PRICES AND FACTORS AFFECTING PRICE BEHAVIOR AT

FLORIDA 338 STATE HORTICULTURAL LITERATURE CITED 1. Leftwich, Richard H., The Price System and Resource Allocation, Revised edition, Holt, Rineha...
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FLORIDA

338

STATE

HORTICULTURAL

LITERATURE CITED

1. Leftwich, Richard H., The Price System and Resource Allocation, Revised edition, Holt, Rinehart and Winston, New York, 1963.

SOCIETY,

1964

2. Spurlock, A. H. and Hamilton, H. G., Costs of Proces sing, Warehousing and Selling Florida Citrus Products, Agri cultural Economics Mimeo Report No. 63-10, Department of Agricultural Economics, Florida Agricultural Experiment Stations, Gainesville, Florida, April, 1963.

PRICES AND FACTORS AFFECTING PRICE BEHAVIOR AT VARIOUS MARKETING SECTORS FOR FLORIDA ORANGES coefficients by a multiple linear regression equa

Wilson B. Riggan*

tion of the following form:

U. S. Health Department Cincinnati, Ohio

(1)

Roy G. Stout* Minute Maid Company Orlando Introduction

that a knowledge of price behavior at the market place is important to growers, processors and retailers because the result of a change in quan

tities offered for sale will affect the net profits of each sector differently (1). A paper presented at the 1963 meeting of this Society was concerned with a detailed analysis of on-tree price of Florida oranges (2). This research has been continued and a study completed on price and quantity relationships at the retail level for fresh oranges, frozen orange concentrate and single strength orange juice. This analysis was based largely on monthly data during the period

The significant factors affecting the price at

each of these marketing sector levels as indica ted by use of this model are summarized in Table 1. The data in Table 1 indicate that the three retail price levels are all affected by the on-tree price of fruit. Another factor affecting fresh oranges was the quantity of fresh oranges

sold at retail.

Both retail price of orange con centrate and the retail price of single strength orange juice is dependent on information from the preceding period.

In other words, the retail

price of concentrate and canned single strength

juice in the short run is dependent to a high degree on price and quantity behavior during the previous month.

1952-1963.

The purpose of this paper is to summarize the results of the concluding research under this project. The major emphasis in this paper will be in presenting and interpreting the short and long run price and income elasticities and the rate of adjustment on quantities purchased, given a change in price or income.

function model was

Consumer Demand Model

The preceding paper indicated that price elasticities are important in studying the ex pected market behavior given changes in price or quantities sold. An important structural re lationship

is

the

establishment

of

changes

in

quantities consumers are willing to buy under

Price Behavior Model

power

B

the different marketing sector levels.

It was demonstrated in the preceding paper

A

=

Solution of the above general model for various sets of independent data and significant tests of the regression coefficients were performed. Only significant variables were retained in the an alysis of the factors affecting orange prices at

used

as

the

varying conditions. Price elasticity is defined as a percentage change; therefore, the transforma

structural equation in estimating the important

tion of data into logarithms allows direct esti

factors affecting the price of oranges at the different market sector levels. Transforming the data to logarithms allowed estimation of the

mation of the price elasticity coefficients in the

Florida Agricultural Experiment Stations Journal Series

models were studied but it was found that they

least squares

solutions.

The

following general

model was utilized in studying consumer demands. It is worthy of noting that several more complex

No. 1998.

♦Both authors were members of the Department of Agri cultural Economics, Florida Agricultural Experiment Sta tions, at the time the research reported herein was done.

add little more to explaining consumer behavior

than the simpler model presented here.

RIGGAN AND STOUT: PRICE BEHAVIOR

(2)

h ■ Bo

Where

Qt

B3It

=

=

log^

e

Qt-1

=

It

=

loge

e

.

=

of

quantity

of

the

loge

of

per

purchased

retail

quantity capita

observed

error

This general model was solved for the retail single

strength juice, utilizing

data collected by the Market Research Corpora

tion of America.

The results of solutions to this

model are presented in Table 2. Price Elasticities

The use of the lagged variable (the quantity for the preceding or t-1 period) allows the esti mation of both short run elasticity.

Since an

and long run price

elasticity of

greater than

one will cause an increase in total dollar sales Table

1

--

Price On-Tree

Price

Significant at Various

All

in

purchased

during

t

time

period

in

t-1

time

period

income

t-1

time

period

given an increase in quantities sold, total sales

from increased quantities of fresh oranges in both the long run and in the short run would increase as indicated by a short run elasticity of 2.47 and a long run elasticity of 3.68. On

the other hand, frozen orange concentrate with a short run elasticity of .43 would show a decrease in total dollar sales given an increase in quan tities sold in short run. In the long run very little change would occur in total dollar sales from frozen orange concentrate since the in dicated elasticity is .97 which is nearly unit elasticity.

Consumers

react

to

price

changes

on

the

Factors Influencing Prices Marketing Sector Levels

Level

of

Bt

price

personnel

demand of fresh oranges, frozen orange concen trate juice and

+

339

Significant Oranges

(1)

Factors

Estimated Production

(2)

Income

(3)

Previous

month's

price

Retail

Fresh

Orange*

(1) (2)

On-tree prices, current Quantity sold at retail

Retail

Price

of

(1) (2)

On-tree price preceding period Quantity of frozen concentrated

Concentrate

juice

during preceding period

sold

(3)

Retail price period

Retail

Price

Strength

of

Single

Juice

for

the preceding

orange

(1) (2)

On-tree price preceding period Quantity of single strength

(3)

Price

sold preceding ceding

*Where the

more

than

coefficients

one

endogenous

were

estimated

concentrate

variable by

is

period

of single

strength

pre

period

contained

two-stage

least

in

the

squares.

equation,

340

FLORIDA Table 2

STATE

HORTICULTURAL

SOCIETY,

1964

— Results of Solution of Consumer Demand Equations

Price Elasticities

Income

Elasticity

Coefficient

Adjustment

of Lagged

Factor

Long

Short

Fresh

-2.H77

Oranges

Frozen

Concentrate

Single

Strength

Orange

Run

Run

Product

-3.686

-

.724

Run

Long

on

Quantity

Run

N.S.

N.S.

R'

Error

• 328

.251

.888

.970

• 367

• 821

.533

.357

.836

-1.837

-1.12H

-2.972

.606

.025

.934

-

Juice

Short

single strength juice differently in the long run

the income quantity relationships may very well

and short run.

be the reason for the negative income coefficient

In the short run the price elas

ticity is inelastic for single strength juice as in

On the other hand, if these negative coefficients

dicated by a .72 elasticity; whereas, it becomes

are representative of the true economic relation

elastic in the long run as indicated by the elas

ships, this would mean the single strength orange

ticity coefficient of 1.83.

juice consumption may continue to decline as in comes increase.

Income Elasticity

Although it is generally considered that in

Length of Time for Adjustment Given A

Change in the Independent Factors

come is an influential factor in determining the demand for most products, this variable was not

The lagged variables used

in the consumer

found to be statistically significant in influencing

demand model,

the demand for fresh oranges. Per capita income

pression of short run and long run elasticity,

in

addition

to

allowing an

ex

changes have been relatively small over the per

also provided an indication of the length of time

iod studied;

required for adjustment in consumption in re

in addition, a slight economic re

cession and a freeze in the Florida citrus indus

sponse to a price change.

try have all counteracted to render the income

adjustment that occurs in a given time period can

Also, the amount of

variable insignificant in considering the demand

be determined. For example, in Table 2 for fresh

for fresh oranges.

Income elasticities of .36 for

oranges the .328 coefficient on adjustment factor

the short run and .82 for the long run were found

.indicates that 32.8 per cent of the adjustment in

to be significant coefficients in studying the de

quantity purchased due to a change in price re

mand for frozen orange concentrate.

mains to occur following the first period (month).

Negative

income elasticities for both the short run and

For frozen orange concentrate 53.3 per cent of

the long run were obtained for single strength

the

orange juice.

price changes and income changes remains to be

From an

economic standpoint a

adjustments

in

quantity

purchased

due to

negative income elasticity indicates an inferior good. That is, as incomes increase less quantities

made at the end of the first period.

are purchased by the consumer. Several reasons

in quantity purchased due to

may be offered as a possible explanation for this

and income takes place following the end of the

negative sign rather than the possibility of single

first period.

strength

orange juice being an

inferior good.

For single

strength orange juice 60.6 per cent of adjustment changes in price

The computed time required for 95 per cent

of the adjustment to be made in consumers' pur

During the earlier part of the period of which data were used in this study, frozen concentrated

chases in response to a price or income change

orange juice replaced canned single strength juice

was

on the purchasing lists of many consumers.

oranges,

In

computed five

to

be

months

four for

months

for

concentrated

fresh orange

addition, the freezes of 1957-58 and December,

juice, and six months for single strength orange

1962, reduced production, thereby limiting quan

juice.

tities marketed.

A combination of these factors

associated with time quantity relationships and

No

economic

interpretation can be made of

the coefficient of the lagged error term shown in

RIGGAN AND STOUT: PRICE BEHAVIOR

Table

3



Retail

Field

Box Equivalent Average Data Used

Strength

Juice

Prices in the

for Study*

$6.10

$4.98

Oranges

Concentrate

Single

Per

Projected 1975 Prices

Product Fresh

Price

341

3.62

4.56

3.76

4.51

*1952-1963 Table 2.

The size

of this

coefficient indicates

On-Tree Prices

the amount of correlation between purchases and the observed error in the preceding time period. The inclusion of this variable in the model tends to

give

more

stability

to

the

equation.

The

amount of variation in the quantities purchased explained by the variables included in the model

is fairly high.

This explanation is indicated by

the size of the R2 or multiple coefficient of de termination, also included in Table 2. values

were

.836

for

frozen

These R2

concentrate,

.888

for fresh oranges and .934 for single strength orange juice.

Using the above information from the DARE

Committee, the 1975 on-tree price of oranges in constant dollars was estimated to be 83 cents. This estimate converts to $1.29 per box at 1975 price

by

adjusting

The equations developed in this study were of utilization for 1975. Projected information for 1975 regarding orange production and population

were obtained from the University of Florida's operation DARE Citrus Committee.1 The DARE

1975

population

for

be 180 million boxes at that time. This gives a per capita annual consumption of 67.6 pounds.

Projected 1975

Consumption

(Pounds)

in

The average on-tree price of oranges in con study was $1.76.

This is a 53 per cent reduction

in price on constant dollars and a 27 per cent re duction after adjusting for expected trend in creases in the general price.

The projected retail price in constant dollars per field box equivalent in 1975, for fresh oranges, frozen concentrated orange juice and canned single strength orange juice is compared with the average retail prices for the data used in this study (Table 4). lReport on file in the Department of Agricultural Eco nomics, University of Florida, Gainesville, Florida. 2A trend line for consumer price index was calculated to be:

Y = 122.7 + 2.07X

Where Y = Consumer price index X = Time with 1959 = 0, 1960 = 1, 1958 = 1, etc.

Average Consumption for Data Used in This Study*

Per Cent Increase

(Pounds)

Oranges

1.161

Concentrate

0.438

3.468

165

Single

2.695

0.850

28

0.718

18

5.489

3.851

42

Strength

Juice Total

*1952-1963

the

the

United States to be 239.5 million. Total orange production was projected by the Committee to

Product

trend

Retail Prices

used to estimate prices and consumption by type

projected

expected

stant dollars during the period 1952-1963 of this

Projections for 1975

Committee

for

consumers' price index.2

FLORIDA

342

STATE

HORTICULTURAL

SOCIETY,

1964

The projected retail prices, adjusted for in

canned juice have an elastic demand and orange

creases in the general price level, of fresh or

concentrate has approximately unit elasticity at

anges and frozen orange concentrate and single

retail.

strength orange juice are approximately 80 per

means that reducing prices to move larger vol

Simple interpretation of these coefficients

cent of the average prices for the period 1952-

umes will give greater total dollar sales for fresh

1963.

oranges

Thus, consumers in 1975 may have to pay

20 per cent less per unit for fresh oranges and

and

single

strength

juice

with

little

change in the total dollar sales for orange con

orange products than they paid during the period

centrate.

covered by this study.

greater promotional efforts rather than reducing

Projected consumption, using the 1975 projec

price

This

should

implies

be

the

that

more

activities

profitable

such action

as to

ted prices and income and 1952-1963 averages for

take in moving larger quantities of frozen con

an average four-week period, is shown in Table

centrate

through

4. Fresh oranges show the greatest percentage increase in projected per capita consumption for 1975.

This is due to the greater price elasticity

for fresh oranges. Thus, as prices reduce the consumer responds by buying larger amounts. Summary

retail

markets.

LITERATURE CITED 1. Stout, Roy G. and Riggan, Wilson B., "Price and Income Elasticities: Their Importance to Growers, Processors and Retailers," Proceedings of the Florida State Horticultural Society, Volume 77, 1964. 2. Riggan, Wilson B., "On-Tree Price of Florida Or anges," Proceedings of the Florida State Horticultural So ciety, Volume 76, 1963.

The analysis conducted in this overall project indicates that fresh oranges and single strength

CANNED GRAPEFRUIT SECTIONS AND CANNED CITRUS SALAD, AS AFFECTED IN FINAL DRAINED WEIGHT AND QUALITY

BY VARIATIONS IN RAW FRUIT BRIX DURING THREE PACKING SEASONS Robert D. Carter

Director, Quality Control Cypress Gardens Citrus Products, Inc. Winter Haven Introduction

Canned citrus sections are annually account

tion

of

canned

1,600,000 grapefruit

cases

(equivalent

sections

and

24-No.

canned

2)

citrus

salad, produced by our company in two plants

during three packing seasons, 1960-61; 1961-62; and 1962-63.

The data, relating to the canned

product, is derived from analyses of 16,000 cans,

made and recorded during routine quality control checks and U.S.D.A.—A.M.S. probable and final grading inspections, as a part of continuous in

ing for approximately 20 percent of all grape

spection.

fruit processed in the State of Florida, and are

state inspection analyses on 3,000 individual fruit

a definite factor contributing to profitable returns

loads of seeded varieties of grapefruit used in

to the grapefruit grower.

production, supplied the raw fruit Brix data.

Florida

Department

of

Agriculture

Quality of canned citrus sections is influenced

thru raw fruit by a complex of factors, some of

Processing Methods

which have been investigated (1, 3, 4, 5). The purpose of this paper is to draw attention

The canned sections represented by the data,

to the Brix of the raw fruit as a prime factor

were packed, using commercial procedures com

influencing the quality of canned citrus sections.

mon in the State of Florida at the time of pack

The data presented, covers the total produc

ing (2).

Steam scalding, mechanical peeling, lye

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