My State is Better than Yours: Competition between State Food Branding Programs

The journal Agribusiness just released a new paper I co-authored with Clint Neill and Rodney Holcomb. The work was motivated by the observation that every state in the U.S. has an agricultural marketing program aimed at promoting foods from their state. Examples include the “Taste NY” and “Pride of New York” programs as well as “Go Texan” and “California Grown.”

Our questions were two fold: 1) How much do consumers value products labeled with their state’s logo relative to other states’ products, and 2) what are the implications for state marketing programs?

We surveyed 6,900 consumers in an eight‐state contiguous region. For our application, we chose milk, and asked people which of several milk products with different state logos (and a regional or national brand) they preferred at different prices.

Not surprisingly, we find that consumers prefer products with their own state’s logo. For example, Texans’ average willingness-to-pay (WTP) for Texas milk is $4.14/gallon, but Texans’ value for milk from bordering states, New Mexico, Oklahoma, and Arkansas only averaged $1.82, $2.65, and $2.72/gallon, respectively. There are a number of interesting patterns. Here’s an excerpt from the text:

“While each state’s consumers tend to prefer their own label and have a distinct order of preference for other states, the asymmetry between states is less clear. For example, Oklahoma consumers are willing to pay $2.84 for the Texas label but Texas consumers are only willing to pay $2.65 for the Oklahoma label, so there is an asymmetry of $2.84−$2.65 = $0.19. Thus, Oklahomans value the Texas label $0.19 more than Texans value the Oklahoma label.

Table 5 shows this type of asymmetry for all combinations. Interestingly, every other state’s consumers value the Colorado label more than Colorado consumers value other states’ labels. Alternatively, New Mexico consumers value all other state brands more than the other states’ consumers value the New Mexico label.”

While it is perhaps obvious that people in a state will tend to prefer their own products, it is also important to note that people have some value from agricultural products from other states (and, in fact, some small share of people prefer products from another state). The result is that state branding programs “steal” consumers from other states (the effect is a bit like the prisoner’s dilemma problem). The state branding program looks great if your the only state that has the program, but if all states have their own programs, the effects partially serve to cancel each other out. Here’s what we write about this so-called “beggar thy neighbor” effects:

“In the case of market shares, we were able to illustrate the large decreases as a group of producers from one state starts with having no state branded competitors to competing against several other brands within a region. Producers, ideally, would have a higher return if they were the only ones with a state label, but the optimal strategy for all agents in the region is to utilize a state label. Thus, the potential beggar‐thy‐neighbor scenario is possibly a Nash equilibrium. Furthermore, states who market their brand outside their borders are shown to have increased total market share”

For example, below is a graph showing what happens to demand for milk with a “Made in Oklahoma” label when no other states label their product (the green line with triangle markers) relative to what happens to demand for “Make in Oklahoma” milk when other states introduce their own labels (the red and blue lines). As the figure below shows, the market share more than halves when one state’s label has to compete with all the others in a region.

One potential solution (at least from the producer’s perspective) we discuss is for groups of states to band together and use a regional label.

Income and (Ir)rational food choice

That’s the title of a new paper I have forthcoming in the Journal of Economic Behavior and Organization.

In short, I find the more one spends on food, the less consistent are their choices. In the economic way of thinking, inconsistency is typically associated with irrationality. First saying I prefer A to B, but then later saying B is preferred to A is an inconsistency, which is often referred to as a preference reversal. It’s hard to square such preference reversals with any model of rational choice.

Why might preference reversals increase with a consumer’s income? Here’s a bit from the paper (omitting references):

“This paper sought to determine the relationship between consumers’ incomes and food expenditures on the one hand and preference consistency on the other. Previous literature has suggested at least two channels through which increasing income or expenditure might have deleterious effects on preference stability. The first operates through increasing demand for novelty and variety as incomes rise and the second operates via the relative incentive to behave rationally as the stakes fall.”

In an empirical application involving almost 540,000 food choices made by almost 60,000 people, I find that 47% of respondents committed at least one preference reversal. How do preference inconsistencies relate to income and food spending?

“Results show that the likelihood of a reversal [or preference inconsistency] and the number of reversals are significantly increasing in expenditures on food at home and away from home, and to a somewhat lesser extent, total household income. The magnitudes of these effects are large; larger than that associated with any other demographic or study design variables explored. For example, that the odds of committing a preference reversal [or preference inconsistency] are about 1.8 times (2.5 times) higher for individuals who spend $160/week or more on food at home (away from home) compared to individuals who spend less than $20/week. Exploring responses to three different “trap questions” that measure respondent attentiveness indicates that results cannot be explained by higher income households generally being more careless in their responses to questionnaires.

To explore the extent to which income and preference stability is related to variety or novelty seeking, the relationship between preference reversals and food values is also explored. As hypothesized, of the 12 food values studied, the relationships with preference reversals are strongest for the food values of price and novelty. Consumers for whom food price is a more important food value tend to commit fewer preference reversals. By contrast, consumers who rate novelty as a more important food value are more likely to exhibit unstable preferences. ”

Why does it matter whether rationality falls as incomes and food spending rises? As I’ve argued previously, increasing affluence likely allows us to indulge “higher” needs related to self actualization and self expression. Here’s a last bit from the paper, which is more speculative, and hopefully will spur some additional research (again, omitting references for readability).

“There is a view among many food and agricultural scientists that many new food products marketed to higher income consumers are “unscientific” insofar as they make absence claims about ingredients and processes scientists have deemed safe. The preference instability observed among consumers with greater food expenditures in this study need not necessarily relate to beliefs about food that diverge from scientific consensus. Nonetheless, rising incomes might better enable people to seek out and identify sources of information that conform to their beliefs and cultural identities. It has also been argued that consumers might directly obtain utility from holding certain beliefs, which might lead to information avoidance. Whether certain food and agricultural beliefs are normal or inferior goods, in this framework, is an open question.”

Can You Call it Meat?

NPR recently ran a story, in which I was quoted, about the rise of state laws limiting the use of words like “beef”, “meat” and even “rice” on plant-base alternatives. The American Civil Liberties Union (ACLU) has just filed suit against the state of Arkansas over the state’s enactment of a law that would fine “plant-based and cell-based meat product, such as “veggie burgers” and “tofu dogs,” marketed or packaged with a “meat” label.”

What to make of all this? One one hand, these sorts of new laws originate from some of the same motivation of older “standards of identity” laws. These laws define how certain words can be used on food labels and in marketing. The stated purpose of the laws are to protect consumers and to prevent consumers from being misled. For example, in the past, some unscrupulous millers added wood shavings to flour. If consumers can’t tell before buying whether it’s the real or adulterated version, we can wind up a markets-for-lemons problem, which would drive the high quality products out of the market and leave consumers worse off.

However, here’s what I wrote about this a while back (I also included a few illustrative pictures of labels):

“In the case of beef, I am a bit skeptical that consumers will be mislead by the start-up meat alternatives. Why? These aren’t generic products being sold by companies trying to water down or adulterate a product with cheaper inputs. These are branded products created by firms whose whole marketing strategy is to tell people their product is NOT beef. ... Even without the identity standards, it is not as if consumers are totally unprotected. If they are, in fact, misled, the legal system offers possible remedy. As witnessed by the numerous lawsuits over the use of the word “natural,” I suspect there are plenty of lawyers out there willing to help a consumer who can show they’ve experienced damages. ”

The counter response is that people might associate words like “beef”, "meat”, or “milk” with other product attributes such as nutritional content, which might (sometimes inappropriately) carry over to the plant- or lab-based products. Nutritional facts panels may serve to mitigate some of these concerns, but there is little doubt that labels create various taste and health halos that extend beyond the objective facts.

At the same time, words are needed to convey meaning to consumers beyond just animal content. Using the word ground “meat” tells me something about how the food is expected to be cooked and served and which condiments are appropriate. In this instance, using “meat” with “plant-based” is helpful to the consumer insofar as quickly conveying key information about how the product is to be cooked and consumed.

Thus, there are pros and cons and costs and benefits to these types of labeling laws. I’ve seen a few polls on what consumers think about these labeling laws. However, It would be useful to see more empirical research over whether consumers are, in fact, mislead or perhaps more informed by meat/milk labels on plant-based products.

A Basket-Based Choice Experiment

That’s the title of a new working paper I’ve co-authored with Vincenzina Caputo.

Much of research seeking to understand consumers’ preferences for food products and attributes relies on “choice experiments”, which are like simulated shopping scenarios. What makes choice experiments different from a true shopping scenario, however, is that respondents are only asked to choose one product out of a set. In reality, people often choose multiple products from different product categories when shopping, and their preference for one product may depend on what they’ve already put in the shopping basket.

Here’s a brief summary from the paper:

“consumers make multiple food choices at a time and prefer to choose on average 4.4 out of 21 possible foods items. This is especially the case when looking at fresh meat and vegetables. For example, the selection frequency of salad/lettuce increased as respondents selected more items since salad is often used as a side dish. Further, our results reveal that food items act as complements or substitutes. Finally, while in standard [discrete choice experiments] cross-price elasticities are forced to be positive due to single discrete choices, our results also imply negative cross-price elasticities. Overall, these results suggest that the BBCE [basket based choice experiment] is a promising experimental approach that allows for a richer set of substitution and choice patterns as it brings together the advantages of standard [discrete choice experiments] and the advantages of traditional demand system analysis. ”

The following figure shows the most common items consumers put in their basket.

Perhaps more interesting, however, are the combinations of items people place in their baskets. For example, given that someone chooses ground beef, the next most common items in the basket are salad/lettuce, potatoes, and then tomatoes. Given that someone has picked ground beef, there is more than a 50% chance each of these vegetables/vegetables also appears in the basket. These sorts of results illustrate the challenge of suggesting people to just increase fruit or vegetable consumption because their values for these items increase when accompanied with meat. For example, one of our model specifications suggests that the value of lettuce/salad increases by more than $4 if it is also accompanied with ground beef.

There’s much more in the paper, which Vincenzina will present at the Agricultural and Applied Economics Association meetings next month.

Some French Reflections

I was fortunate to spend the better part of 2011 on sabbatical in Paris working with the French National Institute for Agricultural Research (INRA) and the Organization for Economic Cooperation and Development (OECD). Stephan Marette from INRA was a fantastic host.

Although I have returned many times since then to attend conferences and serve on an INRA advisory board, last week was the first time I revisited the city and our old neighborhood with my family. Here are a few reflections on the trip that relate to some of the themes on this blog.

1) We spent one morning on a food tour with a French chef. He took us to some familiar spots and some new ones too. In the course of conversation, I mentioned that I’d worked some with INRA, and I found his reaction interesting. For context, INRA is a bit like the USDA Agricultural Research Service (ARS) and a bit like the USDA National Institute for Food and Agricultural Research (NIFA), except rather than indirectly funding university professors through state agricultural experiment stations (as NIFA does in the US), INRA directly employs many PhD scientists who are housed at universities in addition to scientists at their own facilities. In any event, my guess is that if you mentioned ARS or NIFA to a chef in, say, New York, Chicago, or LA, they’d have no idea what you were talking about. ARS or NIFA who? But our French chef knew exactly who INRA was - and apparently he wasn’t much of a fan. He said that INRA only cares about producing more quantity and didn’t care about food quality, the later of which he argued was of greater importance to French consumers. I don’t think that characterization is exactly true (INRA does a lot of research on diets, health, food quality, and sustainability), but his perception of their objectives and purpose is nonetheless interesting and not entirely inaccurate. To the extent American consumers and taste-makers are familiar with US agricultural research agencies and universities, I wonder if they’d say the same? The research is clear that agricultural research produces significant benefits, but it is also true that future funding for agricultural research will depend, in part, on public support. That’s why we have to continue to find new ways to articulate the value of productivity enhancing research (for example, focusing on sustainability) and highlight the agricultural research that improves the both the price and the quality of food for consumers.

2) Given French consumer’s aversion to GMOs, attempts to ban glyphosate, and more, one might be tempted to argue that the French are more fearful of food safety risks. But, that can’t be exactly true. Below are a few pictures I snapped on the recent trip. These are not out of the ordinary in any way, but items one can find on the streets or usual supermarkets in Paris. What foods are available? Unrefrigerated eggs, unrefrigerated milk (it’s ultra high temperature pasteurized) sitting out next to the laundry detergent, cheeses from unpasteurized milk, hog legs (with hoof intact), raw rabbit carcasses for sell by street vendors, and much more. Many Americans I suspect would be very fearful of these common French foods. The French seem more accepting of “natural” food risks and less accepting of “modern/technological” food risks relative to Americans, although the example of the ultra-high pasteurized milks runs counter to that theme.

3. The French seem acutely interested in the origin/provenance of food and they often seem to use this attribute as a proxy for quality in the same way many Americans use brands. One of my current PhD students, Kendra Rash, is presenting some research at the upcoming meeting of the Agricultural and Applied Economics Association. We are analyzing some data from an experiment conducted by Laurent Muller and Bernard Ruffieux with French consumers related to the value of different types of information. We found that information on origin is more highly valued than information on brand, price, organic, and more. I was a bit skeptical of this finding (mainly because other research I’ve done in the US shows origin to be a relatively unimportant food value), but my resent visit was reassuring and suggests our French findings are probably right. A good example is wine. In the US, we normally shop for wine by grape variety (Cabernet, Merlot, or Pinot Noir), but in France, wine is typically advertised by location and vineyard (and one is supposed to know which types of grapes are grown there).

4. Despite the differences, I’ll point to one of my favorite papers by by Pierre Dubois, Rachel Griffith, and Aviv Nevo  that appeared in the American Economic Review. In many ways, their results suggest the food preferences of the French and Americans are not all that different; but our different economic systems alter the relative prices and food options available to us leading to different food choices. Here’s what I had to say about it when the paper first appeared about six years ago.

“I find these results interesting because there are many Americans who seems to subscribe to a view that the French have some kind of moral superiority when it comes to food and weight. I read these results to say that the French are, in large part, just responding to the economic incentives they face. And while they consume fewer calories than we do, it isn’t all that clear they’re better off given that they must pay more for many of the foods they desire than do Americans. ”