB TREND1 FE SE OC CONSTANT  0.117 (0.87) 0.282 (1.17) 6.42E-05 (0.28) 1.68E-04 (1.03) -2.93E-04 (-1.63) -1.21E-03 (-2.26)** 5.03E-04 (0.98) -1.68E-03 (-1.19) 3.33E-04 (0.24) 1.29E-03 (3.96)** -2.66E-02 (-2.54)** -4.77E-02 (-3.58)** -3.56E-02 (-2.71)** 0.449 (2.66)**  RHO Durbin-Watson Durbin-h R-Square Adj  0.457 (4.08)** 0.420 (2.18)** -1.51E-05 (-0.08) 1.35E-04 (1.16) -1.62E-04 (-1.15) -1.59E-03 (-3.52)** 1.44E-03 (3.59)** -1.95E-03 (-1.62) 1.32E-03 (1.09) 6.94E-04 (3.02)** -2.36E-02 (-2.77)** -4.57E-02 (-3.85)** -3.08E-02 (-2.68)** 0.225 (1.96)*  KOYCK LAG OLS AUTO 0.127 (0.99) 0.312 (1.46)  1.70E-04 1.34E-04 (1.06) (1.16) -3. 00E-04 -1.60E-04 (-1.15) (-1.70)* -1. 18E-03 -1.60E-03 (-3.77) (-2.27)** 5. 11E-04 1.44E-03 (1.00) (3.61) -1. 65E-03 -1.97E-03 (-1.68) (-1.19) 3. 00E-04 1.34E-03 (0.22) (1.14) 1.27E-03 6.99E-04 (4.03)** (3.2) -2. 74E-02 -2.33E-02 (-3.00) (-2.75)** -4. 85E-02 -4.53E-02 (-4.20) (-3.78)** -3. 58E-01 -3.08E-02 (-2.76)** (-2.68) 0.450 0.224 (2.70)** (1.96)  -0.551 (-4.31) 2.17 N/A 0.742  1.85 0.94 0.771  NOTE: t - s t a t i s t i c s i n b r a c k e t s ** s i g n i f i c a n t a t 95 % * s i g n i f i c a n t a t 90 %  0.455 (4.24) 0.410 (2.72)  -0.550 (-4.35) 2.18 -2.59 0.748  1.85 0.85 0.776  68 The r e s u l t s f o r the Koyck model, w i t h a c o r r e c t i o n f o r f i r s t order s e r i a l the  c o r r e l a t i o n o f the r e s i d u a l s , i n d i c a t e t h a t  data b e s t ,  dependent  explaining  variable.  coefficient  of  The  the  lag  77.6  percent  Koyck  model  dependent  i t fits  o f t h e v a r i a t i o n i n the i s not  rejected,  variable,  as the  LCONS,  is  not  s i g n i f i c a n t l y d i f f e r e n t from the s e r i a l c o r r e l a t i o n parameter RHO (D i n t e s t e q u a t i o n LCONS and RHO  are c a l c u l a t e d below:  COEF.  STD. ERR.  LCONS  0.455  0.107  +/"  0.216  RHO  0.550  0.127  +/~  0.256  Both v a r i a b l e s All  ( 4 ) . The 95 p e r c e n t c o n f i d e n c e i n t e r v a l s f o r  other  variables  Koyck model f i t s  are within  CONFIDENCE INTERVAL  each o t h e r ' s c o n f i d e n c e i n t e r v a l .  show the a p r i o r i  expected  signs.  As the  t h e data much b e t t e r than t h e o t h e r models, the  r e s t o f t h e d i s c u s s i o n w i l l focus on the Koyck model. All  the  statistically Since  labour  disposable basis),  variables, significant income  was  except at  at  included  labour least  income the  90  i n the model  (RINCO) percent  were level.  as a proxy f o r  income (not a v a i l a b l e f o r B.C. on monthly o r q u a r t e r l y  i t s poor performance may be due t o l a b o u r income b e i n g a  poor approximation t o d i s p o s a b l e Canadian d i s p o s a b l e  income.  was  also  income, but t h e r e s u l t s were  also  run  with  not  s i g n i f i c a n t f o r the income v a r i a b l e .  the  short  run, income has l i t t l e  The r e g r e s s i o n  I t i s possible that i n  e f f e c t on consumption o f f r e s h  69 mushrooms. The  e x c l u s i o n o f an important v a r i a b l e which i s a s u b s t i t u t e  for  f r e s h mushrooms, processed mushroom p r i c e s , was  by  data  limitations  regressions  as  discussed  were estimated  variable;  wholesale  processed  mushroom  with  processed prices.  earlier.  part  given  month,  of that  suspicion,  market.  prices The  inventory The  the  as  a  wholesale  for  processed  management  econometric  proxy  retail  mushroom  processed p r i c e i n forms  an i n t e g r a l  r e s u l t s confirmed  this  as t h e r e s u l t s i m p l i e d t h a t p r o c e s s e d mushrooms are a  complement intuitive,  to  fresh  mushrooms.  This  is  highly  counter-  so these r e s u l t s were not used.  Clarke implied  since  However,  t h e i n c l u s i o n o f an a d d i t i o n a l  p r i c e may not be a good proxy f o r t h e r e t a i l any  necessitated  (Clarke,  duration  p.348) notes  interval  which  that  t h e Koyck model has an  can be  calculated  using  the  formula: 1* = l o g ( l - p ) / l o g ( l ) where 1* = d u r a t i o n  interval  p = cumulative p r o p o r t i o n  of t o t a l  impact  1 = c o e f f i c i e n t o f t h e lagged dependent v a r i a b l e For duration to  exert  the  Koyck  interval 90  model  estimated  i n Table  f o r p = 0.9 i s 2.92.  percent  average 2.9 months.  of  i t s influence  1,  the  implied  That i s , f o r a d v e r t i s i n g on  demand  requires  on  70 3.3.2  Demand E l a s t i c i t i e s  Elasticities appropriate  f o r F r e s h Mushrooms  calculated  independent  from  variables  the  Koyck  model  are presented  f o r the  i n Table  3.4  below:  T a b l e 3.4  Demand E l a s t i c i t i e s f o r F r e s h Mushrooms C a l c u l a t e d a t t h e Means  VARIABLE  0.28 -0.56 -0.53 0.036  Income e l a s t i c i t y  o f demand i s s u b s t a n t i a l l y l e s s than one,  result  0.51 -1.03 -0.97 0.066  t h a t mushrooms a r e a normal, b u t i n f e r i o r  i s c o n s i s t e n t with  the majority  comparison, employing  an  of  a priori  foods  Agriculture  Canada  good.  This  e x p e c t a t i o n s , as t h e demand  i s income  inelastic.  study  (Hassan  By and  way  of  Johnson)  a f u l l system o f demand equations f o r foods o b t a i n e d an  e s t i m a t e f o r income e l a s t i c i t y estimate with  LONG RUN ELASTICITY  RINCO OWN PRICE CPIB RAD  implying  for  SHORT RUN ELASTICITY  f o r f r e s h v e g e t a b l e s o f 0.09.  f o r t h e income e l a s t i c i t y  caution,  as  the  income  o f demand s h o u l d  variable  was  not  The  be t r e a t e d  statistically  s i g n i f i c a n t i n t h e demand e q u a t i o n . In  the short  mushrooms  run, p r i c e  i s less  than  Johnson's  estimate  vegetables  i s -0.2420.  one  for  elasticity i n absolute  direct Both  o f demand value.  f o r fresh Hassan  and  price  elasticity  of  fresh  estimates  are p r i c e  inelastic,  although the own this  study  estimate study.  p r i c e e l a s t i c i t y o b t a i n e d f o r f r e s h mushrooms i n  i s higher  for  a l l fresh  value)  vegetables  in  than  the  the  Hassan  elasticity and  Johnson  Again, t h i s i s i n t u i t i v e l y p l a u s i b l e , as one would expect  t h a t the aggregated any  ( i n absolute  individual  possibilities within  the  category can t o be l e s s p r i c e r e s p o n s i v e than  item w i t h i n t h a t c a t e g o r y . that  exist  same group.  This  for  substitution  The  long  e l a s t i c i t y i s j u s t s l i g h t l y over one The beef CPI e l a s t i c i t y was  run  i s due  between  estimate  to  the  commodities  f o r own  price  i n absolute value.  n e g a t i v e , as expected  f o r a good  which i s p o s t u l a t e d t o be a complement f o r f r e s h mushrooms. fact  that  beef  inelastic  is  CPI  cross  also  elasticity  consistent  to  with  a  fresh priori  However, Hassan and Johnson's estimate  (Hassan  15  of  p.42)  demand  f o r cross with  price  respect  to  corresponding estimates The  value obtained  ( i n a b s o l u t e value) and  Johnson  vegetable dishes,  for  as  and Johnson, t a b l e  total  fresh  only  vegetable  0.06.  study was  was  expectations.  f o r o t h e r meats were a l l l e s s than  than  price  is  The  in this  beef  -0.53, c o n s i d e r a b l y l a r g e r  the above mentioned e s t i m a t e by  cross  price  elasticity  F r e s h mushrooms are  salads,  p r i c e s are expected i n t h i s study.  beef  mushrooms  0.01689.  consumption. such  elasticity  The  pizza,  soups,  with  used  etc.  respect  i n many  Therefore,  t o have a much s m a l l e r e f f e c t than  Beef p r i c e s must be behaving  Hassan  as a proxy  to  other beef  estimated f o r some  o t h e r ( s ) v a r i a b l e which has not been i n c l u d e d i n the r e g r e s s i o n . Advertising  elasticiy  i s q u i t e low.  That  i s , advertising  expenditures  appear t o have v e r y  consumption o f f r e s h mushrooms. advertising suitable  expenditures  measure  Alternatively, advertising  e f f e c t on t h e l e v e l o f  The low demand r e s p o n s i v e n e s s t o  may be due t o t h e v a r i a b l e not b e i n g a  of the actual consumers  i n the  little  short  levels of advertising  may  simply  be  run.  The  current  activity.  unresponsive high  level  to of  consumption o f f r e s h mushrooms i n B.C. may i n s t e a d be a t t r i b u t e d t o widespread a v a i l a b i l i t y o f product and s t a b l e p r i c e s .  3.3.3  Processed Demand  The modelled  market as  a  Equations  f o r processed price  mushrooms  dependant  produced  equation.  p r e s e n t e d below:  T a b l e 3.5  P r i c e Dependent Demand Model COEFFICIENT  VARIABLE CCONSBC CPRICEI PINV RPDI CONSTANT  -1.01 (-1.56) 1.14 (6.22)** 1.88 E-05 (-1.12) 1.01 E-04 (2.40)** -0.863 (-1.82)*  D-W R~2 ADJ. ** s i g n i f i c a n t a t 95% * s i g n i f i c a n t a t 90%  1.55 0.496  The  i n B.C.  was  results  are  The 49.6  overall  f i t of t h i s r e g r e s s i o n  was  not h i g h , w i t h o n l y  p e r c e n t of the v a r i a t i o n i n processed p r i c e e x p l a i n e d by the  independent expected (RPDI)  variables.  signs. were  All  However,  the  only  coefficients  import  price  variables  have  the  (CPRICEI)  which  were  a  priori  and  income  statistically  s i g n i f i c a n t a t the 95 p e r c e n t c o n f i d e n c e l e v e l (see t - s t a t i s t i c s , T a b l e 3.5). different  The from  inventory v a r i a b l e , zero  at  v a r i a b l e , CCONSBC, was a t the 90 p e r c e n t The  the  90  PINV, was  percent  not s i g n i f i c a n t l y  level.  The  quantity  a l s o not s i g n i f i c a n t l y d i f f e r e n t from  level.  main c o n c l u s i o n t h a t  can  be  drawn from  the  results i s  the s t r o n g r e l a t i o n s h i p between import p r i c e and domestic The c o e f f i c i e n t f o r CPRICEI i s 1.14; the wholesale import implies large  extent  of l o c a l processed  price  on  an  almost  That i s ,  mushrooms moves w i t h one  f o r one  basis.  the  corresponding  change  in  the  price  the This to a  level  for  product.  E l a s t i c i t y of P r i c e F l e x i b i l i t y f o r Processed Mushrooms  The needs  v e r y c l o s e t o one.  price.  t h a t changes i n the import processed p r i c e determine  l o c a l , B.C.  3.3.4  price  wholesale  zero  interpretation  to  be  calculated flexibility. quantitity,  of e l a s t i c i t i e s  discussed.  In  elasticities  are  That means  i s , the that  a in  price  f o r processed dependent  fact  calculated  equation,  elasticities  dependent v a r i a b l e  being  elasticities  mushrooms  of  the price  price,  measure  not the  74 percentage change i n p r i c e t h a t i s caused by a one p e r c e n t change i n dependent v a r i a b l e , This  i s the  elasticity  of  inverse  of  the matrix of cross  When t h i s c o n d i t i o n  the inverse  limit  the  usual  definition  i f c e r t a i n r e s t r i c t i o n s are s a t i s f i e d  namely t h a t zero.  f o r example q u a n t i t i t y .  on  price  (Houck p. 792),  elasticities  f o r substitutes i s  i s not s a t i s f i e d ,  the absolute value  of the p r i c e  the absolute  of  f l e x i b i l i t y o f demand  value  of the actual,  is a  lower  unobserved  price  e l a s t i c i t y o f demand. All  of t h i s  flexibility  i s not t o imply  i s not a u s e f u l  The  the e l a s t i c i t y  statistic,  standard measure and t h e r e f o r e correct  that  requires  only  that  of price  i t i s a non-  c a r e t o ensure t h a t t h e  i n t e r p r e t a t i o n i s used. c o e f f i c i e n t s of price  f l e x i b i l i t i e s f o r t h e processed  mushroom p r i c e dependent demand f u n c t i o n a r e p r e s e n t e d i n T a b l e 3.6.  T a b l e 3.6  C o e f f i c i e n t s o f P r i c e F l e x i b i l i t i e s f o r Processed Demand F u n c t i o n , C a l c u l a t e d a t t h e Means  Variable  Coefficient of Price F l e x i b i l i t y  CCONSBC CPRICEI PINV RPDI  The quantitity  coefficient of l o c a l  -0.06742 0.8898 -0.02545 1.376  of  price  product  flexibility  f o r CCONSBC,  demanded, i s q u i t e  the  low (-0.06742).  T h i s supports t h e i n i t i a l assumption o f an exogenously determined  price. its  The q u a n t i t i t y o f l o c a l supply has v e r y l i t t l e  own p r i c e ,  as a c l o s e  substitute,  e f f e c t on  import p r o c e s s e d mushroom  is available. The  c o e f f i c i e n t of p r i c e  flexibility  mushroom p r i c e i s c l o s e t o u n i t y  (0.89).  f o r import  processed  A one p e r c e n t change i n  import p r i c e r e s u l t s i n a 0.89 p e r c e n t change i n domestic p r i c e . This  also  c o n f i r m s t h e dominant e f f e c t t h a t  import p r i c e has on  domestic p r i c e .  3.4  Cost o f P r o d u c t i o n Model  In farm  t h i s section,  in  B.C.  a cost  o f p r o d u c t i o n model f o r a mushroom  i s presented.  The  results  will  be  parameters f o r t h e Constant E l a s t i c i t y o f S u b s t i t u t i o n  fixed data  costs  T o t a l c o s t s a r e grouped i n t o two broad (R) and v a r i a b l e  f o r the years  costs  1983 t o 1986.  Cost Schedule i s i n c l u d e d  rely  entirely  employ s e v e r a l of  on  family  labourers.  a "representative  p r o d u c t i o n model.  The model  A Balance  Sheet  industry  categoriesi s based on and C a p i t a l  f o r 1986.  Mushroom farms i n B.C. v a r y which  (W) .  as  Production  F u n c t i o n i n t h e mathematical model o f t h e B.C. mushroom (Chapter 2) .  used  farm"  i n s i z e , from s m a l l labour,  to larger  farms  To s i m p l i f y t h e a n a l y s i s , i s used as t h e b a s i s  operations which  the notion  f o r a cost of  76 3.4.1  Assumptions  The c o s t o f p r o d u c t i o n f o r B.C. in  detail  Lotus  building  1-2-3.  employed  1)  by  size  12  the f o l l o w i n g assumptions  6  of  operation,  area,  growing  in  i s 30,000  terms square  of  square  feet,  which  rooms o f 2,500 square f e e t  footage  4.75  cycles  (crops) are employed  This  figure  i s o b t a i n e d from a b i o l o g i c a l  77  days  which  i s currently  of  i s divided  each.  This i s  approximately the average s i z e o f a p r o d u c t i o n u n i t i n  2)  are  model :  production into  examined  model on t h e spreadsheet package,  F o r the y e a r 1986,  i n the  The  a cost  mushroom farms was  B.C.  7  per y e a r p e r growing room.  employed  by  growing c y c l e o f the  majority  of  producers.  3)  Y i e l d p e r growing c y c l e i s c a l c u l a t e d from t h e average y i e l d f o r a l l producers i n B.C. 3.53  In 1986,  t h e average y i e l d  was  pounds o f mushrooms per square f o o t per c r o p .  Some o f the data i s o b t a i n e d from t h e f i n a n c i a l r e c o r d s of i n d i v i u d a l p r o d u c e r s . For reasons o f c o n f i d e n t i a l i t y , no data sources a r e quoted. 6  A v e r a g e area per producer c a l c u l a t e d footage d i v i d e d by number o f p r o d u c e r s . 7  as t o t a l  B.C.  square  77 4)  Labour requirements a r e broken down i n t o o p e r a t o r and h i r e d labour.  The o p e r a t o r i s assumed t o work 10 hours a day, 5  days a week, f o r an annual t o t a l  o f 2,600 hours.  wage i s $12 an hour, p l u s a WCB r a t e Board)  of 3 per cent.  hours p e r c y c l e ,  labour  Compensation  requirements a r e 592  f o r an annual t o t a l o f 2808 hours based on  complete  t u r n o v e r o f one growing  of  l a b o u r i s $8 an hour, p l u s 4 p e r c e n t f o r b e n e f i t s  hired  and 3 p e r c e n t f o r WCB. are  5)  Hired  (Workers'  Operator  room p e r week.  The c o s t  The r a t e s used f o r b e n e f i t s and WCB  those r e q u i r e d by t h e B.C. l a b o u r code.  Energy requirements a r e broken down i n t o f o u r c a t e g o r i e s : i.  Natural  gas  and  electricity  f o r heating  and a i r  c o n d i t i o n i n g c o s t s $0.22 p e r square f o o t p e r c y c l e . ii.  Truck  and p a n e l van r e q u i r e  7800  litres  of f u e l per  8350  litres  of f u e l per  year. iii.  Tractor  and bobcat  require  year. i v . O i l and l u b r i c a t i o n f o r a l l farm v e h i c l e s i s 15 p e r c e n t of  6)  fuel  Harvesting  cost.  cost  i s $0.18 p e r pound o f mushroom, p l u s 4 p e r  c e n t b e n e f i t s and 3 p e r c e n t WCB.  7)  Q u a n t i t i e s and c o s t o f m a t e r i a l s used a r e as o u t l i n e d i n t h e Cost  o f P r o d u c t i o n Model.  I t s h o u l d be  noted  t h a t the  78 quantities  used  a r e based  on what  average f o r t h e i n d u s t r y as whole.  i s believed  t o be t h e  An i n d i v i d u a l  operation  may be u s i n g more o r l e s s .  8) .  Interest  on  Chartered  operating  Bank  Rate  capital  f o r prime  is  calculated  business  using  loans.  The  the time  p e r i o d used i s h a l f o f a growing c y c l e , t o r e f l e c t t h e f a c t that  not a l l c o s t s  are incurred  a t the beginning  o f the  c y c l e , but a r e i n f a c t d i s t r i b u t e d throughout t h e c y c l e .  9)  P r o p e r t y taxes a r e $3,000 a year.  10)  Insurance c o s t s $3,300 a year.  11)  Accounting,  12)  The r e a l  l e g a l , and o f f i c e expenses a r e $4,100 a year.  rate  of i n t e r e s t  obtain the opportunity  i s applied to capital  cost of c a p i t a l .  costs to  The r a t e used i s 5  percent.  13)  Depreciation methods:  can  straight  be line  calculated and  using  declining  purposes, t h e d e c l i n i n g balance  two  alternative  balance.  For tax  method i s r e q u i r e d , but t h i s  method p l a c e s t h e most weight on t h e f i r s t  few y e a r s , and i s  therefore  at costs  not very  s i n g l e year  suitable f o r looking  time frame.  The d e c l i n i n g balance  using  a  method g i v e s  79 equal  weight  appropriate  14)  The 5  15)  to  all  years  and  is  therefore  a  more  measure of d e p r e c i a t i o n i n t h i s case.  r e n t a l r a t e of land i s used as the c o s t o f l a n d . acre  farm  i n the  per a c r e per  year.  The  return  market  calculated  Fraser  for  from monthly  Valley,  growers  the  is  statements  rental rate  $0,838  from  a  the  For a is  pound,  Fraser  The  capital  estimating farm.  cost  the  schedule  capital  R e p a i r and  in  the  model  equipment needs o f  is a  maintenance i s c a l c u l a t e d as  c a p i t a l c o s t f o r t r u c k , t r a c t o r and van For b u i l d i n g s i t i s 2 percent  of c a p i t a l  and  1986.  obtained  by  representative 5 percent  other  cost.  as  Valley  Mushroom Grower's Cooperative A s s o c i a t i o n f o r the y e a r  16)  $140  of  equipment.  80 3.4.2  The C o s t o f P r o d u c t i o n M o d e l A n a l y s i s o f Mushroom P r o d u c t i o n C o s t s i n B.C. A Representative Operation i n the Fraser  (1983-1986): Valley  1983  1984  1985  1986  Farm C h a r a c t e r i s t i c s Number o f B u i l d i n g s Square Footage C y c l e s p e r Year Average Y i e l d  12 2500 4.32 3.48  12 2500 4.32 3.52  12 2500 4.40 3.57  12 2500 4.75 3.53  Labour Requirements O p e r a t o r Hours Hourly Rate WCB R a t e  2600 9.50 3  2600 10.00 3  2600 12.00 3  2600 h o u r s / y e a r 12.00 $/hour 3 %  2554 6.50 3 4  2554 7.00 3 4  2601 7.50 3 4  2808 h o u r s / y e a r 8.00 $/hour 3 % 4 %  H i r e d Labour Hourly Rate WCB R a t e Benefits  Hours  T o t a l Labour Costs O p e r a t o r (+WCB) Hired WCB & B e n e f i t s  rooms ft/room cycles/year lbs/ft2  0.196 0.128 0.01  0.207 0.138 0. 01  0.243 0.148 0.01  0.226 $ / f t 2 / c y c l e 0.158 $ / f t 2 / c y c l e 0.01 %  Energy Requirements Gas a n d E l e c t r i c i t y 27216 T r u c k a n d P a n e l Van 7094 Tractor 7593 O i l a n d Lube R a t e 15 Fuel Cost 0.35  27648 7094 7593 15 0.36  28600 7225 7734 15 0.37  31350 7800 8349 15 0.38  $/year litres/year litres/year  %  $/litre  Harvesting Cost Harvest Rate WCB R a t e Benefits T o t a l Harvested  0.16 3.00 4.00 451008  0.17 3.00 4 . 00 456192  0.18 3.00 4.00 471240  0.18 $ / l b 3 . 00 % 4.00 % 503025 l b s / y e a r  Total Harvest  0.5958  0.6403  0.6876  0.6799  $/ft2/cycle  29.00 12  30.00 12  31.00 12  32.75 12  $/case cases/cycle  Materials Spawn C o s t Cases Used  Cost  81 34. 00 34. 50 $/bag Supplement Cost 32. 00 33. 00 4 4 cases/cycle 4 4 Bags U s e d Chemical Cost 4000. 00 5000. 00 6000. 00 6000. 00 $ / y e a r 29. 97 27. 21 29. 79 30. 00 $ / y a r d Compost C o s t 55 55 55 y a r d s / c y c l e Yards Used 55 21. 50 Casing S o i l Cost 20. 50 21. 00 22. 00 $ / y a r d 12 y a r d s / c y c l e 12 12 Yards Used 12 Bed P l a s t i c C o s t 48. 00 49. 00 49. 50 50. 00 $ / r o l l 0. 33 0. 33 0. 33 r o l l s / c y c l e R o l l s Used 0. 33 Bed N e t t i n g C o s t 1732. 00 1732. 00 1732. 00 1732. 00 $ / r o l l 8. 25 R o l l s Used 8. 25 8. 25 8. 25 r o l l s 10 y e a r s 10 10 10 Replacement Freq. I n t e r e s t on O p e r a t i n g C a p i t a l 11. 17 C h a r t e r e d Bank 12. 06 D i v i d e d by 4. 32 4. 32 2 2  10. 58 4. 40 2  10. 50 % 4. 75 c y c l e s / y e a r 2 f o r average  Property Taxes  2850. 00 2900. 00 3000. 00 3000. 00 $ / y e a r  Insurance  2800. 00 2800. 00 2800. 00 3300. 00 $ / y e a r  Repair & Maintenance B u i l d i n g Rate Truck, T r a c t o r , e t c . Legal  & Accounting  Office  5 2  5 2  5 2  % %  1800. 00 1900. 00 2000. 00 2100. 00 $ / y e a r 2000. 00 2000. 00 2000. 00 2000. 00 $ / y e a r  I n t e r e s t on I n v e s t m e n t Real I n t e r e s t Rate Land C o s t Cost per acre Number A c r e s  5 2  5 %  145.00 5  150.00 5  140.00 5  140.00 $ / a c r e 5 acres  Market Return A v e r a g e Farm P r i c e 0.8105  0.8689  0.9142  0.8378 $ / l b  82 Cost o f Production Dollar Basis  Summary 1983  1984  1985  0.553  0.584  0.599  0.610 $ / l b  0.059  0.059  0.057  0.055 $ / l b  0.611  0.644  0.656  0.665 $ / l b  Non-cash C o s t s operator labour  0.056  0.059  0.068  0.064 $ / l b  Subtotal  0.668  0.703  0.724  0.729 $ / l b  Return t o Investment Depreciation  0.035 0.053  0.035 0.053  0.033 0.048  0.031 $ / l b 0.045 $ / l b  T o t a l Non-cash  0.145  0.146  0.150  0.140 $ / l b  0.756  0.790  0.806  0.805 $ / l b  Grower R e t u r n  0.811  0.869  0.914  0.838 $ / l b  N e t R e t u r n s t o R i s k and Management  0.054 24477  0.079 36034  0.108 51115  0.033 $ / l b 16451 $ / y e a r  1983  1984  1985  1986  C u l t u r a l Costs N o n v a r i a b l e Cash C o s t s  73.11 7.75  73.99 7.52  74.37 7.08  75.82 6.78  Total  80.86  81.51  81.44  82.60  7.46  7.43  8.46  7.94  88.32  88.94  89.91  90.54  4.62 7.06  4.37 6.69  4.15 5.94  3.89 5.57  19.14  18.49  18.56  17.40  100.00  100.00  100.00  100.00  Cultural  Costs  Nonvariable Total  Cost  Cash Costs  Cash C o s t s  Costs  of Production  Cost o f Production Percentage Basis  Summary  Cash C o s t s  Non-cash C o s t s operator labour Subtotal Return t o Investment Depreciation T o t a l Non-cash  1986  Costs  83 Cost o f P r o d u c t i o n 1986 Cultural  Costs  $/sq.ft./Y  H i r e d Labour WCB Premium & B e n e f i t s H e a t i n g and A i r C o n d i t i o n i n g Vehicle Fuel & Lubrication Materials Harvesting  e a r  $/pound  0.158 0.011 0.220 0.050 1.037 0.680  0.045 0.003 0.062 0.014 0.294 0.193  2.155  0.610  0.024 0.021 0.023 0.015 0.014 0.086 0. 010  0.007 0.006 0.007 0.004 0.004 0.024 0. 003  T o t a l N o n v a r i a b l e Cash Costs  0.193  0.055  T o t a l Cash Costs  2.348  0.665  0.226 0.111 0.158  0.064 0.031 0.045  0.494  0.140  2.842  0.805  Total Cultural  Costs  N o n v a r i a b l e Cash Costs I n t e r e s t on O p e r a t i n g C a p i t a l Taxes Insurance Legal & Accounting O f f i c e Expenses R e p a i r & Maintenance Land R e n t a l  Non-Cash Costs Operator Labour Return t o Investment Depreciation T o t a l Noncash Costs  Cost o f P r o d u c t i o n  2.842 0.805  p e r square f o o t $ p e r pound  Grower Return  0.838  $ p e r pound  Net Returns t o R i s k and Management  0.033 16451  $ p e r pound $ per year  84 C a p i t a l Cost Schedule, 1986  Buildings Mushroom Houses Cooler E l e c t r i c a l Hookup  Cost 200000 5000 8000  C l a s s Deprec. I n t e r e s t 6 8 8  13333 333 533  10000 250 400  4000 1000 150 667 20 300 0 0 10 0 333 400 0 150 150 0 667 0 0 0 467 0 50 0  2000 500 75 500 20 150 15 15 5 30 250 200 5 75 75 100 500 20 100 22 350 45 25 30  22563  15757  Life  Equipment A i r H a n d l i n g Equip. 40000 Bed F i l l i n g Machine 10000 CO 2 Meter 1500 F r o n t End Loader 10000 F u e l Tanks 400 Manure Conveyor 3 000 P a l l e t Jack 300 P e s t i c i d e Spray Equip. 300 Ph Meter 100 P i c k i n g Equipment 600 Pick-Up Truck 5000 P o r t a b l e A i r Cond. 4000 Portable Lighting 100 Power T o o l s 1500 Small T o o l s 1500 Spawn Machine 2 000 Steam B o i l e r 10000 Table Scales 400 Tamping Machine 2000 Thermometers 432 Truck 7000 Watering Equipment 900 Welding Equipment 500 Wheelbarrows 600 T o t a l Equipment T o t a l B u i l d . , Equip. Coop Shares Total  315132 30000 345132  8 8 8 10 8 8 8 8 8 12 10 8 8 8 12 8 8 8 8 8 10 12 8 8  1500  10 10 10 15 20 10 5 5 10 5 15 10 5 10 10 5 15 5 5 5 15 5 10 5  _  85 3.4.3  R e s u l t s o f the Cost o f P r o d u c t i o n  The $0,808,  cost while  of  producing  the  grower  p r o d u c i n g 503,025 l b s was Total  cost  of  f i x e d c o s t , and Fixed Variable  cost  These v a l u e s function function, expression  (W)  return  production  (R)  was was  pound  of  was  mushrooms  $0,838.  in  The  1986  was  profit  for  $16,451.  84 percent  cost  a  Model  was  d i s t r i b u t e d with  16  percent  variable cost. $1.69  per  $8.70 per  square f o o t square  foot  of growing of  growing  area. area.  f o r R and W w i l l be used as parameters f o r the  derived subject  i n Chapter to  a  CES  2.  The  minimization  production  function,  which r e l a t e s c o s t o f p r o d u c t i o n  p r i c e s of i n p u t s .  T h i s i s the supply  of  this  cost  results in  t o output l e v e l ,  function.  cost  an and  CHAPTER 4  RESULTS OF THE MATHEMATICAL MODEL OF THE BRITISH COLUMBIA MUSHROOM INDUSTRY  In  this  mushroom  t h e market  manner.  mathematical  behaves  in a  functions  presented  production  section  entered  into  assumptions  from  i n chapter  Results  3 a r e used  1985.  o f the  o f t h e demand  of  the cost  i n t h e supply  of  section  model.  1, a c t u a l  the  3.  B.C.  or monopolistic  estimation  i n d u s t r y data  mathematical  o f monopoly  model,  and p e r f e c t  Based on t h e r e s u l t s  1 and 2, an a n a l y s i s o f quota  86  the year  using  the  1986 i s  alternative  i n t h e market.  t o i n c l u d e t h e y e a r s 1983  obtained  i n s e c t i o n 3.  from  competition  In s e c t i o n 2, t h e a n a l y s i s i s extended  sections  f o r the  2, i s msed t o determine  competitive  econometric  f u n c t i o n i n chapter  o f t h e mathematical  to  model  The parameters r e q u i r e d f o r t h e demand s e c t i o n  are obtained  In  the  i n d u s t r y , d e s c r i b e d i n chapter  whether  model  chapter,  f o r market b e h a v i o r i n  v a l u e s i s then  presented  87 4.1  Monopoly v e r s u s Competitive P r i c i n g , 1986  The  results  mathematical  f o r market  to  by  the  A c t u a l data from t h e c a l e n d a r y e a r 1986 a r e  calibrate  constant  predicted  model o f t h e B.C. mushroom i n d u s t r y a r e p r e s e n t e d i n  T a b l e s 4.1 t o 4.4 . used  equilibrium  t h e model.  1981 d o l l a r s .  A l l prices  The assumptions  a r e expressed  used  t o generate  in the  results are: 1. a  range  of  0.8  to  1.05  f o r the  returns  to  scale  technology i n t h e p r o d u c t i o n f u n c t i o n and 2. a low e l a s t i c i t y o f s u b s t i t u t i o n between t h e two f a c t o r s of p r o d u c t i o n , namely b=0.5, i m p l y i n g p = l . 3. a l l o t h e r v a r i a b l e s which a f f e c t demand, such as income, price values  of  complements,  e t c . , are f i x e d  f o r t h e year o f i n t e r e s t ,  econometric variables  1986.  at their  mean  In terms o f t h e  equations, t h e e f f e c t s o f a l l t h e independant except  price  were  combined  into  a  constant  i n t e r c e p t term. In T a b l e 4.1, some data f o r 1986 i s p r e s e n t e d . average The  price  and q u a n t i t y produced  The data f o r  a r e a c t u a l v a l u e s f o r 1986.  q u a n t i t y o f L, v a r i a b l e i n p u t , i s an e s t i m a t e o f t h e average  f o r t h e i n d u s t r y i n 1986, as c a l c u l a t e d i n t h e c o s t o f p r o d u c t i o n model i n Chapter 2. In with  Table  a quota  4.2,  the r e s u l t s  restriction  f o r t h e monopoly p r i c i n g  i s presented.  The square  model  footage o f  p r o d u c t i o n area i s r e s t r i c t e d t o equal t h e a c t u a l quota  level i n  88 the  industry.  Positive  profits  a r e earned,  as  t h e monopoly  p r i c i n g model equates marginal revenue w i t h m a r g i n a l c o s t . The levels For  results  a r e not c o n s i s t e n t  a r e o n l y about  example,  55 p e r c e n t  i n t h e case  with  the data.  of actual  of constant  Production  p r o d u c t i o n i n 1986.  returns to scale  (v=l) ,  p r e d i c t e d output was approximately 19 m i l l i o n pounds, as compared to actual demand  output o f 34.8 m i l l i o n pounds i n 1986.  for variable  actual.  Given  input  a very  was  also  only  low e l a s t i c i t y  about  The p r e d i c t e d 52  percent  of s u b s t i t u t i o n  of  between  f i x e d and v a r i a b l e i n p u t , t h e i m p l i c a t i o n i s f o r s u b s t a n t i a l  idle  capacity. The quota  results  restraint  production The  for a  a r e presented  levels  variation  competitive  i n Table  are consistent  between  market  with  equilibrium  4.3.  a  The p r e d i c t e d  the actual  p r e d i c t e d and a c t u a l  with  market  i s only  data.  about  five  percent.  Where r e t u r n s t o s c a l e a r e l e s s than and equal t o one,  positive  profits  equates marginal  price cost  equilibrium equilibrium one, zero.  price  a r e earned.  with  marginal  curve,  price  i s equated  cost,  profits  lies  quantity.  The  above  will the  competitive  and g i v e n be  cost  Where r e t u r n s t o s c a l e t o average  an upward  positive  total  pricing  model sloping  provided curve  the  a t the  a r e g r e a t e r than  c o s t , and t h e r e f o r e p r o f i t s a r e  89 T a b l e 4.1  Market Q u a n t i t y , P r i c e ,  TOTAL PRODUCED ( l b s ) AVERAGE PRICE ($/lb) K (square feet/farm) L ($/farm)  T a b l e 4.2  34800000 0.64 30000 261103  Monopoly P r i c i n g Model, w i t h Quota C o n s t r a i n t , 1986 v=.8  TOTAL PRODUCED ( l b s ) AVERAGE PRICE ($/lb) COST ($/lb) REVENUE-COST ($/farm) K (square feet/farm) L ($/farm)  T a b l e 4.3  V=. 9  V=l  v=1.05  18800637 18947331 19152192 19269768 1.16 1.16 1.15 1.14 0.59 0.63 0.66 0.67 156057 145458 136235 132076 30000 30000 30000 30000 111762 123531 134354 139414  Competitive P r i c i n g Model, w i t h Quota C o n s t r a i n t , 1986 v=.8  TOTAL PRODUCED ( l b s ) AVERAGE PRICE ($/lb) COST ($/lb) REVENUE-COST ($/farm) K (square feet/farm) L ($/farm)  T a b l e 4.4  Input L e v e l s , 1986  v=.9  v=l  v=1.05  31822179 33513921 35192553 35417631 0.73 0.68 0.63 0.62 0.61 0.62 0.62 0.62 58588 30490 3268 0 30000 30000 30000 30000 233835 253358 269396 270962  Competitive P r i c i n g Model, no Quota C o n s t r a i n t , 1986 v=.8  TOTAL PRODUCED ( l b s ) AVERAGE PRICE ($/lb) COST ($/lb) REVENUE-COST ($/farm) K (square feet/farm) L ($/farm)  v=.9  V=l  V=1.05  31153431 33322653 35391480 35421288 0.62 0.62 0.76 0.69 0.62 0.61 0.62 0.62 69143 33573 0 0 29065 30968 30946 26615 231639 252971 269528 269336  Note: A l l v a l u e s a r e i n 1981 r e a l  dollars  T a b l e 4.5  I n d u s t r y Welfare E f f e c t s o f Moving from Competitive t o Monopoly P r i c i n g , w i t h Current Quota, 1986 v=.8  Loss i n Consumer S u r p l u s Loss i n Producer S u r p l u s Gain i n Producer S u r p l u s Net Gain Producer S u r p l u s Deadweight Loss  v=. 9  v=l  10760816 12472866 14225680 1263231 1073386 849884 7994307 9010870 10027740 6731075 7937483 9177856 4029740 4535382 5047823  Note: a l l v a l u e s a r e i n r e a l 1981 d o l l a r s  An i n t e r e s t i n g  result  i s t h e p r e d i c t e d magnitude o f p r o f i t s  which t h e i n d u s t r y would enjoy i f a monopoly p r i c i n g market c o u l d be  sustained.  surplus  The r e l e v a n t measures  are presented  mushrooms  i n table  a t t h e farm-gate  o f consumer and  4.5.  level  The  i s used.  derived  producer  demand f o r  T h i s i s o b t a i n e d by  d e d u c t i n g from r e t a i l demand t h e r e t a i l - w h o l e s a l e margin, and the percentage  commission t h a t t h e a s s o c i a t i o n charges  f o r marketing  member p r o d u c t i o n , i n o r d e r t o a r r i v e a t t h e p r i c e schedule t h a t producers f a c e . For a v a l u e o f v = l , annual by  approximately  would  be  9 million  adversely  producer  dollars  affected  with  consumer s u r p l u s o f approximately be q u i t e s u b s t a n t i a l . of  5  million  The  dollars  s u r p l u s would i n c r e a s e  (1981 d o l l a r s ) .  higher  prices.  Consumers The  loss i n  14 m i l l i o n d o l l a r s a year would  net r e s u l t would be a s o c i a l net l o s s  annually.  The  resultant  prices  are  p r e d i c t e d t o be about 100 p e r c e n t h i g h e r than c u r r e n t l e v e l s . o r d e r t o s u s t a i n these for  fresh  mushroom  prices,  imports  higher t a r i f f s  from  t h e U.S.  In  would be r e q u i r e d Movement  of  fresh  mushrooms from o t h e r p r o v i n c e s , such as A l b e r t a , would a l s o have t o be r e s t r i c t e d ,  as t h e h i g h e r p r i c e s would make i t p r o f i t a b l e  t o s h i p i n t o t h e B.C. market. T h i s r e s u l t , t h a t t h e f r e s h mushroom i n d u s t r y i n B.C. i s not regulated prices  i n such  a  way  as t o e x t r a c t more  than  competitive  from consumers, i s not s u r p r i s i n g g i v e n t h e nature o f t h e  supply r e s t r i c t i n g mechanism employed. square  footage  The r e s t r i c t i o n i s on t h e  o f p r o d u c t i o n area, and not on output.  the r e s t r i c t i o n  i s not b i n d i n g on output,  Moreover,  as producers  are s t i l l  a b l e t o supply s u f f i c i e n t q u a n t i t i e s o f mushrooms i n t o t h e market t o a r r i v e a t a competive market c l e a r i n g e q u i l i b r i u m . The to  quota  variable  between fixed  does, however, s h i f t  input.  fixed  Given  a  the r e l a t i v e r a t i o of fixed  low  elasticity  and v a r i a b l e i n p u t s ,  t o v a r i a b l e inputs  of  the s h i f t  has an upper  substitution  i n the r a t i o  bound.  This  of  change i n  r a t i o can r e s u l t i n a h i g h e r c o s t o f p r o d u c t i o n , depending on t h e degree  of s u b s t i t u t a b i l i t y  assumption  of  constant  f u n c t i o n , when t h e quota the  between  returns  to  restriction  average c o s t o f p r o d u c t i o n  production  the inputs. scale  in  on f i x e d  Even the  with  an  production  input i s binding,  i s not completely  independent o f  level.  In T a b l e 4.4, f o r v=l, t h e c o s t o f producing mushrooms i s $  0.62  p e r pound  production with per pound.  without  quota  t h e quota  restriction,  restriction.  i n Table  The c o s t o f  4.3, i s a l s o $ 0.62  The r a t i o o f f i x e d and v a r i a b l e i n p u t s a r e c l o s e t o  the r a t i o t h a t would be o b t a i n e d i n a c o m p e t i t i v e market f o r both  92 inputs.  This  implies  that  the  restriction  on  quota  is  not  b i n d i n g on p r o d u c t i o n , g i v e n the assumptions i n the model. The  above  conclusions  are  robust  to  changes  i n the  basic  assumptions employed i n the p r o d u c t i o n f u n c t i o n technology.  The  parameters o f i n t e r e s t are the s u b s t i t u t i o n parameter p, and  the  r e t u r n s t o s c a l e parameter v. The  s u b s t i t u t i o n parameter, i n i t i a l l y s e t a t one,  from a range o f one without  the  quota  half  t o two.  restriction  models w i t h a quota  F a c t o r demands i n the models  are not  affected  at a l l .  o f the model are not v e r y substitution  are  not  very  the  from  The  results  s e n s i t i v e t o changes i n the v a l u e  paramameter,  far  In  r e s t r i c t i o n , the e f f e c t on f a c t o r demands i s  v e r y s m a l l , as the quota r e s t r i c t i o n i s not b i n d i n g .  the  was v a r i e d  i n d i c a t i n g t h a t the  where  they  would  be  in  factor a  of  ratios  competitive  equilibrium. The 0.8  to  r e t u r n s t o s c a l e parameter v was 1.05.  The  value  o f v has  v a r i e d from a range of  a potentially  l a r g e impact  on  the r e s u l t s o f the mathematical model, as i t d i r e c t l y a f f e c t s the marginal  cost  of  supply and demand. is  in  range  a of  production,  from  t h e r e f o r e the  0.8  knowledgeable sources  equilibrium, i s to i n the  1.05  .  stable Personal  f o r the  of  plausible  discussion  i n d u s t r y l e a d s the author  the most l i k e l y v a l u e of v a t about one, scale.  intersection  However, the main c o n c l u s i o n , t h a t the market  competitive v  and  with  to place  f o r constant returns to  4.2  Monopoly v e r s u s Competitive P r i c i n g , 1983 t o 1986  The pricing 1986.  results behavior  i n section  1  i n t h e B.C.  support mushroom  a model  of competitive  industry  f o r the  year  In t h i s s e c t i o n , data f o r t h e years 1983 t o 1985 a r e a l s o  a p p l i e d t o t h e model i n order t o a s s e s s i n d u s t r y market behavior i n previous years.  F o r t h e reasons  outlined before i n section 1  of t h i s c h a p t e r , t h e assumptions used i n t h e model a r e : 1.  constant returns t o scale  2.  a low e l a s t i c i t y o f s u b s t i t u t i o n (p=l).  The model total prices  i s used  i n d u s t r y supply.  (v=l), and  t o generate  average producer  In F i g u r e 4.1, monopoly and c o m p e t i t i v e  f o r t h e y e a r s 1983 t o 1986 a r e expressed  of t h e a c t u a l p r i c e s .  as a  corresponding  are  presented  competitive  percentage  F o r a l l y e a r s , t h e p r i c i n g model t h a t f i t s  the data b e s t i s t h e model o f p e r f e c t c o m p e t i t i o n . the  p r i c e s and  I n F i g u r e 4.2  i n d u s t r y s u p p l i e s f o r t h e two p r i c i n g  as a percentage  of actual  model p r o v i d e s t h e b e s t  the B.C. mushroom i n d u s t r y .  models  i n d u s t r y supply.  The  f i t f o r market b e h a v i o r i n  120"  1983  Figure 4 . 1 "Optimal" Prices as a Percentage of Actual Prices  1984  1985  1986  Figure 4 - 2 "Optimal Quantities as a Percentage of Actual Quantities  95 4.3  The Payback P e r i o d f o r Quota  Given t h e r e s u l t s o f the mathematical model, a n a l y s i s o f t h e v a l u e o f quota i n t h e B.C. mushroom i n d u s t r y must be based on t h e i n f r a m a r g i n a l r e n t s o f quota ownership. quotas  i n t h e B.C. mushroom  industry  The market  situation for  supports t h i s  conclusion.  The m a j o r i t y o f quota s a l e s i n v o l v e t r a n s f e r s o f t h e e n t i r e farm. The market  i s v e r y t h i n f o r i n c r e m e n t a l u n i t s quota t o add t o an  e x i s t i n g operation. All  t h e elements  needed  now a v a i l a b l e .  Assuming  price  dollars  of  required  four  quota i s purchased a t t h e 1986 average p e r square  foot,  T h i s i s known as t h e payback  A direct  t h e number  o f years  mushroom  period.  e s t i m a t e o f t h e annual b e n e f i t s o f quota  not a v a i l a b l e ,  B.C.  o f quota a r e  f o r quota b e n e f i t s t o sum t o t h e purchase p r i c e can be  calculated.  is  t o analyse the p r i c e  as no market  industry  f o r the r e n t a l  exists.  As a proxy,  ownership  o f quota from  i n the  the cost of  p r o d u c t i o n model (chapter 3 ) , the average net r e t u r n s t o r i s k and management 1986  ( t o t a l revenue minus t o t a l c o s t ) f o r t h e y e a r s 1983 t o  i s $ 1.07 p e r square f o o t o f quota.  T h i s v a l u e w i l l be used  as t h e annual b e n e f i t s a r i s i n g from t h e purchase o f quota. A c h o i c e f o r t h e o p p o r t u n i t y i n t e r e s t r a t e i s a v a i l a b l e from Jenkins'  estimate  of the p r i v a t e  real  cost  farmers  i n Canada  f o r t h e decade  from  t h e mid-1960's  1970's,  five  risks  of  percent.  partial  or  In a d d i t i o n , complete  loss  of c a p i t a l  because of  quota  facing t o mid-  of the potential rents  discussed  96 earlier,  a three  percent  risk  premium  i s added t o t h e i n t e r e s t  rate, f o r a t o t a l o f eight percent. The  expected  determine,  i s difficult sample  to size  However, an estimate can be o b t a i n e d from p r i c e s  (3,  respectively), appreciation  appreciation  p r i c e s e r i e s o f a reasonable  i n the period  observations  occured  o f quota  as no quota  are a v a i l a b l e . prevalent  rate  3.5,  from 4,  1983 t o 1986. 4  the calculated was  7.7  percent.  i n 1985-1986.  f o r the average Very  years annual  little  four  1983 rate  quota  annual  to of  1986 quota  appreciation  Problems w i t h t h e u n i t y o f members i n t h e  i n d u s t r y v e r y l i k e l y had an impact i n these two y e a r s .  Using  on t h e t r a d i n g v a l u e o f quota  Assuming r e c e n t quota p r i c e performance has  g r e a t e r weight than p a s t performance, a compromise r a t e o f f i v e p e r c e n t w i l l be assumed. Quota purchase m e r i t s a s p e c i a l t a x advantage.  An E l i g i b l e  C a p i t a l Account i s c r e a t e d , made up o f one h a l f t h e c o s t o f quota purchase.  An annual  p e r c e n t o f t h e balance  deduction  from t a x a b l e  income o f up t o 10  i n t h i s account may be made f o r as long as  t h e r e i s a p o s i t i v e balance.  Upon e v e n t u a l r e s a l e o f t h e quota,  i f h a l f t h e proceeds o f t h e s a l e exceeds t h e remaining balance i n the  Eligible  gains),  Capital  Account,  the d i f f e r e n c e (half  i s added t o t a x a b l e income.  The marginal  the c a p i t a l  tax rate w i l l  be assumed t o be 50 p e r c e n t . Using period  equation  i s four  (4) i n chapter  years.  The  result  2, t h e c a l c u l a t e d i s reasonably  payback  robust  to  changes i n t h e v a l u e s o f t h e parameters used i n t h e c a l c u l a t i o n s .  97 For example, u s i n g an o p p o r t u n i t y an and  expected  rate  of capital  5 respectively) gives  relatively ways.  I t may  be  o f zero  a payback p e r i o d  a  signal  Alternatively,  p r o d u c e r s as a h i g h  mushroom  appreciation  percent  (cf 8  of f i v e years.  This  s h o r t payback p e r i o d can be i n t e r p r e t e d i n one o f two  profitable.  payback  i n t e r e s t r a t e o f 10 percent and  period. industry,  risk Given  that quota  investment  i n quota  purchase may  i s very  be p e r c e i v e d  by  investment which r e q u i r e s  a very  short  the  i n the  B.C.  i t seems  recent likely  associated with a high l e v e l of r i s k .  instability that  quota  purchase  is  CHAPTER 5  SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS  In are  this  drawn  with  t h i s study. in  this  chapter,  the study  specific  i s summarized,  emphasis  on the p o l i c y  and  conclusions  i m p l i c a t i o n s of  The f i r s t s e c t i o n i s a summary o f t h e major f i n d i n g s  study.  T h i s i s f o l l o w e d by a b r i e f  d i s c u s s i o n o f some  i s s u e s which have a l a r g e b e a r i n g on the f u t u r e p r o s p e c t s o f the B.C.  mushroom  industry.  Policy  i m p l i c a t i o n s as they  relate to  the r e s u l t s o f t h i s study are examined.  5.1  Summary and C o n c l u s i o n s  The mushroom i n d u s t r y i n B.C. i s the o n l y mushroom producing r e g i o n i n Canada which markets and d i s t r i b u t e s through  a central  selling  regulated  agency.  In  addition,  through t h e use o f p r o d u c t i o n area The major o b j e c t i v e o f t h i s the mushroom market if  producers  do  achieve  mushroom  industry  output  is  quotas. study  i s t o determine whether  i n B.C. behaves i n a c o m p e t i t i v e manner, o r  collectively this  industry  e x e r c i s e monopoly  objective, a  power.  mathematical model  i s constructed, 98  using  a  partial  In order t o of  the  B.C.  equilibrium  99 analysis. The demand  major s t r u c t u r a l and  supply  relationships  parameters.  The  demand a r e estimated w i t h econometric is  modelled  Constant  by m i n i m i z i n g  Elasticity  on p r o d u c t i o n  area  a linear  a r e d e f i n e d i n terms o f parameters  equations.  Supply  input  quantity  i s assumed  of resources  response  function.  Quota  by s o l v i n g t h e c o s t m i n i m i z a t i o n  problem s u b j e c t t o a constant l e v e l o f f i x e d i n p u t . fixed  affect  cost function, subject to a  of Substitution production i s modelled  which  t o be  an  whose l e v e l  appropriate  The l e v e l o f  measure o f the  o f usage i s d i s t o r t e d  due t o  the e x i s t a n c e o f quotas on t h e area o f p r o d u c t i o n . The mushroom  results  That  output.  In  production  indicates  gains  a l l o c a t i o n o f quota  do  feature  relationship  between  t h e quota  given  of t o t a l  market  prices for  restriction  on  i s not b i n d i n g  on  the production  technology,  no  by i n c r e a s i n g t h e t o t a l  of  the  fresh  industry  is  and processed fine quality  product  with  the  production  joint  mushrooms.  product Mushrooms  f o r t h e f r e s h market a r e  mushrooms whose lower  n e c e s s i t a t e s a l e s i n t o t h e processed market. proportion  exert  competitive  t h e quota  can be r e a l i z e d  which a r e o f s u f f i c i e n t l y as a j o i n t  that  of  the  i n a competitive  not c o l l e c t i v e l y than  that  i n t h e B.C. mushroom i n d u s t r y .  key  produced  unambiguously  Columbia operates  analysis  Therefore,  welfare  show  t o extract higher  addition,  area  production.  A  study  i s , producers  i n order  societal  this  industry i n B r i t i s h  manner. power  of  t h a t producers  quality  There i s a minimum must s e l l  t o the  100 processed control  market.  Producers  collectively  have  over the market f o r f r e s h mushrooms.  f r e s h market p r i c e , which  i n turn  some degree  They determine  determines the  quantity  of the  which  is sold fresh. The  ratio  producers,  subject  which must be since into  of  fresh  to  to  minimum p r o p o r t i o n  a  s o l d as processed.  mushrooms which are a  processed  market which  can  not  of  Producers are  sold  f r e s h are  imports from P a c i f i c Rim  The  the  control  total able  at  of  production t o do  s o l d as  absorb a l l p r o d u c t i o n  imported p r o c e s s e d mushrooms. by  i s under  the  this  processed price  of  p r o c e s s e d market i s dominated  countries  such as Taiwan, Korea,  and  China. The higher  r e t u r n s which producers o b t a i n from the f r e s h market are than  production production for  from model  received  in  processed Chapter  were h i g h e r  mushrooms  prices,  the  in  relative  the to  than  4, the  processed total  cost  market. in  1986  From the  prices that market. of  the  total  producers  Therefore,  production,  cost  of  costs  of  received the  lower  that  producers  i n the processed market were o f f s e t by h i g h e r  prices in  the f r e s h market.  5.2  Policy  The for  Implications  r e s u l t s obtained  i n t h i s study have s e v e r a l  f u t u r e p o l i c y i n the B.C.  mushroom i n d u s t r y .  implications  At p r e s e n t ,  it  would appear t h a t the c u r r e n t s t r u c t u r e of the i n d u s t r y i s i n the  101 process  o f some dramatic changes.  problem  of  lower  longstanding, industry. A  much  and  priced not  import  under  This i s discussed more  serious  as i t e x i s t s today.  the  catalyst  processed  direct  concerns  o f change,  the  mushrooms,  is  control  i n the f i r s t  issue  c o o p e r a t i v e s p i r i t which  One  of  the  part of t h i s  the  B.C.  section.  breakdown  of  the  f o s t e r e d the b e g i n n i n g s o f the i n d u s t r y  T h i s i s d i s c u s s e d i n the second p a r t o f t h i s  section.  5.2.1  The Problem o f Processed Mushroom  Imports  Processed mushroom imports have been p e r c e i v e d as a problem by  the  Canadian  mushroom  industry  since  the  late  1960s.  The  matter was brought t o the a t t e n t i o n o f the Canadian Government i n 1969  (Skrow) .  Dumping  In  Tribunal.  Anti-Dumping  1973, The  Tribunal,  the matter findings  summarized  of  was a  referred  subsequent  i n the f i n a l  t o the study  Anti-  by  the  paragraph o f the  r e p o r t , were t h a t "preserved inquiry, prices,  mushrooms,  are  likely  as to  defined be  f o r the purposes  imported  into  Canada  of  this  at  such  i n such q u a n t i t i e s , and under such c o n d i t i o n s as t o  threaten  serious  injury  to  Canadian  producers  of  like  or  d i r e c t l y c o m p e t i t i v e goods."  In mushrooms  October into  1979, Canada  the was  tariff increased  on  imports  from  12.5  of  processed  percent  to  20  102 percent.  However, t h i s  measure was  growth  imports.  1973,  of  processed reached  market  In  was  46  the  not s u f f i c i e n t  import  percent.  a h i g h p o i n t o f 84  In  share  1979,  t o curb  o f the the  percent, d e c l i n i n g  Canadian  import  t o 73  the  share  percent  by  1985. Import  processed  mushrooms  market through  low p r i c e s .  the  market,  processed  profitable receive  f o r domestic  f o r processed  cost of production.  the  Canadian  As a r e s u l t o f h i g h import  share i n  the  have  processed  producers. grade  mushroom  market  The p r i c e domestic  is  not  producers  mushrooms i s o f t e n below the  In B.C.,  p r o c e s s e d mushrooms was  penetrated  total  the t r a n s f e r p r i c e t o producers f o r  on average approximately 20 p e r c e n t below  the t o t a l c o s t o f p r o d u c t i o n f o r the y e a r s 1982-1986. Domestic producers their  output  because  need t o process a c e r t a i n p r o p o r t i o n of of  the  e x i s t s between f r e s h and  joint  product  p r o c e s s e d grade  relationship  mushrooms.  that  Therefore,  i n the l o n g run, domestic producers must s u b s i d i z e lower r e t u r n s in  the  processed  market. ratio  For  market  a l l producers  with  higher  acting  returns  collectively,  from  the  fresh  there exists  a  f o r s a l e s of f r e s h t o processed mushrooms which r e s u l t s i n  zero p r o f i t s . In his/her  a  competitive  own  competition potential producers.  to  action amongst  to  market, have  producers  be  sufficiently  The  competitive  a  where  each  producer  very  small  effect,  in  the  fresh  disrupting solution  of  to  perceives short  market  force  marginal  run  has  the  of  some  exit cost  equals  103 price an  would  not be s t a b l e .  incentive  higher  to sell  a  the  zero  than  collectively.  Individually,  ratio  of fresh  profit  T h i s would  producers  would  t o processed  ratio  for  occur because each  have  which i s  a l l producers  producer b e l i e v e s  t h a t h i s / h e r own b e h a v i o r has no e f f e c t on f r e s h market p r i c e s . From  the  results  of  this  study,  i t appears  that  B.C.  producers have some c o n t r o l over p r i c i n g i n t h e f r e s h market, but little  control  over  pricing  i n the processed  dominated by t h e p r i c e o f competing of  processed  production.  mushrooms  is  low  imports. relative  market,  which i s  Further, the p r i c e to  total  costs  of  A case can t h e r e f o r e be made f o r t h e f o r m a t i o n o f a  c e n t r a l marketing agency f o r mushroom producers i n B.C. s o l e l y on the b a s i s o f i n c r e a s e d i n d u s t r y s t a b i l i t y . The  B.C. mushroom  t h a t producers agency. input,  i n d u s t r y i s an example  can enjoy by marketing  Members  benefit  from  and p r o c e s s i n g / m a r k e t i n g  through  scale  a central  economies  o f output.  of the benefits selling  f o r purchase  of  More i m p o r t a n t l y ,  they can c o l l e c t i v e l y s e t p r i c e i n t h e f r e s h mushroom market such t h a t t h e average  p r i c e r e c e i v e d f o r output  (processed and f r e s h )  i s equated t o marginal c o s t . The  results  industry central  o f t h e mathematical  support selling  this  hypothesis.  model o f t h e B.C. mushroom The  i n d u s t r y , through  agency, e x e r c i s e s i t s p r i c e s e t t i n g power i n the  f r e s h mushroom market i n o r d e r t o o b t a i n f o r members an p r i c e t h a t a t l e a s t covers t h e c o s t o f p r o d u c t i o n . the  case,  the  the  association  would  be  i n serious  average  Were t h i s not jeopardy  of  104 dissolving  i t s membership.  competitive  The  mathematical  model  with  assumptions o f marginal c o s t equated t o average p r i c e  generates r e s u l t s which a r e c o n s i s t e n t w i t h t h e a c t u a l  industry  data.  5.2.2  Producer U n i t y  It  i s concluded  within  a  through Growers scale the that  competitive  a 1  central  i n input  selling  purchase,  of  areas  Producers  agency,  marketing  above  Recent  where  Valley  achieve  within  i n the rules  market Mushroom  economies  and d i s t r i b u t i o n . upon  association  instability  changes  and  operates  collectively  a r e dependent  t h e producer  industry  the Fraser  Association,  r e s u l t s discussed members  t h e B.C. mushroom  market.  Co-operative  collectively. some  that  of  However,  t h e assumption  are able  the industry  to act point to  and r e g u l a t i o n s  of the  a s s o c i a t i o n would i n j e c t more s t a b i l i t y i n t o t h e i n d u s t r y . The  marketing  penalties the  that  effectively  contract.  discouraged average p o o l  contract  needs  discourage  Specifically,  from  illegal  price that  t o be e n f o r c e d producers  producers  off-farm  rigidly,  sales,  producers r e c e i v e  must  from be  as t h i s  with  breaching  effectively reduces t h e  through t h e marketing  association. The the from  l a r g e c a p i t a l investment i n t h e p r o c e s s i n g  F.V.M.G.C.A. n e c e s s i t a t e s member  producers,  as  a long a  term  minimum  f a c i l i t i e s of  financial  volume  commitment  of a c t i v i t y  is  105 required marketing be  to  association,  in  order  given  operation.  to  provide  the  fixed  i t s future v i a b i l i t y  i n marketing  marketing  of  The  annualy  renewable  the  a s s o c i a t i o n with  more  stability.  Finally,  change  costs  c o n t r a c t t h a t the a s s o c i a t i o n c u r r e n t l y uses needs t o  lengthened  financial  cover  agencies.  policy  financial  obligations  i s threatened  which a l l o w s  the  by  of  the  formation  of  the  recent other  106 BIBILIOGRAPHY Arrow, Kenneth J . , Chenery, H.B., and Solow, R.M. " C a p i t a l - L a b o u r S u b s t i t u t i o n and Economic E f f i c i e n c y " o f Econ. and S t a t i s t . 3(1961):225-249  Rev.  B a r i c h e l l o , R i c h a r d R. "Assessing Supply Management as a P o l i c y Tool." Paper p r e s e n t e d a t L e c t u r e s h i p S e r i e s , Tuscon, A r i z o n a . November 1984 B a r i c h e l l o , R i c h a r d R. "Analysing Quota" U n i v e r s i t y o f B r i t i s h 84-06 August 1984  an A g r i c u l t u r a l M a r k e t i n g Columbia D i s c u s s i o n Paper No.  C l a r k e , D a r r a l G. "Econometric Measurement o f t h e D u r a t i o n o f Advertising Effect on Sales" J. of Mktg. Res. 14(1976):345-347 Deaton, A. and Muellbauer, J . Economics and Consumer Behavior Cambridge U n i v e r s i t y Press, 1980. G r i l i c h e s , Z v i " D i s t r i b u t e d Lags: A Survey," Econometrica 35(1967):16-49 Hassan, Z.A. and Johnson, S.R. "Consumer Demand f o r Major Food Groups i n Canada" A g r i c u l t u r e Canada 1976. Houck, J . P. "The R e l a t i o n s h i p o f D i r e c t P r i c e F l e x i b i l i t i e s t o D i r e c t P r i c e E l a s t i c i t i e s " , J . o f Farm Econ. 3(1965):789-792 I n t r i l i g a t o r , M i c h a e l D. Econometric Models. Techniques, and Applications P r e n t i c e - H a l l Inc., 1978, p.224 J e n k i n s , Glenn P. " C a p i t a l i n Canada: I t s S o c i a l and P r i v a t e Performance 1965-1974" D i s c u s s i o n Paper No. 78 M i n i s t r y o f Supply and S e r v i c e s Canada 1977. Johnson, J .  Econometric Methods  McGraw-Hill, 1984  Kinnucan, Henry W. "Media A d v e r t i s i n g E f f e c t s on M i l k Demand: The Case o f B u f f a l o , New York Market. Cornell University  107 P u b l i c a t i o n , A.E. Res. 83-13  February  1983  Koyck, L. M. D i s t r i b u t e d Lags and Investment A n a l y s i s N o r t h - H o l l a n d P u b l i s h i n g Company, Amsterdam, 1954. Marktrend Marketing Research Inc. A t t i t u d e Study" A p r i l 1987  "Money's Mushrooms Usage and  M i n i s t r y o f A g r i c u l t u r e and Food Natural (B.C.) A c t Order i n C o u n c i l No. 2265 July R e g i s t r y 153/66  Products Marketing 26, 1966 B.C.  N e r l o v e , M. and Waugh, F.V. " A d v e r t i s i n g Without Supply C o n t r o l : Some I m p l i c a t i o n s o f a Study o f the A d v e r t i s i n g o f Oranges," J . o f Farm Econ. 4(1961):813-837 Song, Dae H. and Halberg, M.C. from C l a s s i f i e d Pricing 1(1982):l-7  "Measuring Producer's Advantage of Milk", Amer. J . Agr. Econ.  Skrow, E. "Submission t o The Inter-Departmental Committee" Canadian Mushroom Growers' A s s o c i a t i o n (1969) W a l t e r s , A. A. An I n t r o d u c t i o n t o Econometrics Company Inc., New York, 1970.  W.W.  Norton &  White, Ken J . , "A General Computer Program f o r Econometric Methods. Shazam," Econometrica 1(1978):239-240 Yoshihara, K., "Demand F u n c t i o n s : An A p p l i c a t i o n t o the Japananese Expenditure P a t t e r n " , Econometrica 2(1969):257-274  108 APPENDIX A.  Production  Mathematical  Proofs  F u n c t i o n , two  Inputs  X = G[DK"P +  (1-D)L"P]" /P V  Cost Function min  First  C = RK  + WL  C = RK  + WL  S.t.  X"P/  + M[X"P/  = G~P/ [DK"P  V  V  +  " G"P/ (DK"P + (1-D)L"P)]  V  V  Order C o n d i t i o n s  (1)  6C/6K = R +  /xpDK'P'^P/v  (2)  6C/6L = W +  MP(1-D)L"P  _ 1  G"P/  V  set (1) and (2) e q u a l t o z e r o f o r s t a t i o n a r y d i v i d e (1) by (2) and r e a r r a n g e R _ W  RK WL  _D 1D  K L  both  s i d e s by  =  multiply  add  (1-D)L"P]  _D 1D  =  K " P " L  =  one  t o both  RK + WL  1  K/L 1  sides  D  WL  substitute  " P "  K  1-D  for:  ~P  L  C = RK  solve  X"P/ GP/ 7l D)"L" V  1 - D  1 " L  P  (1-D)L"P  WL  V  =  X  +  X-P/ G"P/ C WL  point  V  = DK"P  +  (l-D)L-P  V  =  P / V  for L X1 D1L"P "L =  L = therefore  x:P/ GP/ C v  =  v  (l-D) /(P+l)w- /(P+l)xP/( (P 1  1  v  +  1  ))c /(P+l) -P/( (P 1  v  G  +  1  ))  109 WL = by  (I-D)V(P+I)WP/(P )XP/( (P ))C /(P+I)G-P/( (P )) + 1  V  + 1  1  V  symmetry RK =  D /(P+I)RP/(P+I)XP/( (P I))C /(P+I) -P/( (P )) 1  V  +  1  V  + 1  G  s i n c e C = WL + RK C = G-P/( (P v  + 1  ))xP/( (P v  + 1  ))c /(P+l)  where e = [ D / ( P + l ) P / ( P + l ) 1  R  Marginal  1  e  + (i- )V(P+l) P/(P D  W  + 1  )]  Cost MC =  6X  = §-l/ve(p+l)/pX(l-v)/v v  F a c t o r Demands Using D u a l i t y :  SC/6R = K  and  6C/6W = L  where K and L a r e f a c t o r demands || 6R  = XE+il l/v (p+l)/p-lE_- l/(p+l) p/(p-rl)-i -i/v p P+l x  e  D  R  therefore K = V (p+l) l / v l / p - l / (p+l) - l / v D  x  e  R  G  similarly L = ( l - D ) V (P+l) x V V e l / P w - l / ( p + l ) - l / v G  P r o d u c t i o n F u n c t i o n w i t h F i x e d Input K X = G[DK~P + (1-D)L~P]" /P V  Cost  Function C = RK + WL from p r o d u c t i o n f u n c t i o n _ X"P/ - G"P/ DK-P G=P/^7l=5j' V  L  therefore  V  "VP  G  + 1  C  C Marginal MC  — RK + w - RK + W  ?:P/^-_G:P/VDK-P G-P7V(i_ )  -VP  D  Cost =  W(-l) p~  V  V  =  WGP/ X~((P V(l-D)" V  =  X - P / - G"P/ DK-P ~~G PT^Jl-b)  + V  )/ ) V  -VP-1(- X V E  X " P / - G-P/ DK"P G P/ (l-57 V  =  v  V  X-P/V" G P/ (1=D)" 1  =  ~((P  V  + 1  )/P  APPENDIX B. T a b l e BI  Data T a b l e s  F r e s h Mushroom P r i c e , S a l e s , Imports Retail Price Vancouver  Sales i n B.C.  $ p e r l b l b si n 1982 1 2 3 4 5 6 7 8 9 10 11 12 1983 1 2 3 4 5 6 7 8 9 10 11 12 1984 1 2 3 4 5 6 7 8 9 10 11 12  1.69 1.69 1.69 1.70 1.75 1.69 1.69 1.69 1.75 1.67 1.70 1.80 1.77 1.76 1.78 1.80 1.82 1.81 1.88 1.93 1.91 1.99 1.97 1.93 1.97 1.90 1.90 2.02 2.20 2.18 2.18 2.13 2.13 2.13 2.13 2.13  '000s  749214 724956 749426 774432 790052 775354 781142 732595 689296 711640 834771 863033 920091 805992 962000 844000 886000 900000 827000 833000 803000 802000 977894 971288 977000 926000 1016000 1027000 953000 897000 859000 899000 745000 744000 861000 939000  Quantity Value of Imports of Imports i n t o Canada i n t o Canada lbs  $ i n '000s  5499036 4043778 7431864 4597504 7197937 4884894 5391459 3607714 4427916 3378613 3925093 3953569 6000778 4574604 3623327 4759995 4720051 4418376 3786658 2922026 5263896 2967187 4020227 2337496 3277549 2966127 4003528 3729220 4936078 5574986 4385135 6860586 4097563 1911504 2912666 2523062  3417 2741 4793 3018 4646 3131 3677 2304 2868 2286 2406 2326 3836 2929 2243 2861 2884 2847 2352 1889 3185 1889 2485 1453 2058 2057 2602 2472 3456 3771 2977 4694 3055 1385 2078 1741  Table B l  F r e s h Mushroom P r i c e , S a l e s , Imports Retail Price Vancouver $ per l b  1985 1 2 3 4 5 6 7 8 9 10 11 12 1986 1 2 3 4 5 6 7 8 9 Source:  2.13 2.15 2.13 2.16 2.20 2.20 2.20 2.18 2.16 2.10 2.10 2.10 2.10 2.08 2.06 2.05 2.05 2.04 2.10 2.05 2.06  Sales i n B.C.  Quantity Value o f Imports of Imports i n t o Canada i n t o Canada  '000 l b s 922000 894000 1042000 988000 1129000 1005000 1010000 972000 851000 965000 955000 1087000 1158000 971000 1102000 1123000 1095000 1054000 1144000 927000 980000  -Continued  lbs  '000 $  3832703 4577244 5034151 5110207 5360360 4791109 8060318 5431033 7018034 4809269 3447621 5074305 4720254 3237844 3361232 5004586 5493098 4789698 4540471 4525188 3808195  2395 3205 3284 3363 3388 2992 4902 3313 4126 2837 2114 2966 2733 1822 1927 2756 3233 2748 2554 2417 1927  F r u i t and Vegetable and Honey Crop and Market Report A g r i c u l t u r e Canada, v a r i o u s i s s u e s Manager's Report F.V.M.G.C.A., v a r i o u s i s s u e s S t a t i s t i c s Canada Catalogue 65-007  113 T a b l e B2  Consumer P r i c e I n d i c e s A l l Items Vancouver  1982 1 2 3 4 5 6 7 8 9 10 11 12 1983 1 2 3 4 5 6 7 8 9 10 11 12 1984 1 2 3 4 5 6 7 8 9 10 11 12  F r e s h Veg. Process Veg. Vancouver Canada  1981=100  1981=100  1981=100  106.40 107.10 107.80 108.50 110.00 110.70 111.20 112.10 112.50 113.00 113.50 113.20 113.60 114.20 115.00 115.60 115.60 116.30 117.60 117.90 118.10 118.30 118.40 118.50 119.00 119.70 120.10 120.50 120.90 120.80 122.00 122.30 122.50 122.50 122.90 122.80  104.80 113.80 104.10 111.80 111.10 117.00 106.10 94.40 83.20 84.90 91.50 96.50 95.50 95.50 101.60 100.90 107.20 111.00 106.70 95.90 93.90 99.60 102.50 104.90 118.60 128.00 128.50 127.30 121.00 117.20 114.10 119.40 103.60 103.30 109.10 104.20  109.00 109.60 113.20 115.40 117.70 118.80 120.10 122.70 123.00 122.60 124.10 124.80 126.10 127.40 125.70 125.70 125.10 125.50 126.70 126.40 127.70 127.50 128.00 128.90 128.50 131.10 131.60 130.40 131.00 131.90 132.20 131.50 131.20 128.60 129.20 129.80  All  Items Canada  Beef Canada  1981=100 1981=100 105.40 106.70 108.00 108.60 110.10 111.20 111.80 . 112.30 112.90 113.60 114.40 114.40 114.10 114.60 115.80 115.80 116.10 117.40 117.90 118.50 118.50 119.20 119.20 119.60 120.20 120.90 121.20 121.50 121.70 122.20 122.90 122.90 123.00 123.20 124.00 124.10  92.70 91.60 95.40 96.50 104.50 109.00 106.90 103.10 100.20 96.60 97.70 98.20 95.30 97.20 95.20 100.00 104.90 104.80 101.20 100.30 99.60 101.90 100.00 101.30 102.50 105.90 107.30 108.40 106.50 107.40 106.30 106.80 106.00 107.10 105.10 111.20  114 T a b l e B2  Consumer P r i c e I n d i c e s A l l Items Vancouver  1985 1 2 3 4 5 6 7 8 9 10 11 12 1986 1 2 3 4 5 6 7 8 9  -Continued  F r e s h Veg. Process Veg. Vancouver Canada  1981=100  1981=100  1981=100  123.20 123.50 123.30 124.40 124.90 125.10 125.60 125.80 126.20 126.50 126.60 126.70 127.30 127.40 128.00 128.10 129.00 129.30 130.00 130.30 130.30  111.70 115.80 111.50 118.50 110.70 113.90 113.90 103.80 96.10 96.10 103.70 117.60 123.80 112.70 106.70 117.30 124.30 126.90 119.50 111.30 106.60  131.50 131.80 133.30 131.70 133.40 134.40 133.40 133.60 132.80 131.70 132.00 131.60 133.30 134.60 133.30 133.60 134.20 136.70 135.60 137.40 137.10  Sources: S t a t i s t i c s Canada Catalogue 62-010  A l l Items Canada  Beef Canada  1981=100 1981=100 124.60 125.40 125.70 126.20 126.50 127.20 127.60 127.80 128.00 128.40 128.90 129.50 130.10 130.60 130.90 131.10 131.70 131.90 132.90 133.30 133.30  108.20 111.40 110.30 113.60 109.80 110.50 110.80 108.50 106.10 105.60 108.20 110.00 112.40 108.60 110.00 106.50 108.90 108.90 109.20 109.90 113.40  T a b l e B3  1982 1 2 3 4 5 6 7 8 9 10 11 12 1983 1 2 3 4 5 6 7 8 9 10 11 12 1984 1 2 3 4 5 6 7 8 9 10 11 12  Income and P o p u l a t i o n Labour Income B.C.  Disposable Income Canada  Population  Population  B.C.  Canada  '000,000 $  '000,000 $  •000  •000  2134.2 2141.7 2186.0 2190.6 2206.6 2240.7 2093.2 1951.1 2168.1 2181.9 2154.0 2079.6 2180.0 2102.9 2165.0 2170.0 2250.6 2299.5 2171.4 2161.7 2297.9 2238.5 2147.9 2142.9 2133.9 2094.3 2097.5 2193.7 2293.2 2343.5 2227.2 2231.2 2334.1 2343.7 2323.9 2290.3  260616.0 261752.0 263060.0 264368.0 265676.0 265573.3 265470.7 265368.0 265070.7 264773.3 264476.0 265853.3 267230.7 268608.0 274286.7 279965.3 285644.0 285261.3 284878.7 284496.0 284978.7 285461.3 285944.0 290394.7 294845.3 299296.0 300352.0 301408.0 302464.0 305612.0 308760.0 311908.0 313726.7 315545.3 317364.0 319542.7  2778.8 2781.6 2784.3 2787.2 2790.1 2794.6 2797.3 2800.0 2802.7 2804.5 2806.3 2808.1 2810.4 2812.6 2814.9 2820.5 2826.0 2824.4 2827.9 2831.4 2834.9 2837.5 2840.1 2842.7 2845.3 2848.0 2850.6 2854.3 2857.9 2860.4 2863.4 2866.4 2869.4 2871.4 2873.3 2875.3  24534.3 24556.8 24579.3 24605.6 24631.8 24656.3 24678.6 24700.9 24723.2 24743.0 24762.8 24782.6 24801.5 24820.5 24839.4 24862.0 24884.5 24904.6 24924.5 24944.4 24964.3 24983.3 25002.4 25021.4 25040.1 25058.9 25077.6 25100.9 25124.1 25145.2 25166.6 25188.0 25209.4 25227.5 25245.7 25263.8  T a b l e B3  Income and P o p u l a t i o n Labour Income B.C.  $ i n '000,00 1985 1 2 3 4 5 6 7 8 9 10 11 12 1986 1 2 3 4 5 6 7 8 9  Source:  2284.1 2257.0 2304.6 2316.4 2401.6 2465.9 2368.7 2408.6 2499.9 2472.1 2427.0 2393.6 2371.9 2346.7 2386.4 2429.1 2494.2 2540.1 2439.8 2390.7 2495.4  Disposable Income Canada  -Continued Population  Population  B.C.  Canada  '000,000  •000  '000  321721.3 323900.0 323750.7 323601.3 323452.0 325264.0 327076.0 328888.0 331516.0 334144.0 336772.0 337921.3 339070.7 340220.0 340274.7 340329.3 340384.0 342369.3 344354.7 346340.0 348325.3  2877.2 2879.1 2881.0 2882.9 2884.7 2886.5 2888.4 2890.4 2892.3 2894.2 2896.0 2897.9 2898.9 2900.0 2901.0 2903.5 2905.9 2908.8 2911.8 2914.9 2917.9  25282.3 25300.8 25319.3 25339.6 25359.8 25380.0 25402.1 25424.1 25446.2 25464.5 25482.9 25501.2 25517.9 25534.5 25551.2 25571.2 25591.1 25611.9 25633.0 25654.1 25675.2  a  S t a t i s t i c s Canada Catalogue 72-005 S t a t i s t i c s Canada Catalogue 13-001 Canadian S t a t i s t i c a l Review Catalogue 91-001  a  Generated  from q u a r t e r l y data by l i n e a r  interpolation  

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