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

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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

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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

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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

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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)

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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

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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
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Average Bids During Final Five Rounds in the US
and Canada for Roast Beef

• 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)

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Average Bids During Final Five Rounds in the US
and Canada for Ham

• 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)

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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)
TTA Attribute Comparison U.S.A (pork) U.S.A. (beef) Canada (pork) Canada (beef) U.K. (pork) Japan (pork)
Animal Treatment Food Safety? lt lt gt lt lt
Animal Treatment Traceability? gt gt gt gt lt gt
Food Safety Traceability? gt gt gt gt lt gt
Combined Attributes Animal Treatment? gt gt gt gt gt gt
Combined Attributes Food Safety? gt gt gt gt gt gt
Combined Attributes Traceability? gt gt gt gt gt gt
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)
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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?

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Do Demographic Characteristics Matter?
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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

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Significant Regression Coefficients
Variable USA pork Canada pork Japan pork UK pork USA beef Canada beef
Animal Treatment 0.050 0.039 0.025 0.014 0.091 0.082
Meat Safety 0.044 0.024 0.046 0.132 0.076
Combined Attributes 0.090 0.064 0.116 0.047 0.277 0.177
Age 0.005 0.005
Income -2.0 E-8
Articles 0.001 -0.003
R-square 0.51 0.52 0.86 0.48 0.31 0.28
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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

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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

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Regression Results Continued

• Demographic variables in all countries play a
  limited role in determining WTP
• Suggests market for TTA is quite broad

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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

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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

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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