Semantic confusion: beef availability, consumption and demand

Feb 24, 2012

Anti-animal ag groups like the Humane Society of the United States have been crowing over recent reports of declining domestic demand for beef. But their cheers might be not only premature, but wholly misplaced. The reality of the so-called decline is far from what it seems on the surface.

Mainstream news has been dotted with reports claiming the American consumer has been increasingly turning away from meat since the late ’70s. But as with many things, the devil is in the details. In the case of beef consumption and demand, many of these devilish details are semantic and involve misleading use of words.

Beef consumption per capita is defined as the beef supply divided across the population. Beef supplies are affected by things like domestic production, exports and imports. In terms of a formula, the simple version would look like this:

((domestic production – exports) imports)/population = per capita beef consumption

You might notice that nowhere in the equation is consumer behavior involved. This is because this version of consumption refers to availability. USDA’s use of the word “consumption” is misleading when what it is actually measuring is how much beef is available to each U.S. consumer. Those wanting finer detail and subtlety on the concept may prefer the idea of per capita disappearance since not all beef removed from the market by consumers is consumed (i.e. eaten) as common use of the phrase suggests.

Considering the 60-year low numbers of the current beef herd, the low beef imports in recent years, the growing export market and the growing U.S. population, it’s little wonder this version of consumption shows a decline. There’s not only less beef to go around, there are more mouths to which it can go around. While it’s true consumers can’t consume what isn’t available, using “consumption” where “availability” would be more appropriate gives the wrong impression. This confusion is deepened when media outlets run with the numbers and confuse the meaning of other relevant concepts: consumption and demand.

In many reports heralding the decline in meat consumption, the words “consumption” and “demand” are used synonymously or in ways so close as to blur their relevant differences.

Despite USDA’s confusing use of the word in place of availability, “consumption” refers to how much of an item—in this case, beef—is consumed. No revelation there. Demand on the other hand is a more multifaceted concept involving both price and quantity elements. According to James Robb, director of the Livestock Marketing Information Center, demand has two dimensions, “what [consumers] are willing to consume and what they are willing to pay for it.”

Robb stressed that demand and consumption can be going in opposite directions and still be accurate of the market. Consumption can be down but demand can be up; such is the case of beef right now.

Using all three words— availability, consumption and demand—synonymously, or in a way suggesting equivalence, gives a horribly skewed vision of the situation, particularly when they are all being tied to availability. Yes, the amount of beef available per person in the U.S. is down. And as a matter of course, beef consumption per person is down since non-existent beef can’t be consumed. But that does not mean demand is down, and this is the detail of which ranchers and meat retailers should take note.

Consumer demand for beef is generally tracked in terms of consumer demand indexes. Though extensive research and factors go into creating these indexes, simply put, they track customer consumption (availability) adjusted to reflect demand, particularly prices they are willing to pay for beef. As can be seen in the accompanying graphic showing retail fresh beef demand, demand has started going up in 2011.

The Department of Agricultural Economics of the University of Missouri- Columbia (MU) recently released a fact sheet regarding meat and poultry demand in the U.S. In their abbreviated report, it was pointed out that consumer meat demand is typically measured based on purchasing behavior coupled with prices adjusted for inflation.

In situations where the price of meat increases faster than the rate of inflation, yet purchasing behavior at least remains steady or grows, that is indicative of increased demand. When prices of meat increase more slowly than the rate of inflation and purchasing behavior stays steady or falls, that is a situation of declining demand.

The MU fact sheet reports meat prices in recent years have increased much faster than the rate of inflation, but purchasing behavior has dropped only slightly. This indicates a situation of growing demand.

Robb reiterated this fact in an interview and in a recent report made to the Nebraska Cattlemen’s Association. “Compared to a year ago, consumers have consumed less beef but have willingly paid relatively strong prices. So there are reasons to be cautiously optimistic regarding U.S. consumer demand for beef…” A recently released study conducted jointly by the Beef Checkoff Program, the Pork Checkoff Program, the National Cattlemen’s Beef Association, the National Pork Board’s retail marketing division and Sealed Air Cryovac Food Packaging Systems has also uncovered facts suggesting Americans continued or growing demand for meat.

Among its other conclusions, the “2010 National Meat Case Study” documented potential lost sales in the form of empty sections of retail meat cases. In what it called “zero stock analysis,” the study recorded the number of times and types of items for which a case location was allocated, but stood empty at the time of audit. This was interpreted as instances of unmet consumer demand.

Among the most common unavailable beef items were boneless sirloin/top sirloin steaks, boneless ribeye steaks and cubed steaks. In pork, the most frequently unavailable items were bone-in loin/top loin and chops, spare ribs, unflavored tenderloin and back ribs. In the latter two pork options, audited cases had a 24 and 27 percent zero stock analysis respectively, meaning that roughly a quarter of the time these items were bought up and thereby unavailable to other customers despite meat cases having space for them.

Customers’ willingness to pay higher prices for meat and certain cuts being quickly bought up is realworld evidence of consumer demand for meat. Filling those empty meat case slots would make up lost opportunity in the face of consumer demand. — Kerry Halladay, WLJ Editor