Factors in Beef Demand
Consumer expenditures on beef are ultimately what determine the size of the pie of dollars available for participants in the beef supply chain—cow/calf producers, feeders, packers, wholesalers, and retailers. What drives consumer demand for beef? A paper written in 2018 by Agricultural Economists Glynn Tonsor, Jayson Lusk, and Ted Schroeder of Kansas State and Purdue Universities for the Cattlemen’s Beef Board explored this question. The objective was to assess factors affecting domestic beef demand.
Economists often speak of elasticities. Elasticities measure the responsiveness of quantity demanded or supplied given a change in a variable affecting demand or supply, price for example. In economic parlance, strong sensitivity to price changes is termed elastic, while weak sensitivity to price changes is termed inelastic. Tonsor et al. found the quantity of beef purchased has become more inelastic or less sensitive to changes in beef prices. The authors estimated a price elasticity of 0.479—a 1 percent increase in the beef price results in a decrease in per capita beef consumption of 0.479 percent. The authors also estimated the impact of pork and chicken prices on beef demand is relatively small with elasticities of 0.087 for pork and 0.023 for chicken.
So, the prices of beef or competitor proteins in the meat case are not as much of a factor for beef demand. Then what factors affect beef demand? Consumer incomes for one. The researchers found a 1 percent increase in total consumer expenditures will increase beef demand by 0.803 percent. Thus, beef demand is increasingly sensitive to overall macroeconomic conditions and consumer willingness to spend. Other factors include taste, appearance, convenience, and freshness.
The Livestock Market Information Center (LMIC) calculates quarterly and annual retail demand indexes for beef with 2000 as the base year. The index is a function of price elasticity, retail prices, and the Consumer Price Index (CPI). The higher the index, the better the demand for beef relative to 2000. Figure 1 shows the annual indexes between 2000-2021. As Figure 1 demonstrates, the demand for beef has strengthened in recent years compared to previous years. Last year’s annual index was 125, the highest for the period. And, during the fourth quarter of last year, the index registered 138, the highest ever, but slipped a bit in the first quarter of this year to 134, but still the highest first quarter index since 2000.
The paper by Tonsor et al. showed beef demand is not as sensitive to beef prices as it once was. On the other hand, beef demand is sensitive to consumer incomes and expenditures as well as other attributes like taste, appearance, and freshness. The LMIC Beef Demand Index shows the demand for beef has been strong in recent years. However, economic growth appears to be slowing with the economy possibly heading towards a recession. A drop in consumer confidence and spending on beef could be in the offing.
Figure 1. LMIC Beef Demand Index