Date of Award:

5-1989

Document Type:

Thesis

Degree Name:

Master of Science (MS)

Department:

Economics and Finance

Department name when degree awarded

Economics

Committee Chair(s)

DeeVon Bailey

Committee

DeeVon Bailey

Committee

E. Bruce Godfrey

Committee

Anthony Hatch

Abstract

The Utah apple industry is a small competitor in a major market. Efforts were made to analyze the long-term market and profitability potential of the industry. This study consisted of two parts, whole farm simulations and a consumer preference survey.

A whole-farm simulation model (FLIPSIM) was used to evaluate and test variations in price, debt load and sizes of Utah apple production units. These variations examined the effects of various possible market and financial conditions that producers could face given the current situation of the apple industry. FLIPSIM was used to demonstrate the stochastic nature of prices and yields of producers in Utah County, Utah. Five scenarios representing long-term nominal price trends were examined using FLIPSIM to test the financial health of the industry under the various financial situations. Each scenario investigated the impact of different price trend assumptions on a 40-acre and an 80-acre apple production unit under different initial debt loads.

Consumer tastes and preferences for apples were determined through a survey conducted along the Wasatch Front. This survey established general consumer preferences and attempted to measure consumer behavior given various options. The results show producers the purchasing habits of apple consumers.

Results indicate that as long as prices continue to increase in response to counter the escalating prices of inputs, the typical producer will experience success. If prices do not continue to increase, producers will experience financial difficulties. This suggests that apple producers in Utah are currently producing near a level where average total costs equal expected output price. Consequently, major increases in supply without corresponding increases in demand would reduce prices below break-even levels. These difficulties especially affect those producers with high debt loads and smaller operations (40 acres). If prices remain level, producers with 40 acres and 80% debt will experience severe financial problems. If prices decline, these financial problems will become general for all debt levels. Eighty-acre operations are expected to withstand lower prices better than the 40-acre operations, with problems beginning to arise if prices decrease by 1% with and 80% debt. If prices decline by 3% per year, both sizes of operations are expected to experience major financial problems. If prices drop 3% per annum, neither 40 nor 80 acre operations are expected to survive if they have 80% debt to fixed assets.

Results of the consumer preference study indicate that apples, in general, are losing market share to other fruits in the Utah market. In general, apple producers must consider developing new markets, penetrating existing nonaccessible markets, expanding current markets, improving the product image of apples, diversifying to meet the variety requirement of the consumers and/or developing more efficient methods of production to provide a less expensive product in an effort to maintain profit margins.

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