Research on Consumer Demand Issues for the Livestock Industry

1. Research on Consumer Demand Issuesfor the Livestock Industry by Dr. Oral Capps, Jr. Southwest Dairy Marketing Endowed Chair, Texas A&M University Presentation to the Livestock Market Information Center June 23, 2004 1

2. Why focus on consumer demand at all? • Strengthen the position of products in the marketplace • Expand markets and uses for products 2

3. Information on consumption responses to changes in prices, income, promotion, and other factors is critical for effective decision-making • Both private and public decision makers require contemporary demand analysis; analysts would benefit greatly from a publicly accessible collection of estimated demand elasticities according to various temporal, spatial, and product aggregations 3

4. Potential Research Impacts on Any Industry • Increased information for producers and their organizations to use in making strategic longer-term investment decisions • Stimulation of more targeted promotional activities • Focus on high priority markets and those likely to be responsive to new marketing issues • Evaluation of advertising and promotion activities 4

5. CAPPS Recent Experiences • Evaluation of advertising activities of the Florida Citrus Commission, National Pork Board, and the Cotton Industry • Analysis of consumer behavior data, market information, and marketing strategies for the National Pork Board 5

6. (CAPPS Recent Experiences, Con’t) • Analysis of consumer behavior data and market information in assessing the demand for non-alcoholic beverage products (with emphasis on fluid milk products); cooperative work with the Economic Research Service and with the International Dairy Foods Association • Use of scanner data from supermarkets to estimate demand relationships for meat products; cooperative work with the Economic Research Service • Work with Ernie Davis, Texas A&M University on hedonic price models associated with cattle and sheep 6

7. Analysis of Consumer Behavior Data, Market Information, and Marketing Strategies to Assess Pork Demand A Collaborative Research Relationship Between the National Pork Board (NPB) and Texas A&M University 7

8. Objectives • To assess existing data sets obtained by NPB for research purposes • To acquire, organize, and conduct analysis for NPB using available data to address short-term, medium-term, and long term decision needs • To conduct a series of analysis for NPB particularly on pork demand in the at-home market in order to better guide decision-making Overall Goal: Utilize TAMU’s abilities to conduct economic analysis in extracting strategic knowledge from a variety of data available to the NPB 8

9. Focus on National Panel Diary Data National Eating Trends (NET) Data • Management/warehousing of the raw NET data • Data from March 1996 to February 2002 # of # of Records Unique Ids • Year 1 (1997) March 1996 to February 1997 90,313 5,166 • Year 2 (1998) March 1997 to February 1998 91,093 5,160 • Year 3 (1999) March 1998 to February 1999 88,416 5,095 • Year 4 (2000) March 1999 to February 2000 83,621 4,977 • Year 5 (2001) March 2000 to February 2001 82,519 4,941 • Year 6 (2002) March 2001 to February 2002 90,5444,805 9

10. KEY RESEARCH QUESTIONS WHAT ARE THE DETERMINANTS OR DRIVERS AFFECTING THE PROBABILITY OF EATING FRESH AND PROCESSED PORK AT HOME? 10

11. KEY RESEARCH QUESTIONS WHAT ARE THE DETERMINANTS OR DRIVERS AFFECTING THE PROBABILITY OF EATING FRESH AND PROCESSED PORK AT HOME? WHAT ARE THE DRIVERS ASSOCIATED WITH THE VOLUME OF FRESH AND PROCESSED PORK EATEN AT HOME? 11

12. KEY RESEARCH QUESTIONS WHAT ARE THE DETERMINANTS OR DRIVERS AFFECTING THE PROBABILITY OF EATING FRESH AND PROCESSED PORK AT HOME? WHAT ARE THE DRIVERS ASSOCIATED WITH THE VOLUME OF FRESH AND PROCESSED PORK EATEN AT HOME? IS IT POSSIBLE TO FORECAST PROBABILITIES OF CONSUMERS PURCHASING FRESH AND PROCESSED PORK PRODUCTS? 12

13. KEY RESEARCH QUESTIONS • WHAT ARE THE DETERMINANTS OR DRIVERS AFFECTING THE PROBABILITY OF EATING FRESH AND PROCESSED PORK AT HOME? • WHAT ARE THE DRIVERS ASSOCIATED WITH THE VOLUME OF FRESH AND PROCESSED PORK EATEN AT HOME? • IS IT POSSIBLE TO FORECAST PROBABILITIES OF CONSUMERS PURCHASING FRESH AND PROCESSED PORK PRODUCTS? • IS IT POSSIBLE TO FORECAST AMOUNTS CONSUMERS PURCHASE OF FRESH AND PROCESSED PORK PRODUCTS? 13

14. ADDITIONAL KEY RESEARCH QUESTIONS(Continued) WHAT RELATIONSHIPS EXIST AMONG FRESH PORK AND OTHER FRESH MEATS (BEEF, CHICKEN, SEAFOOD)? 14

15. ADDITIONAL KEY RESEARCH QUESTIONS(Continued) WHAT RELATIONSHIPS EXIST AMONG FRESH PORK AND OTHER FRESH MEATS (BEEF, CHICKEN, SEAFOOD)? WHAT RELATIONSHIPS EXIST AMONG FRESH AND PROCESSED PORK CUTS? 15

16. ECONOMETRIC ANALYSIS WITH NPD NET DATA FOCUS ON TWO-STAGE DECISION PROCESS (Heckman) • TO PURCHASE OR NOT TO PURCHASE (SELECTION STAGE) • HOW MUCH INTAKE CONDITIONAL ON PURCHASING (INTAKE STAGE) 16

17. OVERVIEW OF ECONOMETRIC ANALYSIS • Fresh Products :Fresh Pork; Fresh Beef; Fresh Chicken; Fresh Seafood; Pork Chops; Pork Ribs; Pork Roasts; Pork Tenderloin • Processed Products: Processed Pork; Bacon; Ham; Canned Ham; Smoked Ham; Hotdogs; Lunchmeat; Pork Sausage 17

18. OVERVIEW OF ECONOMETRIC ANALYSIS • Factors Considered:Socio-demographic, Attitudinal/ Lifestyle, Nutrition/Health • Market Covered: At-Home, USA • Period Covered: March 1996 to February 2002 • Unit of observation: Individuals Over 18 Years of Age • Total Number of Individuals: 17,316 • Measure of Intake: Grams in a 14-day period 18

19. TWO-STAGE DECISION PROCESS First Stage: Determine the key or driving factors affecting the decision to consume selected products • Allows the development of profiles of individuals who most likely will consume pork 19

20. TWO-STAGE DECISION PROCESS First Stage: Determine the key or driving factors affecting the decision to consume selected products • Allows the development of profiles of individuals who most likely will consume pork • Second Stage: Investigate the key determinants affecting volume of intakes • Allows the development of profiles of individuals who most likely will have high intakes 20

21. Penetration and Average Individual (Adult) At-Home Intake Over a Two-Week Period March 1996 to February 2002 Intake in grams 21

22. Penetration and Average Individual (Adult) At-Home Intake Over a Two-Week Period March 1996 to February 2002 (continued) Intake in grams 22

23. Penetration and Average Individual (Adult) At-Home Intake Over a Two-Week Period March 1996 to February 2002 (continued) Intake in grams 23

24. Socio-Demographic Factors: • Household Income • Age of Eater • Household Size • Gender of Eater • Race • Ethnicity (Hispanic / Non-Hispanic) • Region • Market Size • Seasonality • Presence of Children under 18 24

25. Sample Distribution of Income # Of Individuals Income 25

26. Distribution of Individuals by Market Size 26

27. Distribution of Individuals by Age of Eater 27

28. Distribution of Individuals by Body Mass Index 28

29. Region Selection ResultsDifference from Base (New England) In Percent 29

30. Region Intake ResultsDifference from Base (New England) Grams per Two-Weeks 30

31. Season Selection ResultsDifference from Base (Spring) In Percent 31

32. Season Intake ResultsDifference from Base (Spring) Grams per Two-Weeks 32

33. Race Distribution of Individuals 33

34. Race Selection ResultsDifference from Base (White) In Percent 34

35. Race Intake ResultsDifference from Base (White) Grams per Two-Weeks 35

36. Ethnicity Selection ResultsDifference from Base (non-Hispanic) In Percent 36

37. Ethnicity Intake ResultsDifference from Base (non-Hispanic) Grams per Two-Weeks 37

38. Check Labels Frequently • Those individuals who check labels frequently are less likely to eat any of the pork products at home 38

39. Plan Meals Those individuals who stress the importance of planning meals to make sure they are nutritious have a higher likelihood of consuming fresh pork and bacon at home 39

40. Good Taste Individuals who believe how food tastes is more important than how nutritious it is have a higher probability of consuming bacon and processed pork at home 40

41. VALIDATION OF MODELS Within Sample Out-of-Sample 41

42. Within Sample Validation of Ability to Predict Probability of Purchase In Percent 42

43. Within Sample Validation of Ability to Predict Intake Grams per Two-Weeks 43

44. Out-of-Sample Prediction of Probability of Purchase In Percent 44

45. Out-of-Sample Prediction of Two-Week Intake Grams per Two-Weeks 45

46. DEMAND ANALYSIS • Integration of prices with the NPD NET Data • Calculation of measures of price sensitivity associated with pork products for at-home consumption (own-price elasticities) • Determination of substitution/complementary relationships among pork products for at-home consumption (cross-price elasticities) 46

47. Coverage • Fresh Meats (Fresh Pork; Fresh Beef; Fresh Chicken; Fresh Seafood) • Pork (Pork Chops; Pork Ribs; Pork Roasts; Pork Tenderloin; Pork Sausage; Bacon; Canned Ham; Smoked Ham; Luncheon Meats) • Market Covered: At-Home, USA • Period Covered: • Fresh Meats: January 1998 to December 2001 • Pork Cuts: April 1999 to December 2001 • Unit of observation: Individuals Over 18 Years of Age • Total Number of Observations: (1) 21,264; (2) 9,902-- Two observations per individual • Measure of Intake: kilograms in a 7-day period 47

48. Scanner Price Information From Fresh Look(Fresh Meats) • Data run from 01-04-98 to 12-31-01 • Weekly Price Information • Data Pertain to: Beef Pork Chops Chicken Pork Ribs Pork Pork Roasts Seafood Pork Sausage Pork Tenderloin • Data Available by IRI Region: California Plains Great Lakes South Central Midsouth Southeast Northeast West 48

49. Integration of Price Information Into NPD Data Primary Problems: • IRI Regions do not match NPD Regions • IRI Price Information is reported on a weekly basis, but NPD data available per household/individual over two weeks • NPD Data run from March 1996 to February 2002IRI Price Data run from January 1998 to December 2001 49

50. Fresh Meats Budget Share for the At-Home 50