A key question in debating application of the Cranberry Marketing Order is the price effect of an order supply restriction (handler withholding or producer allotment). That question can be addressed by looking at the historical relationship between grower prices and supply (production plus stocks) plus other factors expected to affect grower prices.

Unfortunately from the standpoint of statistical estimation, that relationship is confounded by rapidly expanding demand during the period between the late 1970’s and the early 1990’s, which resulted in an unexpected positive relationship between supply and price. In economists’ terms, demand was being pushed to the right faster than supply, leading to price increases despite large year-to-year increases in production. This shift in demand was caused by the increasing popularity of blended cranberry juice drinks, the introduction of other new products, and perceived health benefits of cranberry consumption.

Demand appears to have stabilized since 1990. Stable demand, in combination with continued increases in supply from new acreage and higher yields, is the principal reason for growing inventories and depressed grower prices. But nine years of stable demand also means that we can now provide better insight on how grower prices are affected by changes in supply.

The "average" influence of total cranberry supply and consumer income on grower prices for the period 1991-99 was measured using a statistical technique called linear regression. Simplistically, the process measures how season-average grower prices (adjusted for inflation) were affected by two factors:

1. Total available cranberry supply for the season, defined as the sum of current year production plus beginning stocks, expressed on a per-capita basis to account for growing U.S. population.
2. Disposable income, deflated and expressed on a per capita basis.

Statistics related to the estimated relationship are noted in the Appendix. What the technical jargon means is that the two variables used to "explain" cranberry price over the 1991-99 period account for 85 percent of the year-to-year variation in price, and that the estimated price could be expected to be within plus or minus $5.00 per barrel of the actual price about 2/3 of the time. Stated more simply, the equation does a pretty accurate job of generating price estimates. This is emphasized in Chart 1, which shows the actual price, the estimated price, and the difference for 1991-99.

The regression equation says that, during the 1991-99 period, a one-pound per capita change in total available supply was associated with a $38.29 per barrel opposite change in the deflated season-average grower price.

To put this into more meaningful terms, with U.S population at about 275 million, a change in total available cranberry supply of 100,000 barrels would change season-average price in the opposite direction by about $1.40 per barrel. This effect is considerably larger than what has been measured in other studies over earlier time periods. It indicates that cranberry demand is very "inelastic;" that is, a small percentage change in total supply causes a relatively large percentage change in grower price.

The effect of income on cranberry prices is quite strong: A $1,000 increase in per capita disposable income was associated with an increase in grower prices of more than $12 per barrel. This measured effect is very likely artificial – the income variable is picking up a trend effect in prices.

The price estimation equation can be used to forecast prices for the 2001 crop year by inserting values for total available supply and income relevant to 2001. In Chart 2, per capita disposable personal income is fixed at $14,700, which assumes no real (adjusted for inflation) change in income from 2000. Then, total available supply (converted from per-capita to barrels using U.S. population of 275 million) is varied along the horizontal axis to demonstrate the resulting price forecast (vertical axis) based on the average relationship between total available supply and price between 1991 and 1999.

The price forecasts shown in Chart 2 are subject to considerable forecast error, and should be viewed as only rough indicators of what prices might result from varying levels of total available supply in 2001. Nevertheless, Chart 2 is valuable in demonstrating what prices are likely at various levels of total supply. For example, if inventories are 4 million barrels at the beginning of the 2001 crop year and the 2001 crop is 6 million barrels (total available supply equal 10 million barrels, then the chart indicates the season average grower prices would likely be in the $10 per barrel range.

Chart 2 can also be used to approximate what level of supply would be necessary to achieve specific price levels using volume regulation. For example, if growers are seeking a $40.00/bbl price for the 2001 crop year, then the chart shows that total available supply could not exceed about 8 million barrels.

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