A recently completed study of the economic value of the national pork checkoff programs has concluded that the returns to producers, on average, substantially outweigh the costs. The study, conducted by economists at RTI International of Research Triangle, N.C., and North Carolina State University, also concludes that the pork checkoff has “a significant positive effect on the demand for hogs and pork.”

The peer-reviewed study, “An Economic Analysis of the Effectiveness of the Pork Checkoff Program” focuses on the performance of checkoff programs between 1999 and 2005. The study is required every five years by USDA as part of its oversight of the National Pork Board and pork checkoff programs. Results were presented to National Pork Board members during their meeting in St. Louis, Mo., this week. The study now goes to USDA for its review.

“This research was done by some of the most highly respected agricultural economists, working independently and using the best evaluation methods known to the economics profession,” says Steve Meyer, president of Paragon Economics and a consultant to NPB. “The results are reasonable when compared to similar analyses of a broad array of producer-funded checkoff programs.”

The study concludes that based on data from the five years of the study, marginal increases in checkoff program expenditures would increase producer profitability, on average. Specifically, the study’s results show an overall marginal benefit/cost ratio (the net return to producers divided by the program cost) of 13.8, “indicating that producers would gain an additional $13.80 for each additional $1 of program expenditures.” That ratio is the combined ratio of an analysis of four specific checkoff expenditure categories: Production research; post-farm research (marketing-chain research); domestic promotion; foreign market development.

Among the four expenditure categories, the study found the highest average benefit/cost ratios for marketing-chain research, followed by foreign-market development.

Overall, the authors note, “The results of the study indicate that the average hog producer experiences net benefits as a result of the [checkoff] program. It is also important to note that there have been several years of low prices and high production costs for the average hog producer during 1999 through 2005. However, the econometric models presented in this study suggest market conditions for hog farmers would have been significantly worse without the program.”

“Studies such as these are best used to describe the impacts past checkoff programs and expenditures have had on the economic situation facing producers,” Meyer says. “It is historical, and while activities are measured in dollar terms, the results are heavily impacted by how a given number of dollars is used. For instance, one reason that pork promotion expenditures have been effective is that the Pork. The Other White Meat campaign was an idea that resonated with consumers and effectively repositioned pork in the marketplace. The same number of dollars spent on a different idea may not have had the same impact.”

Meyer says USDA’s requirement that this study be done every five years also serves producers by giving NPB an incentive to focus on the potential return on investment of the programs and activities it supports.

The authors of the study also note that the results for the four expenditure categories are consistent with other studies of generic promotion and research programs, including a previous study of the pork checkoff program conducted by Texas A&M economists in 2001. That study, employing slightly different methodology, found an average benefit/cost ratio of 16 for the years 1986 to 1998.

The study to measure the economic and financial benefit to producers of pork checkoff-funded programs was based on what the authors call “econometric and equilibrium displacement models of the markets for U.S. hogs and pork.” The models employ a mathematical technique that uses historical data to estimate the separate impacts of several – perhaps many – economic variables on prices and quantities of goods. They are used in this case to determine whether the pork checkoff program has had statistically significant market effects, while controlling for factors that are economically important but outside the sphere of the program’s influence – for example, income, prices of substitutes such as beef and poultry and food-safety events.

Follow this link to read the authors' executive summary. The complete study is available upon request.

Source: The National Pork Board