Impacts of a prorate suspension on marketing margins for California-Arizona navel oranges

Abstract

In January, 1985, the rate-of-flow controls ("prorate") for the California-Arizona navel orange industry were suspended for half of the marketing season. This marked the first time in 32 consecutive years that the industry operated without market controls. This study compares the behavior of industry marketing margins during the deregulated period with that of regulated seasons in order to assess the impacts of the prorate suspension on the marketing system. Econometric results indicate that relative to subsequent regulated seasons, marketing margins contracted during the prorate suspension period. This implies that despite deregulation, the agricultural marketing sector was unable to exercise market power and maintain retail orange prices high while depressing grower prices, as some growers claimed. In addition, the results suggest that shortrun distributor reaction to a permanent termination of marketing order controls would result in changes in marketing system behavior which would be favorable to consumers.