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

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

Traceability: Food Safety BSE Problem originates with farm-level inputs Problem originates with farm-level inputs Traditional systems geared to identify pathogens not BSE Traditional systems geared to identify pathogens not BSE Collapse of consumer confidence in EU during 1990s BSE crisis Collapse of consumer confidence in EU during 1990s BSE crisis Led to the development of new food monitoring systems 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 Traceability can hasten identification of the source of problems and product recallBiosecurity

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

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

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 Denmark UK UK Canada Canada Australia and New Zealand Australia and New Zealand Japan Japan

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

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. Canada US vs. EU US vs. EU Cost of collecting market (retail) level may be prohibitive An alternative to obtain an initial answer is to conduct auction experiments

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

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

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)

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

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

Results

Average Bids During Final Five Rounds in the US and Canada for Roast Beef Beef in USD Animal Welfare $0.48 (16% premium) Animal Welfare $0.48 (16% premium) Food Safety $0.60 (20%) Food Safety $0.60 (20%) Traceability $0.21 (7%) Traceability $0.21 (7%) Combined Attributes $1.05 (35%) 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 Ham Ham in USD Animal Welfare $0.60 (20% premium) Animal Welfare $0.60 (20% premium) Food Safety $0.69 (23%) Food Safety $0.69 (23%) Traceability $0.54 (18%) Traceability $0.54 (18%) Combined Attributes $1.29 (43%) 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%)

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 Food SafetyCombined Attributes TTA Attribute Comparison U.S.A (pork) U.S.A. (beef) Canada (pork) Canada (beef) U.K. (pork) Japan (pork) Animal Treatment = Food Safety?<<=><< Animal Treatment = Traceability?>*>*** ><> Food Safety = Traceability?>**>*** ><> Combined Attributes = Animal Treatment? >*** >**>*** Combined Attributes = Food Safety?>**>*** >** Combined Attributes = Traceability?>*** >**>*** *, **, *** 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)

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?

Do Demographic Characteristics Matter?

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

Significant Regression Coefficients Variable USA pork Canada pork Japan pork UK pork USA beef Canada beef Animal Treatment Meat Safety Combined Attributes Age Income -2.0 E -8 Articles R-square

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

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

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

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

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

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