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The steps in evaluating performance in the context of food systems, including defining performance dimensions and criteria, such as production efficiency, progressiveness, product suitability, and return on investment. It also explores the challenges of measuring performance against norms and aggregating measures into a unified performance index.
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The I-O Model--Performance I. Performance in perspective A. In this section on performance, we will discuss:
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by selling grain at less than it costs to produce it. F. Making operational statements and recommendations about performance (e.g., on a consulting mission) requires reaching some agreement on three issues:
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and 2nd-best solutions, to come up with workable dimensions and norms for performance--lots of qualifications, etc., based on economic theory and the literature)
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b. Includes pricing efficiency--i.e.,the degree to which prices accurately and rapidly transmit changes in supply and demand to participants in the market (1) Affects allocative efficiency by inducing adjustments in consumption and production as supply and demand change. Allows matching of supply and demand and adjusts consumption to social scarcity. (2) An important aspect of this is the accurate transmittal of differential consumer demands to other actors in the system. (a) Concept of consumer sovereignty as driving the system. (b) Differential demands for different qualities of goods- -e.g., fatiness in meat; milk (move to multiple component pricing).
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widespread adoption. b. The norm is how well does an industry do relative to its opportunities? c. Possible Indicators of progressiveness: (1) R & D : (a) Could measure amount of effort by R & D budget. (b) Also have to look at type of research carried out-- merchandising vs. fundamental improvements. (c) Look at impact of recent mergers on debt load of firms, with consequent reduction in R&D. (2) Prompt exploitation of new developments as opposed to suppression of them. (3) Incentives and constraints to innovation--e.g., tax incentives, patents. d. Policy issues (1) What kind of industry structure fosters progressiveness? Atomistic, oligopoly, monopoly? (see Scherer for some evidence on this--Related to Schumpeter's question of how to foster "creative destruction.") (2) Role of public sector and private sector research in fostering
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i.e., reducing transaction costs. f. Norms (1) Sellers should not suppress product inventions. (2) Sellers should not persistently offer less than the maximum quality that is available for a given cost. (3) Worthless and troublesome differences among sellers offerings should not persist. (a) Need to balance variety and costs (b) Role of grades and standards--e.g., in eggs and meat--in helping to make market more transparent and eliminate "excessive" variation. Also related to the dimension of participant rationality--i.e., participants should have the information necessary to make rational choices.
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b. Chronic excess profits represent a failure of the market system (1) Indicate too few resources are flowing into the industry (2) May be a result of concentrated market structure and high barriers to entry. (3) May have undesirable income distribution consequences (but need to view this in a dynamic sense--e.g., about 30 % of Kellogg's profits go to Kellogg Foundation) c. Chronic sub-normal profits may indicate a sick or declining industry. d. Definitional and measurement problems (1) What is "chronic"? Periods of high or low profits are necessary to help guide resource allocation in the economy. (a) Periods of high and low profits therefore indicate that the market is working well. Problem arises when resource allocation does not change in response to these high or low profit rates. (b) Also want rewards for innovation and risk-taking. (c) Need long period of observation for to get "average" profit rates for risky businesses--e.g., studies of marketing in LDCs, based on case study snapshot
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by their social opportunity cost. I.e., the premise from welfare economics is: "a `reasonable relation' between marginal cost and product price and between value of marginal product and input price" judged in relation to other industries.
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(1) Now moving to more differentiated and targeted advertising, given the proliferation of different marketing outlets, ways of reaching consumers (e.g., cable TV) and ability to identify market niches and target for them. (2) May have reduced some of the scale economies in national TV advertising, but still substantial scale in developing big ad campaigns (e.g., for movies) (3) Impact of growth of internet marketing? E.g., Virtual Vineyards? e. Types of Advertising (1) Informational messages--showing availability, prices, and alternative uses of products (a) Consumer information programs (b) More common in newspaper, magazine, and radio ads. (2) Persuasive advertising (a) Psychological appeals--to lost youth, sex appeal, status (e.g., bear ads) (b) Exaggerated explicit or implied claims for the product (Related to unethical conduct norms).
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h. Reference: James D. Shaffer. "Advertising in the Marketing Process." In Agricultural Market Analysis, edited by Vernon L. Sorenson. East Lansing: Bureau of Business and Economic Research, Graduate School of Business Administration, Michigan State University, 1964.
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advantage obviously conflicts with social welfare)." b. Deals with adequate market info. to make rational choice and avoidance of misinformation. The need to provide market participants with a reasonable opportunity to make comparisons may require certain mandatory coordination and impartial types of information. E.g., (1) Inspection (2) Grading (3) Standards of identity (4) Standardized containers and packing (truth in packaging law) (5) Standardized quotations (e.g., unit prices, standard mileage estimates) (6) price posting (7) market news (8) product tests c. If this assumption is violated, then can't expect unfettered market to lead to efficient resource allocation (violation of perfect knowledge assumption). Also may discourage adoption of socially useful technologies (e.g., fertilizers) due to fear of being tricked.
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c. The norm: "No obviously and grossly excessive amount of uncompensated injury or an obviously and grossly insufficient amount of uncompensated benefit."
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often show this. (b) Do subsidies and tax breaks favor the rich? (both consumers and producers, in both industrialized and low-income countries) (c) Who has access to credit and technical assistance (small vs. large entrepreneurs)? (3) The position of farmers in the system (a) They receive a residual payment, by definition. (b) Are they relatively disadvantaged due to lack of market power? (c) What is condition of small vs. large farmers? (d) Are there problems of chronic excess production and low incomes? If so, why?