Changes in Demand for Meats

To this point the discussion has focused on structural changes for the various meat sectors relating to changes in technology, genetics, and/or marketing strategies. Changes in consumer demand for meat, however, also have played a major role in these structural modifications. While changing consumer demand has influenced the market for all types of meat, the change that has the largest potential for challenging traditional American agricultural institutions in recent years has been the dramatic weakening in beef's competitive position.

An emphasis on nutrition by consumers in the United States has changed the demand for food products and especially meats. Consumers believe that diet influences the probability of experiencing health problems or diseases such as high blood pressure, cancer, and heart disease. This increased concern has resulted in a shift away from a high-fat, high-protein diet (Barkema et al.). Figure 1 points to a trend of more fresh vegetables and fruits in the American diet. Table 3 shows that of the top ten foods for which per capita consumption has increased (between 1976-78 and 1986-88) over half have been fruits and vegetables. Veal, beef, and lamb, on the other hand, have experienced significant declines in consumption over the same period.

Additionally, there has been a shift toward more convenience in food preparation. Three-fourths of the women aged 25-54 in the U.S. are now in the work force, compared to about one-half 20 years ago (Barkema et al.). Thus, with more households having two working adults, less time is spent preparing meals. More consumers are choosing to eat away from home or purchase foods already partially prepared.

Given these changes in consumer tastes and preferences, beef must now compete more directly for each dollar spent on meat than was the case 20 years ago. Figure 2 shows the trend in consumption for red meat and poultry. Overall, per capita consumption of red meat and poultry has not changed that much, but when beef, pork, and chicken are examined separately, beef appears to be losing market share to chicken. A negative trend in beef per capita consumption has occurred, while per capita consumption of pork has remained stable, and the per capita consumption of chicken has increased (Figure 2).[7] Moschini's results showing an average annual decline of 2.53% in the beef-to-chicken demand ratio between 1967-1984 underscore the dramatic loss of market share the beef industry has experienced in recent years.

To better answer the question why beef lost market share to other meats, it is necessary to examine the concept of consumer demand in more detail. Consumer demand is the relationship between the price of a product and the quantity of that product which consumers are willing and able to purchase, while all other influences in the market are held constant. As the price of a product increases, the quantity demanded decreases. The reverse is true of quantity demanded if price decreases. Other factors in the market which may influence demand include the level of consumer incomes, prices of competing products, and consumers' tastes and preferences.

To this point, trends in per capita consumption have been discussed, but the concept of demand really deals with the price-quantity relationship. Purcell (1989b) suggests that measures taking into account only the percentage of income spent on beef, or per capita consumption, fail to capture the true picture of demand. Prices for beef, and other competing meats (mostly pork and chicken) must be considered in conjunction with the corresponding quantities of the product consumed when analyzing demand for these meats.

Figures 3-5 demonstrate the relationship between deflated (1982-84=100) retail prices and consumption for beef, pork, and chicken, respectively. Figure 3 shows a relatively stable demand for beef in the 1970's. That is, the quantity of beef demanded appeared to increase or decrease based on changes in price. However, after 1979 less beef appears to have been demanded at each level of price relative to earlier periods. This suggests there has been a significant downward (negative) shift in the demand for beef since 1979. Also, the relationship between price and per capita quantity of beef demanded appears to be "flatter" since 1979 than it was previously. That is, increases in the per capita quantity of beef consumed were accomplished only with larger prices decreases than was true prior to 1979 (Figure 3). This indicates that after 1979 consumers have become more willing to substitute competing products for beef as the price of beef increases and less willing to substitute beef in place of other meats as the price of beef decreases.

The downward shift in, and change in the slope of the demand curve for beef since 1979 has been caused by some factor(s) other than the price of beef, i.e., incomes of consumers, prices of related products or changes in consumers' tastes and preferences have changed. Real consumer income has increased during the last 20 years, and demand for beef should have been positively impacted, assuming beef is a normal good. Consequently, something other than changes in consumer income must have caused the decreasing demand for beef during the last two decades.

Figures 4 and 5 explore the price-quantity relationships of meats that are substitutes for beef. Figure 4 indicates a more stable demand for pork than for beef during the same time period. However, some of the same patterns exist for pork as for beef. During the 1970's and early 1980's, the inverse relationship between price and the quantity of pork consumed is quite evident. Then a slight downward shift in demand is seen in the mid-to-late 1980's, i.e., less pork was demanded in the late 1980's at prices approximately equal to those in the 1970's and early 1980's. The demand for pork appears to have stabilized since the late 1980's in contrast to the apparent continuing downward trend in the demand for beef.

The price-quantity relationship for chicken (Figure 5) suggests a much different set of circumstances than for beef or pork. Chicken consumption has increased continually since the 1970's as real prices have declined. This suggests that increased quantities of chicken have been produced at lower costs during the past 15 years and have been provided to consumers at continually lower prices.

This price advantage, at least partially, may explain a shift from beef consumption to chicken consumption. This price advantage may not explain the total change in beef demand, however (Purcell, 1989b). There has likely been a structural shift in beef demand stemming from issues concerning convenience and health concerns as well.

The marketing of beef has changed relatively little over the last 20 years. Most beef carcasses are cut into products which are grouped either as prime, choice, or select grades. Cattle feeders get a higher price for prime and choice cattle than select. Moreover, feeders tend to put more fat on animals to achieve the prime and choice grades which increases feed costs. By encouraging feeders to produce excess fat, the grading and pricing system has increased production costs and caused feeders to produce a product conflicting with consumers' preferences for leaner beef (Barkema et al.).

Survey results (Purcell, 1991) clearly show consumers do not perceive beef as being competitive with chicken in terms of offering low fat and low cholesterol product lines. A study completed by Menkhaus et al. reports results similar to those of Purcell (1991). The Menkhaus et al. study indicated that consumer concerns with beef were related to cholesterol, calorie content, artificial ingredients, convenience characteristics (microwaveable and storage), how it is displayed in the store, and price (too expensive). Each of these factors exhibited a statistically significant negative effect on the quality perception of beef compared to other meats.

The poultry industry has been more responsive to the changes in consumer lifestyles than the beef industry by providing products which address health and convenience concerns. The proliferation of chicken products has, without doubt, also increased the demand for chicken, and, in turn, has reduced the market share of other meats such as beef and pork. Reynolds states that much of the positive perception position enjoyed by chicken is as much the result of packaging, positioning, and product form as it is the product itself and its pricing. Reynolds goes on to state that, based on survey results, chicken is an entirely different product in the eyes of consumers than it was 20 years ago, while beef's image is virtually unchanged.

The decline in the demand for beef has serious implications for the beef industry. This change in demand has probably played a major role in the structural change experienced in the beef industry. Purcell (1989a) states the decreasing demand for beef was the catalyst for forced changes in the industry that will shape and influence it for years to come. The beef industry, while starting to make changes in its marketing strategies, needs to continue efforts in the areas of product development and advertising which address health and convenience issues. Biotechnology needs to address the issues relating to lower feed conversions and the production of leaner muscle tissue. Otherwise, the beef industry could face a continued trend toward a shrinking market share.

In the near term, it appears likely that beef will continue to lose market share to poultry and pork. If the total demand for meat stabilizes or lessens over time, then real beef prices will decline to compete with other meats keeping continued pressure on the beef industry to reduce costs. A shrinking market share and increasing carcass weights both imply that fewer cattle will be needed in the future in the United States unless something is done to stem these trends.

Increasing beef exports is an important market strategy that may offer at least a partial short-run solution for U.S. beef producers to keep cattle numbers stabilized. As the domestic market for beef declines or even if it stabilizes, meatpacking firms will increase their efforts to export more beef. The demand for beef appears to be growing in the emerging economies of the world. However, this type of market will be much less stable than the domestic market and will face stiff competition from lower priced competitors such as Australia and Argentina.

More market coordination in the beef industry is needed and likely will evolve over time. An increased dependence on contractual arrangements between firms within the beef marketing channel probably will be the means for achieving market coordination. If coordination is not achieved by integration then growing pressure will exist for beef producers to be part of a "system" in order to market their cattle at the best prices.

The prospect of the cattle industry moving to a more coordinated system will have consequential impacts on where cattle are born, backgrounded, and eventually fed. It is possible that processors could control supplies from birth through processing, with contracts or through ownership. For example, through contractual arrangements processors may seek to become more efficient by minimizing total production costs throughout the system, including transportation, labor, feed, and management costs. It is almost certain that streamlining the system will result in some regions of the country becoming net gainers and some net losers in cattle numbers. This is especially true if the North American Free Trade Agreement is ratified since U.S. cattle producers would not only be competing among each other but also with producers in Mexico and Canada not only for cattle, but also all other inputs including feed and labor.

As noted earlier, it is possible that hog and poultry operations may begin to concentrate closer to final markets rather than to feed sources. This would result in an increased ability to provide services to consumers by poultry and pork producers. However, it is unlikely that beef processing facilities will follow this same pattern in the foreseeable future unless industry conditions change, since beef's relatively high feed conversion compared to poultry and pork makes transportation costs higher for feed than for final products.

A movement toward more market coordination in the meat industry suggests that the traditional roles played by extension agents and specialists servicing this industry will be significantly altered, limited, or possibly eliminated. Consequently, the CES will need to redefine its role relating to producers and agribusinesses operating in an integrated system. The changes in the poultry industry and the accompanying changes in extension poultry programs may provide some insight into some potential future challenges and opportunities for other extension programs servicing the meat industry.

The growth in the broiler industry has been accompanied by a decline in the number of FTE's in extension poultry programs. For example, the number of poultry science departments and extension poultry scientists has dwindled rapidly in recent years. One industry expert believes that only five or six independent poultry science departments will exist in the land grant system by the year 2000 (Hargis).

Hargis suggests that the reason for this decline is: 1) CES personnel have not kept up with the rapid changes that have occurred in the poultry industry, and 2) the CES is organized by states while the industry is organized on a regional (multi-state) basis. Maintaining the expertise necessary to remain current in the broiler industry requires spending a significant amount of time and travel money. Hargis believes that a poultry specialist needs to spend two or three days per week with the industry to be able to provide service at the level required by this industry.

Those poultry science departments that have managed to maintain active extension programs have developed relationships with the industry at the corporate level rather than just the producer level. Corporate level contacts and working relationships are essential for extension production scientists since that is where virtually all decisions are made for the entire system. This is why a recognition of differences in organizational schemes between the CES and the poultry industry is critical since the same regional manager for a poultry company may supervise plants in several states. Since the industry decision makers operate regionally, it also may be necessary for the CES to develop regional programs to build relationships with the poultry industry. The regional concept also allows for specialization for production scientists which Hargis believes is an essential element for a successful poultry extension program.

Some of Extension's basic educational role will remain. For example, producers will still need to be educated about the advantages and disadvantages of different types of contracts and will also need to understand the changes in the marketplace that result in structural changes in how livestock are produced and marketed. The need for environmental education will increase for producers and agribusinesses since the animals will be raised in high concentrations of animal numbers on relatively small areas of land. However, many of the traditional extension roles related to production and health, as well as market outlook and traditional marketing education, will be reduced or eliminated, at least for that part of the sector beyond the feeder animal production stage. Programs oriented toward alternative contractual arrangements and negotiation may become more important.

While the role of production scientists may narrow to specializations within a discipline, the role of extension economists is less clear. For example, a critical need will exist for market policy analysis at every point in the marketing channel suggesting that extension economists may need to broaden their role to a systems approach rather than the more traditional role of commodity market educator. A systems approach to market policy education would include not only education about the effects of government policy on grain prices or traditional risk management, but would extend to domestic and international market policies and economic conditions for the final product. In other words, market policy analysis would be extended to education about developing market strategies for final products in a variety of markets and would view commodities as simply inputs in that process. Conversely, the role of extension economists could also narrow to specializations within the areas of agribusiness management and/or planning.

While the structure of the beef industry has changed greatly in that the degree of market coordination between the packer and the feedlot sectors has increased, these changes have been less prevalent between cow-calf and feedlot firms. The production of feeder animals does not lend itself well to the "factory" type production which is evident in the feeding and processing of cattle. That is, labor is not as specialized in cow-calf production as it is in other sectors. Moreover, the land resource is much greater in cow-calf enterprises than in other parts of the beef industry. Thus, it is likely many of the traditional extension programs will continue to be relevant in regions of the country dominated by cow-calf producers. The entire beef system must become more responsive, however, to the needs and wants of domestic consumers and the dynamic global market environment. As a result, the traditional extension marketing programs also will need to address these market forces which continue to provide the impetus for structural change in the livestock and meat system.

The U.S. beef sector is following the pattern of many other agricultural industries by evolving as it responds to changes from social and economic pressures. This changing system, in many respects, is consumer driven and will evolve to facilitate communication from the consumer to the producer. In this sense, the traditional commodity-oriented beef sector is becoming more marketing-oriented. Thus, understanding domestic, as well as international consumers, and satisfying their needs and wants through marketing products meeting those needs and wants, will be the basis for successful marketing in the future (Senauer et al.). Extension can play an important role in moving the beef industry toward a marketing-orientation by facilitating communication among the sectors within the industry.

Finally, multidisciplinary extension efforts, involving extension production (animal and forage) scientists, nutritionists, food scientists, and economists may become more prevalent. Just as there is a need for more communication in the beef industry, increased communication among extension professionals in relevant disciplines also is needed. Such activities can stimulate educational programming needed by beef industry participants to aid them in becoming more competitive in an ever increasingly complex industry and market environment.

Bailey, D., T. F. Glover, N. P. Johnston, J. L. Park, and G. R. Erikson. "Economic Feasibility of An Integrated Broiler Business in Southwestern Utah." Contract Completion Report to Millard County, Utah. Department of Economics, Utah State University, Logan, UT. August, 19, 1992.

Barkema, A. and M. Drabenstott. "A Crossroads for the Cattle Industry." Economic Review. Federal Reserve Bank of Kansas City. November/December, 1990:47-60.

Barkema, A., M. Drabenstott, and K. Welch. "The Quiet Revolution in the U. S. Food Market." Economic Review. Federal Reserve Bank of Kansas City. May/June 1991: 25-41.

Carroll's Foods. "Financial Performance Contract Finishing: 880 Head Unit." Copies of Overhead transparencies used at a presentation to potential contract hog producers. Milford, Utah. February, 1993.

Hargis, P. H. Extension Poultry Science, University of Arkansas, Fayetteville, AR. Personal communication. April 1992.

Harper, L., D. Kenyon, and S. Thomsbury. "The Financial Feasibility of Finishing Feeder Pigs Under Production Contract in Virginia." Department of Agricultural Economics, Virginia Tech., Blacksburg, VA. no date given.

Langemeier, M. R. Extension Agricultural Economist, Kansas State University. Personal Communication. January, 1993.

Laseley, F. A., G. B. Jones, Jr., E. H. Easterling, and L. A. Christensen. The U. S. Broiler Industry. Washington D.C.: U.S. Department of Agriculture, ERS. Agricultural Economics Report No. 591. November, 1988.

Madison, M. U.S.D.A., ERS. Personal communication. March, 1993.

Menkhaus, D. J., D. P. M. Colin, G. D. Whipple, and R. A. Field. "The Effects of Perceived Product Attributes on the Perception of Beef." Agribusiness: An International Journal 8(1993):57-63.

Moschini, G. "Testing for Preference Change in Consumer Behavior: An Indirectly Separable, Semiparametric Model." Journal of Business and Economic Statistics 9(1991):111-117.

Park, J. L. Economic Feasibility of A Fully Integrated Broiler Complex in Southwestern Utah. Master's thesis. Department of Economics, Utah State University, Logan, UT. 1992.

Purcell, W. D. "Consumer Survey for Beef by Socioeconomic Profile of Consumers and Related Merchandising and Promotion Strategies." Research Bulletin 4-91. Research Institute on Livestock Pricing, Department of Agricultural Economics, Virginia Tech., Blacksburg, VA. June 1991.

Purcell, W. D. "Structural Change in The Livestock Sector: Causes, Implications, and Continuing Issues." in Structural Change in Livestock: Causes, Implications, Alternatives. W. D. Purcell (ed.). Research Institute on Livestock Pricing, Department of Agricultural Economics, Virginia Tech., Blacksburg, VA. February, 1990.

Purcell, W. D. "The Case of Beef Demand: A Failure by the Discipline." Choices. American Agricultural Economics Association. 2nd Quarter, 1989a:16:19.

Purcell, W. D. "Analysis of Demand for Beef, Pork, Lamb, and Broilers: Implications for the Future." Research Bulletin 1-89. Research Institute on Livestock Pricing, Department of Agricultural Economics, Virginia Tech., Blacksburg, VA. July 1989b.

Reynolds, Bob. "Beef vs. Chicken: The What's and Why's of the Consumer Preference Shift." in Lean Trimmings: Western States Meat Association Newsletter, JoAnne Mocker (ed.). June 1, 1992.

Rhodes, V. J. and G. Grimes. "U.S. Contract Production of Hogs: A 1992 Survey." Agricultural Economics Report 1992-2. Department of Agricultural Economics, University of Missouri, Columbia, MO. 1992.

Senauer, E., E. Asp, and J. Kinsey. Food Trends and the Changing Consumer. St. Paul: Eagan Press. 1991.

U.S. Department of Agriculture. Food Consumption, Prices, and Expenditures 1970-1990. J. J. Putnam and J. E. Allshouse. ERS, Statistical Bulletin Number 840. August, 1992.

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U.S. Department of Agriculture. Livestock and Meat Statistics, 1984-88. ERS, Statistical Bulletin Number 784. September, 1989.

Ward, C. E. "Structural Change: Implications for Competition and Pricing in the Feeder-Packer Subsector." in Structural Change in Livestock: Causes, Implications, Alternatives. W. D. Purcell (ed.). Research Institute on Livestock Pricing, Department of Agricultural Economics, Virginia Tech., Blackburg, VA. February, 1990.

Ward, C. E. "Meatpacking Industry Changes: Causes and Consequences." Agricultural Economics Paper 92137. Department of Agricultural Economics, Oklahoma State University, Stillwater, OK. December, 1992.

1. Structural change is defined as changes in the number and/or size of firms in an industry. It can also relate to changes in the ease of entry into or exit from an industry or the amount of product differentiation in an industry.
2. Producers are paid a flat fee for each pound of weight gained by the broilers. Producers also receive a bonus for each pound of weight gained if feed conversions are better than a certain base specified by the contractor.
3. Only two shifts are normally operated per day since time is required for cleaning and maintenance of the plant and equipment.
4. Tray packing operations place cut-up chicken in trays that are then overwrapped with plastic. Tray packed products are designed for the retail food market (super markets). Deboned products usually are sold to the hotel-restaurant-institution sector (HRI) or are processed even further for packaged chicken products (e.g., chicken nuggets, food entrees, etc.).
5. Rhodes and Grimes suggest that many large contractors recruit and train inexperienced persons to raise their pigs and hogs because of the negative attitudes of many experienced producers toward contracting.
6. This can be illustrated by a recent study that estimated the costs of shipping feed to support a proposed fully-integrated broiler complex in Utah would be about $0.10/bird, while the cost of shipping a bird in a refrigerated truck from Arkansas to Utah would be $0.12/bird (Park).
7. Moschini also found that the beef-to-pork demand ratio between 1969 and 1984 remained stable.

Dee Von Bailey is a Professor and Extension Marketing Specialist in the Department of Economics, Utah State University. Chris Bastian is a Research Associate and Lecturer in the Department of Agricultural Economics, University of Wyoming. He also does extension programming in the agricultural marketing area. Bailey and Bastian are members of the Western Extension Marketing Committee. Terry F. Glover and Dale J. Menkhaus are Professors in the Department of Economics, Utah State University, and the Department of Agricultural Economics, University of Wyoming, respectively.

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