Factors Affecting Consumer Demand

Convenience, health and nutrition, and food safety are key.

by Troy Smith for Angus Productions Inc.

 

CASPER, Wyo. (Dec. 2, 2009) — Economists and market analysts spend a lot of time talking about factors affecting the supply of beef. They often talk about how prices cattle producers receive, and consumers pay, change as a result of shifts in supply, James Mintert told cattlemen at the 2009 Range Beef Cow Symposium in Casper, Wyo. The underlying assumption of this type of analysis is that, in the short run, beef demand is relatively stable. However, from a longer-term perspective, beef demand has not been stable. In fact, it has declined precipitously over the last three decades. As a result, the Purdue University agricultural economist focused his presentation on the factors responsible for the shifts in demand and provided some insight as to how the beef industry can go about improving domestic demand for beef in the years ahead.

 

Mintert’s remarks were based upon findings from a major research study that he, along with Ted Schroeder of Kansas State University and Glynn Tonsor of Michigan State University, recently completed with support from the Cattlemen’s Beef Board and many state beef councils.

 

"Even when budgets are tight, consumers are willing to pay for convenience," said James Mintert, Purdue University agricultural economist. Consumers' income and their willingness to spend that income are determinants of beef demand, Mintert said. For most of the last three decades, consumers have reduced their savings rate over time, which has made more dollars available for consumption.

 

"But, following the upheaval in the equity and real estate markets, consumers have really pulled back and increased their savings rates," Mintert noted, "and this change in savings rates is hurting consumer demand for a number of products, including beef."

 

Looking ahead, Mintert said he expects consumers to keep their savings rate higher than was typical in recent years, and this will continue to have a dampening effect on beef demand in 2010. He went on to say that, despite the weakness in the U.S. economy, it’s still very important for the industry to focus on several key long-run factors influencing consumer demand for beef as the industry seeks to find ways to increase domestic beef demand.

 

The Purdue agricultural economist pointed out several ways the industry can take advantage of improved knowledge of these factors to boost beef demand in the long-run.

 

Mintert cited several key drivers of beef demand. In particular, he pointed out that consumers clearly value convenience and are receptive to credible, positive information about beef consumption as it relates to human health and nutrition. Finally, he pointed out, food safety is still an important issue to U.S. consumers and remains an issue on which the industry needs to continue focusing attention and resources.

 

“Consumers expect food to be safe,” Mintert said, pointing out that for each 10% increase in beef food recalls, their demand model revealed a 0.2% decline in beef demand. Fortunately, in most time frames the number of recalls is relatively small, but when the number of recalls increases sharply, it can have a significant effect on beef demand. For example, a sharp increase in beef food safety recalls in 2007 compared to 2006 pushed domestic demand down by about 2.6%.

 

“That confirms the need for the beef industry to be proactive on food safety issues,” he said.

 

Consumers also respond to receipt of information about health and nutrition as it relates to beef consumption, Mintert said. Publication of information focusing on the linkage among beef consumption, cholesterol and heart disease continues to have a negative effect on beef demand. For every 10% increase in published articles in medical journals focusing on this relationship, the demand model picked up a 0.2% decline in beef demand.

 

However, Mintert said, the demand model also revealed that consumers respond to publication of positive information. For example, consumers responded to the receipt of positive information about beef consumption during the height of the Atkins Diet's popularity. And increased consumer awareness regarding beef as a good source of dietary protein, iron and zinc also has been positive. Results from the demand model revealed that a 10% increase in publication of positive articles referencing zinc, iron, protein and diet translates to a 0.25% increase in demand.

 

“The real message is that consumers respond to the receipt of credible information as it relates to beef consumption, health and nutrition," Mintert added. "To take advantage of this, the beef industry needs to identify more positive messages emphasizing beef’s nutritional properties and communicate that information to consumers.”

 

Consumers also value convenience. Mintert noted that their demand model indicated that as consumer demand for convenience went up, beef demand declined but poultry demand actually increased.

 

"One reason this occurred," he explained, "is the poultry industry has been very aggressive in developing and introducing products that are convenient."

 

As further evidence of consumer demand for convenience, Mintert pointed out that, even during the most severe recession of the last three decades, U.S. consumers were not willing to give up the convenience of eating at McDonalds and, as a result, McDonalds has continued to prosper despite the overall weakness in consumer expenditures.

 

“Convenience is incredibly important to today’s busy consumers. To be competitive in the future, the beef industry needs to focus on developing and marketing new convenient beef products,” Mintert added. “Even when budgets are tight, consumers are willing to pay for convenience.”

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