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Here’s why farm operations need to monitor food retail trends

Oct 2, 2018

Canada’s food preferences are changing. According to 2006 and 2016 census data, shifting demographics and increased diversity are transforming how we eat and what we buy.

Canada’s food preferences are changing. What does that mean for our proteins industry?

The percentage of Canadian individuals foreign-born were 21.9% in 2016 versus 19.8% in 2006. Over 250 ethnic origins were reported in the 2016 census versus 200 in 2006. Canada’s population is also aging. In 2006, 13.2% of the population was aged 65 years or older. In 2016, it increased to 16.5%.

What this means for red meat producers

Several socio-economic factors influence the demand for meat proteins: lifestyle, location, preferences, dietary restrictions, etc.

Per capita red meat consumption has been on a downward trend for the last two decades. Between 1998-2017, per capita beef and pork consumption declined 21% and 26% respectively while chicken consumption increased 26%.  

Yet the top drivers of food purchases remain price and income. And these variables have recently supported the demand for pork, beef and chicken. A solid understanding of the fundamental drivers in food consumption is important in order to understand the trends in prices at the farm level.

For example, lower beef retail prices will generally lead to weaker pork consumption, which can lead to declines in the demand for hogs and thus lower hog prices.

Cattle and hog prices generally tend to move together, balancing out the demand and supply for meats and live animals.  In 2014, when retail beef and pork prices rose 13.6% and 12.7% respectively, consumption of both meats declined as consumers switched to more affordable meat proteins.  In 2015, when beef prices increased a further 15%, some consumers substituted pork and chicken – the substitution effect.

Source: Statistics Canada

Retail prices expected to weaken

Retail prices for beef and pork are now in their third year of lower prices, leading to a slight recovery in per capita consumption levels. Retail meat competition is expected to intensify in the short-term as North American red meat prices weaken due to global trade tensions and increased production.

Larger anticipated supply of cattle and hogs in the U.S. market are expected to slow food and meat inflation. Growth in U.S. hog production is projected to have the largest year-over-year growth of 4.3% and 4.5% in 2018 and 2019. U.S. trade tensions have eroded the export market to Mexico and China, driving down the demand and price for U.S. hogs. Weakening prices are expected to keep the competition at the retail level fierce. The red meat sector in Canada is highly integrated with the U.S. market, meaning it’s a North American market and Canadian prices are largely set by what happens south of the border.

Growth in U.S. meat production

Source: USDA

However, Canadian consumption is expected to be strong given limited price relief at the retail level, growing disposable incomes from strong wage growth and low unemployment numbers. Consumer response to lower and competitive retail prices amongst the three major proteins will be important in providing support to weaker farm-gate prices and boosting overall meat consumption. Food preferences are favourable to red meat and provide a backstop for prices to fall further.

Despite the long-term declines in red meat consumption domestically and the current economic struggles in hog production, the long-term outlook for the Canadian red meat industry is favourable. That’s because demand for red meat is expected to increase – both domestically and globally. The export market represents approximately 47% and 60% of domestic production for beef and pork, meaning the export market will continue to be very important. Red meat also competes in global markets, where consumers may be willing to pay more, and increased exports show strong demand for beef and pork.

Price is one factor in understanding consumption and demand of meat. Canadian demographics continue to evolve and diversify which is having an impact on consumption preferences. Consumer interest in plant-based protein is increasing and is expected to become an increasingly competitive protein alternative in the future.

Leigh Anderson

Senior Economist

Leigh Anderson is a Senior Economist at FCC with experience in agricultural markets and risk. He specializes in monitoring and analyzing FCC’s portfolio, industry health and providing industry risk analysis. In addition to his speaking engagements on agriculture and economics, Leigh is a regular contributor to the FCC Economics blog.

Leigh came to FCC in 2015, joining the Economics team. Prior to FCC, he worked in the policy branch of the Saskatchewan Ministry of Agriculture. He holds a master’s degree in agricultural economics from the University of Saskatchewan.