Kinnucan, Henry W.

December, 2000

By: Kinnucan, Henry W.; Xiao, Hui; Yu, Shixue
The USDA's Foreign Agricultural Service funds three types of activities to promote agricultural exports: consumer promotion, technical assistance, and trade servicing. These "instruments" are analyzed using an adaptation of Muth's model. Results indicate that consumer promotion always increases the derived demand for the U.S. agricultural commodity, but that under certain conditions technical assistance and trade servicing can have a perverse effect. Applying the model to cotton promotion in Japan, the results suggest that, owing to cotton's modest share of retail value, the current emphasis on consumer promotion may be misplaced. Specifically, it appears that producer returns can be enhanced by emphasizing technical assistance projects that save on the marketing input.

July, 1999

By: Kinnucan, Henry W.
Nerlove and Waugh's theory of cooperative (generic) advertising is extended to the case of traded goods. Results suggest that trade reduces the incentive to promote by enlarging the effective supply or demand elasticity facing the industry. This is especially true in the net exporter situation where the enlarged demand elasticity (relative to the autarky case) limits the ability to shift advertising costs onto consumers. Simulations of the model using data and parameter values for the California egg industry suggest that ignoring trade prejudices benefit-cost ratios in favor of the promotion program. The upward bias, moreover, is significant even when the trade share is modest.

July, 1997

By: Kinnucan, Henry W.; Christian, Jason E.
A formula is derived to indicate the marginal returns to nonprice promotion for a competitive industry that promotes in both the domestic and the export market and receives a subsidy for export promotion. Private returns to export promotion are an increasing function of the export promotion elasticity, the export share, and the promotion subsidy and a decreasing function of the domestic supply elasticity, the absolute values of the domestic and export demand elasticities, and opportunity cost. Applying the formula to almond promotion and using previously estimated elasticities, no firm conclusions can be made regarding the effectiveness of export promotion, chiefly because the estimated promotion elasticities are unstable. Assuming that the domestic promotion elasticity is robust, it appears that domestic market promotion is underfunded from a producer-welfare perspective unless the marginal rate of return on alternative uses of promotion funds is high, on the order of 115%.

December, 1996

By: Ding, Lily; Kinnucan, Henry W.
Rules are derived to indicate the optimal allocation of a fixed promotion budget between domestic and export markets when the commodity in question represents a significant portion of world trade and is protected in the domestic market by a deficiency-payment program. Optimal allocation decisions are governed by advertising elasticities in the domestic and export markets and the export market share. Promotion's ability to lower deficiency payments is inversely related to the absolute value of demand elasticities in the domestic and export markets and directly related to advertising elasticities and certain policy parameters. The empirical application suggests subsidies for nonprice export promotion may be efficiency increasing in a second-best sense. That is, the heightened subsidies associated with the Targeted Export Assistance program and the Market Promotion Program appear to have corrected allocative errors that favored domestic market promotion.