Evaluation of Federal Marketing Orders for Fruits and Vegetables Using Time Varying Parameters

Selected federal marketing orders for fruits and vegetables are examined in order to evaluate the relationship between marketing order activity and demand. Marketing orders have constituted the primary policy instrument applicable to fresh fruits and vegetables, dried fruits, and tree nuts for more than 40 years. This study is an attempt to empirically measure selected results of marketing orders.

The general objective is to evaluate the relationship between order activity and demand. A current and historical perspective of marketing order use and evolution is presented. A theoretical specification linking order activity and demand is developed and an empirical model is developed and estimated. Finally, the empirical results are interpreted.

The 21 marketing orders applicable to citrus fruits, vegetables, and potatoes as of October 1979 are examined. Most permitted order activities are observed among this set of orders. The reflection of order activity in demand is pursued from three perspectives. The direct reflection, as measured by the response of price to changes in the proportion marketed under regulation, is observed in the demand for seven commodities. Two indirect reflections are also pursued. Demand equations are estimated by the time varying parameter method which allows the distinction between demand equations with random coefficients which tend to fluctuate around estimated mean values and demand equations with coefficients exhibiting permanent change, i.e., not tending to return to a mean value.

Permanent temporal parameter adjustments are indicated for selected citrus and potato orders. Temporal parameter variation is estimated to be entirely random for all vegetables considered.

Several order activities are significantly correlated with permanent change. However, the lack of any discernable temporal pattern in the parameters suggests that the ability to increase demand through order activities is limited at best.

Comparison of two alternative measures of randomness reveals that order activities are not significantly associated with randomness in the majority of cases. However, where the association is significant, an increase in order intensity is associated with a decrease in randomness, i.e., a more stable parameter, in most cases. No order activity is significantly associated with increased randomness under both measures.

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