Factors Affecting Beef Demand

Glynn Tonsor, Ted Schroeder, and I recent completed a report for the Cattlemen's Beef Board on the factors influencing beef demand.  

One of the key factors that emerges from the analysis of the USDA price/quantity data is that beef demand appears to have become less sensitive to price-related factors.  In econ-lingo, beef demand has become more inelastic.  Moreover, changes in pork and poultry prices have fairly small impacts on beef demand.

As a result, we focused on several potential non-price demand determinants.  We find that emerging stories about climate change have adversely affected beef demand, but at the same time increased media focus on taste and flavor have more than compensated for those effects, pulling up demand since 2012.  

We also look at trends from the Food Demand Survey (FooDS) and how they relate to consumers' preferences and beliefs.  Here are some graphs on the relationship between a variety of factors and steak demand.

Here is the same but for ground beef demand.

Increases in income clearly increase steak demand, but ground beef is demanded similarly by all income categories.  Some of the biggest determinants of beef demand are "food values".  Here's what we have to say about how to interpret those results.

“While it may not be initially obvious, results in figure 4.5 [showing the relationship between steak demand and food values] can be interpreted as providing evidence about people’s beliefs about (or perceptions of) steak. Suppose an individual highly values taste. Figure 4.5 shows that such an individual will tend to choose more steak. As a result, it must be that steak is perceived to be highly tasty. By this line of reasoning, figure 4.5 suggests that consumers, on average, perceive steak to be convenient, tasty, attractive, and novel but they also perceive steak to be poor for animal welfare, nutrition, and environment while also being expensive. ”

There's a lot more in the report.

Don't Want to Eat Pink Slime? Would You Even Know?

It's hard to believe it's been almost five years since the finely textured beef (aka "pink slime")  scandal broke.  To briefly re-cap, by 2012 it had become an industry standard to include finely textured beef with other beef trimmings to make ground beef.  The process enabled food processors to add value, cut down on waste, and increased the leanness of ground beef in an affordable manner.  But, a series of news stories broke, which caused public backlash against the process, and ultimately led to the closure of several plants that produced finely textured beef.  In 2013, I wrote about my visit to BPI, one of the largest producers of lean finely textured beef (this summer, ABC settled a multi-million dollar lawsuit brought by BPI regarding ABC's coverage of the issue).  I devoted a whole chapter of my 2016 book, Unnaturally Delicious, to the issue.  I'll also note, for some aspiring journalist out there,  that I can imagine a highly compelling a book-length treatment of the saga.

Back to the heart of the story, must of the public backlash presumably came about because the public was worried about taste or safety of ground beef made with finely textured beef.  In the monthly Food Demand Survey (FooDS), we've been running for almost five years, we ask about perceptions of the safety of "pink slime" and of "lean finely textured beef".  The data suggests neither are top safety concerns.  The most common answer is that people are "neither concerned nor unconcerned" about the safety of these issues (for lean finely textured beef, the average response is actually in the direction of "somewhat unconcerned").

Well, what about taste?  People may think "pink slime" tastes bad, but what would happen in a blind taste test?  Along with several of my former econ and meat science colleagues at Oklahoma State University (Molly Depue, Morgan Neilson, Gretchen Mafi, Bailey Norwood, Ranjith Ramanathan, and Deb VanOverbek), we conducted a study to find out.  The results were just published in PLoS ONE.  Here's what we found.

“Over 200 untrained subjects participated in a sensory analysis in which they tasted one ground beef sample with no finely textured beef, another with 15% finely textured beef (by weight), and another with more than 15%. Beef with 15% finely textured beef has an improved juiciness (p < 0.01) and tenderness (p < 0.01) quality. However, subjects rate the flavor-liking and overall likeability the same regardless of the finely textured beef content. Moreover, when the three beef types are consumed as part of a slider (small hamburger), subjects are indifferent to the level of finely textured beef.”

So, a burger made with 15% finely textured beef is as tasty or tastier than a burger without finely textured beef.  If people knew this, would it have changed their reaction to the Jamie Oliver show or the 2012 ABC News stories?   

Taste elasticities?

Economists are accustomed to reporting price elasticities, which indicate the percentage reduction in quantity of a product that will be demanded when the price of a product increases by 1%.  The focus on price elasticities might suggest that changes in prices are more important demand determinants than changes in other variables.  Another possibility is that prices are observable.  That is, we focus on price changes because we can see and measure them.

This new paper, published in Managerial and Decision Economics with Trey Malone, suggests other factors that are highly influential demand determinants.  In particular, Trey designed a survey to measure preferences (and demand) for different beer brands at various prices.  He asked people to answer choice questions like the one below.

The only difference across the choice questions were the prices assigned to brands.  It is straightforward to calculate the typical own-price demand elasticities from these data - one simply has to observe how the frequency with which a brand is chosen changes when its price changes.  

In addition to these standard questions, Trey and I also asked questions about consumer perceptions of each brand.  Here is a partial screen shot of the question we asked on taste (a similar question was asked about familiarity).  

Merging these data with the choice data, then, allows us to see how a change in perceived taste (or familiarity) affects choice.  

One of the key challenges with this sort of analysis is that taste/familiarity perceptions might be endogenously determined with other variables, such that we don't really know whether we're measuring mere correlations or the causal impact of taste changes on choice.  Our paper suggests a way to deal with this challenge.  In short, it involves using perceptions for other brands as instruments for perceptions of another brand.  I won't go into the details here, but we show the approach has a substantive effect on the results.  

So, what did we find?  Not surprisingly, taste and familiarity matter.  But by how much?  Here is a table of elasticities (not price elasticities, mind you, but taste elasticities). 

We write:

“Changes in perceived taste matter much more for the craft options (Marshall and Oskar Blues) than do changes in the perceived taste of the premium and macro options. For example, a 1% increase in the perceived taste of the Oskar Blues option leads to a 6.753% increase in the quantity demanded of that beer, whereas the same increase in the perceived taste of Corona leads to a 4.891% increase in its quantity demanded. Similar to the own-taste elasticities, relative to the familiarity elasticities, cross-taste elasticities are much larger. According to the model estimated via the control function approach, the perceived taste of Samuel Adams is the option most dependent on the perceived taste of the other beers. Specifically, the 1% increase in Corona’s perceived taste would also lead to a 1.339% reduction in the probability a Samuel Adams was selected, and the 1% increase in Oskar Blues’ perceived taste would create a corresponding 1.991% reduction in Samuel Adams’ quantity demanded.”

Another result that probably won't be too surprising to many craft beer drinkers:

“Once we control for endogeneity, our estimates indicate that some participants actually prefer an unfamiliar beer (i.e., they are variety seekers)”

Are Steaks Too Big?

Then answer, according to a paper just published in the journal Food Policy by Josh Maples, Derrell Peel, and me is "yes" - at least for most consumers.  

The issue is that improved genetics and feeding technologies, along with various economic incentives, have led to much larger cattle.  To provide some perspective, USDA data indicate that the average weights of commercially slaughtered cattle hovered around 1,000 lbs from the 1950s and the mid 1970s.  Since that time, however, there has been a fairly steady increase in the size of cattle.  Since 1975, finished cattle weights have increased about 9 lbs/year on average.  In 2016, the average weight was 1,363 lbs.  That's a whopping 366 lbs higher in 2016 than in 1975!

Larger cows mean larger steaks.  On the surface, that seems like a good thing for consumers as it means we have more steaks.  However, most people don't want to eat a 32oz steak.  In fact, most restaurants and grocery stores offer relatively fixed serving sizes for steaks like 12oz or 16oz, for examples.  So, what happens if cattle carcasses have gotten much bigger, and along with it, the muscles that are cut into steaks, but consumers still only want a 16oz steak?  The consequence is that today, steaks are cut thinner.  Thus, the core question is: for a fixed weight, do consumers prefer "traditional" thicker steaks that take up a smaller area or "newer" thinner steaks that take up a larger area?  

To answer this question, we surveyed over 1,000 US consumers and presented them with a series of choices like the following that varied the type of steak, the thickness or the steak, the area of the steak, and price.  Note that one you know the thickness and the area of a steak, the weight is pre-determined.  

The findings?

“Our results imply that consumers are heterogeneous in preferences for steak size but are generally in unison in their dislike for the thinnest cuts of steaks”

About half the consumers preferred steaks with the largest area, but about half preferred steaks with a medium-sized area.  Overall, the results suggest that the roughly 50% of consumers who prefer steaks with larger areas is way more than offset by the near universal dislike of steaks becoming much thinner.   

Here's an excerpt from the conclusion:

“The decrease in consumer welfare by moving from a choice set containing small area and thick steaks to a choice set that includes large area and thin steaks implies that the changes in carcass size have led to a decrease in consumer utility from today’s steak choices relative to the steak choices of a few decades ago. The aggregate welfare loss from the increase in carcass weight with respect to ribeye and sirloin steaks is $8.6 billion for the two largest classes. Of course, steaks are only one piece of the carcass, and the increase in carcass size may have increased welfare with respect to other beef cuts. The decrease in welfare due to larger steaks can be offset by increased welfare resulting from the increases in quantity produced of other cuts. Ground beef is a prominent example. Because the form of this product remains generally unchanged as carcass size increases, the increased efficiency (i.e. more meat per animal) has likely led to increases in consumer welfare through lower prices (or smaller increases in prices resulting from the decrease in number of cattle slaughtered). However, steaks represent an important portion of the total carcass value and it is possible that the increasing size of other cuts have also created less desirable end products for consumers. Future research should focus on the impact of increased carcass weights on consumer welfare across multiple cuts. Such studies might find that while welfare losses exist for some cuts, the gains in welfare from other cuts lead to a net increase in consumer welfare due to larger cattle.”

Hierarchy of Food Needs

“How would it look to apply the principles of Maslow’s Hierarchy of Needs to food management?”

That's the opening sentence by Ellyn Satter in a 2007 article in the Journal of Nutrition Education and Behavior.  She writes:

“Abraham Maslow arranged basic needs in order of sequential importance to the individual and taught that needs at each level must be satisfied before the individual can become aware of and address the next level of need. From the foundation through the apex on Maslow’s pyramid-shaped Hierarchy of Needs, they are: (1) physiological needs: air, water, food, shelter, sleep, sex; (2) safety, security and order; (3) social affection: love and belongingness; (4) esteem, status: self-esteem and esteem by others; and (5) self-actualization: being all the individual can be.”

She then proposes (without any data or evidence I might add), the following hierarchy of food needs.

Satter argues this hierarchy is important to understand for nutrition educators who should: 

“join with individuals right where they are. For those whose most pressing concern is getting
enough to eat, help them choose dependably filling and satisfying food. Address energy inadequacy by endorsing adding fat—butter, oil, or salad dressing—to vegetables and grains and using whole milk. Point out the nutritional value of preferred food items, and suggest additional low-cost food items that are both energy dense and nutritious. But avoid prioritizing food selection based nutritional considerations alone. Doing so is realistic only for people who are functioning at the apex of Satter’s Hierarchy of Food Needs.”

To what extent is this "model" true?  A few weeks ago, I compared the food values for the rich and poor, which provided some support.  But, even that data suggests taste, safety, price, and nutrition are top four food values (out of 12 total values) for both low and high income.  The ranking for high income is taste, nutrition, safety, and price and for low income is price, taste, safety, and nutrition; factors like fairness, novelty, and origin were ranked last for both high and low income groups.  It would be interesting to see studies comparing income elasticities of demand for foods that fit the above criteria.  However, the above model doesn't necessarily suggest income is the main driver - only that one has to meet a "lower" need, via whatever means, before another "higher" need is met.