Last month I discussed the ways economists attempt to study changes in beef demand. Over at meatingplace.com, Mack Graves delves into the issue and questions why chicken demand has risen at a faster pace over the past several decades compared to beef. He writes.
“A recent study of beef demand by Glynn Tonsor and Ted Schroeder of Kansas State University published on Feb. 3, 2017 showed beef demand rising from an index of 75 (1990 = 100) in 2010 to 93 in 2015. That’s a gain of 18 points in five years! However, the 75 index in 2010 was the lowest value in the 25 year period.
For some perspective, the chicken demand index rose from slightly more than 100 in January of 2011 to about 112 in October of 2016 although it had reached a high of 128 in late 2015. ”
Graves' diagnosis as to why chicken demand has fared better than beef demand?
“Analyzing chicken’s success starts with one word—fat. There is no question that the science community with its study after study deploring the saturated fat in beef was a kick starter for chicken consumption. All the fast food chains jumped on this bandwagon led by McDonald’s with their chicken McNuggets. ”
I suspect he's partially right. Fat concerns probably explain part of the decline in the 1980s and early 1990s. But, there is another major part of the story: relative prices.
If beef and chicken are demand substitutes, then a fall in the the price of chicken will cause people to substitute away from beef toward the lower priced chicken. This will result in a fall in the beef demand index (or at least make the index smaller than it would have been otherwise).
So, what's happened to the retail price of chicken compared to beef since the 1970's? Here's the retail price of beef divided by the price of chicken according to USDA data.
In the early 1970's, a pound of beef was about 2.5 times more expensive than a pound of chicken, and this figure trended upward over time. Today, beef is over 4 times more expensive than chicken.
The lesson here is that increased efficiency of chicken production, resulting in lower relative chicken prices, has led to an increase in chicken consumption and reduction in beef demand.