Economics and Management of the Food Industry

212 Pages·2013·3.758 MB·English

by  Jeffrey H. Dorfman

Economics and Management of
the Food Industry
T he food industry is a vast and complex network of processors, wholesalers,
importers/exporters, retailers, restaurateurs, and more, which spans the entire
globe. The Economics and Management of the Food Industry analyzes both the
economic principles at work and the management challenges facing people work-
ing in the industry at every stage between the farm gate and the kitchen counter.
C entral to the book is the principle of equilibrium – the balancing of economic
forces – which is the key to understanding the economics of the food industry and
addressing such problems as allocating production between competing products,
spatial competition, interregional trade, optimal storage, and price discrimination.
Real world applications are emphasised throughout to demonstrate the ideas and
models in practice with examples drawn from each section of the industry. This
book is ideally suited to students taking agricultural marketing, food industry
management, agribusiness, and applied microeconomics courses as well as
anyone working towards a management career in the food industry.
Jeffrey H. Dorfman is Professor in the Department of Agricultural and Applied
Economics at the University of Georgia, USA.
Routledge textbooks in environmental and
agricultural economics
1. The Economics of Agricultural 6. Food Economics
Development Industry and markets
Second edition Henning Otto Hansen
George W. Norton, Jeffrey Alwang
and William A. Masters 7. Economic Growth and
Sustainable Development
2. Agricultural Marketing
Peter N. Hess
Structural models for price analysis
James Vercammen
8. The World of Agricultural
3. Forestry Economics
Economics
A managerial approach
An introduction
John E. Wagner
Carin Martiin
4. Agribusiness Management
Fourth edition 9. Agricultural Finance
Freddie Barnard, Jay Akridge, Charles B. Moss
Frank Dooley and John Foltz
5. Sustainability Economics 10. Economics and Management
An introduction of the Food Industry
Peter Bartelmus Jeffrey H. Dorfman
Economics and
Management of the Food
Industry
Jeffrey H. Dorfman
First published 2014
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2014 Jeffrey H. Dorfman
The right of Jeffrey H. Dorfman to be identifi ed as author of this work has
been asserted by him in accordance with the Copyright, Designs and Patent
Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical, or other means,
now known or hereafter invented, including photocopying and recording, or
in any information storage or retrieval system, without permission in writing
from the publishers.
Trademark notice : Product or corporate names may be trademarks or
registered trademarks, and are used only for identifi cation and explanation
without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Dorfman, Jeffrey H.
Economics and management of the food industry / Jeffrey Dorfman.
pages cm
Includes bibliographical references and index.
1. Food industry and trade–United States. 2. Food industry and
trade–United States–Management. 3. Competition–United States. I. Title.
HD9000.5.D625 2013
338.1’973–dc23 2013007130
ISBN: 978-0-415-53991-3 (hbk)
ISBN: 978-0-415-53992-0 (pbk)
ISBN: 978-0-203-79573-6 (ebk)
Typeset in Times New Roman
by Cenveo Publisher Services
To my wife, Melody
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Contents

List of fi gures and tables ix
Preface xi
Acknowledgements xiii
1 The basics of the food industry 1
2 Cost economics for processing plants 4
3 Pricing economics for food processors 21
4 Trade among regions 34
5 The economics of storage 47
6 Plant location and size decisions 58
7 Risk management 70
8 The economics of the marketing sector 78
9 Price discrimination 91
10 Imperfect competition and game theory 105
11 Spatial competition 122
12 The food service industry 132
13 Food retailers 153
viii Contents
14 Launching a new product 164
15 Special organizational features in the food industry 175
Notes 192
Index 195
Figures and tables
Figures
2.1 A fruit packing operation 6
2.2 The fruit packing operation with minimum and maximum
station crews 7
2.3 Labor requirements table for a fruit packing operation 9
2.4 Hourly labor cost function 10
2.5 The shape of the hourly labor cost function 10
2.6 The variable cost function and its component parts 12
2.7 Average variable cost function for a step-shaped total
variable cost function 14
2.8 Finding the minimum average variable cost 15
4.1 An opportunity for trade 35
4.2 The three-panel trade diagram 36
4.3 Adding the import supply curve to the trade panel 37
4.4 The three-panel trade model equilibrium 38
5.1 One-period production, two-period sales 49
6.1 Components of transportation costs 60
6.2 Possible combinations of plant numbers and locations 61
6.3 An example of a net value surface 62
6.4 Net value surfaces for two ingredients shipping to one plant 63
6.5 Net value surfaces for two competing plants 63
6.6 Site rent for farms two distances from the same plant 65
8.1 Farm, wholesale, and retail supply curves 83
8.2 Market equilibrium at all levels 84
10.1 Basic 2 × 2 game 107
10.2 The prisoner’s dilemma 109
10.3 Cournot reaction functions and Nash equilibrium 111
10.4 Bertrand duopoly, reaction functions in different shapes, and
Nash equilibriums 113
10.5 Kinked demand curve with marginal revenue curves 115
10.6 Stackelberg Cournot with isoprofi t and collusive lens 116
11.1 A kinked demand curve 128
13.1 Market share pie chart 154