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1 ADDRESSING PRODUCTION AND MARKETING CHALLENGES OF THE FLORIDA TOMATO INDUSTRY By XIANG CAO A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE MASTER OF SCIENCE UNIVERSITY OF FLORIDA 2014

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Page 1: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

1

ADDRESSING PRODUCTION AND MARKETING CHALLENGES OF THE FLORIDA TOMATO INDUSTRY

By

XIANG CAO

A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE MASTER OF SCIENCE

UNIVERSITY OF FLORIDA

2014

Page 2: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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© 2014 Xiang Cao

Page 3: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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ACKNOWLEDGMENTS

I would like to thank the Food and Resource Economics Department (FRED) for

offering me the chance to study in the United States. Without the professional training

provided by FRED, this research would have been difficult.

Foremost, I would like to express my sincere gratitude to my committee chair

Dr. Lisa House and co-chair Dr. Zhengfei Guan for their continuous support of my

master’s study and research, and for their patience, motivation, enthusiasm, and

immense knowledge. Their guidance helped me throughout the research and writing of

this thesis. It would have been much harder to achieve my degree without their advice

and guidance.

Other thanks also go to my committee members, Dr. Zhifeng Gao and Dr. Gary

Vallad, for their encouragement, instructions, and insightful comments. Their

tremendous help ensured the successful completion of this thesis.

In addition, I would also like to thank other faculty, staff, and my classmates in

FRED. Their help and support made my life at UF enjoyable and meaningful.

I also want to thank Dr. Feng Wu who offered me invaluable help in my research.

His kindness and wisdom enlightened me and enriched my academic experience.

Last but not the least, I would like to thank my parents, for giving me life, raising

me, and nurturing me spiritually. And I also would like to thank my girlfriend Yunjia, for

her kindness, companionship, and support all the time.

Page 4: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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TABLE OF CONTENTS page

ACKNOWLEDGMENTS .................................................................................................. 3

LIST OF TABLES ............................................................................................................ 6

LIST OF FIGURES .......................................................................................................... 7

LIST OF ABBREVIATIONS ............................................................................................. 8

ABSTRACT ..................................................................................................................... 9

CHAPTER

1 INTRODUCTION .................................................................................................... 11

Background Information .......................................................................................... 11

Objectives ............................................................................................................... 14 Organization ........................................................................................................... 15

2 LITERATURE REVIEW .......................................................................................... 18

3 ECONOMIC ANALYSIS OF FUMIGATION ALTERNATIVES, THE METHYL BROMIDE BAN, AND ITS IMPLICATION ............................................................... 28

Fumigation Information in the Florida Tomato Industry ........................................... 28 Materials and Methods............................................................................................ 30

Partial Budgeting Analysis ................................................................................ 31 Stochastic Dominance and Stochastic Efficiency Analysis ............................... 31

Data Description and Adjustment ........................................................................... 36

Data Description ............................................................................................... 36 Data Adjustment ............................................................................................... 39

Results .................................................................................................................... 40 Fumigation Costs of MBr and Alternative Soil Treatments ............................... 40 Estimated Yields, Total Costs, and Net Returns Associated with MBr and Its

Alternative Treatments .................................................................................. 41

Stochastic Dominance and Stochastic Efficiency Analysis Results .................. 44

4 DETERMINING THE IMPACT OF STATE-SPECIFIC SIGNS AND LABELS ON TOMATO MARKETING .......................................................................................... 54

Survey Designing and Data Collection.................................................................... 54 Descriptive Analysis of the Survey Data ................................................................. 59

Demographic of Participants ............................................................................ 59 Consumers’ Purchasing Habits of Fresh Tomatoes ......................................... 60 Consumers’ Attitudes and Preference of Different Labeled Fresh Tomatoes ... 61

Page 5: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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Consumers’ WTP for Florida/US Tomatoes and Mexico Tomatoes ................. 62 Models .................................................................................................................... 62 Results .................................................................................................................... 66

Factors Influencing Whether or Not Consumers Read Tomato Cool ................ 66 Factors Affecting Consumer’s Choice for Tomatoes with Different Labels ....... 68 Factors Affecting Consumer’s WTP: A Premium for Florida/US Tomatoes ...... 70

5 CONCLUSIONS ..................................................................................................... 77

LIST OF REFERENCES ............................................................................................... 81

BIOGRAPHICAL SKETCH ............................................................................................ 89

Page 6: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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LIST OF TABLES

Table page 3-1 Regression results on tomato yield adjustments from SAS ................................ 46

3-2 Estimated average tomato fumigation costs for MBr:Pic (67:33) and selected alternative soil treatments and the fumigation costs of the alternative treatments relative to MBr:Pic (67:33) ................................................................ 46

3-3 Marketable tomato yields, gross revenue for MBr:Pic (67:33) and selected alternative fumigant treatments, and the difference in gross revenues relative to MBr:Pic (67:33) ............................................................................................... 47

3-4 Estimated average costs incurred to produce, fumigate, and harvest tomatoes, total net returns, and net returns of the selected alternative soil treatments relative to MBr:Pic (67:33) ................................................................ 47

3-5 Total negative effects (added costs and reduced returns), total positive effects (reduced costs and added returns), and total effects of the selected alternative soil treatments relative to MBr:Pic (67:33) in the tomato production system .............................................................................................. 48

3-6 Second-order stochastic dominance result of adjusted yield of methyl bromide and its alternative treatments ................................................................ 49

3-7 Summary statistics of net returns of MBr:Pic (67:33) and its alternatives ........... 49

4-1 Sample demographic descriptive statistics ......................................................... 72

4-2 Consumers’ stated choice of different labeled tomatoes, sorted by scenario and by city .......................................................................................................... 73

4-3 Willingness to pay for Florida/US and Mexico tomatoes, sorted by scenario and by city (Unit: $/lb) ......................................................................................... 73

4-4 Parameter results of the binary logistic regression of consumers’ behavior of reading tomato COOL information in the experiment ......................................... 74

4-5 Parameter results of the ordered logistic regression of consumers’ stated choice of tomatoes from the first simultaneous equation system........................ 75

4-6 Parameter results of the linear regression of consumers’ willingness to pay for a premium for Florida/US tomatoes than for Mexico tomatoes from the second simultaneous equation system ............................................................... 76

Page 7: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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LIST OF FIGURES

Figure page 1-1 US and Florida fresh tomatoes productions from 2000 to 2012 ......................... 16

1-2 Origins of US fresh tomatoes imports (Mexico, Canada, and other countries) ... 16

1-3 Florida annual pre-plant methyl bromide usage info before year 2000 ............... 17

3-1 Explanatory figure of expected money value, certainty equivalent, and risk premium ............................................................................................................. 50

3-2 Comparison of MBr:Pic (67:33) and its alternatives’ CDF series for adjusted yield data ............................................................................................................ 51

3-3 Comparison of the SERF results of the six treatments’ net returns under power utility function ........................................................................................... 52

3-4 Comparison of the six fumigation treatments’ risk premiums under the power utility function relative to the non-fumigated treatment ($/acre) .......................... 53

Page 8: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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LIST OF ABBREVIATIONS

CE

COOL

CVM

MBr

RP

Certainty Equivalent

Country of Origin Labeling

Contingent Valuation Method

Methyl Bromide

Risk Premium

SD Stochastic Dominance

SSD

SERF

WTP

Second-Order Stochastic Dominance

Stochastic Efficiency with Respect to a Function

Willingness to Pay

Page 9: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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Abstract of Thesis Presented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Master of Science

ADDRESSING PRODUCTION AND MARKETING CHALLENGES

OF THE FLORIDA TOMATO INDUSTRY

By

Xiang Cao

August 2014

Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics

The technological shock from the methyl bromide phase-out and the intense

competition from Mexico have posed serious threats and challenges to the Florida

tomato industry in both production and marketing. This research contains two main

parts. The first part focuses on identifying an optimal fumigation strategy through

analyzing the cost effectiveness and risk efficiency of methyl bromide treatment and its

alternatives. Partial budgeting and stochastic dominance analyses are performed based

on the data acquired from scientific field trials. The second part provides the struggling

US tomato industry with marketing information to understand consumer demand and

willingness to pay for local (Florida/US) tomatoes versus non-local (Mexico) tomatoes.

In addition, the effect of three market strategies on consumer preferences for Florida/US

versus Mexico tomatoes is also studied. A mall intercept survey using the contingent

valuation method to interview 632 participants was conducted to determine US

consumer perception about country of origin labeling, consumption pattern, demand,

and willingness to pay for Florida/US and Mexico tomatoes. This thesis research

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provides recommendations to help the industry address challenges from both

production and marketing perspectives.

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CHAPTER 1 INTRODUCTION

Background Information

The United States (US) has been one of the world’s largest tomato producers for

decades. According to the data from the Food and Agricultural Organization (FAO) of

the United Nations, the United States was the second largest tomato producer (behind

China) before 2011, and the third largest tomato producer (behind China and India) in

2011 and 2012 (UN/FAO, 2013). Tomato production generates the highest value among

all the vegetable crops grown in the United States (USDA/ERS, 2013). In 2012, the

United States produced 27.6 million hundred weight (cwt) fresh tomatoes, valued at

$0.86 billion (USDA/NASS, 2013a). The top three fresh-tomato-producing US states are

Florida, California, and North Carolina. Florida has been the largest US fresh tomato

supplier for decades. In 2012, Florida produced nearly 9.6 million cwt fresh tomatoes,

worth $268 million, accounting for 34.8% and 31.2% of total US production,

respectively. Fresh tomato yield in Florida ranks the highest among all US states,

averaging roughly 330 cwt per acre (USDA/NASS, 2012a).

Over the past decade, however, US fresh tomato production has been declining,

from 40 million cwt in 2002 to 28 million cwt in 2012. Florida production has also

decreased, from 14 million cwt to 9.6 million cwt (Figure 1-1) (USDA/NASS, 2013a).

The value of US fresh tomato production dropped from $1.4 billion to $0.86 billion over

the same period. In Florida, harvested acreage has decreased as well, from the

historical high of 45 thousand acres in 2001 to 29 thousand acres in 2012.

One of the main reasons identified for the decreases in the US and Florida

tomato industries is competition from Mexico. Mexico’s competitive advantage in tomato

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production cost and favorable government policies has encouraged fresh tomato

exports to the US domestic market. Specifically, fresh tomato production cost is much

lower in Mexico than in the United States due to lower labor costs. In addition, Mexico

has encouraged investment in agriculture to upgrade its technology to improve its

production capacity, such as its protected greenhouse tomato production.

Historically, Florida and Mexico have competed for the US winter and early

spring tomato market. Tomato imports from Mexico reach their peak in winter when

Florida is the predominant domestic tomato producer. Florida harvests fresh tomatoes

from October to June each year, reaching peak production from November to January.

In winter, most Florida tomatoes are shipped to the eastern United States while Mexico

fresh tomatoes are shipped to the western United States (VanSickle et al., 2003).

Under the North American Free Trade Agreement (NAFTA) enacted in 1994,

Mexico has increased its fresh tomato exports to the United States, from 13 million cwt

in 2000 to 30.4 million cwt in 2012, based on data from the United States Department of

Commerce (Figure 1-2) (USDOC, 2013). The data indicate that imports from Mexico

now account for about 90% of the imported tomatoes to the United States and have had

a major impact on the US tomato industry, particularly the Florida tomato industry.

Mexico tomatoes sold on the market were about 20% less than Florida’s supply volume

in 2000, but their market share is now more than three times higher than Florida’s

market share (Zhu et al., 2013). As competition from Mexico increased, the farm gate

value of the Florida tomato industry slumped from $620 million in 2010 to $268 million in

2012, the lowest value during the last decade (USDA/NASS, 2013a).

Page 13: © 2014 Xiang Cao...Xiang Cao August 2014 Chair: Lisa House Cochair: Zhengfei Guan Major: Food and Resource Economics The technological shock from the methyl bromide phase-out and

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As one of the most important agricultural industries in the state, the Florida

tomato industry also is facing increasing challenges due to the costs of domestic

production. Tomato production costs in Florida continue to increase, with a main

contributor being soil fumigation costs. Soil fumigation is applied to control nematodes,

soil-borne pests, weeds, and plant diseases. Methyl bromide (MBr), which has now

been banned in the United States, has been shown to be the most effective soil

fumigant. In the past, most US agricultural producers utilized MBr as the primary

fumigation strategy due to its easy operation and high efficacy. As shown in Figure 1-3,

many crops in Florida, including fresh tomatoes, peppers, and strawberries, accounted

for 50%, 32%, and 12% of total MBr pre-plant usage, respectively, in the United States

before 2000 (Osteen, 2000).

After MBr was identified as one of the chemical substances that can cause ozone

depletion, it was slated for phase-out in the United States under the Montreal Protocol

of 1987. In 1992, MBr was officially listed as a stratospheric ozone-depleting substance

and, in 1997, the Montreal Protocol required that developed countries must eliminate all

MBr fumigants by 2010, with few exceptions. In the United States, MBr is now only

permitted under Critical Use Exemptions (CUEs) on a very limited scale under close

government scrutiny. Between 2005 and 2013, CUEs were authorized for Florida

tomato, strawberries, pepper, and eggplant commercial production.

Since the MBr phase-out, US growers have gradually started applying other

fumigants in place of MBr, but scientific research has been unable to find feasible

fumigant alternatives with the same consistent, high technical effectiveness and low

cost as MBr. Alternative fumigants currently used in the US agricultural industry have

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exhibited significant variations under different conditions. The MBr phase-out has put

tremendous pressure on the US fruit and vegetable industries. The Florida tomato

industry, the largest fresh tomato supplier in the nation, has suffered from increasing

production costs and decreasing yields. Economically, the MBr phase-out has caused

substantial financial losses to Florida producers, with estimated losses calculated at

more than $500 million (Spreen et al., 1995). According to the fumigation usage survey

conducted in 2012 by the Florida Tomato Exchange and the Florida Fruit and Vegetable

Association (FFVA), the new MBr alternatives/substitutes have caused up to a 20%

yield loss compared to MBr treatments, and growers have suffered from extra costs

resulting from additional Integrated Pest Management (IPM) under the current

fumigation system.

Between 2005 and 2013, CUEs were authorized in Florida for commercial tomato

production, but CUEs expired at the end of 2013. A petition submitted for an exemption

to the rule for Florida in 2013 was rejected. The petition had requested additional MBr

allocations for 2015 and 2016 as a “methyl bromide rescue treatment” (as formulated

with chloropicrin MBr:Pic (67:33)) in critical situations where the chemical alternatives

failed to manage soilborne pests, pathogens, and weeds.

Objectives

The technological shock from the MBr phase-out in the United States, coupled

with intense competition from Mexico (classified as a developing country still allowed to

use methyl bromide under the Montreal Protocol) has challenged and imposed

pressures on the Florida tomato industry. Against such a background, the first objective

of this thesis is to provide growers and policy makers with scientific information on

optimal fumigation strategies, so as to help lower production costs and risks and to

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boost yields in the struggling Florida tomato industry. We will evaluate the cost

effectiveness and risk efficiency of MBr and MBr alternatives for the Florida tomato

industry using partial budgeting analysis and stochastic dominance methods based on

field trials conducted by the University of Florida.

A second objective of this thesis is to provide the struggling US tomato industry

with marketing information to understand consumer demand and willingness to pay for

local (Florida/US) tomatoes, as consumer choice is of vital importance to the domestic

tomato industry. Based on a mall intercept survey using the Contingent Valuation

Method (CVM) conducted by the University of Florida, we will study the effect of three

market strategies on consumer preference for Florida/US tomatoes versus Mexico

tomatoes. Country of origin labeling effect, consumer preference, and willingness to pay

will be identified and estimated through ordinal logistic and simple linear regressions.

Organization

The remainder of this thesis is divided into four chapters. Chapter 2 is the

literature review with respect to the economic impact of the MBr phase-out based on

partial budgeting analysis, stochastic dominance studies, country of origin labeling

(COOL) research, and “local food” studies. Chapter 3 presents the results of the cost

effectiveness and risk efficiency of MBr alternatives in Florida tomato production

through partial budgeting and stochastic dominance analyses, including experiment

data description, theoretical statements, and results analysis. Chapter 4 mainly focuses

on determining the impact of state-specific signs and labels on tomato marketing,

including data description, CVM statements, regression modeling, and results analysis.

Chapter 5 summarizes the studies, presents the conclusions and discussion, addresses

limitations, and offers suggestions for future research.

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Figure 1-1. US and Florida fresh tomatoes productions from 2000 to 2012

Source: USDA/NASS (2013a).

Figure 1-2. Origins of US fresh tomatoes imports (Mexico, Canada, and other

countries)

Source: USDOC (2013).

38.8937.70

39.59

35.3637.95 38.03

36.2733.63

31.1433.24

27.96 28.23 27.59

15.76 14.91 13.98 14.19 15.12 15.5413.48 13.32

10.4612.30

8.56 9.12 9.57

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mill

ion c

wt US total Florida

13.0014.97 15.95 17.31 17.17 17.67 18.61

20.94 21.77 23.08

30.43 29.26 30.43

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Mill

ion c

wt

Mexico Canada Others

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Figure 1-3. Florida annual pre-plant methyl bromide usage info before year 2000

Source: USDA/ERS (2013a).

50%

32%

12%

6%

Tomatoes Peppers Strawberries Other

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CHAPTER 2 LITERATURE REVIEW

There have been some prior studies on the economic impact, feasibility, and

efficacy of MBr and its fumigant alternatives after the MBr phase-out. The majority of

these studies focus on estimating the economic impact that resulted from the MBr ban.

Other research discussed the economic viability other than the technical feasibility of

various MBr substitutes/alternatives to find out whether there exist optimal fumigation

strategies to replace MBr.

In 1993, the National Pesticide Impact Assessment Program (NAPIAP) of the

United States Department of Agriculture estimated annual economic losses of $1.3

billion to $1.5 billion if an MBr ban occurred in the United States, of which $900 million

would be attributed to soil fumigation. The NAPIAP also estimated that the greatest

losses would occur in tomatoes ($350 million) and strawberries ($110 million). Specific

estimated impacts to the state of Florida included a 45% to 50% decrease in tomato

production and a 65% to 70% decrease in strawberry production (NAPIAP, 1993).

Deepak et al. (1996) estimated the influence of the MBr phase-out on the winter

market for fresh vegetables, particularly on the Florida market. Florida is the leading US

domestic fresh vegetables supplier in winter due to Florida’s unique climate. Deepak et

al. (1996) used a quadratic and programming model and empirical specifications to

divide Florida into four regions and to analyze the per acre production cost and yield

data with and without MBr. They then compared the per acre production costs and

yields for selected crops such as tomatoes, pepper, cucumbers, squash, and eggplant

in Mexico and Texas, Florida’s two main competitors in winter fresh vegetable market

(Deepak et al., 1996). Empirical results suggested that the MBr ban would have a

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negative impact on Florida fruit and vegetable producers. Tomato production in Florida

would decrease sharply, and Mexico would gain much of the market lost to Florida

because producers in Mexico would not be affected by the MBr phase-out. Consumers

would face higher retail prices, ranging up to 10%, depending on the commodity, month,

and location of the market (Deepak et al., 1996).

Lynch et al. (1997) systematically analyzed the economic impact of the MBr ban.

They identified and evaluated the costs and efficacy of the technically feasible chemical

and non-chemical alternatives to MBr in California and Florida. They concluded that if

1,3-Dichloropropene (Telone®), Chloropicrin, and Pebulate were available, the

dependence of Florida tomato growers on one single chemical combination would be

decreased, and the economic losses to Florida growers would be much smaller than

previously calculated (Lynch et al., 1997). Hueth et al. (1997) estimated the short-term

impact of eliminating MBr completely on California agriculture. Their study analyzed the

cost of the MBr ban in California via measuring the direct change in consumer and

producer welfare. The results showed that the impact on growers’ profits might vary

corresponding to the exotic pest infestation (Hueth et al., 1997). They further

acknowledged that the result had some uncertainties due to lack of enough

experimental trials and the incapacity to predict future outcomes.

Lynch and Carpenter (1999) regarded the MBr phase-out as a spatial partial

equilibrium problem and used two methods to investigate its impacts. The first method

“calculated the value of each pound of methyl bromide based on anticipated yield and

cost changes assuming constant prices” (Lynch & Carpenter, 1998, p.1). The second

method “examined the annual crops that use MBr extensively, allowing for both acreage

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and price adjustments” (Lynch & Carpenter, 1998, p.1). The result showed that

replacing MBr with alternative fumigants would mean significant financial losses for

producers and higher prices and lower quality produce for consumers.

Carpenter et al. (2000) developed a comprehensive report about the impact of

the MBr phase-out. The main purpose of this study was to estimate the impact of an

MBr ban for different crops in different regions, including Florida. The research analyzed

the cost effectiveness and yield performance per acre for various MBr alternative

fumigants through field trials and expert opinions. The economics model in the report

included calculations of baseline equilibrium production, monthly shipment information

between production areas and markets, and monthly consumption in each

representative market in each month given the current technology (Carpenter et al.,

2000). The estimated potential production losses for the Florida tomato industry

resulting from the MBr ban ranged from 20% to 40%. Telone C-17 was expected to

substitute for MBr and various herbicides at an increased cost of $227.50 per acre for

Florida tomato and strawberry producers. Carpenter et al. (2000) also stated that

Florida producers would increase planted strawberry acreage and decrease planted

tomato and pepper acreages. Total net loss in welfare for the United States was

estimated at $76.5 million on the basis of using revenue to measure the overall

influence to all US producers and consumers.

VanSickle et al. (2000) expanded the study based on the 1996 research, with a

special emphasis on evaluating the impact of the MBr phase-out on the US fresh

vegetable industry. According to the costs and yields from the model, they concluded

that the expected impact on the US market due to the 2005 elimination of MBr would

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have the greatest negative impact on the US strawberry market, and that tomato and

pepper production also would experience large financial losses. It was estimated that

Florida tomato growers would lose $68.8 million in shipping point revenues and that the

expected fumigation strategy would be Telone C17 plus herbicide Tillam (VanSickle et

al., 2000).

Sydorovych et al. (2008) investigated the cost-effectiveness of MBr and its

substituted fumigant treatments used in tomato and strawberry production in North

Carolinavia partial budgeting analysis. They collected the input cost and yield data from

field experiments and expert knowledge. In their study, MBr was the base treatment to

be compared with other fumigation strategies, including Telone-C35, Telone II,

Chloropicrin, Midas, Inline, etc. (Sydorovych et al., 2008). The results indicated that

there were technically and economically feasible alternatives to MBr for tomato

production in growing conditions similar to Fletcher, North Carolina (Sydorovych et al.,

2008).

Byrd et al. (2007), Ferrer (2010), and Fonash et al. (2010) studied the effects of

MBr alternatives with Georgia peppers. Using stochastic dominance and multi-period

programing methods to identify the feasible fumigant-herbicide system alternative to

MBr for Georgia pepper producers, Byrd et al. (2007) found that a Telone II and

chloropicrin combination with metham potassium might offer a viable substitute for MBr.

Using the complete factorial treatment analysis approach, Ferrer et al. (2010) analyzed

the profitability efficiency of MBr and its alternatives for the Georgia pepper industry.

Their results indicated that the combination of 1,3-dichloropropene plus chloropicrin,

metham sodium, and smooth low density black on black polyethylene mulch was the

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most profitable fumigant and mulch option. Similarly, Fonash et al. (2010) utilized the

multiple factor analysis to analyze comparative yield efficiencies of MBr alternatives and

mulching systems for pepper production in the southeastern United States. They

concluded that 1,3-dichloropropene plus chloropicrin plus metham sodium could

maximize pepper production.

In conclusion, previous research has proven that the MBr phase-out has resulted

in huge financial losses to the US fresh fruit and vegetable industries, including the

Florida tomato industry. Furthermore, different studies have identified various possible

MBr fumigation substitutes based on scientific experiments conducted in different US

locations.

The above review focused on fumigation and pest management on the

production side. On the marketing side, the review will focus on agricultural marketing

and consumer behavior. As an important food-product quality attribute, country of origin

labeling (COOL) has been studied for decades. This literature review starts with

previous research on food labeling, followed by prior COOL and local food studies and

the factors influencing consumer preference and willingness to pay for COOL.

Driven by increasing consumer demand for healthier, safer, and more

environmentally friendly food products, food labeling is playing an increasingly important

role in the food marketing system (McCluskey & Loureiro, 2003). Consumers acquire

various types of information about food-product attributes from food labels, thus helping

consumers make final purchasing decisions. Theoretically, consumers demand food-

product attributes (e.g., taste, nutrition, or food quality) rather than the food-product

itself. The food-product is simply regarded as a bundle of tangible or intangible

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attributes that satisfies consumers and increases their utility. In 1966, Lancaster pointed

out that specific food-product attributes embodied in a food-product offer the basis for

purchasing decisions made by consumers. Thus food-product attributes via labels affect

consumer preference and willingness to pay (WTP) and, in turn, the demand for food

products.

Some food-product quality attributes are easily discernible by consumers,

especially for fresh produce, such as size, color, firmness, etc. These readily discernible

dimensions are called search and experience attributes (Stigler, 1961; Nelson, 1970).

Search attributes, referring to the visual attributes of the food-product (e.g., size, color),

can be obtained by consumers before purchasing. Experience attributes, such as taste,

are affirmed after consuming the food-product (Stigler, 1961; Nelson, 1970). However,

other quality features, such as organic, country of origin, and locally grown, cannot be

ascertained by consumers through direct experience. These attributes are defined as

credence attributes. Credence attributes cannot be evaluated by consumers before

purchase or after consumption without incurring prohibitively high information costs

(Darby & Karni, 1973; Anderson & Anderson, 1991). In this case, the credence

attributes of certain food-products can be identified via labeling. Studies have shown

that some credence attributes have positive impacts on consumer preference which

means that consumers are willing to pay a premium for certain quality attributes as

claimed by food-product labels (Burton et al., 2001; Umberger et al., 2002; Loureiro &

Umberger, 2003; Wirth et al., 2007; Dentoni et al., 2009; Gao et al., 2010).

In the US fresh produce industry, country of origin labeling (COOL) has been a

hot topic since COOL provisions for fresh fruits and vegetables first were included in the

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Farm Security and Rural Investment Act (FSRIA) of 2002. FSRIA requires market

retailers, such as full-line grocery stores, supermarkets, and club warehouse stores, to

voluntarily label their products with COOL information stickers for consumers at the final

point of purchase. The USDA issued guidelines for voluntary country of origin labeling

(VCOOL) in 2002, which applied to the FSRIA covered products, including fresh fruits

and vegetables (VanSickle, 2008). In contrast, the 2002 US Farm Bill prescribed

mandatory country of origin labeling (MCOOL) instead of VCOOL. MCOOL, however,

was postponed due to the debate on its costs and benefits until the United States

Department of Agriculture’s final rule for MCOOL went into effect in March of 2009.

One of the issues that resulted from the change from VCOOL to MCOOL is

relative to consumers’ WTP for COOL. Much research has studied the effects of COOL

on consumer preference and WTP. For example, in 1965, Schooler was the first to

study the influence of COOL on consumers’ acceptance of products via empirical tests.

The results of the study indicated that consumers in the Central American Common

Market attributed certain characteristics to products from other member countries on the

basis of the country of origin. Since then, more research has been conducted on

consumer preferences regarding COOL for agricultural products, with most of the

research confirming that consumers prefer foods produced in their own country or

region (Verlegh & Steenkamp, 1999; Loureiro & Umberger, 2003, 2007 Chambers et al.,

2009).

In 2001, Schupp and Gillespie found that an average of 90.3% consumers in

Louisiana supported MCOOL for beef. Using data from a mail survey, they estimated a

probit model, and concluded that food safety concern was a significant factor in

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increasing the probability of a consumer supporting MCOOL. Another finding was that

consumer preference for locally produced beef also positively affected the likelihood of

supporting MCOOL.

Similarly, Loureiro and Umberger (2003) showed that Colorado consumers were

willing to pay $1.53 and $0.70 more per pound for steak and hamburger produced in the

United States with a “US certified beef” label, respectively. They also found

demographic differences in WTP with female consumers most likely to pay a premium

for COOL and to be more supportive of MCOOL. Consumers with higher education

levels and higher household income were less willing to pay a premium for “US certified

beef”.

A nationwide survey conducted by Loureiro and Umberger (2004) showed that

consumers were willing to pay a relatively small price premium for US produced meat

due to their concerns about food safety issues associated with imported meat products.

They also found that consumers expressed more concerns about meat safety

inspections, production quality labels, and traceability of beef than they were about

COOL information.

Mabiso et al. (2005) used an experimental auction to estimate the predominant

determinants of WTP for COOL via a double-hurdle probit model for fresh apples and

tomatoes. The authors concluded that consumers were willing to pay a premium for

COOL. In the case of apples, 79% of the respondents were willing to pay a premium for

COOL, valued at $0.48 on average. Results were similar for tomatoes, with 72% willing

to pay an average of $0.49 as a premium.

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Other research has identified various reasons why COOL information affects

consumer preference. Researchers have analyzed how COOL may help to signal or

suggest a specific degree of safety and/or quality regarding particular food-products

(Lewis & Grebitus, 2013). Verlegh and Steenkamp (1999) found that “country of origin

has a larger effect on perceived quality than on attitude toward the product or purchase

intention.” Becker et al. (2000) discovered that COOL was used by consumers to infer

and predict eating quality and safety. Loureiro and Umberger (2007) concluded that

COOL might only work as a signal of enhanced quality and safety given the fact that

consumers regarded foods with COOL information as having higher food quality and

better safety than foods without COOL information.

Consumers also may be willing to pay more for food products labeled with

country of origin information for emotional reasons. Verlegh and Steenkamp (1999)

concluded that there are three main mechanisms for COOL effects: cognitive, affective,

and normative cues. Cognitive cues refer to the concept that consumers use COOL to

infer the quality of the food. Affective cues refer to the emotional value a product has for

consumers, such as improving their social status (Batra et al., 2000). The normative cue

involves consumers’ social and personal norms relating to country of origin (Verlegh &

Steenkamp, 1999). For instance, preferring domestic food products is related to

negative attitudes toward foreign countries (Shimp & Sharma, 1987; Klein et al., 1998).

In addition to COOL research, “locally grown” food (local foods) has also been

studied in recent years. The factors that contributed to the increasing consumer

preference for local foods relative to out-of-state and imported foods have been

investigated by many researchers (Eastwood et al., 1987; Lehman et al., 1998; Brown,

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2003; Loureiro et al., 2003; Campbell et al., 2004; Carpio & Isengildina-Massa, 2009;

Curtis et al., 2014). Similar to COOL, the most cited reason for consumer preference for

local foods is safety, health, and quality. Furthermore, consumers may have an altruistic

desire to support their community. They also may relate local production to being more

environmentally sustainable. Consumer preference for local food is enhanced when the

local food products are labeled as locally grown or state certified.

In summary, plenty of research has shown that COOL may impact consumers’

preferences and final purchasing decisions. Consumers were found to be more willing

to pay premiums on COOL for certain food products and to show a preference for

locally grown foods.

In the following sections of this thesis, chapter 3 analyzes cost effectiveness and

risk efficiency of MBr and its alternatives based on scientific trials conducted by the

University of Florida in 2013. Partial budgeting analysis and stochastic dominance

methods are used to compare all fumigations in the field trials and to identify the optimal

fumigation strategy. In chapter 4, the effect of three market COOL strategies on

consumer purchases of Florida/US versus Mexico tomatoes are analyzed based on a

mall survey conducted in 2014. Other factors such as demographics that may have an

effect on consumer preference and WTP are identified and estimated. Ordinal logistic

regression models and simple linear regression models are performed to determine the

impact of COOL and other factors that may have a significant influence on consumer

demand and willingness to pay for fresh tomatoes.

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CHAPTER 3 ECONOMIC ANALYSIS OF FUMIGATION ALTERNATIVES, THE METHYL BROMIDE

BAN, AND ITS IMPLICATION

This chapter focuses on methyl bromide (MBr) phase-out and MBr alternatives in

the Florida tomato industry. As discussed in chapter 1, the US tomato industry has been

threatened by increasing production costs and decreasing yields resulting from the MBr

phase-out under the Montreal Protocol. As of 2014, scientific research has not found

feasible fumigant alternatives with the consistent, high technical effectiveness and low

cost of MBr. Alternative fumigants currently being used in the US tomato industry have

exhibited significant variations under different environmental conditions (Duniway, 2002;

Noling et al., 2005; Rosskopf et al., 2005; Noling et al., 2013). Therefore, this chapter

evaluates both the cost effectiveness and risk efficiency of MBr and the alternative

fumigants in the Florida tomato industry using partial budgeting analysis and stochastic

dominance methods. The findings will provide tomato growers and policy makers with

scientific information on optimal fumigation strategies to help reduce the production

costs and risk and boost yields of the struggling US tomato industry.

Fumigation Information in the Florida Tomato Industry

In the early transition period between 2005 and 2008 from MBr to alternative

fumigants, most growers used available stocks of MBr as the soil fumigation in their

crop production. Once MBr shortages began occurring in 2008, the industry had to find

effective substitutes for MBr. However, the use of alternative fumigants came with

issues of both technical and economic effectiveness. The FFVA survey in 2011/12 was

designed to determine alternative fumigation usage information to detect pests, weeds,

and disease problems associated with alternative fumigants and what additional

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Integrated Cropping Practices were being implemented, and to estimate the production

losses due to repeated usage of MBr alternative fumigation treatments.

The 2011/12 FFVA survey interviewed 12 major tomato growers in Florida. The

total planted acreage of fresh tomato reported in the survey was about 8335 acres.

According to the survey, in 2010, tomato growers transferred from MBr:Pic (50:50) (50%

of Methyl bromide and 50% of Chloropicrin) to PicChlor 60 (1,3-Dichloropropene and

Chloropicrin). From 2010 to 2012, PicChlor 60 usage experienced a significant increase

while MBr:Pic (50:50) usage decreased. Due to its low cost and availability, PicChlor 60

became the most popular fumigant for Florida tomato growers. Between 2008 and

2012, only a few growers applied small amounts of other fumigants such as Midas

(98:2), Midas (50:50), and PaladinTM in their tomato fields.1

All tomato growers in the survey specified that MBr: Pic (98:2) or MBr:Pic (67:33)

had been used at an earlier point, as a fumigant treatment due to its higher efficacy in

pest, weed, and disease control. Growers also specified that current alternative

fumigation systems could cause up to a 20% tomato yield loss compared to MBr

fumigant treatments.

Based on the use of current MBr alternative fumigation systems, most growers

reduced or stopped double-cropping due to MBr alternative/substitutive fumigations

failing to control pests, weeds or diseases as effectively as MBr. As a result, double-

cropping yields dropped significantly.

1 In 2008, Midas was granted a conditional registration for Florida but was suspended in 2012, and PaladinTM was only available for limited use in Florida under an experimental use permit (EUP), with full registrations pending (Rosskopf et al., 2010).

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The survey results also indicated that integrated cropping practices, which refer

to the additional practices utilized to minimize pests or weeds or to control a component

of the soil-borne pest complex, were needed in commercial tomato production under the

current fumigation systems. Specifically, most growers applied glyphosate, Roundup,

and/or Sandea as additional herbicides in summer fallow. In addition, growers had to

perform extra disking and hand weed pulling which increase labor costs; some growers

even planted primary cover crops such as sorghum to manage soil fertility and quality.

Because current MBr alternatives have performed poorly compared to MBr

treatments in controlling nematodes, weeds, and diseases, there has been more crop

yield losses. Nutsedge and Fusarium wilts were identified by tomato growers as

affecting yield the most, causing 10% to 20% yield losses. PicChlor 60 has failed to

provide adequate technical efficacy against nutsdges and Fusarium wilts.

In summary, the FFVA survey revealed that the current MBr alternative

fumigation treatments in Florida tomato production have been less effective than MBr

fumigation treatments, leading to lower crop yields, higher production costs, and

increased financial losses for the growers.

Materials and Methods

Two analytical tools are employed to analyze the cost effectiveness and risk

efficiency of MBr fumigation treatments versus the MBr alternative fumigation treatment

systems, including non-fumigated treatment, used in the field trials conducted by the

University of Florida in Balm, Florida in fall 2013. Partial budgeting analysis is employed

to evaluate and analyze the cost effectiveness and economic efficacy of MBr treatments

and its substitutes. Stochastic dominance approaches, including second-order

stochastic dominance (SSD) and stochastic efficiency with respect to a function (SERF),

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are used to identify and rank different fumigation strategies in the field trials based on

risk efficiency under given risk aversion.

Partial Budgeting Analysis

Partial budgeting analysis is a standard technique to assess the economic impact

of a change in a farm system (Kay et al., 1994). This type of analysis is frequently used

to estimate the impact of various alternative production techniques when the changes

involve only parts of the production system (Warmann, 1995; Roberts & Swinton, 1996;

Wossink & Osmond, 2002). The partial budgeting technique compares the negative

effects of applying a new treatment relative to a base or standard treatment to the

positive effects associated with the new treatment (Sydorovych et al., 2008). Negative

effects consist of added costs and reduced returns of the alternative treatment

compared with the base treatment; while positive effects include reduced costs and

added returns of the alternative treatment compared with the base treatment. In this

case, average yields, fumigation costs, harvest & marketing costs, and net returns that

change with different fumigation treatments should be considered. Those costs that are

fixed across treatments are excluded in partial budgeting analysis. It is assumed that

the added/reduced costs for the alternative treatment were incurred if the alternative

treatment caused higher/lower fumigation costs or it resulted in higher/lower harvest &

marketing costs. In this analysis, the base treatment is MBr:Pic (67:33), the MBr

treatment most commonly used by tomato growers in Florida before the MBr ban.

Stochastic Dominance and Stochastic Efficiency Analysis

Stochastic dominance (SD) is a useful economic tool to analyze risk returns of

different choices (e.g., investment portfolios or treatments) through stochastic ordering.

Stochastic dominance can act as a valid efficiency criterion to determine the risk

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efficient set of various alternatives of input factors in production such as fertilizers,

fumigants, and pesticides. Simetar®, a statistical software developed by Texas A&M

University, which focuses on risk analysis and management in agribusiness, is used to

perform the stochastic dominance analysis.

Using the SD approach, both the performance of different fumigations and their

consistency under different conditions are considered. Second-order stochastic

dominance (SSD) is performed to analyze the risk and returns of these alternatives to

determine the risk efficient set of various fumigation treatments. The SSD analysis

incorporates risk aversion, assuming the utility function is concave; that is, the second

derivative of the utility function is negative, u’’<0. This eliminates certain dominated

distributions from the efficiency set of first-order stochastic dominance (FSD) through

restricting risk aversion. Mathematically, a necessary and sufficient condition for an

option F to dominate an alternative G by all risk-averse decision makers is:

∫𝐹(𝑧)𝑑𝑧 ≤

𝑥

−∞

∫𝐺(𝑧)𝑑𝑧

𝑥

−∞

for all possible x (Hadar & Russell, 1969).

Graphically, a distribution is considered dominant if it “lies more to the right in

terms of differences in area between the cumulative distribution function (CDF) curves

cumulated from the lower values of the uncertain quantity (Anderson et al., 1977).”

Furthermore, stochastic efficiency with respect to a function (SERF) developed

from SSD is also conducted in the analysis. The SERF method orders a set of risky

alternatives in terms of certainty equivalents calculated for specified ranges of risk

aversion coefficients (Hardaker et al., 2004). The certainty equivalent (CE) is equal to

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the amount of a certain payoff to which a decision maker would be indifferent when

compared with a risky investment or treatment. Alternatives with higher CE values are

more preferable. The CE value of a risk-averse decision maker is typically less than the

expected money value (EMV) of the risky alternative, and the difference between EMV

and CE is considered as the risk premium (RP). The RP represents the minimum

amount that has to be paid to a risk-averse decision maker so that he/she is willing to

switch from the less risky alternative to the more risky alternative (Hardaker et al.,

2004). Figure 3-1 illustrates the concepts of CE and RP. In this figure, 𝑊 is wealth, 𝑈 is

utility, 𝐸(𝑢) is the expected utility, 𝐸(𝑤) is the expected money value, 𝐶(𝑤) is the CE,

and the difference between 𝐸(𝑤) and 𝐶(𝑤) is the RP 𝜋(𝑤).

SERF divides the range of the risk-aversion coefficients (RACs) into equal

intervals so that it can evaluate all CEs for all risky alternatives at every interval

simultaneously through different utility functions (Hardaker et al., 2004).2 In SERF, the

negative exponential utility function is the default under constant absolute risk aversion

(CARA). Hardaker et al. (2004) indicated that the negative exponential utility function in

SERF accords with the hypothesis that producers prefer less risk to more risk given the

same expected return, and it assumes that decision makers have constant absolute risk

aversion. Babcock et al. (1993) and Schumann et al. (2004) noted and demonstrated

that negative exponential utility function can be used reasonably to analyze a grower’s

decision under certain risk.

However, under CARA utility function, it implies that the changing initial wealth w

does not affect the economic decision, namely that CARA implies zero “wealth effects”.

2 Simetar® specifies 23 equal intervals.

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Although CARA is a convenient assumption, some empirical research may find it more

plausible that ARA is decreasing with wealth level (DARA), meaning that if the wealth of

a decision maker increases, then he/she will choose to increase the number of dollars

of the risky asset held in the portfolio. Simply put, richer people take higher risks. In this

case, Constant Relative Risk Aversion (CRRA) is more plausible than CARA, which

takes the form as follows:

𝑈(𝑊) = {

𝑊1−𝑟

1 − 𝑟 𝑖𝑓 𝑟 > 0, 𝑟 ≠ 1

𝐿𝑛(𝑊) 𝑖𝑓 𝑟 = 1

where r is the relative risk-averse coefficient (RRAC).

Under the power utility function, risk aversion and CRRA always imply

Decreasing Absolute Risk Aversion (DARA). Specifically, CRRA means that when the

wealth of the decision maker increases, he/she will increase the level of risky assets but

the proportion of risky assets in his/her total assets does not change. In this study, the

CRRA power utility function is used in SERF to calculate the CE. The range of RRAC is

set from 1 to 4, representing “normal risk averse” to “extremely risk averse” (Anderson &

Dillon, 1992).

Specifically, the formula for calculating CE with power utility function is (Clemen,

1991):

𝐸(𝑈) =∑𝑝𝑖(𝑋𝑖 + 𝜔)

(1−𝑟)

1 − 𝑟𝑖

𝐶𝐸 = [𝐸(𝑈)(1 − 𝑟)]11−𝑟 − 𝜔

where

𝐶𝐸 = 𝑐𝑒𝑟𝑡𝑎𝑖𝑛𝑡𝑦 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡

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𝐸(𝑈) = 𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑢𝑡𝑖𝑙𝑖𝑡𝑦

𝑟 = 𝑟𝑒𝑙𝑎𝑡𝑖𝑣𝑒 𝑟𝑖𝑠𝑘 𝑎𝑣𝑒𝑟𝑠𝑒 𝑐𝑜𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑡

𝑋𝑖 = 𝑟𝑖𝑠𝑘 𝑜𝑢𝑡𝑐𝑜𝑚𝑒

𝑝𝑖 = 𝑝𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑜𝑓 𝑋𝑖

𝜔 = 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑤𝑒𝑎𝑙𝑡ℎ

In the SERF analysis, the curves of the CEs of all the risky alternatives are

graphed on the vertical axis against risk aversion on the horizontal axis over the RRAC

range. The SERF graph facilitates the presentation of ordinal rankings for decision

makers with different risk attitudes and provides a measure of decision makers’

preferences among different risky alternatives at each risk aversion level (Hardaker et

al., 2004).

In this study, a representative farm is assumed in the SERF analysis which

represents a tomato farm in Florida with average farm equity and farm size. The farm

equity is regarded as the initial wealth of the farm. Based on the published farm financial

data from the Agricultural Resource Management Survey of the United States

Department of Agriculture (USDA/ARMS, 2013), the average farm equity of vegetable

farms in Florida is about $3,420,056. Then according to the Census of Agriculture

conducted by the National Agricultural Statistics Service of the United States

Department of Agriculture (USDA/NASS, 2013c), the average tomato farm size in

Florida is about 70 acres. Therefore, the representative farm analyzed in SERF is a

tomato farm in Florida with 70 acres land and $3,420,056 farm equity.

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Data Description and Adjustment

Data Description

Yield and input use data were collected from field trials conducted by the

University of Florida in fall 2013. The researchers used two MBr fumigant treatments,

MBr:Pic (67:33) (67% of Methyl bromide and 33% of Chloropicrin) and MBr:Pic (50:50)

(50% of Methyl bromide and 50% of Chloropicrin); three alternative fumigant treatments,

including TE-3 (Telone II, Chloropicrin, and DMDS), PicChlor 60 (1,3-Dichloropropene

and Chloropicrin), and FL-3 way (Telone II, Chloropicrin and K-pam); and a non-

fumigated treatment. There were four fields and each field had four replicate blocks.

Each block had three beds, divided into six plots, and each plot was 2.67 feet wide by

75 feet long (200 square feet = 0.0046 treated acre). Six treatments were applied on the

six plots, respectively, in each block.

The four fields had different levels of weed and nematode populations in order to

test the efficacy of MBr and its fumigant alternatives. The application rates of each

fumigant treatment for the four fields were as follows: 350 lbs/acre of MBr:Pic (67:33),

350 lbs/acre of MBr:Pic (50:50), 400 lbs/acre of TE-3, and 300 lbs/acre of PicChlor 60

and FL-3 way (122 lbs/acre of Telone II, 150 lbs/acre of Chloropicrin, and 60 gals/acre

K-pam). All treatments were covered with virtually impermeable film (VIF) mulch and

drip tapes, and applied the same amount of fertilizers, pesticides, fungicides, and

irrigation were applied to each field during the growing season. Unlike commercial

operations, herbicides were not applied in the field trials.

Fumigation costs consisted of costs for materials, machinery, and labor. For

fumigant material costs, the market prices of MBr:Pic (67:33) and MBr:Pic (50:50) used

in field trials were $12.00/lb and $8.00/lb, respectively, which were much higher than

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other fumigant prices. This was because restrictions on MBr production, import, and

consumption under the Montreal Protocol have driven the market price of MBr up in the

United States in recent years. In order to make a justifiable analysis, the original price of

MBr before the ban in 1997 (adjusted for inflation) was used. According to production

budget statistics from the FFVA, the price of MBr in 1997 in Florida tomato production

areas was about $3.01/lb. After being adjusted with the Producer Price Index (PPI) for

pesticides, fertilizers, and other agricultural chemicals released by the United States

Bureau of Labor Statistics, the MBr price in 2013 was reset at $5.45/lb (USBLS, 2013).

Accordingly, the MBr:Pic (67:33) and MBr:Pic (50:50) prices were changed to $4.80/lb

and $4.46/lb, respectively. In addition, VIF mulch and drip tape costs were also

incorporated into the fumigation material costs, estimated at $448/acre and $150/acre,

respectively.

Fumigation machinery costs only included fuel and lubrication costs.

Depreciation and other non-cash overhead were assumed to remain unchanged across

treatments and therefore excluded. For each fumigation treatment, per plot tractor time

was recorded. Then according to tractor fuel consumption information from test reports

published by the Nebraska Tractor Test Laboratory (2013), the fuel cost was estimated

by multiplying average tractor time by per hour fuel consumption based standard power

takeoff (PTO) horsepower. Lubricant cost was assumed as 10% of the fuel cost, as

suggested by a 2007 study on sample costs to produce fresh market tomatoes

conducted by the University of California at Davis (Stoddard et al., 2007).

For the fumigation labor costs, it was assumed that the fumigation operation

required one tractor driver and three field workers to lay VIF mulch and drip tapes.

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Based on farm labor rate information released by the National Agricultural Statistics

Service of the United States Department of Agriculture (USDA/NASS, 2013b), the

hourly wage rates during the July 2013 reference week were $12.55 for all hired

workers and $10.70 for field workers. Labor time for tractor driver was set to be 20%

higher than the average operation time to account for the extra labor for activities such

as equipment setting up, moving, maintenance, and field repair. After calculating the

average labor operation time for each fumigation treatment, the labor costs were

estimated by multiplying the unit wage rate by average labor hours.

Harvest & marketing costs included pick/pack/haul cost, container cost, selling

cost and organization fee. Using “Estimated tomato production costs in the

Manatee/Ruskin area” published by UF in 2009 as the reference (UF/IATPC, 2009), the

harvest & marketing costs in this study were estimated at $3.51/carton after being

adjusted for inflation (each carton contained approximately 25 lbs of tomatoes).3 Except

for fumigation costs, herbicide costs, and harvest & marketing costs, other cost items in

this reference were used after the adjustment for inflation.4

Tomato market prices used in the analysis were acquired from the Agricultural

Market Service of the United States Department of Agriculture (USDA/AMS, 2013). The

harvested tomatoes were graded and met the requirement for US No.1, US

Combination, or US No.2 of the US Standard for Grades Tomatoes. The three standard

3 The estimated costs in this reference were structured as “pre-harvest cost” and “harvest and marketing costs”. The pre-harvest cost included 1) operating costs, which covered major variable cost items such as fertilizer, fumigants, herbicides, 2) miscellaneous, which included minor variable cost items such as scouting and stakes, 3) fixed costs, including land rent, machinery fixed cost, and farm management and overhead.

4 The factor of 0.822, derived based on the Producer Price Index (PPI) of tomato production published by the Bureau of Labor Statistics, was used to adjust the costs.

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graded tomatoes had respective wholesale prices. Average wholesale prices of fresh

tomatoes in southwest Florida in 2013 were used in the analysis.

The net return was calculated using gross revenue minus fumigation costs,

harvest & marketing costs, and other costs, excluding herbicide costs. Besides net

return, gross margin was also calculated using gross revenue minus fumigation costs,

harvests costs, and other variable costs, excluding fixed costs.

Data Adjustment

In total, 96 yield observations were collected and each treatment had 16 yield

observations. Except for treatments, the experiment environment and other inputs were

fixed across the fields. However, since the four fields were not identical due to different

levels of nematodes and weeds, field discrepancy also affected tomato yields. In this

case, it was assumed that there were only two factors (treatment and field) affecting the

tomato yields. A linear regression model was established to separate the treatment

effects on yield from the field effects. Dummy variables were created for six treatments

and four fields. The regression function was specified as follows:

𝑌𝐿 = 𝑎 + 𝛽2𝑇𝑅𝑇2 + 𝛽3𝑇𝑅𝑇3 + 𝛽4𝑇𝑅𝑇4+ 𝛽5 𝑇𝑅𝑇5 + 𝛽6TRT6 + 𝛾1𝐹𝐿1 + 𝛾2𝐹𝐿2 +

𝛾3𝐹𝐿3 + 𝑒

where 𝑌𝐿 represents yield, 𝑇𝑅𝑇 represents treatment, and 𝐹𝐿 represents field, and. 𝑒 is

the error term.

TRT2 is MBr:Pic (67:33), TRT3 is MBr:Pic (50:50), TRT4 is TE-3, TRT5 is

PicChlor 60, and TRT6 is FL-3 way. Since dummy variables are used in the regression,

to avoid the dummy variable trap, a benchmark category is needed; therefore the

intercept stands for the combination of TRT1 & FL4, namely the non-fumigated

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treatment in Field No. 4. The error term includes all other potential risk factors that can

impact tomato yields besides the two factors of treatment and field.

The regression model is estimated using the ordinary least square (OLS)

method. Regression results (Table 3-1) illustrate that except for TRT6 (the FL-3 way),

other fumigation treatments do have positive effects on tomato yield if compared to the

non-fumigated treatment in Field No. 4, and are significant at the 5% level. All field

variables are significant statistically at the 5% level. Specifically, TRT2, namely MBr:Pic

(67:33), has the maximum coefficient, estimated at 61.119, followed by TRT3, MBr:Pic

(50:50) estimated at 52.663; TRT4, TE-3 estimated at 44.038; and TRT5, PicChlor 60

estimated at 25.150. As for field variables, FL1 and FL2 have positive effects on yields,

but FL3 has a negative effect on yield compared to Field No. 4. The estimated

parameters for FL1, FL2, and FL3 are 48.448, 41.371, and –40.188, respectively. Since

the field effects have been determined, in the following analyses, the yield data is

adjusted to remove field effects.

Results

Fumigation Costs of MBr and Alternative Soil Treatments

Table 3-2 indicates the costs of fumigation with MBr:Pic (67:33) and its

alternative treatments. Estimated fumigation costs vary over treatments. Specifically,

fumigation costs are decomposed into material costs, labor costs, and machinery costs.

The projected fumigation costs of the base treatment, MBr:Pic (67:33), are the most

expensive, estimated at $2391.94/acre. Other alternative soil treatments and the non-

fumigated treatment result in savings in fumigation costs relative to MBr:Pic (67:33).

The non-fumigated treatment is the least expensive alternative at $711.78/acre for

fumigation costs, including the estimates of machinery, material, and labor costs of

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laying the VIF mulch and drip tapes. The differences in fumigation costs for each

alternative treatment relative to MBr:Pic (67:33) are also listed in Table 3-2. Other than

the non-fumigated treatment, the most cost-savings fumigation treatment is PicChlor 60,

followed by TE-3, FL-3 way, and MBr:Pic (50:50).

Estimated Yields, Total Costs, and Net Returns Associated with MBr and Its Alternative Treatments

Average tomato yields of MBr:Pic (67:33) and its selected alternative treatments

are shown in Table 3-3. The results show that the highest average marketable yield is

associated with MBr:Pic (67:33), the base treatment in the field trials, which is 31402.17

lbs/acre. Another MBr treatment, MBr:Pic (50:50), produces the second highest average

marketable yield (39563.86 lbs/acre), followed by TE-3 (27688.86 lbs/acre), PicChlor 60

(23582.88 lbs/acre), and FL-3 way (21334.24 lbs/acre). The non-fumigated treatment

has the lowest average yield of 18115.49 lbs/acre. Because unit harvest & marketing

cost is estimated at $3.51/25-lb carton as discussed above, total harvest & marketing

cost for each fumigation treatment is in direct proportion to its average tomato yield.

Average wholesale prices of fresh tomatoes in southwest Florida in 2013 were

$12.65/carton for jumbo and extra-large tomatoes, $11.21/carton for large tomatoes,

and $10.50/carton for medium and small tomatoes. Projected gross revenues were

estimated using tomato market prices and average yields graded in different fruit size

categories. The base treatment, MBr:Pic (67:33), leads to the highest average gross

revenue at $14484.39/acre. TE-3 performs the best among the selected alternative

fumigation treatments except for the two MBr treatments. Its estimated gross revenue is

about $12735.98/acre and the gross revenue losses relative to both of the MBr

treatments are less than those for PicChlor 60, FL-3 way, and the non-fumigated

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treatments. The fumigation currently most used in Florida tomato production, PicChlor

60, would incur a loss of $3568.52/acre in gross revenue relative to MBr:Pic (67:33). FL-

3 way treatment results in more losses in gross revenue relative to MBr:Pic (67:33),

estimated at $4402.54/acre. The non-fumigated treatment causes the greatest gross

revenue loss ($6175.20/acre) relative to MBr:Pic (67:33).

When it comes to average net return, all treatments result in negative values.

According to Table 3-4, base treatment MBr:Pic (67:33) leads to the lowest average

loss in net return at –$749.32/acre, followed by MBr:Pic (50:50) (–$1236.15/acre), TE-3

(–$1605.15/acre), and PicChlor 60 (–$2420.04/acre). FL-3 way incurs the highest

average loss in net return, reaching –$3559.02/acre, even higher than the non-

fumigated treatment (–$3378.91). All other fumigation treatments generate positive

gross margin except for FL-3 way (–$369.43/acre) and the non-fumigated treatment (–

$189.32/acre). MBr:Pic (67:33) has the highest gross margin, reaching $2440.27/acre

on average, followed by MBr:Pic (50:50) ($1953.44/acre), TE-3 ($1584.44/acre), and

PicChlor 60 ($769.55/acre).

Table 3-4 also indicates the average breakeven grower price under each

treatment required to cover total fresh tomato production costs. The breakeven grower

price for MBr:Pic (67:33) is about $12.13/carton, followed by MBr:Pic (50:50)

($12.57/carton), TE-3 ($12.95/carton), PicChlor 60 ($14.14/carton), FL-3 way

($15.98/carton), and the non-fumigated treatment ($16.13/carton).

Table 3-5 displays the negative and positive effects of each fumigation treatment

relative to the base treatment, calculated with the estimated fumigation costs (Table 3-

2), and harvested costs and gross revenues (Table 3-3). Except for fumigation and

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harvest & marketing costs, other costs in production remained unchanged across the

fumigation treatment applications so these costs (e.g., fertilizer, pesticide, fungicide,

etc.) are excluded from the analysis. The total negative effects of one alternative

treatment consisted of the added costs and reduced returns relative to the base

treatment, and total positive effects included reduced costs and added returns. The total

net effect of one alternative treatment relative to the base treatment is the difference in

the value of its positive and negative effects.

MBr:Pic (67:33) is the base treatment so its total effect is zero. It has the highest

fumigation costs and harvest & marketing costs so no extra costs are added into the

alternative treatment relative to MBr:Pic (67:33). The non-fumigated treatment has the

largest negative effects relative to MBr:Pic (67:33) due to its worst yield performance,

reaching –$6175.20/acre, followed by FL-3 way, PicChlor 60, TE-3 and MBr:Pic (50:50),

which are estimated at –$4402.54/acre, –$3568.52/acre, –$1748.42/acre and –

$856.42/acre, respectively. As for total net effects of the alternative treatments relative

to MBr:Pic (67:33), all the alternatives lead to negative total net effects; FL-3 way has

the largest negative net effects at –$2809.70/acre due to its high fumigation costs and

poor yield performance, followed by non-fumigated treatment, PicChlor 60, TE-3 and

MBr:Pic (50:50), estimated at –$2629.59/acre, –$1670.72, –$855.827, and –

$486.33/acre, respectively. It can be concluded that although fumigation costs of the

MBr:Pic (67:33) treatment are the highest among all the treatments, its outstanding yield

performance still makes it the most cost-effective fumigation, producing more positive

effects than the other treatments. The results also reflect that TE-3 performs the best

among the MBr alternatives.

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Stochastic Dominance and Stochastic Efficiency Analysis Results

Adjusted tomato yields are considered in the SSD analysis and the net returns of

the different fumigation treatments and the non-fumigated treatment are studied through

SERF analysis. The SSD result (Table 3-6) generalized from the CDF graph (Figure 3-

2) shows that the two MBr treatments, MBr:Pic (67:33) and MBr:Pic (50:50), dominate

the other three alternative fumigants and the non-fumigated treatment; likewise, TE-3

dominates PicChlor 60 and FL-3 way.

In the SERF analysis, as discussed above, the RRAC range in the CRRA power

utility function is set from 1 to 4, representing low-risk aversion to high-risk aversion.

The summary statistics of the net returns and initial wealth associated with each

treatment is shown in Table 3-7.

The SERF results are plotted across RRAC values by treatment in Figure 3-3.

The results illustrate that MBr:Pic (67:33) produces the highest CE values, followed by

MBr:Pic (50:50), TE-3, PicChlor 60, FL-3 way, and the non-fumigated treatment within

the given RRAC range. FL-3 way and the non-fumigated treatment intersect at the

breakeven RRAC (about 1.30) but after that, as RRAC increases, FL-3 way has a

higher CE value than does the non-fumigated treatment. It can be concluded that the

most risk-efficient fumigation strategy is MBr:Pic (67:33), which has the highest CE

values. TE-3 has the highest CE values among all MBr alternatives, better than

PicChlor 60, the most popular fumigation currently used in the Florida tomato industry.

The RPs associated with fumigation treatments relative to the non-fumigated

treatment are mapped across the RRAC values in Figure 3-4. The RPs are largest for

MBr:Pic (67:33), reaching an average $2509.43/acre across the RRAC range, followed

by MBr:Pic (50:50) ($2193.63/acre), TE-3 ($1349.40/acre), PicChlor 60 ($994.71/acre),

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and FL-3 way ($154.71/acre). Before the breakeven RRAC point, RPs for FL-3 way are

negative. As the RRAC increases, the RPs demanded for MBr:Pic (67:33) and TE-3

decrease while the RPs for MBr:Pic (50:50), PicChlor 60, and FL-3 way increase. This

is because the larger standard deviation of the net return associated with a treatment

means the net return is more risky and unstable. Therefore, as the decision maker

becomes more risk averse, he/she prefers less risky treatments so the RPs for these

treatments should increase.

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Table 3-1. Regression results on tomato yield adjustments from SAS

Variable Parameter Estimate

Standard Error t Value Pr > |t|

Intercept 70.923 8.581 8.27 0.0001*** TRT2 61.119 9.908 6.17 0.0001*** TRT3 52.663 9.908 5.32 0.0001*** TRT4 44.038 9.908 4.44 0.0001*** TRT5 25.150 9.908 2.54 0.0129** TRT6 14.803 9.908 1.49 0.1388 FL1 48.448 8.090 5.99 0.0001*** FL2 41.371 8.090 5.11 0.0001*** FL3 –40.188 8.090 –4.97 0.0001***

Number of Observation Used: n=96. Adj R-Sq: 0.6814. “*”: Significant at 10% “**”: Significant at 5% “***”: Significant at 1% Table 3-2. Estimated average tomato fumigation costs for MBr:Pic (67:33) and selected alternative soil treatments and the fumigation costs of the alternative treatments relative to MBr:Pic (67:33)

MBr and selected

alternative treatment

Fumigation labor costs

($/acre)

Fumigation machinery

costs ($/acre)

Fumigation materials

costs ($/acre)

Total fumigation

costs ($/acre)

Fumigation costs relative

to MBr:Pic (67:33) ($/acre)

Non-fumigated 70.01 43.77 598.00 711.78 –1680.16 MBr:Pic (67:33) 64.79 49.15 2278.00 2391.94 0.00 MBr:Pic (50:50) 69.06 52.39 2159.00 2280.45 –111.49

TE-3 69.77 52.39 1898.00 2020.71 –371.24 PicChlor 60 73.33 55.63 1463.00 1591.97 –799.97 FL-3 way 92.99 106.95 2012.70 2212.64 –179.30

Note: The fumigation machinery costs only included diesel and lubricant costs; depreciation and other non-cash overhead were excluded.

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Table 3-3. Marketable tomato yields, gross revenue for MBr:Pic (67:33) and selected alternative fumigant treatments, and the difference in gross revenues relative to MBr:Pic (67:33)

MBr and selected alternative treatment

Jumbo and extra-large tomato

(lbs/Acre)

Large tomato

(lbs/Acre)

Medium and small tomato

(lbs/Acre)

Total Yield (lbs/Acre)

Gross Revenue ($/acre)

Gross Revenues relative to

MBr:Pic (67:33) ($/acre)

Non-fumigated 6633.15 4605.98 6875.00 18115.49 8309.20 –6175.20 MBr:Pic (67:33) 12759.51 6977.58 11665.08 31402.17 14484.39 0.00 MBr:Pic (50:50) 11872.28 6694.97 10996.60 29563.86 13627.97 –856.42

TE-3 10855.30 6095.11 10738.45 27688.86 12735.98 –1748.42 PicChlor60 9974.86 5395.38 8212.64 23582.88 10915.88 –3568.52 FL-3 way 11502.72 4656.25 5175.27 21334.24 10081.85 –4402.54

Note: Tomato marketing prices are: $12.65/carton for jumbo and extra-large tomatoes, $11.21/carton for large tomatoes and $10.5/carton for medium and small tomatoes (Each carton contains approximately 25lb tomatoes). Table 3-4. Estimated average costs incurred to produce, fumigate, and harvest tomatoes, total net returns, and net returns of the selected alternative soil treatments relative to MBr:Pic (67:33)

MBr and selected alternative treatments

Fumigation cost ($/acre)

Harvest & marketing

cost ($/acre)

Total costs ($/acre)

Gross margin ($/acre)

Net return

($/acre)

Net returns relative to

MBr:Pic (67:33) ($/acre)

Break-even grower price

($/carton)

Non-fumigated 711.78 2543.41 11688.10 -189.32 -3378.91 -2629.59 16.13 MBr:Pic (67:33) 2391.94 4408.87 15233.72 2440.27 -749.32 0.00 12.13 MBr:Pic (50:50) 2280.45 4150.77 14864.13 1953.44 -1236.15 -486.83 12.57

TE-3 2020.71 3887.52 14341.13 1584.44 -1605.15 -855.83 12.95 PicChlor60 1591.97 3311.04 13335.91 769.56 -2420.04 -1670.71 14.14 FL-3 way 2212.64 2995.33 13640.88 -369.43 -3559.02 -2809.70 15.98

Note: Other than fumigation cost and harvest & marketing cost, other production costs for each treatment are estimated at $8432.91/acre and the fixed costs for each treatment are estimated at $3189.59/acre; total production costs exclude the herbicide costs since herbicides were not applied in the field trials.

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Table 3-5. Total negative effects (added costs and reduced returns), total positive effects (reduced costs and added returns), and total effects of the selected alternative soil treatments relative to MBr:Pic (67:33) in the tomato production system

MBr:Pic (67:33) and its

alternatives

Added costs of the

alternative treatment ($/acre)

Reduced returns of the

alternative treatment ($/acre)

Total negative

effects of the

alternative treatment ($/acre)

Reduced costs of the alternative treatment ($/acre)

Added returns of

the alternative treatment ($/acre)

Total positive effects of the alternative treatment ($/acre)

Total effects

relative to MBr:Pic (67:33)

($/acre)

Non-fumigated 0 6175.20 6175.20 3545.61 0 3545.61 -2629.59 MBr:Pic (67:33) 0 0 0 0 0 0 0 MBr:Pic (50:50) 0 856.42 856.42 369.59 0 369.59 -486.83

TE-3 0 1748.42 1748.42 892.59 0 892.59 -855.827 PicChlor60 0 3568.52 3568.52 1897.80 0 1897.80 -1670.72 FL-3 way 0 4402.54 4402.54 1592.84 0 1592.84 -2809.70

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Table 3-6. Second-order stochastic dominance result of adjusted yield of methyl bromide and its alternative treatments

Fumigant and Non-fumigated Treatments

Non-fumigated MBr:Pic (67:33)

MBr:Pic (50:50)

TE-3 PicChlor 60 FL-3 way

Non-fumigated SDD: MBr:Pic (67:33) SDD: Non-fumigated TE-3 PicChlor 60 FL-3 way MBr:Pic (50:50) SDD: Non-fumigated TE-3 PicChlor 60 FL-3 way

TE-3 SDD: PicChlor 60 FL-3 way PicChlor 60 SDD: FL-3 way SDD:

Table 3-7. Summary statistics of net returns of MBr:Pic (67:33) and its alternatives

Non-fumigated MBr:Pic (67:33)

MBr:Pic (50:50)

TE-3 PicChlor 60 FL-3

Average Net Returns -3378.33 -749.33 -1236.16 -1605.16 -2420.04 -3559.37 Standard Deviation 4424.96 4896.38 4158.88 6166.20 4373.97 2531.49

Minimum -9919.63 -10326.00 -8645.82 -10343.2 -9142.85 -9047.74 Maximum 2870.73 6734.38 3276.90 11296.66 4622.12 -342.12

Initial wealth=$3,420,056

Average farm size=70 acres

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Figure 3-1. Explanatory figure of expected money value, certainty equivalent, and risk

premium

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Figure 3-2. Comparison of MBr:Pic (67:33) and its alternatives’ CDF series for adjusted

yield data

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 50 100 150 200 250

Pro

bComparison of 6 CDF Series

Non-fumigated MBr:Pic (67:33) MBr:Pic (50:50)

TE-3 PicChlor 60 FL-3

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Figure 3-3. Comparison of the SERF results of the six treatments’ net returns under

power utility function

Non-fumigated

MBr:Pic (67:33)

MBr:Pic (50:50)

TE-3

PicChlor 60

FL-3 way

-350,000.00

-300,000.00

-250,000.00

-200,000.00

-150,000.00

-100,000.00

-50,000.00

0.00

0 1 2 3 4 5

Cert

ain

ty E

qu

iva

len

t

RRAC

Stochastic Efficiency with Respect to A Function (SERF) Under a Power Utility Function

Non-fumigated MBr:Pic (67:33) MBr:Pic (50:50)

TE-3 PicChlor 60 FL-3 way

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Figure 3-4. Comparison of the six fumigation treatments’ risk premiums under the

power utility function relative to the non-fumigated treatment ($/acre)

Non-fumigated

MBr:Pic (67:33)

MBr:Pic (50:50)

TE-3

PicChlor 60

FL-3 way

-500.00

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

0 1 2 3 4 5

RRAC

Power Utility Weighted Risk Premiums Relative to Non-fumigated

Non-fumigated MBr:Pic (67:33) MBr:Pic (50:50)

TE-3 PicChlor 60 FL-3 way

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CHAPTER 4 DETERMINING THE IMPACT OF STATE-SPECIFIC SIGNS AND LABELS ON

TOMATO MARKETING

As discussed in chapter 1, the evolving market conditions and trade relationship

between the United States and Mexico is posing tremendous challenges to the Florida

tomato industry. Against such a background, this chapter provides the industry with

marketing information to understand consumer demand for local fresh tomatoes

(Florida/US).

Consumer surveys were conducted to investigate the effect of three market

labeling stimuli regarding origin of production. The three marketing label stimuli include

various labels comparing Florida or US production to Mexican production. The goal of

this research is to identify which, if any, of the labeling strategies would lead to

increased willingness to pay (WTP) from consumers for Florida/US tomatoes. The

contingent valuation method (CVM) is used to estimate the WTP toward different

labeled tomatoes among consumers. Logistic regression and linear regression models

are used to determine the factors influencing consumers’ behavior of reading tomato

COOL, consumer choices, and WTP for local tomatoes.

Survey Designing and Data Collection

To determine the impact of different types of information on production origin, a

consumer survey was designed and conducted using the mall intercept format. In this

way, how participants’ respond to displays regarding origin of production in a setting

that is similar to a grocery store can be observed cost-effectively.

The working hypothesis is that consumers are willing to pay a premium for

tomatoes from Florida/US compared to tomatoes from Mexico. It is further hypothesized

that consumers will respond differently to the origin information in each label scenario,

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with the least noticing origin in the case of plain labels (current situation) with country of

origin, followed by plain labels with Florida identification, followed by the case with point-

of-purchase signage.

To test the hypothesis, a mall intercept questionnaire is conducted regarding the

surveyed consumers’ fruit and vegetable consumption, their fresh produce purchasing

habits, and their COOL information awareness, and the impact that different ways of

presenting origin information has on consumer choice of fresh tomatoes. Participants

are screened to meet the following criteria: an adult (older than 18 years old), primary

grocery shopper who purchased fresh tomatoes at least once/month in the past few

months. After answering the baseline questions on frequency and location of grocery

shopping, participants are presented with two wooden baskets of tomatoes in a setting

similar to what would be found in a real produce section of a store. The two baskets are

immediately next to each other on a table (as they would be on display in the store).

The tomatoes in the two baskets are exactly the same type of tomatoes except for the

different label information that indicates production origins. Random 3-digit numbers are

assigned to each label scenario to enable consumers to respond to questions about the

tomatoes without calling specific attention to the labels. The origin information is labeled

and presented in three different formats: 1) US and Mexico stickers on tomatoes

(tomato #599 vs. tomato #280); 2) Florida and Mexico stickers on tomatoes (tomato

#462 vs. tomato #280); and 3) “Grown in Florida” sign on top of the basket (similar to

point-of-purchase information in a store) plus US stickers and Mexico stickers on

tomatoes (tomato #828 vs. tomato #280). Tomato #599, tomato #462, and tomato #828

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all refer to Florida tomatoes but with different COOL strategies, namely Florida/US

tomatoes.

Participants are randomly assigned to one of three treatment groups and asked

to indicate which, if either, of the two baskets of tomatoes they are most likely to

purchase, as well as how much they are willing to pay for both kinds of tomatoes. Using

this information, differences in average WTP based on COOL scenarios can be

estimated.

After participants indicate which labeled tomatoes they prefer to purchase and

how much they are willing to pay, they are asked to identify the reasons why they

selected a tomato (if they preferred one). This is first asked in an unaided format. After

answering these questions, participants are asked whether they noticed the different

origins of the tomatoes, what kind of information on the produce label they think is

important, and their general consumption preference toward tomatoes from different

production origins.

Demographics questions are answered by participants in the end of the survey.

After the participants complete the survey, the staff members who observed the

participants complete the survey will answer several questions about whether and how

the participant touched the tomatoes.

As both Florida and Mexico tomatoes are being used for this experiment, it is

important to collect data in multiple locations (in this case, Florida, Texas, and

Maryland). It is expected that WTP for Florida/US tomatoes compared to Mexico

tomatoes will be highest in Florida. Texas is selected because it is very close to Mexico

and participants are likely to see Mexico tomatoes more frequently and be familiar with

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them. Maryland is selected as a region that does not have a reason to have a focus on

either Florida or Mexico, and thus serves as a type of control in this study. Specifically,

the cities selected are Tampa (Florida), Dallas (Texas), and Baltimore (Maryland). A

total of 210 intercepts are collected in each location (70 of each label treatment).

The contingent valuation method (CVM) is used in this survey to estimate

consumer WTP for fresh tomatoes. CVM is one of the most important valuation

methods to elicit the market value of new-products or non-market resources such as

environmental goods or services (e.g., Carson et al., 1992; Hanemann, 1994). CVM is

applied in a wide range of fields, including environmental protection, health care, and

food products (Diener et al., 1998; Hudson & Hite, 2003). Using a simulated or

hypothetical market to evaluate consumer preferences via directly asking their WTP for

certain goods or services in a survey, the CVM is called “contingent” because

consumers are asked to indicate their WTPs contingent on specific hypothetical market

scenarios.

Surveys based on CVM consist of three basic parts (Carson et al., 1989). First, a

hypothetical market under which the goods or services are to be offered is described

and presented to the survey participants. Then, questions about respondents’ WTP for

certain goods or services are presented and valued. Finally, socio-economic,

demographic characteristics questions about the consumers and their attitudes or

awareness toward the goods or services are answered by the respondents.

Haab and McConnell (2002) concluded that there are several inquiry approaches

to asking preference and WTP in CVM surveys, including open-ended format, bidding

games, payment cards, and dichotomous or discrete choice CVM. In this study, the

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open-ended format is applied in the CVM survey analysis. In this case, the respondent

is asked directly to provide a point estimate of his or her WTP for certain goods or

services. One problem of the open-ended CVM is that the consumers encounter

difficulty stating their own price. Munro and Sugden (2003) indicated that consumer

preferences were dependent on reference prices. Monroe (1977) indicated that

consumers refer to reference price points to shape their own valuation of a product.

Chernev (2003) found that the articulation of reference prices before the choice can

simplify consumer preferences through imposing a structure consistent with the nature

of the decision task.

In this study, consumers are first asked about their purchasing choice for two

different labeled tomatoes in one of the three scenarios, then they are asked to name

their own WTP for the presented tomatoes given a range of reference prices. For

example, in scenario 1 the choice is between tomato #599 and tomato #280:

“Please go to the two baskets of tomatoes and consider them as if you were

deciding what to purchase. Afterwards, please answer the following questions about the

tomatoes:

Assume that you are going to the store to purchase one (1) pound of fresh

tomatoes. Which tomato do you prefer to purchase (if they were the same price)?

⃝Tomato #599 ⃝Tomato #280

If you needed to buy tomatoes and saw these, how much would you be willing to

pay per pound of tomatoes? Prices for tomatoes like these are usually $0.99–$3.99 per

pound. If you are not willing to purchase either or both, you can enter $0.00.

Tomato #599: $_____/lb Tomato #280: $_____/lb”

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The reference price range refers to national, regular fresh tomato retail prices

from January 4, 2013 to March 14, 2014, acquired from the Agricultural Marketing

Service of the United States Department of Agriculture (USDA/AMS, 2013).

Logistic models are used to determine the relationship between consumer choice

of tomatoes and demographics, as well as various tomato COOL scenarios. The impact

of COOL scenarios on consumer choice of tomatoes can be determined by testing the

significance of the coefficients of the COOL scenario variables. The interaction between

production origin and COOL scenarios is also included in the model to determine

whether production origin information has different impacts on consumer choice under

different scenarios. Consumer’s WTP for Florida/US tomatoes versus Mexico tomatoes

is estimated. The reasons that consumers choose particular tomatoes and the impact of

production origin information on their choice are documented and compared across

different label scenarios.

Descriptive Analysis of the Survey Data

Demographic of Participants

A summary of the demographic characteristics of the participants is presented in

Table 4-1. After screening for respondents who did not qualify as an adult (18+ years

old), primary grocery shopper who purchased fresh tomatoes at least once/month in the

past few months, a total of 632 respondents completed the survey, including 209, 210,

and 213 samples in Baltimore, Dallas, and Tampa, respectively. Females and males

accounted for 55.5% and 44.5% of the total respondents, respectively. Most participants

in the sample were less than 40 years old (average, 36 years old). As for ethnicity,

Caucasians accounted for 51.7%, followed by Black or African-American (34.2%),

Hispanic (16.0%), and other races (6.1%). People with some college or a four-year

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college degree were the largest proportion of the respondents at 53.0%, followed by

people with a high school diploma or GED (33.1%). The largest group of the participants

had full-time jobs (46.9%), followed by part-time jobs (18.7%). Counting members of the

household, 50.8% of the participants had 2–3 people in their household, 31.0% had 4–6

people in their household, and 14.9% lived alone. About 45.9% of the participants had

at least one child in the family; of those households with children, 24.1% had two or

more children and 21.8% had only one child. Those participants who refused to indicate

their annual household income accounted for about 14.9% of the total participants,

while the average estimated household income of participants who answered the

question was in the $50,000–$74,999 range. The results also show that 27.9% of the

respondents averaged spending $100–$149 per week on food at the grocery store,

21.4% spent $50–$99, and 19.6% spent $150–$199; the average food cost at grocery

stores in the survey was in the $150–$199 per week range.

Consumers’ Purchasing Habits of Fresh Tomatoes

In the survey, consumers were required to answer basic questions about their

purchasing habits and attitudes toward fresh tomatoes. The survey results show that

45.4% of the respondents indicated that they had bought fresh tomatoes once per week

within the past few months. Approximately 20.9% and 18.0% indicated that they

purchased fresh tomatoes 2–3 times per month and more than once per week,

respectively. As for the location where they usually purchased fresh tomatoes, 64.7% of

the respondents indicated that they buy from supermarkets, 51.5% from local grocery

stores and 24.5% from farmer’s markets. Another 13.1% indicated that they purchase

fresh tomatoes from a warehouse or roadside stand. Respondents identified regular

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tomatoes (42.3%) and tomatoes on the vine (18.7%) as the most frequently purchased

types of tomatoes. Other tomato choices included heirloom, grape, Roma, and cherry.

When asked to identify what factors are most important when purchasing

tomatoes, respondents indicated freshness, firmness, and color as the top three factors.

Price, tomato size, and shape were relatively less important, and variety, country of

origin, on the vine or not, and availability of samples were the least important factors.

Consumers’ Attitudes and Preference of Different Labeled Fresh Tomatoes

After being given the opportunity to look at and touch the tomatoes in the

experiment, respondents were asked about their choice and attitude toward different

labeled tomatoes (Table 4-2). In scenario one, 56.8% of the respondents chose the

tomato with the US sticker, 24.2% chose the tomato with the Mexico sticker, and 19.0%

indicated no preference. In scenario two, 57.6% of the respondents chose the tomato

with the Florida sticker, 30.5% chose the tomato with the Mexico sticker, and 11.9%

indicated no preference between the two kinds of tomatoes. In scenario three, 59.7% of

the respondents chose tomato with the “Grown in Florida” sign on top of the basket,

29.4% chose the tomato with the Mexico sticker, and 10.9% indicated no preference.

In total, 44.3% of the respondents indicated that they had noticed the stickers or

signs and 55.7% had not. Specifically, 35.6%, 42.9%, and 54.5% of respondents in

scenarios one, two, and three, respectively, noticed the stickers or sign.

Participants were asked about what kinds of information they typically look for

when they purchase fresh produce. Nearly one-third indicated that they generally do not

look at labels on fresh produce. For the consumers who usually looked at the labels,

they focused on organic information (48.4%), brand (46.5%), country of origin (43.7%),

and nutrition information (33.4%).

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Finally, participants were asked directly if they preferred tomatoes grown in the

United States to ones grown in Mexico. In this case, 48.0% indicated that they preferred

US tomatoes over Mexico tomatoes. Similarly, 49.2% preferred tomatoes produced in

Florida compared to tomatoes from Mexico. When asked about preferences between

tomatoes grown in Florida or the United States, more than half (56.8%) had no

preference. This information differed by location, with 64.8% of respondents in Tampa

preferring tomatoes produced in Florida over tomatoes produced in Mexico. This

compares to respondents in Baltimore (48.3%) and Dallas (34.3%). This also occurred

with tomatoes produced in Florida compared to tomatoes produced in the United States,

with 43.7% of respondents in Tampa preferring Florida-grown tomatoes compared to

23.9% in Baltimore and 17.1% in Dallas.

Consumers’ WTP for Florida/US Tomatoes and Mexico Tomatoes

Immediately following looking at the tomatoes and indicating which they preferred

(if either), participants were asked to indicate what they would be willing to pay for each

tomato they saw (Table 4-3). In scenario 1, participants were willing to pay an average

of $1.87/lb for the tomato with the US sticker and $1.55/lb for the tomato with the

Mexico sticker. In scenario 2, participants were willing to pay an average of $1.81/lb for

the tomato with the Florida sticker and $1.63/lb for the tomato with the Mexico sticker. In

scenario 3, participants were willing to pay an average of $1.68/lb for the tomato with

“Grown in Florida” sign plus US sticker and $1.50/lb for the tomato with the Mexico

sticker.

Models

Latent preference plays an important role in consumer purchasing behavior.

Specifically, in this experiment, latent preference includes consumer purchasing habits,

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general attitudes of consumers toward different attributes of fresh tomatoes in their true

purchasing behavior, and the perception of COOL for fresh tomatoes. Three different

COOL scenarios, demographic characteristics, and latent preferences of the consumers

are assumed to affect consumer behavior regarding COOL observation/interest in the

experiment. Furthermore, whether or not the consumers read the tomato COOL as

another determining factor other than within the COOL scenarios, latent preference, and

demographics is also assumed to have an impact on consumers’ final choice and WTP

for Florida/US tomatoes vs Mexico tomatoes.

First, a binary logistic regression model is performed to determine the elements

which affect consumer behavior related to reading COOL information on the tomatoes.

Then an ordered logistic regression is used to determine the factors, including latent

preference, demographics, and reading COOL information, that influence consumer

choice of the different labeled tomatoes. Finally, a linear regression is estimated with

ordinary least square methods (OLS) to determine factors that impact consumers’ WTP

for Florida/US and Mexico tomatoes. In the binary logistic, ordered logistic and OLS

regression models, effective variables are screened and selected through stepwise

processes. A significance level of 0.50 is required to allow a variable into the model, and

a significance level of 0.15 is required for a variable to stay in the model.

With all effective variables detected through stepwise processes, simultaneous

equations are conducted between the behavior of reading COOL and consumers’

choice as well as the difference in WTP. Through running the simultaneous equations,

the endogenous variable Orginread can be controlled so the estimated results are more

valid and reasonable.

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Theoretically, logistic regression is generally used to analyze the relationship

between a discrete response and a set of explanatory variables. For a binary logistic

model, the outcome variable 𝑌 is with has two possible categorical outcomes, denoted

by 1 and 0 (e.g., 𝑌 =1 if an event occurred, otherwise 𝑌 =0). Now suppose 𝑿 is a vector

of explanatory variables and the probability of 𝑌 =1 is defined as 𝜋 = 𝑃𝑟(𝑌 = 1|𝑋), then

the binary logistic regression has the form

𝐿𝑜𝑔𝑖𝑡(𝜋) = log (𝜋

1 − 𝜋) = 𝛼 + 𝜷𝑿

where 𝛼 is the intercept and 𝜷 is the vector of the slope parameters of the explanatory

variables.

The ordered logistic model is a regression model for ordinal outcomes. In an

ordered logistic model, there is an observed ordinal variable 𝑌𝑖, which, in turn, is a

function of another variable 𝑌∗ which is not measured. 𝑌∗ is a continuous, unmeasured

latent variable and its values determine the corresponding observed ordinal variable 𝑌.

Since 𝑌∗ cannot be measured, only its categories (from 1 to 𝑁) of outcomes are

observed:

𝑌𝑖 =

{

1 𝑖𝑓 𝑌𝑖

∗ ≤ 𝜇1 ,

2 𝑖𝑓 𝜇1 < 𝑌𝑖∗ ≤ 𝜇2,

3 𝑖𝑓 𝜇2 < 𝑌𝑖∗ ≤ 𝜇3,

… 𝑁 𝑖𝑓 𝑌𝑖

∗ ≥ 𝜇𝑁−1.

The ordered logistic model can be written as:

𝑃(𝑌𝑖 > 𝑗) = g(𝐗𝜷𝒊) =exp (𝑎𝑗 + 𝑿𝒊𝜷𝒊)

1 + [exp (𝑎𝑗 + 𝑿𝒊𝜷𝒊)], 𝑗 = 1,2, … ,𝑁 − 1

where 𝑿 is a vector of explanatory variables and 𝑎𝑗 is the intercept and 𝜷 is the vector of

the slope parameters of the explanatory variables.

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From the above, it can be inferred that

𝑃(𝑌𝑖 = 1) = 1 − g(𝑿𝒊𝜷𝟏)

𝑃(𝑌𝑖 = 𝑗) = g(𝑿𝒊𝜷𝒋−𝟏) − g(𝑿𝒊𝜷𝒋), 𝑗 = 2,… ,𝑁 − 1

𝑃(𝑌𝑖 = 𝑁) = g(𝑿𝒊𝜷𝑵−𝟏)

In this study, the empirical models are defined as follows: Model 1 is binary

logistic regression, Model 2 is ordered logistic regression, and Model 3 is linear OLS

regression:

Model 1: 𝑂𝑟𝑖𝑔𝑖𝑛𝑟𝑒𝑎𝑑 = 𝛼0 + 𝛼1𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜 + 𝛼2𝐶𝑖𝑡𝑦 + 𝜶𝟑𝑿 + 𝜶𝟒𝑫𝒆𝒎𝒐 + 𝜀1

Model 2: 𝐶ℎ𝑜𝑖𝑐𝑒 = 𝛽0 + 𝛽1𝑂𝑟𝑖𝑔𝑖𝑛𝑟𝑒𝑎𝑑 + 𝛽2𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜 + 𝛽3𝐶𝑖𝑡𝑦 + 𝜷𝟒𝑿 +

𝜷𝟓𝑫𝒆𝒎𝒐 + 𝜀2

Model 3: 𝑊𝑇𝑃𝐷 = 𝛾0 + 𝛾1𝑂𝑟𝑖𝑔𝑖𝑛𝑟𝑒𝑎𝑑 + 𝛾2𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜2 + 𝛾3𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜3 + 𝛾4𝐶𝑖𝑡𝑦2 +

𝛾5𝐶𝑖𝑡𝑦3 + 𝜸𝟔𝑿 + 𝜸𝟕𝑫𝒆𝒎𝒐 + 𝜀3

where 𝑿 is a vector of all possible latent preference variables and 𝑫𝒆𝒎𝒐 is the vector of

all demographic variables. Choice is an ordinal variable (3=choose Florida/US labeled

tomatoes, 2=no preference, and 1=choose Mexico tomatoes). WTPD is the willingness

to pay difference between Florida/US tomatoes and Mexico tomatoes. Dummy variables

are created for Scenario (1=tomato with the US sticker vs tomato with Mexico sticker,

2=tomato with Florida sticker vs tomato with Mexico sticker, and 3=tomato with Florida

sign plus US sticker vs tomato with Mexico sticker), City (1=Baltimore, 2=Dallas and

3=Tampa), Gender (1 for male and 2 for female), Employment (1=full-time, 2=part-time,

3=currently not working, 4=retired, 5=student, 6=unpaid family worker), and consumers’

general preference between tomatoes from different production origins when doing their

regular shopping (1=prefer US tomato, 2=prefer Mexico [MX] tomato and 3 is no

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preference; 1=prefer FL tomato, 2=prefer MX tomato, and 3 is no preference; 1=prefer

FL tomato, 2=prefer tomato from other states, and 3=no preference).

After running the three models separately through stepwise processes, each

model has its respective vector of selected explanatory variables. Scenario, City,

Originread and are forced to be included as explanatory regardless of their significance.

𝒁𝟏, 𝒁𝟐, and 𝒁𝟑 are the vectors of significant independent variables for model 1, 2 and 3,

respectively. Two simultaneous equation systems are established as follows:

Model 4: {𝐶ℎ𝑜𝑖𝑐𝑒 = 𝛽′0 + 𝛽′1𝑂𝑟𝑖𝑔𝑖𝑛𝑟𝑒𝑎𝑑 + 𝛽′2𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜 + 𝛽′3𝐶𝑖𝑡𝑦 + 𝜷′𝟒𝒁𝟐 + 𝜀′2𝑂𝑟𝑔𝑖𝑛𝑟𝑒𝑎𝑑 = 𝛼′0 + 𝛼′1𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜 + 𝛼′2𝐶𝑖𝑡𝑦 + 𝜶′𝟑𝒁𝟏 + 𝜀′1

Model 5: {

𝑊𝑇𝑃𝐷 = 𝛾′0+ 𝛾′

1𝑂𝑟𝑖𝑔𝑖𝑛𝑟𝑒𝑎𝑑 + 𝛾′

2𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜2 + 𝛾′

3𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜3 + 𝛾′

4𝐶𝑖𝑡𝑦2

+𝛾′5𝐶𝑖𝑡𝑦3 + 𝜸′𝟔𝒁𝟑 + 𝜀′3𝑂𝑟𝑔𝑖𝑛𝑟𝑒𝑎𝑑 = 𝛼′0 + 𝛼′1𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜 + 𝛼′2𝐶𝑖𝑡𝑦 + 𝜶′𝟑𝒁𝟏 + 𝜀′1

where dummy variables are also needed similar to models 1, 2, and 3. The results of

simultaneous equation systems are presented in detail in next part. SAS (Statistical

Analysis Software) is used to analyze the models presented above.

Results

Factors Influencing Whether or Not Consumers Read Tomato Cool

For the binary logistic regression results of Originread, the estimated parameters

are reported in Table 4-4. The results indicate that the consumer’s likelihood to read

COOL is affected by different COOL scenarios, consumers’ latent preferences, and their

demographic characteristics.

Scenario, as one of the independent variables, is statistically significant at the

level of 𝛼 = 0.10. Specifically, compared to the base scenario (scenario 1) in which the

format is US and Mexico stickers on tomatoes, the second scenario, Florida and Mexico

stickers on tomatoes, is positive but insignificant which means Florida stickers fail to

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increase the probability of reading the COOL on the tomatoes when consumers

purchase fresh tomatoes. In the third labeling scenario, which includes the “Grown

Florida” sign plus US sticker and Mexico sticker, is positive and significant statistically

related to consumer’s behavior of reading COOL in the experiment.

Several variables about consumers’ latent preferences are identified and

estimated, and are statistically significant at the level of 𝛼 = 0.10. The results reflect that

the probability of reading the COOL will increase if consumers regard the production

origin as an important factor when they make a decision to purchase fresh tomatoes.

For consumers who are more concerned with visual attributes, such as tomato size,

color, the probability of reading COOL decreases. Firmness and Sample Availability are

also both positive and significant. It can be inferred that if firmness and sample

availability of fresh tomatoes are more important to consumers, then their possibility of

reading the tomato COOL increases.

Furthermore, it is also found that if consumers typically look for the information

about where the produce is produced when they purchase fresh produce (refers to

variable GLCOOL), then they are more likely to read the COOL on the tomatoes in the

experiment; if they don’t read labels in their regular shopping for produce (refers to

variable GLdont), then the probability of reading tomato COOL will decline. Compared

to no preference, if consumers prefer to buy tomatoes from a certain producing area

(refer to variable preferUS, preferMX, preferOT), then they tend to read tomato COOL to

acquire production origin information.

For demographic variables, City, Age, EBlack, EAian, Education, Children18, are

statistically significant at the level of 𝛼 = 0.10. The estimated parameter of City3,

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referring to Tampa, is positive and significant compared with the base city, Baltimore;

City2, Dallas, is positive but insignificant. It can be concluded that consumers living in

Tampa have a higher probability of reading tomato COOL than have consumers in

Dallas and Baltimore. The negative and significant coefficient for Age implies that the

older the consumer is, the less likely he/she reads the COOL. Consumers with higher

education also have a higher probability of reading the COOL. Black or African-

American consumers tend to read tomato COOL more often than do American Indian or

Alaska-Native consumers. Consumers who have more children under 18-year-old are

more likely to read tomato COOL.

Factors Affecting Consumer’s Choice for Tomatoes with Different Labels

The results (Table 4-5) of the first simultaneous equation system (model 4)

present the factors that have statistically significant influences on consumer’s

purchasing choice of fresh tomatoes. The dependent variable Choice has ordered

values that “3” refers to tomatoes labeled with the US sticker, the Florida sticker, or the

“Grown in Florida” sign plus US sticker; “2” refers to no preference; and “1” stands for

tomatoes labeled with Mexico sticker. Somewhat surprisingly, both the scenario and city

variables are all insignificant at the level of 𝛼 = 0.10. This implies that different labeling

strategies and where the participant lives have no impact on consumer’s choice for

fresh tomatoes. However, the variable Originread is positive and significant which

reveals that reading the tomato COOL practically increases the probability for

consumers to choose Florida/US tomatoes no matter what labeling strategy is applied. If

controlling for the other explanatory variables, consumers who read the tomato COOL

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have 163.7% (exp(�̂�1) = 1.6366) higher odds than do those who do not of choosing

Florida/US tomatoes.

Color is one of the most important tomato attributes, with a positive and

statistically significant estimated parameter. It implies that consumers who are more

concerned with color when they purchase tomatoes have a higher probability of

choosing Florida/US tomatoes.

PreferMX (i.e., consumers who prefer purchasing Mexico tomatoes when they do

regular shopping) has a negative and significant coefficient. This can be interpreted as

meaning that those who usually prefer Mexico tomatoes have a higher probability of

choosing Mexico tomatoes instead of Florida or US tomatoes. PreferFLL is positive and

significant, which also follows, as it implies that consumers who usually prefer tomatoes

produced in Florida rather than in the United States in general are more likely to choose

Florida/US tomatoes.

For demographic variables, Caucasian consumers tend to choose Florida/US

tomatoes. Education also affects consumers’ choice that those with higher levels of

education are relatively less likely to choose Florida/US tomatoes.

Whether or not the participant touched the tomatoes when determining which to

purchase may play a key role in consumer choice. Touching tomatoes provides

consumers with further information about their attributes like firmness and size, and it

might increase the possibility for consumers to notice COOL on the tomatoes. Results

indicate that if they touched one of the tomatoes labeled as US or Florida, they were

more likely to choose Florida/US tomatoes, while if they touched the tomatoes labeled

from Mexico, they were more likely to choose Mexico tomatoes.

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Factors Affecting Consumer’s WTP: A Premium for Florida/US Tomatoes

The difference between WTPs for Florida/US tomatoes (#599, #462, and #828)

and Mexico tomatoes (#280) is the premium that consumers are willing to pay for

Florida/US tomatoes, namely the dependent variables WTPD. If WTPD>0, it means

people are willing to pay more to purchase Florida/US tomatoes; if WTPD=0,

consumers are unwilling to pay more for either tomato; and if WTPD<0, people are

willing to pay more on Mexico tomatoes compared to Florida/US tomatoes. The results

of the regression on WTPD under the second simultaneous equation system (model 5)

are displayed in Table 4-6.

Surprisingly, for the Scenario variable, it is found that compared with scenario

one, the other two COOL scenarios have negative and significant estimated

parameters. The result indicates that applications of the Florida sticker and “Grown in

Florida” sign plus US sticker labeling strategies actually decrease the premium

consumers are willing to pay for Florida/US tomatoes compared to Mexico tomatoes

when compared to the base strategy of a US sticker.

Compared with the base city, Baltimore, residents in Dallas and Tampa are not

likely to behave differently with respect to WTPD. This result implies that there is no

difference in WTPD between residents of different cities.

The variable Originread was found to be statistically insignificant related to

WTPD, indicating those who read COOL were no more likely to pay more or less than

they would for Florida/US tomatoes.

The location where consumers generally purchase fresh tomatoes does impact

WTPD. People who usually purchase fresh tomatoes from a local store or farmers’

market are willing to pay a lower premium for Florida/US tomatoes compared to those

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who purchase from a warehouse. Another location variable, grocery store, has no

impact on WTPD.

Search attributes for fresh tomatoes, including size, freshness, and on vine or

not, affect the premium that consumer are willing to pay for Florida/US tomatoes. As the

importance of tomato size and whether tomatoes are on the vine or not increases, the

premium for Florida/US tomatoes increases. The importance of tomato freshness has a

negative effect on WTPD, indicating that consumers who feel freshness is very

important have a smaller difference between WTP for Florida/US and Mexico tomatoes.

The coefficient for PreferMX is negative and statistically significant. It is

reasonable because people who usually prefer Mexico tomatoes are willing to pay a

smaller difference between the two types of tomatoes.

Females are generally willing to pay a higher premium for Florida/US tomatoes

than are males. The results also show that the more children under the age of 18 years

old a family has, the smaller difference between Florida/US tomatoes and Mexico

tomatoes the family is willing to pay.

Whether or not the consumer touched the tomatoes does influence WTPD. If

consumers touched Florida/US tomatoes in the experiment, they were willing to pay a

higher premium for Florida/US tomatoes; if they touched tomatoes from Mexico, the

premium for Florida/US tomatoes decreased.

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Table 4-1. Sample demographic descriptive statistics

Variable Variable Description

Sample % (N=632)

US Census 2012

Gender Male 44.5 49.0 Age 18–30 50.3 13.9

31–50 30.0 26.5 51–70 15.0 23.9 70+ 4.3 9.1

Race Caucasian 51.7 63.0 Black or African American 34.2 13.1 Hispanic 16.0 16.9 Native Hawaiian or Pacific Islander 1.1 0.2 Asian 2.5 5.1 American Indian or Alaska Native 3.0 1.2

Income Less than $14,999 10.6 13.0 $15,000–$24,999 14.7 11.7 $25,000–$34,999 15.8 10.7 $35,000–$49,999 15.7 13.6 $50,000–$74,999 15.0 17.5 $75,000–$99,999 5.7 11.7 $100,000–$149,999 4.8 12.5 $150,000–$199,999 1.0 5.0 $200,000 or above 1.9 4.5 prefer not to answer 14.9 N/A

Education Less than high school 4.1 12.6 High school degree or equivalent 33.1 30.0 Some college 36.2 29.0 Four-year college degree 16.8 18.7 Postgraduate 6.0 10.0 Trade/technical school 2.4 N/A

Employment Full time 46.8 47.2 Part time 18.7 11.4 Currently not working 13.9 5.1 Retired 10.9 N/A Student 7.6 N/A Unpaid family worker 2.1 0.01

House people 1 14.9 27.4 2–3 50.8 50.0 4–6 31.0 21.5 7–9 2.7 N/A 9 or above 0.6 N/A

Children None 54.1 67.7 under 18 1 21.8 13.8

2 14.9 11.7 3 5.5 4.7

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Table 4-1. continued

Variable Variable Description

Sample % (N=632)

US Census 2012

4 or more 3.6 2.1 Money on food

per week Less than $49 5.9 N/A

$50–$99 21.4 N/A $100–$149 27.9 N/A $150–$199 19.6 N/A $200–$249 11.6 N/A $250–$299 6.7 N/A $300–$349 3.3 N/A $350–$399 1.1 N/A $400–$449 0.5 N/A $450–$499 0.6 N/A Above $500 1.6 N/A

Table 4-2. Consumers’ stated choice of different labeled tomatoes, sorted by scenario and by city

By scenario By city

1 2 3 Baltimore Dallas Tampa

Florida/US tomatoes 56.9% 57.6% 59.7% 59.8% 58.4% 55.9% No preference 19.0% 11.9% 10.9% 14.4% 8.6% 18.8%

Mexico tomatoes

24.2% 30.5% 29.4% 25.8% 32.9% 25.4%

Sample Size 211 210 211 209 210 213

Table 4-3. Willingness to pay for Florida/US and Mexico tomatoes, sorted by scenario and by city (Unit: $/lb)

Scenario 1 Scenario 2 Scenario 3

Tomato with the

US sticker

Tomato with the Mexico sticker

Tomato with the Florida sticker

Tomato with the Mexico sticker

Tomato with the

Florida sign plus US sticker

Tomato with the Mexico sticker

All city 1.88 1.55 1.81 1.63 1.68 1.50

Baltimore 2.05 1.68 1.81 1.56 1.77 1.47 Dallas 1.66 1.42 1.66 1.47 1.75 1.69 Tampa 1.96 1.56 1.94 1.85 1.50 1.33

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Table 4-4. Parameter results of the binary logistic regression of consumers’ behavior of reading tomato COOL information in the experiment

Variable Parameter

Estimate

Standard

Error

Pr > ChiSq

Intercept –1.5211 0.7087 0.0318** SC2 0.3465 0.2341 0.1388 SC3 1.0092 0.2338 <.0001*** City2 0.0176 0.2413 0.9419 City3 0.8486 0.2652 0.0014*** Size –0.1787 0.0865 0.0388**

Firmness 0.2177 0.1302 0.0944* Color –0.2901 0.1276 0.0230** COOL 0.2081 0.0753 0.0057***

SampleA 0.1375 0.0711 0.0531* GLCOOL 0.8991 0.2395 0.0002*** GLdont –0.8226 0.2378 0.0005***

preferUS 0.4281 0.2373 0.0713* preferMX 0.8310 0.4504 0.0650* preferFLL –0.2616 0.2596 0.3135 preferOT 0.5736 0.3031 0.0584*

Age –0.0248 0.00697 0.0004*** EBlack 0.3624 0.2089 0.0828* Eaian –1.2050 0.6062 0.0468**

Education 0.1558 0.0812 0.0548* Children18 0.2277 0.0896 0.0111** Touch280 0.3276 0.1965 0.0954*

Number of Observations Used: n=632. Adj R-Sq: 0.3093 “*”: Significant at 10%; “**”: Significant at 5%; “***”: Significant at 1%

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Table 4-5. Parameter results of the ordered logistic regression of consumers’ stated choice of tomatoes from the first simultaneous equation system

Variable Parameter Estimate

Standard Error

t Value Pr > |t|

Intercept –0.007825 0.303387 –0.03 0.9794 SC2 –0.087207 0.122097 –0.71 0.4751 SC3 –0.158146 0.130296 –1.21 0.2248 city2 –0.068993 0.126151 –0.55 0.5844 city3 –0.195120 0.126640 –1.54 0.1234

Originread 0.492628 0.244964 2.01 0.0443** Color 0.137895 0.055295 2.49 0.0126**

preferUS –0.078023 0.128182 –0.61 0.5427 preferMX –0.667956 0.244071 –2.74 0.0062*** preferFLL 0.230986 0.136483 1.69 0.0906* preferOT –0.067525 0.163508 –0.41 0.6796

ECaucasian 0.263867 0.105357 2.50 0.0123** Education –0.079685 0.042531 –1.87 0.0610* Touch280 –0.346921 0.152453 –2.28 0.0229**

TouchUSFL 0.503246 0.151024 3.33 0.0009*** _Limit2.Choice 0.398701 0.039872 10.00 <.0001

_Rho –0.135687 0.160307 –0.85 0.3973

Number of Observations Used: n=632 “*”: Significant at 10%; “**”: Significant at 5%; “***”: Significant at 1%

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Table 4-6. Parameter results of the linear regression of consumers’ willingness to pay for a premium for Florida/US tomatoes than for Mexico tomatoes from the second simultaneous equation system

Variable Parameter Estimate

Standard Error

t Value Pr > |t|

Intercept 0.526567 0.296977 1.77 0.0762* SC2 –0.206582 0.107654 –1.92 0.0550* SC3 –0.215765 0.112239 –1.92 0.0546* city2 –0.066247 0.109195 –0.61 0.5441 city3 –0.051987 0.108406 –0.48 0.6315

Originread 0.180450 0.202484 0.89 0.3728 Llocalstore –0.147851 0.086548 –1.71 0.0876*

Lwarehouse 0.342576 0.191369 1.79 0.0734* Lfarmermarket –0.173357 0.102640 –1.69 0.0912*

Size 0.084085 0.039457 2.13 0.0331** Freshness –0.093470 0.054578 –1.71 0.0868* Vineornot 0.057727 0.030966 1.86 0.0623* preferMX –0.352666 0.196976 –1.79 0.0734* Female 0.154841 0.088115 1.76 0.0789*

Children18 –0.097164 0.039769 –2.44 0.0146** Touch280 –0.328790 0.130942 –2.51 0.0120**

TouchUSFL _Sigma.WTPD

_Rho

0.240007 1.060916

–0.004567

0.127766 0.030130 0.125099

1.88 35.21 –0.04

0.0603* <.0001 0.9709

Number of Observations Used: n=632 “*”: Significant at 10%; “**”: Significant at 5%; “***”: Significant at 1%

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CHAPTER 5 CONCLUSIONS

Methyl bromide (MBr), as a soil fumigant, has been proven to be the optimal

fumigation strategy for its reliability, affordability, and effectiveness. Since it is being

phased out gradually under the Montreal Protocol, research has been conducted to

discover the technical efficacy of MBr fumigant alternatives under different

environmental condition, but the economic feasibility and reliability of research is limited.

The field trials done by the University of Florida (UF) have demonstrated the extent of

inconsistency of several alternative fumigation systems.

The partial budgeting results indicate that MBr:Pic (67:33) performs the best in

terms of economic feasibility and cost effectiveness compared to MBr:Pic (50:50) and

other alternative fumigation strategies, including TE-3, PicChlor 60, FL-3 way, and the

non-fumigated treatment. These results are based on data from scientific field trial

under strict technical conditions and assumptions. The calibrated usage of equipment

and material is guaranteed in the scientific trials. The results might be different for real

commercial tomato production. This is because cultural practices and actual costs and

returns vary from grower to grower due to different market situations, labor supply,

machine life and condition of equipment, managerial skill, and other factors (Sydorovych

et al., 2008). Referencing this study, tomato producers are advised to estimate their

own production, harvesting, and marketing costs based on individual farming and

financial situations so as to identify the optimal alternative MBr fumigation to be applied

to minimize potential financial losses.

This study also employs the stochastic dominance method to compare methyl

bromide and its alternative fumigation systems regarding the risk efficiency. The SSD

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results show that the two MBr treatments dominate the other alternative in yield

performance; among the MBr alternatives, TE-3 dominates the rest of the alternatives.

The SERF result shows that after assuming initial wealth and farm size, MBr:Pic

(67:33), is the most risk efficient and preferred fumigation system within the given

relative risk-averse coefficient range, dominating other alternatives and non-fumigated

treatment. Among the MBr alternatives, TE-3 has a better performance in risk efficiency

than do PicChlor 60, the currently most popular fumigant in Florida tomato industry, and

the FL-3 way, which was developed by UF researchers.

In summary, our results suggest that current MBr alternative fumigation

strategies used in the Florida tomato industry fail to replace MBr fumigation treatments

effectively from the economics perspective. However, our trial is only short term and

based on scientific experiment. It is suggested that more research on MBr and its

alternatives should be conducted in the future to analyze the discrepancy in efficacy and

consistency, under various farm situations and over longer periods. Moreover, the

economic loss and added production costs due to repeated usage of MBr alternatives in

the Florida tomato industry also should be studied in future research.

This study also investigates the US consumer preference and willingness to pay

(WTP) for Florida/US tomatoes and Mexico tomatoes under different COOL scenarios.

The mall intercept survey results show that the majority (>55%) of the participants

chose Florida/US tomatoes rather than Mexico tomatoes or no preference. Additionally,

on average, consumers are willing to pay a higher premium for Florida/US tomatoes

than they are for Mexico tomatoes under all COOL scenarios.

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As the characteristics in perceptions of country of origin labeling (COOL),

consumption pattern, purchasing behavior, and demographics become diverse, demand

and consumer WTP for Florida/US tomatoes and Mexico tomatoes will be significantly

different. The experiments results show that whether consumers read tomato COOL is

affected by different COOL strategies. The “Grown in Florida” sign plus US sticker can

increase the probability of reading COOL on the tomatoes when consumers purchase

fresh tomatoes. The survey also found that consumers living in Florida have a higher

probability of reading tomato COOL than do consumers in Dallas and Baltimore.

The effect of three market labeling stimuli regarding origin of production on

consumers’ demand and WTP for Florida/US and Mexico tomatoes is analyzed. Several

implications obtained from the results are important. The results suggest that different

COOL strategies have no significant impact on consumer’s choice of the tomatoes. It is

against the expectation that Florida sticker and “Grown in Florida” sign plus US sticker

labeling will increase the probability of choosing Florida/US tomatoes compared to US

sticker labeling on the tomatoes. The behavior of reading tomato COOL has a positive

and significant effect on the choice of tomatoes, meaning that if consumers notice the

COOL on the tomatoes, then they will be more likely to choose Florida/US tomatoes. It

is implied that the strategy of labeling with the “Grown in Florida” sign plus US sticker is

associated with consumer’ choice of tomatoes indirectly because it can first attract

consumers to read COOL on the tomatoes, thus the reading behavior improves the

probability of choosing Florida/US tomatoes. When it comes to WTP, the results further

indicate that the US sticker, Florida sticker, and “Grown in Florida” sign plus US sticker

strategies decrease the premium consumers are willing to pay for Florida/US tomato

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compared to Mexico tomatoes. Under these two COOL scenarios, there is a smaller

difference between WTPs for Florida/US and Mexico tomatoes.

One of the limitations of this study is that because an open-ended CVM was

used in designing the survey, there may be a potential bias in estimating WTP.

Therefore, improved methods such as Choice Experiment or Experimental Auction may

be good choices for future studies.

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BIOGRAPHICAL SKETCH

Xiang Cao was a graduate student of the Master of Science program in the Food

and Resource Economics Department at the University of Florida. Xiang was born in

Xining, Qinghai, China in 1991. He received his bachelor’s degree in international

economics and trade from the University of International Relations in China in 2012. He

received his master’s degree in food and resource economics from the University of

Florida in 2014. His major area of study is production economics and agricultural

marketing analysis. In fall of 2014, he will pursue a PhD degree in agricultural and

applied economics at Virginia Polytechnic Institute and State University (Virginia Tech)

in Blacksburg, VA.