ABM 100

Value- Added
Refers to the difference between the cost of goods purchased and the price for which the firm sells those ‘enhanced’ goods.
Approximate # of all jobs in the U.S related to some aspect of the agri-food system
20-25%
Approximate value of total expenditures on food and alcohol in the U.S
$1 to $1.4 trillion
Current trends in the agri-food system
Processors are also becoming food manufacturers.
Major/Large grocery retailers are acting as their own wholesalers.
Initial processors are dealing more directly with producers and decreasing the role of assemblers.
NOT a current trend in agri-food system
Consumers dealing directly with processors and reducing the role of wholesalers.
Assembler: Example
A grain elevator who buys small quantities of corn from farmers and sells large quantities of corn to the next player.
Least likely to add form value?
The wholesaler.
Institutional wholesalers typically sell to:
University cafeterias, restaurants, hospitals.
Institutional wholesalers typically do NOT sell to:
food retailers.
An agri-food firm who takes commodity wheat, stores it in grain bins, and then turns it into wheat flour primarily adds what type(s) of value?
Form and Time
A commodity processor would most likely sell:
Wheat flour to Kraft Foods.
Economic Stage
Any value-adding process that moves the product closer to final consumption.
A barge that loads grain from elevators in Minnesota and transports it down the Mississippi River to the Gulf of Mexico is primarily adding:
Place Value.
Which tool would you use if you wanted to determine how much US consumers spend on all food and alcohol in a given year?
The Food Bill.
On average, Americans spend less than __% of their disposable income on food.
10%
Both real retail food prices and the Food Bill have been _____ over the past twenty years.
Increasing.
Approximately __% of total food expenditures is for food purchased away from home.
50%
____ incomes are leading to _____ total food expenditures.
Increasing, increasing.
Food manufacturers tend to be located __ agricultural production areas rather than near final consumption regions.
Near.
In general, Americans have one of the ___ shares of income spent on food in the world.
Smallest.
Beginning in the mid 1990’s, which item replaced food as the largest single item in the average family budget?
Health care.
In $100 of retail food, the value added BY FARMERS is approximately ___. Note- the value added by farmers is NOT the same thing as “farm value.”
$6-$8.
What would likely lead to a larger farm share of the food dollar?
A food item that is highly perishable, like milk or eggs.
Processors tend to locate their facilities ___ agricultural production regions.
Near.
Given the changing demographics in the US, what is very unlikely to occur in the US over the next twenty years?
Baby boomers growing older and being more likely to eat out than younger Americans
The value of total expenditures on food and alcoholic beverages in the US is approximately:
$1 to $1.5 trillion
Consumption trend in the US agri-food system over the past 20 years or so
The share of income that US consumers spend on food has been decreasing.
Approximately what quantity of food is consumed away from home?
1 out of every 3 meals (33%)
Most farms in the US are ____
Family owned and operated.
A ____ in the price of fertilizer used in corn production will cause an ______ in the supply curve for corn.
decrease, increase.
If a surplus exists in the market, then there is a _____ pressure on price.
Downward.
If ice cream and popsicles are substitutes, one would expect that a decrease in the price of ice cream would cause the demand for popsicles to
Decrease
What country is considered one of the top countries from which the US imports agricultural and food products?
European Union.
In 2008, the world’s largest confectionery company was formed when the Mars Company acquired Wrigley for $23 billion. The growing market concentration in the confectionery industry may be a concern to consumers if the confectionery firms in the industry begin to:
Exercise market power.
Assume that an early frost destroys much of the fresh orange crop in Cali. This event will most likely affect the market for fresh oranges in the following way:
Shift the supply curve, increasing the price and decreasing the quantity traded in the market.
Demand Shifters:
Prices of substitute goods, income, tastes and preferences.
NOT a demand shifter:
Price of the good.
Large scale farms account for the ____ of agricultural production in the US
majority
If chips and salsa are complements and the supply of chips decreases, then the likely impact on the salsa market will be that:
The demand for salsa will decrease.
The US has a positive ____ trade balance.
Agricultural
The elasticity of demand for milk is -0.25. Therefore, an increase in the supply of milk would result in:
A decrease in total revenue for milk producers
Assume that the elasticity of demand for Pepsi is -1.15. Therefore, if the price of Pepsi increases, the total revenue of Pepsi producers will:
Decrease.
A cross-price elasticity would be used to measure the impact of a
change in the price of a substitute
Suppose that, when income increases by 10%, the quantity demanded of chicken increases by 2%. One can conclude that:
Chicken is a normal good.
Assume that the short-run elasticity of supply for orange juice is +.048. In the long-run, what do you think would be the most plausible number for the long-run supply elasticity of orange juice?
+1.40
Assume that the quantity demanded of apples increases by 12 percent when the price of apples decreases by 10 percent. What could be considered true?
The total revenue of apple producers will increase when the supply of apples increases.
Income elasticities may be _____ or ______
positive, negative
If tighter trade restrictions lead to a decrease in imported avocados from the US into Mexico, what will likely be the impact on the equilibrium price and quantity in the US avocado market?
Quantity will decrease and price will increase.
What agri-food player is typically closest to the final consumer?
The manufacturer.
An economic stage is:
Any value-adding process that moves the product closer to final consumption.
What would likely shift the supply of milk?
A change in the price of hay used to feed dairy cows.
Grocery wholesalers typically sell to
Food retailers
What player is least likely to add form value?
The assembler.
T/F: Due to the biological nature of food production, agricultural firms are able to quickly contract and expand in order to adjust to price signals in the market.
False
A commodity processor would likely sell:
Wheat flour.
T/F: The Food Bill measures all of the value added in the agri-food system by firms once the product leaves the domestic farmgate.
False
375 bags of pretzels were sold at $2.99 per bag. Later, 500 bags of pretzels were sold at $4.49 per bag. What likely occurred in the market?
Demand increased.
The share of total food expenditures for food purchased away from home is ______
Increasing
Approximately _____% of all agricultural production in the US is exported
16-18%
What items would NOT be included when calculating the Food Bill?
Exports.
What is a likely reason for the upward trend in the Food Marketing Bill?
Increasing domestic population
Assume that research reveals that the consumption of olive oil reduces the risk of coronary heart disease. The impacts of this event on the olive oil market will be to:
Shift the demand curve, increasing both the price and the quantity traded in the market.
Approximately what percentage of food expenditures is for food purchased away from home?
50%
A wholesaler who stores cereal boxes and then transports them to the retailer primarily provides which types of value?
Time and Place Value
What would NOT cause a change in the demand for peanut butter?
A drought.
If Coke and Pepsi are substitutes and the price of Coke decreases, then the likely impact on the Pepsi market will be that:
The demand for Pepsi will increase
Approximately, what proportion of the Food Bill is considered “Farm Share”?
15-20%
T/F: In the 20th century, technology was the primary driver of increased agricultural productivity at the farm level.
True
The primary customer of the agricultural input supplier is the:
Farmer
Capital factors in agricultural production, such as the high degree of asset specificity, mean that agricultural production firms are ___ to adjust to market price changes than non-agriculture firms.
Slower.
Farms are becoming ___ specialized and ___ diversified.
more, less.
A current trend in the agri-food system is for the commodity processors to deal __ directly with producers and decrease the role of assemblers.
more.
Farmers account for approximately __% of the population.
2%
The clustering of fruit production and processing in the Traverse Bay area is an example of ___ in the agri-food system.
Geographic concentration.
If a new production technology reduces the cost of producing corn, the supply curve for corn is likely to ____.
Increase.
The share of income that consumers spend on food is _____.
Decreasing.
An increase in the price of pesticides used in tomato production will cause a shift in the __________ for tomatoes.
Supply Curve.
The ____ is the worlds largest importer of food and agricultural products.
U.S.
A potential benefit to consumers of market concentration in the agri-food system is that larger firms may be able to ____ per unit costs of production.
Reduce.
Both ____ and _____ prices respond to the same underlying supply and demand factors.
Futures, Cash.
A bakery estimates that the elasticity of demand for its bread is -0.5. If the bakery raises the price of its bread by 10%:
Quantity demanded will decrease by 5% and total revenue will increase.
Studies show that the cross-price elasticity of demand for bacon with respect the the price of eggs is -2.0. One can conclude that:
Bacon and Eggs are complements.
Suppose that in the previous decade, the income elasticity of butter was estimated to be about +.85. Today, the income elasticity for butter is-.14. This would imply that over the last few decades:
Butter has changed from a normal good to an inferior good.
If one wanted to estimate the impact on the beef market resulting from the drop in pork price caused by the H1N1 virus, one would need:
The cross price elasticity of beef with respect to the price of pork.
In November, a grain elevator manager buys some corn to store over the winter. He plans to sell the corn next March. In order to hedge the corn, he should:
Sell a March contract in November.
An inferior good is one that has:
A negative income elasticity.
If one wanted to estimate the impact on the egg market due to a new food safety bill that increases consumer confidence regarding the safe consumption of egg and egg products, one would need to know:
The elasticity of supply for eggs.
In futures markets, the seller of a contract:
Agrees to make delivery according to the terms of the contract.
Suppose the price of peas goes up by 8% and as a result the quantity demanded of carrots increases by 10%, ceteris paribus. Then the cross price elasticity of demand for peas with respect to the price of carrots, is ____ and peas and carrots would be considered ___.
+1.25, substitutes.
1990, economists estimated that the cross price elasticity between juice and pop was +1.14. Today, the dynamics in the beverage industry have changed and the new cross-price elasticity between juice and the price of soda is +.25. This would imply that, compared to the old estimate of +1.14, an increase in the price of soda pop would now lead to what type of shift in the demand for juice?
A smaller shift, but still in the same direction.
If the rain falls during the soybean growing season in Brazil and Argentina and improves the South American crop prospects, it is likely that:
The cash and the futures contract price will both decrease.
T/F: Futures markets are used by speculators to reduce price risk.
False.
If ice cream manufacturers want to increase their revenue from sales, they should ___ the price if they think that demand is ____.
Increase, Inelastic OR decrease, elastic.
The ____ a food product’s share is of the consumer budget, the ___ the elasticity of demand for that product.
greater, greater.
Income elasticities tend to be ____ for necessities than for luxuries.
Smaller.
Price discovery
The interaction of the broad forces of supply and demand which establish the market price level.
Most people who trade on the commodity futures market are _______.
Speculators.
The fewer the number of substitutes for a product, the more _____ is the demand for that product.
Inelastic.
Less than __% of all futures contracts typically result in actual delivery.
5%
A speculator neither ______ the commodity in the futures contract.
owns nor intends to own
If the elasticity of demand for apples is equal to -0.5, then a 10% increase in the price of apples will result in a 5% ____ in the quantity of apples.
decrease.
The more inelastic demand is, the ___ the change in quantity when the price changes.
Smaller.
The elasticity of demand is ___ elastic in the short run than in the long run.
less.
If the quantity of pears demanded decreases by 10% when the price of apples increases by 7%, then pears and apples would be considered ____.
Complements.
Most food products have an income elasticity between ____ and ____
0 and +1.0