Meat Demand in an Era of High Prices

The journal Applied Economic Perspectives and Policy just accepted a paper I've written with Glynn Tonsor, which provides new estimates of consumer demand for different meat products using what is probably one of the largest and longest-running surveys choice experiments (a survey method) to date.  

The graph below showing changes in retail meat prices from January 2010 to January 2015 is  what motivated the paper. Beef and pork prices rose dramatically over this period (note: in the past few months they've come back down) whereas chicken prices were and still are fairly stable.   The following is further motivation from the paper:

“Industry observers have expressed surprise about how consumers have responded to recent price changes (Ishmael, 2014). In particular, expenditures for beef and pork have not fallen as much as some people expected given the high prices. Industry analysts have asked “where is the tipping point” when consumers will stop buying beef and pork (Rutherford, 2014), but it may be that demand elasticities are more non-linear than previously realized. Moreover, relative price swings would have seemed to have favored chicken over beef and pork, and yet there does not seem to be a high degree of substitution in the current market environment. Such observations raise the possibility that cross-price elasticities have changed or are lower at higher price levels.”

You can read the paper for the methods.  Here I'll just highlight what we found.

First, people with different incomes choose different things.  High income consumers are more likely to choose steak and chicken breast than are low income consumers, and the opposite is the case for chicken wings, ground beef, and deli ham.  

Second, beef prices are more sensitive to changes in the price of chicken than the reverse.  Here's an illustration of that phenomenon using our estimated model for middle income consumers.

Third, and somewhat surprisingly (though consistent with industry observations over this period), the quantity of beef and pork demanded is less sensitive to price changes when prices are high as compared to when prices are low.  In econ-jargon, demand is more inelastic as prices rise.  You can see that in the graphs above, and the paper fleshes out that finding a bit more by showing the bias in models that ignore this non-linearity in demand. 

Hopefully these new estimates will help us better predict in the near future what happens when beef and pork prices fall, and will help producers better anticipate the impacts of future price hikes.

This analysis used a huge data set (110,295 choices made by 12,255 consumers) collected over a year and half long period.  This is of course from my Food Demand Survey (FooDS).  The present analysis assumed people's preferences staid the same over this period.  Up next on the research agenda is to look at how these demand estimates have been changing (or not) over time using even more data over a longer time period., and investigating whether these survey-based demand changes can forecast changes in retail meat prices.   

August FooDS - Livestock Antibiotics and Plant vs. Animal GMOs

The August 2015 edition of the Food Demand Survey (FooDS) is now out.

This month, there was a significant rise in willingness-to-pay (WTP) for all food products.  In fact, WTP for all meat products are at their highest levels since we began the survey over two years ago in May 2013.  It is unclear what is behind the price rise, but it was also matched by a rise in reported food expenditures at home and away from home.

Three new ad hoc questions were added this month.  The first was designed to test knowledge of different meat cuts, and it was suggested by David Ortega at Michigan State University.  Respondents had to match pictures of different meat cuts with the animal it came from.  By and large, consumers were able to correctly match up the cuts.  The biggest error was that 6% of people matched ham to cow.

The second question was designed to explore preferences for animal antibiotic policies being pursued by different retailers.  In particular, we asked, “A restaurant is considering different antibiotic policies related to the sourcing of their animal products. Which of the following policies would you support or oppose the restaurant implementing for the farmers who supply their animal products?”

Six statements were provided and participants to responded with "support" or "oppose." Approximately 77% of participants opposed the statement “The farmer can use antibiotics for growth promotion.” About 75% of respondents also opposed the statement ‘The farmer can use antibiotics for any purpose they deem reasonable.”

In contrast, a majority of participants supported the statements “The farmer can use antibiotics for disease prevention” and over 80% supported a policy in which “The farmer can use antibiotics to treat sick animals”.  This latter result is interesting in light of the move by many retailers' "never ever" policies regarding animal antibiotics.  

The last set of questions were designed to measured consumers support or opposition to different breeding techniques used in crop and animal agriculture.  The sample was split in two and half the respondents saw questions about crops and the other half saw questions about animals.  The following figure summarizes the results (the figure shows the wording for the crop question but the animal question was similarly worded).

In general, consumers tended to oppose all the methods mentioned.  This included traditional breeding methods.  For all issues, livestock breeding practices were less supported than crop breeding practices.  The least supported practice for both crops and livestock was transgenics - transferring genes from one species to another.  Gene editing and cysgenic technologies were only slightly more supported.  It should be noted that other research we've conducted has shown much higher levels of support if a reason (any reason) is given for why the crop breeding or genetic modification is performed.  Moreover, it may be possible that opposition to even traditional breeding methods  in this survey is a result of the wording of the question which mentioned gene movement across varieties (or breeds) and a general lack of understanding of genetic reproduction.         

Food Demand Survey (FooDS) - July 2015

The July 2015 edition of the Food Demand Survey (FooDS) is now out.  

Overall, there seemed to be a slight reduction in demand for most meat products this month compared to June as indicated by a reduction in WTP, a reduction in expectation of price increases, and a reduction in planned purchases.  Some of this might have to do with the fact that there was an uptick in planned expenditures away from home, perhaps due to vacations.

Awareness of and concern for bird flu fell this month compared to last.  In July, there was an increase in awareness and concern among those issues that tend to fall at the bottom of the scale of concern.

Several ad-hoc questions were added this month.  

Overall, respondents were generally satisfied with their lives.  They were asked:  “All things considered, how satisfied are you with your life as a whole these days? Using the scale below, where 1 means you are “completely dissatisfied’ and 10 means you are “completely satisfied”, where would you put your satisfaction with your life as a whole?”

Similar to last month, the most popular response was an 8. 

Despite that, there seemed to be some pessimism with regard to the future in general and food and agriculture in specific.  

We asked,  “If you could be born at any time when would it be?” Participants stating they would choose to be born “in the past, 50 years ago” ranked the highest of the groups
at 31.21%. This may correspond to the category which most closely matched the lag in time from which participants were actually born (i.e., they preferred to be born when they were actually born).  Only 18.1% of participants stated they would choose to be born now.  Less than 20% said they would want to be born in the future.

Participants were also asked: “Overall, when you think about the state of food and agriculture in this country, do you think . . .” About 32% of respondents stated that “things are getting a little worse” for food and agriculture in this country, while only 19% of respondents agreed that “things are getting a little better”. About 27% of respondents stated that “things are about the same as they have been”.

Finally, Brandon McFadden from the University of Florida suggested a question that is a riff off a popular internet infographic showing the number of genes affected by different plant breeding techniques.  

Participants were asked: “For each of the following plant breeding techniques, how many genes are typically altered in the process?” Consistent with the comments in my recent Washington Post interview, the vast majority most consumers do not know how many genes are affected by any plant breeding techniques. Among those who stated an opinion,” selection” ranked the highest, at 7.65%, for not having any genes altered. For selection, having 1 to 4 genes altered ranked highest amongst participants at 11.8%. Hybridization was ranked highest by 11.8% of participants for having 5 to 9 genes altered. About 9% of participants stated that 10 to 19 genes were altered using genetic modification. Genetic modification was the highest of the group of 20 more genes affected at 7.14%. 

Food Demand Survey (FooDS) - June 2015

The June 2015 edition of the Food Demand Survey (2015) is now out.

A few notable results:

• Changes in willingness to pay (WTP) for meats was mixed.  WTP for hamburger was down almost 10% but WTP for chicken wings was up almost 10%.  WTP for both steak and chicken breast was up relative to May.
• Expected food expenditures at home and away from home were down this month relative to May.
• For the third month in a row, the largest percentage jump in awareness for different food issues was for bird flu.  Moreover, this is the first time for bird flu to be ranked in the top three issues of awareness and for concern since the beginning of the survey.  There was also a rise in concern for swine flu and for mad cow.
• I asked several new ad hoc questions this month, but I'll report on these separately in the coming weeks.

Are consumers really spending more on food away from home?

A couple days ago, the Wall Street Journal ran a story that started as follows

“Retail-sales figures released by the U.S. Commerce Department garnered considerable attention last month when news reports suggested they showed Americans spent more money dining out than buying groceries for the first time ever.

Some observers jumped from there and attributed the shift to the growing clout of millennials, saying they prefer breaking bread with friends at restaurants, while sad-sack baby boomers who didn’t save enough for retirement are stuck cooking at home.

But as it turns out, reports on the decline of home cooking were half baked. They demonstrate, once again, that it is important to understand how the government compiles statistics to avoid jumping to conclusions the figures don’t support.”

I agree.

As the story points out, the government's data ignores sales from some major grocery establishments like Wal-Mart.

This is an issue we've been tracking in the Food Demand Survey (FooDS) for over two years now.  Our data from a nationally representative sample of consumers show it's not even close.   People spend a lot more money on food at home.  Here's the data from our second annual report.

Our most recent release, just a couple days ago shows at home consumption at about $96/week and away from home at about $53/week.  

Thus, our data clearly supports the conclusion drawn by Jo Craven McGinty in the WSJ:

“The government’s monthly retail-sales report provides valuable information that reveals legitimate trends, providing users understand what the numbers represent.

In this case, no matter how you slice it, spending on dining out hasn’t surpassed spending on groceries”