Projects Funded for Sean Kiely

2021-2022

Adoption and Advertising of Regulated Deficit Irrigation Technique within the Blue Diamond Cooperative

  • Sean Kiely
  • Kristin Kiesel

Abstract

Specific Objectives of the Project:
This research develops a theoretical model of technology adoption at the farm level coupled with a consumer-facing advertising campaign as a means to establish environmental stewardship and meaningful product differentiation. Using increased market power and concentration in manufacturing and retailing and increased consumer demand for value-added and local foods as a starting point, we focused on the role marketing cooperatives can play in ensuring adoption of agricultural innovations even among small and medium size growers in California.
This research uses Blue Diamond, a marketing cooperative and leading and recognized consumer brand in almond production, as a case study to discuss and examine optimal advertising and cost-saving production technologies under imperfect competition.

Almonds are the second the most valuable commodity in California with a production value of $6.09 billion. California accounts for all U.S. production of almonds and 78% of worldwide production (CDFA, 2020). Blue Diamond is the largest producer in the state and as a marketing cooperative, allows roughly half of CA almond growers (about 3,500 growers) to sell their raw almonds under one label. Blue Diamond successfully markets a variety of value-added products to consumers, including roasted almonds, almond milk, nut crackers, and almond oil. Almond production is water intensive using about 40 acres-inches of water per acre annually. However, the almond industry has faced criticism for its water use over the last decade as California grapples with extreme drought. In 2015, almond production accounted for approximately 10% of California water use. In addition, irrigation is the greatest variable cost in almond production accounting for about 12-32% of annual operating costs depending on location. Regulated deficit irrigation
(RDI) is a technique that can lower water use in almond production. RDI decreases irrigation rates during the kernel-filling period inducing mild to moderate stress in the plant to limit vegetative growth without impacting fruit production. This technique can also decrease hull rot and improve hull split, can decrease irrigation and result in significant water savings at almost no difference in kernel weights.

We analyze a situation where Blue Diamond encourages its growers to adopt RDI. Adoption of this technology has a twofold effect. Adoption leads to a decrease in overall production costs, and can form the basis for meaningful product differentiation in a retail space characterized by increased concentration and product differentiation. Specifically, Blue Diamond can initiate an advertising campaign referencing the implementation of water conservation efforts and continue to position its brand as a leader in product innovation. Differentiating its products based on eco-friendly practices, especially to California consumers, can increase their margins, and allow them to incentivize adoption of the technology by growers.

Summary of Results:
We completed a draft theoretical model and reached out Blue Diamond for feedback, a discussion of a collaboration, data access and a potential empirical analysis. Focusing on a specific technology and evaluation of a targeted advertising or marketing campaign became infeasible due to data issues in general, and challenges in the implementation of RDI, however. We therefore adjusted the focus of this project to more broadly explore opportunities for product innovation and promotion of value-added products via marketing cooperatives in a proposed book chapter to be included in a forthcoming Handbook of Research on Cooperatives and Mutuals. It uses Blue Diamond's production research and marketing efforts as a case study.

In this chapter, we argue that marketing cooperatives (MCs) can have a competitive advantage over investor-owned firms (IOFs) when communicating complex product qualities where information asymmetries exist between consumers and producers. We review the existing literature and discuss opportunities for cooperatives in modern markets characterized by increased product differentiation. Marketing orders (regulated mandatory commodity research and promotion efforts organized by industry and geographic region) can support and complement cooperatives’ investments in product innovation and brand-specific advertising and their provided functions are compared and contrasted with functions provided by cooperatives. We argue that the cooperative business model can lend greater credibility and authenticity to health, sustainability, and local production claims and benefit more from the existence of marketing orders than IOFs. A discussion of the actions of the Almond Board of California and Blue Diamond illustrates how coordinated and collective producer and market research, product innovation, and complementary generic and brand-specific advertising can ensure MCs' long-term growth and success. The chapter concludes with a description of future data, and research needs to ensure that more MCs develop well-recognized consumer brands.