Checkoff Return on Investment Study Shows Strong Results
by Dr. Harry Kaiser, Gellert Family Professor of Applied Economics and Management at Cornell University and Director of the Cornell Commodity Promotion Research Program, and the author of the latest Return on Investment study for the Beef Checkoff
The most comprehensive study ever conducted on the Return on Investment (ROI) of the Beef Checkoff Program concludes that each dollar that the Cattlemen’s Beef Board (CBB) invested in the Beef Checkoff Program between 2006 and 2013 returned about $11.20 to the beef industry. I’ve done a number of these same types of studies for other commodity programs, and the Beef Checkoff ROI is one of the highest I’ve measured. This should send a clear message to all of the beef producers and importers who invest into the checkoff program that their dollars are definitely working in their favor and that it costs them far less than it returns to them. The bottom line is that the increase in beef demand due to CBB-funded marketing efforts during the eight-year period covered in this study resulted in higher prices and demand for beef producers and importers, which means higher net revenue than they would have experienced without those checkoff programs.
Early this year, the checkoff’s Joint Evaluation Committee commissioned me to complete this comprehensive study. The checkoff has always evaluated its programs individually on an annual basis and commissions this type of macroanalysis about every five years, in accordance with requirements of the Beef Act and Order and USDA. But given increasingly tight checkoff revenues, the Evaluation Committee this year sought a more comprehensive ROI study than ever before. That meant evaluating all beef demand – including retail, foodservice and international data versus solely domestic retail data, as was used in the previous analysis in 2009. The new results are about double the ROI compared with the 2009 study. There are several reasons for this.
First, this all-encompassing research approach also meant analyzing individual categories of checkoff programs separately – including promotion, channel marketing, industry information marketing, new product development, public relations, nutrition research, beef-safety research; product-enhancement research; and then, using a different econometric model, foreign-market development. The 2009 study had far fewer categories. In addition, I measured demand using commercial disappearance, which is an all-encompassing measure, compared to the study in 2009, which used a sample of households that measured demand as the number of servings of beef consumed.
Furthermore, my study covered a broader span of time – eight years – rather than five years, which provides a more realistic view of overall value. And finally, national checkoff programs simply might have been even more efficient and profitable since the 2009 study was completed. With all of these factors in mind, you can see that it’s important not to compare the two studies directly.
In the end, my analysis addressed three important objectives:
- Quantify and measure the economic benefit to cattlemen of CBB-funded programs for the period 2006-2013 in terms of net return on investment.
- Quantify and compute marginal rates of return on investment for alternative existing and potential checkoff-funded activities.
- Estimate the optimal allocation of the CBB budget across the various program activities.
To be clear, my research analyzed only programs funded by the Cattlemen’s Beef Board, and not state beef councils or the Federation. The conclusions in this research are based on two econometric models, one for domestic returns and the other for returns on investments aimed at expanding exports of U.S. beef. The domestic-demand model was simulated from 2006 through 2013 by setting all independent variables equal to historical levels to determine how well predicted coincided with actual per capita beef demand. The average prediction error (mean absolute percentage error) was only 2.78 percent, which indicated that the model had a high degree of accuracy.
I simulated a second set of counterfactual scenarios with the demand model to determine the impact of the eight categories of domestic demand-enhancing CBB activities. Each scenario was identical to the baseline, except that CBB expenditures were reduced to 1 percent of historical levels in order to determine how it impacted domestic demand.
An Armington-type market share trade model (Armington, 1969) was used to model the impact of U.S. beef export promotion expenditures on U.S. market share for beef in the global market. The Armington model distinguishes commodities by type and source of origin, and based on this export demand model, the value of the U.S. dollar had the most important impact on U.S. beef market share in international markets. The statistical results indicated that U.S. foreign-market development programs had the effect of increasing market share of U.S. beef exports.
I simulated the estimated Armington trade model for two scenarios to gauge the overall impact of CBB funds for export promotion and conducted an in-sample simulation for the last five years for two scenarios: 1) baseline scenario, where export promotion expenditures were set equal to historical levels, and 2) no-CBB contribution scenario, where CBB contributions to export promotion were eliminated.
There are two main findings of the study. First, the marketing activities funded through the Cattlemen’s Beef Board’s national checkoff budget have a substantial impact on beef demand in the U.S. and in foreign markets. Second, the returns on producers’ and importers’ investments into these programs are vastly greater than their costs. I found that the combined benefits of all programs funded by producers and importers through the CBB were 11.2 times larger than their costs. That is, an incremental dollar invested in CBB-funded activities generated an additional $11.20 in revenue to beef producers and importers who invested into it. That is an impressive benefit-cost ratio, or return on investment.
Here are some of the other key findings:
- Without CBB-funded marketing between 2006 and 2013, domestic beef demand would have been 15.7 billion pounds (11.3 percent) less than it was with the checkoff programs in place. Holding the effects of all other demand drivers constant, then, the activities funded by the CBB resulted in an increase in beef demand of 2.1 billion pounds per year.
- Had the CBB not invested in foreign-market development between 2006 and 2013, foreign demand for U.S. beef would have been 6.4 percent lower.
- The statistical results indicate that all eight CBB demand-enhancing activities -- generic beef advertising; channels marketing; industry information; new-product development; public relations; nutrition research; beef-safety research and product-enhancement research -- have a positive and statistically significant impact on increasing per capita beef demand.
If I was investing my hard-earned dollars into the checkoff programs, I would be proud to do so based on the findings of this study. I think all beef producers and importers should be proud, too.
Tags: Beef Issues Quarterly, Fall 2014, Research Findings
October 5, 2014