Chapter 2: Economic Importance of Marketing Activities Value added – form, space, time Conceptual and Measurement Issues Sources: Food Expenditure Data Trends: food expenditures and consumption Alternative Measures of Marketing Services Price spreads Other measures - GDP/employment

Conceptual and Measurement Issues (marketing services) What is the concept you want to measure? data available correspond to the concept? Aggregate Measurement Concept: (aggregate food retail value - aggregate farm gate value) Aggregate retail expenditures; aggregate agr output problems with implementation Comparability of agr and food products What is a retail food product ? (home, food service, institutional) What is an agriculture product ? (pet food, tobacco, fibres - cotton/flax) Industrial uses (ethanol, biodiesel, starch)

Data Sources: Food Expenditures Different data sources are different – different objectives United States USDA - Agr. Marketing Service - ERS US Dept of Commerce Bur. of Labour Statistics Canada Agriculture and Agri-food Canada: Statistics Canada Health Canada Private and Other Public Sources Private Corporations: A.C. Nielson Industry Organizations University Institutions Private “Think Tanks” (George Morris Center; Guelph) International: FAO, IFPRI, World Bank, ILO

Measuring Food Expenditures and the Value of Marketing Agr + Food Products What’s an Agri-Food Product? Practical Challenges: What is included? Fish, beef bones, Pet food, cotton, hemp Beer/Wine Spirits, ethanol, biodiesel Conceptual Issues working with the data you have

Individual Food Products Measurement Concept Excludes export marketing services Includes import marketing services Tomato on farm versus tomato at retail Tomato => many products (pizza) Challenge: Converting from primary to processed Joint production - co-products Beef (steak vs beef on the hoof) Wheat (loaf of bread vs bushel of wheat Food away from home Lettuce in a hamburger Adjustments for trade Retail expenditure data

US Retail Food Expenditure Data USDA – Concept 1: Total retail value of FOOD consumed in the USA Different expenditure data from USDA and Commerce Dept. USDA – Concept 2: Personal expenditure data Purchases, donated, home-produced for human consumption–all sources + Government/business food services –excludes non-purchases & food provided to employees –measures expenditures out of personal income

Department of Commerce Food Expenditure Data Personal Food Expenditures Results in different proportion of disposable income spent on food Includes pet food, ice, prepared feed

Changes in Food Expenditures Role of marketing services Expenditures on food and marketing are increasing Growth in away from home consumption More processing Prices increasing (even adjusted for CPI) Population growth

Some Canadian Data Canada – expenditures out of household income 1961 – 20% of household income on food and non-alcoholic beverages: 2005 – 9.3% 2005 – Canadian food expenditures (AAFA) $131 Billion – food & beverage (including alcohol) $4K per capita (32 Million Population) $ 71 B in grocery stores (66%) $ 37 B in food service establishments (34%) $ 108 food expenditures $ 24 B for alcohol

Changes in Consumption of Individual Products US - Bur of Labour Statistics and USDA Canada - Statistics Canada; AC-Nielson (scanner data) Expenditure weights for CPI Nutritional status analysis 1) Disappearance data Production + (beg. stocks - end. stocks) + (imports - exports) Defined for primary food commodities (beef, eggs, milk) Approximate per capita consumption (waste is estimated) Adjusted for industrial and nonfood use to estimate food consumption 2) Periodic household surveys

Data Sources - Food Expenditures Canada Agriculture and Agri-food Canada: Statistics Canada – Food Expenditure Surveys Health Canada Consumer Expenditures (2013 active) United States USDA - Agr. Marketing Service, Economic Research Service US Dept of Commerce, BLS USDA food consumption (per capita) data system (2013 active)

Serecon Management Consulting , for AAFC

Alternatives to Aggregate Expenditure Retail-Farm Price Spreads Value of Marketing Services Concept: Calculated for individual products (retail price - imputed farm values) Imputed farm values Farm prices and conversion factors Practical Difficulties - adjustments Multi-ingredient products Co-products

USDA Market Basket Concept Retail-farm price spread – set (Basket) of products retail prices for home consumption (no restaurants) excludes seafood, and nonalcoholic beverages Weighted by average quantities of food products purchased Farm value based on farm prices Difference = value of marketing services Narrow range of products Set of products relatively static

USDA Marketing Bill Concept Share of consumer $ spent on marketing 1) Compute total retail food expenditures –All/most food products (includes non-alcoholic drinks) –includes away-from-home purchases –excludes imports and seafood 2) Farm values - based on farm gate prices (1) – (2) = Estimated value of marketing services

Measures vary market basket (static) or marketing bill (dynamic) what is included how pattern of purchases evolves Farm Share of Retail Food Expenditures Market basket => higher farm share Both measures => declining farm share

Based on 2007 USDA data

Other Economic Measures Contribution to GDP –Includes import and export marketing services Employment Schrimper provides US data Canadian Data Follow

An Overview of the Canadian Agriculture and Agri-Food System 2013, Research and Analysis Directorate, Strategic Policy Branch, Agriculture and Agri-Food Canada, Ottawa. ISSN Revenues generated for each sector

An Overview of the Canadian Agriculture and Agri-Food System 2013, Research and Analysis Directorate, Strategic Policy Branch, Agriculture and Agri-Food Canada, Ottawa. ISSN Canadian AAF System GDP: 8.0% (2011) Primary Agriculture 1.7% GDP Marketing System 6% (Post Farm-Gate) $100 Billion Total GDP

Employment: AAFS 12.5% (2.1 Million Canadians) 87.5% Marketing Activities

Exports: $ 40 Billion Imports $ 31 Billion 2011 Consumer spending: food, beverages and tobacco = $181 Billion 18% of personal spending Spending on food and non-alcohol = 10% of personal household expenditures Government support to the AAF System (all levels) = $ 7.5 Billion (2011/12) $2.7 Billion in program payments to primary agriculture (PSE 2011 = 14%) A few more numbers from the AAFC 2013 Report Research Support (In real terms): 1990 $500 Million ($ 2002) 2011/12 $430 Million ($ 2002)