Beef demand. What is it, and how can...

Feb 27, 2009
by WLJ

Beef demand: What it is and what is isn’t

Oftentimes, demand is confused with consumption. Actually, per capita consumption is best seen as a "disappearance" number. As agricultural economist Dr. Wayne Purcell explains: "Add beginning inventories and production to imports, then subtract ending inventories, exports and disappearance, and divide by population." As a disappearance number, we "consumed" an estimated 65.2 pounds of beef per capita in the U.S. in 2007, for example, because that is how much beef we had in the U.S. But that number has a lot to do with supply and availability—and little, if anything, to do with demand.

Instead, beef demand is the set of quantities of beef that consumers will purchase at different prices. If, for example, we have a quantity of 65.2 pounds of beef per capita to sell, it is price that will adjust to clear the market—and the price that consumers are willing to pay will depend on how much consumers like the product offerings, as well as the price of other meats, and consumer income levels.

A correlation might help: "Some years, Ford builds too many pickups and as the model year nears its end, they offer huge discounts to get them off the lots," Purcell notes. "All the current year pickups will be sold, or consumed, but we certainly would not say the demand for Ford pickups is robust when the prices have to be cut in half to get them sold. Similarly, if you are a purebred breeder and seller of bulls, is there not a problem with demand if the only way you can sell as many bulls as last year is at a 20 percent decline in price?"

Purcell encourages producer groups to run speakers out of the room if they come in talking about consumption as a measure of demand. If we focus on availability, he says, then we ignore the desirability of what we offer—and we go, as we did for nearly 20 years, with an unacceptable product offering where up to 25 percent of the steaks and roasts from Choice beef were too tough to chew.

Demand will only be forthcoming, Purcell says, if we understand demand and offer consumers what they want in the form of a continuing series of new quality-controlled products. There simply has to be a consumer-level willingness to pay that supports and finances all this progressive change over time. — WLJ