Duplicitous Demand: Down Overall Except Premium Steaks

Personal income declines cut protein consumption overall while demand for some branded beef products increases.

Published on: Aug 22, 2013

Two recent studies from Kansas State University economists show consumer incomes are very sensitive to price increases for beef, while top-quality branded products are more immune.

Previous research documents the importance of consumer incomes and personal consumption expenditures on beef demand. Increases in income lead to increases in demand (i.e., a shift out and to the right) for consumer goods, including beef, because consumers increase their expenditures as incomes rise

A chart of U.S. consumer disposable income and personal consumption expenditures since 1980 from the U.S. Department of Commerce shows long-term growth in the economy progressing in lockstep with "personal consumption expenditures."

Personal income declines cut protein consumption overall while demand for some branded beef products increases.
Personal income declines cut protein consumption overall while demand for some branded beef products increases.

The two lines took a large dip in the 2008-2009 timeframe.

The economists said this chart also makes it clear that U.S. consumers tend to consume most of every dollar of additional income as personal consumption and that when disposable income declines that consumption declines.

However, they also noted that declines in spending can be slightly greater than declines in income based on consumer confidence. That's because consumer confidence is partly measured by the personal savings rate, which then impacts demand.

When consumers are more confident about their economic prospects, they tend to reduce their savings rate. When confidence declines, the savings rate increases. In the short run, dollars devoted to savings are not available for consumption.

Further, as all meat prices have risen in recent years consumers have cut their consumption, the researchers said.

Overall, U.S. consumers' per capita consumption of meat and poultry declined nearly 10%. It fell from a peak of 221 pounds in 2006 to 202 pounds in 2012.

Duplicitous Demand: Down Overall Except Premium Steaks

Beef consumption declined more than pork or chicken, falling to 57.4 pounds in 2012. That was a 13% decline from 2006 levels. In contrast, pork and chicken consumption both declined about 7% in the same period.

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Amazingly, in the face of such demand erosion, Choice beef products have increased sales and Certified Angus Beef has continued to post new demand records. The phenomenon was studied by Kansas State University Economist Ted Schroeder and Lance Zimmerman, now an analyst with Cattle-Fax.

The study was published as a white paper and can be found on the CAB website. The economists developed three indexes: one for USDA Choice-and-higher, one for CAB, and one for non-branded USDA Choice beef. All this was for 2002 to 2012.

They said aggregate USDA Choice-and-higher beef demand increased 52% during the study, improving as much as 25 points in a single year. CAB demand increased 79% in 10 years. Choice demand improved 3% during the same period but advanced as much as 20 points in one year.

The researchers suggest premium beef products may need separate consideration in industry measurements for the overall beef demand index.

In summary, however, the economists said they measured real demand increases for quality beef products, especially CAB.

They added that CAB brand carcass-based premiums remain strong, often adding as much as $5 per hundredweight to the price of qualifying cattle.

"These premiums can likely be sourced to the pull-through demand created by CAB," they said.

They also suggested that additional demand creation will continue to offer new opportunities for brand producers throughout the vertically coordinated supply chain.