Meat Traceability and Meat Traceability and Consumer Willingness to Consumer Willingness to

PayPayDeeVon Bailey, Ph. D.DeeVon Bailey, Ph. D.

andandDavid L. Dickinson, Ph. D.David L. Dickinson, Ph. D.

Department of Economics andDepartment of Economics andCooperative Extension ServiceCooperative Extension Service

Utah State UniversityUtah State UniversityLogan, Utah USALogan, Utah USA

Reasons for TraceabilityReasons for Traceability

Lumber – protection of “old-growth” forestsLumber – protection of “old-growth” forests

Diamonds – reduce trade in “conflict” Diamonds – reduce trade in “conflict” diamondsdiamonds

Food – food safety/food qualityFood – food safety/food quality

Traceability: Food SafetyTraceability: Food Safety

BSEBSE Problem originates with farm-level inputsProblem originates with farm-level inputs Traditional systems geared to identify pathogens not Traditional systems geared to identify pathogens not BSEBSE Collapse of consumer confidence in EU during 1990s Collapse of consumer confidence in EU during 1990s BSEBSE crisis crisis Led to the development of new food monitoring systemsLed to the development of new food monitoring systems

Traceability as a foundationTraceability as a foundationAccountability at each level of the food marketing chain beginning a Accountability at each level of the food marketing chain beginning a farm levelfarm level

Traceability can hasten identification of the source of problems Traceability can hasten identification of the source of problems and product recalland product recall

BiosecurityBiosecurity

Traceability: Food “Quality”Traceability: Food “Quality”

Intrinsic vs. Extrinsic characteristicsIntrinsic vs. Extrinsic characteristics Intrinsic – perceived by sensesIntrinsic – perceived by senses

GradingGradingTastesTastes

Extrinsic – extra sensory characteristics that Extrinsic – extra sensory characteristics that are “invisible” but still valued by some are “invisible” but still valued by some consumersconsumers

Animal welfareAnimal welfareEnvironmental responsibilityEnvironmental responsibilitySocial responsibilitySocial responsibility

Tastes Good Variety

Nutritious, Safe, Affordable

Convenient

Promotes Health

Living Well

Status/Causes

Income

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

Issues in Trade/Market FrictionIssues in Trade/Market Friction

Research suggests the US has fallen behind Research suggests the US has fallen behind some its major competitors and trading partners some its major competitors and trading partners in providing traceability systems (Liddell and in providing traceability systems (Liddell and Bailey)Bailey)US received lowest “score” for traceability, US received lowest “score” for traceability, transparency, and extra assurances (TTA) when transparency, and extra assurances (TTA) when compared to:compared to: DenmarkDenmark UKUK CanadaCanada Australia and New ZealandAustralia and New Zealand JapanJapan

Public vs. Private GoodsPublic vs. Private Goods

Traceability systems have been Traceability systems have been implemented for different reasons and at implemented for different reasons and at different speedsdifferent speeds EU – public health issue = public good = EU – public health issue = public good =

regulatory requirementregulatory requirement US – market issue (willingness to pay) = US – market issue (willingness to pay) =

private good = private marketing chain private good = private marketing chain decisiondecision

Are Consumers Willing to Pay (WTP) for Are Consumers Willing to Pay (WTP) for Traceability and Characteristics that Can Be Traceability and Characteristics that Can Be

Verified With Traceability?Verified With Traceability?Data are not available on a public basisData are not available on a public basisLevel of public information and awareness Level of public information and awareness different in different countries so the answer will different in different countries so the answer will vary by countryvary by country US vs. CanadaUS vs. Canada US vs. EUUS vs. EU

Cost of collecting market (retail) level may be Cost of collecting market (retail) level may be prohibitiveprohibitiveAn alternative to obtain an initial answer is to An alternative to obtain an initial answer is to conduct auction experimentsconduct auction experiments

Auction ExperimentsAuction Experiments

Auctions were conducted with groups of Auctions were conducted with groups of 13-14 people13-14 peopleDifferent demographic groups represented Different demographic groups represented in each auctionin each auction University facultyUniversity faculty StudentsStudents Professional staffProfessional staff Classified staffClassified staff

Placed bids on meat characteristicsPlaced bids on meat characteristics

Location of Auction ExperimentsLocation of Auction Experiments

Logan, Utah, USA – beef and hamLogan, Utah, USA – beef and ham

Saskatoon, Saskatchewan, Canada – beef Saskatoon, Saskatchewan, Canada – beef and hamand ham

Cirencester, Gloustershire, England - hamCirencester, Gloustershire, England - ham

Tottori, Japan - hamTottori, Japan - ham

Four groups participated in each auction Four groups participated in each auction location for the meat type indicatedlocation for the meat type indicated

Auction ProceduresAuction Procedures

Each participant provided approximately CDN Each participant provided approximately CDN $20 in local currency and a “free” lunch with a $20 in local currency and a “free” lunch with a baseline sandwichbaseline sandwichSubjects were told that the baseline sandwich Subjects were told that the baseline sandwich met current standards for food safety enforced met current standards for food safety enforced by their governmentby their governmentSubjects were allowed to place bids to exchange Subjects were allowed to place bids to exchange their baseline sandwich for a sandwich identical their baseline sandwich for a sandwich identical in every way except for certifications about in every way except for certifications about different meat characteristics (Shogren et al. different meat characteristics (Shogren et al. 1994)1994)

Alternative SandwichesAlternative Sandwiches

Sandwich 1 – offered assurances about the Sandwich 1 – offered assurances about the humane treatment of the animals used to humane treatment of the animals used to produce its meatproduce its meatSandwich 2 – offered extra assurances about Sandwich 2 – offered extra assurances about testing for the sake of food safetytesting for the sake of food safetySandwich 3 – indicated that the animal used to Sandwich 3 – indicated that the animal used to produce the meat could be traced to the farm produce the meat could be traced to the farm from which it camefrom which it cameSandwich 4 – combined attributes of Sandwich 4 – combined attributes of Sandwiches 1-3Sandwiches 1-3

Bidding and Other InformationBidding and Other Information

Sealed-bid, Vickery-style auction was heldSealed-bid, Vickery-style auction was heldParticipants bid on what they would pay to Participants bid on what they would pay to exchange the baseline sandwich for the exchange the baseline sandwich for the “upgraded” sandwiches“upgraded” sandwichesTen rounds held for each sandwich (40 total Ten rounds held for each sandwich (40 total bids/participant) with the “winning” bid bids/participant) with the “winning” bid announced at the end of each roundannounced at the end of each roundBinding round and sandwich selected at random Binding round and sandwich selected at random at the end of the experimentat the end of the experimentParticipants filled out a questionnaire that Participants filled out a questionnaire that provided demographic and other informationprovided demographic and other information

ResultsResults

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

Beef in USDBeef in USD Animal Welfare $0.48 Animal Welfare $0.48

(16% premium)(16% premium) Food Safety $0.60 Food Safety $0.60

(20%)(20%) Traceability $0.21 Traceability $0.21

(7%)(7%) Combined Attributes Combined Attributes

$1.05 (35%)$1.05 (35%)

Beef in CDNBeef in CDN Animal Welfare $0.65 Animal Welfare $0.65

(13% premium)(13% premium) Food Safety $0.62 Food Safety $0.62

(12.4%)(12.4%) Traceability $0.34 Traceability $0.34

(6.8%)(6.8%) Combined Attributes Combined Attributes

$1.30 (26%)$1.30 (26%)

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

Ham in USDHam in USD Animal Welfare $0.60 Animal Welfare $0.60

(20% premium)(20% premium) Food Safety $0.69 Food Safety $0.69

(23%)(23%) Traceability $0.54 Traceability $0.54

(18%)(18%) Combined Attributes Combined Attributes

$1.29 (43%)$1.29 (43%)

Ham in CDNHam in CDN Animal Welfare $0.63 Animal Welfare $0.63

(12.6% premium)(12.6% premium) Food Safety $0.66 Food Safety $0.66

(13.2%)(13.2%) Traceability $0.34 Traceability $0.34

(6.8%)(6.8%) Combined Attributes Combined Attributes

$1.07 (21.4%)$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)

TTAAttribute

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 WTPComparisons of WTP

Bids were higher for meat with all three combined Bids were higher for meat with all three combined characteristics than for meat with only one characteristic characteristics than for meat with only one characteristic (traceable system can track multiple characteristics)(traceable system can track multiple characteristics)Traceability alone is less valued than either food safety Traceability alone is less valued than either food safety or animal welfare in the US and Canadaor animal welfare in the US and CanadaThere was no significant difference in average bids for There was no significant difference in average bids for individual characteristics in the UK and Japanindividual characteristics in the UK and JapanSuggests traceability equally as valued as the other Suggests traceability equally as valued as the other characteristics in markets that had experienced characteristics in markets that had experienced BSEBSE by by the time the auction experiments were held – profitable the time the auction experiments were held – profitable markets for TTA already exist in these marketsmarkets for TTA already exist in these marketsHow has this changed since How has this changed since BSEBSE discovery in Alberta? discovery in Alberta?

Do Demographic Do Demographic Characteristics Matter?Characteristics Matter?

Characteristics Included in Characteristics Included in RegressionsRegressions

Sandwich type – Sandwich 3 (traceability) Sandwich type – Sandwich 3 (traceability) was the basewas the base

Age of subjectAge of subject

Income levelIncome level

Education level in yearsEducation level in years

Number of articles read about the subjectNumber of articles read about the subject

Significant Regression CoefficientsSignificant Regression Coefficients

VariableVariable USA USA porkpork

Canada Canada porkpork

Japan Japan porkpork

UK porkUK pork USA USA beefbeef

Canada Canada beefbeef

Animal Animal TreatmentTreatment

0.0500.050 0.0390.039 0.0250.025 0.0140.014 0.0910.091 0.0820.082

Meat Meat SafetySafety

0.0440.044 0.0240.024 0.0460.046 0.1320.132 0.0760.076

Combined Combined AttributesAttributes

0.0900.090 0.0640.064 0.1160.116 0.0470.047 0.2770.277 0.1770.177

AgeAge 0.0050.005 0.0050.005

IncomeIncome -2.0 E-2.0 E-8-8

ArticlesArticles 0.0010.001 -0.003-0.003

R-squareR-square 0.510.51 0.520.52 0.860.86 0.480.48 0.310.31 0.280.28

Regression ResultsRegression Results

WTP across countries uniformly higher for WTP across countries uniformly higher for combined meat characteristicscombined meat characteristicsLike in Table 1, subjects in the UK do not value Like in Table 1, subjects in the UK do not value meat safety above traceability but are WTP meat safety above traceability but are WTP more for animal welfaremore for animal welfareContrary to Table 1, Japanese subjects are WTP Contrary to Table 1, Japanese subjects are WTP more for meat safety and animal treatment than more for meat safety and animal treatment than for traceability alonefor traceability aloneOverall, treatment variable results suggest that Overall, treatment variable results suggest that meat safety and animal welfare more highly meat safety and animal welfare more highly valued than traceability alonevalued than traceability alone

Regression Results ContinuedRegression Results Continued

Higher income Japanese less willing to pay for Higher income Japanese less willing to pay for enhanced characteristics than were Japanese enhanced characteristics than were Japanese with lower incomeswith lower incomesEducation is an insignificant determinant of WTP Education is an insignificant determinant of WTP across all samplesacross all samplesOlder subjects in Japan and Canada are willing Older subjects in Japan and Canada are willing to pay more for these characteristics than are to pay more for these characteristics than are younger subjects.younger subjects.More information (Articles) indicates less More information (Articles) indicates less willingness to pay in Canadawillingness to pay in Canada

Regression Results ContinuedRegression Results Continued

Demographic variables in all countries Demographic variables in all countries play a limited role in determining WTPplay a limited role in determining WTP

Suggests market for TTA is quite broadSuggests market for TTA is quite broad

Is WTP Different for Beef than for Ham?Is WTP Different for Beef than for Ham?

Conducted a Chow test to determine thisConducted a Chow test to determine this

Results suggest that subjects in Canada Results suggest that subjects in Canada and the US are WTP more for these and the US are WTP more for these characteristics in beef than they are for the characteristics in beef than they are for the same characteristics in hamsame characteristics in ham

Suggests that Suggests that BSEBSE and well-publicized and well-publicized beef recalls have likely had a negative beef recalls have likely had a negative effect on consumer perceptionseffect on consumer perceptions

Size of MarketSize of Market

Across countries, a significant number of people Across countries, a significant number of people were not WTP for some of these attributeswere not WTP for some of these attributes9% (Japan) to 48% (Canada beef) not WTP for 9% (Japan) to 48% (Canada beef) not WTP for traceabilitytraceability4% (Canada beef and Japan pork) to 13% (US 4% (Canada beef and Japan pork) to 13% (US pork) were not WTP a positive amount for the pork) were not WTP a positive amount for the combined attributescombined attributes4% (Japan, US beef) to 15% (Canada beef, US 4% (Japan, US beef) to 15% (Canada beef, US pork) not willing to pay a positive amount for pork) not willing to pay a positive amount for added food safetyadded food safety

ConclusionsConclusions

Traceability valued to some extent by itself but Traceability valued to some extent by itself but more valued as a means of verifying other more valued as a means of verifying other characteristics such as added food safetycharacteristics such as added food safety

However, traceability is not merely an extra cost However, traceability is not merely an extra cost of production – it can add value from a of production – it can add value from a marketing perspectivemarketing perspective

Market appears to be quite general and not Market appears to be quite general and not driven by demographicsdriven by demographics

Results should be verified by field trialsResults should be verified by field trials