Performance audit, Arizona Department of Agriculture state agricultural laboratory, report to the Arizona Legislature

              State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
Report to the Arizona Legislature
By Debra K. Davenport
Auditor General
September 2000
Report No. 00-15
ARIZONA
DEPARTMENT
OF
AGRICULTURE
COMMODITY DEVELOPMENT
AND
PROMOTION PROGRAM
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee
composed of five senators and five representatives. Her mission is to provide independent and impar-tial
information and specific recommendations to improve the operations of state and local government
entities. To this end, she provides financial audits and accounting services to the state and political
subdivisions and performance audits of state agencies and the programs they administer.
The Joint Legislative Audit Committee
Representative Roberta L. Voss, Chairman
Senator Tom Smith, Vice-Chairman
Representative Robert Burns Senator Keith Bee
Representative Ken Cheuvront Senator Herb Guenther
Representative Andy Nichols Senator Darden Hamilton
Representative Barry Wong Senator Pete Rios
Representative Jeff Groscost Senator Brenda Burns
(ex-officio) (ex-officio)
Audit Staff
Dale Chapman—Manager
and Contact Person (602) 553-0333
Jay Dunkleberger—Team Leader
Julie Maurer—Team Member
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410
Phoenix, AZ 85018
(602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553 -0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
September 21, 2000
Members of the Legislature
The Honorable Jane Dee Hull, Governor
Mr. Sheldon Jones, Director
Arizona Department of Agriculture
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Arizona
Department of Agriculture’s Commodity Development and Promotion Program. This report
is in response to a June 16, 1999, resolution of the Joint Legislative Audit Committee. The
performance audit was conducted as part of the Sunset review set forth in A.R.S. §41-2951 et
seq. I am also transmitting with this report a copy of the Report Highlights for this audit to
provide a quick summary for your convenience.
This is the sixth in a series of reports to be issued on the Arizona Department of Agriculture.
Recent studies, including one specifically of this Program, show promotion efforts often have
little or no effect on fresh produce sales. While we found refocusing the Program’s efforts on
specialty crops and processed goods would provide the greatest likelihood for success, as
outlined in its response, the Department does not agree with this finding.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on September 22, 2000.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
OFFICE OF THE AUDITOR GENERAL
Program Fact Sheet
Department of Agriculture
Commodity Development and
Promotion Program
Services: The Commodity Development and Promotion Program performs the following
services: 1) Domestic Promotion—Through Arizona Grown and other activities, familiar-izes
and educates retailers and consumers about Arizona agricultural products, works to
increase the consumption of those products, and performs these same activities for Pride of
Arizona, which specifically focuses on Arizona processed goods, such as salsa and wine; 2)
International export promotion—Educates international importers, wholesalers, retailers,
and consumers about the advantages of choosing Arizona products; 3) Council administra-tion—
Provides accounting, budgeting, and other administrative services to five agriculture
councils and one board; and 4) Certificate of Free Sale collection—Collects fees for certifi-cates
that ensure commodities can be bought and sold freely domestically and abroad.
Program Revenue: $406,443
(fiscal year 2000)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
1998 1999 2000
General Fund Miscellaneous Revenue Industry Contributions
$308,905
$361,724
$406,443
Personnel: 5 FTEs as of July 2000
Assistant Director
Domestic
Program Manager
Export
Program Manager
Marketing Assistant/
Retail Liaison
Marketing Assistant/
Council Administrator
Facilities: The Program operates no facilities
outside of the Department’s offices at the Capi-tol
complex in Phoenix. The Program’s export
manager generally operates from her home in
southern Arizona.
Equipment: The Program owns only standard
office equipment.
Program Goals (Fiscal years 2000-2002)
1. To stimulate the international sales of
Arizona agricultural commodities and
value-added products abroad.
2. To increase awareness of Arizona agricul-tural
products through the Arizona
Grown program.
3. To provide administrative support to
Commodity Councils and the Agriculture
Employment Relations Board (AERB).
OFFICE OF THE AUDITOR GENERAL
Adequacy of Goals and Performance
Measures:
Several improvements could be made to the
Department’s 3 goals and 43 performance
measures for its Commodity Development and
Promotion Program.
n The Program’s goals incorporate too many
performance measures to effectively track
performance. For example, the Depart-ment’s
goals for Arizona Grown include 24
measures, including a measure for the
number of customers familiar with the Ari-zona
Grown logo. This information is not
collected by the Department on a regular
basis. As a result, the Department may
want to consider revising and condensing
its goals and measures.
Adequacy of Goals and Performance
Measures: (Concl’d)
Further, some of the Department’s measure-ments
need to be clarified. For example, one of
the Department’s efficiency measures records the
number of “solid” trade inquiries, yet it does not
define “solid.”
Finally, the Department should develop goals
and measurements specifically for its Pride of
Arizona promotion activities. Since the Depart-ment
recently initiated these activities, it has not
had an opportunity to develop goals and meas-urements,
but should consider developing a
goal, and input, output, outcome, efficiency, and
quality measures for these activities.
Arizona Grown Logo
n While the Department generally employs
outcome, output, input, and quality meas-ures,
it employs only two measures track-ing
program efficiencies. As a result, the
Department could adopt efficiency meas-ures,
such as comparing promotion
expenditures to promotion benefits.
i
OFFICE OF THE AUDITOR GENERAL
SUMMARY
The Office of the Auditor General has conducted a performance
audit of the Arizona Department of Agriculture’s Commodity
Development and Promotion Program pursuant to a June 16,
1999, resolution of the Joint Legislative Audit Committee. This
audit was conducted as part of the Sunset review set forth in
A.R.S. §§41-2961 et seq, and is the sixth in a series of audits to be
conducted on programs within the Arizona Department of
Agriculture (Department).
The Commodity Development and Promotion Program pro-motes
Arizona’s agricultural products domestically and abroad.
Arizona Grown, a key component of its domestic promotion
efforts, seeks to familiarize and educate retailers and consumers
about the quality and diversity of Arizona’s agricultural prod-ucts
and to increase the consumption of these products. While
Arizona Grown activities typically focus on promoting unproc-essed
agricultural goods, the Department recently created Pride
of Arizona, which uses a portion of Arizona Grown funding to
promote Arizona processed goods, such as salsa and wine. As
part of the Arizona Grown efforts the Legislature appropriates
$50,000 annually to specifically fund joint agricultural indus-try/
Department promotion projects. However, the Department
cannot spend this money without receiving required matching
dollars from the agricultural industry. The Department also
dedicates approximately one of the Program’s FTEs to support
international promotion efforts by working with the Arizona
agricultural industry to stimulate the export of Arizona farm and
food products.
Refocusing Arizona Grown Activities
Would Help Make It More Effective
(See pages 7 through 15)
As currently operated, Arizona Grown has limited impact.
Studies of Arizona Grown and similar efforts in other states
Summary
ii
OFFICE OF THE AUDITOR GENERAL
indicate that they have little effectiveness unless they are focused
in certain key ways. The key components for success include
targeting Arizona specialty and processed products and pur-chasers
who are likely to be most affected by the promotional
efforts. However, Arizona Grown’s efforts have been focused on
fresh food commodities, such as lettuce and broccoli. Because the
market for such commodities is primarily price competitive,
promotions such as those sponsored under Arizona Grown tend
to have little effect on consumer behavior. In addition, the Ari-zona
Grown promotional efforts are not clearly focused. Instead,
they are spread across many goals and purposes.
The Department should take several steps to increase the effec-tiveness
of Arizona Grown efforts.
n First, the Department should develop a strategy for Arizona
Grown’s promotions that includes a focus on specialty and
processed goods; and identifies and targets consumers who
are more likely to purchase local products. Additionally, the
Department should seek to support projects that are in line
with this strategy.
n Second, the Department should measure the effectiveness of
promotional activities to ensure they have a demonstrable
impact. The Department can achieve this by incorporating an
evaluation component into promotional projects.
n Finally, the Department should take steps to increase the
available monies for Arizona Grown promotional projects by
taking advantage of additional industry funding. The De-partment’s
General Fund appropriation requires that every
dollar the Department spends on joint agricultural indus-try/
Department promotional projects be matched by $.50
from the industry. Based on the advice of its Attorney Gen-eral
representative, the Department believes this requires the
State to pay one dollar for every $.50 contributed by the in-dustry
for these projects. However, Auditor General legal
counsel, Joint Legislative Budget Committee staff, and Legis-lative
Council staff review of this requirement suggests it out-lines
a minimum industry contribution for Arizona Grown
projects and does not prevent the industry from contributing
Summary
iii
OFFICE OF THE AUDITOR GENERAL
additional monies. Nonetheless, the Department has turned
down additional funds offered by industry because it did not
have enough money to match them on a 2-to-1 basis.
iv
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v
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS
Page
Introduction and Background....................... 1
Finding I: Refocusing Arizona Grown
Activities Would Help Make
It More Effective......................................... 7
Current Promotional
Efforts Lack Key Components...................................... 7
The Department Should Improve
Arizona Grown’s Project Management...................... 10
Recommendations........................................................... 15
Agency Response
Table
Table 1 Arizona Department of Agriculture
Commodity Development and
Promotion Program
Statement of Revenues and Expenditures
Years Ended June 30, 1999 and 2000 .......... 4
Figures
Figure 1 Arizona Grown Logo..................................... 2
Figure 2 Pride of Arizona Logo.................................... 2
vi
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1
OFFICE OF THE AUDITOR GENERAL
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance
audit of the Arizona Department of Agriculture’s Commodity
Development and Promotion Program (Program) pursuant to a
June 16, 1999, resolution of the Joint Legislative Audit Commit-tee.
This audit was conducted as part of the Sunset review set
forth in A.R.S. §§41-2951 et seq and is the sixth in a series of
audits to be conducted on programs within the Arizona De-partment
of Agriculture (Department).
Commodity Development
and Promotion Program
The Department’s Commodity Development and Promotion
Program operates under the following statutory mandate:
“The office of commodity development and promotion
shall provide for programs to stimulate, educate, encour-age,
and foster the production and consumption of Ari-zona
agricultural products domestically and abroad.”
To carry out this mandate, the Program employs a total of 5 FTEs
to promote Arizona’s agricultural products through a combina-tion
of statewide and international efforts that include two main
activities:
n Domestic promotion: Through domestic promotions, the
Program seeks to familiarize and educate retailers and con-sumers
about the quality and diversity of Arizona’s agricul-tural
products and to increase the consumption of these
products. A key component of its domestic promotion efforts
is Arizona Grown. As part of Arizona Grown, the Program
performs a variety of activities, such as encouraging the Ari-zona
agricultural industry to use the Arizona Grown logo to
help identify Arizona products, creating informational mate-rial,
and jointly funding agricultural product promotions
Department supports state-wide
and international
agricultural promotions.
Introduction and Background
2
OFFICE OF THE AUDITOR GENERAL
Figure 1: Arizona Grown Logo
Figure 2: Pride of Arizona Logo
with the agricultural
industry. For example,
during fiscal year 2000,
the Program helped
promote the Arizona
agricultural industry
and activities at two
trade shows and one
national conference,
completed three
promotional projects
in cooperation with
industry, helped
organize a “January
Winter Vegetable
Promotion” and the
“Yuma Lettuce Days,”
and jointly funded an
Arizona Grown
spokesperson with the
agricultural industry to promote Arizona agricultural goods.
Additionally, the Program has recently developed a “Pride of
Arizona” logo to distinguish the promotion of processed
goods. Pride of Arizona, a component of Arizona Grown,
seeks to increase the consumption and use of agricultural
products, such as salsa and wine, that are made and/or proc-essed
in Arizona.
n International Export Promotion: Through international
export promotions, the Program seeks to increase international
trade of Arizona products and to educate international im-porters,
wholesalers, retailers, and consumers about the ad-vantages
of choosing Arizona foods. During fiscal year 2000,
the Program participated in trade shows, trade missions, and
field tours, coordinated export missions, and produced bilin-gual
educational materials to promote melons to Canada, live-stock
to Mexico, and fruits and vegetables to Japan, Hong
Kong, Korea, and Mexico. Likewise, the Program offers assis-tance
to Arizona exporters through coordinating international
activities, assisting Arizona exporters with USDA require-ments,
linking foreign buyers with domestic sellers, and assist-ing
the Arizona agriculture industry to pursue federal grants.
Introduction and Background
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OFFICE OF THE AUDITOR GENERAL
In addition to its two main promotional activities, the Program
provides services to five agricultural entities. These entities collec-tively
pay for one FTE who provides general support for the
Program, but also spends approximately three-quarters of his time
providing accounting and budgeting services to the Arizona Wine
Commission, Arizona Grain Research and Promotion Council,
Arizona Iceberg Lettuce Research Council, Arizona Citrus Re-search
Council, and the Agricultural Employment Relations
Board. As illustrated in Table 1 (see page 4), the Department
receives over $1.6 million annually on behalf of these commis-sions/
councils and the Arizona Cotton Research and Protection
Council. Each commission/council reimburses the General Fund
for the Program’s services based on agreements renegotiated
annually.
Finally, the Program issues and collects fees for Arizona’s Certifi-cates
of Free Sale. Some countries require these certificates before
Arizona producers of processed foods, beverages, and animal
feeds can sell their products abroad. By law, the fees that the
Program charges cannot exceed the actual cost to prepare the
Certificate of Free Sale.
Budget
During fiscal year 2000 and as seen in Table 1 (see page 4), the
Program received over $301,000 from the General Fund, primarily
for salaries and other operating and equipment expenditures. Of
the $301,000 appropriated to the Program, $50,000 is earmarked
for Arizona Grown promotions, approximately 20 percent of
which also funds Pride of Arizona promotions. To ensure indus-try
contributes to these promotions, businesses are required to
contribute $.50 for every $1 in General Fund monies the Program
spends. Any unmatched monies revert to the State General Fund.
While in the past some unused monies were remitted back to the
General Fund, in fiscal year 2000 all Arizona Grown appropria-tions
were expended. Furthermore, the Program collected addi-tional
revenue from the commissions/councils to provide for
Table 1
Arizona Department of Agriculture
Commodity Development and Promotion Program
Statement of Revenues and Expenditures
Years Ended June 30, 1999 and 2000
(Unaudited)
Program Operations Commissions and Councils 1 Program Total
1999 2000 1999 2000 1999 2000
Revenues:
State General Fund appropriations $270,200 $301,800 $ 270,200 $ 301,800
Charges for services:
Cotton assessments $ 888,301 $1,125,963 888,301 1,125,963
Grain assessments 209,500 139,490 209,500 139,490
Citrus assessments 153,921 91,806 153,921 91,806
Iceberg lettuce assessments 97,814 104,377 97,814 104,377
Other charges for services 43,884 42,380 43,884 42,380
Intergovernmental 5,000 5,000 133,648 165,186 138,648 170,186
Industry contributions 24,280 45,573 24,280 45,573
Fines and forfeits 25,134 14,871 25,134 14,871
Interest on investments 113,629 21,442 113,629 21,442
Other 18,360 11,690 7,945 18,538 26,305 30,228
Total revenues 361,724 406,443 1,629,892 1,681,673 1,991,616 2,088,116
Expenditures:
Personal services and employee related 217,524 225,813 789,091 814,156 1,006,615 1,039,969
Professional and outside services 14,487 25,185 529,574 358,925 544,061 384,110
Travel 21,092 23,174 20,793 17,380 41,885 40,554
Other operating and equipment 105,292 102,982 1,001,599 2 634,699 1,106,891 737,681
Total expenditures 358,395 377,154 2,341,057 1,825,160 2,699,452 2,202,314
Excess of revenues over expenditures 3,329 29,289 (711,165) (143,487) (707,836) (114,198)
Operating transfer in      7,000 7,273      7,273 7,000
Excess of revenues and operating transfers in over (under) ex-penditures
$ 3,329 $ 36,289 $ (703,892)3 $ (143,487)3 $ (700,563) $ (107,198)
1 Includes the Arizona Grain Council, Arizona Wine Commission, Arizona Iceberg Lettuce Research Council, Arizona Citrus Research Council, and Arizona Cotton Research
and Protection Council. These entities were not within the scope of our audit.
2 In 1999, changes to the facilities and equipment that the Arizona Cotton Research and Protection Council used for the aflatoxin production process caused additional
equipment purchases as well as significant repair and replacement expenditures.
3 Deficit amounts are primarily due to the Cotton Council using their available fund balance to pay expenditures.
Source: The Arizona Financial Information System Accounting Event Extract File and Status of Appropriations and Expenditures reports for the years ended June 30, 1999 and 2000.
4
Introduction and Background
5
OFFICE OF THE AUDITOR GENERAL
administrative services and Certificate of Free Sale fees, which
totaled approximately $50,000 during fiscal year 2000.
Scope and Methodology
This audit focuses on the Department’s efforts to promote and
develop opportunities for Arizona’s agricultural products
through Arizona Grown promotions. To determine the extent to
which the Department fulfills these requirements, several meth-ods
were used, including:
n Examining several academic studies of commodity pro-grams,
literature regarding agriculture promotion programs,
and material from national agriculture organizations to ob-tain
information on the economic, social, and political bene-fits
and drawbacks of commodity programs, as well as to
gain information on components of effective promotional
programs;
n Reviewing the federal grant requirements of state agriculture
promotional activities and the federal mandates for “check-off”
commodity programs to obtain information on federal
requirements that aid in ensuring the most effective use of
promotional programs’ monies and activities;
n Obtaining information from 18 other states that employ
agriculture development and promotion programs in order
to compare them with Arizona’s funding and activities;1
n Evaluating program budget and expenditure documentation,
agreements with commodity councils, and joint ventures
with industry, as well as planning documents such as strate-gic
and marketing plans to obtain comprehensive informa-tion
on the Department’s monies, services, activities, and fu-ture
plans;
1 The 18 states were California, Colorado, Connecticut, Illinois, Kentucky,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana,
New Jersey, New Mexico, North Carolina, Rhode Island, South Carolina,
Tennessee, and Virginia.
Introduction and Background
6
OFFICE OF THE AUDITOR GENERAL
n Interviewing experts and others involved in the agriculture
industry and its promotion to obtain their perspective on the
benefits and drawbacks of the Department’s program. Inter-viewees
included agriculture promotion evaluators; Arizona
Department of Agriculture staff; Arizona agriculture indus-try
and retail representatives; and national agriculture coun-cil
representatives.
This report presents a finding and recommendations concerning
the need for the Department to increase Arizona Grown’s effec-tiveness
by developing a strategy for Arizona Grown promo-tions
that focuses on specialty products or processed goods, and
consumers most likely to purchase local products, supporting
those promotional projects that are in line with this strategy, and
taking greater advantage of industry funding.
This audit was conducted in accordance with government audit-ing
standards.
The Auditor General and staff express appreciation to the Direc-tor
and staff of the Department of Agriculture for their coopera-tion
and assistance throughout the audit.
7
OFFICE OF THE AUDITOR GENERAL
FINDING I REFOCUSING ARIZONA GROWN
ACTIVITIES WOULD HELP MAKE
IT MORE EFFECTIVE
As currently operated, Arizona Grown has little effect on con-sumers’
awareness of Arizona products or on their buying
preferences. Studies have found that promotional efforts like
Arizona Grown have the greatest impact when focused on
promoting specialty and processed agricultural products or
when targeted to consumers who are more likely to purchase
local products. However, Arizona Grown focuses most efforts on
products that are not unique to Arizona. The Department should
take steps to more effectively focus Arizona Grown activities,
evaluate the impact of these activities, and increase industry
contributions for these activities.
Current Promotional Efforts
Lack Key Components
Past studies of Arizona Grown and similar efforts in other states
indicate that these efforts have little effectiveness unless they are
focused in certain key ways. The key components for success
include being able to target:
n Specialty and processed products produced in the state; and
n Purchasers who are likely to be most affected by the promo-tional
efforts.
Arizona Grown does not meet these criteria. For the most part, it
promotes fresh food commodities that are produced in many
states or targets its promotional efforts to a variety of audiences.
Studies identify approaches that fail and strategies that suc-ceed—
Studies indicate that efforts such as Arizona Grown do not
automatically produce marketing successes. These studies in-clude
one that focused specifically on Arizona Grown, and
concluded that it had relatively little impact. Overcoming these
Finding I
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OFFICE OF THE AUDITOR GENERAL
limitations, the studies found, meant focusing promotional
activities in certain ways.
n Arizona Grown study—A 1998 study found that Arizona
Grown promotions have little to no effect on product sales
and only a modest effect on consumer preferences.1 Specifi-cally,
the study found that consumers were largely unaware
of Arizona Grown, that in-store promotions conducted with
state and industry monies had little to no effect on product
sales, and that these promotions had only a modest effect on
consumer preferences. One of the reasons was that the pro-motions
focused on fresh food commodities, such as lettuce,
oranges, and broccoli, that are grown in other states and coun-tries
and difficult to differentiate based on price and product
characteristics.
Follow-up discussion with one of the study’s authors indi-cated
that promotional efforts were likely to be more success-ful
if they focused on specialty and processed Arizona prod-ucts,
such as Arizona-produced salsas and wines, as well as
specific food service providers, such as “Arizona marketed”
restaurants.
n Indiana consumer analysis—A study published in April
2000 that focused on a consumer survey in Indiana reported,
“Building a brand image which effectively differenti-ates
food products by their place of origin can be a
daunting task, since the market for fresh food com-modities
(especially fruits and vegetables) is over-whelmingly
price competitive. While some producer
groups have successfully differentiated particular
commodities by their place of production (e.g., Florida
1 Olofsson, Hans, Paul M. Patterson, Timothy J. Richards, and Sharon Sass.
An Empirical Analysis of State Agricultural Product Promotions: A Case
Study of Arizona Grown. Agribusiness, 1999. 179-196.
Promotions should stress
specialty and processed, state-specific
products.
Finding I
9
OFFICE OF THE AUDITOR GENERAL
Orange Juice, California Raisins, Washington Apples),
most fresh produce commodities are homogeneous
and compete primarily on price and easily perceptible
quality differences.” 1
This study noted the importance of targeting promotional ef-forts
based on consumer and product factors. It emphasized
the need for state programs to identify and target those
consumers with the highest likelihood of purchasing local
products and to promote those commodities that ensure the
largest possible return from promotional budgets. It cited the
example of New Jersey tomatoes—a commodity examined in
a different study.2 This other study found there were few
substitutes for these tomatoes and that consumer demand for
the “Jersey Fresh” tomato does not change according to price.
Identifying these types of factors contributed to New Jersey’s
successful promotion program.
n Agribusiness analysis—A 1989 analysis of state agriculture
promotional programs concluded that state commodity pro-grams
do not show clear economic impacts.3 Like the two
studies already cited, this study suggested that state-supported
market promotion programs cannot succeed
when they go against basic tenets of economic theory. It also
concluded that the most successful agriculture promotion
programs occur in states that produce specialty crops, as well
as those that promote processed products. Consequently,
commodity promotions with the most likelihood for success
are those with products that are easily distinguishable.
1 Jekanowski, Mark D., William A. Schiek, and Daniel R. Williams II.
Consumers’ Willingness to Purchase Locally Produced Agricultural
Products: An Analysis of an Indiana Survey. Agricultural and Resource
Economics Review, April 2000. 43-53.
2 A.O. Adelajo, Bromfield, R.G. and Lininger, K. Product Differentiation
and State Promotion of Farm Product. An Analysis of the Jersey Fresh
Tomato. Journal of Food Distribution Research 21(3) 73-85.
3 Halloran, John and Michael V. Martin. Should States be in the Agricul-tural
Promotion Business? Agribusiness, 1989. 65-75.
Promotions should also target
consumers who are more
likely to purchase local
products.
Finding I
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Arizona Grown approach does not center on successful strate-gies—
In contrast to the conclusions of these studies, the Depart-ment
continues to focus most of Arizona Grown’s efforts on
fresh food commodities rather than specialized Arizona prod-ucts.
Department officials estimate that during fiscal year 2000,
over 80 percent of Arizona Grown’s monies were spent on
promotional activities for fresh food commodities, such as lettuce
and broccoli. For instance, during fiscal year 2000, Arizona
Grown supported a winter vegetable promotion, a watermelon
promotion, and the “Yuma Lettuce Days.” Because such efforts
are directed at products that come from many sources and are
not unique to Arizona, they are of limited usefulness in building
consumer loyalty and increased sales.
Also in contrast to the study conclusions, the Department’s
efforts encompass a wide variety of projects with diverse goals
and purposes. For example, during fiscal year 2000, Arizona
Grown’s limited resources supported trade show promotions
ranging from an event aimed to develop economic opportunities
with Dutch greenhouse companies, to a conference for farmers
who directly market their products. Likewise, the Department’s
commodity-based promotions varied from distributing 300 free
watermelons and related informational materials, to a newslet-ter
publication that supplied information about harvested dates
to more than 500 consumers. In all, the efforts were spread across
trade shows, media exposure, conferences, agriculture informa-tional
materials, retail product promotions, and agriculture
festivals.
The Department Should Improve
Arizona Grown’s Project Management
The Department should take several steps to increase the effec-tiveness
of Arizona Grown efforts.
n First, the Department should develop a strategy for Arizona
Grown promotions that includes a focus on specialty or
processed goods and identifies and targets consumers most
likely to purchase local products. Furthermore, the Depart-ment
should seek to support projects that are in line with this
strategy.
Finding I
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OFFICE OF THE AUDITOR GENERAL
n Second, the Department should assess the impact of these
projects by developing processes to measure individual pro-ject
effectiveness.
n Finally, the Department should take steps to increase the
available monies for promotional activities by taking advan-tage
of additional industry-provided funding.
The Department should reevaluate Arizona Grown’s focus—The
Department can improve the management of Arizona Grown’s
promotional activities by continuing to develop specific areas of
focus for these activities. While Department officials indicate that
they have developed strategies for focusing Arizona Grown
activities on retail and media-related efforts, these strategies do
not include an emphasis on targeting specialty and processed
products, or focusing on consumers likely to be affected by
promotional efforts. Although the Department has taken initial
steps in developing a “Pride of Arizona” logo to distinguish the
promotion of processed products, few promotional activities
focus on processed products.
The Department should then add guidelines to its joint venture
application system that reflect these strategies. The Department
recently developed and implemented a joint venture application
process that includes guidelines for the selection of promotional
projects. While these guidelines require industry groups to
submit applications that describe the objectives of the proposed
activity, the economic development potential of the activity, and
the desired target market, these guidelines do not include an
emphasis on strategies targeting specialty products or customers
more likely to purchase local products. Expanding the guidelines
within the application process to include project selection criteria
will help ensure that proposed projects are aligned with these
strategies developed for Arizona Grown. Also, by adopting these
additional project selection criteria, the Department would have
a way to decide which project applications represent the best use
of the State’s money.
The Department should measure Arizona Grown’s effective-ness—
To ensure projects selected for funding have a demonstra-ble
impact, the Department should measure the effectiveness of
its promotional activities. Experts note that examining pre- and
post-sales figures from retail promotions is an effective way to
Department should focus
activities on specialty Ari-zona
products and processed
foods.
Finding I
12
OFFICE OF THE AUDITOR GENERAL
measure the rate of return on the State’s investments. Addition-ally,
providing feedback on promotional projects not only meas-ures
the impact of these projects, but suggests which activities
might be beneficial in the future. Currently, however, the De-partment
does not require that its promotional activities include
provisions for measuring outcomes. As a result, the Department
participates in projects with only a limited understanding of how
effective they are.
During fiscal year 2000, only one Arizona Grown project in-cluded
provisions for measuring its effect on sales. In this case,
the industry contributor, the National Pork Producers’ Council,
requires any project it funds to have an evaluation component.
The $12,000 project included $9,000 for a media campaign and
increased retail sales of Arizona pork in participating stores by
approximately 43 percent during the promotion.
The Department should require grant recipients to evaluate the
impact of their promotional efforts. Specifically, each grant
proposal should include a requirement for the industry partici-pant
to measure the project’s effectiveness. These evaluations
could assess product sales before, during, and after a promotion
or measure a promotion’s impact upon consumer awareness.
However, the Department should place the evaluation compo-nent
of each grant in the context of the proposal’s size. Complex
evaluation requirements should not be required for promotional
projects with minimal funding.
Other states look for the presence of an industry evaluation
when they decide which projects to fund. The manager of the
“Minnesota Grown” program considers the presence of an
evaluation component a major factor in deciding whether to
dedicate state funds to a project. Likewise, North Carolina re-quests
that project participants report percentage growths for
promotions and considers the evaluation of its activities a key
program component.
The Department should effectively use industry funds—Finally,
the Department should also increase available funding for Ari-zona
Grown projects by taking advantage of additional funding
that industry could contribute. Currently, the Department
matches every $0.50 contribution from industry with one dollar
from its Arizona Grown fund. The Legislature appropriates
Department should require
evaluations for projects using
large amounts of state
monies.
Department should take steps
to increase industry contribu-tions.
Finding I
13
OFFICE OF THE AUDITOR GENERAL
monies for Arizona Grown to support joint ventures with the
private sector and requires that each dollar expended by the
Department be matched by at least $0.50 from industry.1 Our
legal counsel, Joint Legislative Budget Committee (JLBC) staff,
and Legislative Council staff interpret this requirement to outline
a minimum industry contribution for Arizona Grown projects, a
requirement that does not preclude industry from contributing
additional monies. However, based on its Attorney General
representative’s advice, the Department has concluded that this
provision means that it must pay two-thirds of every project. As
a result, the Department has declined significant industry contri-butions.
For example, during fiscal year 2000, an industry repre-sentative
proposed contributing $3,000 toward a project to
promote a quality assurance program for Arizona beef. How-ever,
the Department limited industry’s contribution to $2,000
because it had only $4,000 available.
Therefore, to increase funding for Arizona Grown activities, the
Department should use its Arizona Grown matching funds in a
manner that does not restrict industry contributions. Addition-ally,
the Department should more efficiently leverage state
monies through its joint venture application system by possibly
requiring a higher minimum level of industry contributions and
favoring those proposals that contain more significant industry
participation. Specifically, other states set higher minimum
matching amounts for industry contributions in order to more
effectively use state monies. For example, both Massachusetts
and New Jersey require participants to match or exceed the
amount of the grant being requested. Additionally, Montana
requires a minimum 1:1 applicant funding match for all projects,
while proposed projects with contributions exceeding the 1:1
level may have an advantage in being selected.
To facilitate compliance with the original intent of the Arizona
Grown matching funds and begin seeking additional industry
contributions for this current fiscal year, the Department might
1 General Appropriations Act footnote. “Of the Operating Lump Sum
appropriation in FY 2000 and FY 2001, the sum of $50,000 is appropriated in
both fiscal years for the Arizona Grown Promotion Program. Every dollar ex-pended
by the Department of Agriculture for the Arizona Grown Program shall
be matched by $0.50 in contributions from the private sector. Any unmatched
monies revert to the state General Fund.”
Finding I
14
OFFICE OF THE AUDITOR GENERAL
consider soliciting a formal opinion on the General Appropria-tions
Act footnote from the Attorney General’s Office. Addition-ally,
the JLBC should consider further clarifying the footnote in
the next appropriations bill by specifying that the private sector
should contribute a minimum of $0.50 for every dollar expended
by the Department.
Finding I
15
OFFICE OF THE AUDITOR GENERAL
Recommendations
1. The Department should develop strategies for its agricultural
promotional and/or developmental activities that include a
focus on specialty Arizona products and processed foods;
and targets consumers most likely to purchase local prod-ucts.
2. Within its joint venture application system, the Department
should establish additional criteria for project consideration
that reflect the strategies developed for Arizona Grown pro-motional
activities and seek to support projects that meet this
criteria.
3. The Department should require that promotional projects
include provisions for assessing and measuring the project’s
results.
4. The Department should increase industry contributions to
Arizona Grown by correctly matching and leveraging ap-propriated
Arizona Grown monies. The Department should
change its practice for matching industry contributions so
that the industry contribution of $.50 for every $1 from the
Arizona Grown fund is considered as a minimum contribu-tion
rather than a fixed amount.
a. To facilitate implementation of this recommendation, the
Department should consider soliciting a formal opinion
on the General Appropriations Act footnote governing
the expenditure of state monies for Arizona Grown pro-motional
activities from the Attorney General’s Office.
b. The Joint Legislative Budget Committee staff should con-sider
revising the footnote to future appropriations bills
to specify that the private sector contribute a minimum of
$0.50 for every dollar expended by the Department.
5. The Department should incorporate criteria into its joint
venture application system that emphasize the selection of
projects with larger industry contributions.
16
OFFICE OF THE AUDITOR GENERAL
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OFFICE OF THE AUDITOR GENERAL
Agency Response
OFFICE OF THE AUDITOR GENERAL
(This Page Intentionally Left Blank)
September 12, 2000
The Honorable Debra K. Davenport
Auditor General
Office of the Auditor General
2910 North 44th Street, Suite 410
Phoenix, Arizona 85018
Dear Ms. Davenport:
Enclosed is the Arizona Department of Agriculture’s response to the Office of Commodity
Development and Promotion audit.
We extend our appreciation to the audit team for their professionalism and attention to detail. I
certainly appreciate their willingness to seek out the Department’s input and clarification of
some of the issues identified in this report.
Sincerely,
Sheldon R. Jones
Director
AUDITOR GENERAL’S RECOMMENDATIONS
AGENCY RESPONSE
Overview:
The Arizona Department of Agriculture would like to thank the Auditor General’s staff for the
professional manner in which the audit was performed.
We believe the Department, while it continues to identify methods of improving its delivery of service to
Arizona’s growing agricultural industry and the public as a whole, is a good example of how government
should strive to work. We take very seriously our mission and our charge to regulate and support Arizona
agriculture in manner that promotes farming, ranching and agribusiness while protecting consumers and
natural resources.
While this cabinet level agency was created only ten years ago, to serve and regulate Arizona’s
agriculture industry, a number of things have and continue to change about the industry we serve.
Foremost is the changing face of our customers, which reflects the industry as a whole. Arizona is
internationally renowned for its diverse agricultural production. From artichokes to cattle, cotton and
citrus to shrimp and watermelons, Arizona is continuously increasing its agricultural diversity. It is
entirely fascinating to observe the customers that call on us every day. The Department is constantly
asked to service more than the program crops of wheat, cattle, cotton and dairy. Ten years ago, the
aquaculture, ratite, custom slaughter, wine and massive nursery industry did not exist as they do today.
Because of the changing face of our customers and the public’s demands for faster, more efficient service,
the Department recognizes more must be done to meet the challenges we face today and those we will
face in the future.
The Department appreciates the attention the Auditor General’s staff has paid to the unique
responsibilities and critical functions of the Office of Commodity Development and Promotion. As the
report only highlights, the program maintains an award-winning international trade export unit in addition
to the domestic marketing efforts of the highly documented Arizona Grown program.
It is disappointing that this report finds that the Department’s promotion efforts are too focused on
marketing fresh commodities. If the overwhelming amount of agricultural products produced in Arizona
were not fresh commodities, which they are, then perhaps the Auditor General’s finding would have more
practical merit. Unfortunately that is not the case and the Department is placed in a position where it
cannot agree to provide priority marketing assistance to a few processed-good companies over the
thousands of growers who secure Arizona’s place as a leading fresh commodity state. When the
paradigm shifts, and Arizona begins producing more processed or value-added products than fresh, bulk
commodities, the Department will see to it that Arizona Grown promotions reflect the shift
proportionately and consistently.
Finding: Refocusing Arizona Grown Activities Would Help Make It More
Effective
Recommendation I: The Department should develop strategies for its agricultural
promotional and/or developmental activities that include a focus on
specialty Arizona products and processed foods; and targets
consumers most likely to purchase local food products.
Agency Response: The finding of the Auditor General is not agreed to and the audit
recommendation will not be implemented.
Agency Explanation:
The Department agrees that its strategies to target consumers most likely to purchase local
products warrant further improvements and will soon be amended to more adequately measure
the performance of its promotions. It is important to note, however that the “Arizona Grown”
study the audit team refers to throughout this report found that 76% of the consumers surveyed
“indicated that they would prefer a product grown in Arizona, expressing the belief that these
products would be fresher or of higher quality.” Further, the report finds that Arizonans living in
metropolitan Phoenix are likely to purchase locally grown products. Based upon that empirical
study, the Department believes its branded logo program is already targeted toward a “willing”
market. The chore we face is increasing the public’s recognition of the Arizona Grown logo.
Also, the Department thoroughly disagrees with the report’s suggestion to redirect Arizona
Grown promotional activities to showcase Arizona products and processed foods that are
“unique” to Arizona. Such a suggestion suggests that the entirety of Arizona’s $6.3 billion
agriculture industry is not worth showcasing. Further, the report mistakenly asserts that products
like wine and salsa are unique to Arizona when they are, in fact, not unique at all. The
Department will not allow itself to be placed in a position to pick and choose generally which
commodities or products warrant promotion. Such selectivity would appear random and
discriminatory to the 2,000+ producers in this State.
Recommendation II: Within its joint venture application system, the Department should
establish additional criteria for project consideration that reflect the
strategies developed for Arizona Grown promotional activities and
seek to support projects that meet this criteria.
Agency Response: The finding of the Auditor General is not agreed to but the audit
recommendation will be implemented.
Agency Explanation:
Again, the Department disagrees to the finding. However, with respect to the recommendation,
the Department has already proposed to the auditors its plans to implement the joint venture
system as a competitive method to select Arizona Grown promotions. As this is the case, fixed
criteria is being created pursuant to R3-6-202 and will reflect the goals and strategic direction of
the Department’s marketing efforts.
Recommendation III: The Department should require that promotional projects include
provisions for assessing and measuring the results of the project.
Agency Response: The finding of the Auditor General is not agreed to and the audit
recommendation will be implemented pursuant to the existing
Administrative Rule.
Agency Explanation:
Again, the Department disagrees to the finding. However, with respect to the recommendation,
the Department has already proposed to the auditors its plans to implement a grant application
system. As this is the case, fixed criteria is being created pursuant to R3-6-202 and will, of
course, require that promotional projects include sufficient performance measures.
Recommendation IV: The Department should increase industry contributions by correctly
matching and leveraging appropriated Arizona Grown monies. The
Department should change its practice for matching industry
contributions so that the industry contribution of $.50 for every $1
from the Arizona Grown fund is considered as a minimum
contribution rather than a fixed amount.
a. To facilitate implementation of this recommendation, the
Department should consider soliciting a formal opinion on the
General Appropriations Act footnote governing the expenditure
of state monies for Arizona Grown promotional activities from
the Attorney General’s Office.
b. The Joint Legislative Budget Committee staff should consider
revising the footnote to future appropriations bills to specify
that the private sector contribute a minimum of $0.50 for every
dollar expended by the Department.
Agency Response: The finding of the Auditor General is not agreed to and the audit
recommendation will not be implemented.
Agency Explanation:
Again, the Department disagrees to the finding and the recommendation because it inaccurately
states the Department has discretion in the manner through which it appropriates Arizona Grown
funds. While the Auditor General’s staff attorney opined that the Department’s allocation of
Arizona Grown funds is subjective, the Department has been advised by its attorneys (two
Assistant Attorney Generals) that the General Appropriations Act footnote mandates the
Department to assign one dollar for every $0.50 contributed by the private sector.
The Department agrees that the appropriation could be stretched further if a 2-to-1 ratio of
matching funds was not required. The statute, in this case, however does not at all state, imply or
infer that the $0.50 private sector contribution for every $1 from the Arizona Grown fund is, as
the Auditor General believes, a “minimum” contribution. The language provided to the
Legislature from the Joint Legislative Budget Committee is quite clear, and we see no need to
seek a formal opinion from the Attorney General’s office.
Recommendation V: The Department should incorporate criteria into its grant application
system that emphasize the selection of projects with larger industry
contributions.
Agency Response: The finding of the Auditor General is not agreed and the audit
recommendation will not be implemented.
Agency Explanation:
Unless the language in specifying the matching funds for the Arizona Grown fund is changed to
reflect that a 2-to-1 ration need not be maintained, the Department of Agriculture cannot
incorporate criteria into its grant application system that emphasizes the selection of projects
with larger industry contributions.
Should the Legislature revise the statute governing the Arizona Grown fund to reflect the
Auditor General’s opinion, the Department will develop criteria that is consistent with the new
mandate.
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99-17 Department of Health Services’
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A+B Bidding
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00-4 Family Builders Pilot Program
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00-7 Department of Public Safety—
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Program and Non-Food Product
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State Agricultural Laboratory
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Arizona Department of Agriculture—Sunset Factors
Arizona Department of Agriculture—Pesticide Compliance and
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