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The efficiency of the B.C. apple marketing system : a structure, conduct and performance evaluation Stuible, Shirley L. 1988

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THE E F F I C I E N C Y OF THE B.C.  APPLE MARKETING SYSTEM:  A STRUCTURE, CONDUCT AND PERFORMANCE EVALUATION  by SHIRLEY L . STUIBLE  A THESIS SUBMITTED I N PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE  in  THE FACULTY OF GRADUATE STUDIES (Dept. o f A g r i c u l t u r a l  We a c c e p t t h i s t h e s i s  Economics)  as conforming t o  the required standard  THE  UNIVERSITY OF BRITISH COLUMBIA ©May,  1988  In  presenting  degree freely  at  this  the  available  copying  of  department publication  of  in  partial  fulfilment  of  University  of  British  Columbia,  I agree  for  this or  thesis  reference  thesis by  this  for  his thesis  and  scholarly  or for  her  Department  DE-6  (2/88)  Columbia  I further  purposes  gain  shall  requirements that  agree  may  representatives.  financial  permission.  The University of British Vancouver, Canada  study.  the  be  It not  that  the  Library  permission  granted  is  by  understood be  for  allowed  an  advanced  shall for  the that  without  make  it  extensive  head  of  my  copying  or  my  written  ii ABSTRACT  The c o o p e r a t i v e s t r u c t u r e o f t h e B.C. a p p l e m a r k e t i n g  system  has been i n d a n g e r o f c o l l a p s e s e v e r a l t i m e s o v e r i t s 70 y e a r h i s t o r y . The most r e c e n t u p h e a v a l o c c u r r e d i n t h e e a r l y  1980s,  when a c c u s a t i o n s o f c o s t i n e f f i c i e n c i e s l e d t o s e v e r a l changes i n the  system.  The o b j e c t i v e  of t h i s  s t r u c t u r e , c o n d u c t and p e r f o r m a n c e the apple marketing  system.  study  i s to provide a  e v a l u a t i o n of e f f i c i e n c y of  This w i l l  entail  an  historical  r e v i e w , a d e s c r i p t i o n o f t h e apple i n d u s t r y and an e v a l u a t i o n o f its  performance  with respect to cost e f f i c i e n c y  and  revenue  m a x i m i z a t i o n u s i n g t h e W a s h i n g t o n S t a t e a p p l e i n d u s t r y as t h e benchmark. Apple  p r o d u c t i o n i n Washington S t a t e i s about  t e n times  p r o d u c t i o n i n B.C., and t h e i r t y p i c a l o r c h a r d i s about 40 a c r e s v e r s u s about 14 a c r e s i n B.C. The average Washington o r g a n i z a t i o n s e r v e s about  30 growers  average  40% l a r g e r  volume  i s about  packinghouse  t o B.C.'s 300, y e t t h e i r than  the average  B.C.  packinghouse.  A p p r o x i m a t e l y one h a l f  packinghouses  a r e c o o p e r a t i v e s , w h e r e a s n e a r l y a l l t h e B.C.  packinghouses collectively  of a l l the Washington  are cooperatives. Also, own t h e c e n t r a l  marketing  t h e B.C.  growers  agency and a  p r o c e s s o r . The W a s h i n g t o n S t a t e p a c k i n g h o u s e s  major  tend t o market  t h e i r own f r u i t . The p e r f o r m a n c e in  terms  of the apple marketing i n d u s t r y i s evaluated  of revenues,  c o s t s and r e t u r n t o g r o w e r s .  The d a t a  a v a i l a b l e from Washington S t a t e p r e c l u d e s d i r e c t c o m p a r i s o n s o f prices  (and hence r e v e n u e s ) . T o t a l and average c o s t s c u r v e s a r e  d e r i v e d f o r b o t h t h e p a c k i n g and m a r k e t i n g f u n c t i o n s i n t h e B.C. i n d u s t r y , and t h e s e a l l e x h i b i t t h e expected shapes. V a r i a b l e and  iii fixed the  costs  fixed  are  a l s o broken out  cost  data  includes  interesting  finding  unit  are  costs  advantages B.C.  costs  costs  to  about  the  when B.C.  State  The B.C.  This  about  are under  product  returns  of  average  improving  State  grade  12%,  and  fruit,  2 to  size  improving  are  of  3%, B.C.  about  storage  on  that  could  i n B.C. the  in  this  product less  r e s p e c t i v e l y . In  the  be  be  by  63%  mix  9%  could  other  by  words,  grower State's  and  two  match  the  would  benefit  include  under  B.C.  ten  and  more  1%,  5  improving  a p p e a r s t o b e t h e most e f f e c t i v e in  price  f o r the  sized fruit,  increase  price  apples. on  cost  i s v a r i e d to  small  too  average  State  and  i f B.C.  to  possibility.  effect  B.C.  price due  may  When W a s h i n g t o n the  B.C.  maximum  i t s growers  grower r e t u r n s  grower r e t u r n s  to  Marketing  suggests that  Washington  apple.  increase  fruit,  apples  since  $5/box  $3/box  This  to evaluate  performance, B.C.  per size  average,  about  to t e s t  to  imposed  suggests  the  on  obtaining  attempt  average  returns  When t h e  more l o n g  postulated  i t costs  marketers  of  performed the  This  the  inferior  quality is  grower  significantly.  high  exist  most  State  f o r B.C.'s l o w e r p r i c e s i s t h a t t h e  t e s t s are  tested.  percent  the  i s much l o w e r .  makes no  the  $l/box.  expense  i s deemed  Washington  fruit  the  study  apple  structure, years  at  But  $6/box i n W a s h i n g t o n .  however,  i n B.C.  second reason  Sensitivity  not  i t appears  Washington  $5/box i n W a s h i n g t o n S t a t e . T h i s  oriented  possible.  do  Roughly speaking,  diferent factors. First,  volume  and  i t appears  grower,  revenue obtained  two  examined, a l t h o u g h  some v a r i a b l e c o s t s .  -  versus  i n both regions  versus  of  lower.  i n B.C.  Returns  or  compared  f o r Washington are  p a c k a box  occurs  and  to the  means  iv TABLE OF CONTENTS  Page i i  ABSTRACT L I S T OF TABLES  vi  L I S T OF FIGURES  v i i  ACKNOWLEDGEMENT  x  CHAPTER 1 1.1 1.2 1.3 1.4 1.5  INTRODUCTION Problem S e t t i n g Problem Statement Objectives Procedure T h e s i s Guide  1 1 1 8 8 8  CHAPTER 2 2.1 2.2 2.3  STRUCTURE AND CONDUCT OF THE APPLE INDUSTRY . . . . HISTORY OF THE B.C. APPLE INDUSTRY RECENT DEVELOPMENTS IN THE B.C. APPLE INDUSTRY . . . STRUCTURAL DIFFERENCES BETWEEN B.C. AND WASHINGTON STATE 2.3.1 F r u i t Q u a l i t y Comparisons . 2.3.2 S i z e Comparisons 2.3.3 Organizational Structure CONDUCT OF THE B.C. APPLE INDUSTRY . . . . . . .. . . . 2.4.1 P a c k i n g h o u s e Conduct 2.4.2 M a r k e t i n g Agency Conduct INDUSTRY CONCERNS SUMMARY  2.4 2.5 2.6  CHAPTER 3 THEORETICAL ASPECTS OF INDUSTRY STRUCTURE 3.1 OLIGOPOLY . 3.1.1 T h e o r e t i c a l C o n s i d e r a t i o n s 3.2.2 Q u a l i t a t i v e Evidence of Oligopoly 3.1.3 W e l f a r e I m p l i c a t i o n s 3.1.4 M e t h o d o l o g y Employed 3.2 PRICE 3.2.1 P r i c e as a Measure o f M a r k e t Power 3.2.2 Factors A f f e c t i n g Price V a r i a t i o n . . . . . . 3.3 SUMMARY CHAPTER 4 PERFORMANCE OF THE B.C. APPLE MARKETING 4.1 COOPERATIVE STRUCTURE CAVEAT 4.2 MARGINS OR REVENUE ALLOCATION 4.2.1 T h e o r e t i c a l C o n s i d e r a t i o n s 4.2.2 Results .4.3 REVENUE 4.3.1 Theoretical Considerations 4.3.2 Results 4.4 COSTS 4.4.1 Theoretical Considerations 4.4.2 Packing Cost A n a l y s i s 4.4.3 Marketing Costs  SYSTEM . . .  11 11 21 27 28 31 40 4 3 43 47 55 56 59 60 60 62 65 68 69 69 74 82 83 83 85 85 87 89 89 93 96 96 99 115  Page  4.5 4.6  GROWER RETURNS 4.5.1 Results 4.5.2 Comparison with Washington State SUMMARY  V.  130 130 138 14 0  CHAPTER 5 SENSITIVITY ANALYSES OF B . C . PERFORMANCE : 5.1 WASHINGTON STATE PRODUCT MIX 5.1.1 Method 5.1.2 Results 5.2 INCREASED CONTROLLED ATMOSPHERE STORAGE PRODUCT MIX 5.2.1 Method 5.2.2 Results 5.3 INCREASED SIZE PRODUCT MIX 5.3.1 Method 5.3.2 Results 5.4 QUALITY 5.4.1 Method 5.4.2 Results 5.5 SUMMARY  14 2 144 14 4 147 150 150 151 154 154 154 156 157 157 161  CHAPTER 6 SUMMARY AND RECOMMENDATIONS 6.1 SUMMARY 6.2 IMPLICATIONS 6.3 RECOMMENDATIONS  164 164 169 172  BIBLIOGRAPHY  175  vi L I S T OF TABLES Page 1.1  A p p l e P r o d u c t i o n i n B.C., W a s h i n g t o n and t h e U.S.A. ( 1970-86 ) B.C.  2.2  B.C. T r e e F r u i t s L t d . S a l e s D i s t r i b u t i o n D i f f e r e n t Markets ( 1984-85)  2.4 5.1 5.2 5.3  Farm  ...3  2.1  2.3  Tree F r u i t  State  Size Distribution  A p p l e E x p o r t s From B.C. and W a s h i n g t o n and P e r c e n t o f T o t a l ( 1984-86)  ( 1986 ) to  49  i n Boxes 51  V a l u e o f B.C. A p p l e S h i p m e n t s t o D i f f e r e n t on a p e r Box B a s i s ( 1984-85)  Markets  W a s h i n g t o n and B.C. P a c k o u t C o m p a r i s o n s Golden D e l i c i o u s ( 1984)  f o r Red  W a s h i n g t o n and B.C. P a c k o u t C o m p a r i s o n s Golden D e l i c i o u s ( 1985)  f o r Red  P e r c e n t a g e Change i n B.C. Grower S e n s i t i v i t y Tests ( 1984-85)  35  54 and 145 and 146  Returns under 161  vii  L I S T OF FIGURES Page  1.1 1.2  B.C. A p p l e P r o d u c t i o n R e l a t i v e t o C a n a d i a n , W a s h i n g t o n , and U.S.A. P r o d u c t i o n ( 1970-86 )  4  C o m p a r i s o n o f A v e r a g e Grower R e t u r n s between B.C. and  Washington State  Oligopoly  3.2  Welfare Implications  3.3  R e l a t i o n s h i p between P r i c e i n 1981 d o l l a r s and Q u a n t i t y o f B.C. A p p l e s S o l d ( 1976-85)... R e l a t i o n s h i p between P r i c e o f B.C. A p p l e s a n d P r o d u c t i o n Levels f o r the P a c i f i c Northwest and N o r t h A m e r i c a ( 1976-85)  73  R e l a t i o n s h i p between P r i c e and S i z e f o r B.C. Red a n d G o l d e n D e l i c i o u s ( 1984-85)  75  3.5 3.6  Fringe  6  3.1  3.4  plus  ( 1976-84). Model  61  of the C a r t e l Fringe  Model  66 70  E f f e c t o f Grade on P r i c e f o r B.C. Red D e l i c i o u s XFCY o v e r D i f f e r e n t S i z e s (1985)  77  E f f e c t o f S t o r a g e Regime on P r i c e f o r B.C. Red D e l i c i o u s XFCY o v e r D i f f e r e n t S i z e s (1984-85)  79  3.8  E f f e c t o f S t o r a g e Regime on P r i c e f o r B.C. G o l d e n D e l i c i o u s XFCY Over D i f f e r e n t S i z e s (1984-85)...  81  4.1  D e t e r m i n a t i o n o f Revenue A l l o c a t i o n Among M a r k e t i n g , P a c k i n g , and P r o d u c i n g A c t i v i t i e s  86  4.2  Revenue A l l o c a t i o n Among M a r k e t i n g , P a c k i n g , and P r o d u c i n g A c t i v i t i e s on p e r Box B a s i s (1976-85)  88  4.3  Revenue f r o m S a l e s i n 1981 D o l l a r s f o r B.C. T r e e F r u i t s L t d . ( 1976-85)  94  R e l a t i o n s h i p between Revenue f r o m S a l e s ( 1 9 8 1 d o l l a r s ) and Q u a n t i t y o f B.C. A p p l e s S o l d ( 1976-85)  95  3.7  4.4 4.5  Relationship Cost Curves  between S h o r t Run a n d Long Run 98  4.6  T o t a l P a c k i n g C o s t s i n 1981 D o l l a r s Packinghouses ( 1976-85)  4.7  R e l a t i o n s h i p between T o t a l P a c k i n g C o s t (1981 d o l l a r s ) and Q u a n t i t y o f B.C. A p p l e s S o l d ( 1976-85)  4.8  f o r O.F.S.A.  100 101  R e l a t i o n s h i p between A v e r a g e P a c k i n g C o s t (1981 d o l l a r s ) and Q u a n t i t y S o l d f o r B.C. A p p l e s ( 1976-85) 103  viii Page 4.9  4.10  Major Packing Costs B.C. Red D e l i c i o u s Overhead Costs Packinghouses  by Pack Type (1986)  i n 1981 d o l l a r s (Selected years  for 105  for O.F.S.A. 1979-85)  107  4.11  Relationship d o l l a r s ) and  4.12  O . F . S . A . H o u r l y N o m i n a l Wage C o m p a r e d w i t h A v e r a g e W a g e s i n B . C . M a n u f a c t u r i n g and I n d u s t r i a l S e c t o r s (1977-86)..Ill  4.13  Trend i n Real Labour Costs for B . C . Apples (Selected  4.14  4.15  between O . F . S . A . Overhead Costs Quantity Sold (Selected years  Trend i n Cost of for B . C . Apples  by Pack Type y e a r s 1979-86 )  M a t e r i a l s by Pack ( 1984-86 )  Structure of Total Costs by Crop Year ( 1976-85)  (1981 1979-85)....109  for  112  Type 114  B . C . Tree  Fruits  Ltd. 116  4.16  Relationship d o l l a r s ) and  between T o t a l M a r k e t i n g Cost Quantity of B . C . Apples Sold  4.17  Relationship d o l l a r s ) and  between Average M a r k e t i n g Cost (1981 Quantity of B . C . Apples Sold ( 1 9 7 6 - 8 5 ) . . . . 118  4.18  Relationship and Q u a n t i t y  between P r o m o t i o n C o s t s (1981 d o l l a r s ) of B.C. Apples Sold (1976-85)  120  Relationship and Q u a n t i t y  between A d m i n i s t r a t i o n C o s t s (1981 of B . C . Apples Sold ( 1976-85)  121  4.20  Relationship d o l l a r s ) and  between P r o d u c t i o n and A s s e m b l y C o s t s (1981 Quantity of B . C . Apples Sold ( 1 9 7 6 - 8 5 ) . . . . 122  4.21  R e l a t i o n s h i p between S a l e s O f f i c e and B r o k e r a g e Fees (1981 d o l l a r s ) and Q u a n t i t y o f B . C . A p p l e s Sold (1976-85)  124  Relationship and Q u a n t i t y  125  4.19  4.22  4.23 4.24  (1981 (1976-85)....117  b e t w e e n CA S t o r a g e C o s t s ( 1 9 8 1 of B.C. Apples Sold ( 1976-85)  Comparison of Nominal Unit B.C. and Washington S t a t e  Packing Costs ( 1979-85)  Comparison of  Marketing Costs  B.C.  Nominal Unit  and Washington  4.25  B . C . Grower Returns  4.26  Relationship and Q u a n t i t y  State in  1981  between Grower of B . C . Apples  dollars)  dollars)  between 127 between  ( 1979-85) Dollars  129 by Year  ( 1976-85 )'..-131  R e t u r n s (1981 d o l l a r s ) Sold ( 1976-85)  132  ix  Page  4.27 E f f e c t of V a r i e t y and S i z e on B.C. Grower Returns (per u n i t b a s i s ) i n 1984  134  4.28 E f f e c t of Grade and S i z e on B.C. Grower Returns (per u n i t b a s i s ) i n 1984  136  4.29 E f f e c t of Storage Regime and S i z e on B.C. Grower Returns (per u n i t b a s i s ) i n 1984  137  4.30 Comparison of Nominal Unit Grower Returns between B.C., Average Washington State and Trout Cooperative ( 1976-84)  139  5.1  Change i n Revenue, Packing Costs, and Grower Returns f o r B.C. assuming Washington's Product Mix (1984-85)...148  5.2  Change i n Revenue, Packing Costs, and Grower Returns f o r B.C. assuming 10% More CA Storage ( 1984-85)  5.3  5.4  5.5  Change i n Revenue, Packing Costs, and Grower Returns f o r B.C. assuming 10% Decrease i n Small S i z e d Apples (1984-85) Change i n Revenue, Packing Costs, and Grower Returns f o r B.C. assuming 10% Increase i n XFCY Grade Apples ( 1984-85) Percentage Change i n Grower Returns f o r B.C. f o r D i f f e r e n t S e n s i t i v i t y Tests (1984-85)  152  155  158 160  X  ACKNOWLEDGEMENT  This  work was  correspondence. members  for  allowing  firmly I  was  of  Bill  to  pursue  issues  of  the  all  the  throughout  industry.  L t d . was v e r y g e n e r o u s  Dell  was  most  helpful  topic  sustained  involvement area.  I give  i n the  t o my  this  work w h i l e  apple  industry  this  work.  p a r t i c u l a r h e l p when I had q u e s t i o n s  Finally,  this  e x p r e s s my t h a n k s  interviews  and  committee  George Kennedy,  to  assistance  of  my m a j o r s u p e r v i s o r ,  efforts.  grateful  months  i n t o my p r o j e c t .  g r o u n d e d i n my  their  several  and i n p u t  r e i n to  p u b l i s h i n g many a m i s t a k e n  my  to  free  political Fruits  of  uncustomary i n t e r e s t  grateful me  am a l s o  offered  result  I would l i k e  for their  I'm e s p e c i a l l y  the  as  time  throughout  the  people  Mr. A r t to  the  Mr. Martin L i n d e r  with his  keeping  and h i s  me  who  Garrish  history  and  of  B.C.Tree  data.  And M r .  work and saved, me from  notion.  special my own  thanks  to  C h r i s Webber, whose e n v y  interest,  B.C. fruit  and  to  my  family  of  whose  i n d u s t r y p r o m p t e d my e n d e a v o r s  in  1  CHAPTER 1  1.1  Problem The  and  INTRODUCTION  Setting  B.C. a p p l e  economic  industry  change  i n the past  accelerated  of l a t e ,  among  orchardists.  many  agreement  to halt  marketing  group  competition. the  voluntary  packinghouses selling While  from  apple  h a s g i v e n way  independent  since to a  t h e 1974 voluntary  intense i f  i s further their  segmented  Fruits  equity  often  result  The r e l a t i v e  system*  and hence  has  this  that  as a  brokerage.  o f t h e B.C.  l i t t l e  attempt  of  distinguished  efficiency  study w i l l  central  i n the breakup  s h o u l d be  received  individual  the former  L t d , merely  these d i f f i c u l t i e s  factors.  such  own p r o d u c t u s i n g  B.C. T r e e over  fringe  difficulties  c o m p e t i t i o n may become i n c r e a s i n g l y  marketing  investigation  marketing,  have  increased  systems,  efficiency  an  upheavals  to severe f i n a n c i a l  Controlled  structural  with  market  disputes  15 y e a r s . T h e s e  enforcement,  system  agency,  cooperative  due i n p a r t  plus  This  has undergone e x t e n s i v e  rigorous  to f i l l  this  void.  1.2  Problem The  efficiency  q u e s t i o n e d  1  2  Statement  from  of the present many  "Marketing  sides  system"  -  b y  industry  media^,  b e used  as a  general t e r m t o i n c l u d e b o t h p a c k i n g and m a r k e t i n g functions.  t h e  E g . , T u r n b u l l , M. J a n u a r y 23 1987.  "Fruit  will  apple  Growers  has  been  growers,  Gamble". The P r o v i n c e .  2 industry-commissioned  s t u d i e s and i n d u s t r y e x p e r t s . W h i l e 3  4  q u e s t i o n i n g has been p r e s e n t throughout i n d u s t r y i n B.C.  the h i s t o r y of the  (no m a t t e r what the m a r k e t i n g  been most i n t e n s e of l a t e . While charges be s u b j e c t i v e , t h e r e may  Apples  apple  s t r u c t u r e ) i t has  of i n e f f i c i e n c y t e n d t o  w e l l be a case f o r c l a i m i n g the  e f f i c i e n c y of the i n d u s t r y has  such  relative  decreased.  a r e t h e most i m p o r t a n t  t r e e f r u i t crop  i n the  B.C.  i n d u s t r y , c o m p r i s i n g 83% of f r u i t volume and 67% of cash r e c e i p t s o v e r t h e p e r i o d 1980-1984 ( S t a t i s t i c s Canada). T h i s s t u d y  will  t h e r e f o r e p r i m a r i l y r e s t r i c t i t s e l f t o an a n a l y s i s of t h e  apple  i n d u s t r y and  i t s e f f i c i e n c y . As d i s c u s s e d i n Kennedy and  t r e n d s i n a p p l e p r o d u c t i o n and producer to the p e r c e p t i o n of d e c l i n i n g  r e t u r n s may  efficiency  Lee,  g i v e credence  relative  to major  c o m p e t i t o r s such as Washington S t a t e . Trends i n p r o d u c t i o n i n a c o m p e t i t i v e i n d u s t r y p r o v i d e c l u e s t o t h e r e l a t i v e p r o f i t a b i l i t y of t h a t i n d u s t r y . Apple f i g u r e s are r e p o r t e d i n Table  1.1  f o r B.C.,  Canada, W a s h i n g t o n  S t a t e , and t h e U n i t e d S t a t e s over the p e r i o d 1970 a p p l e p r o d u c t i o n has variation),  these  i n c r e a s e d i n a l l areas figures  show how  production  t o 1985.  While  ( g i v e n some y e a r l y  production  i n B.C.  has  a c t u a l l y d e c l i n e d r e l a t i v e t o i t s major c o m p e t i t o r s . T h i s i s b e t t e r i l l u s t r a t e d i n F i g u r e 1.1, where r e l a t i v e percentages g r a p h e d . B a s e d on  5-year averages  (1972-1976 and  B.C.'s t o t a l a p p l e p r o d u c t i o n has r i s e n 11% (not an  are  1982-1986), insignificant  3  Eg., G o l d b e r g , R. A S t u d y of t h e B.C. Fruit Industry f o r t h e B r i t i s h Columbia F r u i t Growers A s s o c i a t i o n . J u l y 1982 .  4  Eg., G a r r i s h , A., Former B.C.F.G.A. P r e s i d e n t . P e r s o n a l communication. J u l y 1986.  3 amount  but low r e l a t i v e  production  has  increased  to  Washington  The p e r c e n t a g e o f  changed 1980s. profits  little, This  through  (whether  due  incentives) B.C.  This  i n both  Table  to  it  facing  to  assumes l e v e l s  1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986  the  do  of  implies  smaller  elsewhere do,  prices  or  efficiency  incentives are  291.2 190.2 242.9 321.0 240.3 366.4 380.8 314.6 331.7 333.4 463.5 445.5 386.7 429.8 320.9 305.0 286.0  WA 1320.0 1201.0 1390.0 1860.0 1775.0 2200.0 2308.0 2083.0 2170.0 2619.0 3005.0 2760 .0 2615.0 3000.0 2895.0 2059.0 3087 .0  Sources: S t a t i s t i c s C a n a d a , 1976-1987, Washington S t a t e A g r i c u l t u r a l  877 . 6 833.5 868.8 826.9 890.8 985.6 901.8 921.7 998.9 959.0 1218.5 920.3 1053.0 1068.9 957.3 1055.1 839.4 #22-003 Statistics,  USA 6396.8 6371.1 5881.3 6238.6 6533.5 7530.0 7479.3 6672 . 6 7596.9 8143.0 8828.4 7753.6 8115.0 8314 . 5 8343.6 7949.0 7845.0  1986  in  equivalent  pounds)  Canada  outside gains  1.1 A p p l e P r o d u c t i o n i n B . C . , W a s h i n g t o n S t a t e , Canada and t h e U . S . A . , 1970 - 1986.  BC  early  increased  regions.  (million  16% t o  i n B . C . has  envisage  growers  costs,  government  from  somewhat i n t h e  not  extent  different  and t h e r e f o r e  average B . C . to  produced  did increase  Apple P r o d u c t i o n Year  apples  B . C . growers  expansion  Washington  o v e r t h e same p e r i o d  Canadian  although  suggests  while  38%. The p e r c e n t a g e o f  W a s h i n g t o n p r o d u c t i o n has f a l l e n 13%.  State)  Relative Apple Production Percentages 50% i  Q%-|—i—i—i—i—•—i—i—|—'—j—•—j—>—i—<—I 1970  1972  1974  1976  1978  1960  1982  1984  Year D 0 F i g u r e 1.1  BC\tfA Prod'n BC\USA Prod'n  +  BC\CAN Prod'n  A WA\USA Prod'n  B.C. Apple P r o d u c t i o n R e l a t i v e to Canadian, Washington, and U.S.A. P r o d u c t i o n (1970-86)  1966*  Trends producing  in areas  efficiencies. 42  pound  producer are  another  box)  f o r both  1984.  year,  Returns  although  returns  fresh  $3.50/box  1980  average  of  the  again  data  whereas relative  in  other  relative  ( i n Canadian d o l l a r s  processed  f o r the  period  1976  slightly  each  c o u l d s i m p l y r e f l e c t i n f l a t i o n . However,  B.C.  i n Table  1.2.  State  have  p e r i o d from  risen  a pre-1980 average  ( r o u g h l y on p a r w i t h W a s h i n g t o n S t a t e ) t o a of  about  suggests  netted  indirect  $2.50/box  (about  method i f i n d i r e c t  a decline in relative  out  direct  d e c l i n e o f B.C.  subsidies occur  i n Washington S t a t e .  $2/box  relative  accounted may  and  be  to  occur  of  post-  less  than  Washington  efficiency.  s u b s i d i e s , which  s u b s i d i e s were n o t  efficiency  per and  W a s h i n g t o n ) . T h i s r e v e n u e d e c l i n e i n B.C. State  changes  to  i n B.C.  reported  and  relative  apples  have f a l l e n d u r i n g t h i s  about  B.C.  returns  i n Washington  this  in  indicator  Average producer  Washington State are to  returns  However, in  B.C.,  f o r ; t h e r e f o r e the  overestimated  change t o a g r e a t e r  by  this  extent  Comparison of BC and WA Grower Returns Average Nominal Return Per 4-2 Pound Box $5.50 -i  $2.00  : :  -f  1  ,  1  1976  1977  1978  1979  :  1  — i  1980  1981  1 1982  —  f 1983  Crop Year •  F i g u r e 1.2  B.C.T.F.  +  W.GAC.H.  Comparison of Average Grower Returns between B . C . and Washington State (1976-84)  1 1984  7 Total related B.C.  production  as  are  per  unit  grower  residual  i n turn  Therefore  any  B.C.  declines  are  deducted  apple  industry,  i n production  has  already  representative per  acre  but  farm  higher  Washington  State.  substantial  factor.  B.C.  industry  consistency e m p h a s i s on  are  as  the  efficiency often  marketing  of of  defined  the the as  predominately  examined  efficiency.  unit The  tree  and  decisions  of  economic above,  the  may  by  at  Kennedy  found  costs  lower  per  feel  farm-level  production  Lee.  Using  i n B.C.  product  limitations  to  (including  as  the  competition  system  has  fruit  industry,  system  been blamed  i s not  r e v e n u e minus c o s t s , B.C.  the  costs  (Bell).  problem the  this  i s the  and This  study w i l l  efficiency  of  increases.  But  f o r much o f  the  known. E f f i c i e n c y  is  However, i n  industry  where  i t i s the  address B.C.  i s the apple  the the  marketing  a c c e s s i b l e measure  the  are  of  fruit  most  a  level  i s meant t o o p e r a t e a t c o s t , handled which  in  were  quality  actual  or p r o f i t .  tree  a  than  differences  that  in  due  production  pound  yield  grower.  be  the  and  This  efficiency  and/or marketing  they  also  marketing  knowledge c o n c e r n i n g system.  r e s i d u a l a f t e r marketing  concluded  cooperative  marketing system margin per  returns.  q u a l i t y c o n t r o l suggests marketing c o n s i d e r a t i o n s  B.C.  difficulty  closely the  postulated  becoming i n c r e a s i n g l y important while  as  In  Relative efficiency  officials  not  from t h e w h o l e s a l e r e c e i p t s .  production They  are  grower  in relative  approach  major  the  efficiency  been  and  production  decline  packinghouse) e f f i c i e n c y . level  are  a f f e c t s the  given  returns  production  i n d u s t r y grower r e t u r n s  packinghouse costs  the  and  lack  of of  marketing  8  1.3  Objectives The  objective  of  this  e f f i c i e n c y of the  B.C.  1)  r e v i e w of  the  an  historical  cyclical  recent 3)  changes i n the  their  5)  these  the  B.C.  i n d u s t r y and  4)  identification  an  p a c k i n g and  determination 6)  a  of  those of Washington S t a t e ;  as  efficiency  the  of  comparison  level  of  the  include:  illustrating  factors  of  these  and  affecting  measurements  7)  and  of  implications;  marketing costs  relevant  measures w i t h how  relative  a discussion  their possible  total  the  the  apple industry  t h e m a r k e t i n g s y s t e m ; 2)  inefficiencies;  to  examine  of the  components;  efficiency;  i s to  apple marketing system. This w i l l  n a t u r e of  a determination  study  of  efficiency  recommendations  marketing  s y s t e m may  be  improved. 1.4  Procedure The  above o b j e c t i v e s  will  be  conduct  and  performance techniques  theory.  The  s t r u c t u r e and  industry  using  the  costs  and  of  by  using  State  industry  performance s e c t i o n w i l l  data permits . Theoretical analysis, since  situ. 1.5  structure, organization  discuss as  a  analyze  the  T h e s i s Guide  aspects w i l l  they are  many a n d  be are  B.C.  comparison revenues,  g r o w e r r e t u r n s , as w e l l as t h e i r s e n s i t i v i t y t o  f a c t o r s . Again Washington State comparisons w i l l  the  the  industrial  conduct s e c t i o n s w i l l  Washington  w h e r e v e r p o s s i b l e . The  met  various  be made w h e n e v e r  discussed better  throughout  explained  in  This  study  will  attempt t o present  a s t r u c t u r e , conduct, performance structure  and  reference 2.1  delves  into  discusses  recent  terminology components factors,  o f B.C.  nature  herein.  and  Section  and W a s h i n g t o n  explains 2.3  packing  packinghouse  between  and m a r k e t i n g  summarizes t h e c u r r e n t Chapter  B.C.  agency  i n d u s t r y concerns  3 utilizes  some  Section  3.1 p r e s e n t s  t h i s model i n t h e o r e t i c a l  it  qualitative  evidence.  Chapters the  B.C.  of a cooperative  provides which packing The  an o v e r a l l  i s then  and m a r k e t i n g  in  industry. supports  i nd e p t h  3.2  the performance of  functions.  Chapter  of efficiency  structure  r e s u l t a n t grower r e t u r n s  described  and i t a l s o i l l u s t r a t e s t h e  themselves with  measures  level  2.4  terms and  i n Section  i nS e c t i o n  i n terms  of sales  4.3-  i n turn, a r e analyzed are described  4  first of  4.1. S e c t i o n  picture o f t h e disbursement  discussed  Section  mix.  and m a r k e t i n g  appropriate  industry  The p r i c e a n a l y s i s o f S e c t i o n  product  4 and 5 c o n c e r n  packing  discusses goals  of the apple  And  level,  at both the  model o f t h e a p p l e  more q u a n t i t a t i v e e v i d e n c e ,  heterogeneity  quality  i n B.C..  2 to develop  provides  of the  and i n d u s t r y  level.  2.2  structural  2.4 d i s c u s s e s  Chapter  with  special  of f r u i t  of the information  an i n d u s t r i a l  Section  some  and Washington  with  Section  details  i n terms  factors at the orchard,  comparisons  with  of i t s problems.  the organizational structures. Section  conduct  industry  o f the industry,  developments  employed  size  o f t h e B.C.  i n d u s t r y where a p p l i c a b l e .  the history  on t h e c y c l i c a l  industry i n  format. Chapter 2 c o n s i d e r s t h e  aspects  t o the Washington  emphasis  and  conduct  t h e B.C. a p p l e  t h e 4.2  revenues  Costs,  a t t h e  i n Section  i n S e c t i o n 4.5.  4.4.  10 Chapter grower  5 performs  returns  revenues mimics  this  storage Section  between  product  packinghouse. for  i n combination.  differ the  capacity,  6.1  Section  6.2.  t o t h e B.C.  Section  and  6  an  revenues,  attempt  Washington of  the  to  State,  average  i n d i v i d u a l f a c t o r s which  follow,  Chapter  t e s t s on  In  and  quality  t e s t s improved  Finally, Section  B.C.  Some o f t h e  difference  5.4  sensitivity  where 5.3  Section  tests  costs  and  identify  why  Section  5.1  Washington might  5.2  tests  improved  fruit  account  increased size,  and  grade. summarizes  discusses  the  the  relevancy  previous of  their  Recommendations p e r t a i n i n g t o p o s s i b l e apple i n d u s t r y are suggested  i n Section  chapters  in  findings  in  improvements 6.3.  11  CHAPTER 2 STRUCTURE AND CONDUCT OF THE A P P L E  HISTORY OF THE B . C . APPLE  2.1 Pre  centered spreading the  fruit at  production  first  to  province.  dedicated land  At the  soared  breakneck  $1  pace  different  of  the  Hudson Bay p o s t s throughout  the  cattle,  in  first in  the  the  b u t by 1910  followed  in  the  and  of  to  in  the  the  $1000  with  per  little  varieties  acre  footsteps  of  apple  were p l a n t e d ,  was  a major  the  wealthy  established  Okanagan l a n d  and p l a n t i n g s  of  B.C. Fruit  experienced  values  occurred  regard for marketability  of  third  Okanagan v a l l e y  it  N o r t h Okanagan.  1800s,  gradually  southern  meeting  1889,  mid  G o v e r n o r G e n e r a l L o r d A b e r d e e n who had  orchards  from  the  B . C . began  (B.C.F.G.A.)  pioneers  and r e s p e c t e d  in  pockets time  p r i m a r i l y to  boom as  large  around  isolated  Growers A s s o c i a t i o n  60  5  1950 Tree  two  INDUSTRY  INDUSTRY  -  as  at  a  many  as  p r i m a r i l y north  of  Penticton. In  organizational  Association cooperative  (initially Fruit  transportation objectives growers was  of  terms,  Fraser  Exchange  today's  to  to  and m a r k e t i n g  the  saw  Valley  B.C. Fruit  dominated) grading,  of  in  fruit  -  structure.  and w h i l e  Prairies  the  standardize  cooperative  were i n d i v i d u a l i s t s  shipping  1895  set  up  the  processing,  essence But t h e  Growers  the  same  majority  of  A b e r d e e n ' s C o l d s t r e a m Ranch  and G r e a t B r i t a i n  a s early  a s 1903,  The b u l k o f t h i s s e c t i o n b o r r o w s f r o m : M a c P h e e , E . The R e p o r t o f t h e R o y a l C o m m i s s i o n on t h e T r e e F r u i t I n d u s t r y of B r i t i s h Columbia. 1958.  12 m o s t g r o w e r s p r e f e r r e d c a s h t r a n s a c t i o n s t o COD afield.  I n 1908  a c o o p e r a t i v e p a c k i n g / s e l l i n g a g e n c y was  i n V e r n o n , t h e Okanagan F r u i t set charges to cover cover  selling  b e l o w ) was The itself best  fruit  O.F.U. i s one  the  of v a r i e t y  The  repeated and  preferences,  g r a d i n g , were  1912,  the  d r a m a t i c a l l y due  largely  O.F.U. w e n t i n t o  to Washington's  liquidation.  Growers  members, and  on U.S.A. a p p l e s  (O.U.G.), a c o o p e r a t i v e  hence g r e a t e r tonnage.  i n 1916.  economic slump.  v a l l e y met  and  i n the  house d e c i d e d  fruit  on  and  Ltd  following  packers  decided  (A.G.),  to  had  to deal w i t h the  t o f o r m a new buy  It also  to a duty  until  up  the  general during  private  heavy c o m p e t i t i o n  Growers t h r o u g h o u t  and  m o s t of  It  increase  a 1921  company, A s s o c i a t e d  O-U-G-  more  diverged  a l s o expanded  1922/23 s e a s o n b o t h  a consignment b a s i s .  with  into  the P r a i r i e market.  Growers p r o s p e r e d  Private fruit  good y e a r s ,  cooperative  The  bumper  l a r g e c r o p p r o m p t e d an a t t e m p t t o r e o r g a n i z e  s u c c e e d e d i n t h i s r e g a r d , a t l e a s t i n p a r t due  B.C.  explained  best orchards  market  and  f r o m t h e O.F.U. i n i t s a t t e m p t t o c a p t u r e  of  ( t o be  to  O r c h a r d i s t s u s e d t h e c o o p e r a t i v e when i t s u i t e d t h e m ,  Okanagan U n i t e d  selling  houses  deducted  which subsequently  O.F.U. , and  to p a r t i c u l a r s  h o u s e s and  the  local  c o m m i s s i o n was  i n t h e Okanagan v a l l e y .  bypassed  season another the  the  many t i m e s  of  a 10%  The  Some p o o l i n g o f r e t u r n s  when t h e p r i c e f e l l  crop  (O.F.U.).  formed  practiced.  pertaining  and  Union  c o s t s , and  costs.  s t o r y of  ignored.  shipments f u r t h e r  and by the  Growers  the  private  the  O.U.G.,  houses. So,  while  the  first  experiment  failed,  i t was  by no means t h e end  i n cooperation,  o f t h e c o o p e r a t i v e movement i n  13 the B.C. apple industry. Pooling of returns over the season became entrenched, and a new sales agency was formed. This agency was influenced by two things: a visit by an American proponent of the cooperative movement, Aaron Sapiro, who suggested that growers could band together to eventually determine price; and Commissioner Lewis Duncan's findings that brokers and wholesalers were cooperating to keep the prices low.  I n response,  A.G.  replaced their Canadian brokers with their own subsidiary, and used existing brokers for export fruit. By 1927 the situation had again deteriorated.  Independents  and a lack of cold storage resulted in market gluts and low prices.  The provincial government created a "Committee of  Direction" empowered to set minimum prices for sale within Canada, although in practice i t could only instigate a pro rata distribution of orders among shippers. The Depression, followed by the 1931 Supreme Court decision that the B.C. government had acted unconstitutionally, spelt the end of the committee.  A  shippers council was formed, and during the bumper crop of 1932 an attempt by 90% of the shippers to fix a minimum price and sale dates failed as i t lacked power to enforce the agreement. An even larger crop the following year, combined with very low prices, spawned tremendous grower agitation. of the A.G. questioned the selling talked of local pools  and  In 1934 Canada and B.C. Marketing Act"s enabling Board.  a  separate  passed the  e f f i c i e n c y sales  Southern locals of the A.G. and  desk  for  the  complementing "Natural  formation  of  the  B.C.  south.  Products  Tree  F r u i t  This board had no power t o affect prices except by  controlling volume, which did not prove efficacious.  In the same  14 year another record crop, increased freight rates and an unfavourable exchange rate combined to thwart the intentions of the  scheme, but 90% of the growers remained on side. While the federal act was struck down in 1937, the provincial  act  had, in anticipation, been amended and hence was ruled valid.  A s t i l l larger 1938 crop prompted the A.G. and independents to experiment with one-desk selling, and in 1939 the B.C.F.G.A. resolved that the experiment continue. B.C. Tree Fruits Ltd. handled only the domestic sales in 1939, but soon houses were subverting the intent of the experiment by saving their premium fruit for export. With the imposition of the War Measures Act in 1940, the federal government gave the B.C. Fruit Board complete control of marketing (including pooling, pricing, and subsidies) and delegated sales to the U.S.A. and overseas, respectively, to B.C. Tree Fruits Ltd. in 1940 and 1941 The locals lost rights to quote prices as well as dates and direction of shipments of their fruit.  Growers prospered under this new arrangement, and  tripartite contracts (between growers, shippers and B.C. Tree Fruits Ltd.) were established to maintain the system once the powers of the B.C. Fruit Board wound down at the end of the war. Given the history of failure of such voluntary schemes in the past, however, a compulsory scheme was s t i l l much sought after. In  1949 the federal government enacted the "Agricultural  Products Marketing Act" giving the B.C. Fruit Board control over marketing, but not over pooling or equalization of returns. Pooling was therefore conducted on the legal basis provided by the  tripartite contracts.  While B.C. Tree Fruits Ltd. conducted  the  pooling in their role as data processors, the actual pooling  15  decisions were made by a separate pooling committee made up of industry representatives. Pooling At this point, an explanation of the evolution of pooling and its problems is necessary.  Pooling was i n i t i a l l y instigated to  compensate late harvest areas and to smooth out the vagaries of seasonal price fluctuations.  It began as direct pooling,  whereby the season's returns from each grade and size of apple are apportioned on a per unit basis throughout the industry. As there were many varieties and few grade and size categories this was a relatively quick and simple procedure.  However, the  pooling committee had the latitude to make adjustments for varietal differences or for aberrant prices (due to unusual shortages).  They also experimented with separate early pools or  premiums when, in the days of primitive storage and therefore much better early versus mid-season prices, the southern houses resented sharing the returns from their climatic advantage with northern houses. When WWII broke out price c e i l i n g s were set and the traditional U.K. market was lost. Therefore, high quality fruit lost much of i t s premium over lower quality f r u i t .  As the  situation was considered short-term, the pooling committee set up a schedule of price differentials for the various varieties, grades and sizes using a five year average of the pre-war prices. After the war the currency restrictions in foreign markets prevented the market from stabilizing, and so this 'yardstick' method was retained.  The five year average became a moving  average which eventually reduced to a one year 'average'. For  16 instance, the  1958  in  previous  reflect sizes  crop  current were  the  year,  price  more  although  "subsidize'  another  pool  increasingly  results.  announced, advances  in cold  While shipments of  Pool  came  the  houses  as  closing  dates,  no  created  (hence  do  of  better  instance,  Mcintosh benefit  Mcintosh.  and  between  permitted  direct  returns  was  to  method  approach  final  this  the  also  complexity  remained  finer  a  were  due  But  to  than  maximizing  and  amongst long  as  i n markets  where  the  of  northern  may  houses  since  there  to  sales  and  held  which  some  many  themselves,  presence be  packed  sizes)  the  returns  Spartans  higher  Industry  specialize,  apple  the  to  breakdowns),  (grades,  total  prices the  as  amount  a l l houses  (grades,sizes)  others  part  size  If  houses  s i z e s ) compete  prorating  understand.  varieties  since  in  and  to  of  considerable  Due  grade  harder  different  (grades,  returns.  l i k e l y  although  system.  varieties  on  For  the  regional disparities.  inequities.  varieties  the  increasingly  in different  will  with  concentrates  lowers  when  grades  yardstick to  from  p a r t i a l l y  changes  The  i t attempted  later,  to  longer  5%.  prices  between  than  no  than  complex  houses,  same p r o p o r t i o n s  these  more  there  also  changes  was  from  became  extent,  variety  and  adjusted  reflected  obviated  pooling  be  Price  industry pooling  requirements  would  by  then  using  storage.  quality  the  a  determined  was  changes.  later  d i s s a t i s f a c t i o n  pooling  and  completely  v a r i e t i e s ,  became  y a r d s t i c k was  of  some agency  not  variety  of  Spartans  back,  to  specialize  the i n  17 Post 1950 Resuming the h i s t o r y , the early 1950s was another predominantly bleak period for the apple industry. A large 1950 crop coupled with the removal of government protection policies resulted in much lower prices.  Freight rates to the east were  doubled, and the season climaxed with serious winter damage. Frosts continued to plague the area u n t i l several house bankruptcies and grower unrest instigated a Royal Commission in 1956.  In Dean MacPhee's report of 1958 (from which much of this  section  i s sourced),  he was l a r g e l y  f a v o u r a b l e to  B.C. Tree Fruits Ltd. and the houses, although he suggested house amalgamation, better communication, and standardization of varieties.  This was followed by ten years of r e l a t i v e  prosperity, until another serious freeze resulted in low returns, e s p e c i a l l y among those who replanted according to the commissioner's advice. In 1969-70 two factors combined to bring an end to this period of contentment (Garrish).  First, Washington produced its  largest crop since 1930, which, at 1695 million pounds was 65% higher than the previous year's crop. occurred in Canada.  Second, a recession  Prices f e l l dramatically and once again  grower agitation threatened to disband the industry. Growers received early advances, but by the beginning of 1970 the money dried up.  Growers began to go under, and with the opening of the  Trans Canada the fruit inspector was no longer able to police shipment of fruit, hence peddlers defied the B.C. Fruit Board. This peddling increased in the following years until a caravan of peddlers dispatched to Vancouver after alerting the media. The  18 peddlers gained public support, and the newly elected  NDP  Attorney General declined to enforce the Board's regulations (which required vehicles to be searched). S.C.  Hudson, in his 1973 report, denounced the peddlers for  using the B.C. Tree Fruits Ltd. price umbrella.  He suggested a  strengthening of the central authority, in part via packinghouse amalgamation. Modernization of packing, storing and growing was also recommended.  Government assistance, which was being  proposed to insure producer costs, should rather be directed at assisting this renovation process, according to Hudson. But in 19 74 the government attempted to resolve the control issued by establishing the Agricultural Land Reserve (A.L.R.) and then Farm Income Assurance (F.I.A.).6  The F.I.A. would only be  available to those growers belonging to the B.C.F.G.A. and who "supported' the affiliated houses, and in return the Board would have no enforcement power.  Support for the affiliated houses,  however, was not defined and as such growers could s t i l l sell to peddlers on the side (and break their contracts with the house) (Garrish). The renovation process advocated by Hudson first appeared in the Oliver-Osoyoos Cooperative in 1975 when the labour saving pregrade/presize (PG/PS) technology was imported from Washington state.  Apples could then be quickly sorted after arrival at the  house (or removal from storage) using computerized colour and size sensors. 6  The fruit  i s then  stored  and  further sorted and  F.I.A. was established to appease growers who stood to lose capital gains when their land was frozen in the A.L.R.  19  p a c k e d , i n one o p e r a t i o n , t o meet the needs of the customer a t a much more measured p a c e .  But t h e i n d u s t r y - w i d e p o o l i n g  system  c o u l d n o t a d e q u a t e l y cope w i t h t h i s uneven a d o p t i o n o f t h e t e c h n o l o g y , and increased.  grower  dissatisfaction,  The W a s h i n g t o n  and h e n c e  new  peddling,  c r o p c o n t i n u e d t o grow, and  houses  c o n t i n u e d t o amalgamate i n an a t t e m p t t o reduce t h e i r p e r u n i t overhead and compete w i t h the independents. I n t h e e a r l y 1980s t h e impact o f t h e i n d e p e n d e n t s was k e e n l y f e l t , e s p e c i a l l y i n the s o f t f r u i t s .  Independent  most houses  c o n c e n t r a t e d on s c a r c e l y graded f r u i t q u i c k l y moved, and not o n l y w i t h growers who  independent  growers  played both sides.  but a l s o w i t h  dealt  contracted  The a f f i l i a t e d houses, whose per  u n i t o v e r h e a d c o s t s a r e h i g h l y dependent  on f r u i t volume,  faced  i n c r e a s e d c o m p e t i t i o n amongst t h e m s e l v e s and so l o b b i e d f o r a change i n the p o o l i n g system In  July,  commissioned  1982,  Roy  (Garrish). Goldberg  completed  an  industry  s t u d y which a g a i n denounced p e d d l i n g and recommended  f u r t h e r c e n t r a l i z a t i o n by way of amalgamating p a c k i n g and  selling  f u n c t i o n s i n t o one agency t o p r e v e n t c o m p e t i t i o n among the houses f o r growers.  Failing  s e l l i n g , u s i n g B.C. I n 1983 was  this,  he recommended house p o o l i n g  Tree F r u i t s L t d . as a b r o k e r o n l y .  a n e w l y i n d e p e n d e n t house, RH MacDonald and  d e n i e d an e x p o r t l i c e n s e  by t h e B.C.  Fruit  response t o an a p p e a l , the "superboard', o r B.C. o r d e r e d the B.C. other  and  Sons,  Board.  In  M a r k e t i n g Board,  F r u i t Board t o g r a n t e x p o r t l i c e n s e s t o t h i s  i n d e p e n d e n t houses  f o r a l l markets  e x c e p t t h e U.K.  and and  Taiwan  (B.C. T r e e F r u i t s L t d . s t r o n g h o l d s ) on a two y e a r  trial  basis.  B e f o r e t h i s d e c i s i o n came down the B.C.F.G.A. had a l r e a d y  20 voted to move to house pooling, and a rival association of independent houses, Okanagan Fruit Producers and Shippers Association (O.F.P.S.A), was formed (Oliver Chronical, 1986). The following winter the second largest house created a storm when i t failed to renew the contracts of 29 growers, at least some of whom were disregarding their contracts by shipping to independents (Stariha). Poor returns from the 1984 crop led up to the most tumultuous year in the recent history of the B.C. apple industry. House pooling came into effect for all fruit, and so two more of the  privately owned houses, MacLean & FitzPatrick and Westbank  Packers, became independents. B.C. Fruit Packers of Kelowna, the largest house, had wanted the total industry amalgamation as proposed by Roy Goldberg, and their board recommended going independent once the near opposite, house pooling, became a fait accompli.  If the general membership hadn't rejected the proposal  then the entire industry would likely have disbanded, given the importance of the Kelowna house in spreading the costs of B.C. Tree Fruits Ltd (Dell).  At about the same time as the vote  was taking place, a trial was being held.  Industry officials and  packinghouses were charged under the Combines Act of conspiring to limit or deal in fruit storage f a c i l i t i e s (in effect, to control prices). While the t r i a l i n B.C. Supreme Court resulted in a n acquittal, the federal Crown prosecutors d i d n ' t drop their appeal until much later in the year  (King,  1985).  That winter,  as  well,  saw the B.C. Fruit Board hearings into the possible extension of the  temporary export licenses granted two years earlier to  21 independents.  As a result of these hearings, the B.C.  Fruit Board decided to deregulate exports in all markets, even the previously untouchable U.K. and Taiwan markets (Oliver Chronical).  In the meantime, independents were given another  boost when members of the O.F.P.S.A houses were let into the F.I.I, (previously F.I.A.) program.  By May of 1986 the  B.C.F.G.A. executive demanded the resignation of the three member B.C. Fruit Board, in response to both the export issue and the board's f a i l u r e to include independent growers in their representation (Garrish).  While the crisis at the packinghouse  level was somewhat less intense than the previous year, the growers were s t i l l restless at the time this study was initiated.  2.2  RECENT DEVELOPMENTS  IN THE B . C .  APPLE  INDUSTRY  While the above historical summary demonstrated the cyclical nature of the organizational problems in the B.C. apple industry, i t is v i t a l to emphasize the significance of the most recent developments i f industry performance is to be evaluated.  This  section w i l l describe the industry structure at the end of central pooling, i t s problems, and how house pooling has attempted to remedy these problems. Prior to 1984 B.C. Tree Fruits Ltd. dictated grading, packing and storage methods to their affiliated houses, and then sold the f r u i t .  The proceeds from these sales,  after  B.C. Tree Fruits Ltd. deducted their costs and storage charges, were pooled by variety, grade and size.  The packinghouses were  sent the remainder in two cheques - one for the growers and the  22 other  to  cover  differential  is  industry  for  and  be  will  diverged  the  packinghouse  a method o f  the  various  further  from the  costs  averaging types  of  discussed  or  packinghouse  packs  the  costs  When t h e  grower  The  over  and s e r v i c e s  below.  differential,  differential.  provided,  actual  returns  the  were  costs  adjusted  accordingly. The B . C . T r e e F r u i t s L t d . m a r k e t i n g s t r a t e g y was the  fruit  that to  at  had t o  sell  be  at  a  controlled  sold  of  They f i r s t  the  year,  pace.  It  s a l e was  of  price-gouging was  the (to  reinforced  and t h e n  must  of  be  excess  B . C . Tree  clear  considered adjusted  their  Fruits  manifest  amongst  fruit.  their  all  volume  their  price  that  this  preclude  When t h i s  Ltd. at  to  sell  the  emphasized  primary importance  unpopular d i s p o s a l  faltered  period)  over  steady  rate  politically rate  maximum p r i c e s .  to  the  steady  reputation  the  end  of  a  for  storage  Washington c o m p e t i t o r s  (Van  Wechal). Many  problems  participants B.C.  Tree  i n the Fruits  organizational often B.C. B.C.  this  industry. Ltd.  Fruits  of  only Ltd.)  p r o b l e m was  perceived  by  Communication between houses  and  the  one to  with  were  was  various  person  attend  Tree F r u i t s L t d . executive Another  structure  salespeople  structures  permitted Tree  with  negligible.  boards (such  both  and as  the  the  uneven  adoption  (which  order  season).  B . C . Tree F r u i t s L t d .  felt as  packed  fruit  a reservoir  should  be  the  GM  of and  meetings.  technology  the  committees  B.C.F.G.A.  (pregrade/presize) through  The  sold  w h i c h w o u l d go t o  allows  first,  fruit  leaving  SunRype i f  it  to  the  of  the  PG/PS  be p a c k e d  to  salespeople PG/PS  couldn't  be  fruit sold.  23 While this fruit received the pooled price for i t s grade and size, the PG/PS packinghouses would not receive the same differential (only the labour costs) as the houses which had not invested in the labour saving technology. Hence the PG/PS houses felt they were not only NOT being rewarded for their investment, but were also being penalized.  Their growers were getting lower  returns due to both making payments for the new technology and lower differential payments. At least two other factors combined with the above problems to cause the move to house pooling. threat of the independents.  The first was the increased  As mentioned in the previous  section, the three privately owned houses l e f t the B.C. Tree Fruits Ltd. organization, lobbied for export licenses and formed the rival O.F.P.S.A.  The second other factor was the  record Washington crops of the early 1980s, which peaked in 1983. The massive Columbia Basin plantings of the 1970s came into full bearing, and B.C. apple grower returns f e l l from and average of about $.10/lb in the late 1970s to about $.065/lb in the early 1980s. Hence the industry underwent a dramatic upheaval in 1984, and house pooling was instigated first for Golden Delicious in 1984, and then for a l l fruit in 1985.  The process has been one  of evolution, and has yet to be stabilized.  But i t can be  summarized as a shift in power from B.C. Tree Fruits Ltd. to the individual packing organizations.  While B.C. Tree Fruits Ltd.  consults with the houses about grading, packing and storage decisions, the final decisions rest with the packinghouses. They  24  can  now d e c i d e whether the p r i c e o f f e r e d  through  B.C. Tree Fruits Ltd. is sufficient. Some of the changes are essentially accounting transfers. B.C. Tree Fruits Ltd. now sends the packinghouse only one cheque from which the packinghouse must apportion costs and grower returns.  SunRype now pays the packinghouses directly for their  fruit, not via B.C. Tree Fruits Ltd.. And storage costs are now paid d i r e c t l y by the houses, and not through B.C. Tree Fruits Ltd. (a change which could have some implications on interest charges i f B.C. Tree Fruits Ltd. received a preferred rate) . Now the three major packing organizations have PG/PS capacity, and the smaller houses have a "set aside" practice which f i l l s a similar role, albeit on a smaller scale.  Most  houses pack to order - B.C. Tree Fruits Ltd. knows how much of each grade and size are in inventory, and when packed quantities are dwindling or when a special order has been received they contact the houses on a "prorate" basis.  The prorate is an  attempt to keep sales volumes proportional among houses as the season progresses.  The house then decides whether to f i l l the  order by evaluating the price and anticipating future price movements. The B.C. Tree Fruits Ltd. marketing strategy has necessarily changed. Movement targets are much more flexible, and the sales people are more familiar with the concerns of the packinghouses. The GM of B.C. Tree Fruits Ltd. is now from the management and not the volume-oriented sales stream (thus well equipped to deal with industry p o l i t i c s ) , and the accounting  function (which  25  concerns i t s e l f with the bottom line) is more central to the organization.  Communication among the various organizational  boards has been expanded such that all sides of the story can now be heard at industry meetings.  For instance, now both a  B.C. Tree Fruits Ltd. and an O.F.S.A. (packinghouse organization) representative are present at B.C.F.G.A. meetings so all sides of the  issues can be discussed. Problems s t i l l exist under the new situation.  One problem  is with the prorate - every packinghouse now has a staff member who oversees the allotment of orders to different houses. The prorate is based on sales volumes, not values, as the decision of which house to place the order with goes to a dispatcher who is not  informed about the price.  Other houses may become jealous  when one seems to consistently sell to better markets - that is to buyers who are willing pay more or who are less likely to cause subsequent problems (such as late payment or unreasonable damage claims).  Houses are s t i l l finding i t d i f f i c u l t to  establish their individual reputations (and hence increase their sales) and are lobbying to use house end labels on their boxes to facilitate this. While the packinghouses have always competed with each other for  growers, the conversion to house pooling has intensified  this.  Its important to emphasize the ways in which these houses  can differ in order to understand how this  competition occurs.  Climate, soil, average orchard size and. farm management ability vary up the Okanagan Valley, and so the different packinghouses can have quite dissimilar members.  These same factors are also  responsible for different fruit quality at the houses.  Some  26  organizations are small, and can therefore afford to be choosier about the type of grower they take on as members, whereas i t is less political for the larger houses to be as selective.  Some  organizations choose to increase their costs (and lower short term returns) by hiring additional f i e l d staff in hopes of improving orchard management (and possibly reducing production costs ) and improving fruit quality (and possibly increasing 7  value) over the long run. In the packinghouse one must be aware of d i f f e r e n t techniques houses can use to give the impression of higher grower returns.  When fruit is delivered to the packinghouse i t can  either be weighed in or have an assigned average bin weight. When using the latter method i t is possible to hide cull fruit in "shrinkage", that i s , bins which actually weigh more than the assigned weight can appear to have a better packout percentage and hence a higher value (and grower return) on a per unit basis, although total return would be the same with both methods. Some houses charge their foreman to variable labour to reduce overhead charges.  Some houses depreciate investments as quickly as  possible, others prefer a slower, less painful rate.  Some houses  use cull charges (sliding or fixed point) to offset overhead and hence increase apparent returns per unit (although total returns would only be increased i f these charges have a deterrent effect over the long term).  Other houses feel i t is cheaper and quicker  One house estimated fieldwork costs of $200,000 and a subsequent grower savings in spray costs of $300,000 over one growing season. However, these costs would be spread amongst a l l members while the benefits may have accrued only to specific growers.  27 to  sort  feel  out  cull  culls  charges  Finally, even  pure  chance.  contribute  their  initial  these  And  there  fruit  up a  help  less  one  to  prorate  from  losses  to  that  a  the  to  price to  efficiency industry  of the  Washington Washington fruit  state  major  has  Its  hence  against  is  months  on  to  well  size  prorating. about  than  also  houses  regions  to  of  individual them  in  STATE  the  the  measure  rate  times  quite  that  relative  B . C . apple  this  Section  influence are  which  prevented  consider  sectors  ten  suddenly  movements.  a much f a s t e r is  not  unexpectedly  protected  it  the  returns.  may  fruit  as  to  before,  final  faulty  more  to  which  a much l a r g e r  State  CA rooms  rooms  that  As mentioned  production  Washington  open  can  packing  as  and  price  thesis  grown at  has  the  BETWEEN B . C . AND WASHINGTON  this  system.  industry  and  of  p a c k i n g and m a r k e t i n g  yardstick  industry.  industry, the  the  grade  prices,  STRUCTURAL DIFFERENCES  of  of  at  L t d .  sale,  impact  industry pooling falling  F r u i t s  when t o  profit  2.3  purpose  so  and  manager  complaining loudly  a n t i c i p a t i n g and p r o f i t i n g from  the  and  abilities,  members  benefits  from  Since  orchard  marketing  these  large  is  house  While  the  the  to  in a certain  due  the  management  p a c k i n g and  that  when  inventory.  in  B . C . Tree  fruit  have  house  enabling  to  determine  for  the  can  at  return  available  windfall  increases  houses  overall  decisions  than  of  c a n e v e n be u n i n t e n t i o n a l  shipping receive  due  astuteness  They a l s o  instance,  have  differ  d i s t r i b u t i o n of  and  For  can  salespeople  the  organization.  line  necessary.  The  the to  grader  aren't  houses  overseeing  make  on the  is  the  1.1,  the  than of  the B . C . the  on p r i c e . close  to  B.C. Since B.C.'s  28 Okanagan v a l l e y are  the  climate,  fairly similar.  consume  and a r e  tariff All  on a p p l e  factors,  b e t w e e n members best  region As  Both regions  some d i s t a n c e  barriers  these  of  the  the  two  be  performance  between  fairly  But  looking  in  will at  be  if  not  justify,  performance  differences  can  not  affect  from  this  only  such  as  accounting  State  differences  is  must  in  organizational  comparison unless  Washington  these  to  no  Canada. ties  due  to  the  careful  revenues could  Therefore, attempt  least  And c o n d u c t  consideration  some  be  physical,  performance,  practices.  this  may a t  differences.  be made b e f o r e  for  isolation  factors  relative  sketchy,  basis  i n c u r r e d and  whether  explain,  factors  and  informal,  the  t h e s e measures  Structural differences, or  4,  costs  factors  to  There are  U.S.A. if  can  q u a l i f y W a s h i n g t o n as  Chapter  intransient  bias  the  close,  industries,  explained  evaluation  misleading.  also  f a r more t h a n t h e y  from major m a r k e t s .  trade  plus  produce  and m a j o r m a r k e t s  for comparison.  will  obtained.  dominant v a r i e t i e s  but is  given  while  to  may  data  understand  performance e v a l u a t i o n  can  proceed.  2.3.1  F r u i t Q u a l i t y Comparisons A p p l e g r a d i n g i n b o t h B . C . and W a s h i n g t o n has  horticulturally system  to  importance various their  one of  Fancy  based  electronic  from  i n c o r p o r a t i n g market aesthetic  qualities  (FCY) and E x t r a  equivalents  distinguished  (freedom  by t h e  sensors  in  flaws,  Fancy  (XFCY)  Washington  at  least  for  grades  State)  the  or  from a  quality)  the  growing  c o l o u r and s h a p e .  amount and p a t t e r n o f  and,  keeping  preferences  s u c h as  evolved  are  in  B.C.  The (and  primarily  c o l o u r as m e a s u r e d  Red D e l i c i o u s  by  variety,  the of  length the  was  to width r a t i o  apple.  a FCY2  distinguish, achieved, level.  note  it  the  is  This this  understand criteria.  the  maturity  at  influence. the  are  in  two  of  is  of  the  to  most  often  two  must level  within but  bemoaned  greater  although  moderating  be  the  often and  most  to  the  for quality  (up t o  differs  4.5  climate  of  level  not  (100-180  frost  effects  of  the  the  free  lakes  climate,  comparable world,  o n l y because also  in  risk  days  there  are  differences.  but  The Okanagan i s  sunlight  soil,  the  have factor  Thus,  while  degrees),  and so  determined  strain,  rest  quality  important  factors,  must  genetically  fluctuations.  These  regions  some a r e a s .  most  one  these  primarily  practices  growing r e g i o n ,  is  regions  fruit quality -  account  differences.  in  ratio  One  fruit  affect  is  is  temperature  in relation  i n the  apple  width  f u r t h e r below  by n u t r i t i o n ,  practices.  different  some p r o t e c t i o n  Shape  influencing  s p r i n g damage the  the  the  can  quality  affected  l a t i t u d i n a l difference  fringe  that  w h i c h seems t o  regions  topographical  of  end  XFCY1  q u a l i t y by t h e  which i s  management  and d i u r n a l  climate  to  74% c o l o u r .  between  factors  p i c k i n g time.  and management  The  quality  various  Colour,  sufficiently  the  fruit  marketplace,  these  to  consistency  factor  on t h e  (Dell).  f o u r major f a c t o r s  strain  45  d i s t i n c t i o n w i l l be d i s c u s s e d  although  penetration  points  length  between j u d g i n g f r u i t  C o n d i t i o n or keeping  determined,  in  from  the  a B . C . Red D e l i c i o u s  a minimum 1:1  range  consistency  compare  1984  a n d by t h e  B.C. industry  To  by  could  above,  in  with  however,  as  each  in  For instance,  90% r e d o r b e t t e r  whereas  and p r o m i n e n c e o f  the of  because northern  winter  versus  or  200-220)  and r i v e r s  The B . C . Okanagan i s  of  also  afford a much  30 narrower valley and more subject to frost pocketing than the Washington Okanogan, and certainly the Columbia Basin is flat in comparison. There is also considerable variation within each area. But while the Columbia Basin receives more heat units than either the B.C. or the Washington State Okanagan valley, this heat may actually be excessive and hurt the condition and colouring of the fruit. Apples will grow on a variety of soils provided there is adequate drainage (Swales).  Acidic soils, which reduce nutrient  availability, are a problem in areas with a long history of irrigation and fertilizer use.  In addition, problems with apple  replant disease occur in soil formerly planted to apples and is therefore more likely in B.C. where the suitable land is more restricted.  Both the B.C. and Washington State fruit growing  areas are characterized by brown chernozenic soils but within this classification the Okanagan valley soils are more variable than either Washington fruit region (Okanogan Valley or Columbia Basin), again in part due to topographical differences. A major consideration in apple quality is the apple strain. For instance, within the variety Red Delicious there are more than 40 strains.  To further complicate the issue, the rootstock  chosen will also affect the fruit attributes.  While many of  these strains and rootstocks can be grown interchangeably in either Washington State or B.C., Washington growers seem to have been much less catholic in their choice, perhaps at the insistence of their packinghouses.  For instance, in Washington  State 48% of the Red Delicious trees are of only 3 strains,  31 whereas in B.C. the top three strains comprise an estimated 25% of the Red Delicious trees (Washington Fruit Survey, 1986). Farm management differences are even more d i f f i c u l t to quantify.  The Okanagan tends to attract retirees and hobby  farmers to a greater extent than Washington (perhaps because there are much milder climates than Washington State to retire to i n the U.S.A.) (Heinicke).  In Washington a l i t t l e Spanish is  probably the only foreign language needed whereas in B.C. there is a large Portuguese community and a growing number of novice growers from the Punjab.  The language difficulties complicate  extension attempts, as do the varying educational and horticultural backgrounds.  Extension in Washington State is  carried out by both the packinghouses and the land grant university (and its agricultural experimental station), whereas the packinghouses and the provincial government conduct extension a c t i v i t i e s in B.C..  In terms of the ratio of growers per  packinghouse fieldman, the Washington system supports 40:1 as a rule of thumb, whereas in B.C. 250:1 is more the norm (where the 40 Washington State growers produce as much as the 250 B.C. growers).  So management techniques may well be different, at  least in the short term, between the two regions. 2.3.2  Size  Comparisons  Before embarking on industry size comparisons a reminder of the  importance of the economies of size or scale concept would be  helpful.  Economies of size exist where the operation is on the  downward-sloping section of the long run average cost curve (LAC).  Expansion would result in reduced average costs via a  f a l l in input per unit of output. According to Green, these  32 economies can be 'real', as just described, or 'pecuniary' when obtained by way of monopsony powers.  Determining a business  entity's exact position on its LAC is difficult, but the presence of the following factors may indicate size or scale economies. As delineated in Scherer, these factors can be grouped into product-, plant- or multiplant- specific factors. Another way to group them that may be more relevant to the broader functions in the apple industry divides these factors into four categories of concern: specialization, setup costs, engineering relationships and massed reserves.  Potential examples of these from the  various levels of the industry w i l l best i l l u s t r a t e these concepts. Economies of size due to specialization is fairly intuitive. Orchardists may benefit from concentrating on the requirements of one crop, both in terms of knowledge and equipment requirements. S p e c i a l i z i n g labour, whether in term of the task at the production or packinghouse level, or the market region at the sales level, may improve efficiency. Examples of savings due to reduced setup costs per unit processed  are most evident at the production  level.  For  instance, spray treatments in orchards require a considerable amount of start-up time to mix,  calibrate and service the  machinery, therefore this 'fixed cost' can be spread more thinly as orchard size increases.  In the packinghouse similar start-up  costs accrue when switching package types. 'Engineering' relationships refer to the surface area to volume ratio, where area of a cylinder varies as the 2/3 power of volume.  The best examples of this factor would occur in a  33  packinghouse.  For instance, the cost of constructing a cold  storage room depends directly on the materials cost of the surface area, and so for a unit increase in volume there is a proportionally smaller increase in construction costs. Similar relationships exist for energy usage and maintenance requirements for the facility. Economies of massed reserves is a somewhat less obvious concept.  It refers to risk spreading when there is a lumpiness  in back-up input.  For instance, the probability of a l l  electronic colour sensors failing at once declines exponentially with the number used in the sorting lines.  Therefore, the cost  of keeping a sensor in reserve to replace a failed one also declines with the capacity of the line.  This principle can be  extended to cash reserves needed to cover exigencies - the amount of this reserve may not need to increase proportionately with the size of the operation. The above list of possible economies of scale or size in the apple industry is hardly exhaustive.  Most of these factors are  subject to the law of diminishing returns - economies gained per unit of cost associated with expansion decline as the  LAC  approaches its minimum. Most industries then exhibit a region of constant  returns  to s i z e before  diseconomies set i n .  Diseconomies of size are most often attributed to managerial capacity.  Eventually the operation becomes too large for the  manager/executive  to cope, a n d techniques  decentralization must be employed.  such  as  Economies of size in  production may also be restricted by market geography concerns where transportation costs play a role.  34 Problems in both management and transportation costs have been ascribed to the B.C.  apple industry by i t s c r i t i c s .  Although factor prices differ somewhat between the B.C.  and  Washington regions, the unimpeded flow of technology and the similarity of the product suggest both regions are influenced by the same factors of size efficiency.  Assuming both face similar  LAC curves a very important distinction between the regions, then, is their relative position along the LAC.  The following  discussion will itemize some of the size differences, as well as the factors behind  these d i f f e r e n c e s , at the orchard,  packinghouse and industry levels. Orchard Level According to the 1986 Census of Agriculture, as summarized in Table 2.1, there were 3,188 tree fruit in B.C.,  farms reporting 27,798 acres of  or an average of about 9 acres per farm.  This was distributed such that 63% of the orchardists farmed only 17% of the land, or about two acres each. The majority of the acreage, 54%, was farmed by 32% of the growers, for an average of about 15 acres each. The 1986 B.C.F.G.A. registry recorded an average farm size of about 14 acres, suggesting that many of the Census orchardists are not included in the B.C.F.G.A.. The  1,914  Okanagan apple orchardists reported in the Census data grow 17,450 acres in apples, for an average apple orchard size of bout 9 acres.  35 Table 2.1 B.C. Tree Fruit Farm Size Distribution, 1986. 1 -- 7 acres 8 -- 32 " 33 -- 12 7 " 128 acres and over Total  Farms  Acres  2027 1025 131 5  4702 15074 6788 1234  3188  27798  Source: 1986 Census of Agriculture While exact figures are not available, Washington State sources estimate the average Washington orchard size to be approximately 40 acres, compared with 15 acres (9 of apples) in B.C. reported above. This suggests there exists considerable scope in B.C. to capture economies of size, as supported by Lee's representative orchard cost comparison.  Beyond those mentioned  above, there are several obvious areas where size economies may exist.  Spreading the fixed costs of orchard machinery, record  keeping and permanent help are examples of this.  As well, the  quality consistency aspects mentioned in Section 2.3.1 could also justify expansion.  So what prevents B.C. farmers from reaching  the same size as those in Washington State? The f i r s t factor preventing industry expansion is B.C.'s lack of land available for expansion relative to the Columbia Basin region. However, amalgamation  of  farms  could s t i l l achieve  the same effect, although not without incurring transactions costs, either through  t r a n s p o r t a t i o n  separated or through complicated adjacent blocks.  costs  procedures  when t o  blocks  are  amalgamate  Higher land prices in B.C. have traditionally  been blamed for its smaller sized farms, but when rental rates  36 are  compared  between  the  credibility  (Lee).  economies of  s i z e should  compensate.  But  may  be  the  capital  regions  i f land  this  prices  encourage h i g h e r  are  t r e e s per  T h i s , and  p a r t l y explained cost  factor  higher  loses  in  B.C.,  density plantings  d e n s i t i e s are lower i n B.C.,  compared w i t h 190 Survey, 1986).  Even  two  averaging 155  to  trees  acre i n Washington (Washington F r u i t  the l a r g e r acreage i n Washington  State,  by the tax s t r u c t u r e i n Washington where  allowance rates  where i n v e s t o r s can d e p r e c i a t e  are  higher  t r e e s , as w e l l  t h a n i n B.C.  and  (Lee).  Packinghouse L e v e l There are  two  f a c t o r s to c o n s i d e r  s i z e a t the packinghouse l e v e l and the  previous  either  be  discussion  measured  number.  The  spreading  the  former  is  relevant this  associated  members.  with stopping  costs).  CA  the  run  T h e r e may  enough l i k e  fruit  quality.  (and  a l s o be  i f i t has  a bearing  i s c e r t a i n l y the  case  This  on  The  grower  and paperwork c o s t s i n c r e a s e also  be  this  possible  since orchard  blocks  hence i n c u r o n l y m i n i m a l costs  associated  be done as  with costs  can  but be  paperwork  with waiting and  r a p i d l y as p o s s i b l e  of  packing  case, as  to come through t h e system to f i l l  room, which s h o u l d  fruit  standard  grower  s t a r t i n g a packinghouse run,  most i n d u s t r y sources d i s c o u n t pooled before  i n terms o f  i n the  There c o u l d and  or  can  f i x e d c o s t s of overhead over a l a r g e r volume.  In a c o o p e r a t i v e  number o f  Packinghouse s i z e  volume o r  important  s e r v i c e s , e s p e c i a l l y extension, the  scale  these are d i r e c t l y r e l a t e d to  farm s i z e .  i n terms of  l a t t e r measure i s o n l y costs.  of  when e v a l u a t i n g  for  close a maintain  i s a l s o r e l a t e d to the q u a l i t y v a r i a b i l i t y  37 aspect discussed above, where returns, if not costs, could suffer from a large number of small growers. Plant size comparisons between B.C. and Washington State are quite d i f f i c u l t , given the different ways of reporting plant capacities, different bin weights, and the different packing season lengths.  In his 1983 survey of Washington plants,  Schotzko determined daily packing capacities, storage capacities and expansion plans of the 94 respondents (out of an estimated 180 packinghouses) (Schotzko, September 1983).  His results  showed the average measurements would be downward biased by the relatively large proportion of small packinghouses.  While the  average capacity was about 330 bins per day (230 for conventional and 400 for PG/PS systems), 60% of the firms accounted for only 1/3 of the production while the top 20% (with 500 or more bin capacities) accounted for 45% of production. An informal survey of the seven major B.C. packinghouses was conducted  (for the 1987 crop year) to obtain similar capacity  measurements. Three of the eleven plants where packing operations take place have PG/PS, with an average daily capacity of 325 bins (at about 800 pounds/bin) or about 300 average Washington State bins (at an average 866 pounds/bin) per shift. Among the B.C. Tree Fruits Ltd. houses the average conventional plant packed 258 bins (or 238 Washington State b i n s ) per shift, but among the seven organizations surveyed the average plant packed 224 bins (or 207 Washington b i n s ) per s h i f t . The average plant (conventional or PG/PS) i s about 252 b i n s (233 Washington State bins). While the PG/PS plant capacities varied by only 50 bins, the conventional plants ranged in size from over 300 bins (277  38 Washington b i n s ) down t o 85 b i n s  (78 Washington S t a t e b i n s ) p e r  shift. Thus,  i n comparing  Washington b i n s ) ,  B.C. a n d W a s h i n g t o n  State  (using  i t appears that while the average c o n v e n t i o n a l  systems are of comparable s i z e , the PG/PS systems are much l a r g e r i n Washington, 400 b i n s to 300. i s packed i n t h e PG/PS houses 325 b i n s ) , packed  and r e c a l l  (with a maximum s i z e of l e s s than  t h a t 45% o f t h e Washington p r o d u c t i o n i s  i n houses w i t h  Washington  The bulk of the B.C. p r o d u c t i o n  capacities  of o v e r 500 b i n s .  packinghouses are therefore  55% l a r g e r  The major than the  l a r g e s t p a c k i n g h o u s e i n B.C., and a v e r a g e d o v e r b o t h t y p e s , a Washington  plant  i s 42%  larger  than  the average  p a c k i n g h o u s e . And s i n c e t h e Washington S t a t e have  risen  i n the four  years  since  B.C.  f i g u r e s may w e l l  Schotzko's study  was  conducted, t h i s s i z e advantage i s probably understated. While t h i s data i s n ' t p e r f e c t , i t does appear t h a t the bulk of t h e Washington p r o d u c t i o n o c c u r s i n much l a r g e r p l a n t s t h a n a r e dominant  i n B.C.. I n terms o f growers p e r house t h e d a t a  seems much more c l e a r c u t .  In 1986 t h e r e were an e s t i m a t e d 4500  growers i n Washington S t a t e and 175 houses, o r about 26 growers per house on average (St John). full  In the same year t h e r e were 1602  f l e d g e d B.C.F.G.A. members (plus 54 a f f i l i a t e d members) and  f i v e packing organizations (plus  one a f f i l i a t e d ) .  (plus one a f f i l i a t e d )  The i n f o r m a l  survey  and 10 p l a n t s  of packinghouse  o r g a n i z a t i o n s mentioned above found an average of 364 members per B.C. Tree F r u i t s L t d . a f f i l i a t e d o r g a n i z a t i o n , or among the t h r e e major  organizations  considerable  an a v e r a g e  o f 271 m e m b e r s . W h i l e  a  amount o f amalgamation has o c c u r r e d even over t h e  39 last five years, i t tends to be more in terms of bringing plants under the same management than in terms of combining plants. There is considerable reluctance on the part of the members to create an even larger organization (in terms of grower numbers), which is understandable given the existing numbers of members per plant or organization.  The process of capturing plant economies  of size may necessarily entail amalgamation at the farm level first. Industry Level Economies of size on an industry basis are less obvious than those involving production activities.  Yet these economies are  probably the most important d i s t i n c t i o n between B.C. Washington.  and  A larger industry could support a better  infrastructure whereby transportation, materials and machinery costs could face potential reductions.  Fixed costs, such as  research, extension and promotion can be higher when there is a larger industry to share them. While there is evidence that Washington State has a better infrastructure (such as more rail links and the Columbia Basin irrigation project), i t is difficult to ascribe this to the size of the tree fruit industry when there are several other crops and industries in the same area.  But in areas such as research and  promotion Washington clearly has an advantage due to the size of the tree fruit industry.  Assessments of $US 0.15/box and  0.32/Ton fund promotion and research, respectively. translated into a 1984-85 budget of over $US  $US This  7 m for the  promotional agency, of which $US 3-8 m funded the advertising budget (GoodFruit Grower, September 1984).  The apple-related  40 research budget approaches $US 500,000, most of which goes into j o i n t l y funded horticultural and pest management research (Shelton).  A further $US  100,000 is available as an annual  emergency fund to deal with exigencies which don't fall under the guidelines of either the promotion or research commissions (GoodFruit Grower, May 1984). These effort dwarf B.C.'s attempts at research and promotion. The B.C.F.G.A. jointly funds research at a 49 acre test orchard and B.C.  Tree Fruits Ltd. funds  advertising and promotion at a rate of about $CAN lm per year or about $0.11/box (in Canadian currency) (B.C. Tree Fruits Annual Reports). This comparison does not include the sizeable research budgets at the government level of either region. Another aspect of size benefits is the lobbying force which improves with size. The Washington State Fruit Commission hires two professional lobbyists, one in each of the state and the federal capitals (Stover).  As an example of their realm of  concern, the federal lobbyist was recently involved in amendments to the immigration b i l l which would permit Washington growers to hire "guest' (read alien) migrant labour and hence keep labour costs down. This is not to say that B.C. orchardists have no political power, since professional lobbying is rare in Canada yet farm groups have achieved considerable government support. 2.3.3  Organizational Structure While the previous discussions  have alluded to the  structures of the tree fruit industry in both B . C . and Washington State, this section will present these in a more systematic manner. Little attempt will be made to present the interactions between the various  components of the industry, as  the  41  c o m p o s i t i o n o f t h e v a r i o u s B.C. boards and committees v e r y dynamic  has been  o v e r t h e l a s t few y e a r s , and such a d i s c u s s i o n w i l l  be more r e l e v a n t i n t h e f o l l o w i n g conduct s e c t i o n . A c c o r d i n g t o t h e 1 9 8 6 Census o f A g r i c u l t u r e a b o v e t h e r e were a b o u t  growers,  3000  2200  o f whom  Canada c o n s i d e r s c o m m e r c i a l w i t h n e t s a l e s o v e r 1450  w i t h farm incomes o v e r  mentioned Statistics but only  $2500,  I n B.C. t h e r e a r e about  $10,000.  1600  g r o w e r s who b e l o n g e d t o t h e B.C.F.G.A. as o f 1 9 8 6 (B.C. F r u i t Growers  R e g i s t r y ) . The B.C.F.G.A. i s o r g a n i z e d i n t o an e x e c u t i v e  as w e l l  as s e v e r a l d i f f e r e n t c o m m i t t e e s , s u c h as t h e P o o l i n g  Committee which has h i s t o r i c a l l y made p o o l i n g d e c i s i o n s . The B.C.F.G.A. owns B.C. Tree F r u i t s L t d . and SunRype, t h e m a r k e t i n g and p r o c e s s i n g arms, r e s p e c t i v e l y . two  industry-owned  representation teams.  companies  The boards o f t h e s e  are interlocking,  f r o m t h e B.C.F.G.A.  with  and t h e h i r e d management  B.C. Tree F r u i t s L t d . has 6 7 p e r s o n n e l l o c a t e d  primarily  i n t h e main o f f i c e i n Kelowna, b u t w i t h s a l e s s t a f f i n C a l g a r y , Edmonton, Saskatchewan, Winnipeg, Toronto and M o n t r e a l as w e l l as an e x p o r t s a l e s o f f i c e actually  become  i n Vancouver.  the headquarters  The T o r o n t o o f f i c e has of the reincarnated  i n d u s t r y - o w n e d b r o k e r a g e , Canadian F r u i t D i s t r i b u t o r s L t d , w h i c h has r e c e n t l y become i n v o l v e d i n i m p o r t i n g o t h e r t y p e s o f f r u i t i n order  to turn  a profit  on t h e b r a n c h  office  side  of the  operation. Besides the sales s t a f f there are  5  of  marketing service  18  staff  s t a t i s t i c s , f o r e c a s t s and c l a i m s . the  advertising  (plus who  secretarial  support),  handle t r a f f i c ,  sales  There a r e a l s o t h r e e p e o p l e i n  a n d PR a r e a , e i g h t  i n a c c o u n t i n g and  42 administration and 17 in data processing. Within the latter group, B.C. Tree Fruits Ltd. provides about 20% of its function for SunRype and 40% for the packinghouses (Linder). The members are also organized into packinghouses, which are in turn organized into the O.F.S.A.. The full-fledged B.C.F.G.A. members are all members of cooperative houses, of which there are 5 organizations and 10 plants.  The O.F.S.A. represents these  houses in labour union negotiations, industry meetings and lobbying attempts.  They are responsible for making the  differential manual which determines the costs of packing used in income insurance calculations. Outside this "official' stream the information regarding the independents is much more sketchy.  The independents have only  recently organized into the O.F.P.S.A. and have not developed a system of data collection yet. The exact number of independent growers is not known, in part because many growers are s t i l l dealing with both streams.  But most of these growers are  shipping soft fruits, as only about 6% of the apples bypass the B.C. Tree Fruits Ltd. system.  There remain two relatively large  independent houses (after the recent bankruptcy of MacLean and Fitzpatrick), RH MacDonald and Westbank Packers (the latter's growers are Associate B.C.F.G.A. members) (King, 1987). These two organizations can either market their own fruit or pay a commission to a private agent, ProFresh, to sell their fruit. The remaining independents  are r e l a t i v e l y small and less  concerned with the fresh apple market than they are with soft fruit and cider fruit producers.  43 Finally, there is a three member (at last count) marketing board (B.C. Fruit Board) elected by the B.C.F.G.A. membership. While they originally regulated domestic and export sales licenses, in recent years decisions by the superboard have greatly reduced the powers of the B.C. Fruit Board to the point where their role is primarily an advisory one. As mentioned in the previous section, the Washington industry currently consists of approximately 4500 growers and 175 houses.  In the original apple-growing region, around Wenatchee  and Chelan, the majority of houses are cooperatives while in the newer Columbia Basin region there is a more even split between cooperatives and private houses.  As mentioned previously, the  growers have funded two commissions, the Fruit Commission and the Research Commission, to promote and research tree fruits.  In  conjunction with the Fruit Commission, the Wenatchee Growers Apple Clearinghouse Association (W.G.A.C.H.) collects price and movement data which i t disseminates biweekly to i t s grower members.  There also exist some brokers, both private and  associated with houses, who market some of the house's products. Many of the packinghouses have their own sales force, often only one or two personnel (although this data i s not readily available). 2.4 2.4.1  CONDUCT OF THE B.C. APPLE  INDUSTRY  Packinghouse Conduct  While the B.C. Tree Fruits Ltd. affiliated houses are now a l l cooperatives, there is s t i l l quite some variation in their conduct.  Areas of difference include variety specialization,  emphasis on extension, type of member, storage regime and timing  44  choices, and "accounting' methods. Within the accounting  area  one can include the preferred method of financing operating and capital expenses, member equity arrangements, depreciation rates and the use of c u l l charges. accounting  A brief description of these  practices and their implications is necessary to  understand the complexities of inter house comparisons. When organized as a non-stock cooperative, a revolving fund of member contributions must be set up.  This most often entails  a per unit patronage assessment, called capital retains, which is credited to the members account as equity. The "revolving' aspect refers to the sequential nature (often over eight years) in which the members are allowed to cash in their certificates of equity. In this way members who are currently using the cooperative will support its investment plans, which is often called the "currency rule'.  A second method, retained patronage refunds, involves  retaining a portion of the net savings or net margin that would otherwise be directed to the members. This is a less reliable form of cooperative financing than the capital retains method, as the presence of a substantially positive net margin is less predictable.  But this fund provides an operating cushion to  f a c i l i t a t e cash flow, and is again credited to the member's equity position (McBride). Cooperatives can vary greatly in how they implement these methods, and how they permit the members to cash in equity. In the short run these differences they can be manipulated to some  can cloud extent  efficiency measures as  by the  board of directors.  The same can also be said of the method of depreciation, since a high depreciation rate can increase short run costs (making the  45  cooperative payback  period.  assessments although  by  attractive  This  leaves  switching have  use of c u l l  efficiency.  high  less  t h e houses  The of  seem  proportion  higher  incurred  least,  these  immediately,  tried  interest  are not charged  credited  the full  they  have  Similar simply  methods share  grading normal sorting higher  already  high  cull  runs.  In  than  B.C.  fact,  feel  they  relatively  the basis  effect,  State,  much  both  are  forget  that  charge. others  don't  believe  than  grading  t o the grower  i n time  t h e same  processing  although  more  the costs  over  at  growers  and  they  of  account  of the c u l l  since  costs  i n the orchard, of doing  a  on  houses,  a l l the fruit runs  the appearance  a n d money,  the  i n are  packinghouse  (Dell).  primarily  considerably  can  specialize i n export  markets,  regarding  anecdotal,  and  with  this  i n t h e form  percentage  the costs  Information  Because  over  affect  by the processors  i n some  high  this.  and t h e subsequent In  the  periods,  t o t h e member's  overhead.  "overhead'  overhead  payback  In Washington  are debited  paid  are used  out culls  graders  fruit,  paid  justify  charged,  returns  price  and  to avoid  f o r shipping  and b i n c o s t s .  charges  with  can also  a grower  fruit  handling  during  to discourage  penalize  but shorten  f o r members  cooperatives  of cull  cull  room  or in-charges  These  t o members)  or they  the conduct  as t h e y  have  more v a r i a t i o n i n different or local  of Washington  no r e p r e s e n t a t i v e  than  i s found  varieties,  markets,  i n chainstores  c a n b e g e n e r a l i s t s i n some  most  houses  specialize  several  houses  to get the desired  association  i n B.C..  i n fresh  houses i s  The  or  houses  processed  or  terminal  o r a l l o f t h e above.  somewhat, b u y e r s product  may mix.  have This  to  deal  aspect  provides B.C. Tree Fruits Ltd. with one of its claimed marketing advantages, namely one-stop shopping.  In Washington State  smaller houses often have specific niches or outlets, which simplifies their sales function. They can also have their fruit sold through brokers, as can some of the larger houses.  Some of  the houses with the best reputations can have some f a i r l y heavy-handed methods to guard that reputation.  They can require  new members to have a five year packout record at a certain level, and can strongly suggest varieties, cultural practices and harvest dates. To separate f r u i t by condition or keeping a b i l i t y the Washington houses often use two or three different pools - one or two early pools (for best condition) and a regular pool.  This  corresponds to Schotzko's study on the effects of the pooling system on different shipping patterns of growers 1983).  (Schotzko,  He found that with a single pool there is incentive to  leave the fruit on the tree as long as possible in order to get a better grade (but poorer condition and hence reduced late season returns).  Schotzko felt three pools would reduce this incentive,  although there is s t i l l room to play these pools. B.C. houses are emulating those in Washington State more and more. For instance, the move to house pooling and greater house independence (evidenced by their storage opening and pack design decisions) have made them much more comparable to Washington houses.  They have fieldmen and make considerable efforts to  advise their growers.  They have similar storage determination  methods (in fact Washington State has taken their lead from B.C. in this area).  B.C. houses grade their f r u i t to the same  47  standard and sizes and use the same types of packs.  Again some  houses specialize in certain types of fruit and some have a better reputation amongst the buyers than do others. And some of the smaller houses can be choosier in their membership requirements than the larger houses, who feel they can't afford to appear the bully. B.C. houses now have at least one employee to watch over the prorate distribution of orders by the B.C. Tree Fruits Ltd. marketers (possibly wasting any economies of size realized by centralized marketing).  They are much more concerned about the  timing of CA room opening and price fluctuations than before house pooling. They do not have seasonal pools but do separate the fruit into blocks or storage regimes.  They feel there is  less incentive for growers to leave fruit on the trees and harm the condition than in Washington, possibly since the B.C. climate creates a natural advantage in fruit condition. 2.4.2  Marketing Agency Conduct  Before discussing the conduct of B.C. Tree Fruits Ltd. in terms of its marketing functions, note should again be taken of the non-marketing functions i t performs. These functions may or may not be needed to improve the functioning of the industry, but they are often required in a political sense by the houses. Data collection and processing for both SunRype and the packinghouses is centralized in B.C. Tree Fruits Ltd.. They are also relied upon quite heavily to assist with government stabilization and insurance programs and to act on industry committees.  Finally,  B.C. Tree Fruits Ltd. personnel act as liaison agents between  48 houses,  handle  assembly  of  shipments  and  deal with  buyer's  claims. The  market  situation  r a t h e r d i f f i c u l t one. only  12%  f a c e d by  B.C.  B.C.  produces 1/3  of t h e c o u n t r y ' s  population.  Tree  Fruits  of Canada's crop but And  the B.C.  a l s o where the main competition from the independents Eastern  markets  producers,  and  are  more c h e a p l y  hence B.C.  Ltd. i s a  serviced  by  market i s occurs.  their  Tree F r u i t s L t d . can o n l y compete Small amounts of the c r o p go  the  well,  B.C.  Tree  provinces,  Fruits  as  Ltd. also  still  independents) market cannot  has  a  through  competes w i t h  Washington and E a s t e r n producers B.C.  sizeable  market  share  countries  barriers tariff, B.C.  are  f o r a p p l e s , and  d i r e c t i o n s , as w i l l to contend  and  1985  (67%  excluding  But the  no  trade  reasonable remaining  Tree F r u i t s L t d . i s  barriers  between  the  two  there i s c o n s i d e r a b l e trade i n both  be d e t a i l e d s h o r t l y . with  domestic  crop y e a r s .  i n other  phytosanitary, p o l i t i c a l  There are c o n s i d e r a b l e  c o u n t r i e s , be  f o r most of the domestic  they  or currency r e s t r i c t i o n s .  Tree F r u i t s L t d . concentrates on i t s own  staff  independents,  to c a r r y the  The export market most p r e f e r r e d by B.C. There  into  brokers.  a l l of B.C.'s p r o d u c t i o n a t a  crop, or about 33% and 35% i n 1984  U. S . A-. .  the  by  f o r the P r a i r i e market, although  r e t u r n , and so export markets are expected  the  private  ( A g r i c u l t u r e Canada, March 1986). absorb  The  local  d i f f e r e n t i a t i n g i t s product. Atlantic  has  actual While  branch o f f i c e s a l e s  market, t h e y p r e f e r to work w i t h  brokers i n export markets i n order to h a v e someone on hand at a l l times.  They t r y t o b u i l d  basing t h e i r  up  a rapport with  commission on the r e l i a b i l i t y ,  specific quality  brokers, and  going  49 rate  i n any s p e c i f i c market-  letters  of credit,  i n a l l overseas on  the export  appears least  they  a n d t h e EDC u n d e r w r i t e s  markets  information i s scarce  a l l e g i a n c e t o the use o f brokers, o r a t  brokers,  than  d o e s B.C. T r e e F r u i t s L t d . . I n  a number o f W a s h i n g t o n h o u s e s l o s t a g r e a t d e a l o f  broker  (Van W e c h a l ) .  between  up t o 90% o f t h e s a l e  have l e s s  when t h e y  outlined  While  banded  together  sales distribution i n Table  2.2.  to deal  through  an o f f s h o r e  o f B.C. T r e e F r u i t s L t d . 's c r o p i s  A l b e r t a , B.C. a n d t h e U.S.A.  absorbed  1 7 % a n d 2 1 % e a c h o f t h e s a l e s o f B.C. T r e e F r u i t s  ( b y v o l u m e ) i n 1984 a n d 1 9 8 5 . (summed),  with  methods o f Washington S t a t e houses, i t  money  The  (Messent).  exclusively  selling  to specific  recent years  They work a l m o s t  Eastern  Canada  The r e m a i n i n g  Prairie  and o f f s h o r e markets  Ltd.  provinces  made u p t h e  r e m a i n d e r o f t h e s a l e s i n a b o u t e q u a l p r o p o r t i o n s r a n g i n g f r o m 12 t o 15%.  Table  2.2 BCTF S a l e s D i s t r i b u t i o n t o D i f f e r e n t Percent of Sales  Market:  1984  1985  BC Alberta Saskatchewan Manitoba E a s t e r n Canada United States Offshore  17 .8 20.4 8.1 6.6 14 . 3 17 . 6 15.2  19 . 2 18.9 6.8 7.6 12.3 21.0 14 .2  Markets  50 In exporting to the U.S.A., the bulk of the fruit goes to 6 major markets - Los Angeles, San Francisco, Dallas, New York, Atlanta and Chicago.  Unlike other export markets, the U.S.A.  will buy a wide range of varieties, grades and sizes. Most of the fruit is sold to retail chains, which are more regionalized than in Canada.  Terminal markets are also f a i r l y important when  attempting to crack the institutional business (Messent). Offshore exports are encapsulated in Table 2.3, where both B.C. and Washington State exports are given, although the B.C. figures are by calendar year while the Washington figures are by crop year.  Even so, the data gives a strong indication of the  relative importance of various markets to the B.C. and Washington State marketers.  This table also shows the cross border trade  conducted by B.C. and Washington, where B.C. exports to the U.S.A. were 55% and 87% (ignoring the difference in accounting period) of the amounts exported from Washington State into Canada in 1985 and 1986, respectively.  Table 2.3 Apple Exports F r o i BC and Washington l n Boxes and P e r c e n t of T o t a l Proi British Coliibla DIS Country To: Europe: 01 Prance (teiiany Finland Dorvay Sveden Detherlands Iceland Other Riddle East: Sand! Arabia Oabal Other Pacific Rii: long Kong Malaysia Siigapore Japan Taiwan Thailand l e v Zealand Other Cent, t S. A i e r i c a : Brazil Colubla Costa R i c a Mexico Panaia Trinidad Teneznela Other Canada US TOTAL  Boxes  Proi Vashington  19(( \  Boxes  X  Boxes  1985-16  1984-85  1983-84 \  Boxes  \  Boxes  \  K.O 14.5 1.1 9.3 0.1 0.3 0.3  337081 21.3 211555 17.8 3401 1.2  87(4(1 239305  8.7 2.4  540889 122183  5.7 1.3  443395 8.3 84(50 1.6  79(( 0.5 17243 1.0 19858 1.2  186856 3.5 18(590 2.0 34928 0.7 2(587 0.5  7038 0.4  2.2 1.9 8.7 1.1  183543 1.9 114714 1.1 988(4 1.8 10939 0.1  4)91 0.3 998 0.1 0.7 1111! 10118 0.7  21(1(9 191472 72727 109920 4(8(8 2333584 1903587 352409 77588 48885(3 1257587 541154 571335  0.5 23.3 19.0 3.5 0.8 41.8 12.6 5.5 5.7  237751 21(172 134$ 3(57 598 50(( 4327  37(112 77980 297(2 38452  25.2 $.2 2.0 2.(  185989 33(3 32(83 7882 3736 17(5  12.5 0.2 2.2 0.5 1.3 0.1  (109 0.4 (109 1.4 425089 30583 33636 78729 881 2(2708 7136 5297  25.6 1.8 2.4 4.7 0.1 15.8 0.4 0.3  1(527 1.0 2(34 0.2 39(7 0.2  998 0.1 973 1.1  9925 0.6  8(2884 57.9  874(92 52.7  1491(08  1(59497  20646 20(5850 1599419 34(931 119500 4990182 1514203 638526 (30403  (7(4 0.1 0.2 21.7 572440 10.7 16.8 399721 7.4 3.6 140678 2.6 1.3 32941 0.6 52.5 31(8332 59.0 15.9 81(271 15.2 (.7 307049 5.7 (.( 455231 (.5  2128494 20.2 1852150 21(154 2.2 156637 217705 2.2 1490(7 43136 49134 0.5 453872 4.5 330948 150 0.001 2700 201711 2.0 151774 311(3 0.3 39999 15003 0.1 41943 51(9 1.1 7489 8(2(5 0.9 12942 33135 0.3 1(02 11286 0.8 52499 1468800 14. ( 15810(0  19.5 1317755 24.5 1.6 13(0(2 2.6 1.6 1(5514 2.1 0.5 2(45( 0.5 3.5 188436 3.4 0.03 1.6 59138 1.1 0.4 28037 0.5 0.4 2(394 0.5 0.1 0.3 13571 0.3 0.02 0.6 53296 l . ( 16.6 100(0(1 18.7  1002(480  950(8(9  5370(03  52 As is  m e n t i o n e d above, t h e b e s t e x p o r t m a r k e t  t h e U.S.A., w h i c h a b s o r b e d  1985  and  1986,  were n e x t of  respectively.  i n importance  individual  market,  at  due  the  to  Fruits  14%  and  good  17%  of t o t a l  special  with  a  arrangement reflects highest  "striped'  both  years.  a  good  of help  competition  This  12%  which  difficult  there.  the  to  penetrate,  shipments  Singapore  has  and  (unwanted e l s e w h e r e ) ,  East,  and  Singapore  a  absorbed  Washington possibly  large 3%  the  market  fruit  has  in  and  (5%  5%  type  16%  as  of  has  but  The  the  2%),  i t  third  same  they  don't  as  has  It  and  1986,  o f one  is  want  to  yet  to  i t prefers  market  in  two  other also  although  the o n l y supermarkets  lack  of  financial  Hong Kong has  years.  supermarket  i n 1985  the  Ltd.  houses,  over  (from  the  a  more  pay  for  succeed  very  small  i n the  Far  freighters).  respectively.  seems t o have a much more v a r i e d  n e c e s s i t a t e d by  This i s the  o f t h e UK.  and  recent  institutional and  Tree  British  i s quite unpopular  potential has  on  be  p r e f e r e n c e f o r what i s c a l l e d  past  increased  market  refrigerated  in  best  B.C.  Fruits  State  requirements  an u n u s u a l  Delicious  has  i n terms  i n p a r t because  Tree  to Washington  at  by  (Messent).  B.C.  Glover.  t o Taiwan,  market  But  emphasis  in  countries  T h i s c o u l d perhaps  m a r k e t s where i n t e n s e r e d c o l o u r i s r e q u i r e d . been  exports  Rim  maintained  arrangement  Glass  T a i w a n has Red  Pacific  o u t s h i n e s Washington,  i s anaethemic  are  25%  ties  i s c l a i m e d t o be  broker,  exports  a group,  promotional  the s p e c i a l marketing  year period. a  the  consignment  large  of the t o t a l  exports.  traditional  o n l y m a r k e t where B.C. the  As  53%  apples  t h e U n i t e d Kingdom i s B.C.'s s e c o n d  although  apples  and  at around  countries,  Ltd.,  Columbia  58%  f o r B.C.'s  large  export p a t t e r n , trading  partner  53 such as B.C. has i n t h e U n i t e d S t a t e s . T a i w a n , where about second  largest  20% o f t h e i r  market  T h e i r b i g g e s t market i s  exports  i s i n the Middle  are absorbed.  Their  East, p r i m a r i l y  Saudi  A r a b i a , which bought 20%, 17% and 7% of exports i n the 1983, 1984 and  1985 c r o p y e a r s .  Saudi A r a b i a i s an i n t e r e s t i n g market i n  t h a t t h e consumer buys apples by the box and so the packinghouse must c o o r d i n a t e w i t h Arabic.  the l o c a l  agent  t o p r o v i d e a box t o p i n  Both Taiwan and Saudi A r a b i a a r e s t r o n g a l l i e s  of the  U.S.A., and so t h i s may e x p l a i n t h e i r s t r o n g p r e f e r e n c e  toward  Washington a p p l e s i n t h e same way the U.K. f a v o u r s B.C. a p p l e s . And  Canada i s the next l a r g e s t market f o r Washington S t a t e  purchasing 1984  15%, 17% and 19% of t h e t o t a l e x p o r t e d  and 1985 r e s p e c t i v e l y .  exported  In t h o s e  19%, 20% and 15% of t h e i r t o t a l  fruit,  c r o p i n 1983,  same y e a r s  Washington  fresh crop.  The 1985  c r o p y e a r was a b e r r a n t i n many of these f i g u r e s because i t was a short  crop  year  (with  about  73% o f t h e p r e v i o u s  season's  harvest). None o f t h e above d a t a m e n t i o n s markets .  While  exports,  t h e B.C. d a t a  average  these  f o r t h e Washington S t a t e  c a n be m a n i p u l a t e d  i s presented  that  currency  bias  comparisons.  In  i s not a v a i l a b l e  from  t o r e p o r t on t h e  p r i c e r e c e i v e d per box from the d i f f e r e n t markets.  information  France,  this  the revenues  i n Table  fluctuations  2.4, a l t h o u g h  one must  and d i f f e r e n t marketing  The h i g h e s t p r i c e s  seasons  This note may  i n 1984 were r e c e i v e d i n  F i n l a n d and I c e l a n d at $31, $24 and $17, r e s p e c t i v e l y .  1985 t h e b e s t  prices  were  from  Iceland,  Japan  (a t e s t  shipment) and t h e U.S.A. a t $22, $21 and $19, r e s p e c t i v e l y . Europe and the U.S.A., where there i s l o c a l apple p r o d u c t i o n ,  In  Table  2.4  V a l u e o f BC A p p l e S h i p m e n t s t o D i f f e r e n t M a r k e t s on p e r Box B a s i s (1984-85)  Country: US UK Ireland Finland France Germany Iceland Norway Sweden Saudi Arabia Hong Kong Malaysia Singapore Japan Taiwan Thailand Fiji New Z e a l a n d Brazil Trinidad Columbia Panama  1984  1985  $15.27 $15.62 $14 .21 $23.60 $31.26 $11.08 $17.17 $10.69 $8.78 $11.21 $10.88 $10.34 $10.91  $18.56 $14 .24  $12.69 $16.64 $10.34 $0.00 $13.50 $11.08  $12.21 $17.51 $22.02 $15.19 $12.51 $14.38 $12.72 $13.42 $14.13 $21.21 $13.41 $16.05 $17.61 $15.08 $0.00  $6 . 96  55  these p r i c e s  are h i g h l y dependent on the s i z e t h e l o c a l  T h i s data suggests t h a t w h i l e the U.K. best  markets  and Taiwan may  crop.  be B.C.'s  i n terms of volume, t h e y a r e not where t h e  p r i c e s have been a c h i e v e d by B.C.  best  Tree F r u i t s L t d . i n the r e c e n t  past. P r i c e d e t e r m i n a t i o n i s an important aspect of the strategies  of b o t h  B.C.  and Washington.  As  marketing  evidenced  i n the  b i w e e k l y W.A.G.C.H. r e p o r t s , t h e r e can be a c o n s i d e r a b l e p r i c e range w i t h i n Washington p r i c e s f o r the same grade and s i z e But  even so, i n most markets Washington S t a t e t e n d s  price  leader, although  B.C.  Tree F r u i t s L t d . may  quota  system,  controlled  whereby  pace  considerable  B.C.  t o be  the  sometimes  h i g h e r i f t h e y have a s m a l l amount of a p a r t i c u l a r good keeping q u a l i t y .  fruit.  go  product  of  Tree F r u i t s L t d . p r i m a r i l y works on a  they  to c l e a r  attempt  their  pressure to s e l l  t o move t h e  manifest.  a l l the  crop  In B.C.  fruit,  a  there i s  possibly  expense of o b t a i n i n g the best p r i c e , because i t i s not  at  at  the  political  to  have a l a r g e p r o p o r t i o n of crop sent t o the p r o c e s s o r (unless  of  limited  accused  quality)  of  (Messent).  predatory  monthly quota,  pricing  although  such  B.C.  Tree F r u i t s L t d . has  i n past  attempts  complaints  been  t o keep  this  from Washington  have  decreased  s i n c e house p o o l i n g (and g r e a t e r house i n t e r e s t  s a l e s ) was  instigated  2.5  INDUSTRY  summarize and  perhaps  add  t o the  i n the p r e c e d i n g s e c t i o n s of t h i s c h a p t e r .  t h e most o f t e n c i t e d B.C.  Wechal).  CONCERNS  This section w i l l expressed  (Van  in  cause  f o r concern  concerns Probably  i s the h i g h c o s t of the  i n d u s t r y , whether a t the grower, packer or marketer  level.  56  Costs  are considered  State.  These c o s t s  renovation  and  much h i g h e r  i n B.C. t h a n  i n Washington  include land c o s t s , the cost of orchard  financing,  labour  and o v e r h e a d  at the  packinghouse, and e x t e n s i v e data p r o c e s s i n g and i n e f f i c i e n t  sales  s t a f f a t B.C. Tree F r u i t s L t d . . Government support c a l l e d into question. support  and the s t r a t e g i e s employed have a l s o been Many f e e l the government can not a f f o r d t o  t h e i n d u s t r y a t the c u r r e n t r a t e s , and a r e a f r a i d  that  growers have become too dependent on t h i s . Support programs a r e a l s o blamed f o r a l l o w i n g growers t o p l a c e t o o much emphasis on quantity  and n o t q u a l i t y ,  thereby  shielding  the complexities  of the cooperative  them from market  signals. And  regulations  surrounding  grower d i s s a t i s f a c t i o n . the c o m p e t i t i o n volume ( t o spread least  i t have been blamed  houses  and t h e  f o r much o f t h e  The new house p o o l i n g system enhances  among houses f o r the best growers and t h e most overhead).  This can l e a d t o m i s l e a d i n g , o r a t  s h o r t - s i g h t e d , accounting  decisions.  system  The p r o r a t e  to devote  procedures  and  investment  system has c r e a t e d t h e i n c e n t i v e f o r  personnel  to watching  over  B.C.  F r u i t s L t d . ' s d i s t r i b u t i o n of o r d e r s , d i s s i p a t i n g a t l e a s t  Tree some  of t h e economies of s i z e d e r i v e d from c e n t r a l i z i n g the marketing function. 2 .6  SUMMARY This chapter  d e a l t with s e v e r a l aspects  conduct of the B.C. apple by  c y c l e s of cooperation  mostly  continued  of the s t r u c t u r e and  industry. Its history i s characterized against  a common p r o b l e m w h i c h was  i n t o periods of r e l a t i v e p r o s p e r i t y but f a l t e r e d  57 as  soon  as t h e " p i e " began t o s h r i n k .  pooling  was  an  independence  attempt  and market  economies o f s i z e Fruits  without  similar  conditions,  first  be  Washington, i s said  reflect  into  The r o l e  apple  any  o f B.C.  industry  growing  benchmark.  Tree  cannot  be with  and m a r k e t i n g  In order  and c o n d u c t  Fruit  t o make a n y  comparisons  must  Washington  and l o b b y i n g  practice  publication  of p r i c e  houses  the size  little  overt  and s a l e s  300) y e t  supports  Perhaps  one.  cooperation Most  large  reflecting  countries, while  cooperatives,  figures.  typical  (30 v e r s u s  budgets. two  The  in  o f B.C.'s, and t h e  as a w h o l e  i n the  are  keeping  advantage  economies.  as a more c o o p e r a t i v e  State  themselves  i t sten-fold  twice  differences  and c o n s i s t e n c y .  a n d p r i c e s do n o t seem t o  size  the industry  research  evolved  size  s e r v i c e s fewer growers  while  s c a l e ; and  i n t e r m s o f c o l o u r and  with  i s at least  quality?  i s generally higher i n  of f r u i t  proportions  has c o n s i d e r a b l e  ideological  fruit  quality  i n terms  Washington,  packinghouse  organization  areas:  t o have an a d v a n t a g e  this.  promotional,  of  three  especially  40% l a r g e r ,  some  likely  factors.  Washington orchard  is  foregoing  some benchmark. W a s h i n g t o n S t a t e ,  structural  but the grade  production,  typical  house  d i f f e r e n c e s between B.C. and W a s h i n g t o n S t a t e c a n  organizational  quality,  of  considered.  categorized  B.C.  measure  t o house  reduced.  somewhat s u p e r i o r )  though,  Structural be  at least  i s t h e most  comparisons,  been  move  without  level.  o f t h e B.C.  (albeit  some  responsiveness  at the marketing  performance  evaluated its  t o combine  L t d . has s u b s e q u e n t l y  The  The r e c e n t  B.C.'s  about  the  except  1/2  houses i n the  B.C. h o u s e s a r e  58 cooperatives, marketing  and  t h e i r members c o l l e c t i v e l y  agency  and  processor,  B.C.  own  Tree  Fruits  SunRype, r e s p e c t i v e l y . There i s a l s o a marketing although In  the  central  Ltd.  board  in  and B.C.,  i t has l o s t n e a r l y a l l of i t s power. terms  different.  of  conduct,  the  two  regions  are  again  quite  Even among the c o o p e r a t i v e s , t h e i r b e h a v i o u r  varies  c o n s i d e r a b l y both between and w i t h i n r e g i o n s . Areas of d i f f e r e n c e include  variety  specialization,  s t o r a g e regimes and B.C.  Tree  on  Washington  of  member,  a c c o u n t i n g methods. At the m a r k e t i n g  (who  are  export  primarily markets  (whose e x p o r t s  in-house).  35%  of  level,  It also r e l i e s  production  20%  for more  exports).  There are s e v e r a l d i f f e r e n t areas of concern i n the B.C.  versus  more  are more b r o a d l y based, i f not  evenly d i s t r i b u t e d among c o u n t r i e s than B.C.  cited,  type  F r u i t s L t d . p r o v i d e s more s e r v i c e s than the Washington  marketers heavily  extension,  for participants  i n d u s t r y . P u r p o r t e d l y e x c e s s i v e c o s t s are most o f t e n  f o l l o w e d by  programs. The  the  reliance  on c o s t l y  government  support  c o o p e r a t i v e nature of the i n d u s t r y , when combined  w i t h c o m p e t i t i o n w i t h i n f o r good growers and revenues, grower c o n f u s i o n , p o s s i b l y s h o r t s i g h t e d investment d i s s i p a t e d some economies of s i z e at the marketing  has  l e d to  d e c i s i o n s and level.  59  CHAPTER 3  THEORETICAL ASPECTS OF INDUSTRY STRUCTURE  The p r e v i o u s components  chapter  without  l o o k e d at  discussing  some s t r u c t u r a l and conduct  a l l their implications.  Washington S t a t e i n d u s t r y i s composed of an estimated firms,  of  which  about  (Schotzko,  September  the  account  plants  the  top  20  discussions to  be about  firms  95  1983).  responded  to  account  of the  for  about  the  to e i g h t very large  two i n d u s t r y "leaders"  60%  there  there  to  of the t o t a l B . C . p r o d u c t i o n . W i t h i n the B . C . i n d u s t r y ,  are perhaps two dominant packing o r g a n i z a t i o n s ,  Packers  the  i n Wenatchee.  The p r o d u c t i o n of any one of these l e a d i n g firms i s e q u i v a l e n t about 1/3  In  appears  firms and among t h o s e ,  are T r o u t and Blue C h e l a n ,  of  while  production.  with Washington State i n d u s t r y s o u r c e s , six  survey  state production,  45% o f  the  180 packing  Schotzko's  T h i s study e s t i m a t e d  f o r o n l y 1/3  Recall  of  Kelowna  packinghouses.  These  and two  the  O1iver-0soyoos  large  firms  are s t i l l  s m a l l e r t h a n the major Washington S t a t e houses do, however,  firms.  B.C. Fruit  Similkameen significantly The major B . C .  combine t h e i r marketing f u n c t i o n i n the  guise  of B . C . Tree F r u i t s L t d . While, packing  i n the  colloquial  and m a r k e t i n g l e v e l ,  sense the  it  fruit  is  competitive  i n d u s t r y of  Washington State doesn't seem to q u a l i f y as p e r f e c t l y i n economic the 3.1,  terms.  industry is  T h i s chapter w i l l present  oligopolistic.  evidence  This w i l l be preceded,  by a d i s t i l l a t i o n of a p p l i c a b l e o l i g o p o l y t h e o r y .  at  the  B . C . and  competitive suggesting in  Section  Because an  60 oligopolistic  industry involves price determination,  p r i c e s w i l l be d i s c u s s e d B.C.'s own in  other  Then,  and  then as a f u n c t i o n of  given  B.C.  "apples"  t y p e s w i l l be emphasized i n S e c t i o n  of  production  are  really  h e t e r o g e n e o u s p r o d u c t , p r i c e r e l a t i o n s between t h e  3.1  apple  i n S e c t i o n 3.2.1, f i r s t as a f u n c t i o n  apple production regions.  B.C.  a  different  3.2.2.  OLIGOPOLY  3.1.1  Theoretical Considerations  Under p e r f e c t c o m p e t i t i o n , produce  at  the  the p r o f i t m a x i m i z a t i o n r u l e i s t o  o u t p u t where m a r g i n a l  cost  equals  marginal  r e v e n u e . I n an o l i g o p o l y , t h e p r o f i t m a x i m i z a t i o n r u l e i s much l e s s c l e a r . An o l i g o p o l y may  attempt t o form a c a r t e l t o a c t as  monopoly, but by d e f i n i t i o n an o l i g o p o l y has  too many  keep t h e c a r t e l f u n c t i o n i n g . A s p e c t s of game t h e o r y , participant  tries  p a r t i c i p a n t s t o any obstacles  to  anticipate  price/quantity  the  members t o  whereby each  response  of  other  a c t i o n , have c r e a t e d  t o the development of a s i n g l e t h e o r y of  a  large  oligopolistic  b e h a v i o u r . T h i s s e c t i o n w i l l attempt t o o u t l i n e the b a s i c s of  one  such model w h i c h  the  n o r t h w e s t e r n U.S. If is  the  likely  appears  to  have the  most r e l e v a n c e  to  and Canada a p p l e i n d u s t r y .  a p p l e p a c k i n g / m a r k e t i n g i n d u s t r y i s an o l i g o p o l y , i t one  p a r t i c i p a n t s and there  were o n l y  after  observing  where  there  are  a  handful  a l a r g e number of s m a l l e r , one the  large  of  large,  fringe players.  f i r m , i t would attempt to set  s u p p l y r e s p o n s e of  the  key  price  fringe firms.  f r i n g e f i r m s would o p e r a t e at the p o i n t where t h e i r m a r g i n a l equalled to the  t h e p r i c e s e t by the l e a d i n g f i r m , l e a v i n g the  price leader.  In the  c a s e where t h e r e  If  The cost  residual  i s more t h a n  one  large  firm,  somewhere monopoly  there  may  between  price.  be  an  the  Such  implicit  cartel.  Price  perfectly competitive  a situation  is illustrated  would  price  be  set  and  i n Figure  the  3.1.  Price  Quantity  F i g u r e 3.1  This the  rather  "cartel"  facing  a  (summed  the  be  won't  their  revenue, MR .  cooperate,  curve,  T  firms D  L  could  marginal  But w i t h  the cartel  force  prevail.  the p r i c e  are  , and  f o r the c a r t e l  Pj^ , w o u l d  reading  where  diagram depicts  low-cost  the c a r t e l  price,  s e t by  quantity  marginal  large,  the curves  where  monopoly  would  of  complicated  r e s i d u a l demand  over  situation the  O l i g o p o l y p l u s F r i n g e Model  the  a l lplayers As  leaders  cost  to  curve  of  curve,  fringe  s e t i t s own  a  cooperate,  i n any monopoly,  MCL, equalled  instead  where  of M C L . Under  members)  o f f t h e demand cost,  price  a marginal  the i n c l u s i o n  must  the s i t u a t i o n  D  the  this , at  T  total  firms  who  quantity  62 M C L , equals  where m a r g i n a l c o s t s , cartel,  MR  • Price,  L  quantity off Thus, to  Q  the L  and t h e  F  is  market,  how who  is  competition  cartel  would  to  Q Q  T  .  T  is  supplies  D . L  from 0  The s i t u a t i o n less  than Q  simplification.  members  want  product  a  to  be  c o u l d be  in  the  While  no  has  is  C  and  model,  evidence  which c o u l d q u a l i t a t i v e l y  It  section  the  will  how  a  however,  the  this  present  support t h i s  the  existence of  verify  of  or  does,  function to  doesn't  portion  can surmise  done  It  leader,  accommodated.  been  following  their  price  packing/marketing work  the  share  the  correct  3.2.2  L  that  c a r t e l members,  cartel  in that  a f r a m e w o r k w i t h w h i c h one  industry.  the  the  from Q  obviously  the  heterogeneous  oligopoly  the  than P Q .  model  represent  such t h a t  supplies  from p e r f e c t  This  an  shared  fringe  greater  provide  is  facing  w o u l d t h e n be d e t e r m i n e d by r e a d i n g  F  r e s i d u a l demand c u r v e o f  market  different P  the  P ,  the m a r g i n a l revenue  of  apple is  the  anecdotal  assertion.  Q u a l i t a t i v e Evidence o f O l i g o p o l y  Price There are determining publication other's  tacit  the  the  price  " i n d i c a t o r s " w h i c h c o u l d be u s e f u l  existence  current prices  actions.  more t h a n of  of  several  If  fringe  collusion  the  of  exists.8  oligopoly.  would enable  leaders'  members'  an  prices  prices, Finally,  firms tend  one m i g h t if  the  An  industry  to monitor  to  move  each  together  assume some  price  in  leaders'  sort can  E x p l o i t a t i o n of d i f f e r e n t market segments can e x p l a i n some o f t h e v a r i a t i o n i n p r i c e a t any s p e c i f i c point in time, but d i f f e r i n g (between l e a d e r s and f r i n g e ) p r i c e f l u c t u a t i o n o v e r time i s l e s s amenable t o such e x p l a n a t i o n s .  63 maintain  some s o r t  o f "premium"  for their  product  b a s e d on  i n t a n g i b l e f a c t o r s such as r e p u t a t i o n o r brand, then one can at l e a s t c l a i m p e r f e c t competition The  Washington S t a t e  i s not the c o r r e c t model.  i n d u s t r y p u b l i s h e s a weekly p r i c e and  shipment r e p o r t which, w h i l e  i t doesn't  name, has become q u i t e t r a n s p a r e n t the  p r i c e s quoted  attempt  to steal  gamesmanship o c c u r s these and  market  share,  suggests  than  o r g a n i z a t i o n s by  to industry i n s i d e r s .  by t h e f i r m s a r e s a i d  p u b l i c a t i o n s suggest  v a r y much l e s s  list  t o be i n f l a t e d  the very  fact  that  imperfect competition.  While i n an this  The d a t a i n  t h e l e a d e r s ' p r i c e s do move  together  t h e p r i c e s o f t h e f r i n g e members. And  p r i c e wars f o r market share  in specific  r e g i o n a l markets  have  o c c u r r e d , as d i s c u s s e d i n Chapter Two, when B.C. Tree F r u i t s L t d . tried data  t o drop i t s p r i c e t o meet i t s s a l e s quotas.  F i n a l l y , the  from t h e p r i c e p u b l i c a t i o n s a l s o confirm the e x i s t e n c e o f a  p r i c e premium f o r a few o f t h e l a r g e s t Washington S t a t e houses, and  w h i l e q u a l i t y and c o n s i s t e n c y can account f o r some of t h i s ,  reputation i s also a large factor. Profit The  existence  imperfect industry).  of p r o f i t  competition But p r o f i t  beyond  "normal" p r o f i t  (or else a t r a n s i t i o n may  be due t o o t h e r  economies o f s i z e . These c o u l d l e a d t o reduced i n c r e a s e i n p r i c e from p e r f e c t c o m p e t i t i o n . profit  need not mean a p e r f e c t l y competitive  called  "X-inefficiencies",  upward  without  stage  indicates i n a young  reasons  c o s t s without any  Moreover, a l a c k of i n d u s t r y , s i n c e so-  whereby c o s t s a r e a l l o w e d  the pressure  s u c h as  to d r i f t  of p e r f e c t c o m p e t i t i o n ,  d i s s i p a t e any p r o f i t s r e a l i z e d from a higher  price.  could  64 The  existence  difficult  of  to detect.  profit First,  i n the  apple  industry is  the p r i v a t e l y  owned f i r m s  very don't  r e l e a s e p r o f i t i n f o r m a t i o n . Second, the c o o p e r a t i v e s are supposed t o t r a n s f e r any input  profit  t o t h e g r o w e r s , hence s e p a r a t i n g  ( f o r f r u i t ) c o s t s from t h e a c t u a l payment t o t h e  w o u l d be n e c e s s a r y  true  growers  to detect p r o f i t . Third, X - i n e f f i c i e n c i e s  may  e x i s t t o h i d e any p r o f i t s - u n i o n i z e d l a b o u r ^ and c o m p e t i t i o n  for  growers  the  (and  therefore  increased  costs  of  growers) c o u l d be c o n s i d e r e d examples of these  s e r v i c e s to inefficiencies.  B a r r i e r s to Entry T h e r e can be two and  artificial.  relative  main t y p e s  of b a r r i e r s t o e n t r y - n a t u r a l  N a t u r a l b a r r i e r s e x i s t when t h e market i s s m a l l  t o t h e most e f f i c i e n t  s c a l e of p l a n t . W h i l e  d i f f i c u l t y i n market e x p a n s i o n might support  recent  t h i s , the f a c t t h a t  W a s h i n g t o n S t a t e g r o w e r s have been e x p a n d i n g so r a p i d l y ( u n t i l recently) causing  suggests that e i t h e r there  excessive resource  t h e i n d u s t r y was  exists  some  a l l o c a t i o n i n the a p p l e  distortion i n d u s t r y or  not c o n s t r a i n e d by market s i z e d u r i n g  structural  e v o l u t i o n . A r t i f i c i a l b a r r i e r s t o e n t r y might i n c l u d e a d v e r t i s i n g and  product  d i f f e r e n t i a t i o n . W h i l e some i n d i v i d u a l  Washington  houses c o n d u c t a d v e r t i s i n g and p r o m o t i o n campaigns ( d i r e c t e d a t the  consumer or  the  retailer),  this  e s p e c i a l l y when c o m p a r e d w i t h t h e Washington S t a t e  ( o r B.C.  seems f a i r l y  industry-wide  limited,  campaigns  of  Tree F r u i t s L t d . t o a l e s s e r e x t e n t ) .  W h i l e the i n c e p t i o n of u n i o n s i n t h e p a c k i n g h o u s e s may w e l l h a v e b e e n due t o e x t e r n a l , l a b o u r m a r k e t i n f l u e n c e s , i t i s p o s s i b l e a p r i v a t e l y owned and l e s s o r g a n i z e d i n d u s t r y might have b e t t e r w i t h s t o o d t h e move toward h i g h e r wages and u n i o n i z a t i o n .  65 Even  so,  product  distinguishing Collusive  behaviour  behaviour, already  could  out  involve  In  some o f  i n terms  been  different  restriction. appears  market  markets  and  firms  the  large  First, trade  fruit  tacitly  can  select  only  off quantity  remainder.  Third,  the  is  they  ready  can  store  supply  claims  in different i n each  are  various  these  not  Welfare The  cartel  determine  the  and  supply  Washington  State  firms,  i t  "philosophical" differences  different  markets  i e . domestic  t e r m i n a l markets.  Relatedly,  their  growers  (and  thereby  f o r growers  supply  easy t o  least  willing  come by,  firms to  a higher  Again,  that  some  in several  growers, t h a t can  processing  regions  region.  Washington  p r a c t i c e s , at  3.1.3  members,  "best"  a  restrict  these  different  restrict  f r i n g e f i r m s w o u l d be  selling  cartel  versus  than the  firms  collusive the  f o r q u a l i t y . Second, t h e y  i f there  of  forms  costs).  can  they  published  whereby  have on  Other  via  methods i n d e a l i n g w i t h  firms  standards  with  impossible.  monitoring  reduce obvious competition  b i d d i n g up  Large  of  with  firms  have d i f f e r e n t  hence can  avoid  although  "sharing",  to  discussions  offshore, chainstores  these  i s nearly  discussed.  w h i c h c a u s e them t o c o n c e n t r a t e versus  important,  Behaviour  has  parcels  i s very  q u a l i t y from r e p u t a t i o n  Collusive prices,  differentiation  i s those  grade to market  proportion  of  restricting  while  hard  i t appears the  the  data from  l a r g e ones  do  who  higher  for  to store. Fourth,  by  ways.  the fruit  they  can  number  of  to  support  discussions engage  in  extent.  Implications plus  f r i n g e model can  welfare  be  analyzed  implications. Figure  3.2  g r a p h i c a l l y to is a  simplified  66  version  of  Figure  3.1,  with  depicting  w e l f a r e g a i n s and  and  4 and  2 and  5.  Most of  the  losses.  addition  of  shaded  Consumers w o u l d l o s e  t h i s l o s s w o u l d be  a transfer  areas areas to  1  the  producers:  Price  Figure 3.2  Welfare Implications of the C a r t e l Fringe Model  4 w o u l d be  a r e a s 2 and  g a i n e d by  members w o u l d s h a r e a r e a The  net  l o s s t o s o c i e t y w o u l d be  While  the  empirically purchase  deadweight i t is  ( P a r k e r and  oligopolistic force  1 less  very  fringe firms;  area 3  a r e a s 3 and  r e l a t i v e to  to  force  the  the  cartel  surplus).  5.  is detectable  small  and  (lost producer  Connor). Furthermore,  industry  d o w n s i z i n g and  loss  the  i n the the  diagram,  value  of  the  i n t e r f e r i n g with  competitive  subsequent l o s s of economies of  result size  an  could enjoyed  67  b y t h e l a r g e c a r t e l members. T h e s e e c o n o m i e s outweigh  the  argued that  loss  i n consumer  the existence  surplus,  of s i z e could  well  a l t h o u g h i t has  been  of X - i n e f f i c i e n c i e s would wipe out  s i z e b e n e f i t s . Thus, the j u r y i s s t i l l  out, e s p e c i a l l y since  verdict  industry.  i s so d e p e n d e n t  In  the  unionized that  B.C.  higher  industry  have  The  been  labour  allowed  costs  will  i n t h e B.C.  to be  that  than the Washington  f a c t o r s which could  could  claim  soar  given  paying  discussed  this  counts  as  an  i n depth  amount B.C.  "over pays" f o r i t s l a b o u r ,  packinghouse orchardists'  for i t s fruit  Second,  labour  was  may  and  from  the o r c h a r d i s t  incentive  f o r spouses  the  fruit  consisted  preharvest  or o f f s p r i n g .  t o work i n t h e p a c k i n g h o u s e was  changed labour  with  s e a s o n . The  fact that  as  of  hiring  t h e a d v e n t o f PG/PS, w h e r e s m a l l e r ,  society during  practice near  The  compounded  a t r a n s f e r from  this  the  wages w e r e more a  t o t h e f a r m f a m i l y ad i m p r o v e d t h e o r c h a r d i s t s ' c a s h f l o w the  amount  counteract  often  t o the spouse  by Unemployment I n s u r a n c e which p r o v i d e d  the  i n d u s t r y began most  f a m i l y members. T h u s , t h e h i g h e r  transfer  there  from  i f one c o n s i d e r s  when t h e B.C.  seasonal,  First,  well  in  considerably  i n d u s t r y . However,  inefficiency.  "over pays"  another input.  limited  hypothetically detract  Washington  simply  one  4.5.2, b u t s u f f i c e i t t o s a y t h a t wages a r e  several  claim  fruit  the  wages i n t h e p a c k i n g h o u s e amounts t o an X - i n e f f i c i e n c y ,  competition.  are  tree  i s costs  Section  on t h e s p e c i f i c  the  has  permanent  r e q u i r e m e n t s r e s u l t i n fewer f a m i l i e s b e n e f i t t i n g , c o u l d  possibly contribute  to recent  r a t e s . T h i r d l y , B.C.  may  o r c h a r d i s t c o m p l a i n t s about  be a b l e  labour  t o r e d u c e any X - i n e f f i c i e n c y due  68  to labour r a t e s by s u b s t i t u t i n g more c a p i t a l f o r labour than does the average Washington S t a t e 3.1.4  Methodology Employed  The American  above d i s c u s s i o n  of o l i g o p o l y  i n the western  North  apple i n d u s t r y a s s e r t s that there e x i s t s a loosely-bound  c a r t e l c o n s i s t i n g of perhaps and  packinghouse.  B.C. T r e e F r u i t s L t d .  o n l y two a r e p r i c e  f i v e o r s i x l a r g e Washington f i r m s Among t h e Washington  firms  perhaps  l e a d e r s (Trout and Blue Chelan) whereas t h e  o t h e r s , l i k e B.C. Tree F r u i t s L t d . , are t a c i t l y expected t o p l a y t h e game. The s k i r m i s h e s o b s e r v e d ,  i n t h e form o f p r i c e  o c c u r when c a r t e l  t o a c t as a f r i n g e  B.C. is  members attempt  wars,  member.  Tree F r u i t s L t d . i s i n a s l i g h t l y d i f f e r e n t p o s i t i o n , as i t  l a r g e , r e l a t i v e t o any s i n g l e Washington f i r m , but h i g h c o s t  ( r e l a t i v e t o o t h e r c a r t e l members) and i t doesn't p a r t i c i p a t e i n any p r i c e r e p o r t i n g . Q u a n t i t a t i v e evidence of t h i s a s s e r t i o n i s , however, l a r g e l y beyond t h e scope  of t h i s  study. I t would r e q u i r e  unprecedented  c o o p e r a t i o n w i t h and between the v a r i o u s packinghouses.  I t would  a l s o r e q u i r e the a b i l i t y t o index the companies a c c o r d i n g t o type of p r o d u c t ,  since  h e t e r o g e n e i t y confuses  t h e i s s u e t o such a  l a r g e e x t e n t . A p e r f e c t l y c o m p e t i t i v e p r i c e would be needed as a basis  f o r comparison  Otherwise,  w i t h the " p r e v a i l i n g " o l i g o p o l i s t i c  p r o f i t data  r e q u i r e d . While  (even more d i f f i c u l t  price.  t o o b t a i n ) would be  t h e s e problems may not be insurmountable,  they  w i l l have t o be the o b j e c t of f u t u r e study. The  following  section w i l l ,  however, attempt  B.C.'s i n f l u e n c e over i t s own p r i c e .  to q u a n t i f y  I t w i l l compare t h i s  effect  69  with  other  regions  i n an a t t e m p t  d e t e r m i n e t h e most i m p o r t a n t i n f l u e n c e  on B.C.  price.  3.2  that  of production  from  PRICE  3.2.1  P r i c e a s a M e a s u r e o f M a r k e t Power An a t t e m p t a t i l l u s t r a t i n g  is are  shown i n F i g u r e graphed  possible  t h e demand c u r v e f o r B.C.  using  annual  to detect  doesn't hold. regression  B.C.  Tree F r u i t s L t d . data.  some r e s e m b l a n c e  to the t y p i c a l  Elasticities  analysis  are impossible  too, experienced  own  since  (Canadian)  some  difficulties  i n this  reasons  f o r such d i f f i c u l t i e s  apples,  most a r i s i n g  estimation.  i n estimating  from p o s s i b l e  shifts  It i s  relationship  but  without Destorel  t o be -0.30. H o w e v e r , estimating  he h a d t o u s e t h e i m p o r t p r i c e price  pairs  downward  to estimate  ( r e q u i r i n g more d a t a p o i n t s ) ,  e s t i m a t e d t h e C a n a d i a n own p r i c e e l a s t i c i t y  elasticity,  apples  3.3, w h e r e t e n d i f f e r e n t p r i c e / q u a n t i t y  s l o p i n g demand c u r v e , b u t i n some y e a r s t h e s t a n d a r d  he,  to  this  as a p r o x y f o r  There  are  several  t h e demand c u r v e f o r i n demand  t a s t e changes, income changes and s u b s t i t u t e p r i c e  caused  changes.  by  70  Demand for B.C. Apples per box $11.50  $11.00  $10.50 -  $10.00 -  c  $9.50 -  0. to 0)  $9.00 -  $8.50 -  $8.00 -  $7.50  $7.00  1 — I — r 7.5  8.5 (Millions) Boxes of Apples Sold  F i g u r e 3.3  R e l a t i o n s h i p between P r i c e i n 1981 d o l l a r s and Q u a n t i t y of B . C . A p p l e s Sold (1976-85)  71 Taste  changes seem a v e r y  demand f o r B.C. apple  apples.  demanded and  c a u s e of s h i f t s  These changes can  the t o t a l  very noticeable s h i f t  likely  affect  i n the  the  type  amount demanded. There has  toward green, crunchy  apples and  of  been a  away from  good k e e p i n g - q u a l i t y or c o o k i n g - q u a l i t y apples. Most r e c e n t l y the t r e n d toward the importance of a e s t h e t i c s has been augmented by a keener d e s i r e f o r higher f l a v o u r , as. w e l l . The q u a n t i t y of  apples  demanded would a l s o be n e g a t i v e l y a f f e c t e d by a reduced  demand  f o r cooked apple products while i t may the  be p o s i t i v e l y a f f e c t e d  heavy a d v e r t i s i n g campaigns o f W a s h i n g t o n  State  and  by New  Zealand. Changes i n income c o u l d a f f e c t demand f o r a p p l e s , the  income e l a s t i c i t y  U.S.)  i s q u i t e low  fluctuations  of a p p l e s  i n Canada  (and p r e s u m a b l y  the  (0.095 a c c o r d i n g to D e s t o r e l ) . However, income  i n the r e s t of the world, e s p e c i a l l y the  c o u n t r i e s w i t h a h i g h e r income e l a s t i c i t y , demand s h i f t s  although  developing  could well r e s u l t i n  g i v e n the 20% o f f s h o r e export p o s i t i o n of the  B.C.  industry. Finally, demand c u r v e . other  fruits,  relatedly,  an  the p r i c e of s u b s t i t u t e s c o u l d cause s h i f t s This could arise  although  i n other  i n c r e a s e d demand f o r v a r i e t i e s  quantification  market to North America c o n s u m e d ) one  from i n c r e a s e d c o m p e t i t i o n  increased production  e c o n o m i c a l l y . These f a c t o r s a l l  can  p r o d u c t i o n on B.C. p r i c e t a k e r ) . The  price  appear  (where the b u l k the  areas B.C.  to exist t o  is difficult.  illustrate  i n the  and/or,  can't  grow  some e x t e n t ,  However, c o n f i n i n g the of  effect  B.C.'s p r o d u c t i o n i s of  North  American  (and hence the degree to which B.C.  graphs i n F i g u r e 3.4  from  d e p i c t B.C.  is a  price against  N o r t h A m e r i c a n and Northwestern sold.  The b e s t  production,  (B.C. and Washington) quantity-  " f i t " e x i s t s between B.C. p r i c e s and Northwest  suggesting  the average B.C. p r i c e  i s determined by  Washington p r o d u c t i o n as w e l l as B.C. p r o d u c t i o n . That t h i s f i t is  b e t t e r than  Washington graphing the  t h e B.C.  i s a strong  "demand" c u r v e  i n f l u e n c e , and t h i s  suggests  i s confirmed  by  B.C. p r i c e a g a i n s t Washington volume (not shown), where  outliers  i n t h e B.C. demand c u r v e  W a s h i n g t o n volume. Of c o u r s e , expected  o f F i g u r e 3.3  are explained  Washington p r o d u c t i o n  by t h e  would be  t o have a s t r o n g i n f l u e n c e , g i v e n i t s l a r g e r s i z e , and  s i m i l a r t r a n s p o r t c o s t s , v a r i e t y , and weather c o n d i t i o n s . The the  simple  information  extremely  demand curve regarding  apple  heterogeneous product.  serve to disaggregate the v a r i o u s vary.  attempted above cannot c a p t u r e a l l price  since the apple  i s an  The f o l l o w i n g d i s c u s s i o n w i l l  the average p r i c e somewhat by i l l u s t r a t i n g  f a c t o r s which can cause the " w i t h i n " a p p l e p r i c e t o  73 BC Price on NW Production 811.00 $11.00  -  $10.00  8  $10.00  PQ Pi  $9.50  -  $9.00  -  $8.50  -  $8.00  -  w oo  $7.60 $7.00 2,300  1  2.B00  — i 2.900  2.700  1  APPLE PRODUCTION  1  1  r  3.100  3,300  1  3,000  (MLB)  BC Price on NA Production $11 .SO $11.00  -  $10.80  -  $10.00  -  $9.50  -  8 PQ  $9.00 $8.60  oo ON  $B.OO $7.50 $7.00  -  —I  7.400  F i g u r e 3.A  1  7,800  1  1  1  1— —l  APPLE PRODUCTION  (MLB)  8.200  1  1  8.600  1  9.000  1  9.400  1  1  9.800  l  10.200  R e l a t i o n s h i p between P r i c e of B.C. Apples and P r o d u c t i o n L e v e l s f o r the P a c i f i c Northwest and North America (1976-85)  74 3.2.2  Factors Affecting Price As  mentioned p r e v i o u s l y ,  either  s i n g l y or  several  i n c o m b i n a t i o n . The  attempt to d e s c r i b e type and  Variation  the  f a c t o r s can following  affect price,  discussion  will  e f f e c t s of v a r i e t y , s i z e , grade, storage  pack type.  Variety The (b)  e f f e c t of v a r i e t y on p r i c e i s shown i n f i g u r e 3.5(a)  comparing Red  and  Golden D e l i c i o u s  over the crop years 1984 In  1984  and  there existed  Golden D e l i c i o u s  among the  $14.50/box more f o r Red p r i c e ) . T h i s gap  1985,  (XFCY, CA  large  gap  (more than double the  decreases as s i z e decreases, but  h i g h e r than Goldens f o r each s i z e . This was  all  (both  but  two  between Red  s i z e s w i t h a maximum of  Delicious  were g r e a t e r  sizes  large  fruit)  respectively.  a considerable  when Golden p r i c e s  stored  not  Red the  Golden  p r i c e s were case i n  than or e q u a l t o Red s i z e s ) . Note how  peaked h i g h e r than 1985  moved i n the  p r i c e s by  to about $21/box the  1985  prices  these  in  graphs Red  about $5/box. Goldens  opposite d i r e c t i o n , increasing  $17/box i n 1984  and about  i l l u s t r a t e the p r i c e v a r i a t i o n between crop years, where 1984 prices  and  from a high of  following  year.  about  (a)  198  175  163  ISO  138  125  75  1984  113  100  88  80  72  64-  56  88  80  72  64-  56  SIZE  (b)  198  175  163  150  138  125  1985  113  100  SIZE a  RED DELICIOUS  Figure 3.5  +  GOLDEN DELICIOUS  Relationship between Price and Size for B . C . Red and Golden Delicious (1984-85)  76 Size Price Figure large  variation  3.5(a) and fruit  (b).  over  size  is  also  illustrated  These graphs show how,  commands a h i g h e r  price  than  i n most  small  r e l a t i o n s h i p seems to be most pronounced i n 1984 fell Red  fell,  this decline  was  $ l l / b o x ) . The  r e l a t i o n s h i p i s not  1984  was  size  150  priced  This  Reds, when p r i c e when most  l e s s s i g n i f i c a n t (from $22 always smooth, however, as  much h i g h e r and  p r i c e d much lower than would be  cases,  fruit.  from $27/box to $7/box as s i z e decreased. In 1985, prices  in  the  1985  to the  s i z e 56  was  expected.  Grade While the  r e l a t i o n s h i p between p r i c e and  changed w i t h c r o p y e a r , the more p r e d i c t a b l e . prices  as  the  e f f e c t s of grade on  A t y p i c a l comparison between FCY  is depicted  Delicious  in Figure  example. As  3.6,  can  be  using  about $0.50/box. Once again, the  fruit.  a larger  premium  1985  seen, the  ranges between about $5/box (or c l o s e to 30%  realize  size  (and  price and CA  are  much  XFCY grade stored  Red  premium f o r XFCY  of the FCY  larger sized f r u i t  for quality  variety)  t h a n the  price)  to  is likely  to  smaller  sized  1985 Prices XFCY vs FCY RedDdicioiB CA  $10  H  i  r  198  175  163  1—I 150  138  1  I  125  113  1—l 100  88  1  l  1  1  80  72  64  56  SIZE • F i g u r e 3.6  XFCY  +  FCY  E f f e c t of Grade on P r i c e f o r B . C . Red D e l i c i o u s XFCY over Different Sizes (1985)  78 Storage The  type of  o b t a i n e d by extent).  fruit  a f f e c t i n g the  Instead,  the  regimes r e f l e c t s the fruit,  since  the  fruit  p r i c e o b t a i n e d by  timing  cold stored  harvest.  The  premium f o r e a r l i n e s s price  q u a l i t y of the  of f r u i t  the  price  (to a s i g n i f i c a n t different  sale. Controlled  storage  atmosphere  i t i s sold offseason, usually obtains a higher p r i c e  than r e g u l a r months of  s t o r a g e employed doesn't a f f e c t the  long  sold within  earliest  a p p l e s are  a  s t o r a g e season r e d u c e s any  to market. While t h e r e may  advantage f o r the  t i m e B.C.  f r u i t , which must, be  still  few  price  be  some  apples, t h i s i s d i s s i p a t e d  available,  and  even e a r l y  by  Washington  apple p r i c e s are hurt by southern hemisphere p r o d u c t i o n . The is  not  r e l a t i o n s h i p between CA always  relationships Delicious,  of  the  f o r two  Figures  size categories  less predictable.  $12/box. A s i m i l a r s i z e category.  Red  increase  3.8  Red  these  Golden XFCY  Delicious,  the  to $4/box, except f o r a  where the  CA  p r i c e was  the premium f o r CA  i n the  prices  depict  XFCY and  1984  S l i g h t changes i n s i z e  i n an  storage f r u i t  and  apples ranged between $1  small  resulted  3.7  Among t h e  than would be expected. In 1985  64)  regular  c r o p y e a r s of  respectively.  premium f o r CA few  clearcut.  and  f r u i t was  (from a s i z e 72  premium  jump i n premium o c c u r r e d  higher  to  from a b o u t i n the  88  much size $3  to  (medium)  (a)  $5 -) 198  ,  175  1  163  1  150  ,  138  ,  125  79  1984  ,  113  ,  100  1  1  ,  ,  88  80  72  64  56  88  80  72  6+  06  SIZE (b)  1985  w  198  170 D  163 CA  150  138  120 +  113  100  REGULAR  SIZE Figure 3.7  Effect of Storage Regime on Price for B . C . Red Delicious XFCY over Different Sizes (1984-85)  80 Among the Golden D e l i c i o u s p r i c e s ( F i g u r e 3.8), the 1985 crop year a l s o e x h i b i t e d a l a r g e d i p i n r e g u l a r storage  p r i c e s f o r one  s i z e c a t e g o r y (72). Otherwise the CA premium ranged from about $2 t o $4/box. The 1984 Golden crop showed l i t t l e d i s c e r n a b l e for  CA f r u i t ,  higher less  as t h e r e g u l a r  stored  fruit  premium  a c t u a l l y fetched  a  p r i c e i n some of the s i z e c a t e g o r i e s . Golden D e l i c i o u s i s a m e n a b l e t o CA  improving) s i n c e  (although  i t c a n undergo s e r i o u s  thus the p r i c e b e n e f i t s reduced q u a l i t y .  storage  from l a t e  the technology i s  quality deterioration;  season s a l e s were o f f s e t by  (a)  1984  81  $18  W U M  pi  1 SO  163  138  125  113  100  88  80  72  64  52  SIZE  (b)  150  138 a  Figure 3.8  CA  125  113  100  SIZE +  1985  88  80  72  6+  REGULAR  Effect of Storage Regime on Price for B.C. Golden Delicious XFCY over Different Sizes (1984-85)  56  82 3.3  SUMMARY  This industry  chapter  presented  the  is actually oligopolistic  c a r t e l of about  hypothesis  that  the  i n n a t u r e , w i t h an  ten members ( i n c l u d i n g B.C.  apple  implicit  Tree F r u i t s Ltd.)  a l a r g e number of s m a l l f r i n g e f i r m s . In a o l i g o p o l y p l u s  and  fringe  model, the p r i c e l e a d e r s s e t t h e i r s u p p l y (and t h e r e f o r e p r i c e ) at  t h e p o i n t where t h e i r m a r g i n a l  m a r g i n a l c u r v e . The  price  costs equal t h e i r  residual  o b t a i n e d i s between t h a t of  perfect  c o m p e t i t i o n and monopoly, and hence r e s u l t s i n a w e l f a r e t r a n s f e r from  consumers t o p r o d u c e r s  members). P r i c e , p r o f i t which might s u p p o r t  ( s h a r e d amongst f r i n g e  and  cartel  and c o l l u s i v e behaviour are a l l evidence  this  h y p o t h e s i s , but p r i m a r i l y ,  this  study  can o n l y p r e s e n t q u a l i t a t i v e e v i d e n c e . T h i s e v i d e n c e does, the most p a r t , support the c o n c l u s i o n t h a t an o l i g o p o l y Also,  q u a n t i t a t i v e p r i c e evidence does suggest  State  p r o d u c t i o n has  average  price,  t h e g r e a t e s t impact  though, may  is  reflected  in price  exists.  t h a t Washington  on B.C.  price.  not a c c u r a t e l y r e f l e c t the  s i n c e apples are such a heterogeneous  for  This  situation,  product. T h i s h e t e r o g e n e i t y  increases exhibited with v a r i e t y ,  with  i n c r e a s e d s i z e , grade and market date. T h i s " w i t h i n " v a r i a t i o n i s considerably  g r e a t e r than  Washington S t a t e p r i c e s g e n e r a l consensus  the  variation  "between" B.C.  and  ( which a r e n ' t r e p o r t e d here g i v e n the  t h a t t h e a v a i l a b l e Washington S t a t e d a t a i s  highly suspect). The  structure  preceding performance performance  chapter  and  conduct  d i s c u s s i o n s of  have p r o v i d e d  e v a l u a t i o n of  the  enough  next  two  this  background  and  the  for  the  c h a p t e r s . Any  d i s c u s s i o n must be viewed with t h i s i n mind.  such  83  CHAPTER 4  PERFORMANCE OF THE B.C. APPLE MARKETING SYSTEM  Performance o f t h e p a c k i n g / m a r k e t i n g f u n c t i o n o f the B.C. apple  industry  will  be p r e s e n t e d  in this  chapter.  While  performance i s o f t e n measured i n e f f i c i e n c y terms, as i n the bulk of t h i s chapter, be  used  when  S e c t i o n 4.1 d i s c u s s e s other measures which c o u l d  evaluating  the performance  s t r u c t u r e . S e c t i o n 4.2 w i l l an  cooperative  the a n a l y s i s by l o o k i n g a t  o v e r a l l measurement - the margins a t t r i b u t e d t o the p a c k i n g  function, Section  the marketing  4.3 w i l l  discuss  t h e o r e t i c a l terms as in  introduce  of a  Section  function  residual.  s a l e s revenues, a l t h o u g h p r i m a r i l y i n  the f a c t o r s a f f e c t i n g p r i c e (as d i s c u s s e d  3.2.2) a r e v i r t u a l l y  revenue. S e c t i o n 4.4 w i l l present both p a c k i n g  and t h e g r o w e r s '  t h e same as t h o s e  affecting  r e l e v a n t c o s t theory  as w e l l as  and marketing c o s t s and t h e i r r e l a t i o n t o t h o s e i n  Washington S t a t e . F i n a l l y ,  a b r i e f d i s c u s s i o n o f grower  returns  i n B.C. and Washington State w i l l be i n c l u d e d i n S e c t i o n 4.5. 4.1  COOPERATIVE STRUCTURE CAVEAT  Before that  performance can be measured one must d e f i n e the goals  are being  s o u g h t . That  i s , performance e v a l u a t i o n  o f an  i n d u s t r y o r an o r g a n i z a t i o n depends on what they a r e t r y i n g t o p e r f o r m . These goals  a r e somewhat d i f f e r e n t  maximizing organizations although secondary (McBride):  they  may  goals.  share  for private, profit  than f o r c o o p e r a t i v e some o f t h e same  The g o a l s  organizations,  intermediate  of a c o o p e r a t i v e  may  or  include  1. To p r o v i d e s e r v i c e s to growers they can't get l e a s t get as e f f i c i e n t l y ) on t h e i r own. cooperative packing  can  help  capture  or marketing,  provide  extension  or  For example, a  economies  facilitate advice  to  (or at  of  lobbying  size  in  efforts,  growers,  and  help  p r o v i d e c o u n t e r v a i l i n g powers a g a i n s t monopsony powers. While the c o o p e r a t i v e nature of the B.C. to  perform  these  they out perform 2.  To  control  i n d u s t r y seems  f u n c t i o n s , the q u e s t i o n  B.C.  supply  and  therefore raise  f o r outcome when c o o p e r a t i o n i n d u s t r y proved  the world  prices  and  have been  the  f i r s t began,  the  determine i t s own To  be  packing State  copied  Washington State  to say  while B.C..  State's  packing  i f t h i s was  At  the  i n d u s t r y has  contender,  lead  although  and  ever  marketing  of  Washington level  proven i t s e l f B . C . likely  a  least  i n terms  i n s e v e r a l areas  Washington State i n packaging 4.  never been a b l e to  i n d u s t r y . C e r t a i n l y they have at  technology,  formidable  has  restrictions  innovative in  f o l l o w Washington  has  import  price.  It i s d i f f i c u l t  goal of the B.C. to  t h a t B.C.  p r o g r e s s i v e and  marketing.  had  too small r e l a t i v e to the r e s t of  i n apple p r o d u c t i o n , and  were so u n p a l a t a b l e  3.  do  p r i v a t e e n t e r p r i s e at these f u n c t i o n s ?  c a p t u r e monopoly r e n t s . While t h i s may hoped  remains  the  to be  a  surpasses  research.  To p r o v i d e a b a s i c economic r e t u r n to i t s members on  an e q u i t a b l e b a s i s .  Member e q u i t y can be d e f i n e d  by  85 s e v e r a l measures, which t y p i c a l l y i n c l u d e the f o l l o w i n g considerations: retains  (a) whether member refunds and per u n i t  a r e b a s e d on p a t r o n a g e w h i c h would  tend t o  reward more l o y a l , s e r i o u s members; and (b) whether c a p i t a l  investments  possible  c u r r e n t l y using  by t h o s e  (accomplished  are f i n a n c e d as much as the cooperative  by a d j u s t i n g redemption p o l i c i e s ) . q u e s t i o n s , the p o l i c i e s  While  these  a r e important  governing  these  i s s u e s v a r y both among B.C. and Washington S t a t e  houses and w i t h i n each i n d u s t r y . 5. To i n c r e a s e the economic w e l l - b e i n g of i t s members. T h i s c o u l d be e v a l u a t e d by comparing income f i g u r e s i n the B.C. c o o p e r a t i v e and p r i v a t e e n t e r p r i s e houses, the various  income s u p p o r t  programs and e q u i t y p o s i t i o n s  ( i n the c o o p e r a t i v e s ) would c l o u d the i s s u e . That would a l s o not permit the reason f o r any i n e f f i c i e n c i e s t o be pinpointed.  So t h i s  study w i l l c o n c e n t r a t e  on grower  r e t u r n s which can be a f f e c t e d by e i t h e r the c o s t s o f packing or marketing,  4.2  or the p r i c e  MARGINS OR REVENUE ALLOCATION  4.2.1  Theoretical Considerations Growers' r e t u r n s a r e d e t e r m i n e d  and  obtained.  packing  Figure  4.1.  costs  from  t h e gross  The share of r e v e n u e  by s u b t r a c t i n g m a r k e t i n g  sales  allocated  packers w i l l be r e f e r r e d t o a s t h e i r  revenue, to  margins.  a s shown i n  the marketers  and  86  Revenue Marketing Cost Packinghouse  Allowance •Packing Cost  Growers Return  F i g u r e 4.1 Determination of Revenue A l l o c a t i o n  The  actual  functions w i l l first B.C.  costs incurred  by t h e m a r k e t i n g  be examined i n depth  necessary  and p a c k i n g  i n S e c t i o n 4.5, but i t i s  to understand  how t h e s e c o s t s a r e a l l o c a t e d .  Tree F r u i t s L t d . a l l o c a t e s  i t s c o s t s t o the type of f r u i t  wherever p o s s i b l e , proportionally attempt  b u t many o f i t s overhead  c o s t s are shared  (by volume) amongst t h e d i f f e r e n t  fruits.  No  i s made t o f u r t h e r subdivide B.C. Tree F r u i t s L t d . c o s t s  amongst t h e d i f f e r e n t  apple v a r i e t i e s .  This i s i n contrast to  v a r i a b l e packing c o s t s , which are a l l o c a t e d amongst the v a r i e t i e s where they are i n c u r r e d . Since these c o s t s are l i t t l e a f f e c t e d by grade and s i z e , there i s no attempt  to d i f f e r e n t i a t e c o s t s w i t h i n  these c a t e g o r i e s . A l s o , while c o s t s do vary with storage and pack type, B.C.  these  a r e d e c i s i o n s made  by t h e p a c k i n g h o u s e  and  Tree F r u i t s L t d . , and hence growers a r e not p e n a l i z e d (nor  rewarded) by c h a r g i n g these c o s t s d i f f e r e n t i a l l y amongst them. Overhead p a c k i n g c o s t s a r e charged  p r o p o r t i o n a l l y to a l l f r u i t  t y p e s . And w h i l e c o s t s a r e n ' t a l l o c a t e d  d i f f e r e n t l y within a  87 v a r i e t y , growers do r e c e i v e any p r i c e d i f f e r e n t i a l s when they are based upon f a c t o r s under t h e i r c o n t r o l 4.2.2  (such as grade and  size).  Results The  dollars  two  margins  and  t h e grower  are r e p o r t e d i n F i g u r e 4.2  returns  p e r box  f o r the p e r i o d  1976  in to  1981 1985.  The marketing margin has been f a i r l y steady at j u s t under $l/box. Packinghouse margins were much more v a r i a b l e over t h i s p e r i o d . At about $4/box, they were lowest i n the 1983 crop year, but i n the late  1970s, 1982  Finally,  grower  and 1985 returns,  c r o p y e a r s they were c l o s e t o $5/box. as the r e s i d u a l ,  exhibited  t h e most  v a r i a t i o n w i t h revenue. They v a r i e d from about $2/box i n 1982  and  1984  the  t o about  decline  $5/box i n t h e l a t e  i n grower  1970s. Thus i t a p p e a r s  r e t u r n s i s due more t o a d e c l i n e  t h a n t o an i n c r e a s e  i n revenues  i n the c o s t of t h e m a r k e t i n g system.  w i l l be f u r t h e r d i s c u s s e d i n the next chapter.  This  88  Ten Year .Apple Margins  X 0  hi tl  J  0 0  to 0)  1976  1977  1978  1979  1980  1981  1982  1983  1984  1965  CROP YEAR {\  } Marketing Margiiin  XZ)  Packing Margin  Grower Residual F i g u r e 4.2  Revenue A l l o c a t i o n Among M a r k e t i n g , P a c k i n g and P r o d u c i n g A c t i v i t i e s on per Box B a s i s (1976-85)  89 4.3  REVENUE This section w i l l  earned of  o n l y b r i e f l y touch on the a c t u a l revenue  by the a p p l e i n d u s t r y s i n c e much of the p r i c e d i s c u s s i o n  S e c t i o n 3.2 w o u l d  present  theoretical  simply  be r e p e a t e d .  S e c t i o n 4.3.1  will  a s p e c t s which need t o be c o n s i d e r e d when  e v a l u a t i n g the performance of B.C. Tree F r u i t s L t d . i n maximizing s a l e s r e v e n u e . S e c t i o n 4.3.2 w i l l  b r i e f l y present  apple s a l e s revenue and how i t responds 4.3.1  the t r e n d i n  t o the q u a n t i t y s o l d .  Theoretical Considerations Under p e r f e c t competition, revenue maximization  as p r o f i t m a x i m i z a t i o n ; marginal  t h a t i s , q u a n t i t y must be s e t such t h a t  c o s t e q u a l s marginal revenues.  d i f f e r e n t areas wherein  There are a t l e a s t  has a l r e a d y  i n d u s t r y . The f i r s t ,  been  discussed  the case of  a t some  length i n  S e c t i o n 3.1 and need not be r e i t e r a t e d here. The second c o n f u s i o n i s posed by i n t r a - r e g i o n a l t r a d e . The t h i r d the  apple  three  t h i s simple s t r a t e g y becomes i n s u f f i c i e n t  when c o n s i d e r i n g t h e a p p l e oligopoly,  i s the same  i n d u s t r y i s t h e element o f s t o r a g e  area of  aspect of  and t h e r o l e o f  dynamic o p t i m i z a t i o n . The l a t t e r two a s p e c t s w i l l  be e x p l a i n e d  below. Simple apples  economic t h e o r y suggests  i f i t doesn't  t h a t B.C. s h o u l d not grow  have the p h y s i c a l and economic  a d v a n t a g e s o f W a s h i n g t o n S t a t e , and i n d e e d ,  comparative  Washington  State  apples do e n t e r the B.C. and P r a i r i e markets t o compete with B.C. a p p l e s . Even so, B.C. apples are s t i l l q u a n t i t i e s . The t r a d i t i o n a l fact  trade  s o l d t o the U.S. i n l a r g e  theory might  accommodate  this  i f B.C. had t h e advantage i n t r a n s p o r t c o s t s t o s p e c i f i c  U.S. markets, but t h i s  i s not the case. Trade models t o e x p l a i n  90 such i n t r a - r e g i o n a l trade have been developed products  u s i n g heterogeneous  o r game t h e o r y , but these models have y e t t o be t e s t e d  e c o n o m e t r i c a l l y . Hence, revenue maximization  i n v o l v i n g t r a d e (as  r e q u i r e d by the small l o c a l market f o r B.C. apples) does not l e n d i t s e l f t o any simple economic t r u t h . B.C. monthly  Tree  F r u i t s L t d . has been c r i t i c i z e d  s a l e s quotas.  These q u o t a s  f o r i t s use of  have been a s s e r t e d t o be  a r b i t r a r y and with no regard f o r maximizing t o t a l revenue. How do these  quotas  following  c o i n c i d e with  will  dynamic  give a brief  o p t i m i z a t i o n t h e o r y ? The  overview  of t h i s  theory  and t h e  a d d i t i o n a l f a c e t s i m p l i c a t e d i n the apple i n d u s t r y . I f t h e r e were p e r f e c t c o m p e t i t i o n and p e r f e c t i n f o r m a t i o n , B.C.  Tree  variation  Fruits over  L t d . would have a s c h e d u l e  the course  of the marketing  depicting price season  (about  42  weeks). They would a l s o have a schedule of the c o s t s i n c u r r e d t o s t o r e the f r u i t i n each time p e r i o d . They would then maximize 42 max ] * E I l q t=l t  (where q cost,  t  I  t  = q  42 max^T  t=l  t  i s quantity, I I  t  ( P  is profit  a l l i n p e r i o d t ) by s o l v i n g  periods.  - C  t  But i n t h e apple  ) * q  t  , P  t  (1)  i s price  t  simultaneously  industry  there  and C t i s  f o r a l l time are several  complications . First,  imperfect  B.C. T r e e F r u i t s  Ltd. does  the  norm.  at the beginning  of the  information n o t know P  t  y e a r when i t must make i t s s t o r a g e / s a l e s must t h e r e f o r e work w i t h expected  i s  quota  price, E ( P ) .  t h e o r y i n t o the f u n c t i o n i n equation  more  t  projections. This brings  It risk  (1). A l s o , q u a n t i t y produced  91 will  vary  with  w e a t h e r , e t c , and hence t h e a b i l i t y  f i x e d c o s t s w i l l vary from year to year, enters  as w e l l . Therefore,  i n t o both the p r i c e and cost i n f o r m a t i o n The  second  oligopolistic  complication  behaviour. This  t o spread  occurs  when  risk  needed. there  i s some  i m p l i e s t h e d e c i s i o n maker c o u l d  a f f e c t p r i c e i n any g i v e n p e r i o d by i t s a c t i o n s i n t h a t  period.  That i s , i f E(P ) = f ( q ) t  then  t h e d e c i s i o n maker would  actions  affect  competitors  (2)  t  price  need  t o know n o t o n l y  (own p r i c e f l e x i b i l i t y ) ,  how i t s  but a l s o how i t s  (and t h e r e f o r e p r i c e ) would respond.  T h i r d l y , t o t a l c o s t s are u s u a l l y a f u n c t i o n of q u a n t i t y , as w e l l . For instance,  i f c o s t s i n any one p e r i o d a r e dependent on  the q u a n t i t y of f r u i t remaining, then  Ct = g(Q/qi/q2/<J3 where Q i s t h e t o t a l a l s o vary with  quantity.  qt-i) If costs  (3) i n the present  t h e q u a n t i t y s o l d i n the present  period  period  ( f o r such  q u a n t i t y dependent c o s t s as t r a n s p o r t a t i o n , order assembly c o s t s , e t c . ) then q-j- would a l s o be an argument equation  (3) .  of t h e c o s t  function i n  92 Putting  a l l these  factors  together,  the  dynamic  o p t i m i z a t i o n problem becomes 42 ^(E(P {q own t=l  max q  t  t  (where own the r e s t  t  , row  s i g n i f i e s own  from  definitive  q  q}  i  * q (4)  t  signifies  t  q u a n t i t y of  as the d e c i s i o n v a r i a b l e and  t  as  an  ( i f not a l l ) of the terms of the maximand, a  problem w i t h s i m u l t a n e i t y What c a n be  t  } )  q u a n t i t y and row  of w o r l d ) . With q  argument i n most  quotas  q t  42 -^Tc {Q, t=l  exists.  c o n c l u d e d about  B.C.  Tree F r u i t s L t d .  sales  the above d i s c u s s i o n ? I t i s i m p o s s i b l e t o make any i n f e r e n c e s without  equations,  hence  future  some attempt  study  t o s o l v e t h e above  is required.  While  the  weekly/monthly s a l e s quota may  seem inadequate ex p o s t e , i t may  be  ex  the  best policy  should  have  available  developed  i n response  at  Tree F r u i t s L t d . least,  b e s t s y n t h e s i s of t h i s  amount of r i s k  i s most  t h e y s h o u l d be examined most c l o s e l y ,  i n the r i s k  likely certain  a r e a where  since r i s k aversion could  T r e e F r u i t s L t d . or e l s e i t c o u l d be  upon them by o t h e r p a r t i c i p a n t s  price  behaviour,  knowledge, tempered by a  a v e r s i o n . I t i s perhaps  i n n a t e t o B.C.  for  to t h e i r own  f o r s t o r a g e c o s t s . T h e i r s a l e s quota system  their  be  B.C.  some i n s t i n c t ,  f l u c t u a t i o n s o v e r time and and  ante.  i n the B.C.  industry  imposed (via i t s  cooperative nature). Thus, revenue  maximization  i s a problematic function  perform i n the apple i n d u s t r y , while t h i s study can not if  B.C.  revenue,  Tree F r u i t s given t h e i r  L t d . has  succeeded  l a c k of c o n t r o l  in obtaining  to  determine maximum  o v e r the p r o d u c t mix, i t  93 will  r e p o r t B.C. Tree F r u i t s L t d . performance i n r e l a t i v e  This w i l l  be accomplished by f i r s t  examining revenue t r e n d s and  q u a n t i t y response, and l a t e r by making some g e n e r a l w i t h Washington 4.3.2  terms.  comparisons  State.  Results B.C.  expressed  Tree  Fruits  Ltd. sales  i n constant dollars  revenues  f o r apples are  as a f u n c t i o n  of time i n  F i g u r e 4.3. They range from about $45m i n 1984 t o $83m i n 1981. T h i s graph helps t o e x p l a i n the unrest among growers i n the e a r l y 1980s, s i n c e revenues seemed t o f a l l a v e r a g e o f about  q u i t e s u b s t a n t i a l l y from an  $75m b e f o r e 1982 t o an average o f about  $55m  from 1982 t o 1985. In  Section  3.2.1 t h e r e l a t i o n s h i p  between  p r i c e and  q u a n t i t y was i n v e s t i g a t e d . In F i g u r e 4.4 the r e l a t i o n s h i p between s a l e s revenue and q u a n t i t y i s i l l u s t r a t e d . T h i s seems t o be q u i t e a positive during high  relationship,  since  the lowest revenues  occurred  low q u a n t i t y y e a r s and the h i g h e s t revenues o c c u r r e d i n volume  years.  determinant of p r i c e  Thus,  while  (as d i s c u s s e d  without q u a n t i t y does l i t t l e  quality  i s an i m p o r t a n t  i n Section  3.2.2),  t o guarantee high revenues.  quality  Ten Year Real Apple Revenues Total  1976  1 977  1 978  1 979  1 980  1 981  1982 1 983  1 984  1 985  CROP YEAR  Figure 4.3  Revenue from Sales in 1981 dollars for B . C . Tree F r u i t s L t d . (1976-85)  95  Ten Year Real Apple Revenues by Volume Total 90,000,000  80,000,000  i  70,000,000 H  10 0>  60,000,000  50,000,000 H  40,000,000  VOLUME (BOXES) Figure 4.4  Relationship between Revenue from Sales (1981 dollars) and Quantity of B.C. Apples Sold (1976-85)  96 4.4  COSTS  4.4.1  T h e o r e t i c a l Considerations There  important  a r e two a s p e c t s  t o t h e B.C. a p p l e  f u n c t i o n ) . The f i r s t cost  combination  second aspect New,  of c o s t a n a l y s i s which a r e v e r y i n d u s t r y ( p r i m a r i l y t o the p a c k i n g  aspect i n v o l v e s d e t e r m i n a t i o n o f t h e l e a s t  of resources  or f a c t o r s  involves determining  labour-saving technology  make an u n d e r s t a n d i n g  o f p r o d u c t i o n . The  t h e optimum s i z e o f p l a n t .  and subsequent p l a n t amalgamation  of both  these  aspects  important  i n the  apple i n d u s t r y . The  least  determination  cost  resource  of a s e r i e s  of isoquant  o r i g i n ) p a i r e d w i t h t h e i r tangent input p r i c e r a t i o ) . combinations,  combination  rule  curves  involves  (convex t o t h e  i s o c o s t curves  (at a constant  Ridge l i n e s bound the "stage two" r e s o u r c e  t h a t i s the r e g i o n i n which a f i r m s h o u l d  operate  to a c h i e v e t e c h n o l o g i c a l e f f i c i e n c y . 0 By o p e r a t i n g at the p o i n t x  of tangency between the i s o c o s t and r e l e v a n t isoquant curves, the f i r m a c h i e v e s economic e f f i c i e n c y . H The expansion all  the tangency p o i n t s  depicts  how t h e f i r m  ( f o r a given p r i c e  should  allocate  path  contains  ratio)  and hence  i t s resources  among t h e  v a r i o u s f a c t o r s given a c h o i c e to change output. This g e n e r a l i z e d 10 T e c h n o l o g i c a l e f f i c i e n c y must be w i t h i n t h e r e g i o n where t h e m a r g i n a l p h y s i c a l p r o d u c t o f b o t h ( a l l ) i n p u t s i s p o s i t i v e . O t h e r w i s e , a d d i t i o n o f one e x t r a u n i t o f i n p u t w i l l impact o u t p u t not a t a l l o r n e g a t i v e l y . Thus, m a r g i n a l r a t e o f t e c h n i c a l s u b s t i t u t i o n must be g r e a t e r than o r equal t o zero i f the f i r m i s t o operate e f f i c i e n t l y . H Economic e f f i c i e n c y i n v o l v e s moving a l o n g a g i v e n i s o q u a n t c u r v e t o t h e p o i n t where t h e g i v e n q u a n t i t y c a n be produced most cheaply. This i s accomplished by h i t t i n g the lowest i s o c o s t curve p o s s i b l e , which occurs at the p o i n t of tangency.  97  approach enables one to model increasing, constant and decreasing returns to scale conditions. After technological and economic efficiency have been achieved in terms of the optimal resource combination, the firm must then determine its most efficient output. In the short run, the firm can produce most cost effectively at the output where average cost equals marginal cost, given plant size. Note, imperfect competition  in the factor markets would change the  slope of the average variable cost curve (and therefore the average cost curve). The firm should produce as long as price is above the average variable cost at the optimal output, and i t will earn economic profit when price is above average cost at that output. The long run average cost curve can be thought of as an envelope curve of the series of short run average cost curves over a l l outputs. This is shown in Figure 4.5. Initially, the firm is operating on SAC^ and produces at Xi_. Note, this is not the most efficient point on this curve, and so the firm chooses to produce at output  • It can accomplish this in two ways.  First, i t can move along SACi to its most efficient point. Or, i t can build a larger plant and move to  SAC2•  It is now operating at  less than optimal output, again, but i t has captured additional economies of size to reduce its costs even further, from  to  C2 • The plant is operating at its most efficient output at the point where i t s short run marginal cost equals the long run marginal cost, as shown below for the second plant size.  98  Costs  LAC  X  l  "2 Quantity  Figure 4.5  Relationship between Short Run and Long Run Cost Curves  There  are s e v e r a l  reasons why i t i s d i f f i c u l t  t h e B.C. a p p l e m a r k e t i n g  system  to test i f  i s operating at the p o i n t of  l e a s t c o s t p l a n t s c a l e and resource combination. F i r s t , operating  in a perfectly  c o m p e t i t i v e environment  i t i s not  (eg. l a b o u r  unions) nor does i t operate as a p e r f e c t c o m p e t i t o r  (as per the  o l i g o p o l y d i s c u s s i o n above). Second, t h e r e i s no access t o B.C. packingB.C.  house  accounts  and o n l y  Tree F r u i t s L t d . accounts,  curves i s v e r y d i f f i c u l t . i t s own problems.  limited  access  to  t h e r e f o r e q u a n t i f y i n g the c o s t  T h i r d , the data t h a t i s a v a i l a b l e has  T o t a l packinghouse  allowances  (as determined by  the O.F.S.A. g u i d e l i n e s ) and t o t a l q u a n t i t y s o l d i s a v a i l a b l e f o r a t e n year p e r i o d , but these  figures  d o not break  down c o s t s  between types of c o s t s or by f r u i t type ( f r e s h versus p r o c e s s e d ) . There have been t e c h n o l o g i c a l advances d u r i n g t h i s p e r i o d which have r e s u l t e d  in different  r e s o u r c e combinations,  hence one i s  99 faced  with d i s t i n g u i s h i n g  between d i f f e r e n t  curves. For s i x  ( d i s c o n t i n u o u s ) y e a r s d e t a i l e d per u n i t c o s t data are a v a i l a b l e , however t h e q u a n t i t i e s w i t h i n these c a t e g o r i e s are not a v a i l a b l e and so t o t a l c o s t s cannot be computed. Given these data c o n s t r a i n t s ,  t h i s study w i l l  attempt t h e  f o l l o w i n g c o s t a n a l y s i s . T o t a l cost and average c o s t curves be p r o p o s e d ,  and average  costs w i l l  will  be t r e n d e d . The c o s t s w i l l  then be broken down i n t o f i x e d and v a r i a b l e over time. The f i x e d costs w i l l  be examined t o d e t e r m i n e  t h e degree  t o which  they  r e a l l y are f i x e d . These e f f o r t s w i l l be made f o r both packing and marketing c o s t s , data p e r m i t t i n g . They w i l l then be compared w i t h Washington S t a t e c o s t s . 4.4.2  Packing Cost A n a l y s i s  T o t a l and Average Costs T o t a l p a c k i n g c o s t s ( f o r B.C. Tree F r u i t s L t d . a f f i l i a t e d houses i n constant d o l l a r s ) are trended over a t e n year p e r i o d i n F i g u r e 4.6. T h i s graph d e p i c t s a s u b s t a n t i a l of  about  This  $10m i n 1980 ( o r about  jump i n t o t a l  40%) b e f o r e c o s t s f e l l  cost  again.  1980 jump was v e r y l a r g e , and so i t i s necessary t o examine  how q u a n t i t y a f f e c t s c o s t t o account f o r t h i s . A t o t a l c o s t curve i s p o s t u l a t e d i n F i g u r e 4.7, and i t conforms f a i r l y w e l l t o t h e upward s l o p i n g  curve expected.  below h i s t o r i c a l  quantities  One would have t o e x t r a p o l a t e  to f i n d  therefore fixed costs, using t h i s  the cost  approach.  i n t e r c e p t , and  Ten Year Apple Packing Costs Total Cost 45  i  =  1976  1977  1978  1979  1980  1981  1982  1983  1984  1985  CROP YEAR F i g u r e 4.6  T o t a l Packing Costs i n 1981 houses (1976-85)  d o l l a r s for O . F . S . A .  Packing-  101  Ten Year Apple Packing Costs Total Cost versus Quantity  *5  I  I  7.5  i  I  8.5  r 9.5  10.5  dollars)  and  (Millions) BOXES F i g u r e 4.7  R e l a t i o n s h i p between T o t a l Packing Cost (1981 Q u a n t i t y of B . C . Apples S o l d (1976-85)  102 This  total  estimated,  as  be  due  c u r v e p e r m i t s the  i n Figure  4.8.  The  i n 1984,  the  first  curve occurred could  cost  to  strong  p o i n t of o p e r a t i n g  SAC  curve  to t r i m c o s t s ,  (and  output given  i n Figure  hence b e g i n operating  to  at  efficient  the  that  this  to one  long  point  run  cost  i t i s cheaper  Since  to  say  only  where  but  one  part  of  the  i t would can  say  be the  i t s most t e c h n i c a l l y e f f i c i e n t  most t e c h n i c a l l y e f f i c i e n t  minimum o f  the  short run average c o s t  climb),  i t s p l a n t s c a l e . But,  economically  even t o  time. Ignoring  4.5.  i t i s impossible  i s not  dictate  This  graph p i c t u r e s the downward s l o p i n g s e c t i o n of  i s shown,  minimized  the  y e a r of house p o o l i n g .  a most contentious  curve depicted  industry  this  incentives  outlier  to  of  assuming t h i s d e p i c t s only one  c u r v e , t h e n the the  most s e r i o u s  curve  at a l o s s i n the short term, i n an attempt  appease growers during o u t l i e r and  average c o s t  recall point  does not  unless curve.  to  from S e c t i o n 4.5.1  that  e q u a l the  i t is operating  most  at  Thus, e c o n o m i e s o f  operate  at  l e s s than  the size  optimal  capacity. Total  costs  can  be  b r o k e n down i n t o  f i x e d and  variable  costs using  information  from the O.F.S.A. g u i d e l i n e s . The  fixed  costs,  overhead,  are  of  or  representative staffing,  and  figures.  It  apportioned predictions.  determined  house model  of  hence i t i s l i k e l y i s determined on  a per  ton  given the  before basis  by  on  the  size,  technology  l e a s t robust the  packing  using  basis  total  of  and  the  year  cost  and  fruit  a  is  crop  103  Average Packing Cost Constant Dollars  r  0 01 r #  T  7.5  8.5  (Millions) VOLUME (BOXES) Figure 4.8  Relationship between Average Packing Cost (1981 dollars) and Quantity Sold for B.C. Apples (1976-85)  104 Variable  costs attributed  to d i f f e r e n t  products  l a b o u r and m a t e r i a l s . S i n c e l a b o u r wages are s e t  include  industry-wide,  labour c o s t s would o n l y vary much between houses i f they  differed  i n labour p r o d u c t i v i t y . Any p r o d u c t i v i t y d i f f e r e n c e s would be due  to d i f f e r e n c e s i n c a p i t a l i z a t i o n  distinction  two  costs  (namely PG/PS), but  i s beyond the scope of t h i s  i n c l u d e packaging, are  small  and  this  study. M a t e r i a l s c o s t s  waxes and s p e c i a l spray treatments.  very  likely  standard  The  latter  t o most p r o d u c t s  houses, and hence are not shown or d i s c u s s e d below. The  and  packaging  c o s t s are standard amongst the houses, but vary c o n s i d e r a b l y w i t h product  type.  The is  r e l a t i o n between f i x e d and v a r i a b l e c o s t s per apple  illustrated  example.12 The i s almost  i n F i g u r e 4.9,  using  t r a y pack^^^ w i t h by  Red  D e l i c i o u s as  f a r the l a r g e s t  c o s t s remain f a i r l y standard between $1.60  and  and $2.97  r e s p e c t i v e l y . While  labour  ( f o r a l l except the quart basket)  $2.30 per box,  an  production,  as cheap to produce as the Econopak, at $3.19  (when o v e r h e a d c o s t s are e x c l u d e d ) ,  accounts  1986  box  at  i t i s the m a t e r i a l s c o s t which  f o r most of the range i n t o t a l c o s t .  Overhead c o s t s per box w i l l , of course, vary w i t h the s i z e of the c r o p , and so w i l l r e q u i r e more c a r e f u l treatment below. While the pack types i n f a c t c o n t a i n d i f f e r e n t f r u i t w e i g h t s , f o r the sake of t h i s a n a l y s i s a l l packs have been s c a l e d to 42 pounds.  105 0  Major Packing Costs by Pack Type Red Delicious 1986 $11.00  ID J w  X 0 ID K hi W  W H J 0 0  Troy  i  r  Handipak  Family  IV1 Labour F i g u r e 4.9  Econopak  Qt.Basket 8/5lb Bags12/3lb Bags  PACK TYPE \7I  Materials  |§3 Overhead  Major Packing Costs by Pack Type f o r B.C. Red (1986)  Delicious  106 F i x e d Costs To  a n a l y z e overhead  costs,  t h e per u n i t  figures  from the  O.F.S.A. g u i d e l i n e s ( a v a i l a b l e from 1979-1981 and 1984-1986) must be combined w i t h apple p r o d u c t i o n f i g u r e s i n o r d e r t o c a l c u l a t e the  total  constant continuous and  overhead dollars,  set-asides. are trended  These  figures,  converted to  i n F i g u r e 4.10. W h i l e  not a  sample, t h i s graph does show how two crop y e a r s , 1980  1981, c o s t about  $5m more than the o t h e r t h r e e y e a r s , where  overhead was charged approximately $llm. As these were heavy crop years i t appears  the overhead  c o s t s are not completely f i x e d (or  the heavy crops were very p o o r l y p r e d i c t e d when the overhead g u i d e l i n e s were e s t a b l i s h e d ) .  cost  107  Packing Overhead Costs over Time Total Apple Overhead  1979  1960  1961  1984  1 985  YEAR F i g u r e 4.10  Overhead Costs i n 1981 d o l l a r s f o r O . F . S . A . ( S e l e c t e d years 1979-85)  Packinghouses  108 Plotting F i g u r e 4.11 fixed  same o v e r h e a d  confirms  between 5.5  million the  the  7.5  million  boxes, the  boxes seems t o account f o r the  overhead  increased not  (45%)  to b a l l o o n  i f the  unit)  i n order  packinghouses  to make c a p i t a l  9.5  increase  f i g u r e s . However, the overhead f i g u r e s c o u l d  level  capitalization.  the The  growers may  be  c o u l d w e l l accommodate t h i s  t h i s was  the  case,  of poor c r o p  o r i f the  higher  p r e d i c t i o n s , one  o r grower r e b a t e  data  also  (in total  investments without  l e s s adverse to  s c e n a r i o . To  by  Rapid d e p r e c i a t i o n in  accordance w i t h  theory of ensuring per S e c t i o n 4.1.  of  capital  the  actual  d i f f e r e n c e between  a c t u a l c o s t s per packinghouse and O.F.S.A. e s t a b l i s h e d c o s t s ) .  is  the  determine i f  would need t o see the  the  financing  o v e r h e a d s were s i m p l y  (to see  in  suspected  r a p i d d e p r e c i a t i o n methods f a v o u r e d  houses^  c o s t data  jump t o o v e r  the growers. If the grower r e t u r n s c o u l d be kept at  historical  result  large  in  relatively  revenues would permit them to i n c r e a s e c o s t s  per  alarming  quantity  t h i s . While overhead c o s t s were  and  have been a l l o w e d  but  figures against  expenditures  the cooperative  financing  " t h e u s e r s a r e t h e payers",  as  Packing Overhead Costs by Volume  5-5  6.5  7.5  8.5  9.5  10.5  (Millions) BOXES PACKED Figure 4.11  Relationship between O.F.S.A. Overhead Costs (1981 dollars) and Quantity Sold (Selected years 1979-85)  110 V a r i a b l e Costs - Labour Wage r a t e s have r i s e n other 1985  i n the packinghouses a t a pace w i t h  i n d u s t r i a l wages i n B.C.,  as shown i n F i g u r e 4 . 1 2 .  r a t e of n e a r l y $ l l / h o u r i s c o n s i d e r a b l y higher  The  15  than  the  packinghouse wage r a t e of about $7.35/hour ($CAN) i n Washington State  (Schotzko  reflected  and  O'Rourke). However, t h i s may  in total  technological  or may  not  be  c o s t s , s i n c e t h e r e have been c o n s i d e r a b l e  (labour-saving) advances, as w e l l .  A more i n f o r m a t i v e d i s c u s s i o n of labour c o s t s would i n v o l v e per  unit  c o s t s , as  calculated  illustrated  i n F i g u r e 4.13.  c o s t per  l b . box,  42  and  i n the O.F.S.A. g u i d e l i n e s  T h i s graph shows the t r e n d i n labour  a l s o shows how  labour costs vary  pack type. In constant d o l l a r s , labour c o s t s have a c t u a l l y f o r a l l pack types  from 1979  have o c c u r r e d between 1981  and  to 1985. and  1984,  Most of t h i s f a l l  with  fallen  seems to  where, u n f o r t u n a t e l y , the  data  i s l a c k i n g . T h i s a l s o c o i n c i d e s with the adoption of PG/PS.  But,  between  suggesting  1984  and  1985  labour  costs rose  in real  terms,  no more t e c h n o l o g i c a l g a i n s were b e i n g made ( o r a t  l e a s t the g a i n s d i d not keep up w i t h wage g a i n s ) , and average c o s t curve experienced  hence the  no f u r t h e r s h i f t s .  M a n u f a c t u r i n g and i n d u s t r i a l average d a t a d e r i v e d from B r i t i s h Columbia. I n d u s t r i a l Review 1986, and assumes a 4 0 - h o u r work week. OFSA "heavy" wage r a t e s are from the OFSA D i f f e r e n t i a l Guide, 1986.  Ill  Nominal BC Wage Comparisons Hourly Rate  # 0 0  1  ,  1977  1978  r ~ — | 1979  1980  1  |  1982  1983  j 1981  r 1964  1985  1986  Year 1\  1 Manufacturing  \\A  Industrial Average  OFSA "Heavy Wage F i g u r e 4.12  O.F.S.A. H o u r l y Nominal Wage Compared w i t h Average Wages i n B.C. Manufacturing and I n d u s t r i a l S e c t o r s (1977-86)  112  Real Labour Costs Trend by Pack Type Red Delicious  14.00 13.80 $3.60 $3.40  J N i  $3.20  X  0  $3.00  I  $2.80  a  $2.60  id  w it  5 J  0 0 rz < z  0 0  $2.40 $2.20 $2.00 $1.80 $1.60 $1.40  /xv  $1.20 $1.00 Tray  Handp iak Family Econopak QtBasket 8/5lb Bags12/3lb Bags PACK TYPE  [~7|1979  ESJ1984 F i g u r e 4.13  X3 1980  23 1985  £• 1981 [ffll986  Trend i n R e a l Labour Costs by Pack Type f o r B.C. Apples ( S e l e c t e d y e a r s 1979-86)  113 It  i s also  interesting  pack t y p e s . The pack and  t o compare the  box-type packs,  labour costs  namely t r a y , Handipak,  Econopak, have the lowest  over  Family  l a b o u r component. The  quart  basket, at a labour c o s t of over $3, r e q u i r e s more than twice the l a b o u r i n p u t than the standard t r a y pack. While t e r m s , between packs  1980  improved  proportion  and  1984  in relative  the  higher i n actual  l a b o u r i n p u t f o r the  terms  by  declining  by  a  bagged larger  (42%) than d i d the standard t r a y pack (23%).  V a r i a b l e Costs - M a t e r i a l s Packaging available variety  costs  (the bulk  f o r the c r o p years  t o some e x t e n t  of m a t e r i a l s c o s t s ) a r e  1984  (as w i l l  t o 1986.  They w i l l  labour c o s t s ) ,  but  vary  with  pack  type  causes much more v a r i a t i o n . The  c o n s t a n t d o l l a r packaging  for  three years  the  seven  F i g u r e 4.14.  pack t y p e s They v a r y  over  little  over  time,  are  except  only  costs  illustrated f o r the  in  three  pound bags which i n c r e a s e d i n c o s t by n e a r l y three times between 1984  and  1985.  In a standard box,  the Econopak i s the l e a s t c o s t  c h o i c e a t about $1.30. The the  next  lowest,  a t about  f i v e pound bags and the t r a y pack are $1.50  and  $1.60, r e s p e c t i v e l y .  Family pack and the quart basket are the most expensive at about $3.15  packaging  and $3.75, r e s p e c t i v e l y .  The  packages,  114  Materials Costs over Time by Pack Type Red Delicious  ID J  a V/  X 0 ID It U D. (9 I  J  0 Q  Tray  Handipak  Family  Econopak  Qt.Basket 8/5lb Bagsl 2/3lb Bags  PACK TYPE  &SJ1964 Figure 4.14  E 3 1965  E H 1986  Trend i n Cost of Materials by Pack Type f o r B.C. Apples (1984-86)  115 4.4.3  Marketing Costs B.C.  Tree F r u i t s L t d . deducts i t s marketing c o s t s , as  as the c o s t s revenue.  There  illustrated rose  f o r non-marketing s e r v i c e s provided, appears  i n Figure  4.15.  s t e a d i l y , f o r the  peaked at j u s t under $9m $4m  i n 1985.  accounted charges,  Part  f o r by CA  of  storage  be  a  trend  before  from  decline  the  costs  1976  to  some of  "Production  and  the  can  be  non-marketing to  the  i n more depth below.  importance of v a r i a b l e c o s t s . To capture these,  marketing  are p l o t t e d a g a i n s t  production  costs,  this  i n Figure  since  graph alone does not t h a t would e n t a i l  4.16,  which shows  volume. As  with  p e r m i t an e s t i m a t e  of  a large extrapolation  to  the c o s t i n t e r c e p t . average c o s t r e l a t i o n s h i p as d e p i c t e d  informative  than  that  r e l a t i o n s h i p i s very d i f f i c u l t I f the  costs  explained  The less  where i t  Perhaps some of the trend observed above c o u l d be  packing costs,  detect  as  dollars,  Assembly',  a h i g h l y p o s i t i v e r e l a t i o n s h i p between c o s t and  fixed  cost,  1981  i n marketing  packinghouses. These w i l l be discussed  by  total  sales  beginning to s l i d e down to around  t r a n s f e r of and  in  from the  Marketing c o s t , i n constant  most p a r t ,  the  the  to  well  function isn't  t h e n the  graph c o u l d  for packing  i n Figure  costs.  A  4.17  is  functional  to d i s c e r n from the p o i n t s c a t t e r .  a constant  (not a f l a t  average c o s t  p o s s i b l y d e p i c t more than one  s h i f t i n c o s t s d u r i n g the ten year p e r i o d ) .  curve  curve) (or a  116  BCTF Expenditures Total Amounts ($1981) $9,000,000  $8,000,000 -  $7,000,000 -  $6,000,000  to  01-  $1,000,000 -  76-7777-7878-7979-8080-8181-8282-8383-8484-8585-86 Year f\~j Administration  ^  Broker k Sales Off.  KA Prod'n k Assembly F i g u r e 4.15  Promotion ES]  CA Storage  S t r u c t u r e of T o t a l C o s t s f o r B.C. Tree F r u i t s L t d . by Crop Year (1976-85)  117  Ten Year Real Apple Marketing Costs M a i Cost versus Quantity  ?!  "1  1  7.5  r 8.5  (Millions) BOXES Figure 4.16  Relationship between Total Marketing Cost (1981 dollars) and Quantity of B.C. Apples Sold (1976-85)  118  Average Marketing Cast Constant Dollars 1.00  0.95  1  0.90  0.85  H  0.75  i  0.70  i  to 0) r  0.65  0.60 5.5  6.5  7.5  8.5  9.5  10.5  (Millions) VOLUME (BOXES) F i g u r e 4.17  R e l a t i o n s h i p between Average Marketing Cost and Q u a n t i t y of B . C . Apples S o l d (1976-85)  (1981  dollars)  119 T o t a l m a r k e t i n g c o s t can be broken down i n t o f i v e categories Fees', The  x  - Administration', s  Promotion',  latter  s  Production  two h a v e  been  v  Sales  O f f i c e s and B r o k e r a g e  and Assembly' and CA S  devolved  major  Storage'.  t o some e x t e n t  to the  packinghouses i n r e c e n t years. These c o s t s , as shown i n constant dollars 1985  i n F i g u r e 4.15, were f a i r l y  constant  until  t h e 1984 and  c r o p y e a r s . A d m i n i s t r a t i v e c o s t s , which make up the l a r g e s t  portion,  vary  between  $2m and $3m. B r o k e r a g e  fees  and s a l e s  o f f i c e c o s t s range from $0.75m to $1.2m and promotion ranges from $0.6m t o $1.3m. Some of the v a r i a t i o n i n these c o s t s can again be e x p l a i n e d by  their  these  r e l a t i o n s h i p to quantity.  five  obvious storage  marketing  costs  against  f u n c t i o n a l r e l a t i o n s h i p with  and b r o k e r a g e fees  quantity  plot  s o l d . The most e x i s t s f o r CA  ( F i g u r e 4.20), and  ( F i g u r e 4.21). The former two  would be e x p e c t e d t o depend f a i r l y office  4.18 t o 4.22  quantity  ( F i g u r e 4.22), production and assembly  sales o f f i c e  sales  Figures  h e a v i l y on q u a n t i t y , b u t t h e  and b r o k e r a g e f e e r e l a t i o n s h i p suggests  brokerage  fees c o u l d p l a y a l a r g e r p a r t than p r e v i o u s l y expected  (although  the c o s t i s s t i l l  q u i t e low).  120  BCTF Expenditures by Volume Promotion $1,300,000 i  $1,200,000 -  $1,100,000 -  $1,000,000 -  $900,000 -  $800,000 -  $700,000 -  $600,000 H  |  5.5  \ 6.5  |  1 7.5  ,  , 8.5  1  1 9.5  ,  1 10.5  (Millions) Boxes of Apples Sold O Figure 4.18  Promotion  Relationship between Promotion Costs (1981 dollars) and Quantity of B.C. Apples Sold (1976-85)  121  BCTF Expenditures by Volume Administration $2,900,000  $2,800,000 -  $2,700,000 -  $2,600,000 -  $2,500,000 01 $2,400,000  $2,000,000  i 5.5  6.5  7.5  8.5  1  1  9.5  r 10.5  (Millions) Boxes of Apples Sold D Figure 4.19  Administration  Relation between Administration Costs (1981 dollars) and Quantity of B.C. Apples Sold (1976-85)  122  BCTF Expenditures by Volume Production & Assembly 2,200,000 i  1,500,000 i  1 6  1 7  1  1  1  8  1 9  r  1  10  (Millions) Boxes of Apples Sold A F i g u r e 4.20  Prod'n k Assembly  R e l a t i o n between P r o d u c t i o n and Assembly Costs and Q u a n t i t y of B . C . Apples Sold (1976-85)  (1981  dollars)  123 Another component  area  w h e r e one m i g h t  expect  i s p r o m o t i o n , which i s d e p i c t e d  a high  i n F i g u r e 4.18. T h i s  a l s o seems q u i t e dependent on volume, although several outliers  crop  the e x i s t e n c e of  suggests some other f a c t o r i n the r e l a t i o n s h i p .  Perhaps p r o m o t i o n expenses a r e l e s s large  variable  necessary  when B.C. has a  a t t h e same t i m e Washington has a s m a l l  c r o p (and  hence p r i c e i s h i g h ) . Finally,  administration  costs  appear  dependent on q u a n t i t y (Figure 4.19), although a discontinuous  t o be  somewhat  t h i s may be more of  r e l a t i o n s h i p (as was packinghouse overhead) than  a smooth f u n c t i o n . O v e r a l l , w h i l e  f i x e d c o s t s are d e f i n i t e l y a  major c o n t r i b u t o r t o B.C. Tree F r u i t s L t d . c o s t s , they appear t o have  considerable  conditions.  flexibility  to respond  to changing  crop  124  BCTF Expenditures by Volume Sales Office and Brokerage Fees  5.5  6.5  7.5  8.5  9.5  (Millions) Boxes of Apples Sold + F i g u r e 4.21  Broker & Sales Off.  R e l a t i o n between S a l e s O f f i c e and Brokerage Fees (1981 d o l l a r s ) and Q u a n t i t y o f B . C . Apples S o l d (1976-85)  10.5  125  BCTF Expenditures by Volume CA Storage $2,203,000  $2,100,000  i  $2,000,000  i  $1,900,000 H 10 01  $1,800,000  $1,700,000 H  $1,600,000  i  $1,500,000  i 5.5  1 6.5  1  1  i  7.5  i  i  8.5  I  r  9.5  10.5  (Millions) Boxes of Apples Sold X F i g u r e 4.22  CA Storage  R e l a t i o n between CA Storage C o s t s of B . C . Apples Sold (1976-85)  (1981  dollars)  and Q u a n t i t y  126 4.4.4  Comparison w i t h Washington State In F i g u r e s  and  marketing  4.23  and  costs  4.24  (per  the  box)  a c t u a l B.C.  are  compared  Washington S t a t e over a s i x year p e r i o d . The the B.C. over  processing, from B.C.  and  grades  i n v e n t o r y insurance  average).  possible the  These  i n t o packing  exchange r a t e  have been  (which was  averaged  averaged  costs  of  costs  come from  separated  costs after  since there B.C.  the  industry  c o s t s , and  two  as  then a d j u s t e d  by  to  harvest  c o s t s are c o n s i s t e n t l y below average  and  those  of  f i n a n c i n g assessments are removed  data  the  much  from h a r v e s t  as  a  o n l y covers  two  hence i t i s d i f f i c u l t  years) t o say  are  But  the  (not shown  lower than  i f B.C.  the  leading  Washington S t a t e f i r m ( T r o u t ) , as shown i n F i g u r e 4.23. Trout  data  basis).  B r i t i s h Columbia p a c k i n g State  from  added, where a p p l i c a b l e , to  marketing c o s t s and  i n s t e a d of on a calendar year  Washington  c o s t s are  in  and the W.G.A.C.H. ( f o r the Washington  costs and  those  hence are The  Washington S t a t e  sources: Trout Cooperative State  fruit.  packing  and CA storage have been deducted  T r e e F r u i t s L t d . and  p a c k i n g h o u s e c o s t s . The  of  with  B.C.  Tree F r u i t s L t d . Annual Reports and  a l l varieties  nominal  costs  lower than the c o s t s of the l a r g e s t Washington State houses.  the are  Packing Costs - B.C. versus Washington Canadian Dollars per Box $8.00  $7.00 -  $6.00 -  $5.00 -  $4.00 -  $3.00 1979  1980  1981  1982  1983  1984  1985  Year I /I  Trout Cooperative  £3 M  Lgure 4.23  WAGCH Average  BC (0FSA)  Comparison of Nominal U n i t Packing Costs between B.C. and Washington S t a t e (1979-85)  128 The  marketing c o s t comparisons,  t h a t w h i l e t h e a d j u s t e d B.C. than the Washington  i n Figure  Tree F r u i t s  4.24,  suggest  L t d . c o s t s are lower  S t a t e i n d u s t r y average, they are h i g h e r than  the per box c o s t s i n c u r r e d by T r o u t . For i n s t a n c e , i n 1984  B.C.  Tree F r u i t s  box,  whereas  L t d . c o s t s were about  t h e y were a b o u t  82  70 c e n t s (nominal) p e r  cents  f o r the Washington  State  i n d u s t r y as a whole and 54 cents f o r T r o u t . The above comparison was  covered r a t h e r q u i c k l y because of  the r e l i a b i l i t y of the data used. The adjustment process whereby the c o s t s covered i n the above analyses were f o r c e d to be was  hampered  addition, variety,  by  the v a r y i n g  t h e r e was size,  the c o s t s  no  degrees  attempt  similar  of d a t a r e p o r t i n g .  to c o r r e c t  In  for differences in  grade o r s t o r a g e regime, a l l of which c o u l d  bias  (and p r i c e s ) .  However, t h e comparisons  do p o i n t out s e v e r a l  intresting  f e a t u r e s of the m a r k e t i n g system. F i r s t , the marketing c o s t s are relatively  small  i n b o t h r e g i o n s , and i t appears t h a t  F r u i t s L t d . s i z e gives i t only a s l i g h t the Washington  advantage  i n c o s t , over  average and a d i s a d v a n t a g e i n c o s t when compared  w i t h T r o u t . Thus, i t does not appear that there e x i s t c o s t economies Washington average advantage  significant  of s i z e i n marketing. S i m i l a r l y , w h i l e the average  house  house,  B.C.Tree  i s over f o r t y  this  does  f o r Washington  percent larger  than the  not seem to have r e s u l t e d  State.  B.C.  i n a cost  Marketing Costs -B.C. versus Washington Canadian Dollars per Box $0.90  10.80 -  $0.70 -  $0.60  $0.50 -  $0.40 -  $0.30 1979  1980  1981  1982  1983  1984  1985  Year 1 /I  Trout Cooperative  3  3 F i g u r e 4.24  WAGCH Average  BCF  Comparison o f Nominal Unit Marketing C o s t s between B.C. and Washington S t a t e (1979-85)  130 4.5  GROWER RETURNS Since  grower r e t u r n s a r e r e s i d u a l i n n a t u r e ,  t h a t i s they  are s o l e l y a f u n c t i o n of the packing/marketing revenue and c o s t s , the t h e o r e t i c a l d i s c u s s i o n s on the v a r i o u s aspects not  be r e p e a t e d  here.  Hence, any t h e o r e t i c a l  of these  need  c o n s i d e r a t i o n of  grower r e t u r n s would not be very i l l u m i n a t i n g . T h i s s e c t i o n w i l l focus  i n s t e a d on a b r i e f d e s c r i p t i o n of grower r e t u r n s , how they  vary, and how they compare with Washington S t a t e . 4.5.1  Results T o t a l grower r e t u r n s  ( i n constant  t i m e i n F i g u r e 4.25. A p p l e r e t u r n s  d o l l a r s ) i s graphed over  ranged  from a h i g h  $41m down t o around $12m i n 1984. T h i s v a r i a t i o n e x p l a i n e d by q u a n t i t y as i l l u s t r a t e d  of over  i s not e a s i l y  i n F i g u r e 4.26, where t h e r e  appears t o be no f u n c t i o n a l r e l a t i o n s h i p between grower r e t u r n s and  production.  T h i s i s d e s p i t e the strong r e l a t i o n s h i p s between  revenues and q u a n t i t y and between c o s t s and q u a n t i t y , but i t i s not  s u r p r i s i n g given  payment.  t h e r e s i d u a l nature  of t h e grower  returns  131  Ten Year Apple Grower Returns Totd 42 -i  1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 CROP YEAR F i g u r e 4.25  B . C . Grower Returns  i n 1981  dollars  by Year  (1976-85)  Ten Year Apple Grower Returns Total Return versus Quantity  C  So  #1  BOXES Figure 4.26  Relation between Grower Returns (1981 d o l l a r s ) and Quantity of B.C. Apples Sold (1976-85)  133 Grower r e t u r n s not o n l y d i f f e r on a t o t a l b a s i s , on  a per u n i t  basis.  As do p r i c e s , they can v a r y w i t h  but a l s o variety,  grade, s i z e and storage type. V a r i a t i o n with v a r i e t y of apple can be  seen i n F i g u r e 4.27 f o r 1984 Red and Golden D e l i c i o u s , XFCY CA  fruit.  I n 1984, Red D e l i c i o u s  considerably little  more i n the l a r g e s i z e s  as $ l / b o x more i n t h e s m a l l  Golden D e l i c i o u s  price.  more  than  was i m p o r t a n t ,  was s l i g h t .  Golden-  (up t o $15/box more) but as s i z e s . In 1985 ( n o t shown)  r e t u r n e d more than Red i n most s i z e  although the d i f f e r e n c e fruit  returned  categories,  In both y e a r s t h e s i z e o f  as a l r e a d y d i s c u s s e d  i n Section  3.2.2 on  134  F i g u r e 4.27  E f f e c t of V a r i e t y and S i z e on B . C . Grower Returns u n i t b a s i s ) i n 1984  (per  135 Grade i s a l s o an important  determinant  of grower r e t u r n s ,  as shown i n F i g u r e 4.28. In 1984 Red D e l i c i o u s , the XFCY premium ranged  from $3 t o $9/box, w i t h  sizes.  G o l d e n D e l i c i o u s i n the. same y e a r  reversal but  a negative  r e t u r n i n the small exhibited a curious  i n the l a r g e s i z e s , where FCY r e t u r n e d more than  from s i z e  XFCY,  72 and s m a l l e r XFCY a g a i n commanded a premium of  between $1 and $5/box. In 1985 (not shown) Red D e l i c i o u s the XFCY premium ranged  from $0.50 t o $5/box, w h i l e  the Golden  premium  ranged from $0.50 t o $4/box. Finally,  grower r e t u r n s can vary somewhat with the storage  r e g i m e , and hence t h e k e e p i n g grower r e t u r n s . T h i s Delicious  more.  i s depicted  XFCY where, e x c e p t  categories,  t h e CA  ability  fruit  of the f r u i t  i n Figure  4.29  can a f f e c t  f o r 1984 Red  f o r t h e two s m a l l e s t s i z e d  returned  between z e r o  and  fruit  $5.50/box  (a)  Red Delicious  136  $19  (*3) H 198  1  1  1  1  1  1  175  163  150  138  125  113  1 — — i 1 100 88 80 ;  1  1  72  6+  56  SIZE  (b)  Golden Delicious  *io  )  I  i  163  150  i  138 O  F i g u r e 4.28  i  i  i  i  i  i  i  125  113  100  88  80  72  64-  XFCY  SIZE  +  56  FCY  E f f e c t of Grade and S i z e on B.C. Grower Returns (per u n i t b a s i s ) i n 1984 CA F r u i t  F i g u r e 4.29  E f f e c t of Storage Regime and S i z e on B . C . Grower Returns (per u n i t b a s i s ) f o r 1984 Red D e l i c i o u s XFCY  138 4.5.2  Comparison w i t h Washington S t a t e The above d i s c u s s i o n d e s c r i b e d grower r e t u r n s d i s a g g r e g a t e d  w i t h i n each v a r i e t y t o the grade,  s i z e and storage l e v e l s .  t h e Washington S t a t e d a t a o n l y r e p o r t s one year,  the  B.C.  d a t a was  similarly  such data p o i n t per  aggregated  t y p e s . These v a l u e s are c o n v e r t e d t o nominal and is  r e p o r t e d i n F i g u r e 4.30 from  two  average  sources  from  one  over  a l l apple  Canadian  currency  over nine y e a r s . The Washington data  - the W.G.A.C.H. i n d u s t r y average  of t h e i r  Since  and  the  l e a d i n g f i r m s , T r o u t , f o r s i x of  the  nine y e a r s . As  Figure  4.30  illustrates,  the  B.C.  grower r e c e i v e d  approximately the same per u n i t r e t u r n as the Washington i n d u s t r y average  grower through  grower earned t h e B.C.  But from  average  significant account  than  grower e a r n e d  over  Considering just  grower earned under $3/box, about $CAN 5/box and  $CAN 9/box. T h i s  the  i s a most  f i n d i n g , and i t i s u n l i k e l y t h a t data problems c o u l d  f o r a l l of t h i s d i f f e r e n c e . The previous c o s t comparison  suggested average  Washington  about double)  or the Washington State average.  Washington grower earned  Trout  the average  r e t u r n s of T r o u t growers were w e l l above  the l a s t two years r e p o r t e d , the B.C. t h e average  1980  s u b s t a n t i a l l y more (on average  grower. The  e i t h e r the B.C.  1979.  the d i s c r e p a n c y between the Washington average grower r e t u r n s cannot  B.C.'s m a r k e t i n g different  system;  i n the two  thus  and  B.C.  be e x p l a i n e d by h i g h e r c o s t s i n revenues must be  r e g i o n s . The  significantly  f o l l o w i n g chapter w i l l  to e x p l a i n t h i s d i f f e r e n c e i n revenues.  attempt  139  Grower Returns per Box $10.00  c 0 0  c 0 0  1976  1977  1978  1979  1980  1981  1982  1983  1984  Crop Year 1 A  Trout Cooperative  [3  W.GAC.H.  B.C.T.FUtd F i g u r e 4.30  Comparison o f Nominal U n i t Grower Returns between B.C., Average Washington S t a t e and Trout C o o p e r a t i v e (1976-84)  140 4.6  SUMMARY  This chapter has discussed several different measures of industry performance, focussing on efficiency measures. In margin terms, packing margins and marketing margins have varied l i t t l e compared with the variation in grower returns. But these returns do vary s i g n i f i c a n t l y with revenue, suggesting  i t i s more  important than costs in determining grower returns. The components of the margins were then discussed individually, beginning with total sales revenue. The  t h e o r e t i c a l simultaneity  problem of revenue  maximization in the apple industry is caused by its oligopolistic nature and the dynamic optimization required with such a long storage product. Actual B.C. revenues have fallen from a pre-1982 average of about $75m to about $55m from 1982 to 1985 (in 1981 dollars). Given the minimal effect B.C. has on prices, i t is not surprising to find that real revenues also increased with production. Two aspects of cost theory are most relevant to the B.C. industry - the determination of the least cost combination of resources and of the least cost plant size. The packing costs curves were fairly well behaved and suggested the industry can s t i l l benefit from increased plant scale. The packing costs were also analyzed as fixed and variable costs. The overhead costs varied from $llm to $16m, and since this variation was due in part to quantity, i t is uncertain as t o the size o f the fixed component of overhead. Variable costs, both labour and materials, vary with pack type, although the labour component has actually fallen over time, reflecting technology changes. The marketing  141 c o s t s d i d not conform t o the usual average c o s t curve,  suggesting  the c o s t s can v a r y somewhat w i t h q u a n t i t y . The comparisons Washington State suggest t h a t both the B.C. packing costs  with  and marketing  a r e lower than t h e Washington S t a t e i n d u s t r y average but  are u s u a l l y h i g h e r than the l e a d i n g Washington S t a t e ( a f t e r conversion Finally,  firm costs  t o Canadian d o l l a r s ) . grower  returns  have  undergone  significant  f l u c t u a t i o n s d u r i n g the p e r i o d 1976 to 1985 - from a high of $41m in  1978 down t o $12m i n 1984. The r e t u r n per box versus  quantity  r e l a t i o n s h i p does not h o l d w e l l , p o s s i b l y because grower r e t u r n s are a r e s i d u a l (and hence i n c o r p o r a t e s more r e s i d u a l v a r i a t i o n ) . Instead,  the v a r i a t i o n  quality,  size  State  t h a t occurs  and s t o r a g e  i s partly  regime. Comparisons w i t h  Washington  show t h e average B.C. grower r e c e i v e d about the same as  the average Washington State grower u n t i l fell.  due t o v a r i e t y ,  This  s u g g e s t s Washington a p p l e s  1980, when B.C. r e t u r n s  received a better price  than B.C. apples, and t h i s w i l l be examined as f a r as p o s s i b l e i n the  next chapter.  Washington S t a t e  The a v e r a g e r e t u r n from one o f t h e l e a d i n g houses was c o n s i d e r a b l y b e t t e r t h a n b o t h t h e  B.C. and Washington State average. T h i s a n a l y s i s looked next c h a p t e r costs  a t each measure i n i s o l a t i o n .  the e f f e c t s of d i f f e r e n t product  and grower  returns  will  be a n a l y z e d  In t h e  mixes on revenues, i n combination,  assuming no change i n the per u n i t p r i c e s and c o s t s .  142 CHAPTER 5  SENSITIVITY ANALYSES OF B.C. PERFORMANCE  The packing  previous  chapter  and m a r k e t i n g  suggested  that,  on a v e r a g e , B.C.  c o s t s do n o t e x p l a i n t h e d i f f e r e n c e i n  grower r e t u r n s between B.C. and Washington S t a t e . Grower r e t u r n s averaged roughly 1980  $3/box i n B.C. and $5/box i n Washington  t o 1984. Since grower r e t u r n s are a r e s i d u a l , adding  and m a r k e t i n g c o s t s w i l l  selling  returns,  costs  (from  packing  give the average s e l l i n g p r i c e o b t a i n e d  by the marketers. When roughly of  from  $5/box of packing  Chapter  4) a r e added t o B.C.'s grower  t h e a v e r a g e p r i c e becomes about  c o n t r a s t t o $6/box o f p a c k i n g  c o s t s and $l/box  $9/box. T h i s  c o s t s and $l/box o f s e l l i n g  is  in  costs  i n Washington, which, when added t o t h e i r grower r e t u r n s , suggest an  a v e r a g e p r i c e o f $12/box. Thus,  i t appears  that  t h e B.C.  m a r k e t i n g system c o s t s do not cause lower grower r e t u r n s , b u t i n s t e a d a c t u a l l y improve them. The lower grower r e t u r n s seem t o be p r i m a r i l y due t o lower p r i c e s obtained  i n B.C.  and not due t o  higher costs. There a r e two p o s s i b l e reasons f o r t h i s reduced p r i c e f o r B.C.  apples. F i r s t ,  considered buy  i t i s p o s s i b l e t h a t the average B.C. apple i s  i n f e r i o r t o the average Washington apple by those who  apples.  Second, i t i s p o s s i b l e t h a t the B.C. marketers a r e  l e s s s u c c e s s f u l a t o b t a i n i n g the best p o s s i b l e p r i c e f o r a g i v e n product.  The l a t t e r p o s s i b i l i t y  i s empirically d i f f i c u l t  and beyond the scope of t h i s study, u s i n g v a r i o u s s e n s i t i v i t y analyses The  first  sensitivity  test  to test  but the former w i l l be t e s t e d below. will  overlay  t h e Washington  143 S t a t e product mix!6 on t o the B.C. system, while total quantity ,  p e r u n i t p r i c e s and per u n i t c o s t s f o r the two  1 7  years  r e t a i n i n g B.C.'s  i n question.  This w i l l  illustrate  the t o t a l  p r o d u c t mix on grower r e t u r n s . Once t h i s  impact o f the  i s known, i t would be  i d e a l i f i t were p o s s i b l e to o v e r l a y each of the Washington S t a t e product  mix p a r a m e t e r s  i n turn  importance.  However,  relative  Washington State data precludes Since this  this  importance  form  their of the  analyses. cannot be p e r f o r m e d i n  attempt t o approximate the  i n d i v i d u a l s e n s i t i v i t y t e s t s o n l y on the  B.C. p r o d u c t mix. T h i s w i l l  State's  such  5.2 t o 5.4 w i l l  a n a l y s i s by c o n d u c t i n g  t o show  the aggregate  single factor overlay  study, S e c t i o n s  relative  i n an a t t e m p t  enable an i n d i r e c t  of the parameters  p r o d u c t mix. T h i s w i l l  estimate  o f the  a f f e c t i n g Washington  a l s o suggest which f a c t o r would  have the g r e a t e s t impact on B.C.'s grower r e t u r n s . The  r e s u l t s are presented  reduce t h e c o m p l e x i t y  i n graphic  form, but i n order t o  and the s c a l e problems the a c t u a l revenues  (costs,  returns)  and t h e new  returns)  a r e not r e p o r t e d .  sensitivity  Instead,  revenues  (costs,  the d i f f e r e n c e s between the  s c e n a r i o s and a c t u a l case are shown. All fetch  the analyses  i t soriginal  costs w i l l  assume t h a t  type w i l l  only  B.C. p e r u n i t p r i c e , and t h e p e r u n i t  B.C.  a l s o be h e l d constant.  each  fruit  These may not be v a l i d  i f the  16  P r o d u c t mix r e f e r s t o t h e d i s t r i b u t i o n of a p p l e s w i t h i n t h e v a r i o u s s i z e , g r a d e and storage c a t e g o r i e s w h i l e assuming constant v a r i e t y and pack type t o t a l s .  17  There may,in f a c t , be a r e d u c t i o n q u a l i t y i s improved.  i n q u a n t i t y when  144 B.C. q u a n t i t y w i t h i n each category  can a f f e c t i t s own p r i c e ( i e .  i f B.C. i s not a p r i c e taker) or i f the per u n i t c o s t s determined in  t h e O.F.S.A. g u i d e l i n e s a r e dependent on volume w i t h i n  category.  The d i s c u s s i o n s  otherwise,  and so the assumptions of constant  considered  valid.  if  i n the p r e v i o u s  two c h a p t e r s  that  improved  suggest  p r i c e and c o s t s a r e  In f a c t , the revenue r e s u l t s may be  i t i s possible  each  "reputation"  understated  due t o q u a l i t y  improvements c o u l d a c t u a l l y i n c r e a s e the per u n i t p r i c e s r e c e i v e d by B.C. apples. 5.1  WASHINGTON STATE PRODUCT MIX Simulating  the Washington  State  product  i m p o s i n g Washington's q u a l i t y , s i z e and s t o r a g e  mix  involves  regimes i n one  s t e p . Thus, p i n p o i n t i n g the most important f a c t o r i n the r e s u l t s is  difficult.  5.1.1  Method This  scenario  was  constructed  by t a l l y i n g  data  from  W.G.A.C.H. summary r e p o r t s which were then used t o determine the proportion  o f s a l e s a t t r i b u t e d t o each product c a t e g o r y .  proportions constant calculated and  were  total  then  on t h e B.C. c r o p ,  Red and G o l d e n  f o r both  Delicious  1984 and 1985 c r o p s .  p r i c e s were t h e n  category,  imposed  applied  volume.  These  keeping This  a  was  The a c t u a l B.C. c o s t s  t o t h e new volumes w i t h i n  each  and the t o t a l revenues, c o s t s and grower r e t u r n s were  summed. The sums  f o r the a c t u a l  and t h e s c e n a r i o  were  then  compared, and the d i f f e r e n c e s were p l o t t e d . T h e r e a r e two t h i n g s the  B.C. d a t a  t o note about t h i s  had t o be r e c l a s s i f i e d  from t h e Washington S t a t e  data.  analysis.  t o conform w i t h  First,  the s i z e s  Second, t h e grades i n t h e two  145 producing if  areas may not be p e r f e c t l y i n t e r c h a n g e a b l e , e s p e c i a l l y  they c o n t a i n d i f f e r e n t p r o p o r t i o n s of Before  sub-grades.  p r e s e n t i n g the r e s u l t s ,  i t will  d e l i n e a t e the changes i n product mix composition  be u s e f u l  to  imposed upon the  B.C. c r o p . The 1984 and 1985 c r o p c o m p a r i s o n s a r e d e p i c t e d i n Table 5.1 and 5.2, r e s p e c t i v e l y .  T a b l e 5.1 Washington and B.C. Packout Comparisons Golden D e l i c i o u s , 1984.  Red D e l i c i o u s 1984  Golden D e l i c i o u s  WA.  B.C  f o r Red and  B.C.  WA.  Size:  Grade:  Large Medium Small  XFCY FCY Storage: CA Regular  9% 56% 35%  28% 56% 16%  21% 60% 19%  28% 62% 10%  35% 65%  65% 35%  45% 55%  83% 17%  45% 55%  48% 52%  48% 52%  53% 47%  For 1984 Red D e l i c i o u s , Washington S t a t e produced p r o p o r t i o n of l a r g e and fewer small f r u i t Table  5.1. T w e n t y - e i g h t  large, Grade the fruit  percent  a larger  than B.C., as shown i n  of the Washington  versus 9% i n B.C., and 16% were s m a l l , versus  crop  was  35% i n B.C.  was a l s o s u b s t a n t i a l l y b e t t e r i n Washington, where 65% o f c r o p was XFCY  versus  i n r e g u l a r than  Washington For  CA  35% i n B . C - B o t h storage,  at  ^5%  r e g i o n s s t o r e d more i n B.C.  and 52% i n  State. 1984 Golden D e l i c i o u s , Washington a g a i n  B.C. i n s i z e .  The Washington S t a t e packout  was  outperformed  28% l a r g e ,  62%  146 medium and 10% s m a l l v e r s u s the B.C. packout medium and 19% small f r u i t . 45%  XFCY v e r s u s  of 21% l a r g e , 60%  In terms of grade, B.C. produced  only  83% i n Washington S t a t e . Again, there was o n l y a  small d i f f e r e n c e i n storage type i n B.C. and Washington, with 52% of  B.C.  Golden  Delicious  i n regular storage  versus  47% i n  Washington S t a t e .  T a b l e 5.2 Washington and B.C. Packout Comparisons f o r Red and Golden D e l i c i o u s , 1985. Red D e l i c i o u s 1985 Size:  Grade:  Large Medium Small  XFCY FCY Storage: CA Regular  In  B.C.  Golden D e l i c i o u s WA.  B.C.  WA.  20% 57% 23%  29% 47% 24%  21% 57% 22%  23% 54% 23%  58% 42%  75% 25%  52% 48%  93% 7%  48% 52%  59% 41%  53% 47%  57% 43%  1985, t h e r e was a l e s s pronounced d i f f e r e n c e  i n Red  D e l i c i o u s s i z e between the two a r e a s . In Washington t h e packout was 29% l a r g e , 47% medium and 24% small while i n B.C. the packout was 20% l a r g e ,  57% medium and 23% s m a l l . Both r e g i o n s produced  higher q u a l i t y of f r u i t i n Washington v e r s u s  a  than i n the previous year, with 75% XFCY  58% i n B.C. I n terms of s t o r a g e d e c i s i o n s ,  B.C. p l a c e d 52% i n r e g u l a r storage versus 4 1 % i n Washington S t a t e (representing State).  a large shift  t o w a r d CA s t o r a g e  i n Washington  147 Among 1985 fruit, B.C.  but  Golden D e l i c i o u s , B.C.  d i d manage t o c l o s e the  produced 21%  and  23%  the  previous  with 22%  i n Washington S t a t e . Again, B.C.  storage  year,  but  was  also  it still  lagged  XFCY versus  increased  Goldens CA s t o r e d i n B.C. 5.1.2  gap  l a r g e , 57% medium and  S t a t e . They produced 52% CA  again produced l e s s  versus  93%  small versus  23%,  54%  improved i t s grade over f a r behind  Washington  i n Washington S t a t e .  i n both a r e a s , 57%  State.  with  53%  of  And the  i n Washington S t a t e .  Results The  e f f e c t s on grower r e t u r n s of imposing the  Washington S t a t e product mix  are i l l u s t r a t e d  e f f e c t s were v e r y pronounced i n 1984, increased total  by  c l o s e t o $4m,  grower r e t u r n s  grower r e t u r n s increase).  increased  increased  T h i s was  but  by  grower r e t u r n s about  $lm.  $3.4m, or  p r i m a r i l y due  (a  28%  i n c r e a s e i n revenues and The  1985  grower r e t u r n s Once a g a i n ,  increase).  and  1985  5.1.  The  The  i n 1985,  1984  about  1984  Red  revenues,  was  (a  77%  since  Golden D e l i c i o u s  t h i s time by This  where  Delicious  $2.50/box  to i n c r e a s e d  were a l s o i n c r e a s e d ,  $1.10/box  i n Figure  less significant by  1984  where t o t a l grower r e t u r n s  c o s t changes were r e l a t i v e l y minor. The  The  Washington  large  about $lm,  due  to  both  or an  a decrease i n c o s t s .  r e s u l t s were l e s s s i g n i f i c a n t . The improved by  Red  $0.5m, or $0.41/box (a 6%  a d d i t i o n a l costs  i n c u r r e d were minor  Delicious increase).  (about $0.1m).  Golden D e l i c i o u s grower returns rose by $0.45m, or $1.13/box  (a 17%  increase).  148  Washington Product Mix Sensitivity Test Difference in Total  7 3.5 7  / 3 -  2.5 -  0 Z kJ  &r\ hi 0 IL C ILO  /  6=.  1.5  J o 0  1 -v  0.5  0  /  A  -0.5  T  1985 RED 1985 GOLD 1985 TOTAL  1984 RED 1984 GOLD 1984 TOTAL APPLE CROP |~71  REVENUE CHANGE  Wk  Figure 5.1  £\3  COST CHANGE  GROWER RET. CHANGE  Change in Revenue, Packing Costs, and Grower Returns for B.C. assuming Washington's Product Mix (1984-85)  149 In comparing the r e s u l t s over the two 1985  Red  Delicious  were  much  Washington S t a t e product mix in  grower  in size  disadvantage had i n 1984. 19 84 and in gap  B.C.  and  improved  than i n 1984,  r e t u r n s . T h i s might  improvements  less  imply  grade.  The  crop years, by  using  the  at $0.5m versus $3.4m  diminishing returns 1985  crop  had  less  to  of  a  i n s i z e when compared t o Washington S t a t e than i t In a d d i t i o n , the B.C.  grade improved by more between  19 85 than the Washington crop d i d (over 2 0% versus  between CA  10%  the d e f i c i e n c i e s the  improvement  i n Washington S t a t e ) . At the same time,  storage u t i l i z a t i o n  which might suggest  Delicious  the  i n c r e a s e d (from 3% t o  t h a t i n c r e a s i n g CA alone would not  i n grade and  size  i n B.C.  11%),  outweigh  Amongst t h e  improvement i n performance v a r i e d  the  little  Golden between  crop y e a r s . This scenario test $3/box s h o r t f a l l  suggests  t h a t r o u g h l y $l/box!8 of  i n B.C.'s average  price  (as d e s c r i b e d i n the  i n t r o d u c t i o n t o t h i s c h a p t e r ) can be e x p l a i n e d by a p r o d u c t i n f e r i o r t o Washington's. I f B.C. p r o d u c t mix,  the s h o r t f a l l  growers had  in their  the  mix  a t t a i n e d the same  grower r e t u r n s c o u l d have  been halved ( s i n c e c o s t s are roughly $l/box lower i n B.C.). Thus, a s i g n i f i c a n t problem i n the B.C. of  i n d u s t r y i s the average  i t s a p p l e s . T h i s i s i n marked c o n t r a s t t o b o a s t s  q u a l i t y a p p l e s grown i n B.C.  While  some growers may  of  higher  be a b l e to  back up t h i s c l a i m , i t seems p o s s i b l e t h a t the average  18  quality  grower's  The $l/box f i g u r e i s a rough average of the 1984 and 1985 Red and Golden D e l i c i o u s i n c r e a s e s i n grower r e t u r n s c a l c u l a t e d above.  150 ability  to produce  a consistently  c o n t r i b u t e d t o much of h i s / h e r reduced 5.2  quality  apple  has  returns.  INCREASED CONTROLLED ATMOSPHERE STORAGE PRODUCT MIX This  sensitivity  f a c t o r t e s t s conducted parameters  test  i s the f i r s t  of Washington's  separated  focus  i n a s e r i e s of s i n g l e  t o estimate the importance of the v a r i o u s product  Washington's data was aggregated be  high  mix. As e x p l a i n e d  above,  such t h a t the f a c t o r s c o u l d not  f o r i n d i v i d u a l s e n s i t i v i t y analyses. T h e r e f o r e , the  shifts  to examining  the r e l a t i v e  importance  of these  f a c t o r s on the average B.C. grower r e t u r n . The  first  of these  single  factor  i n c r e a s i n g t h e p r o p o r t i o n o f both fruit be  will  f o c u s on  the Red and Golden D e l i c i o u s  i n C o n t r o l l e d Atmosphere storage by t e n percent. T h i s  conducted  over  proportion w i l l fruit  analyses  two y e a r s ,  1984 and 1985. I n c r e a s i n g t h e CA  r e f l e c t a change i n the t i m i n g of s a l e s , s i n c e CA  i s s o l d up u n t i l May o r June ( f o l l o w i n g the f a l l h a r v e s t ) ,  when p r i c e s are g e n e r a l l y higher. Thus, one might expect p r o p o r t i o n o f CA f r u i t and,  sensitivity  volume o f a p p l e s storage  test  i s accomplished  price  by i n c r e a s i n g t h e  (fresh sales) stored i n controlled  atmosphere  (CA). W i t h i n each v a r i e t y a n d grade c a t e g o r y  the t o t a l  i n CA was i n c r e a s e d by t e n p e r c e n t  regular  to  i n a higher average  Method This  fruit  would r e s u l t  a higher  p o s s i b l y , a higher average grower r e t u r n .  5.2.1  fruit  will  s t o r a g e was  decreased b y t h e same a m o u n t .  i n each v a r i e t y a n d g r a d e  CA s t o r a g e  a n d the t o t a l  are simply  is constant.  the per u n i t  Thus  fruit in the  The c o s t s  costs assigned  total  assigned i n the  a p p l i c a b l e y e a r , and do not i n c l u d e a n y c a p i t a l c o s t s a s s o c i a t e d  151 with  building  extra  CA  storage  (thus  assuming  excess  CA  capacity). Since the medium s i z e d f r u i t make up the l a r g e s t p r o p o r t i o n i n a l l cases, new  this  scenario.  i s the c a t e g o r y  Among t h e 1984 Red D e l i c i o u s XFCY, t h e a c t u a l  product mix a l r e a d y contained and  which i s most changed i n the  more CA than r e g u l a r storage  so the new s c e n a r i o exaggerated t h i s tendency. W i t h i n  grade f r u i t  the opposite  fruit, the FCY  was the case - the e x i s t i n g d i s p a r i t y  between CA and r e g u l a r storage  f r u i t was reduced. The 1984 Golden  D e l i c i o u s were a f f e c t e d i n a s i m i l a r p a t t e r n . In 1985 t h e XFCY Red D e l i c i o u s o r i g i n a l l y had more r e g u l a r than CA storage FCY  fruit,  and the new product mix r e v e r s e d  grade was l i t t l e a f f e c t e d . The o r i g i n a l  was CA s t o r e d  t o a much  t h i s . The  1985 Golden XFCY crop  larger proportion  than  i n 1984. The  s c e n a r i o exaggerated t h i s s e p a r a t i o n among XFCY and reduced the s e p a r a t i o n i n FCY. 5.2.2  Results The  In  e f f e c t s of the s c e n a r i o  1984 t h e t o t a l  $0.02/box increase In  effect  o r 0.5%)  was about  i n grower  a $40,000 d e c l i n e  returns,  caused  by a  i n c o s t s than i n revenues when CA f r u i t was  1985, t h e grower r e t u r n s  increased  $0.06/box o r c l o s e t o 1 % ) , s i n c e increased  are summarized i n F i g u r e  costs.  5.2.  (about greater  increased.  by about $100,000 (about  increased  revenues  exceeded  152  CA Storage Sensitivity Test Difference in Total 200 180 160 140 120 -  u  0 z  100 80  -« O3  .60 40 -  J 0  a  20 0 -20  -  -40  -  -60  i  1  1  1  1  1984 RED 1984 GOLD 1984 TOTAL  1  r  1985 RED 1985 GOLD 1985 TOTAL  APPLE CROP G3  REVENUE CHANGE  W Figure 5.2  M  COST CHANGE  GROWER RET. CHANGE  Change i n Revenue, Packing Costs, and Grower Returns for B.C. assuming 10% More CA Storage (1984-85)  153  When c o n s i d e r e d  by v a r i e t y , the e f f e c t s a r e s l i g h t l y more  i l l u m i n a t i n g . For 1984  Red D e l i c i o u s , grower r e t u r n s r o s e by  only  a b o u t $10,000 f o r l e s s t h a n 0.25%  d i f f e r e n c e . Golden D e l i c i o u s  l o s t r e v e n u e s and  increased costs  f o r a net d e c l i n e i n grower  return  to  of  close  $40,000  (just  D e l i c i o u s , r e v e n u e s , c o s t s and j u s t o v e r 0.5% The  over  2%).  For  1985  Red  grower r e t u r n s a l l i n c r e a s e d  by  f o r a n e a r l y $60,000 i n c r e a s e i n grower r e t u r n s .  Golden D e l i c i o u s , w h i l e a c h i e v i n g a s m a l l e r a b s o l u t e  increase  i n grower r e t u r n s of about $40,000, underwent a r e l a t i v e  increase  of  1.5%.  Therefore,  the  e f f e c t s i n t h e two  i n c r e a s e d CA  s c e n a r i o had  c r o p y e a r s . B l i n d l y i n c r e a s i n g CA  o f g r a d e ) r e d u c e d grower r e t u r n s i n 1984 b e n e f i t e d growers i n 1985 divergence  nearly  p o i n t s out  by  opposite  (regardless  l e s s t h a n 0.5%  but  by n e a r l y $100,000 (or about 1%).  This  t h e need t o d i f f e r e n t i a t e b e t w e e n  fruit  grades b e f o r e c o m m i t t i n g the f r u i t t o s t o r a g e . I t a l s o p o i n t s the v a r i a b i l i t y  from y e a r  early price signals.  thus the  importance  of and  g r a d e s o f f r u i t , p a r t i c u l a r l y of Washington S t a t e f r u i t , and  the  s u b s e q u e n t e f f e c t s on p r i c e would be most u s e f u l i n c h o o s i n g  the  distribution.  efforts  and  to determine q u a n t i t i e s  storage  Any  to year,  out  Finally,  the o v e r a l l  b e n e f i t was  still  q u i t e s m a l l , a t most $0.09/box. Thus, i t appears i n c r e a s i n g the p r o p o r t i o n of f r u i t by  10%  w o u l d have done l i t t l e t o improve grower r e t u r n s o v e r  two c r o p y e a r s t e s t e d . However, the m o d e l d i d prices  in  t o c h a n g e and  so  it  would  not  not  reflect  CA the  p e r m i t per u n i t any  increase  in  r e g u l a r s t o r e d f r u i t p r i c e which might occur i f i t s p r o p o r t i o n i s decreased.  In a d d i t i o n , the  r e s u l t s may  reflect  a lower  than  154 average p r i c e d i f f e r e n t i a l between CA and r e g u l a r storage Nonetheless,  t h e a n a l y s i s does imply  that  there  fruit.  i s some  risk  i n v o l v e d i n d e l a y i n g s a l e s by i n c r e a s i n g CA storage. 5.3  INCREASED SIZE PRODUCT MIX The  purpose of t h i s s c e n a r i o  i s to approximate the e f f e c t s  on grower r e t u r n s o f i n c r e a s i n g the s i z e of f r u i t mix.  Of  course,  this  analysis  does  i n the product  not c o n s i d e r  c u l t u r a l costs incurred i n achieving t h i s increased 5.3.1  size.  Method In o r d e r  the  any e x t r a  fruit  divided  t o i n c r e a s e the s i z e of f r u i t  i n the product mix,  ( w i t h i n each v a r i e t y , grade and storage into three  Then, t h e s m a l l  size  category  categories,  type) was  first  s m a l l , medium and l a r g e .  was reduced by t e n p e r c e n t ,  and t h i s  amount was added t o t h e medium and l a r g e c a t e g o r i e s . The added fruit  was d i s t r i b u t e d p r o p o r t i o n a l l y amongst t h e v a r i o u s  c a t e g o r i e s w i t h i n the medium and l a r g e d e s i g n a t i o n s . are c l a s s e d not o n l y by grade, as per the CA storage are  also  differentiated  by s t o r a g e  type  size  The r e s u l t s r e s u l t s , but  (since the  storage  r e s u l t s are no longer as t r a n s p a r e n t ) . 5.3.2  Results The  fruit  e f f e c t s of decreasing  are i l l u s t r a t e d  results  the p r o p o r t i o n  i n Figure  i s the near i d e n t i c a l  of small  sized  5-3. O n e o f t h e most  notable  response i n the two y e a r s  tested.  In both 1984 and 1985, the t o t a l c r o p g r o w e r r e t u r n s  i n c r e a s e d by  n e a r l y $600,000 ( c l o s e to $ 0 . 3 5 / b o x ) , and r e v e n u e s a n d c o s t s  were  1984  crop  virtually scenario  identical. increased  In r e l a t i v e  grower r e t u r n s  terms, t h o u g h , by m o r e ,  the 1985 s c e n a r i o i n c r e a s e of only 5%.  t h e  at n e a r l y  10%, than  155  Size Sensitivity Test Difference in Total 600  500 -  400 111  0 Z  300 1L  C  to - Cl  200 J  0 0 100  - /  / f  \A  L  -100  1.  2.  T 1985 RED 1985 GOLD 1985 TOTAL  1984 RED 1984 GOLD 1984 TOTAL APPLE CROP 1~71 REVENUE CHANGE  W Figure 5.3  M  COST CHANGE  GROWER RET. CHANGE  Change i n Revenue, Packing Costs, and Grower Returns for B.C. assuming 10% Decrease i n Small Sized Apples (1984-85)  156 When c o n s i d e r e d again  very  revenues returns  comparable.  increased rose  translates  by to  a  costs  about  1984  the  and  costs  12%  and  a  6%  1985,  r e s u l t s are  the  decreased  $500,000, o r  close  to  increase  Red  once  Delicious  such t h a t  grower  $0.40/box  (which  in  1984  and  1985,  Golden D e l i c i o u s underwent v i r t u a l l y no change  i n e i t h e r year,  $70,000 i n 1984  about $100,000 i n 1985 Thus, a 10%  and  the  (about  grower r e t u r n s  $0.15/box o r n e a r l y  (over $0.25/box or  increased 10%)  i n 1984  and b y 5%  by  and  by  4%).  improvement i n s i z e r e s u l t e d i n grower  i n c r e a s i n g by a 9.5% of Red  In  and  over  r e s p e c t i v e l y ) . The in  by v a r i e t y , the a b s o l u t e  i n 1985.  returns  In f a c t ,  growers  D e l i c i o u s would have f e l t t h e i r average r e t u r n i n c r e a s e  nearly  12%  i n 1984.  Size, therefore,  i s a much more  by  important  d e t e r m i n a n t of p r o d u c t p r i c e than s a l e s t i m i n g , c e t e r i s p a r a b i s . This  should  not  be  too  d i s c u s s i o n of S e c t i o n  s u r p r i s i n g when one  3.2.2, where the v a r i a b i l i t y  shown t o be much g r e a t e r addition,  increased  CA  storage  be  magnified.  5.4  QUALITY The  final  increasing  the  most d i s p a r a t e  proportion  in price  costs while  of  XFCY  grade  Grade  between W a s h i n g t o n as  conducted  a n a l y s i s  grade f r u i t .  f a c t o r which i s o f t e n c i t e d a n a l y s i s , by  price was  type.  In  increased  c o s t s , so the p r i c e or revenue e f f e c t would  sensitivity  expense of the FCY  the  o v e r s i z e than o v e r s t o r a g e  s i z e decreases packing  increases  recalls  i s the  and  B.C.,  problematic  necessity, c a n o n l y  test  fruit  the  by  10%,  parameter and  f o r B.C.  involved at  the  which  i t i s  also  growers.  i s a  This  average q u a l i t y l e v e l  157 and  not the c o n s i s t e n c y w i t h i n t h a t l e v e l which accounts f o r most  of B.C.'s q u a l i t y complaints 5.4.1  i n S e c t i o n 2.3.1).  Method The  single  m e t h o d o l o g y of  factor tests.  The  by ten percent.  The  new  this  r e s u l t s of  in Figure  product  mix  previous storage increases  i s then used to determine  the  grower r e t u r n s .  the  5.4.  two  i n c r e a s i n g the XFCY grade by  They were again q u i t e s i m i l a r ,  years  tested,  since  1985  crop  grower  returns  $0.11/box, r e s p e c t i v e l y . But returns  10%  are  i n absolute  grower r e t u r n s  $200,000 each year. When considered and  the  Results The  for  i s much l i k e  such t h a t the XFCY p r o p o r t i o n  t o t a l revenues, c o s t s and  5.4.2  test  f r u i t w i t h i n each v a r i e t y and  regime are r e p r o p o r t i o n e d  new  (as d i s c u s s e d  rose  shown terms,  by  about  on a per u n i t b a s i s , the increased  in relative  i n c r e a s e d by c l o s e to 3.5%  versus  by  1984  $0.12/box  terms the  1984  and  grower  only j u s t over 1.5%  in  1985. In 1984, quality,  the  since  Red  grower r e t u r n s  $0.13/box or n e a r l y 4%) $50,000 increase  (about i n Red  D e l i c i o u s were most a f f e c t e d by  while  $0.09/box  by  about  $170,000  2.25%).  returns  In  was  1985,  over  $50,000 f o r Golden D e l i c i o u s , but on a per box  the  was  Delicious variety  f u r t h e r evidenced grower r e t u r n s had  improved  by  a slight  in relative  b a s i s the  returns  v i r t u a l l y unchanged throughout.  of  advantage  terms,  more  than  absolute  $130,000  f o r Golden D e l i c i o u s rose by more, at $0.12/box versus This  (about  Golden D e l i c i o u s rose by l e s s than  or  Delicious  rose  improved  returns  $0.10/box. for  although 2%.  versus  Golden neither  Costs  were  158  Quality Sensitivity Test Difference in Total 220 210 200 190 180 170 160  7  150 U z U/-\  140  r•  120  130 110  -«  100  ri  90 80  0 0  70 60 50 40 30 20 10  1.  0  2.  1.  1  -10 1985 RED 1985 GOLD 1985 TOTAL  1984 RED 1984 GOLD 1984 TOTAL APPLE CROP |~7)  REVENUE CHANGE  M  COST CHANGE  GROWER RET. CHANGE F i g u r e 5.4  Change i n Revenue, Packing C o s t s , and Grower Returns f o r B.C. assuming 10% I n c r e a s e i n XFCY Grade Apples (1984-85)  159 Thus, t h e grade was  still  the important  largest  improvement  l e s s than 4%. determinant  i n grower r e t u r n s due  Grade, i t seems, i s not  in their  course, i t may  attempts  to encourage  faced by e x t e n s i o n  improved  quality.  a l s o be a f u n c t i o n of B.C. obtain high  prices.  abnormally  small. It could  Tree F r u i t s Ltd.'s supposed That  i s , i f B.C.  Tree  inability  Fruits  Ltd.'s  p r i c i n g success with higher q u a l i t y f r u i t i s l e s s than w i t h quality  fruit  segmentation),  Of  a l s o be a f u n c t i o n of the crop years t e s t e d i f the  p r i c e range between XFCY and FCY was  to  necessarily  of p r i c e that i t has been purported to  be. Perhaps t h i s h e l p s to e x p l a i n the i n e r t i a workers  to  (perhaps this  lower  a f u n c t i o n of r e p u t a t i o n o r of market  s m a l l improvement  i n grower r e t u r n s w i t h  i n c r e a s e d XFCY grade might be e x p l a i n e d . To  conclude  these  single  factor  analyses,  Figure  5.5  d e p i c t s the e f f e c t s of each of the s c e n a r i o s on grower r e t u r n s . A ten percent varieties  and  improvement varieties 12%  change i n s t o r a g e has  the  least  years, with a negative e f f e c t  scenario resulted  i n the  largest  effect i n 1984. effect  over  both  The  size  over  both  and y e a r s , w i t h a t o t a l e f f e c t of n e a r l y $600,000 or a  improvement  surprising,  i n 1984.  The  quality  effect  was  s i n c e i t s e f f e c t on grower r e t u r n s was  the  most  l e s s than a  t h i r d the e f f e c t of s i z e f o r the t o t a l crop i n both y e a r s .  160  Sensitivity Test Comparisons Percent Difference in Grower Returns  id  0 z  Id 111  II L  0 z 111  0 K 111  a  1984 RED 1984 G0LD984 AVERAGE  1985 RED 1985 GOLD 985 AVERAGE  APPLE CROP f~7l STORAGE F i g u r e 5.5  S3  SIZE  g$  QUALITY  Percentage Change i n Grower Returns f o r B . C f o r S e n s i t i v i t y Tests (1984-85)  Different  161 5.5  SUMMARY T h i s c h a p t e r performed  costs  and  grower  returns  Washington S t a t e p r o d u c t product  mix  storage, presented Table  was  varied  in fruit  s e n s i t i v i t y t e s t s on the of  mix  the  was  first  to r e f l e c t  size,  and  B.C.  apple  industry.  assumed. Then the  a ten p e r c e n t  in quality.  i n terms of p e r c e n t a g e  revenues, The B.C.  i n c r e a s e i n CA  The  results  are  change i n grower r e t u r n s i n  5.3.  Table 5.3  Summary of Percentage Change i n Grower Returns D i f f e r e n t S e n s i t i v i t y Analyses  Washington Product Mix  10% More CA  10% Less Smalls  +62.7% +77.1% +27.7%  -0.6% +0.2% -2.3%  +9.4% +11.8% +3.8%  +3.4% +3.9% +2.2%  +8.7% +6.1% +17.3%  +0.8% +0.6% +1.5%  +5.2% +5.6% +4.0%  +1.6% +1.5% +1.8%  A most d r a m a t i c  r e s u l t was  under  10% More XFCY  1984 Total Red Gold 1985 Total Red Gold  State product  mix  s c e n a r i o , where the  i n c r e a s e d by more than 77% D e l i c i o u s . Not Red by  obtained  f o r Red  1984  from the Washington grower r e t u r n s were  D e l i c i o u s and  a l l of these gains were r e p e a t e d  28%  f o r Golden  i n 1985,  since  D e l i c i o u s grower r e t u r n s only rose by 6% and Golden D e l i c i o u s 17%.  Thus, even i f B.C.  as Washington S t a t e f r u i t ,  fruit  cannot  a dramatic  command the same p r i c e s improvement  in quality,  162 grade  and  size  proportions  would  result  i n a very  large  improvement i n grower r e t u r n s . With a 10% i n c r e a s e  i n CA f r u i t ,  grower r e t u r n s would not  have b e n e f i t e d  significantly,  and i n f a c t would have f a l l e n i n  1984  0.5%.  the grower  by  about  increased  by $100,000 (or 1%).  considerably improvement stored  In 1985  with  fruit  grade  returns  would  have  The e f f e c t s d i d , however,  vary  ( n o t shown) and  some  suggest  i s p o s s i b l e i f more b e t t e r q u a l i t y f r u i t  a t t h e expense of lower q u a l i t y f r u i t .  utilization  does  n o t seem t o be  a very  were t o be  Thus, h i g h e r  important  CA  factor in  i n c r e a s i n g grower r e t u r n s , e s p e c i a l l y s i n c e the a n a l y s i s d i d not i n c l u d e any f i x e d c o s t s which might be a s s o c i a t e d with  increasing  CA. Decreasing (and  therefore  effect.  the amount of f r u i t  i n the s m a l l e r s i z e s by 10%  i n c r e a s i n g medium and l a r g e f r u i t )  In b o t h  crop  years  tested,  t h e Red  r e t u r n s would have been i n c r e a s e d by at l e a s t  had a l a r g e r  Delicious  grower  $500,000, or about  4%. The Golden D e l i c i o u s would have b e n e f i t t e d by between $70,000 (or  9.5%)  effect  and $100,000 (or 5.2%)  could  account f o r a considerable  i n c r e a s e d r e t u r n s obtained Finally, XFCY, by  likely  B.C.  i n the Washington State  resulted  i n 1984  t h e most  sensitivity  proportion  tests,  and  i n l e s s than 1.5%  3-5%  improvement  surprising result  of  the  of the  scenario.  i n c r e a s i n g the p r o p o r t i o n of higher  10% o n l y  grower r e t u r n s  i n 1984 and 1985. Thus, the s i z e  grade  fruit,  improvement  in  i n 1985. T h i s i s single  factor  s i n c e grade i s the major d i f f e r e n c e between  and Washington and was  t h e r e f o r e expected to account f o r a  much l a r g e r change i n grower r e t u r n s .  163  In  summary,  Washington  the  S t a t e and  difference B.C.  can  be  i n grower r e t u r n s between partly  attributed  to  the  d i f f e r e n c e i n product mix. The exact p r o p o r t i o n of the d i f f e r e n c e attributable  to product  a n a l y s i s , but i t appears difference can  be  i n B.C.  accounted the  mix  cannot  be  calculated  from  this  s i g n i f i c a n t . Of the approximately $2/box  and Washington grower r e t u r n s , maybe $l/box f o r by  B.C.  t h e p r o d u c t mix.  product  mix,  i n terms  The of  most  factor  of  improve  grower r e t u r n s , i s s u r p r i s i n g l y not q u a l i t y  important  its ability (grade  to  level)  but s i z e . A ten percent improvement i n s i z e r e s u l t e d i n a f i v e to t e n p e r c e n t i n c r e a s e i n grower r e t u r n s . However, t h i s study does not  attempt  t o d i s c o v e r t h e added c o s t s i n c u r r e d  e i t h e r grade or s i z e i n the orchard.  to  improve  164  CHAPTER 6 6.1  SUMMARY AND RECOMMENDATIONS  SUMMARY The  by  h i s t o r y o f t h e B.C. a p p l e  c y c l e s , beginning  industry i s characterized  with cooperation  a g a i n s t a common problem  f o l l o w e d by p e r i o d s o f r e l a t i v e p r o s p e r i t y and t h e breakdown of c o o p e r a t i o n as soon as the "pie" began t o shr~R i n k . The r e c e n t move t o house p o o l i n g was an attempt t o combine some measure o f house i n d e p e n d e n c e and market without The  f o r e g o i n g any economies o f s i z e a t t h e m a r k e t i n g  r o l e of B.C. Tree F r u i t s L t d . has subsequently The  with  responsiveness  p e r f o r m a n c e o f t h e B.C. a p p l e  Washington  similar  (albeit  conditions,  State  been reduced.  industry i s evaluated  as a benchmark. W a s h i n g t o n  somewhat  superior)  level.  growing  S t a t e has  and m a r k e t i n g  i s t h e most l i k e l y benchmark. In o r d e r t o make any  comparisons,  though,  structural  and conduct c o m p a r i s o n s  must  f i r s t be c o n s i d e r e d . S t r u c t u r a l d i f f e r e n c e s between B.C. and Washington S t a t e can  be d i v i d e d i n t o  organizational  three  areas:  factors. Fruit  fruit  quality,  s c a l e , and  s i z e and c o n s i s t e n c y i s g e n e r a l l y  h i g h e r i n Washington . B.C. i s s a i d t o have an advantage i n terms of  colour  and k e e p i n g  quality,  b u t t h e grade p r o p o r t i o n s and  p r i c e s do not seem t o r e f l e c t t h i s . Washington, with i t s t e n - f o l d advantage i n p r o d u c t i o n , Washington o r c h a r d  has some s i z e economies. The t y p i c a l  i s a t l e a s t twice the s i z e of B.C.'s, and the  t y p i c a l packinghouse s e r v i c e s fewer growers is  40% l a r g e r ,  promotional,  while  research  (30 v e r s u s  300) y e t  t h e i n d u s t r y as a whole s u p p o r t s and l o b b y i n g b u d g e t s . U n l i k e  large  Washington  165 State,  B.C.'s o r g a n i z a t i o n e v o l v e d  one. While about 1/2  as a p r i m a r i l y  cooperative  of Washington State houses are c o o p e r a t i v e s ,  the houses themselves p r a c t i c e l i t t l e o v e r t c o o p e r a t i o n except the p u b l i c a t i o n of p r i c e and cooperatives, marketing  and  their  agency  and  s a l e s f i g u r e s . Most B.C.  members c o l l e c t i v e l y  processor,  B.C.  Tree  own  although  i t has  In  the  central  Ltd.  board  in  and B.C.,  l o s t n e a r l y a l l of i t s power.  terms  different.  houses are  Fruits  SunRype, r e s p e c t i v e l y . There i s a l s o a m a r k e t i n g  in  of  conduct,  the  two  regions  are  again  Even among the c o o p e r a t i v e s , t h e i r b e h a v i o u r  quite varies  c o n s i d e r a b l y both between and w i t h i n r e g i o n s . Areas of d i f f e r e n c e include  variety  specialization,  s t o r a g e regimes and B.C.  extension,  of  member,  a c c o u n t i n g methods. At the m a r k e t i n g  level,  Tree F r u i t s L t d . p r o v i d e s more s e r v i c e s than the Washington  marketers  (who  are  primarily  in-house).  h e a v i l y on e x p o r t markets, at 35% Washington  (whose e x p o r t s  c o u n t r i e s than B.C. There  are  participants are  type  most  government  of p r o d u c t i o n v e r s u s  more  20%  for  are much more evenly d i s t r i b u t e d among  exports). several  i n t h e B.C.  often  It also r e l i e s  cited,  support  different  areas  of  concern  for  industry. Purportedly excessive costs followed  by  p r o g r a m s . The  the  reliance  cooperative  on  nature  costly of  the  i n d u s t r y , when combined with competition w i t h i n f o r good growers and  revenues,  investment marketing  l e d to grower c o n f u s i o n , p o s s i b l y s h o r t s i g h t e d  d e c i s i o n s and d i s s i p a t e d  some e c o n o m i e s  of  s i z e at the  level.  This actually  has  study  hypothesized  oligopolistic  that  i n nature,  the  with  an  apple  industry is  implicit  cartel  of  166 about  t e n members ( i n c l u d i n g B.C. Tree F r u i t s L t d . ) and a l a r g e  number  of small  fringe  firms.  Price,  profit  and c o l l u s i v e  b e h a v i o u r a r e a l l e v i d e n c e which might s u p p o r t t h i s h y p o t h e s i s , but  primarily,  this  study  has o n l y  presented  qualitative  e v i d e n c e . However, q u a n t i t a t i v e p r i c e evidence does suggest Washington  S t a t e p r o d u c t i o n has t h e g r e a t e s t i m p a c t  that  on B.C.  p r i c e . T h i s a v e r a g e p r i c e , though, may not a c c u r a t e l y r e f l e c t the situation,  s i n c e a p p l e s a r e such a heterogeneous  heterogeneity variety,  i s reflected  with  i n price  increased size,  "within" v a r i a t i o n  increases exhibited  grade  and m a r k e t  here  date.  with This  i s c o n s i d e r a b l y g r e a t e r than t h e v a r i a t i o n  "between" B.C. and Washington State p r i c e s reported  product. This  g i v e n t h e g e n e r a l consensus  (although they a r e n ' t that  the a v a i l a b l e  Washington S t a t e p r i c e data are h i g h l y s u s p e c t ) . There performance  are several but t h i s  margin terms, little  different  measures  of i n d u s t r y  study focused on e f f i c i e n c y measures.  p a c k i n g margins and marketing  compared w i t h t h e v a r i a t i o n  In  margins have v a r i e d  i n grower r e t u r n s . But these  r e t u r n s do v a r y s i g n i f i c a n t l y with revenue,  s u g g e s t i n g s a l e s are  more important than c o s t s i n determining grower r e t u r n s . The maximization  theoretical  s i m u l t a n e i t y problem  of  revenue  i n the apple i n d u s t r y i s caused by i t s o l i g o p o l i s t i c  n a t u r e and t h e dynamic o p t i m i z a t i o n r e q u i r e d w i t h storage product. The a c t u a l B.C. revenues 1982 average of about Given the minimal  $75m to about  have f a l l e n  a long  from a p r e -  $35m s i n c e ( i n 1981 d o l l a r s ) .  e f f e c t B.C- has on p r i c e s ,  to f i n d t h a t r e a l revenues  such  i t i s not s u r p r i s i n g  a l s o i n c r e a s e d with p r o d u c t i o n .  167 This marketing behaved  study derived levels.  and  The  c o s t c u r v e s at b o t h the  packing  suggested  the  plant  f i x e d and  v a r i a b l e c o s t s . The  $16m,  s i n c e t h i s v a r i a t i o n was  uncertain  as  to the  size  packing  although  the  reflecting  labour  can  from  still  benefit  c o s t s were a l s o a n a l y z e d  due  the  as  and  i n p a r t to q u a n t i t y , i t i s  fixed  component of  m a t e r i a l s , vary with  component has  technology  well  overhead c o s t s v a r i e d from $llm to  of  V a r i a b l e c o s t s , both l a b o u r  and  c u r v e s were f a i r l y  industry  increased  and  s c a l e . The  costs  packing  actually fallen  c h a n g e s . The  marketing  overhead. pack  type,  over  time,  did  not  the c o s t s  can  v a r y somewhat with q u a n t i t y . But the most i n t e r e s t i n g f i n d i n g  was  conform to the usual average cost curve,  demonstrated suggested lower  that  than  possibly  i n the  comparisons with  both the  the  B.C.  Washington  higher  t h a n the  packing  State  costs  costs  suggesting  Washington S t a t e , and  which  marketing costs  industry  average  are  (although  of a l e a d i n g Washington  State  firm). Finally, fluctuations down t o variety,  $12m.  grower  during The  have  undergone  ten year p e r i o d  v a r i a t i o n that  quality, size  Washington S t a t e the  the  returns  and  - from a h i g h  occurred  storage  significant  was  regime. Comparisons  showed the average B.C.  returns  fell.  But  $41m  p a r t l y due  grower r e c e i v e d  same as the average Washington State grower u n t i l  B.C.  of  to with  about  19 80, when  s i n c e c o s t s were (mostly) e x o n e r a t e d ,  as  above, the reason f o r t h i s d e c l i n e must l a y with the revenues. In order  to p i n p o i n t the reason f o r the revenue d e c l i n e , a s e r i e s of  s e n s i t i v i t y t e s t s were performed.  168 Sensitivity and  t e s t s were p e r f o r m e d on the revenues,  grower r e t u r n s  tested  of  the  B.C.  apple  the Washington S t a t e product  components of marketing), researchers  i n c r e a s e d CA increased  consider  mix  storage  fruit  i n d u s t r y . The  scenarios  as w e l l some of as i t s  (and  size  costs  hence more l a t e  (which  the most important  season  Washington  factor),  and  State  increased  grade. In t h e  Washington S t a t e  product  mix  scenario  grower r e t u r n s were i n c r e a s e d by more than 77% and  28%  repeated 6%  and  f o r Golden i n 1985,  D e l i c i o u s . Not  s i n c e Red  17%.  same p r i c e s as Washington S t a t e  some of the gap 1984  size proportions  i n grower r e t u r n s i n the two  With a 10%  i n c r e a s e i n CA  fruit,  and  1984  the  about  i n c r e a s e d by  0.5%.  In  1985  a very  important  126%  instance,  higher  therefore  effect.  grower  altering  significant.  returns  would  have  CA u t i l i z a t i o n  increasing  i n c r e a s i n g medium and years  in  does  f a c t o r i n i n c r e a s i n g grower  the amount of f r u i t  In b o t h c r o p  than  i n f a c t would have f a l l e n  c o s t s which might be a s s o c i a t e d with  (and  cannot  dramatic  r e t u r n s , e s p e c i a l l y s i n c e the a n a l y s i s d i d not i n c l u d e any  Decreasing  by  grower r e t u r n s would not  $100,000 (or 1%). Thus, h i g h e r  seem t o be  were  c o u l d make up  areas. For  and Golden D e l i c i o u s i s very  have b e n e f i t e d s i g n i f i c a n t l y ,  not  a  average; thus, the 63% average gain a f f o r d e d by  the packout of Red  by  fruit  fruit,  the average Washington grower r e t u r n was  the B.C.  Delicious  gains  Thus, even i f B.C.  improvement i n q u a l i t y , grade and  in  these  1984  D e l i c i o u s grower r e t u r n s o n l y rose  Golden D e l i c i o u s by  command the  a l l of  f o r Red  the  fixed  CA.  i n the s m a l l e r s i z e s by large f r u i t )  t e s t e d , the  Red  had  10%  a larger  Delicious  grower  169  r e t u r n s w o u l d have been i n c r e a s e d by a t l e a s t $500,000, o r about 4%. The Golden D e l i c i o u s would have b e n e f i t t e d by between $70,000 (or  9.5%)  effect  and $100,000 ( o r 5.2%) could  i n 1984 and 1985. Thus, t h e s i z e  account f o r a considerable  proportion  of the  i n c r e a s e d r e t u r n s o b t a i n e d i n t h e Washington S t a t e s c e n a r i o . F i n a l l y , i n c r e a s i n g t h e p r o p o r t i o n of h i g h e r grade f r u i t , XFCY, by 10% o n l y r e s u l t e d i n l e s s t h a n 3.5% grower r e t u r n s likely  i n 1984  t h e most  and 1.5%  improvement  surprising result  improvement i n 1985.  of the  single  in  This i s factor  s e n s i t i v i t y t e s t s , s i n c e grade i s t h e major d i f f e r e n c e between B.C.  and Washington and was t h e r e f o r e e x p e c t e d t o a c c o u n t f o r a  much l a r g e r change i n grower r e t u r n s . 6.2  IMPLICATIONS The a v e r a g e c o s t s o f p a c k i n g  lower  i n B.C.  and m a r k e t i n g  appear t o be  t h a n i n t h e average Washington house, b u t s t i l l  l e a d i n g Washington  f i r m c o u l d p a c k and m a r k e t  somewhat l e s s t h a n t h e B.C.  a  i t s fruit for  f i r m s . At the packing  level further  amalgamation would l i k e l y r e s u l t i n c o n s i d e r a b l e cost e s p e c i a l l y i f grower numbers c o u l d be r e d u c e d ( t h r o u g h  savings, orchard  amalgamation) and i f c r o p c o n s i s t e n c y c o u l d be i m p r o v e d . A t t h e marketing  l e v e l , where B.C. Tree F r u i t s L t d . has a s i z e advantage  over a l l the Washington houses, there disadvantage This may  when compared  a p p e a r s t o be a c o s t  t o on of t h e b e s t Washington f i r m s .  i n c r e a s e d c o s t i s most l i k e l y due t o e x t r a s e r v i c e s w h i c h o r may  market  not be c o s t e f f e c t i v e , a s w e l l a s t h e i r l a r g e r e x p o r t  r e l i a n c e . However,  disbanding  B.C.  i t is uncertain  as  to  whether  Tree F r u i t s L t d . would reduce c o s t s , s i n c e t h e i r  170 marketing  costs  are  still  lower than  the  average  Washington  house. Thus, c o s t s do returns  i n B.C.  not  than i n  appear t o e x p l a i n the  smaller  grower  Washington. This d i f f e r e n c e must be  due  t o d i f f e r e n c e s i n s a l e s revenue, as e x h i b i t e d i n the Washington product  mix  improved  sensitivity  significantly  however, t h a t t h e s e  test with  where B.C.  grower r e t u r n s  a l t e r e d packout.  crudely defined  were  It i s u n l i k e l y ,  " q u a l i t y " improvements  can  account f o r a l l of the d i f f e r e n c e i n revenue. As mentioned i n the background t o be  (Chapter  of e q u a l  2), c o n s i s t e n c y of q u a l i t y i s o f t e n  importance to l e v e l of q u a l i t y , at l e a s t  claimed i n the  o p i n i o n of the marketers. Since marketing i s not a s i n g l e p e r i o d venture,  l o n g run  sales rest  which c o n s i s t e n c y  i s very  Finally,  be  t h e r e may  l a r g e l y on r e p u t a t i o n f a c t o r s (of  i m p o r t a n t ) which d e f y  some d i f f e r i n g degrees of monopsony powers  between the major markets of B.C. State.  Concentration  about 40%  of B.C.  o u t l e t s has  measurement.  Tree F r u i t s L t d . and Washington  i n W e s t e r n Canada's  (which a c c o u n t s  Tree F r u i t s L t d . s a l e s , by volume) r e t a i l  i n c r e a s e d c o n s i d e r a b l y during the  t i m e grower r e t u r n s State.  If t h i s  pronounced  i n Washington's markets,  downward pressure on B.C.  concentration  trend  there  food  1980s, at the same  have been l o s i n g ground to those  Washington  for  may  has be  earned i n been  less  some e x t r a  prices.  Even i f q u a l i t y i s the major component of B.C.'s problem, p h y s i c a l c o n d i t i o n s seem to d i c t a t e t h a t the Washington mix  couldn't  horticultural and  be  equalled  i n B . C . without  c o s t s . Thus, w h i l e  consistency  would  improve  product  incurring increased  improvements i n s i z e , q u a l i t y  returns,  p e r h a p s more r e f i n e d  1 7 1  marketing  techniques  are r e q u i r e d i n B.C.  than i n Washington (to  f u r t h e r segment the market and d i f f e r e n t i a t e the B.C. Can  the  cooperative  accommodate t h e s e itself,  improvements? The  does not  Washington  firm  s t r u c t u r e of  seem t o exclude used  in this  the  product).  B.C.  industry-  cooperative structure, i n  efficiency, study  s i n c e the l e a d i n g  i s also a  cooperative.  However, Washington growers have more v i a b l e a l t e r n a t i v e s to t h i s structure, may to  and  so growers who  choose to be c o o p e r a t i v e members  be more committed to the concept take  orders  from t h e m a r k e t e r s .  and  t h e r e f o r e more w i l l i n g  In B.C.,  with  i t s smaller  i n d u s t r y , the c o o p e r a t i v e s are more v u l n e r a b l e to i n c r e a s e d c o s t s due  to  lost  volume;  thus,  they  are  more d i f f i d e n t  in  their  d e a l i n g s with growers. At  the  disadvantage must s e l l .  marketing due  B.C.  Tree  They a l s o have l e s s  access  the  the major complaint  about B.C.  L t d . has  be  of the B.C.  a strong  e v e r y t h i n g and to spread the s a l e s f a i r l y may  Tree  l a c k of i n c e n t i v e to focus on v a l u e  v o l u m e . B.C.Tree F r u i t s  this  Ltd.  has  at the  a  they  to some of Washington's  i n terms of the c o o p e r a t i v e nature  seems t o be  Fruits  to t h i s l a c k of c l o u t over the product mix  b e s t m a r k e t s . But Ltd.,  level,  Fruits  industry, i n s t e a d of  i n c e n t i v e to  sell  amongst the houses, but  expense of m a x i m i z i n g  s a l e s revenues  (by  a c h i e v i n g the best p r i c e p o s s i b l e ) . In  a cooperative  between e q u i t y and grower r e t u r n s s i d e ,  industry there  often  is a  e f f i c i e n c y c o n s i d e r a t i o n s . On i t appears there i s l i t t l e  conflict  the c o s t s  conflict  and  - costs  are a s s i g n e d to growers as they are i n c u r r e d ( f o r the most p a r t ) and  r e t u r n s are based on the p r i c e r e c e i v e d . But on the  revenue  172 side,  equity considerations  Ltd.'s  ability  may w e l l h a n d i c a p B.C. T r e e  t o maximize  revenues  e f f i c i e n c y . Given B.C. Tree F r u i t L t d . ' s  and a c h i e v e  Fruit  economic  i n a b i l i t y t o determine  i t s own p r i c e , t h e presence of a near monopoly i n B.C. does not affect  social  cooperative  welfare  i n terms o f consumer s u r p l u s ,  n a t u r e o f t h e s a l e s monopoly may w e l l  subsequent producer surplus obtained 6.3  reduce the  by the growers.  RECOMMENDATIONS Since  the  but the  c o s t s were n o t found t o be t h e major component i n  d e c l i n e o f grower r e t u r n s  State,  the t r i e d  packinghouses  and t r u e  will  only  i n B.C. r e l a t i v e recommendation  be m e n t i o n e d  economies o f s i z e .  region  i f i t could  However, t h i s  grower numbers a r e c o n c u r r e n t l y  should  t o amalgamate  i n passing.  average s i z e d i f f e r e n c e i n the two r e g i o n s , become t h e l o w e r c o s t  t o Washington  Given the  B.C. c o u l d capture  only  possibly  some more  be a t t e m p t e d i f  reduced, s i n c e any c o s t  savings  c o u l d be l o s t i n s e r v i c i n g more members. T h i s study concluded t h a t a r e l a t i v e d e c l i n e i n revenue i s the main r e a s o n problem  f o r t h e d e c l i n e i n grower r e t u r n s . The revenue  is likely  packout,  a c o m b i n a t i o n of average f r u i t  and o f m a r k e t i n g  difficulties.  "quality", or  The  following  recommendations w i l l answer each i n t u r n . At the orchard  level,  " q u a l i t y " l e v e l and c o n s i s t e n c y must  both be improved. While s t u d i e s of the b e n e f i t s t o the growers of improving q u a l i t y have f r e q u e n t l y been conducted, r e s e a r c h the help  costs  involved  motivate  i n improving  farmers  horticultural  t o implement  into  s t a n d a r d s might  the suggested  techniques.  173 Further  i n c e n t i v e s , to  increase  density  and  to  s t r a i n s , would serve to improve the c o n s i s t e n c y of Some of t h e s e but  i t seems  cooperation.  to  The  quality.  measures have been attempted  be  very  difficult  to  standardize  i n the  encourage  grower  i n d u s t r y i s h e a v i l y weighted down by the  non-commercial o r c h a r d i s t s whose l a n d i s o v e r p r i c e d  past,  small,  (given i t s  p r o d u c t i v i t y ) to account f o r i t s non-farm use v a l u e . Some attempt should limit  be made t o remedy t h i s f o r F . I . I , payments and  to exclude to the  situation.  Perhaps  more of these growers, t h e i r land might e i t h e r devalue  p o i n t where amalgamation w i t h  p r e s e r v a t i o n of farmland  commercial  i s considered  f o r non-farm p u r p o s e s . At  important  more e f f i c i e n t the  marketing  i f those who marketing  staff  independents had  of  cooperate  level,  both  access  least  the  While  by many, i f t h i s j u s t as w e l l  i n i t are l e s s  Tree  is  be  i n d u s t r y would become  i t would be  B.C.  operations  land reserve.  land i s i n a c c e s s i b l e to commercial farmers i t may  At  lower  B.C.F.G.A. membership were r a i s e d  more v i a b l e or i t might be removed from the  used  i f the  very  Fruits  t o up-to-date r e t a i l  dissimilar.  u s e f u l i f the Ltd.  and  the  price information.  I f r e l a t i v e F.O.B. p r i c e s are not being t r a n s l a t e d a c c u r a t e l y at the  retail  level,  surpluses. This the r e t a i l  the  consumers are  less  likely  to respond  to  i n f o r m a t i o n would be p a r t i c u l a r l y u s e f u l where  i n d u s t r y i s h i g h l y concentrated,  s i n c e the  retailers  c u r r e n t l y have the i n f o r m a t i o n advantage. It marketing  would and  also  packing  be  levels  t i m i n g d e c i s i o n s . I f B.C. sales  i n f o r m a t i o n on  in the  Tree  best  to  interests  optimize  Fruits  their  of  both  the  storage/sales  L t d . were t o r e p o r t i t s  a weekly, noncumulative b a s i s i t would  be  174 much e a s i e r f o r the previous  packinghouses  s a l e s f i g u r e s . But  r e s e a r c h i n t o developing  to a l l o c a t e s t o r a g e  to get the o p t i m a l  using  pattern, further  a model of dynamic o p t i m i z a t i o n would be  most b e n e f i c i a l . In  considering  the  industry  as  a  whole,  further  o r g a n i z a t i o n a l changes would l i k e l y enhance i t s e f f i c i e n c y . t h e v o t i n g s t r u c t u r e of the  B.C.F.G.A. were changed such  v a l u e of s a l e s determines the weight behind the  decision  maximization  process and  less  would  concerned  growers, both independent and s u c h t h a t the  i n d u s t r y can  l o b b y i n g e f f o r t s and The  prorate  marketers and  be  that  the o r c h a r d i s t s vote,  more  i n tune  with  equity.  affiliated,  should  with  revenue  Further, a l l be  cooperate i n promotional  represented campaigns,  i n f o r m a t i o n g a t h e r i n g programs. system i s a l s o p r o b l e m a t i c ,  s i n c e i t hampers  r e q u i r e s a watchdog at each packinghouse to ensure  e q u i t y . I f the B.C.Tree F r u i t s L t d . d i s p a t c h e r s were t o value  balance  as w e l l as volume among houses, t h e r e c o u l d at l e a s t be a  savings  i n packinghouse personnel.  House p o o l i n g i s good i f i t  gets market s i g n a l s c l o s e r to the growers, but i n t o s t r e a m l i n i n g the p r o r a t e system should s t i l l  further research be  undertaken.  In c o n c l u s i o n , e f f o r t s should be taken to both improve q u a l i t y and of  If  B.C.  c o n s i s t e n c y of B.C.  Tree  Fruits  a g a i n s t the e f f i c i e n t factors  should  now  Ltd.  apples  Various  and  equity  the marketing  f o r e c a s t e d f o r the f o r e s e e a b l e future-  success  f a c t o r s have worked  o p e r a t i o n of the apple  be examined i n l i g h t  the  i n d u s t r y , and  of the  increased  these supply  175  BIBLIOGRAPHY  Anonymous. B r i t i s h Anonymous. B r i t i s h 1980-1985.  Columbia  Fruit  Columbia  Growers  Tree  Fruits  R e g i s t r y . 1986. Annual  Reports.  Anonymous. D e v e l o p m e n t o f t h e A g r i - F o o d S e c t o r i n B r i t i s h C o l u m b i a . Commodity P r o f i l e : T r e e F r u i t . A g r i c u l t u r e Canada. March 1986. Anonymous. " E x p o r t R e g u l a t i o n s May 7, 1986.  Eased",  Oliver  Chronicle.  Anonymous. " I n d u s t r y S e r v i c e Fund S e t a t 7 C e n t s P e r T o n on F r e s h and P r o c e s s i n g F r u i t " . G o o d F r u i t Grower. May 1 1984. A n o n y m o u s . " W a s h i n g t o n A p p l e C o m m i s s i o n A p p r o v e s $7.7 M i l l i o n B u d g e t " . G o o d F r u i t Grower. September 15 1984. Anonymous. W a s h i n g t o n F r u i t S u r v e y 1986. W a s h i n g t o n Department o f A g r i c u l t u r e . 1986. B e l l , J . G e n e r a l Manager o f B.C. T r e e F r u i t s c o m m u n i c a t i o n . J u l y 1986. Dell,  State  Ltd. Personal  W. Manager o f O l i v e r - O s o y o o s S i m i l k a m e e n C o o p e r a t i v e Growers A s s o c i a t i o n . P e r s o n a l communication. July 1986.  D e s t o r e l , J . J .Apple F o r e c a s t i n g Model. Agriculture Canada, w o r k i n g P a p e r No. 5/86. A u g u s t 1985. G a r r i s h , A., F o r m e r B.C.F.G.A. c o m m u n i c a t i o n . J u l y 1986.  President.  Personal  G o l d b e r g , R. A S t u d y o f t h e B.C. F r u i t I n d u s t r y f o r t h e B r i t i s h Columbia F r u i t Growers A s s o c i a t i o n . July 1982 . G r e e n , C. C a n a d i a n I n d u s t r i a l M c G r a w - H i l l Ryerson, 1980.  Organization  and  Policy.  H e i n i c k e , D. , F o r m e r A g r | r i t n r o C a n a d a researcher (Summerland Station) and current orchardist in W a s h i n g t o n S t a t e . P e r s o n a l c o m m u n i c a t i o n . March 1987. n  H u d s o n , S.C. An E c o n o m i c S t u d y o f t h e T r e e F r u i t I n d u s t r y i n B r i t i s h C o l u m b i a . B . C M . A . F . September 1973.  176 Kennedy,G. and Lee,M. "Costs of P r o d u c i n g Apples i n B.C. v e r s u s Washington S t a t e . " D i s c u s s i o n Paper No.85-04. Dept. of Agr. Econ. U n i v e r s i t y of B r i t i s h Columbia. August 1985. K i n g , M. "BC F r u i t G r o u p o f f L e g a l Hook". Producer. November 2 8 19 85.  Western  K i n g , M. " P a c k e r i n R e c e i v e r s h i p " . We s t e r n Producer. A p r i l 2 1987. Lee,M. " C o s t C o m p e t i t i v e n e s s o f A p p l e P r o d u c t i o n i n B r i t i s h Columbia v e r s u s Washington S t a t e . " M.Sc. t h e s i s , Dept. of Agr. Econ., U n i v e r s i t y of B r i t i s h Columbia. 1985. L i n d e r , M. , A c c o u n t i n g Manager of B.C.Tree F r u i t s Personal communication. J u l y 1987.  Ltd.  MacPhee,E. The Report of the Royal Commission on the Tree F r u i t Industry of B r i t i s h Columbia. 1958. M c B r i d e , G. A g r i c u l t u r a l C o o p e r a t i v e s . AVI Company, C o n n e c t i c u t . 1986.  Publishing  Messent, B., Export S a l e s Manager of B.C.Tree F r u i t s L t d . Personal communication. October 1987. Parker,R. and Connor,J., "Estimates of Consumer Loss Due t o M o n o p o l y i n t h e U.S. Food Manufacturing I n d u s t r i e s " , AJAE, November, 1979. S c h e r e r , F.M. I n d u s t r i a l Market S t r u c t u r e and Performance. Houghton M i f f l i n Company 1980. Schotzko, R.T. A P r e l i m i n a r y A n a l y s i s of P o o l i n g on Grower Returns. Mimeographed d r a f t . 1983.  Economic Effects  Schotzko, R.T. Washington Apple Packing Industry; A Survey of C u r r e n t C a p a c i t y and E x p a n s i o n P l a n s i n S t o r a g e and F r e s h H a n d l i n g . W a s h i n g t o n S t a t e U n i v e r s i t y . September 1983. 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