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Turkey Prices

It’s almost Thanksgiving. That means its time for the annual news stories on trends in turkey prices. I put out a story a week or so ago that has been picked up in a number of print, radio, and TV spots. The headline is that this November’s turkey prices are expected to be at a 10 year low.

For a bit of background and context, this claim is based on average price data reported by the Bureau of Labor Statistics (BLS). These data are collected as a part of the BLS’s effort to construct the consumer price index (CPI) and monitor inflation. Here is a graph of inflation-adjusted retail prices for frozen turkey for the past eleven years in the months of October, November, and December.

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The blue line represents November prices (we don’t yet know the 2018 November’s price, so it is foretasted based on past price movements). This year’s November price is expected to be around $1.45/lb, which is about 22% lower than the peak in 2013 and about 6% lower than back in 2008.

A couple comments based on the above graph. Interestingly, prices tend to fall from October to November. On average during the past 10 years, November prices are about 8% lower than October prices. At first blush, this might seem a bit strange. Doesn’t demand for turkey increase during thanksgiving, which should drive up turkey prices? Yes, but other factors are also at play. For one, retailers may strategically cut the price of turkey to get people in the door to buy the rest of their thanksgiving meal - i.e., turkey is potentially a “loss leader.” Second, producers expect the demand shift and produce more birds around the holiday. Here is a figure from the Livestock Marketing Information Center (LMIC) based on USDA data. As you can see, turkey production tends to peak each year in November.

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I should note that the American Farm Bureau puts out an annual cost of Thanksgiving, and their estimates are for prices to be down this year as well. The USDA Economic Research Service estimates overall food price inflation and they’re also projecting historically low price increases. For 2018, they forecast prices for food at home to only rise only between 0 and 1% for the year; the 20 year average is about 2.1%. Why the low food prices?

One answer is that food production in general, and turkey production in particular, has become much more productive. We get more using less. Here is data again from the LIMC and USDA showing the number of turkeys slaughtered in federally inspected facilities since 1960 alongside the calculated number of pounds produced per turkey.

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Prior to the 1970s, turkeys averaged about 15 lbs/bird, a figure that’s increased almost linearly since the 1980s up to the point now where we are over 30 lbs/bird. In fact, compared to the mid 1990’s we now have about 5 million fewer turkeys slaughtered every month even though we’re actually producing more total lbs of turkey today than in the early 1990s. Here’s total lbs of production over time.

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The other big factor driving the recent affordability of turkey and other foodstuffs is that commodity (e.g., corn, soy, wheat) prices are low and have been low for the past couple years. Of course, this can’t be the only explanation because the price of retail foodstuffs is comprised of much more than just commodities, so it must mean that the prices of other inputs like labor, energy, and packaging have also remained relatively affordable.

The Cost and Market Impacts of Slow Growth Broilers

I just finished up a new working paper (available here) with my Purdue ag econ colleague Nathan Thompson and Shawna Weimer, a soon-to-be assistant professor of poultry science at the University of Maryland.

Readers may recall my post from a couple months ago on consumer demand for slow-growth chickens. This new paper focuses on producer costs of switching to slow-growth broiler chicken. Here’s the motivation from the paper (references removed for readability):

While modern broilers only live about six weeks, there are concerns that the bird’s legs are unable to adequately support the larger bodyweights, leading to pain and an inability to exhibit natural behaviors. As a result of such findings, animal advocacy organizations have begun to pressure food retailers to use slower growing breeds, European regulators have encouraged slow growth broilers, national media attention has begun to focus on the issue, and some animal welfare standards and labels have begun to require slower growing broiler breeds. There has been some consumer research on demand for this attribute, but little is known about the added production costs associated with slow growth chickens.

We obtained data from commercial breeding companies on two slow growth broiler breeds (called Ranger Classic and Ranger Gold) and data on two modern fast growing breeds (called Ross 308 and Cobb 500). Here are the growth curves for the four broiler breeds:

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The two slow growth breeds are, well, slower growing. The slower-growing breeds take 54 and 59 days, respectively to reach 6 lbs, whereas the faster growing breeds both hit this target weight in about 41 days.

These growth data are combined with data on feed intake, prices, assumptions about stocking density, and more, and we calculate costs and returns under a number of different scenarios. Here are the main results for the most likely scenario where producers choose the number of days to feed broilers so as to maximize net returns and where slow growth broilers have a more generous stocking density than fast growth broilers, as dictated in many animal welfare guidelines.

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About 17.45 lbs/ft2/year (or 73%) more chicken on a dressed weight basis is provided by the two fast vs. two slow growth productions systems, on average. Thus, substantially more barn space, or square footage, would be required to produce the same volume of chicken from slow as compared to fast growth breeds. Costs of production average $0.54/lb for the two slow growth breeds and average $0.47/lb for the two fast growth breeds, implying costs are 14% higher per pound for the slower growth breeds. Fast growth breeds are substantially more profitable - generating returns about twice as high per square foot than the slower growth breeds. We calculate that the slower growth broilers would need to obtain wholesale price premiums of $0.285/lb and $0.363/lb to achieve the same profitability as the best performing fast growth breed.

We also use these estimates to calculate potential market impacts that would occur if the entire industry transitioned from fast to slow growth broiler breeds. Under the most likely scenario, we calculate that converting to slow growth breeds would increase retail chicken prices by 1.17% and reduce the amount of retail chicken sold by 0.91%, resulting in losses in producer profits of $3.5 billion/year. We also calculate that consumers would be worse off by $630 million/year, assuming their demand for chicken doesn’t change in response to the switch from slow to fast growth. Increases in consumer willingness-to-pay of 8.5% would be needed to offset the adverse effect on producer profits.

Market Impacts of GMO Labeling

Readers might recall the result from the study Jane Kolodinsky and I published in Science Advances earlier this year. We found that the provision of mandatory labels in Vermont appears to have reduced opposition to GMOs in that state. However, as I noted at the time,

Our result does NOT suggest people will suddenly support GMOs once mandatory labels are in place.

Indeed, the data suggest consumers will still want to avoid products with GMO labels, which provides incentives for food retailers and manufacturers to find ways to avoid GMO ingredients.

Colin Carter and Aleks Schaefer just published an interesting new study in the American Journal of Agricultural Economics, which powerfully shows that mandatory GMO labels are already having significant market impacts. They found a creative way to explore this issue by focusing on the market for sugar. They provide the following background:

In the United States, sugar is produced from both sugarcane and sugarbeets. Sugarcane stalks are milled to produce raw sugar. Raw cane sugar is then sent to a refining facility to be transformed into refined sugar. Sugbarbeets, in contrast, have no raw stage; they are processed from beet to refined sugar in one continuous process. The U.S. market share for beet (cane) sugar is approximately 58% (42%). Almost all U.S. sugarbeet production is GE, while cane sugar is GE-free. However, sugar derived from beets is chemically identical to sugar derived from cane.

This summary data they provide on prices of sugar from cane and beet sources suggests “something” change around the same time as the Vermont mandatory GMO labeling law.

 Source: Carter and Schaefer, American Journal of Agricultural Economics

Source: Carter and Schaefer, American Journal of Agricultural Economics

Here are the main findings.

Our analysis supports the explanation that the divergence in U.S. prices for refined cane and beet sugar was the result of Vermont’s mandatory GE labeling. The divergence occurred on or around July 2016— the month the Vermont Act took effect.

Counterfactual price estimates generated by a regression model suggest that GE food labeling initiatives generated a small premium for cane sugar and a price discount for beet sugar of approximately 13% relative to what prices would have been in the absence of such legislation.

These changes in raw ingredient prices will ultimately have impacts on retail food prices. All this is suggests that mandatory labels aren’t a free lunch.

Are Consumers Eating Out Less Frequently?

According to this Grub Street article, the answer is yes.

The average American’s restaurant visits reached a 28-year low this year, falling from an average of 215 a year in 2000 to 186 a year in 2018. Data gathered by the NPD Group shows a particular and precipitous decline since 2008. Today, 82 percent of meals in America are made at home.

And, they speculate on causes in the slow-down on restaurant spending:

Going out to restaurants doesn’t seem like such a good idea when you’re saddled with student debt and contending with wage stagnation. (In fact, many Americans saw their wages decline over the last year.)

Meanwhile, restaurants are becoming increasingly more expensive compared to eating in.

I’m a little skeptical of these data? Why? Well, here’s data from the Bureau of Economic Analysis (BEA) data on personal consumption expenditures (these are the data that feed into calculation of GDP) for food at home and away from home.

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In inflation-adjusted terms, all consumer spending is up about 36% since 2001. Spending on food at home only rose about 24% over this time periods, but spending away from home increased 54%. (I’ve also shown spending on clothing for reference). Spending on food away from home fell during the Great Recession, but it has significantly rebounded since.

Now, it’s not impossible for both of these statistics to be simultaneously true - one can eat out less frequently but spend more money on each trip, and total expenditures could still rise.

But, the BEA also reports quantity indices, which provide an estimate of the volume of food sold away from home. Here are those data. These data suggest little evidence for a slowdown in the amount of food consumed away from home.

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The headline on the Grub Street article asks “Should Restaurants be Worried?” The BEA data suggest the answer is “no.”

Slow Growth Chicken - What do Consumers Think?

What do you think about slow-growth chickens?  If you're like most people I've asked, your answer is probably "what the heck is a slow growth chicken?"  

Food retailers, however, aren't wondering because they're being asked by animal advocacy organizations to make new commitments to only buy chicken from slower-growing birds (here is the request in the EU and here is the Humane Society of the United States on the issue).

First, what is slow growth chicken?  Here's from my new paper on the topic just released by the journal Poultry Science (references omitted):

Genetic improvements have allowed poultry producers to rear broilers faster and to heavier weights than was possible in previous decades , with the result being more affordable chicken for consumers. However, some research has suggested that rapid growth may result in broilers that suffer from leg damage and pain. These ideas have recently gained traction in popular media and have led to calls for older heritage breeds of chickens, or newer slower growing chickens that are argued to be associated with improved taste and higher broiler welfare. Some research suggests little to no independent relationship between days of growth and consumer sensory evaluations of chicken , and other research suggests that slow-growing breeds are deemed less tender and less juicy than conventional chicken breeds. Nonetheless, consumer preferences for chicken may be as much affected by perceptions and labels than by actual sensory characteristics.

The new paper reports on the results of some surveys I conducted late last year with about 2,000 U.S. chicken consumers for a project funded by the Food Marketing Institute, the Animal Agriculture Alliance, and the Foundation for Food and Agricultural Research (a fuller, un-gated report of the results is here).  One of the main results is that most consumers don't know much about slow growth chickens, and as a result, positive or negative information can really sway people one way or the other.  

One group of people were given no extra information.  Another group of people received "pro" slow growth information from articles in NPR (as reported by Dan Charles) and the New York Times (as reported by Stephanie Strom), and yet another group of people received "anti" slow growth information from the National Chicken Council.

After receiving this information, consumers made a number of choices in a simulated retail environment showing packages of chicken breasts with different labels and prices.  These choices were used to back out consumers' willingness-to-pay for the slow-growth label (at present there is no widely adopted slow-growth label, so I created one myself for use in this study).  Here is the distribution of willingness-to-pay ($/lb) for slow growth and organic labels in the different information treatments.

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Some of the most interesting results related to the extreme lack of knowledge people have about broiler production in general and slow-grown in particular.  For example, here are some results when they were asked what they thought a variety of different labels implied.  

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The table shows the average beliefs about animal welfare, expense, healthfulness, safety, and taste of different labels. Without extra information, slow growth labels tended to be associated with disadvantageous beliefs. Without additional information, slow growth labels are associated with signaling the lowest safety, taste, and health of the labels considered.

Here's how I concluded the article:

Given the disadvantageous beliefs consumers hold about slow growth claims, a substantial marketing effort would likely be needed for the attribute to become a major determinant of consumer choice. Given consumers’ lack of knowledge about broiler production, simply informing consumers of already existing practices (e.g., cage free and no added hormones) could be a more cost-effective way of boosting chicken demand. That said, it is possible that the presence of hormone absence labels may exacerbate the misinformation problem by indirectly suggesting that there are some brands of chicken that use growth hormones. While organic labels are associated with positive beliefs and are valued relatively highly by consumers, organic production entails significantly higher costs in comparison to non-GMO or no antibiotic claims.

Perhaps the most significant factor explaining the increase in chicken consumption over the past several decades is price. Increases in production efficiencies have reduced chicken prices relative to the price of beef and pork. Perhaps not surprisingly then, this study also shows price to be a major determinant of choice for consumers. Nonetheless, there is a non-trivial minority of consumers who are relatively unconcerned about chicken prices, and these consumers are the target market for the label claims considered in this study.