Meat Traceability and Consumer Willingness to Pay

1. Meat Traceability and Consumer Willingness to Pay DeeVon Bailey, Ph. D. and David L. Dickinson, Ph. D. Department of Economics and Cooperative Extension Service Utah State University Logan, Utah USA

2. Reasons for Traceability • Lumber – protection of “old-growth” forests • Diamonds – reduce trade in “conflict” diamonds • Food – food safety/food quality

3. Traceability: Food Safety • BSE • Problem originates with farm-level inputs • Traditional systems geared to identify pathogens not BSE • Collapse of consumer confidence in EU during 1990s BSE crisis • Led to the development of new food monitoring systems • Traceability as a foundation • Accountability at each level of the food marketing chain beginning a farm level • Traceability can hasten identification of the source of problems and product recall • Biosecurity

4. Traceability: Food “Quality” • Intrinsic vs. Extrinsic characteristics • Intrinsic – perceived by senses • Grading • Tastes • Extrinsic – extra sensory characteristics that are “invisible” but still valued by some consumers • Animal welfare • Environmental responsibility • Social responsibility

5. The Hierarchy of Consumers’ Food Preferences. Source: Jean Kinsey, University of Minnesota

6. Issues in Trade/Market Friction • Research suggests the US has fallen behind some its major competitors and trading partners in providing traceability systems (Liddell and Bailey) • US received lowest “score” for traceability, transparency, and extra assurances (TTA) when compared to: • Denmark • UK • Canada • Australia and New Zealand • Japan

7. Public vs. Private Goods • Traceability systems have been implemented for different reasons and at different speeds • EU – public health issue = public good = regulatory requirement • US – market issue (willingness to pay) = private good = private marketing chain decision

8. Are Consumers Willing to Pay (WTP) for Traceability and Characteristics that Can Be Verified With Traceability? • Data are not available on a public basis • Level of public information and awareness different in different countries so the answer will vary by country • US vs. Canada • US vs. EU • Cost of collecting market (retail) level may be prohibitive • An alternative to obtain an initial answer is to conduct auction experiments

9. Auction Experiments • Auctions were conducted with groups of 13-14 people • Different demographic groups represented in each auction • University faculty • Students • Professional staff • Classified staff • Placed bids on meat characteristics

10. Location of Auction Experiments • Logan, Utah, USA – beef and ham • Saskatoon, Saskatchewan, Canada – beef and ham • Cirencester, Gloustershire, England - ham • Tottori, Japan - ham • Four groups participated in each auction location for the meat type indicated

11. Auction Procedures • Each participant provided approximately CDN $20 in local currency and a “free” lunch with a baseline sandwich • Subjects were told that the baseline sandwich met current standards for food safety enforced by their government • Subjects were allowed to place bids to exchange their baseline sandwich for a sandwich identical in every way except for certifications about different meat characteristics (Shogren et al. 1994)

12. Alternative Sandwiches • Sandwich 1 – offered assurances about the humane treatment of the animals used to produce its meat • Sandwich 2 – offered extra assurances about testing for the sake of food safety • Sandwich 3 – indicated that the animal used to produce the meat could be traced to the farm from which it came • Sandwich 4 – combined attributes of Sandwiches 1-3

13. Bidding and Other Information • Sealed-bid, Vickery-style auction was held • Participants bid on what they would pay to exchange the baseline sandwich for the “upgraded” sandwiches • Ten rounds held for each sandwich (40 total bids/participant) with the “winning” bid announced at the end of each round • Binding round and sandwich selected at random at the end of the experiment • Participants filled out a questionnaire that provided demographic and other information

14. Results

15. Beef in USD Animal Welfare $0.48 (16% premium) Food Safety $0.60 (20%) Traceability $0.21 (7%) Combined Attributes $1.05 (35%) Beef in CDN Animal Welfare $0.65 (13% premium) Food Safety $0.62 (12.4%) Traceability $0.34 (6.8%) Combined Attributes $1.30 (26%) Average Bids During Final Five Rounds in the US and Canada for Roast Beef

16. Ham in USD Animal Welfare $0.60 (20% premium) Food Safety $0.69 (23%) Traceability $0.54 (18%) Combined Attributes $1.29 (43%) Ham in CDN Animal Welfare $0.63 (12.6% premium) Food Safety $0.66 (13.2%) Traceability $0.34 (6.8%) Combined Attributes $1.07 (21.4%) Average Bids During Final Five Rounds in the US and Canada for Ham

17. TABLE 1: Average willingness-to-pay rankings of TTA attributes (average WTP for a TTA attribute(s) is the average across all subjects and all rounds for a given experiment group) Animal Treatment Animal Treatment Food Safety Combined Attributes Combined Attributes Combined Attributes *, **, *** denote significance for the two-tailed test at the .10, .05, and .01 levels, respectively. Friedman test assumes that average bids across different experiments are mutually independent but that average bids may be ranked (according to some criteria, such as WTP) across attribute types (see Conover, 1999, p. 369)

18. Comparisons of WTP • Bids were higher for meat with all three combined characteristics than for meat with only one characteristic (traceable system can track multiple characteristics) • Traceability alone is less valued than either food safety or animal welfare in the US and Canada • There was no significant difference in average bids for individual characteristics in the UK and Japan • Suggests traceability equally as valued as the other characteristics in markets that had experienced BSE by the time the auction experiments were held – profitable markets for TTA already exist in these markets • How has this changed since BSE discovery in Alberta?

19. Do Demographic Characteristics Matter?

20. Characteristics Included in Regressions • Sandwich type – Sandwich 3 (traceability) was the base • Age of subject • Income level • Education level in years • Number of articles read about the subject

21. Significant Regression Coefficients

22. Regression Results • WTP across countries uniformly higher for combined meat characteristics • Like in Table 1, subjects in the UK do not value meat safety above traceability but are WTP more for animal welfare • Contrary to Table 1, Japanese subjects are WTP more for meat safety and animal treatment than for traceability alone • Overall, treatment variable results suggest that meat safety and animal welfare more highly valued than traceability alone

23. Regression Results Continued • Higher income Japanese less willing to pay for enhanced characteristics than were Japanese with lower incomes • Education is an insignificant determinant of WTP across all samples • Older subjects in Japan and Canada are willing to pay more for these characteristics than are younger subjects. • More information (Articles) indicates less willingness to pay in Canada

24. Regression Results Continued • Demographic variables in all countries play a limited role in determining WTP • Suggests market for TTA is quite broad

25. Is WTP Different for Beef than for Ham? • Conducted a Chow test to determine this • Results suggest that subjects in Canada and the US are WTP more for these characteristics in beef than they are for the same characteristics in ham • Suggests that BSE and well-publicized beef recalls have likely had a negative effect on consumer perceptions

26. Size of Market • Across countries, a significant number of people were not WTP for some of these attributes • 9% (Japan) to 48% (Canada beef) not WTP for traceability • 4% (Canada beef and Japan pork) to 13% (US pork) were not WTP a positive amount for the combined attributes • 4% (Japan, US beef) to 15% (Canada beef, US pork) not willing to pay a positive amount for added food safety

27. Conclusions • Traceability valued to some extent by itself but more valued as a means of verifying other characteristics such as added food safety • However, traceability is not merely an extra cost of production – it can add value from a marketing perspective • Market appears to be quite general and not driven by demographics • Results should be verified by field trials