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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.   

GMO regulations in the US and EU

There is a myth going around that GMO crops are banned in Europe.  That's simply untrue.  This group of grad students out of Harvard (going by Science in the News - SITN) put together a nice post on the difference in US and EU regulation of GMOs.  

As this graphic from their piece shows, The EU has approved many of the same crops as in the US (though they are slower and haven't approved as many yet).

One way to look at this is to say the EU was more prudent and cautions.  Another view is that the more bureaucratic process cost the EU 10 years or more before they could have access to Bt corn and round-up ready beets, and that for a decade US farmers were able to reduce insecticide use and transition to no-till because our regulatory process was more expedient.    

Yesterday I taped a segment with CBC radio in Canada (I'll post to it when it airs) that involved  a discussion between several people on genetic engineering in animals.  One of the panelists on the anti-GMO side was very critical of the US and Canadian regulatory processes, and there seemed to be an implicit argument that these crops/animals wouldn't be approved if our regulator process were different.  However, as the above graph shows, some of these crops can indeed be approved under very different regulatory regimes - though at a much slower rate.

Here's another nice graphic from the piece on differences in US and EU regulatory processes for GMOs.

Thinking about hormones and cloning . . .

The American Journal of Agricultural Economics just released a forthcoming paper I co-authored with John Crespi, Brad Cherry, Laura Martin, Brandon McFadden, and Amanda Bruce.  Why so many authors?  Because it takes a lot of brains to try to figure out what's going on in people's brains when making decisions about food.

Here's a description from the paper of what we did: 

“In this paper, participants in a neuroimaging (fMRI) experiment made choices regarding
types of milk produced with or without an unfamiliar technology process (cloning or growth hormone) while recording their choices and the time it took to make those choices. Focusing on nine areas of the brain that have been found to be important in previous research for economic valuation, the experiment and subsequent analyses show which of these areas are correlated with the deliberative process and which are correlated with the final choice. One area of particular interest that revealed correlation for both activities was the ventromedial prefrontal cortex. This region is implicated in experiments of valuation and salience, and it was significantly correlated with deliberation and an increased likelihood of choosing the more familiar milk.”

Here's one of the figures from the paper.  The orangish-yellowish areas indicate brain areas that were more active when the person was choosing between milks with different characteristics vs. when they were just looking at milk with different characteristics.  Choosing really is a different mental process than simply looking.

We find that we can predict choice and decision time based on activation in different brain areas.

Here's how the paper ends:

“When making decisions we recall memories, we feel emotions, we weigh costs and benefits, and while we cannot observe these neural processes directly, we can determine which of the valuation areas of the brain slow the process down and which speed it up. That is, which areas are involved in the internal deliberation that eventually becomes choice? While a large portion of the brain (figure 3 and table 3) ponders the decision, the final choice appears most highly correlated with localized areas in the medial prefrontal cortex, and among those, it is fascinating that correlation is stronger, in our study, when the choice is over growth hormones than cloning technology. Why is this? Food labeling has been a source of research interest for years, and neuroscience technology will make it a fruitful area of study for years to come.”

Food and Ag Policy Roundup

Pity comments on assorted links

“Food has replaced music at the heart of the cultural conversation for so many, and I wonder if it’s because food and dining still offer true scarcity whereas music is so freely available everywhere that it’s become a poor signaling mechanism for status and taste.”

There's been a lot of coverage of Consumer Report's tests for bacteria in conventional and "sustainable" beef.  Take, for example, this Washington Post article.  The article seems to be mixing a bunch of concepts.  There are antibiotic resistant bacteria (aka “super bugs” – though they’re not resistant to all types of antibiotics), which is what they found less of in the “sustainable” beef.  And then there are bacteria that *can* product toxins.  Cooking can kill the bacteria but not the toxin, but the study didn’t actually test for the toxins (only the bacteria-producing toxins).  As best I can tell, there were similar levels of these types of bacteria in both types of beef (actually, they don’t discuss levels at all but only % of samples detected with the presence of the bacteria regardless of amount).  In any event, the toxins typically don’t get produced unless the beef is left out for a while at unsafe temps.

These public health researchers propose a cap-and-trade type system for calories.  The authors are never really very clear about the underlying source of the externality they're attempting address (negative or positive) and why calories get at the heart of it.  Moreover, what of those in the world who get too few calories?

Interesting article in Choices by James McDonald on the extent of contracting in agriculture.  I was surprised to read that use of contracting decreased in recent years for many commodities.  Wu and McDonald subsequently discuss related market power issues in the same outlet.