A parametric spatial equilibrium and response surface analysis of the Texas and U.S. fresh onion industry

Fresh onion production is an important source of income to West and South Texas farmers. Competition to Texas onion farmers for market share is expected to mount due to increased onion production by competing regions in the U.S. Furthermore, data indicate that the U.S. fresh onion industry is highly concentrated in the Pacific and Southwestern states which supply over 80 percent of the domestic crop. These figures are suggestive of the potential distribution and interregional competition problem facing the fresh onion market.

The objective of this study was to analyze the competitive position of the U.S. and the Texas fresh onion industry and to develop response surfaces of optimal values under given changes in the parameters of a model for understanding the way in which the fresh onion market might be expected to evolve.

The model used in this study was spatial equilibrium analysis based upon a quadratic programming algorithm in which linear demand functions were incorporated directly into the objective function. The model contained 12 demand and 7 supply regions including one importation point from Mexico to South Texas for spring onions, and 6 supply regions for summer onions.

Results indicated South Texas has a cost advantage over the Pacific regions in shipping to the Eastern regions. Therefore, as supplies from the Pacific region increased, prices became depressed in the markets closer to South Texas. Hence, South Texas was forced to reallocate supplies to more distant markets. West Texas has a supply and cost advantage over the Pacific regions in the Delta and Southeast regions while New York enjoys a locational advantage in the Northern region.

When transportation rates from a specific supply region were perturbed the stability of the flow patterns varied substantially. This indicates that this model has a major pitfall with unpredictability of the optimal flow pattern under changes in individual transportation rates.

Variations in demand and supply levels had large effects on consumers' surplus and the total net social welfare functions. The surface for the flow variables was a ridge saddle system which indicates that, if demand and supply levels were changed in a different direction from the axis of the ridge, then the trade pattern becomes highly unstable.