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Title: Competition between Florida and California Valencia oranges in the fresh market
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Title: Competition between Florida and California Valencia oranges in the fresh market
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Publisher: University of Florida Agricultural Experiment Station
Publication Date: 1965
Copyright Date: 1965
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Table of Contents
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Full Text





HISTORIC NOTE



The publications in this collection do
not reflect current scientific knowledge
or recommendations. These texts
represent the historic publishing
record of the Institute for Food and
Agricultural Sciences and should be
used only to trace the historic work of
the Institute and its staff. Current IFAS
research may be found on the
Electronic Data Information Source
(EDIS)

site maintained by the Florida
Cooperative Extension Service.






Copyright 2005, Board of Trustees, University
of Florida





DECEMBER 1965














7--










competition between florida

and california valencia

oranges in the fresh market


MARSHALL R. GODWIN
W. FRED CHAPMAN, JR.
WILLIAM T. MANLEY




AGRICULTURAL EXPERIMENT STATIONS
Institute of Food and Agricultural Sciences
University of Florida, Gainesville
J. R. Beckenbach, Director
in cooperation with the U. S. Department
of Agriculture and Florida Citrus Commission








CONTENTS

Page
Introduction -------------- ---- 3
Method of Study------- ---.----------- ----------- 4

Comparative Sales of Oranges -------------------- 7
Characteristics of the Demand for Valencia Oranges ----- 10
Price and Substitution Effects -- ---------------10
Effects of Price Changes Upon Purchases -
Florida Size 200, California Size 138 ------- ----11
Effects of Price Changes Upon Purchases -
Florida Size 163, California Size 138 ------- ----13

Supply Interactions ----_ ------ --------------- _15
Effects of Supply Changes Upon Prices -
Florida Size 200, California Size 138 ---- ----16
Effects of Supply Changes Upon Prices -
Florida Size 163, California Size 138 ---- -----18
Effects of Major Changes in Supply Conditions for
Florida Valencia Oranges -- --------------------19
Evaluation of Findings -------------------------24
Summary ________-- ..-------------------------------------- ----... 26
Acknowledgments ------------------------------------ 28






Department of Agricultural Economics
Florida Agricultural Experiment Stations
in cooperation with
Marketing Economics Division
Economic Research Service
U. S. Department of Agi culture
and
Florida Citrus Commission
Lakeland, Florida











COMPETITION BETWEEN FLORIDA AND
CALIFORNIA VALENCIA ORANGES
IN THE FRESH MARKET'

Marshall R. Godwin, W. Fred Chapman, Jr.,
and William T. Manley2

INTRODUCTION
Practically the entire supply of oranges for the United States
is grown in Florida and California. However, there is a con-
siderable difference in the form in which the crops are marketed
in the two states. In California, the dominant form in which
oranges are marketed consists of fresh fruit. Generally, about
three-fourths of the California crop is sold in fresh form. On
the other hand, a large share of the Florida crop is marketed in
various processed forms such as frozen concentrated, chilled,
and canned juice. Only about one-fifth of the total output is
sold in fresh form. For several years, Florida orange production
has been well in excess of the total output in California. There-
fore, one-fifth of the Florida crop and three-fourths of the Cali-
fornia crop occupy a substantial share of the fresh fruit
market. Consequently, the two producing areas are in direct
competition with respect to consumer purchases of fresh
oranges.
The competition between California and Florida fresh
oranges has seasonal implications. While California fresh fruit
operations continue at a rather stable level throughout the year,
operations in Florida diminish sharply during the summer
months. The competitive problem is of greatest interest and

1This publication is based upon a more detailed examination of the
data which were presented under the title "Demand and Substitution
Relationships for Florida and California Valencia Oranges Produced for
Fresh Market" as a dissertation by W. Fred Chapman, Jr., in partial ful-
fillment of the requirements for the degree of Doctor of Philosophy at the
University of Florida in December 1963.
"Godwin is Marketing Economist, Florida Agricultural Experiment Sta-
tions, University of Florida. Manley is Associate Agricultural Economist,
Florida Agricultural Experiment Stations, University of Florida, and Ag-
ricultural Economist, Marketing Economics Division, Economic Research
Service, U. S. Department of Agriculture. Chapman was formerly Assist-
ant in Agricultural Economics, Agricultural Experiment Stations, Uni-
versity of Florida, and Agricultural Economist, Marketing Economics Divi-
sion, Economic Research Service, U. S. Department of Agriculture.







4 Florida Agricultural Experiment Stations

concern to Florida growers and marketing firms during the
winter and spring when the highest volumes of fresh fruit are
marketed. During the spring months, both Florida and Cali-
fornia produce and market fresh Valencia type oranges in large
volumes.
In Florida, there is considerable internal competition be-
tween two distinct producing areas. It is generally recognized
that the market posture of fresh fruit grown in the Interior
section of Florida is materially different from fresh fruit grown
in the Indian River district of the state. The most tangible evi-
dence of this difference is that consistent and significant price
differentials exist for fruit of comparable grades and sizes pro-
duced in the two regions of Florida. Consequently, the question
of competitive relationships in the market involves the consider-
ation of three types of fresh fruit grown in the two states.
The purpose of this research was to determine the degree to
which price changes alter consumer purchase rates of fresh
Valencia oranges. The measures sought were: (1) estimates
of the purchase reaction to varying levels of price for fresh
Valencia oranges produced in the Interior and Indian River sec-
tions of Florida and in California and (2) estimates of how
changes in the price of one of these types of fruit affect the level
of purchases of the other two types.


METHOD OF STUDY

The basic procedure used to obtain data for measuring the
competitive relationships between Florida and California fresh
Valencia oranges and estimating the demand characteristics for
each type of fruit was a series of controlled experimental tests
conducted in retail grocery stores. Several considerations were
involved in determining an appropriate market setting for con-
ducting these tests.
In the marketing of fresh oranges, the most intense compe-
tition between Florida and California oranges is from the Rocky
Mountains to the Eastern Seaboard. Competition between fruit
from the two states is especially heavy in the Midwest. There-
fore, this general area was designed as the one in which the
study would be conducted. Within this general region, consider-
ation was given to relatively large and heavily populated metro-
politan areas. Conduct of the study in such an area was








Florida and California Valencia Oranges 5

desirable in order that the measurement of demand and substi-
tution relationships include a large population base. To further
insure representation, it was desirable that the study be con-
ducted in an area characterized by moderate industrialization
and an adequate cross section of social, ancestral, and income
groups. Consistent with these requirements, retailing tests were
conducted in the Grand Rapids, Michigan, metropolitan area
during April and May of 1962.
Two basic considerations were involved in selecting test
stores within the chosen market location. First, the stores
should provide sufficient coverage of the market area to insure
representation of the total population. Second, the retailing
units should be reasonably alike with respect to merchandising
policy and product offerings. Consequently, nine supermarkets
operated by a single organization within the Grand Rapids
market area were selected for the study.
In six stores consumers were permitted to choose from
among three displays of Valencia oranges: size 200 Florida In-
terior, size 200 Florida Indian River, and size 138 California.
In three other stores, consumers were allowed to select from
among three displays of Valencia oranges of size 163 from the
Florida Indian River and Interior districts and size 138 Cali-
fornia fruit.3 The sizes 200 and 163 from Florida represent the
preponderance of Florida Valencia production in normal sea-
sons, and size 138 is normally the most important size shipped
from California.
In all cases, only Valencia oranges meeting the requirements
of the U. S. No. 1 grade were used in the tests. Constant quality
levels were maintained in the test displays. The size of the dis-
plays was the same as the normal display space for fresh oranges
(Figure 1). The three displays were rotated on a weekly basis
so that sales would not be affected by the position of displays.
In order to obtain information of the type and quality re-
quired for analysis, certain conditions prevailed with respect to
merchandising policy during the six-week period of study. First,
only Florida and California Valencia oranges of the specified
grade and size were handled by the test stores. Second, no
packaged oranges were offered for sale. The display of loose
fruit allowed customers to compare the three fruits and pro-
"Sizes 200, 138, and 163 have average diameters of 2.875, 2.420, and
3.063 inches, respectively.

















2' -; -
.r J v, ...6 ,' ~ : '- : [ '



T t '" i' L , '. Sai '? -.
turh






Figure 1.-A typical retail store display used in the experiments.

vided a basis for establishing a common unit of sale. A third
condition related to pricing. Per dozen pricing was used for the
three products, and placards calling attention to price and area
of origin were uniform in all stores and on all displays. Finally,
owing to the variation in prices among test stores, the cooper-
ating chain did not advertise or otherwise promote fresh oranges
during the six-week period.
During the course of the study each of the three types of
fruit was offered to customers at nine different price levels.
Expressed in differential terms, these price levels are shown in
Table 1. A 4-cent pricing interval was selected on the basis that
it would give a variation in prices covering a range regarded as
relevant for the investigation. It is apparent that the applica-
tion of these differentials involved a variation of 32 cents per
dozen in the price at which each type of fruit was sold. Also,

Table 1.-Price differentials used in estimating demand and substitution rela-
tionships for Florida and California fresh Valencia oranges.
+16
+12
+8
+4
0
-4
-8
-12
-16







Florida and California Valencia Oranges 7

the 4-cent pricing interval gave realistic per dozen market
prices when applied as differentials with the existing market
level as the zero point or base price level.
Immediately before the market tests, the retail price for
oranges in the Grand Rapids area was 49 cents per dozen for
both types of Florida Valencia oranges within the general range
of sizes used in the study. Further, the prevailing market price
for California oranges of the 138 size was 59 cents per dozen.
Consequently, these prices became the basing point for the intro-
duction of the system of price differentials used. Clearly, there
are many combinations of prices involving nine levels for the
three types of fruit. It was neither practical nor necessary for
the purposes of the study to include all combinations in the
study. Instead, those pricing combinations were selected that
would produce the necessary information for estimating the
demand characteristics for the three types of fruit, and for
measuring the substitution relationships between them. Using
the prevailing market levels as the base prices, the actual com-
binations employed in the retailing tests are shown in Table 2.
Prices for the two types of Florida Valencia oranges ranged
from 33 to 65 cents per dozen, while prices for the California
fruit ranged from 43 to 75 cents per dozen. The price combina-
tions shown in Table 2 were employed in tests involving both
the Florida size 200 and size 163 oranges marketed competi-
tively against California size 138 fruit. Each treatment and
resulting price combination shown in Table 2 corresponds to a
single day. In both of the market tests, prices were randomly
rotated over weekly time intervals and between stores. The
pricing system was such that the estimates of demand and sub-
stitution relationships depended only on the price levels for the
three orange types.
The tests were conducted so that the only differences among
the three displays of Valencia oranges were: (1) notation of
area of production, (2) physical characteristics of the oranges,
and (3) the price at which each product was sold.


COMPARATIVE SALES OF ORANGES
During 31 days, from April 9 to May 19, 1962, a total of
9,254.6 dozen of oranges were sold in the nine test stores (Table
3). This volume is slightly in excess of 1,000 packed boxes of








8 Florida Agricultural Experiment Stations

Table 2.-Price combinations utilized in determining the competitive relation-
ships between Florida and California Valencia oranges.
Price
Treatment Florida Indian River Florida Interior California
----------.--- --.--- Cents per Dozen ------------------------
1 33 49 59
2 49 33 59
3 49 49 43
4 37 37 47
5 37 37 71
6 37 61 47
7 37 61 71
8 41 41 51
9 41 41 67
10 41 57 51
11 41 57 67
12 45 45 55
13 45 45 63
14 45 53 55
15 45 53 63
16 49 49 59
17 53 53 63
18 53 53 55
19 53 45 63
20 53 45 55
21 57 57 67
22 57 57 51
23 57 41 67
24 57 41 51
25 61 61 71
26 61 61 47
27 61 37 71
28 61 37 47
29 49 49 75
30 49 65 59
31 65 49 59


fruit. Of this total, 6,279.7 dozen were sold in the six stores
having size 200 Florida fruit and size 138 California fruit, and
2,974.9 dozen were sold in the three stores having size 163 Flor-
ida fruit and size 138 California fruit.
In the test situations, equal opportunities were allowed for
the selection of the three types of Valencia oranges. Under these
conditions the California fruit outsold either of the two Florida








Florida and California Valencia Oranges 9

types. Total sales of California oranges in the two groups of
test stores amounted to 4,626.4 dozen of oranges or 50 percent
of total sales. This figure compared with 2,478.5 dozen of Flor-
ida Indian River fruit and 2,149.7 dozen of Florida Interior
fruit or 26.8 and 23.2 percent, respectively, of the total sales
during the tests.
Considering the two Florida sizes separately, California
fruit also outsold either of the Florida oranges. However, on
"a relative basis, the larger Florida fruit, size 163, commanded
"a greater share of the market than did the size 200 Florida
oranges. Of the 6,279.7 dozen of oranges sold in stores selling
size 200 Florida fruit, 53 percent was from California displays,
25 percent was from Florida Indian River displays, and 22 per-
cent consisted of Florida Interior fruit. On the other hand, in
the three stores selling size 163 Florida fruit only 45 percent of
the nearly 3,000 dozen oranges sold was California fruit, as
compared with 29 percent Florida Indian River and 26 percent
Florida Interior fruit.


Table 3.-Comparative sales of the three types of oranges during the experi-
mental tests.
Orange Sales
Store Florida Florida
Number Indian River Interior California Total
Dozens
--- -------Size 200 Florida-Size 138 California------------
1 224.5 218.6 643.1 1,086.2
2 361.0 270.9 756.3 1,388.2
3 230.1 222.0 575.7 1,027.8
4 210.7 176.7 338.9 726.3
5 243.4 204.1 499.1 946.6
6 335.3 280.6 488.7 1,104.6
Sub Total 1,605.0 1,372.9 3,301.8 6,279.7

-- --------------Size 163 Florida-Size 138 California---------------
7 235.1 307.4 577.1 1,119.6
8 427.5 305.2 397.5 1,130.2
9 210.9 164.2 350.0 725.1
Sub Total 873.5 776.8 1,324.6 2,974.9
Grand Total 2,478.5 2,149.7 4,626.4 9,254.6








10 Florida Agricultural Experiment Stations

CHARACTERISTICS OF THE DEMAND FOR
VALENCIA ORANGES
One of the most fundamental economic relationships is that
consumers respond to an upward price change for a commodity
by decreasing their purchases and to downward price changes
by increasing their purchases. Although this inverse relation-
ship is well known, the exact adjustment consumers make in the
amount they buy with a given price change is not well known.
The exact price and quantity purchased relationship varies with
almost every item purchased. When consumers are quite willing
to forego the use of an item, a very small price increase may
bring forth a large reduction in purchases. On the other hand,
if there is a great reluctance to forego or reduce consumption,
large price increases are necessary to effect an appreciable
change in purchase rates. Obviously, these same prospects hold
for price decreases. Consumers may respond to price decreases
by only a small increase in purchase rates, or they may increase
purchases substantially depending primarily upon their desire
for a particular commodity when measured against other goods
and services.
Producers and marketing firms attach great importance to
the manner in which consumers respond to price changes. This
is of importance in the marketing of Florida and California
fresh Valencia oranges. The way in which consumers respond
to changing prices may cause material differences in the market
conditions confronting orange producers and marketers in each
area.

Price and Substitution Effects
In the study of price interrelationships among Florida and
California fresh Valencia oranges two major effects must re-
ceive consideration. The first and foremost is the direct effect of
price upon consumption of a particular Valencia orange type.
This effect, commonly referred to as the elasticity of demand
with respect to price, denotes the relative change in purchase
rates resulting from a given change in the price of the product
in question.
The important factor in the competitive positions among the
three Valencia orange types is the effect of a price change for
one type of fruit upon purchases of the other two types. This








Florida and California Valencia Oranges 11

second effect is referred to as the cross elasticity of demand with
respect to price.
Changes in price of any of the three orange types may result
in both of the foregoing types of economic reactions on the part
of consumers. They may respond directly by adjusting their
purchases of the orange type undergoing price change, and, if
the three orange types are regarded by consumers as substitutes,
they may also alter purchase rates for the other two orange
types. The secondary adjustment can occur even though there
has been no price change for the other two types of oranges.
Acting together, these two economic responses determine the
characteristics of the demand for each Valencia orange type.
Thus, analyses of the data resulted in two important eco-
nomic relationships. The nature of both is dictated by the
generalized law of demand.

Effects of Price Changes Upon Purchases -
Florida Size 200, California Size 138

The first relationship is the price elasticity of demand. It
measures the effects of a price change for one type of orange
upon purchase rates for that same type of orange. The law of
demand dictates that the quantity of oranges sold must vary
inversely with the level of prices. Thus, the price elasticity of
demand for a particular orange type must be negative.
The effects of price changes upon purchase rates are shown
in Table 4. The figures preceded by a minus sign, -3.07, -3.01,
and -2.76, are the price elasticities of demand for Florida In-
dian River size 200, Florida Interior size 200, and California
size 138 Valencia oranges, respectively.

Table 4.-Effects of price changes upon purchases in tests involving Florida size
200 and California size 138 Valencia oranges.
Change in the Purchase of
A One Percent Change Florida
in the Price of: Indian Florida
River Interior California
-.---..----.----------.. Percent ------------- -------------
Florida Indian River -3.07* +1.56* +0.01
Florida Interior +1.16* -3.01* +0.14
California +0.18 +0.09 -2.76*
"* Indicates statistical significance.








12 Florida Agricultural Experiment Stations

The elasticity estimate of -3.07 means that consumers re-
sponded to price changes for Florida Indian River size 200
Valencia oranges by adjusting their purchases upward and
downward by a change in purchase rate of slightly more than
a 1 to 3 ratio. That is, a change of 1 percent in the price of
Indian River fruit caused consumers to inversely change their
purchases by 3.07 percent. Thus, an increase in the price of 1
percent resulted in a decrease in the quantity purchased of 3.07
percent. Conversely, a 1 percent decline in the price of the
Indian River fruit brought forth an increase of 3.07 percent in
purchases.
Reaction to a price change of Florida Interior size 200 Va-
lencia oranges was only slightly different from the price reaction
for Indian River fruit. A change in the price of Interior fruit
of 1 percent resulted in an inverse change in the quantity pur-
chased by an amount of 3.01 percent. Thus, a 1 percent decrease
in the price of Interior fruit increased purchase rates by 3.01
percent, while on the other hand, an increase of 1 percent
brought about a decline in purchase rates of 3.01 percent.
The reaction to price change for California size 138 Valencia
oranges was somewhat less than the reaction to price changes
for either of the Florida products. A change of 1 percent in
price of the California fruit resulted in a 2.76 percent inverse
change in the quantities purchased.
In the case of all three orange types, the degree of price
elasticity found indicates a willingness on the part of consumers
to spend varying amounts for these products. As prices decline,
consumer purchases tend correspondingly to rise by a more
than proportionate amount. On the other hand, a price rise will
bring about a more than proportionate decline in consumer
purchases, and a corresponding decline in expenditures.
The second economic relationship measured was the cross
elasticity of demand. This establishes the effects of a price
change for one type Valencia orange upon purchase rates of
the other two types of Valencia oranges. If the three types of
oranges are competing, a change in the price of one type orange
will result in a change in purchase rates for the other two
types of oranges in the same direction. Thus, the cross elas-
ticity of demand between any two types of Valencia oranges
must be positive.
In order to evaluate the effects of price changes for one








Florida and California Valencia Oranges 13

product upon sales of the other two types of oranges, consider
that portion of Table 4 which deals with the cross elasticity
estimates. These are the figures preceded by a plus sign. For
example, the inverse relationship between purchase rates and
price changes for Indian River fruit is shown by the negative
price elasticity estimate, while the direct relationship between
price changes for the Indian River product and the purchases
of the other two types of fruit under consideration is indicated
by cross elasticity estimates carrying the positive sign. On suc-
ceeding lines the nature of the economic linkage between Florida
Interior and California oranges upon the other two types of
fruit under consideration is indicated in a like manner.
In the analysis of size 200 Florida fruit and size 138 Cali-
fornia fruit, only two cross elasticity estimates were found to
be significant.4 These were the estimates which describe the
effect of a price change for Florida Interior fruit upon the sales
of Florida Indian River fruit and the estimates that describe
the effect of a price change for Florida Indian River fruit upon
sales of Florida Interior fruit. A 1 percent change in the price
of Florida Interior fruit caused a 1.2 percent change in the
purchases of Florida Indian River fruit. On the other hand, a
1 percent change in the price of Florida Indian River fruit
brought about a 1.6 percent change in the purchase rates of
Florida Interior fruit. Increasing Florida Interior fruit prices
by 1 percent resulted in an increase in purchases of Florida
Indian River oranges of 1.2 percent. An increase in Florida
Indian River fruit price of 1 percent effected an increase in the
quantity of Florida Interior purchased by 1.6 percent. Thus,
customers were more responsive to changes in the price of
Indian River fruit than they were to changes in the price of
Interior fruit.
Purchases of California fruit were not significantly affected
by changes in the price of Florida oranges. Conversely, changes
in the price of California oranges had no measurable effect on
the volume of either of the two types of Florida fruit purchased.

Effects of Price Changes Upon Purchases -
Florida Size 163, California Size 138
The effects of price changes upon purchase rates of Florida
size 163 and California size 138 are shown in Table 5. The
4Refers to statistical significance.








14 Florida Agricultural Experiment Stations

Table 5.-Effects of price changes upon purchases in tests involving Florida size
163 and California size 138 Valencia oranges.
Change in the Purchase of
A One Percent Change Florida
in the Price of: Indian Florida
River Interior California
..---.--...----- ---..-----.-- Percent --------------------
Florida Indian River -3.42* +1.39* +0.30
Florida Interior +0.75 -2.30* +0.34
California +0.34 +0.31 -2.51*
"* Indicates statistical significance.

figures preceded by a minus sign, -3.42, -2.30, and -2.51, are
the price elasticities of demand for each of the three types of
fruit. The remaining figures are the cross-price elasticities of
demand which show the degree of substitution between each
type and the other two.
Price changes in Florida Indian River size 163 Valencia
oranges brought about a customer response resulting in a
change in purchase rates of a ratio of 3.4 to 1. That is, a 1 per-
cent change in price caused consumers to change their pur-
chases by 3.4 percent. Thus, an increase of 1 percent in the
price resulted in a decrease in purchases of 3.4 percent. On the
other hand, a decline of 1 percent in price led to an increase of
3.4 percent in purchase rates.
Customer reaction to price changes for Florida Interior size
163 oranges was less than for the size 163 Indian River fruit.
A change of 1 percent in price for Interior fruit brought about
an inverse change of 2.3 percent in customer purchases. A 1
percent decline in the price of Interior oranges resulted in an
increase of 2.3 percent in consumer purchase rates. Conversely,
an increase in price of 1 percent brought on a decline of 2.3
percent in quantities purchased.
A change in price of 1 percent for California size 138 Valen-
cia oranges resulted in a change in the opposite direction of
purchases in the amount of 2.5 percent. Thus, purchase rates
declined by 2.5 percent as a result of an increase in price of 1
percent, and purchase rates increased by 2.5 percent when price
was decreased by 1 percent.
To evaluate the substitution effects of price changes for one
orange type upon sales of the other two, observe that portion
of Table 5 which deals specifically with the cross-price elasticity








Florida and California Valencia Oranges 15

estimates. Again, these are the figures preceded by a plus sign.
In the analysis of size 163 Florida fruit and size 138 California
fruit only one cross elasticity estimate was found to be signif-
icant.6 This was the cross elasticity estimate which describes
the effect of a price change for Florida Indian River fruit upon
sales of Florida Interior fruit.
A change of 1 percent in the price of Florida Indian River
fruit brought about a 1.4 percent change in the quantity of
Florida Interior fruit purchased. Thus, an increase in the price
of Indian River fruit caused an increase in the quantity of In-
terior fruit purchased of 1.4 percent. Conversely, a price decline
of 1 percent for Indian River fruit caused a decrease in Interior
purchases in the amount of 1.4 percent. In this series of pric-
ing tests, price changes for Interior Florida oranges had no
measurable effect on the volume of either Indian River or Cali-
fornia fruit which consumers purchased. In like manner,
changes in the price of California fruit had no measurable effect
on the quantities of either Interior or Indian River fruit which
customers bought.


SUPPLY INTERACTIONS

The possible effects of price changes upon consumer pur-
chases is an important part of the decision-making information
needed by producers and marketers of fresh oranges. These re-
lationships have been covered in the preceding discussion. Also
important in the decision-making process are the probable
effects of supply changes upon prices of fresh oranges in the
marketplace.
In the previously estimated demand relationships, the quan-
tities of fresh oranges purchased were regarded as dependent
upon price. Considered now are the relationships where prices
of fresh oranges are dependent upon the quantities offered for
sale. The importance of these relationships in terms of long-
range industry planning both in the production and marketing
of fresh oranges is apparent. They provide insight into the
potential effects of future production activity on the retail price
of fresh fruit, and they indicate the manner in which changes
in the output of one sector of the total fresh orange supply may
effect prices in other sectors.
"Refers to statistical significance.








16 Florida Agricultural Experiment Stations

Estimates of production or supply effects on price are ex-
pressed in terms of price flexibility and cross-price flexibility.
Price flexibility is defined as the change in price of a product
resulting from a change in supply offerings. On the other hand,
cross-price flexibility estimates describe the change in the price
for one product resulting from a change in the available supply
of a competing product. In this study the desired information
was the development of measurements of (1) the effect on price
resulting from prospective changes in supply conditions for each
of the three orange types and (2) the effect of supply changes
for each type of fruit upon prices of the other two types of
fresh oranges.
The generalized law of demand dictates the nature of the
basic price-quantity relationship. The price of each type of
orange must vary inversely to changes in the level of supplies
available. Thus, the estimate of price flexibility for a product
must be negative. Cross-price flexibility measures the change
in a given orange price resulting from a change in the available
supplies of a competing product. It follows then that a change
in available supplies of one orange type would result in an
inverse change in the price of the other two types if the products
are competing. Therefore, the estimates of cross-price flexibility
must also be negative.

Effects of Supply Changes Upon Prices -
Florida Size 200, California Size 138
The derived estimates of price flexibility were 0.41, 0.41,
and -0.36, respectively, for Florida Indian River size 200 Valen-
cia oranges, Florida Interior size 200 Valencia oranges, and
California size 138 Valencia oranges. These estimates are shown
in Table 6.
With regard to the Indian River fruit, a change of 1 percent
in the quantity offered in the market will result in an inverse
change of 0.41 percent in the price of the fruit. For example,
an increase of 1 percent in the quantity of Indian River fruit
would result in a decline in price of 0.41 percent. Conversely,
a decrease of 1 percent in the quantity of Indian River fruit
offered would cause a price increase of 0.41 percent.
The price reaction to a change in available supply of Florida
Interior fruit was determined to be the same as for the Indian
River fruit. A 1 percent change in the quantity of Interior fruit








Florida and California Valencia Oranges 17

Table 6.-Effects of quantity changes upon prices in tests involving Florida size
200 and California size 138 Valencia oranges.
Change in the Price of
A One Percent Change Florida
in the Quantity of: Indian Florida
River Interior California
------------------- Percent --------------------------
Florida Indian River -0.41* -0.21* -0.01
Florida Interior -0.16* -0.41* -0.02
California -0.03 -0.03 -0.36*
"* Indicates statistical significance.

would also result in a 0.41 percent price change in the opposite
direction.
Reaction to a change in the quantity of California fruit was
somewhat less with regard to price than for either of the
Florida oranges. A 1 percent change in the quantity of Califor-
nia oranges would result in only a 0.36 percent inverse change
in the price for this product.
The effect of a change in available supplies of one orange
type upon the prices for the other two types is reflected in the
estimates of cross-price flexibility. To evaluate the price con-
sequences on one particular orange type resulting from changes
in the quantities offered of the other orange types available in
the market, consider the cross-price flexibility estimates in
Table 6. Only two of the cross-price flexibility estimates were
significant.6 The estimate 0.16 indicates the expected effect on
the price of Florida Indian River Valencia oranges as a result
of a change of 1 percent in the quantity of Florida Interior
Valencias available in the market. The relation of price changes
for the Florida Interior Valencias resulting from quantity
changes in Florida Indian River is shown by the estimate 0.21.
All other cross-price flexibility estimates were not of sufficient
magnitude to be significant.
Careful consideration of the cross-price flexibility estimates
for the three types of fruit provides an insight into the likely
effects of varying amounts of these types marketed in fresh
form. An increase in the quantities offered at retail of either
of the two types of Florida fresh Valencia oranges will have an
"0Refers to statistical significance.








18 Florida Agricultural Experiment Stations

effect on the levels of prices that will be obtained for fresh fruit
grown in the other region of Florida. However, changes in
marketing in fresh form of both of the two areas in Florida can
be expected to have relatively less effect on retail prices received
for California oranges. Conversely, changes in the marketing
level of California oranges cannot be expected to have a measur-
able influence on the retail prices of either Indian River or
Interior Florida oranges.


Effects of Supply Changes Upon Prices -
Florida Size 163, California Size 138
In the analysis of Florida size 163 and California size 138
oranges, a change of 1 percent in the quantity offered for sale of
the Indian River fruit was found to result in an inverse change
of 0.34 percent in price (Table 7). Comparatively, changes of 1
percent in the available quantities of Florida Interior and Cali-
fornia fruit resulted in an inverse change in their respective
prices of 0.51 and 0.40 percent.

Table 7.-Effects of quantity changes upon prices in tests involving Florida size
163 and California size 138 Valencia oranges.
Change in the Price of
A One Percent Change Florida
in the Quantity of: Indian Florida
River Interior California
---P------ ---------- Percent -------------- -----------
Florida Indian River -0.34* -0.20* -0.01
Florida Interior -0.12 -0.51* -0.06
California -0.06 -0.09 -0.40*
"* Indicates statistical significance.

The price reaction was much greater for Interior than for
Indian River fruit with respect to changes in quantities offered.
Further, the reaction to a quantity change was greater for
Florida Interior fruit than for California fruit.
Cross-price flexibility estimates yield the effect of a change
in available supply of each orange type upon the prices of the
other two types. These estimates are shown in Table 7. The
only estimate of sufficient size to be significant was the one








Florida and California Valencia Oranges 19

showing a one-way linkage between Interior and Indian River
fruit from Florida.
A 1 percent change in the quantity of Florida Indian River
fruit brought about an estimated .20 percent inverse change
in the price of Florida Interior fruit. The remaining estimates
of cross-price flexibility indicate that volume changes for one
fruit type had negligible effects on the prices of other types.
The estimates of cross-price flexibility for California fruit with
respect to the quantity changes of either Florida fruit, and the
estimates of cross-price flexibility for either Florida fruit with
respect to California quantity changes, were all of less magni-
tude than a ratio .10 to 1 price change per unit change in
quantity.
A somewhat different competitive situation was encountered
when the larger size Florida fruit was employed in the experi-
mental tests. While there was two-way competition among the
Florida products when the size 200 fruit was employed, the
only effect found with size 163 fruit was that an increase in the
volume of Indian River fruit could be expected to depress the
price of the Interior product. With the larger fruit the reverse
situation did not hold. Again, it is apparent that production
and marketing changes for the fresh market in neither sector
of Florida can be expected to materially affect prices for the
California crop. Conversely, changes in the output in California
cannot be expected to have a material effect on the price levels
for either Interior or Indian River oranges grown in Florida
for the fresh market.


EFFECTS OF MAJOR CHANGES IN SUPPLY CONDITIONS
FOR FLORIDA VALENCIA ORANGES

While the previous estimates are appropriate for small
supply changes, the orange industry, particularly in Florida,
is faced with potential changes in supply conditions of much
greater magnitudes. A large expansion of production on the
one hand, or drastic reductions resulting from freeze conditions
on the other hand, require estimates of adjustments resulting
from large changes in supply conditions.
The economic linkage between Valencia oranges produced in
the Indian River and Interior districts is of great importance to
producers and marketers of Florida oranges. The actions of








20 Florida Agricultural Experiment Stations

producers and marketing agencies in either of the two districts
have a potential for affecting the economic destiny of the other.
Of particular importance are consequences of drastic supply
changes of one type of orange on the price structure of the
other type. For example, consider the situation that existed
with the freeze that occurred during the 1961-62 season. Freeze
damage and thus supply reductions were much more severe for
the Interior district than for the Indian River district.
For the two segments of the Florida fresh orange crop,
special estimates were developed to determine the possible price
effects of alternative types of supply conditions involving large
changes.7 These estimates are shown in Table 8. Along the
vertical axis is shown the effect of changes in Indian River
supplies upon Indian River prices at alternative levels of supply
for Interior fruit. Along the horizontal axis is shown the effect
of changes in Interior supplies upon Indian River prices under
conditions of no change in the supply of Indian River oranges.
A change of 10 percent in the available supplies of Indian
River fruit will result in a 4 percent inverse change in the
price of Indian River oranges. A 25 percent decline in the supply
situation of Indian River oranges will result in a 12 percent
increase in price, while an increase of 25 percent in Indian
River supplies will force price downward by 9 percent. These
effects, changes in the supply of Indian River fruit without
changes in the supply of Interior fruit, are the expected results
of supply changes for Indian River oranges. The possible
effects upon Indian River fruit prices of changes in the supply
situation of Interior fruit are indicated along the horizontal
axis. In the absence of a change in the supply situation for
Indian River fruit, a 25 percent increase in Interior supplies
will result in a decline in price of Indian River fruit by 4 percent.
On the other hand, a decrease of 25 percent in supplies of In-

'Levi A. Powell, Sr., and Wilson B. Riggan, studying demand relation-
ships for celery, developed estimating equations for determining the effects
of large supply changes utilizing coefficients of price flexibility derived from
logarithmic equation. The method developed and presented in their work
was used to estimate interaction effects of large supply changes for the
two sizes of Florida oranges. The estimates were not determined from
actual supply changes in the market. Rather, they were derived from the
data used to estimate price elasticity and cross-price elasticity of demand.
For a full explanation of the method used see: Marshall R. Godwin, and
Billie S. Lloyd, Competition Between Florida and California Celery in the
Chicago Market, Florida Agricultural Experiment Stations, Bulletin 636,
November 1961, pp. 31-33.








Florida and California Valencia Oranges 21

terior fruit will increase Indian River prices by 5 percent.
Acting together, the effects of changes in the supply situation
for both types of Florida fruit will have an even larger influence
upon the price of the Indian River product. A 25 percent re-
duction in available supplies of both Indian River and Interior
oranges can be expected to result in an 18 percent increase in
the price of Indian River fruit. A comparable increase in the
supply situation from both products will result in a price decline
of 12 percent in the Indian River price. Interaction of a 25
percent increase in Interior supplies and a 25 percent decrease
in Indian River supplies can be expected to produce the net
effect of an 8 percent increase in Indian River fruit prices. The
supply conditions of a 25 percent decline in the supplies of
Interior fruit and a 25 percent increase in Indian River fruit
will result in an adverse effect upon Indian River prices of 4
percent. An increase in Interior supplies of 10 percent along
with a decrease in Indian River fruit of 5 percent is offsetting
with respect to price change for Indian River, resulting in
practically no price change for Indian River oranges. A 25
percent reduction in Interior supplies coupled with a 10 percent
increase in Indian River supplies produces only a 0.7 percent in-
crease in Indian River orange prices.
Similar effects upon Florida Interior prices resulting from
supply changes of Indian River and Interior fruit are shown
in Table 9. A 25 percent reduction in Interior supplies will
result in a 13 percent increase in price for this type of fruit.
Conversely, a 25 percent increase in Interior supplies will de-
crease prices by 9 percent.
The effects of changes in the supply of Indian River fruit
upon the price of Interior fruit were somewhat greater than the
effects of Interior fruit supply changes upon the price of the
Indian River type fruit. The extent of this difference can be de-
termined under any of the supply conditions investigated by
a comparison of comparable columns in Tables 8 and 9. A 25
percent increase in the supply situation for Indian River fruit
can be expected to result in a 5 percent decline in Interior prices.
Throughout the range of supply variations examined, the ratio
of changes in Interior prices to changes in Indian River supplies
was approximately 1 to 5.
The combined effects of prime and competing product supply
changes upon Interior orange prices result in an expected net













Table 8.-Estimated effects of alternative supply conditions on the retail price of Florida Indian River Valencia oranges.

Percent Change Percent Change in Florida Interior Supplies
in Florida Indian
River Supplies -25 -20 -15 -10 5 0 + 5 +10 +15 +20 +25

----------- Percent change in price of Florida Indian River ---------------
-25 18 16 15 14 13 12 12 11 10 9 8 3.
-20 15 13 12 11 10 10 9 8 7 6 6
-15 12 11 10 9 8 7 6 5 4 4 3
-10 9 8 7 6 5 4 4 3 2 1 0.8
5 7 6 5 4 3 2 1 0.6 -0.1 -0.8 -1
0 5 4 3 2 0.8 0 -0.8 -2 -2 -3 --4
+5 3 2 0.6 -0.3 -1 -2 -3 -3 -4 -5 -5
+10 0.7 -0.3 -1 -2 -3 -4 -4 -5 -6 -6 -7
+15 -1 -2 -3 -4 -5 -6 -6 -7 -8 -8 -9
+20 -3 -4 -5 -6 -6 -7 -8 -8 -9 -10 -10
+25 -4 -5 -6 -7 -8 -9 -9 -10 -11 -11 -12












Table 9.-Estimated effects of alternative supply conditions on the retail price of Florida Interior Valencia oranges.

Percent Change Percent Change in Florida Indian River Supplies
in Florida Interior
Supplies -25 -20 -15 -10 5 0 + 5 +10 +15 +20 +25 .

.--.---- --------------... Percent change in price of Florida Interior -------- --------- ---

-25 20 18 17 15 14 13 12 10 9 8 8
-20 17 15 14 12 11 10 9 8 6 6 5
-15 14 12 11 9 8 7 6 5 4 3 2
-10 11 10 8 7 6 4 3 2 1 0.5 -0.3
-5 8 7 6 4 3 2 1 0.1 -1 -2 -3
0 6 5 4 2 1 0 -1 -2 -3 -4 -5
+5 4 3 1 0.2 -0.9 -2 -3 -4 -5 -6 -6
+10 2 0.8 -0.5 -2 -3 -4 -5 6 -7 -8 -8 S
+15 0.3 -1 -2 -4 -5 -6 -7 -8 -8 -9 -10 -
+20 -2 -3 -4 -5 6 -7 -8 -9 -10 -11 -12
+25 -3 -4 -6 -7 -8 -9 -10 -11 -12 -12 -13








24 Florida Agricultural Experiment Stations

increase of 8 percent under conditions of a 25 percent increase
in Indian River supplies and a 25 percent decrease in Interior
supplies. Increasing supplies of both products by 25 percent can
be expected to result in a decline of 13 percent in the price of
Interior oranges. On the other hand, a decrease in supplies of 25
percent for both will result in an increase of 20 percent in In-
terior prices. A 3 percent adverse effect on the price of Interior
fruit will result from a 25 percent decline in Indian River sup-
plies coupled with an increase of 25 percent in Interior supplies.
Table 9 can be employed to examine many other possible
effects of various supply conditions upon the price of Interior
Valencia oranges. In terms of prime product effects, the table
indicates the probable price results of supply variations extend-
ing above and below a normal level of output by 25 percent. In
terms of competing product effects, the probable results of
variations of equal magnitude in the supply of Indian River fruit
upon the price of the Interior product are also shown. Finally, the
effects of any combination of increase or decrease in the sup-
plies of either or both Indian River and Interior fruit, as these
effects will be manifested in terms of Interior prices, can be
identified at 5 percent intervals over a maximum deviation of
25 percent from the normal level of production.

EVALUATION OF FINDINGS

During the coming decade, projected production estimates
forecast increasing orange supplies in Florida and a rather con-
stant supply from California. Further, these projections are of
a greater magnitude change than the accompanying United
States projected population changes. Thus, Florida orange pro-
ducers and marketers are going to be faced with greater market-
ing and distribution problems than has been true in the past.
The continued introduction of substitute products will further
complicate the situation. Economic allocation among product
markets will become of utmost importance as supplies increase
and are faced with more competition in the marketplace.
The results of this study indicate the fresh market may offer
a partial solution to the marketing problems associated with
increasing supplies. The price elasticity of demand is of such
a nature that a more than proportionate effect on purchase rates
results from a decline in price.







Florida and California Valencia Oranges 25

The general consensus in the industry is that the price elas-
ticity of demand for frozen concentrated juice is such that price
changes create about equal proportionate changes in consumer
purchases. If this is true, the fresh market may solve, to some
degree, the problems of marketing increased supplies. It will
be necessary to substantiate, however, the validity of this con-
clusion with definitive research to determine the exact nature of
the demand for frozen concentrate.
If it is found that this inequality exists between the respec-
tive price elasticities of demand, supply management and allo-
cation will be of greater importance to the industry. No longer
can the study of citrus demand relationships be looked upon as
basic research but as operational research necessary to the con-
duct of marketing activities.
If the demand relationships in the processing sectors are
found to be less elastic than was true in the fresh market sector,
any increased supplies could be absorbed most favorably in the
fresh market. This follows since the increased quantities avail-
able for market would be allocated in the market sector having
the least price effects. Thus, controlled allocation could seek to
maximize net marginal revenue along with increasing supplies.
Another consideration evolving from the results of this study
is the implications of the lack of economic substitution between
fresh oranges produced in Florida and California. Changing
price structure for Florida oranges from either district and of
either size was found to have no significant effect on California
fruit purchases. Thus, price reductions will have no appreciable
effect upon the presently established California market. In the
case of a portion of the consumer population purchasing fresh
oranges, the California product is considered superior to the
Florida product and to such an extent that a wide range of price
differences is not sufficient to cause substitution.
The informational requirements necessary for effective ad-
justments to changing conditions within a dynamic industry,
such as the orange industries in California and Florida, clearly
dictate a need for a program of definitive operational research
dealing with revenue and cost. The severe limitations imposed
upon isolated studies of demand and cost relationships are of
great magnitude. The all inclusive implications can be utilized
only if such study is a part of an integrated program of research.
It is anticipated that many implications from this study will be







26 Florida Agricultural Experiment Stations

more clearly formulated as the program of research, of which
this study is only a part, is continued toward the ultimate ob-
jectives.


SUMMARY
The purpose of this research was to measure the degree to
which price changes alter the consumption patterns for fresh
Valencia oranges grown in Florida and California. More spe-
cifically, estimates were made of (1) the purchase reaction to
varying levels of price for fresh Valencia oranges produced in
the Interior and Indian River sections of Florida and in Califor-
nia and (2) how changes in the price of one of these types of
fruit affect the level of purchases of the other two types. The
study includes estimates of the above relationships for sizes 200
and 163 Florida fruit and for size 138 California fruit.
The method of study entailed a series of experimental tests
conducted in nine retail grocery stores in Grand Rapids, Mich-
igan, during the period April 9 through May 19, 1962. The re-
search procedure involved the selection of an experimental model
which allowed estimates of demand and substitution relation-
ships among the three types of fresh oranges at nine price levels.
The purchase response found from the nine price levels was
of nearly equal magnitude for size 200 Florida Valencia oranges
in competition with California size 138 Valencias. These demand
relationships were further found to be elastic in nature. That
is, a greater than proportionate change in purchase rates oc-
curred as a result of a change in price. The changes in purchase
rates resulting from a 1 percent change in price were found to
bear an inverse relationship of 3.07, 3.01, and 2.76 percent, re-
spectively, for size 200 Florida Indian River, size 200 Florida
Interior, and size 138 California Valencias.
The same general trend was found to exist for size 163 Flor-
ida Valencia oranges from the Indian River and Interior districts
when faced in competition by size 138 California Valencias. The
degree of elasticity was slightly different and possessed a
greater variation than was the case for the size 200 Florida fruit.
Purchase responses were inverse changes of 3.42, 2.30, and 2.51
percent per 1 percent change in price, respectively, for Florida
Indian River, Florida Interior, and California fruit.
For both Florida size 200 and Florida size 163, no significant







Florida and California Valencia Oranges 27

substitution was found to exist between Florida and California
fruit. This lack of substitution indicates that in the marketplace
the Valencia oranges from the two states are sufficiently dif-
ferentiated to preclude substitution as a result of price change
over a rather wide range of price levels, 33 to 65 and 43 to 75
cents per dozen, respectively, for Florida and California fruit.
It was discovered, however, that consumers in the Grand
Rapids, Michigan, market shifted back and forth quite readily
between the purchase of Florida Indian River and Florida In-
terior oranges in response to changing relative price conditions.
In that part of the study dealing with size 200 Florida oranges,
changes of 1 percent in the price of Interior fruit brought about
a purchase response of 1.2 percent for Indian River fruit. On
the other hand, a change of 1 percent in the price of Indian River
fruit yielded a consumer response of a 1.6 percent change in pur-
chase rates of Interior fruit.
Also considered were the effects of changes in supply con-
ditions upon prices. Changes in supply conditions inversely af-
fected prices. For example, a change of 1 percent in the supply
situation for size 200 Florida Indian River Valencias was esti-
mated to affect price inversely by 0.41 percent. A similar change
for Florida Interior size 200 and California size 138 was esti-
mated to affect price inversely by 0.41 and 0.36 percent, respec-
tively. Changes in the supply situation for Florida fruit had no
appreciable effect on California prices, and conversely, changes
in California supplies had no appreciable effect on Florida prices.
There was, however, a significant effect resulting from supply
interaction of the two Florida oranges. A change of 1 percent in
the supply situation for size 200 Interior Valencias was esti-
mated to yield a 0.16 percent inverse change in the price of the
Indian River fruit. Changes in supply conditions for Indian
River fruit had a greater impact on Interior prices than was true
in the reverse situation. A change of 1 percent in the supply
situation for Indian River fruit was estimated to yield a 0.21
inverse change in the price of Interior fruit.
The above relationships were derived from analyses involv-
ing nine price levels for the three types of Valencia oranges. In
addition, analyses were made of the effects on price structure
for both Indian River and Interior Valencia oranges resulting
from drastic supply changes of fruit from either producing dis-
trict. For example, it is estimated that a 25 percent reduction








28 Florida Agricultural Experiment Stations

in available supplies of both Indian River and Interior oranges
would result in an 18 percent increase in the price of Indian
River fruit and a 20 percent increase in the price of Interior
fruit.
Projected increases in supplies of oranges in Florida and the
continued introduction, of substitute products mean that orange
producers and marketers in Florida will be faced with greater
marketing and distribution problems than has been true in the
past. The results of this study indicate that the fresh market
may offer a partial solution to the problem of increasing sup-
plies. This is true if, as suspected, in the fresh market, con-
sumption is more responsive to price changes than is true for
processed orange products.

ACKNOWLEDGMENTS

The writers would like to accord particular recognition to
those whose assistance and cooperation were essential to the
proper conduct of this work.
The experiments were conducted in nine stores of Eberhard
Foods, Inc., of Grand Rapids, Michigan. L. V. Eberhard and
Ronald Barts gave their support and assistance throughout all
phases of the study. Recognition is also due to the management
and personnel of the nine stores in which the tests were con-
ducted.
Special recognition is due Gordon Kleiman and Robert Daven-
port of Grand Rapids Produce, Inc., for securing and handling
the specified types of oranges needed for the study.
To these, and many others, the writers owe a debt of grat-
itude.





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