Grading Error in the California Prune Industry

Food demand in the U.S. is rather stable. As their incomes rise, most people do not consume more food; rather, they eat better, higher-quality foods. Thus, the quality dimension of the U.S. food industry has become increasingly important. The most successful growers and marketers have been those who are consistently able to provide high-quality products to consumers. Grading of farm commodities is one way for the food industry to encourage production of high-quality products, since prices will vary according to grade. In the absence of grades, products of various quality levels are pooled and receive a common price based on the average quality. This discourages growers from adopting the costly production practices necessary to increase quality. Unfortunately, grading is almost never done perfectly. Grading errors can emerge both as a consequence of sampling errors and from imperfect testing. In a recent study, we showed that grading with error can result in the same problems caused by the absence of grades, namely reduced incentive to produce high quality. California produces nearly all U.S. prunes and about 70% of the world’s supply. Size is the main quality criterion for dried prunes and is the crucial characteristic in determining prune value. Official grading is done by the Dried Fruit Association (DFA), for purposes of determining payments to growers, based on a 40-lb. sample collected at the time the prunes are graded by the processor. Prunes are graded by size into one of five categories, A (largest) through D (smallest) and U (undersized), and growers are paid based on a separate price negotiated for each grade, with the U grade valued at zero. The largest prunes can be sold in gourmet retail packs at a premium price. Moderately large prunes can be pitted and sold as pitted prunes, while the smallest prunes are useful only for juice, paste and other industrial products and sell for a lower price per pound. Industry participants often complain of an “oversupply” of small prunes. Prune size may be enhanced through cultural practices, such as pruning, shaker thinning and delaying harvest. Field sizing may also be used to eliminate the smallest prunes and to avoid incurring the cost of handling them. Growers have been encouraged to adopt these practices, with limited success to date. Our study looks at the extent to which grading errors reduce the profitability of such practices. Figure 1 represents the grader used for California prunes. As the figure suggests, small prunes may not fall into their designated screen and may, instead, travel on to screens for larger prunes, but large prunes cannot fall into the categories designated for smaller prunes. Thus, a portion of lower-quality prunes receives a higher-quality ranking, but the reverse cannot occur.