Wheat farmers see sizable return on promotion investment

Wheat farmers see sizable return on promotion investment

Wheat industry estimates up to a $45 increase in net revenue for every $1 into wheat export promotion

U.S. wheat producers invested an average of $4.9 million in checkoff funds per year to promote their milling wheat overseas between 2010 and 2014, and for every one of those dollars they received up to $45 back in increased net revenue, according to a new economic analysis of wheat export promotion released last week by U.S. Wheat Associates.

Related: Weekly Wheat Review

Designer and lead on the study, Dr. Harry M. Kaiser, who is director of the Cornell Commodity Promotion Research Program, said the study showed that between 2010 and 2014, the total investment in wheat export promotion by farmers and the government increased total annual gross revenue by $2.0 billion to $3.0 billion.

Wheat industry estimates up to a $45 increase in net revenue for every $1 into the wheat checkoff (Thinkstock/moodboard)

"So for every $1 farmers and the government invested, the estimated return in gross revenue to the U.S. economy was between $112 and $179," Kaiser said. He added that the most likely annual gross revenue return is about $149 for each dollar spent based on USDA supply elasticity studies.

Kaiser quantified the impact of wheat export promotion through models that account for several factors affecting commodity export demand such as prices and exchange rates.

The study determined that cutting promotion by 50% between 2010 and 2014 would have reduced wheat exports by about 15%. That represents a total potential export loss equal to nearly 161.5 million bushels per year. The value of that loss was determined, then compared to total wheat export promotion cost to calculate a series of benefit-to-cost ratios.

The BCR from the total promotion cost averaged 14.9 to 1. Because producers contributed about one-third of the total producer and FAS investment through state checkoff program, the BCR for their investment averaged about three times the total, or about 45 to 1.

Assuming farmers get 10% of the total revenue, Kaiser said the study shows wheat export promotion increased net revenue for farmers by more than $247 million per year. The impact of in-kind contributions from state commissions was not considered in this study.

"Our organization is accountable to wheat farmers and other taxpayers who fund the market development work we do," USW President Alan Tracy said. "Dr. Kaiser's research methods are well respected and the conclusions echo previous studies in 2004 and 2009, so we can very confidently say that the money farmers provide for export promotion is well worth the investment. In fact, the study predicts that increasing the promotion investment has the potential for even greater returns to wheat farmers, the wheat supply chain and the U.S. economy."

USW will use additional results from the study to help plan and manage its future activities. USW commissioned the study with funding from the USDA/Foreign Agricultural Service Market Access Program.

Source: USW

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