Where have all the cows gone?

Over past the half century or so, there has been a dramatic shift in where most of the cattle in the U.S. are feed just prior to slaughter.  Using data from USDA-NASS, I calculated the percentage of all U.S. cattle on feed that were in 6 selected states at the beginning of January each year from 1965 to 2005.

The story is familiar to industry analysts.  Over this time period, cattle largely moved from the upper Midwest (Iowa and Illinois) to drier climates in Texas, Oklahoma, and Kansas.  Whereas 19% of cattle on feed were in Iowa in 1965, the figure was only 8% by 2005; by contrast only about 5% of cattle on feed were in Texas in 1965, but around 20% were in the state by 2005.  Whereas only 47% of all US cattle on feed were in these six states in 1965, concentration had increased as 67% of all cattle were being fed out in these six states by 2005. Stated differently, if you eat a steak today, there's a roughly two-thirds chance it came from a cow that was fed in Iowa, Nebraska, Illinois, Kansas, Oklahoma, or Texas.  

The trends in the above figure might appear to be something of a paradox because Iowa, Illinois, and Nebraska grow a lot more corn (i.e., cattle food) than Kansas, Oklahoma, and Texas.  But apparently the economics were such that it made more sense to ship to corn (and the cattle) to drier climates and locations where large packing plants could be situated far away from population centers.  

I'm wondering if this trend is starting to change, even if just by a little bit.  Beginning in the early to mid 2000s, US policy started to encourage corn-ethanol production in a big way.  Now, all that corn didn't need to travel to cows, it could go to all those ethanol plants which began popping up around the upper Midwest.  Here's a graph of the percentage of U.S. corn use that went to ethanol production from 2000 to 2012 (data are from the Feed grains yearbook, USDA-ERS).

Such a dramatic shift in the use of corn must have had some effect on cattle feeding.  Perhaps even in the geographic location of cattle.  According to a least one source, the largest producers of ethanol in 2015 were Iowa (at 3,820 million gallons/year capacity), Nebraska (1,976 gallons), and Illinois (1,525 gallons).  Much further down the list were Kansas (529), Texas (381 gallons), and Oklahoma (no capacity reported).  

Often lost in the discussions of food waste is the acknowledgement that cattle (and other livestock) are often big consumers of what would otherwise be waste products.  In this case, cattle can eat so-called distillers grains that are byproducts of ethanol production.  However, this distillers grain is not as easy or cheap to transport.  Thus, the economics might have shifted a bit toward bringing the cattle back closer to their finishing food.  

Here's the same graph as the one above but for the more recent time period from 2005-2016.  

There aren't dramatic geographic shifts, but the trends are consistent with the idea that ethanol has altered the geographic location of cattle finishing. Fitting a linear trend line through each state's data over this time period indicates that the states heavy with ethanol production have gained cattle and states with relatively little ethanol production have lost cattle.  Iowa, Nebraska, and Illinois have increased their share of the US cattle on feed inventory by an average of 0.11%, 0.11%, and 0.05% per year over the last 11 years.  By contrast, Kansas, Oklahoma, and Texas have decreased their share of the US cattle on feed inventory by an average of -0.13%, -0.04%, and -0.09% per year over the last 11 years.

Obviously a lot has changed during the past 10 years other than ethanol production (drought and lower overall cattle inventories come to mind), but this might be a factor contributing to the spatial location of cattle in the US.

Nutrition and Genetics

“But this new study, funded by the National Institutes of Health and the U.S. Department of Agriculture, shows that different people may need radically different ratios of the substances in their diet depending on their genes, and it supports the growing evidence against a one-size-fits-all approach to nutrition and for highly personalized advice.”

That's from this article in the Washington Post discussing some recent research that has found a genetic variation that is much more prevalent among vegetarians.  The author writes:

“Cornell University researchers have found a fascinating genetic variation that they said appears to have evolved in populations that favored vegetarian diets over hundreds of generations. The geography of the vegetarian allele is vast and includes people from India, Africa and parts of East Asia who are known to have green diets even today.

Researcher Kaixiong Ye said that the vegetarian adaptation allows people to “efficiently process omega-3 and omega-6 fatty acids and convert them into compounds essential for early brain development.””

Food Demand Survey (FooDS) - January 2016

The January 2016 edition of the Food Demand Survey (FooDS) is now out.

Here are a few highlights from the regular tracking portion of the survey:

• Willingness-to-pays (WTP) for all meat products, except pork chops, were down a bit this month compared to last, but were generally higher than was the case a year ago.  The changes in WTP were generally small and within the margin of error (which varies across meat products but is typically about +/- 7%).  
  • On a related note, my paper with Glynn Tonsor, where we used these WTP choice data to estimate demand inter-relationships is now finally out in the journal Applied Economic Perspectives and Policy (I previously discussed that paper here)
• There was a large drop in plans to eat away from home in January compared to December.
• There was also a large drop in awareness of E Coli and Salmonella in the news, and a small drop in concern for these issues as well (a likely Chipotle effect).  The same pattern of results was also true for GMOs and antibiotics.  
• Two different questions suggested an uptick in concern for farm animal welfare at the beginning of 2016.

Three new ad hoc questions were added to the survey this month.

The three questions inquired about consumers’ perceptions of taste, health, and safety of the eight different food products for which we track WTP.  The first question asked: “How tasty or untasty do you consider the following products, where -5 is very untasty and +5 is very tasty?” Participants were asked the same questions twice more, only the words “tasty or untasty” were replaced with “healthy or unhealthy” and “safe or unsafe”.

Chicken breast was, on average, perceived as most healthy and as the most tasty. While beans and rice were perceived as the safest option, it was also the least tasty of the eight choices. Participants perceived deli ham was, on average, one of the least healthy, least tasty, and least safe products. Pork chop and chicken wing fell in the middle for each of the three categories. On average, all six meat products were perceived as less safe than the two non-meat products.

The average perception of taste can be plotted against average perceived health or
average perceived safety.

There is a slight positive correlation between perceived taste and health (correlation
coefficient of 0.15).  Similar plots reveal a slight negative correlation between perceived taste and safety (correlation coefficient of -0.14) and a strong positive correlation between perceived health and safety (correlation coefficient of 0.83).   All of this of course is at the aggregate level; plots like this could be created for each and every one of the 1,000 respondents.

What the above graph shows is that although beef products rate relatively well in terms of taste, they fall well below chicken breast in terms of perceived health.  I can use my demand model estimates (the model that gives rise to the WTP values) to do some thought experiments.  What if ground beef was perceived as healthy or as tasty as chicken breast?  How much would WTP for ground beef increase?  

First, we have to ask how much people value improvements in taste, health, and safety.  My model estimates suggest, unsurprisingly, that the higher the perceived taste, health, and safety, the higher the WTP for a product. But, by how much?  I find that a 1 unit increase in perceived taste (on the -5 to +5 scale) has about twice the impact on WTP as a 1 unit increase in safety (again on the -5 to +5 scale) and about the 1.4 times the impact on WTP as a 1 unit increase in perceived health (again on a -5 to +5 scale).  So, changes in perceived health have a bigger impact than changes in perceived health, which in turn has a bigger impact than changes in perceived safety.

All that would seem to suggest that  meat industry organizations would want to focus on improvements in perceived taste.  And that's true.  Increasing the perceived taste of pork chops by 1 unit, for example, would increase WTP by $0.36, whereas increasing perceived health by one unit only increases WTP by $0.25 (note: the mean WTP for chops was about $3.94 this month).

But, it is also important to note that there are larger differences in perceived healthiness across the meat products than there is in perceived taste or safety.  This leads me back to the question I asked earlier: What if ground beef was perceived as healthy or as tasty as chicken breast? How much would WTP for ground beef increase?  Here are my projections based on the model estimates and average perceptions.  

If ground beef had the same average taste perceptions as chicken breast, WTP for ground beef would increase $0.09.  If ground beef had the same average health perceptions as chicken breast, WTP for ground beef would increase $0.45.  If ground beef had the same average safety perceptions as chicken breast, WTP would increase $0.11.  For reference, average WTP for ground beef was $4.36 this month.  

The last thing I'll note is that it's not all about perceived taste, health, and safety.  Average WTP for steak, for example, is about $7.43 whereas average WTP for chicken breast is only $5.34.  How is it that people are willing to pay more for steak than chicken breast when they tell us that they think chicken breast is tastier, healthier, and safer?  The answer is that people care about other stuff than just these three things.  There's just something that makes a steak a steak and a chicken breast a chicken breast that is hard to put in words.  Call it "steakyness"  (not to be confused with the popular dance move).  Of the roughly $2 premium people are willing to pay for steak over chicken breast, about 20% can be explained by taste, health, and safety perceptions, and the other 80% is a desire for "steakyness."

Did the Cancer Announcement Affect Bacon Demand?

On October 26, 2015 the International Agency for Research on Cancer (IARC) — an agency within the World Health Organization — released its report indicating that processed meat is carcinogenic.  

The announcement sparked a lot of media coverage with titles like: "Bad Day for Bacon".  (Here were my thoughts shortly after the announcement, along with some survey responses based the news).

Despite the news coverage after the announcement, I haven't seen much investigation of whether it impacted meat markets.  Thus, I thought I'd take a look at the data, recognizing it is probably impossible at this point to conclusively identify whether the IARC report caused a shift in demand.

I turned to the USDA Ag Marketing Service's daily reporting of pork primal composite values.  Rather than just looking at what happened to the prices of bacon (or rather pork belly) in isolation, it is probably useful to look in relation to another cut that may be less affected by the announcement.  I chose the pork loin.  This is an attempt to control for any changes over time happening on the supply-side (the quantity of loin from a pig is, at least in the short run, in fixed proportion to the quantity of pig belly).

I calculated the ratio of pork belly prices to pork loin prices over the past year.  The graph below shows the price ratio before and after the IARC announcement.  In the few weeks before the announcement, bellys were selling at 1.9 times the price of loins.  In the few weeks after the announcement, bellys were selling at only 1.5 times the price of loins.  Thus, there has been a roughly 26% drop in the relative value of bacon. 

At this point, I'd be hesitant to say that the IARC announcement is THE cause of this change, but the large immediate drop just following the release date is suggestive of some impact.  

Country of Origin Labeling Conspiracy

I've seen the following meme going around on social media.    

I don't know whether the source is actually March Against Monsanto, but whoever put it out is obviously trying to stoke paranoia without any context or background.  And, like most good lies, the meme contains an element of truth.

First, it is true that both Houses of Congress repealed mandatory country of origin labeling (MCOOL).  This happened about a month ago.  What the meme doesn't revel is why.

MCOOL has been controversial since it's inception more than a decade ago, and the policy was fought by the largest beef and pork producer organizations.  Moreover, our trading partners were less than happy with the law.  Canada and Mexico filed suit with the World Trade Organization (WTO) claiming the law represented a non tariff trade barrier.  The USA lost the first round and several appeals (here's the timeline from the WTO).  What the meme doesn't reveal is that if Congress didn't repeal MCOOL then Canada and Mexico could slap on more than a billion dollars in retaliatory tariffs; my understanding is that these tariffs could have been on any products, not just meat.

What's not true about the meme?  

Well, despite the existence of MCOOL, our research shows most consumers didn't know where their beef or pork was coming from anyway; the vast majority of consumer's weren't checking the label.  More importantly, it simply isn't true that "now you will not know which country your meat comes from" simply because the government doesn't require the information.  If consumers really want the information and are willing to pay to have it, why wouldn't a retailer voluntarily advertise origin?  The restaurant chain Wendy's, for example, advertised for a while it only used North American beef.  Lots of small producers sell the animal products they raise at farmers' markets and at local restaurants.  There are thousands of products that voluntarily (without a government mandate) use  the "Made in the USA" logo to try to garner more sales.   There are lots of things I want (a new BMW; a private jet; perhaps origin information on meat), but just because I want something doesn't mean the government should mandate that it be provided. 

For more background, here's a recent report on issues surrounding MCOOL by the Congressional Research Service; here's another recent report summarizing the research on the subject prepared by my friends Glynn Tonsor, Ted Schroeder, and Joe Parcell for the USDA Chief Economist.