• TABLE OF CONTENTS
HIDE
 Title Page
 Table of Contents
 Introduction
 Purpose of the investigation
 Method of study
 Comparative sales of each...
 The demand and substitution...
 Evaluation of the findings
 Summary
 Acknowledgement
 Back Cover














Group Title: Bulletin - University of Florida. Agricultural Experiment Station ; no. 703
Title: Demand and competitive relationships for Florida and greenhouse- grown tomatoes
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00027307/00001
 Material Information
Title: Demand and competitive relationships for Florida and greenhouse- grown tomatoes
Series Title: Bulletin University of Florida. Agricultural Experiment Station
Physical Description: 22 p. : ill. ; 23 cm.
Language: English
Creator: Godwin, Marshall R ( Marshall Reid ), 1922-
Manley, William T ( William Tanner ), 1929-
Publisher: Agricultural Experiment Stations, Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville Fla
Publication Date: 1965
 Subjects
Subject: Tomatoes -- Marketing -- Florida   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
non-fiction   ( marcgt )
 Notes
Statement of Responsibility: Marshall R. Godwin and William T. Manley.
General Note: Cover title.
Funding: Bulletin (University of Florida. Agricultural Experiment Station)
 Record Information
Bibliographic ID: UF00027307
Volume ID: VID00001
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: aleph - 000929290
oclc - 18363467
notis - AEP0069

Table of Contents
    Title Page
        Page 1
    Table of Contents
        Page 2
    Introduction
        Page 3
        Page 4
    Purpose of the investigation
        Page 5
    Method of study
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
    Comparative sales of each product
        Page 12
        Page 13
    The demand and substitution relationships
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
    Evaluation of the findings
        Page 19
    Summary
        Page 20
        Page 21
    Acknowledgement
        Page 22
    Back Cover
        Back Cover
Full Text
BULLETIN 703
DECEMBER 1965


4'1
/ `
/ N,:


fU/


j:
''Ki


DEMAND AND COMPETITIVE RELATIONSHIPS
FOR FLORIDA AND GREENHOUSE-GROWN TOMATOES

MARSHALL R. GODWIN AND 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


" -
ii; ~,







CONTENTS

Page
Introduction ----------- ------ 3

Purpose of the Investigation --------- 5

Method of Study _-___----------- ---- 6

Comparative Sales of Each Product .------------------------ 12

The Demand and Substitution Relationships --- 14

An Examination of the Demand Concept --- 14

Characteristics of the Demand for the
Three Tomato Types _______-- ----- 15

An Examination of the Substitution Concept --- 16

Substitution Relationships Between the Three Products_ 16

Evaluation of the Findings ---------- 19

Summary -----__-__-------------- 20

Acknowledgments -------__--------------------- --- -- 22











Florida Agricultural Experiment Stations
in cooperation with
Marketing Economics Division
Economic Research Service
United States Department of Agriculture







DEMAND AND COMPETITIVE
RELATIONSHIPS FOR FLORIDA AND
GREENHOUSE-GROWN TOMATOES

Marshall R. Godwin and William T. Manley'

INTRODUCTION
Within the time frame of a single generation, dramatic
changes have occurred in the structure of the Florida tomato
industry. These structural changes have occurred in both pro-
duction and marketing.2 Twenty years ago practically all of the
tomatoes produced in Florida were harvested and marketed in
a mature green state. As the term implies, mature green toma-
toes are harvested before any pink color appears on the fruit.
Ripening operations are performed by repackers located in or
near the large consuming centers of the country and are regard-
ed as an integral part of the terminal market distribution func-
tion. Beginning in the early 1950's, growers and shippers started
to explore the prospects of marketing Florida tomatoes that
were harvested after showing a color break on the vine. From
experience gained largely by producers and shipping agencies
in the Ruskin area during the early 1950's, the vine-ripened
sector of the Florida tomato industry has emerged. Although
the marketing of vine-ripened tomatoes was pioneered in the
Ruskin area, most of the present production is centered in two
counties along the lower East Coast.
Owing to the recent and rapid growth in the production of
vine-ripened tomatoes in Florida, there is presently a lack of
basic statistics on production and marketing practices in the
industry. However, available statistics for the past four seasons
serve to illustrate both the growth rate and the current status
of vine-ripened tomatoes in relation to the Florida industry as
'Godwin is Marketing Economist, Florida Agricultural Experiment
Stations, University of Florida. Manley is Associate Agricultural Econo-
mist, Florida Agricultural Experiment Stations, University of Florida,
and Agricultural Economist, Marketing Econnmics Division, Economic Re-
search Service, U. S. Department of Agriculture.
2For a more detailed discussion of changes in marketing see: Manley,
William T. and Godwin, Marshall R., Marketing Florida Vine-Ripened To-
matoes, Florida Agricultural Experiment Stations, Circular S-147, No-
vember, 1963.








Florida Agricultural Experiment Stations


a whole (Table 1). By the early 1960's the production of vine-
ripened tomatoes in Florida exceeded 3,000 acres and accounted
for 8.6 percent of the total land area devoted to tomatoes. In
more recent seasons further expansion is apparent. During the
1963-64 crop year, the land area devoted to vine-ripened pro-
duction amounted to 5,190 acres and accounted for almost 12
percent of the total tomato acreage in the state.


Table 1.-Acreage devoted to the production of mature green
tomatoes in Florida, 1960-61 to 1963-64.


and vine-ripened


Acreage Acreage Total Percent In
Year Vine-Ripened Mature Green Acreage Vine-Ripened
Tomatoes
1960-61 3,550 37,750 41,300 8.59
1961-62 3,350 38,850 42,200 7.93
1962-63 4,090 40,210 44,300 9.23
1963-64 5,190 38,510 43,700 11.87


The importance of vine-ripened tomatoes as a part of the
total Florida tomato industry becomes even more apparent when
viewed from the standpoint of the market share which this prod-
uct occupies. The intensive care involved in production, coupled
with the fact that stakes or trellises are employed, results in
yields of vine-ripened fruit that are materially above the state
average for all tomatoes (Table 2). During the past four sea-
sons, the average yield per acre for vine-ripened tomatoes has
been well over twice that for all commercial tomato production
in Florida. Consequently, while the land area devoted to vine-
ripened tomato production accounted for only about 12 percent

Table 2.-Comparison of vine-ripened yields with the state average for tomatoes.

Per Acre Yields in 60 Pound Equivalents
Vine-Ripened All
Year Tomatoes Tomatoes
1960-61 720 303
1961-62 751 305
1962-63 696 287
1963-64 604 320
Average 692.7 303.7







Demand for Florida and Greenhouse-Grown Tomatoes 5

of the total commercial tomato acreage during 1963-64, the
production from this acreage amounted to about one-fourth of
the total volume of tomatoes marketed.
Thus, it becomes apparent that there are two sectors of the
Florida tomato industry: vine-ripened and mature green. While
mature green operations still predominate from a volume stand-
point, both components of the Florida tomato crop must be con-
sidered by individual firms and by the industry as a whole in
the development of marketing policies or programs.


PURPOSE OF THE INVESTIGATION

With the firm establishment of vine-ripened tomatoes in the
marketplace, changes have occurred in the basic economic struc-
ture of the Florida industry. Before the introduction of vine-
ripened tomatoes, growers thought only in terms of production
costs and price expectations for mature green tomatoes. Now
they are compelled to consider the consequences of the develop-
ment of the vine-ripened market on their individual operations.
Basically, they are confronted with three alternatives: (1) they
can continue their historical pattern of producing only mature
green tomatoes, (2) they can achieve a balance in their pro-
duction activities between the two types of products, or (3) they
can switch their activities exclusively to production for the vine-
ripened market.
A rational economic choice among the alternatives entails
a consideration of both the economics of production and the
economics of marketing the two types of tomatoes. In order
to arrive effectively at such decisions, there is need for an un-
derstanding of the characteristics of the demand for each of
the two types of tomatoes in the marketplace, and an under-
standing of the nature of the economic interrelationship between
them. Further, Florida tomatoes do not have an exclusive fran-
chise in the market. Of particular importance in setting the
context of the market is the fact that large quantities of green-
house-grown tomatoes are produced and sold in competition with
the Florida tomato crop during the early spring months. Conse-
quently, the position of greenhouse-grown tomatoes in the mar-
ketplace is a consideration that must be taken into account by
Florida producers as they decide upon a production and mar-
keting strategy.







Florida Agricultural Experiment Stations


This study was designed to examine the characteristics of
the demand for vine-ripened and mature green tomatoes grown
in Florida and for greenhouse tomatoes grown in the Great
Lakes region of the country. In addition to the development of
a description of the functional relationship between the price
of each of these products and the quantities that customers will
purchase, the investigation was also concerned with the economic
interrelationship among the three kinds of tomatoes. The extent
to which the three products are viewed by consumers as sub-
stitutes for one another is an essential element of the overall
description of the demand conditions confronting each in the
market.

METHOD OF STUDY
The market in which Florida tomatoes are sold is charac-
terized by the dynamics of change. Sudden changes in weather
conditions, unanticipated changes in growth and maturity rates,
variations in the availability of transportation facilities, and
supply maladjustments in particular markets can precipitate
sudden and substantial adjustments in prices. These factors may
operate independently or in concert to cause price variations. It
is difficult to measure the demand characteristics for fresh to-
matoes through an analysis of the limited amount of price and
purchase data available. Generally, precise effects of price upon
the quantities which consumers buy are obscured by many other
economic forces which are acting simultaneously and affect the
basic price-quantity relationship.
In light of the conditions characterizing the market for
tomatoes, the decision was made in this study to approach the
problem of demand substitution measurement by deliberately
creating a desired set of price situations in retail grocery stores
and measuring the response of customers to them. Thus, the
basic method employed was one of systematic manipulation of
retail prices for the three products in a fashion that would per-
mit the measurement of the response of customers to price
changes.
In order to obtain a description of the demand covering the
full range of price conditions that might be encountered at the
retail level, the prices of each of the three types of tomatoes
under consideration were varied over a range of 32 cents per
pound. This range of price variation was divided into eight in-








Demand for Florida and Greenhouse-Grown Tomatoes 7

tervals of 4 cents per pound. These price differentials, expressed
in terms of deviations from an average or typical market price,
are shown in Table 3. From this table it is apparent that the
basic price variation scheme involved the variation of retail
prices 16 cents per pound above and below the customary market
level.


Table 3.-Price diferentials employed in retail store tests designed to measure
demand and substitution relationships for Florida and greenhouse-
grown tomatoes.
Greenhouse- Florida Vine- Florida Mature
Grown Tomatoes Ripened Tomatoes Green Tomatoes
-- Cents per pound expressed in terms of deviations from a base price---
-16 -16 -16
-12 -12 -12
-8 -8 -8
-4 -4 -4
0 0 0
+4 +4 +4
+8 +8 +8
+12 +12 +12
+16 +16 +16


On the basis of a consensus obtained from the retail trade,
the typical retail price per pound was 49 cents for greenhouse-
grown, 39 cents for vine-ripened, and 29 cents for mature green
tomatoes. Consequently, the foregoing prices were employed as
bases to which the differentials were applied. The resulting
series of test prices for each type of tomato are shown in Table
4. The price of greenhouse-grown tomatoes was varied in 4-cent
intervals from a low of 33 cents to a high of 65 cents per pound.
The range of test prices for vine-ripened tomatoes was from 23
to 55 cents per pound, while prices of repacked, or mature green,
tomatoes were varied from 13 to 45 cents per pound.3
It was neither feasible nor necessary to use all of the pos-
sible price combinations that could be obtained from the nine
levels for the three types of tomatoes. Instead, those specific
combinations were selected that would provide the necessary
data for determining the characteristics of the demand for each
tomato type and for measuring the substitution relationships
'Hereafter the terms repacked and mature green are used interchange-
ably in the discussion.








Florida Agricultural Experiment Stations


Table 4.-Test prices used in the study of demand and substitution relationships
between Florida and greenhouse-grown tomatoes.

Greenhouse- Florida Vine- Florida Mature
Grown Tomatoes Ripened Tomatoes Green Tomatoes
Cents per pound ----- -----
33 23 13
37 27 17
41 31 21
45 35 25
49 ---- Base ------ 39 ------Prices----- 29
53 43 33
57 47 37
61 51 41
65 55 45


between them. The 31 combinations selected for this purpose
are shown in Table 5.
The combinations provide for the sale of each tomato type
at all nine of the basic test price levels. The remaining treat-
ment combinations provide for differential pricing among the
products at each of the nine test levels. Consider, for example,
the four price treatments which involved selling greenhouse
tomatoes 4 cents per pound below the base price, or at 45 cents
per pound. In one of these four treatments all three of the
products were priced at this relative level. That is, the vine-
ripened tomatoes were sold at 35 cents per pound and the re-
packed product at 25 cents per pound. The remaining three
treatments exhaust all possible combinations of the -4 cent price
differential for the greenhouse product with a +4 cent differ-
ential for the other two products. The perceiving reader will
discover that exactly the same combinations will result from
starting with all the -4 differentials for either the vine-ripened
or the repacked tomato prices. However, the pricing disparity
of 32 cents per pound for each product was considered more
than might ever exist in the market. Consequently, in the ap-
plication of the 16-cent price differentials, the variation between
product prices was restricted to the range established by the
base price level for each product.
The 31 combinations regarded as the optimum for generat-
ing customer purchase data to fulfill the objectives of the study
were introduced into six retail test stores on a daily basis. With
one day as the observational unit, a total of 35 operating days,









Demand for Florida and Greenhouse-Grown Tomatoes 9

Table 5.-Specific price combinations used in the study of demand and substi-
tution for Florida and greenhouse-grown tomatoes.

Greenhouse-Grown Vine-Ripened Mature Green
Tomatoes Tomatoes Tomatoes
Price Differential Price Differential Price Differential


----- Cents
39
23
39
27
27
51
51
31
31
47
47
35
35
43
43
Base ---- 39 ----
43
43
35
35
47
47
31
31
51
51
27
27
39
55
39


per pound
0
-16
0
-12
-12
+12
+12
--8
--8
+8
+8
--4
--4
+ 4
+4
0 ----
+ 4
+4
-4
--4
+8
+8
--8
--8
+12
+12
-12
-12
0
+16
0


29
29
13
17
41
17
41
21
37
21
37
25
33
25
33
Prices 29
33
25
33
25
37
21
37
21
41
17
41
17
45
29
29


0
0
-16
-12
+12
-12
+12
--8
+8
--8
+8
--4
+4
--4
+4
-
+ 4
--4
+4
--4
+8
--8
+8
--8
+12
-12
+12
-12
+16
0
0


or six weeks, was used to test all of the desired price combina-
tions in a particular store. The sequence with which the differ-
entials were introduced in a test store was determined by ran-
dom assignment of the 31 combinations to each store. Table 6
provides a sample of the results of random assignment in a sin-
gle test retailing unit.
The six retail food stores employed in the study were lo-








Florida Agricultural Experiment Stations


Table 6.-The price combinations applied in one store to measure demand and
competition between Florida and greenhouse-grown tomatoes.

Week Greenhouse-Grown Vine-Ripened Repacked
and Day Tomatoes Tomatoes Tomatoes
(49) Base- (39) ----Price (29)

-Cents per pound ------- -----
Week 1
Monday 37 51 17
Tuesday 37 27 41
Wednesday 45 43 33
Thursday 41 31 21
Friday 57 31 21
Saturday 49 23 29
Week 2
Monday 37 51 41
Tuesday 45 35 33
Wednesday 41 47 21
Thursday 45 43 25
Friday 65 39 29
Saturday 61 51 41
Week 3
Monday 41 47 37
Tuesday 49 39 29
Wednesday 49 39 13
Thursday 61 27 41
Friday 57 31 37
Saturday 41 31 37
Week 4
Monday 57 47 37
Tuesday 45 35 25
Wednesday 53 35 25
Thursday 57 47 21
Friday 49 39 45
Saturday 53 43 33
Week 5
Monday 53 35 33
Tuesday 53 43 25
Wednesday 61 27 17
Thursday 49 55 29
Friday 37 27 17
Saturday 33 39 29

Week 6
Monday 61 51 17
Tuesday 49 39 29
Wednesday 49 39 29
Thursday ------------------------ Holiday ---------------
Friday 53 43 33
Saturday 45 35 25







Demand for Florida and Greenhouse-Grown Tomatoes 11

cated in a trading area in northwestern Ohio centering on the
city of Lima. The stores were specially selected to provide an
adequate coverage of the population variation with respect to
race, income, and ethnic background for the trading area. Since
Lima and the surrounding territory are characterized by a rel-
atively high degree of industrial development, the locale of the
study is regarded as a representation of the responses that
might be expected in most of the population areas of the Midwest
in which the economy has a predominantly industrial orienta-
tion. Such areas are regarded as a major segment of the total
market for Florida tomatoes.
The necessary experimental tests were conducted in the six
stores during the period extending from April 22 through June
1, 1963. This time interval covers the period of most intense
competition between Florida and greenhouse-grown tomatoes in
the marketplace.
In the conduct of the experimental pricing tests, consider-
able care was taken to assure that the results reflected the true
response of customers to the induced price situations. In or-
der to accomplish this, the test displays of each product were
carefully standardized with respect to size of product, pricing
techniques, quality, and the volume of tomatoes from which cus-
tomer selections could be made. A typical display arrangement
in a test store is shown in Figure 1.
Only tomatoes of U. S. No. 1 quality were employed. To in-
sure the continuity of this quality level, the displays were con-
tinuously serviced by trained enumerators. In order to provide
potential buyers with a variation in size approaching that ordi-
narily available in a retail store, the Florida test displays con-
sisted of mixtures of two sizes. In the case of the repacked
tomatoes the mixture consisted of equal proportions of 6 x 6 and
6 x 7 sizes. For the vine-ripened product the mixture consisted
of equal quantities of the large and extra large size designa-
tions as customarily employed in trading operations. For each
type of Florida tomatoes, the mixtures covered the range of the
most common sizes customarily marketed. The greenhouse-
grown tomatoes used were the large size designation custom-
arily employed by the wholesale trade. There is usually consid-
erable variation of greenhouse-grown fruit within this size
category. Thus, it was not necessary to provide for an assort-
ment of sizes as was the case for the two Florida products.







Florida Agricultural Experiment Stations


Figure 1.-Typical display arrangement employed in the experimental tests.


COMPARATIVE SALES OF EACH PRODUCT

Since the price combinations employed in the study were
applied with equal frequency in each of the test stores, an over-
view of the study results can be obtained by an examination of
the aggregate volume of tomatoes marketed over the entire six-
week duration of the investigation. It is apparent that a rather
considerable volume of tomatoes was purchased by customers
(Table 7). Sales during the study amounted to slightly more
than 27,000 pounds, or an average of about 4,500 pounds per
week. From the sales volume involved, it is evident that the
study encompassed a substantial number of customers and many
decisions regarding which of the three products to buy under
the varying price circumstances that prevailed.
Viewed in a total volume sense, the repacked tomatoes were
purchased in larger quantities than either the vine-ripened or
the greenhouse-grown products. Repacked sales amounted to
11,143 pounds and accounted for 41.3 percent of the total volume
of tomatoes purchased. Purchases from the vine-ripened dis-
plays were slightly less at 10,281 pounds and accounted for 38








Demand for Florida and Greenhouse-Grown Tomatoes 13

Table 7.-Comparative sales of tomatoes.

Product Pounds Purchased Percent of Total
Greenhouse-grown 5,583 20.7
Vine-ripened 10,281 38.0
Repacked 11,153 41.3
Total 27,017 100.0


percent of the total volume. The smallest sales volume was reg-
istered for the greenhouse-grown product, which accounted for
slightly more than one-fifth of the total quantity of tomatoes
purchased.
It is important to recognize that the aggregate sales data
for the three products reflect the total customer reaction over
the full range of price combinations used in the study. Pri-
marily, these data emphasize the fact that tomatoes are an im-
portant produce item in retail food stores, and that rather sub-
stantial quantities of all three types of the product were pur-
chased by customers during the course of the study.
Further insight into the overall sales performance of the
three types of tomatoes can be gained by examining purchases
in terms of rates per 100 customers. Viewing the study results
in this fashion provides a means of translating them to other
retailing situations involving differing levels of customer traffic.
Over the entire six-week period covered by the study, the
purchase rate for each 100 customers passing through the test
stores amounted to a total of 12.5 pounds for all types of toma-
toes (Table 8). The highest rate was registered by the repacked
tomatoes at 5.2 pounds per 100 customers. The sales rate for


Table 8.-Average customer purchase rates for tomatoes.

Product Rate per 100 Customers

Pounds
Greenhouse-grown 2.6
Vine-ripened 4.7
Repacked 5.2
Total 12.5







Florida Agricultural Experiment Stations


the vine-ripened tomatoes was 0.5 pounds below that for the
repacked tomatoes at 4.7 pounds per 100 customers. Sales of
the greenhouse-grown product were at the rate of 2.6 pounds
per 100 customers, or exactly half the rate experienced for the
repacked product.


THE DEMAND AND SUBSTITUTION RELATIONSHIPS

An Examination of the Demand Concept

The basic law of demand is a widely understood economic
concept. It simply means that customers respond to an increase
in the price of a product by reducing the quantities which they
buy. The converse of this relationship is that customers respond
to price reductions for a product by increasing their volume of
purchases. However, for decision-making purposes, an under-
standing of the inverse relationship between product prices and
the quantities which customers will purchase is not enough.
What is needed for such purposes is an understanding of the
nature of the basic relationship between price changes for a
product and the response of customers in terms of corresponding
changes in the volume which they buy. In other words, individ-
uals and firms who are confronted with decisions which turn on
an understanding of the character of the demand of a product
need to know the functional relationship between the price and
purchases over a relevant range of price circumstances.
This functional relationship may vary considerably between
products. In some instances consumers tend to have rather rigid
use patterns for a product. This behavior gives rise to a market
condition where either increases or decreases in price result in
less than proportionate changes in the volume which customers
will purchase. When the relationship between price changes
and purchase adjustments is of this character, a product has an
inelastic demand. On the other hand, there are instances where
buyers stand prepared to make rather rapid and substantial
adjustments in their use level of a product in response to a price
change. Under these conditions small upward price adjustments
may result in material decreases in the volume bought by cus-
tomers, and small downward price adjustments may bring about
substantial increases in purchase rates. In other words, the
relative rate of change in the quantity purchased exceeds the







Demand for Florida and Greenhouse-Grown Tomatoes 15

relative rate of change in price. In instances where this con-
dition prevails, the demand for a product is elastic in character.
In addition to the fact that products may have basically dif-
ferent elasticity characteristics, it is important to recognize
that the degree of elasticity or inelasticity is of relevance in
decision-making processes. The consequences of a course of
action when the demand for a product is only slightly elastic
may be considerably different from the consequences of the
same course when the demand is very elastic. The same holds
true for variations in the degree of inelasticity in the demand
for a product.

Characteristics of the Demand
for the Three Tomato Types
An analysis of the data generated through the experimental
pricing techniques shows the relationship between the prices
at which each of the three tomato types was offered to custom-
ers and their response in terms of purchases (Table 9). In all
cases it is apparent that the demand for the product is of an
elastic character. For each product it was found that customers
responded to a price change by making an adjustment in their
purchase levels that was more than proportionate to the price
change. That is, a 1 percent change in the price brought about
a change in the rate of purchase that was larger than 1 percent.
In the case of the vine-ripened tomatoes from Florida and
the greenhouse-grown product, the elasticity characteristics
were identical. For each of these products a 1 percent price
change brought about adjustments in customer purchases in
the opposite direction of 1.8 percent. The demand for the re-
packed type of Florida tomatoes was found slightly less elastic.
For this product a 1 percent change in the price resulted in an
inverse change in customer purchases of 1.7 percent.

Table 9.-Effect of price on purchase of tomatoes.
Sales Response to a 1 Percent
Product Type Price Change
-.-------------- Percent --- --------
Greenhouse-grown 1.8
Vine-ripened 1.8
Repacked 1.7







Florida Agricultural Experiment Stations


In considering the relevance of the foregoing basic relation-
ships between price levels and customer purchase rates for the
three types of tomatoes, it is important to recognize that these
relationships hold at any specified level of price within the range
of prices tested and regardless of the direction in which prices
were changed. The relationship between price changes and
customer purchase adjustments is the same when viewed in
terms of price reductions as when viewed in terms of price
increases. Price movements either upward or downward re-
sulted in more than proportionate inverse adjustments in pur-
chases.

An Examination of the
Substitution Concept
It has been previously established that the basic law of de-
mand dictates an inverse relationship between the quantities of
tomatoes which customers buy and the price at which they are
sold. The nature of the relationship involving the economic
linkage of two products in the marketplace entails an extension
of this basic demand concept. If two products are competitive
in the market, then the price and the consequent sales behavior
of one must exert an influence on the sales of the other. If the
price of one product declines, the sales volume can be expected
to increase in some measure. Under conditions of a competitive
relationship between two products, an increase in the sales of
the one product would represent to some extent an incursion
into the share of the total market occupied by the other prior
to the price change. Thus, it becomes apparent that there is a
direct relationship between the price at which one product is
sold and the sales volume of others that are competitive in the
marketplace. If the price of one product increases, then the sales
of competitive products can be expected to increase in some
measure. Conversely, if the price of a product declines, then the
sales volumes of competitive products will also tend to decline
to some extent.

Substitution Relationships Between
the Three Products
While the basic substitution relationship is perhaps easier
to envision when only two products are involved, it applies with








Demand for Florida and Greenhouse-Grown Tomatoes 17

equal force and in the same fashion to the three types of to-
matoes under consideration in this study. If the products are
competitive, then a change in the price of one of the three types
of tomatoes should bring about a change in the purchase rates
of the other two. An increase in the price of one should meas-
urably increase the sales of one or both of the others if there is
a competitive relationship between the products. Conversely, a
decrease in the price of one should have a measurable depressing
effect on the sales of one or both of the other tomato types.
The results in Table 10 show the extent to which each of
the three kinds of tomatoes were substitutes for the other two.
Again, in order to give generality to the meaning of the substi-
tution relationships found, the effects are expressed in per-
centage terms.

Table 10.-Substitution relationships between greenhouse-grown, vine-ripened,
and mature green tomatoes.
Percentage Effect on Sales of:
A One Percent Price
Change for: Greenhouse-Grown Vine-Ripened Mature Green
Tomatoes Tomatoes Tomatoes

Greenhouse-grown
tomatoes .31 None
Vine-ripened
tomatoes .47 .25
Mature green
tomatoes .39 1.01 -


A detailed examination of Table 10 reveals much regarding
the nature and the extent to which the three kinds of tomatoes
were regarded as substitutes for one another by consumers. Re-
gardless of the price at which the greenhouse-grown tomatoes
were sold, there was no measurable effect upon the sales of re-
packed tomatoes. On the other hand, purchasers' willingness to
shift back and forth between the use of vine-ripened tomatoes
and the greenhouse-grown product was quite discernible. The
analysis revealed that a change of 1 percent in the price of
greenhouse-grown tomatoes resulted in a change of .31 percent
in the volume of vine-ripened tomatoes purchased. If the price
of greenhouse-grown tomatoes was increased by 1 percent, then
the quantity of vine-ripened tomatoes bought by customers rose







Florida Agricultural Experiment Stations


by .31 percent even though the price of the vine-ripened product
remained the same. Conversely, a decline of 1 percent in the
price of the greenhouse-grown tomatoes resulted in a sales loss
of .31 percent for the vine-ripened product.
A substitution relationship was found between vine-ripened
tomatoes and both the greenhouse-grown and the repacked to-
matoes. However, purchasers were somewhat more inclined to
make substitutions between the use of vine-ripened tomatoes
and the greenhouse-grown product than they were between the
vine-ripened and the repacked tomatoes. A 1 percent change in
the price of vine-ripened tomatoes resulted in a change of .47
percent in the quantity of greenhouse-grown tomatoes purchased
under conditions of an unchanging price for the latter product.
In comparison, a 1 percent change in the price of the vine-
ripened product exerted an influence of only .25 percent upon
the sales of the repacked tomatoes.
Variations in the price of repacked tomatoes also brought
about an interchange of purchases reflecting varying degrees of
substitution between this product and both of the other two
types. Customers were especially inclined to shift their pur-
chases back and forth between the repacked and the vine-ripened
product as the price relationship between the two varied. A 1
percent change in the price of the repacked product brought
about a change in the purchases from the vine-ripened displays
of 1.01 percent. This means that increases in the price of the
repacked product resulted in sales gains for the vine-ripened
tomatoes that were slightly larger in relative terms than the
extent of the price change. Conversely, declines in the price of
the repacked tomatoes resulted in sales losses for the vine-
ripened tomatoes that were of greater relative magnitude than
the change in repacked tomato prices. As a consequence, it is
apparent that there is a relatively high degree of interchange-
ability in the use of these two products.
The substitution linkage between repacked and greenhouse-
grown tomatoes was somewhat less intense. Price changes for
greenhouse-grown tomatoes did not produce any measurable
effects upon the sales of repacked tomatoes. However, upward
or downward price adjustments of 1 percent for the repacked
tomatoes resulted in corresponding changes in the purchases of
greenhouse-grown tomatoes of .39 percent in the same direction.







Demand for Florida and Greenhouse-Grown Tomatoes 19

EVALUATION OF THE FINDINGS
If credence is placed in the demand and substitution rela-
tionships determined in this study, then the results have impli-
cations of importance to the producers and marketing agencies
for both types of Florida tomatoes and for comparable firms
with respect to the greenhouse-grown crop.
While the economic substitution between the three products
could not be generally characterized as intensive, the relationship
was sufficient to conclude that consumers will, within some sig-
nificant limits, make substitutions in the use of one type of
product for another if relative price conditions warrant such
action. Favorable prices for the repacked tomatoes lead to a
rather substantial substitution in the use of these instead of the
vine-ripened product. Florida producers and shippers need to
take special cognizance of this fact in developing a production
policy and a marketing strategy for their entire tomato crop.
It appears evident that the closest economic linkage is between
the two types of Florida tomatoes. Further, in this study, cus-
tomer response was greater in terms of substituting vine-ripened
for repacked tomatoes than in terms of substituting repacked
for vine-ripened tomatoes.
The existence of the economic linkage and the apparent lack
of balance in the substitution relationship between the two types
of Florida tomatoes suggest that the Florida industry will have
to consider not only the demand and substitution relationships
for the two products, but also their production costs in the
formulation of future production marketing policies.
There were comparatively small changes, none measurable
with respect to repacks, in the sales of the two Florida types
of tomatoes resulting from price changes for greenhouse-grown
tomatoes. However, sales of vine-ripened tomatoes were re-
sponsive to price changes for the greenhouse-grown product.
On the other hand, sales of the greenhouse-grown tomatoes were
responsive to changes in price for both of the two types of Flor-
ida tomatoes.
Since the demands for all three products are of an elastic
character, small price adjustments will result in more than pro-
portionate changes in purchase levels. Therefore, marketing
firms located in the consumption centers are in a position to clear
up situations rather quickly involving temporary market over-







Florida Agricultural Experiment Stations


supply through the use of price reductions. The limits to which
price reductions can be used for such purposes will, of course,
depend upon whether the price reducing operations involved in
market clearing are less costly than the storage costs and spoil-
age losses involved in holding the line on prices and waiting out
the oversupply situation. While this question is not resolved by
the study, wholesaling and retailing firms can employ price
elasticity estimates and a knowledge of their individual cost po-
sitions to make judgments regarding the more desirable al-
ternative.
Aside from being elastic in character, the demands for the
three products are highly similar. For all three products, price
reductions result in increases in the total gross revenue derived
from sales. In the absence of a knowledge of the cost structures
of marketing firms, it is not possible to determine the optimum
level of marketing for purposes of net profit maximization. How-
ever, in light of the fact that gross revenue does tend to increase
with lower prices, wholesaling and retailing firms may well re-
examine their marketing strategy for these products. Such firms
should attempt to determine if their pricing policies are, in fact,
producing the sales levels that yield maximum net returns. Nar-
rower margins and consequently lower prices may well result
in higher sales volumes and higher net returns under certain
circumstances. This may be especially important to a retailer
who has the option of shifting more of his labor and capital
resources to tomato marketing operations at the expense of
volume losses in items that have a less elastic demand.

SUMMARY

During the past decade, substantial changes have occurred
in both the production and marketing of the winter tomato crop.
Prior to the 1950's practically all of the tomatoes produced in
Florida were harvested and marketed in a mature green state.
Presently, however, a significant proportion of the crop is mar-
keted as vine-ripened fruit. The mature green crop still pre-
dominates from a volume standpoint. Nevertheless, both com-
ponents of the crop must be considered by the Florida tomato
industry in the development of marketing policies and programs.
In addition to the two types of Florida tomatoes, large quan-
tities of greenhouse-grown tomatoes are marketed during the







Demand for Florida and Greenhouse-Grown Tomatoes 21

early spring months. As a consequence, the market position of
both Florida and greenhouse-grown tomatoes must be considered
by growers and marketing agencies in both areas in formu-
lating an efficient production and marketing strategy.
The purpose of this study was (1) to estimate the relation-
ship between the price of mature green, vine-ripened, and green-
house-grown tomatoes and the quantities that consumers will
purchase, and (2) to examine the extent of economic substitu-
tion which exists among the three types of tomatoes.
The method of study entailed a series of experimental tests
conducted in six retail grocery stores in a metropolitan area of
northwestern Ohio during the spring of 1963. The research
procedure involved the selection of an experimental model which
allowed estimates of demand and substitution relationships
among the three types of tomatoes at nine price levels.
The results indicate that the demand for all three types of
tomatoes is of an elastic character. Customers responded to a
price change by making an adjustment in their purchase levels
that was more than proportionate to the price change. Further,
the price-quantity relationships were found to be highly similar
for all three types. The changes in purchase rates resulting
from a 1 percent change in price were found to bear an inverse
relationship of 1.8, 1.8, and 1.7 percent, respectively, for green-
house-grown, vine-ripened, and mature green tomatoes.
With respect to substitution relationships between the prod-
ucts, the study indicates that the sales of repacked tomatoes are
not appreciably affected by price changes for greenhouse-grown
tomatoes. Regardless of the price at which greenhouse-grown
tomatoes were sold, there was no measurable effect upon the
sales of mature green tomatoes. On the other hand, a significant
substitution relationship was found between vine-ripened and
both greenhouse-grown and mature green tomatoes. Purchasers
were, however, more inclined to make substitutions between the
use of vine-ripened tomatoes and the greenhouse-grown product
than they were between vine-ripened and mature green to-
matoes.
The demand and substitution relationships estimated in this
study have implications of importance to both producers and
marketing agencies of the three types of tomatoes. Tomato pro-
ducers need to consider the demand relationships and produc-
tion costs for the three types of tomatoes in formulating more







Florida Agricultural Experiment Stations


efficient and effective marketing practices and policies. Mar-
keting firms can also relate the demand relationships to their
individual cost structures in efforts directed toward profit max-
imization.

ACKNOWLEDGMENTS

The completion of this study was made possible through the
assistance and cooperation of several individuals and marketing
firms. The writers would like to pay special recognition to those
whose contribution was particularly outstanding.
The experiments were conducted in stores of Pangles Master
Markets, Inc., of Lima, Ohio. The assistance rendered by Ray
Pangle, Robert Sadlier, and Pete Taviano was of the highest
order. Excellent cooperation was also received from the man-
agement and personnel of the six stores of Pangles Master Mar-
kets, Inc., that were involved in the study.
The entire supply of tomatoes used in the experiments was
handled through the facilities of the DeVita Fruit Company
of Lima, Ohio. John S. DeVita gave his enthusiastic and in-
valuable assistance and support throughout all phases of the
marketing tests. Recognition is also due Carl Quinn and Helen
Klaus of DeVita Fruit Company for their efforts and assistance.





















Ty 0F





UP




University of Florida Home Page
© 2004 - 2010 University of Florida George A. Smathers Libraries.
All rights reserved.

Acceptable Use, Copyright, and Disclaimer Statement
Last updated October 10, 2010 - - mvs