Beef Demand: Recent Determinants and Future Drivers

Beef Demand: Recent Determinants and Future Drivers

Prepared forthe Cattlemen’s Beef Board

Prepared by:

Ted Schroeder

Kansas State University

Glynn Tonsor

Kansas State University

and

James Mintert

Purdue University

April 30, 2013

Acknowledgements: We gratefully acknowledge the Cattlemen’s Beef Board for providing funding to support this project. Thanks to Courtney Kalous, Cattlemen’s Beef Board, for coordinating this study and assisting in providing timely data and information as requested. We thank Shelby Hill who helped with the past literature summarization. We are indebted to a selected group of research and industry beef demand experts who took the time to complete a survey that is an important component of this research. This study benefitted tremendously from thebeef demand experts who were willing to share their thoughts on factors driving future beef demand. All opinions presented in this study are solely those of the authors.

Chapter 1: Summary Report

Background

Consumer demand for beef is one of the most important and widely discussed,yet poorly understood,concepts affecting the beef and cattle industry. Difficulty in understanding demand originates from fundamental misunderstandings of demand,but also arises because of the complexity of consumer beef demand determinants. Past studies haverigorously estimated various beef demand models to quantify consumer preferences for beef. More recently,retail groceryscanner data is beinganalyzed to learn moreabout consumers purchasing decisions and almost weekly new surveys regarding particular consumer sentiments or shopping habits related to the meat industry surface in the media. So much information and data is present that assessing the relative importance of all this new information to monitor and project consumer demand for beef is daunting, to say the least. Yet, because of the importance of beef demand for industry prosperity, it is imperative that the beef industry recognize what drives consumer demand, what expectations are for the future,and assess the industry’s ability to adjust practices to target evolving consumer preferences or to influence important demand determinants.

The purpose of this study is to summarize current knowledge of consumer demand for beef and identify the best opportunities for the industry to positively influence beef demand. Moreover, this study was undertaken to provide the Cattlemen’s Beef Board with information useful in identifying and prioritizing strategies to enhance future US consumer demand for beef.

This report is comprised of several chapters. This first chapter provides the overall summary and recommendations for the entire project.The other chapters of the report detail individual segments of the project to provide depth on specific information that we collected and analysis we completed. In particular,Chapter 2 summarizes our analysis of previous consumer beef product attribute preference ranking studies;Chapter 3 provides results of a consumer survey we completed;Chapter 4 contains details of our expert survey about demand determinants; and Chapter 5is provided to clarify demand concepts and highlight resources available to producers from the study.Chapter 6 provides an update of how external macroeconomic factors have influenced beef demand in recent years.

Objectives

The principal objectives of this project are to provide an assessment of major domestic beef demand determinants and identify key demand drivers on the horizon that will shape future demand for beef. Emphasis is placed on assessing factors affecting beef demand that the beef industry can actually influence so that future demand enhancement efforts can be targeted effectively.

Specific objectives include:

1. Provide a synthesis of beef demand determinants from published research. A large body of research has been published recently evaluating an array of factors impacting beef demand. Many methods have been used to quantify various demand determinants including traditional econometric modeling, scanner data analyses, panel diary data investigations, consumer surveys, and consumer experiments. This review and synthesis providesa comprehensive picture of domestic beef demand determinants from past research.

1. Identify evolving factors expected to influencebeef demand in the future. Drawing upon on-going research,the project investigators have been analyzing we address unanswered economic questions to guide future research. This work includes projects assessing economic aspects of retail beef pricing, ground beef demand, food safety, animal welfare, and origin labeling in the beef industry, providing the project team a unique ability to elaborate on developing demand drivers.

1. Combine information garnered frompast and new research to identifyevolving factors likely to impact demand in the future. An assessment of key future beef demand drivers is provided to help the beef industry develop plans and prioritize strategies to boost beefdemand.

1. Provide recommendations to the beef industry on potential demand enhancement strategies that appear most likely to be successful.

Procedure

To accomplish the objectives of this project we undertook a series of activities to compile, collect, and add to the body of information regarding beef demand drivers. Our approach to information collection was as follows:

1. To collect and analyze the published literature on beef demand drivers and consumer preferences. The idea here was to synthesize what we know from past research to determine what is known that is most germane for understanding beef demand, summarize this information, and determine what could be generalized from this research. This section of the study examined selected studies published since 2000 and as such, by definition, is somewhat backward looking at what consumers have indicatedare there preferences inpublished studies completed over the past 14 years. The details of this effort are presented in Chapter 2 of this report.

1. To complete a consumer survey ranking preferences for a broad set of demand determinants. The purpose of this survey was to characterize a current snapshot of what consumers indicate are important drivers of their beef purchasing decisions. The survey was completed exploring consumer preferences for ground beef and steak as separate products to discern similarities and differences. The survey was completed in April 2013 with 975 respondents (488 for ground beef and 487 for steak). Detailed results of the surveys are provided in Chapter 3.

1. To complete a survey of experts to determine what academic, industry, and government researchers and analysts collectively perceive as the forward-looking beef determinants and of the ability of the industry to influence key drivers in the future. The expert survey was considered a particularly novel and powerful way to synthesize what the most informed experts who are studying and analyzing demand drivers, associated technology, and the industry believe to be the most influential future beef demand determinants. We consider this segment of the study to be a forward looking cornerstone by which we compare and contrast with the previous research and the consumer survey results. Overall, we had complete responses from 159 experts providing a rich set of information from a very knowledgeable group. Detailed results of this survey are presented in Chapter 4.

1. To provide a set of recommendations from this combined body of work we conducted to help guide the beef industry in demand enhancement efforts.

1. To provide a set of topics we believe would be valuable for future research and analysis to help design and assess strategies adopted to enhance beef demand.

1. To make a set of materials available to producers summarizing the purpose, findings, and implications of this project. These materials will be available and placed together as a package on a single web site accessible to producers similar to related beef demand resources noted in Chapter 5.

After careful review of past research, and to facilitate summarization of the large number of potential demand drivers present, we elected to broadly categorize beef demand determinants (or quantity demanded in the case of Price) into 7 broad categories:

1. Price
2. Product Quality and Form
3. Nutrition
4. Health
5. Food Safety
6. Social Aspects
7. Sustainability Aspects

These 7 broad factors enable us to categorize every beef demand determinant that we have encountered in the literature and the media. Of course, any specific demand driver may arguably fit under more than one broad category. For illustration and to show more specifically what specific types of beef demand factors we categorize under each of these 7 broad factors, Table 1 provides a listing of factors that we placed into each broad category.

Table 1. Examples of Specific Beef Quantity Demand Drivers Associated with Each of the Seven Broad Categories.
Price
Price per pound / Health
Amount of Fat
Food Safety / Type of Fat
E.coli / Cholesterol
Salmonella / Arteriosclerosis
Listeria / Carcinogenic
Campylobacter / Sodium
BSE / Calorie
Product Quality and Form / Social Aspects
Taste / Animal Welfare
Juiciness / Small Farm
Consistency / Local
Package/Portion Size / Country of Origin
Color/Appearance / Cloning
Freshness/Shelf Life / Natural or Organic
Prep Ease/Convenience / Antibiotics
Tenderness / Growth Promotants
Nutrition / Sustainability Aspects
Protein / Environment
Iron / Community
Zinc / Labor
Carbohydrate / Efficiency
Other Nutrients / Profitability

Synthesized Results

Here we provide a summary of key points we have gleaned from the analysis of past literature, the consumer survey, and the expert survey. We focus on both similarities and divergence of findings across these sources of information to provide the clearest picture of demand drivers and identify opportunities for industry to most influence beef demand going forward.

Before we present our findings, we cannot emphasize enough some important issues that must be kept in mind as we interpret results and draw associated inferences. First, consumers are diverse. The United States has a disparate population varying widely by factors that clearly associate with divergentbeef preferences and demand including gender, age, ethnicity, economic status, lifestyle, and other socio-economic attributes. Because of this immense diversity, consumer preferences for beef are heterogeneous, not all that dissimilar from our varied preferences for other things such as different styles of music or alternative leisure activities. One size does not fit all and perfectly rational and informed people rank beef product preferences differently. This heterogeneity is also noted in the “tale of two consumers” outlined in the 2013 Power of Meat report and the identification of different population segments (e.g. “Socially Conscious Moderate Beef Eaters” and “Active Skeptics”) in the ongoing Consumer Image Index. This must be kept in mind, because it creates challenges in generalizing at least some conclusions, though not necessarily all of them (more on this later).

Second, when reviewing previous research, as well as our own surveys conducted for this study,it’s important to recognize that study design and study results are not entirely independent. Even the choice of topics studied,by their nature, influence people’s perceptions and impact how they respond to surveys. Furthermore, all studies have weaknesses and omissions that require careful scrutiny because they impact the findings. As seen in the various results presented here, there is not a consensus across studies, let alone across individual participants within a study, on important results. Sorting out what can be generalized and what the diversity of perceptions implies, however, is valuable because conclusions do not necessarily fit all consumers.Given that caveat, it is important to recognizethat, where there is consistency across the information sources we evaluate (prior published studies, our consumer survey, and the expert survey) the findings are very robust.

Table 2 provides a ranked summary of beef demand driver importance from aggregated product attributes across previous preference studies, our consumer surveys, and our expert surveys. Several important factors arise as consistently among the most important drivers of per capita consumption of beef and beef demand. First, Price is well known as an important determinant of per capita consumption (or in economists’ terms, quantity demanded). All of the information sources indicate price is among the most important consumption determinants. The lowest rank Pricereceived was in our consumer survey,where it ranked third. The rest of the broad determinants, aside from Price, presented in Table 2 are demand shifters. That is, they directly impact the level of demand (as opposed to Price, which simply provides movement along a demand curve). Food Safety and Product Quality are consistently the top two demand shifters for both ground beef and steak with Healthrankingthird among demand shifters for both products.

Equally important in Table 2 is the observation that Social Aspects and Sustainabilityare consistently among the lowest ranked demand shifters, across all information sources. These factors are receiving considerable attention in the news, they have captured a large proportion of recentresearch interest, they are high in the list of public policy debates, and they have become a focus of attention within the beef industry. Yet, despite all this attention, these factors are not currently important aggregate demand shifters. Although our research does not indicate these issues are unimportant, in part because ignoring themcould result in substantial cost burdens being placed upon the industry, the take home message is investing the industry’s limited resources into shifting consumer demand by boosting beef’s Social or Sustainability product attributes is not likely tonoticeably enhance aggregate beef demand. But as we discuss below, this does not imply that these issues should be dismissed entirely or ignored.

Table 2. Summary Comparison of Product Attribute Rankings Across Information Sources, Ground Beef and Steak
Beef / Ground Beef / Steak
Preference / Consumer / Expert / Consumer / Expert
Rank / Studies / Survey / Survey / Survey / Survey
1 / Food Safety / Food Safety / Price / Food Safety / Price
2 / Price / Product Quality / Food Safety / Product Quality / Product Quality
3 / Health / Price / Product Quality / Price / Food Safety
4 / Product Quality / Health / Health / Health / Health
5 / Sustainability / Nutrition / Nutrition / Nutrition / Nutrition
6 / Social Aspects / Social Aspects / Sustainability / Social Aspects / Social Aspects
7 / Nutrition / Sustainability / Social Aspects / Sustainability / Sustainability

The rankings of the broad categories provide essential information for understanding the major demand drivers. However, it is important to recognize the diversity among consumers. This means that although the aggregate ranking across all consumers of some attributes is low, there are some consumers that rank these attributes quite high in their preference ordering. For example, some consumers and some experts rank Health highest in beef demand preference importance rankings even though it is, on average,ranked approximately fourth among the 7 broad categories of demand determinants. This indicates that across individual consumers(and possibly groups of consumers) and experts, the rankings in Table 2 can and do differ. As a result, developing messages or product offerings focused on specific attributes to targeted groups of consumers could be beneficial. Moreover, while we placed individual issues into a sole category, alternative categorization could certainly have been applied. This ability for an attribute or issue to fall into multiple categories is common as reflected in the “article hits” allocation process used in the Beef Issues Quarterly(BIQ) ongoingmedia analysis. For instance, articles on finely textured beef are categorized in BIQ as food safety articles but could have been placed in the marketing, economics, or production categories. We will focus on this more as we summarize individual product attribute rankings that comprise the broad categories later in this summary report.

As important as it is for the beef industry to understand the ranking of various broad product attributes in beef demand, appreciation is also needed regarding which attributes can be influenced most effectively by the industry to enhance demand. To see this more clearly, consider one broad category of demand shifters, Food Safety. Food Safetyis clearly an important beef demand shifter. However, if the industry has limited ability to either improve beef safety, or to improve consumer perceptions of beef safety, investing the industry’s limited resources in this area would have little impact on consumer demand for beef. Alternatively, if the industry can improve beef safety via investment in new technology or food safety enhancing interventions in beef production, processing, handling, or preparation, or if the industry can improve consumer perceptions of beef safety (or both), then making a strategic investment in the Food Safety area could have a significant positive impact on beef demand. To further assess the feasibility of positively influencing beef demand via the broad categories of demand shifters, we surveyed experts to garner their opinions regarding the industry’s ability to influence these factors. To our knowledge, this is the first study that has gathered this important information from a group of beef demand experts.

Table 3 summarizes the expert survey respondent perceptions regarding the industry’s ability to influence the broad set of beef demand factors to impact demand. For both ground beef and steak, by a wide margin, Product Quality and Food Safety are ranked as the factors the industry can most feasibly improve upon to increase beef demand in the next 10 years. For Product Quality, 89% of steak and 64% of ground beef expert survey respondents indicated the industry has either a strong or very strong ability to increase beef demand by improving quality. Similarly, for Food Safety, 63% of steak and 59% of ground beef expert survey respondents believethe industry has either a strong or very strong ability to increase beef demand via improvements in the food safety arena.

For the remaining broad demand factors, there was much less consensus among experts regarding the industry’s ability to address the potential demand shifters in ways that noticeably improve demand for beef.For example, on average, experts responses tended to range between marginal inability and marginal ability of the industry to improve beef demand viathe Health, Price, Sustainability, Social, Health, and Nutritioncategories although, as discussed below, this varies somewhat for individual attributes within these broad categories.