How Strong is Beef Demand in Canada?

How Strong is Beef Demand in Canada?

Canadians are consuming far less beef than they used to, nearly 22 pounds less per year in 2013 compared to the early 1980’s. But just because Canadians are consuming less beef does not mean that they like beef less. Actual consumption and what economists call “demand” are not the same thing. Confusing? Perhaps, but it is worth investigating what the differences are because the demand for beef has been strong in recent years.

Demand is the willingness of consumers to pay a specific price for beef given their tastes, preferences and income. The demand for beef is not affected by the supply of beef. The supply of beef depends on feed costs, stocks, trade, etc. The combination of demand and supply is what determines the price. Consumption is the end result – the actual outcome in the marketplace.

To illustrate the difference between demand and consumption: suppose you are heading to the butcher to buy steak for supper. When you get to the butcher there isn’t any steak left so instead you buy pork chops. Your consumption of beef has decreased but your demand for beef is still strong. Therefore the fact that Canadians are consuming less beef may be the result of a drop in income, or a fall in the price of a competing meat. It does not automatically suggest a negative shift in their preferences for beef.

The question that needs to be answered is: given Canadians are eating less beef, does this mean that their demand for beef has really changed?

It is not an easy question to answer because we need to control for various influences in the marketplace. Our team has worked on developing a “demand index” based the work that has been done at the University of Missouri (see here). The purpose of the index is to measure the strength of consumer demand for beef once changes in the price of beef, other meats (chicken and pork), and income are accounted for. The index therefore shows how much beef Canadians demand given prices and income and not how much Canadians consume due to market forces.

We are still working on the methodology and will report this in the future. But preliminary results are revealing. Accounting for price movements in the food supply chain, the picture of Canadian demand for beef differs from the typical story based solely on consumption.

The demand for beef increased slightly at the same time as per capita consumption decreased in the late 1990’s and early 2000’s. Since then both demand and consumption has trended lower until 2011. Once again in 2012 demand increased while per capita consumption went down. This recent strength in demand reflects a definite preference for beef. It will be interesting to look at 2014 data when they are available. All-time high cattle prices in 2014 resulted a nearly 11 per cent increase in retail beef prices.

While the decline in per capita beef consumption suggests a negative perception towards beef, Canadians preferences for beef are showing signs of strength and this will help to support the beef industry in Canada. One challenge ahead is to sustain the recent strong positive consumer response to high beef prices in 2015.

Desmond Sobool, Senior Agricultural Economist