1. S OYBEAN C HECKOFF R ETURN ON I NVESTMENT A NALYSIS 1980/81-2006/07 USB/QSSB P ARTNERSHIP W ORKSHOP S T. L OUIS, M ISSOURI J UNE 1, 2009 S OYBEAN C HECKOFF R ETURN ON I NVESTMENT A NALYSIS 1980/81-2006/07 USB/QSSB P ARTNERSHIP W ORKSHOP S T. L OUIS, M ISSOURI J UNE 1, 2009 Dr. Gary W. Williams Dr. Oral Capps, Jr. Dr. David A. Bessler Texas Agribusiness Market Research Center Texas A&M University College Station, Texas Dr. Gary W. Williams Dr. Oral Capps, Jr. Dr. David A. Bessler Texas Agribusiness Market Research Center Texas A&M University College Station, Texas

2. Research Objectives TWO KEY QUESTIONS 1. What have been the effects of the soybean checkoff program on U.S soybean checkoff program on U.S and world soybean and product and world soybean and product markets? markets? 2. Has the soybean checkoff program benefited soybean producers? benefited soybean producers?

3. Research Objectives FIRST KEY QUESTION Have Soybean Checkoff DEMAND PROMOTION EXPENDITURES Shifted Out the Demand for U.S. Soybeans and Soybean Products? HIGHERDEMAND Demand Supply Sales PricePrice HIGHERPRICE HIGHERSALES

4. Research Objectives FIRST KEY QUESTION Have Soybean Checkoff PRODUCTION RESEARCH EXPENDITURES Shifted Out the Supply of Soybeans and Soybean Products? HIGHERSUPPLY Demand Supply Sales PricePrice HIGHERSALES LOWERPRICE

5. Research Objectives FIRST KEY QUESTION What Have Been the Net Effects on Soybean and Soybean Product Prices … HIGHERSUPPLY Demand Supply Sales PricePrice HIGHERPRICE LOWERPRICE PricePrice HIGHERDEMAND Clearly sales increase … but price could go up or down! ?

6. Research Objectives FIRST KEY QUESTION What Have Been the Net Effects on Soybean and Soybean Product Prices … U.S. Exports … U.S. Exports … If checkoff programs increase foreign If checkoff programs increase foreign demand, U.S. supply, or both, then U.S. demand, U.S. supply, or both, then U.S. soybean exports should increase. soybean exports should increase. If checkoff programs increase price, then If checkoff programs increase price, then foreign soybean exports should also foreign soybean exports should also increase. increase. But U.S. export share could go But U.S. export share could go up or down. and Foreign Exports?

7. Research Objectives SECOND KEY QUESTION Has the Soybean Checkoff Program Benefited U.S. Soybean Producers? Two reasons that might prevent producers from benefiting: Two reasons that might prevent producers from benefiting: 1. There are many “free riders” who capture some of the benefit without paying any of the cost. 1. There are many “free riders” who capture some of the benefit without paying any of the cost.

8. Foreign Producers Exporters Processors U.S. Oil and Meal Product Retailers Wholesalers and Fabricators Wholesalers and Fabricators Research Objectives Benefits from checkoff programs must “trickle down” to producers … … and along the way …… … some of the benefits are captured by others in the supply chain.

9. Research Objectives SECOND KEY QUESTION Has the Soybean Checkoff Program Benefited U.S. Soybean Producers? Two reasons that might prevent producers from benefiting: Two reasons that might prevent producers from benefiting: 1. There are many “free riders” who capture some of the benefit without paying any of the cost. 1. There are many “free riders” who capture some of the benefit without paying any of the cost. 2. The promotion and research programs could cost more than they return back to producers. 2. The promotion and research programs could cost more than they return back to producers.

10. Research Objectives Even if producer revenues increase as a result of promotion, the important question is: Do producer revenues increase by more than the cost of checkoff programs? Producer Revenue Increase Cost of Checkoff Programs

11. Research Objectives Even if producer revenues increase as a result of promotion, the important question is: Or do checkoff programs cost more than the increase in producer revenues achieved? Cost of Checkoff Programs Producer Revenue Increase

12. Research Methodology A three-step process: Step 1: Statistical procedures to isolate and measure the specific effects of checkoff expenditures on U.S. and foreign soybean, soybean oil, and soybean meal demand and on U.S. soybean supply. MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM U.S. and Foreign Demand Equations (Soybeans, Soymeal, and Soyoil) D = f(P, PO, Income, Checkoff $ Spent, Other)

13. Research Methodology A three-step process: Step 1: Statistical procedures to isolate and measure the specific effects of checkoff expenditures on U.S. and foreign soybean, soybean oil, and soybean meal demand and on U.S. soybean supply. MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM U.S. Soybean Acreage and Yield Equations A = f(P, PO, Farm Policy, Checkoff $ Spent, Other) Y = f(P, Checkoff $ Spent, Other)

14. Research Methodology A three-step process: Step 2: (a)Build a world soybean and products model (SOYMOD) that includes the effects of the checkoff expenditures (b)Use SOYMOD to simulate the level of world market supplies, demand, prices, and trade that would have existed “without” the checkoff program and compare to actual history. MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM

15. SOYMOD: World Soybean and Products Model Research Methodology

16. A three-step process: Step 3: Use the SOYMOD simulation results to calculate: (1)the effects of the soybean checkoff program on U.S. and world soybean and soybean product markets and trade. (2)the return on investment to soybean producers from the checkoff program. MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM

17. Research Methodology MEASURING THE RETURN TO PRODUCERS FROM THE SOYBEAN CHECKOFF PROGRAM Benefit-Cost Analysis The is the calculated increase in sales revenues generated by the program BCR BCR = Total Checkoff Expenditures BENEFIT-COST RATIO (BCR) divided by the total level of checkoff expenditures over the life of the program.

18. DATA Two Sets of Data Required for this Analysis for 1980/81-2006/07: 1. Market Data – U.S. and Foreign Markets -Soybeans, Soybean Oil, Soybean Meal -Supply and Demand (Acreage, yields, production, stocks, consumption, etc.) -Prices and Trade 2. Soybean Checkoff Expenditure Data -Production Research Expenditures (1970/71-2006/07 with a 4-year Gap) -International Market Promotion Expenditures (1970/71-2006/07: Pieced together by country, region, commodity, and contributor from data provided by FAS (USDA), ASA, and USSEC) -Domestic Promotion Expenditures (1994/95-2006/07: Pieced together by commodity from data provided by QSSBs and USB Contractors)

19. Promotion and Production Research Expenditures, 1970-2006 Soybean Checkoff Expenditures Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council International Promotion

20. Promotion and Research Shares of Checkoff Expenditures, 1970-2006 Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council percent Soybean Checkoff Expenditures International Promotion

21. Checkoff Expenditures as a Percent of Soybean Cash Receipts, 1970-2006 Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council percent Soybean Checkoff Expenditures

22. International Promotion Expenditures by Contributor, 1970-2006 Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council Soybean Checkoff Expenditures

23. Contributor Share of International Promotion Expenditures, 1970-2006 Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council percent Soybean Checkoff Expenditures Note that 3 rd Party Contributions have dried up

24. Regional Share of International Promotion Expenditures, 1970-2006 percent Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council Soybean Checkoff Expenditures

25. Commodity Share of International Promotion Expenditures, 1970-2006 percent Source: Expenditure data obtained from United Soybean Board, American Soybean Association, and the U.S. Soybean Export Council Soybean Checkoff Expenditures

26. Domestic Promotion Expenditures by Commodity, 1994-2006 Source: Expenditure data obtained from United Soybean Board Soybean Checkoff Expenditures

27. Production Research Expenditures by Type, 1978/79-2006/07 Source: Expenditure data obtained from Keith Smith and Associates through the United Soybean Board. Soybean Checkoff Expenditures Four-year GAP when data was not compiled millions $

28. Production Research Expenditures by Region, 1978/79-2006/07 Soybean Checkoff Expenditures Four-year GAP when data was not compiled Source: Expenditure data obtained from Keith Smith and Associates through the United Soybean Board millions $

29. mil. bu. Annual Changes in U.S. and Regional Soybean Production from Soybean Checkoff Program, 1980/81-2006/07 Effects of Soybean Checkoff Program

30. percent Regional Share of Change in U.S. Soybean Production from Soybean Checkoff Program, 1980/81-2006/07 Effects of Soybean Checkoff Program

31. Effects on U.S. SoybeanMarkets,1980/81-2006/07 Effects of Soybean Checkoff Program

32. Effects on U.S. Soybean and Product Exports,1980/81-2006/07 Effects of Soybean Checkoff Program

33. Effects on U.S. Soybean and Soy ProductExportShares,1980/81-2006/07 Effects of Soybean Checkoff Program

34. Change in Regional Production, 1980/81-2006/07 mil. bu. Change in Soybean and Product Demand, 1980/81-2006/07 mil. bu. Percent Change in U.S. Prices, 1980/81-2006/07 % 1,000 mt Change in U.S. Exports, 1980/81-2006/07

35. SoybeanCheckoffROIAnalysis, 1980/81 – 2006/07 Benefit-Cost Ratio Calculation 6.4

36. Major Conclusions $6.4 in additional profit returned $6.4 in additional profit to U.S. soybean farmers for every dollar invested. size and profitability increased the size and profitability of the U.S. soybean industry. competitive threat reduced the competitive threat of the South American soybean industry. THE SOYBEAN CHECKOFF PROGRAM HAS … supported soybean and product prices each year by an average of 2% above what the prices would have been without the checkoff program. boosted the annual level of soybean, soymeal, and soyoil exports boosted the annual level of soybean, soymeal, and soyoil exports by an average of 5%, 15%, and 24%, respectively. countercyclical force acted as a countercyclical force in the soybean industry, reducing the severity of market downturns in bad years and adding to growth and profitability in good years.

37. Implications for Program Management underinvesting The U.S. soybean industry is underinvesting in soybean checkoff programs! Things to think about when deciding on how much to spend for what and where: how much to spend for what and where: reducing the potential return The current mix of expenditures is reducing the potential return! reducing the potential return Decision to no longer leverage international promotion expenditures with Third Party Contributions is also reducing the potential return! demand pull supply push More demand pull (domestic and international promotion) relative to supply push (production research) needed. international promotiondomestic promotion More international promotion relative to domestic promotion needed. soymeal/soyoilsoybean More soymeal/soyoil promotion relative to soybean promotion needed. large, mature markets Neglect of large, mature markets is also reducing returns.

38. Implications for Program Management A record-keeping system for checkoff expenditure data across contractors and across QSSBs is desperately needed. -It took us 4-5 months just to find, compile, and prepare the historical data on checkoff expenditures before we could even begin our analysis. -We still ended up with big holes in much of the data because critical data was not preserved. -Nobody’s “fault.” -There is just no systematic process in place to warehouse the expenditure data for evaluation purposes. -Remember: the results of an evaluation of the checkoff program can be no better than the data. Last, but certainly not least…