The motto of the 2018 cattle industry will likely be “profitability depends on beef demand!”
It’s not even halfway through February and you’ve likely heard more about the importance of beef demand than you would like. But do you understand what influences beef demand?
Understanding beef demand drivers is a key issue, according to Dr. Glynn Tonsor, professor of agricultural economics at the Kansas State University (K-State) Extension. Tonsor and two other researchers—Jayson Lusk of Purdue University and Ted Schroeder, also of K-State—produced a study that examined the changing nature of beef demand.
The checkoff-funded study’s report, “Assessing Beef Demand Determinants,” was released Jan. 31 by the Cattlemen’s Beef Board.
The study found some unexpected things. Top among these—price is not king.
“One of the things we concluded is that price sensitivity indeed is changing,” Tonsor told K-State Radio Network (KSRN) on Feb. 5. “Consumers are less sensitive to a change in price than they used to be—price still matters, but not as much as it used to.”
Tonsor and the report noted that larger, macroeconomic elements have a bigger impact on beef demand than the actual price on the label. These include consumer incomes and general economic strength.
“This could be a result of record high retail beef prices in recent years that resulted in loyal beef consumers, who are less price sensitive, having the strongest presence in the market,” suggests the report.
“As consumer incomes have grown, more consumers who might have been priced out of the beef market have allocated some of that income growth to purchase beef again, thus creating beef demand response to growing income.”
Friends in odd places?
Another potentially surprising conclusion reached by the study was that the old rule of thumb of protein substitution might not be as dynamic as it once was.
“The relative impact of pork and chicken prices on beef demand is economically small relative to other factors,” the report noted. “This does not imply individually beef, pork, and chicken products are not substitutes, rather the substitutability in aggregate is just not as strong as traditionally thought.”
In speaking to KSRN, Tonsor speculated that outside economic factors may be at play here. Though he acknowledged this was not part of the study, and somewhat outside its findings, he said:
“I think as we’ve had a growth in dual-income households, growing pressure on meal-prep time, ingredient time and those kind of things, we have less folks walking into the grocery store, studying the entire meat case, and being extra price sensitive to competing meat prices. … There’s still some of that that goes on, don’t get me wrong, but in aggregate, I think we have more behavior that’s walking into those stores, getting a specific item for a specific purpose in a specific meal, which mutes some of that price sensitivity.”
Tonsor suggested that this dynamic, coupled with the growing number of issues facing all animal agriculture, is a good argument for collaboration between beef, pork, and chicken industries.
“Not everybody will agree with that recommendation,” he admitted, but pointed to climate change, consumers’ animal welfare concerns, and plant-based fake meat as issues that face all animal protein industries.
“There are a lot of discussions that impact the beef, the pork, the chicken and other livestock-oriented meat protein industries that are common to them all. None of them are free to combat and study and conduct research on and so forth.”
The report suggested a more cohesive approach might “better utilize the industry’s limited demand enhancing and monitoring resources.” Past research in consumer perception of animal agriculture also has repeatedly indicated that consumers don’t distinguish between different livestock sectors. As a simple example, news of animal abuse occurring at a hog farm can negatively impact consumer perceptions of treatment of beef cattle.
Media impact
General narratives out in the media—news media and otherwise—can also have an impact on beef demand.
“Print media and medical journal coverage of topics around beef changes notably over time in areas of focus and volume of coverage,” the report’s summary notes. “Certain types of media coverage are found to affect meat demand, and an emerging area of negative impact focuses on climate change. Having an impactful presence in the media is immensely important as it shapes perceptions.”
Tonsor expanded on this, giving the example of the Atkins diet. Discussions of the Atkins diet in 2004 and 2005 in the mainstream media gave beef demand a boost.
“Another example that’s intriguing is the impact of fat discussions,” he added. “Ten to 20 years ago, the tone in the medical journals and the press was additional fat was bad for your diet, so more discussion was adverse for beef demand. Well, fast forward to more recently, and we actually find it as a more positive catalyst. … You can’t just use old rules of thumb and go forward with it because the impact of those things do change.”
He also added that as the beef industry gets more engaged in the issue of sustainability, discussions surrounding sustainability in the media have been having a more positive impact on beef demand.
Related to the issue of the beef industry having a voice in the media discourse, the report and Tonsor stressed the importance of recognizing the U.S.’ shifting demographics.
“One of the things we note in our report is growth of the Hispanic as well as the African-American share of the U.S. population. This actually appears to be good for beef demand.”
The report echoed this, saying the findings “suggest additional focus on target marketing beyond beef product and household type” may be helpful.
“One specific household characteristic of note is how African-American and Hispanic residents exhibit strong desire for beef. As the share of the U.S. population comprised of these two races is projected to grow, refined focus on specific desires of these groups is warranted.”
Ultimately, Tonsor admitted he was a broken record on one point: the importance of beef demand to the industry.
“Homogeneous, across the board, black-and-white kind of statements don’t ask a lot of the deeper part of the story about who’s buying beef and who pays more for it. Hopefully studies like this kind of help us understand those nuggets.” — Kerry Halladay, WLJ editor
