Consumer Issues and Demand

Current Situation

In addition to population growth, household income is also an important determinant of the amount and types of foods purchased. Higher income allows consumers to spend more on food and have greater discretion in spending, especially on such preferred foods as animal protein sources and specialized food products. On average, U.S. consumers spend only about 10% of disposable personal income on food; Canadian consumers spend approximately 14% of personal disposable income on food; and in Mexico, consumers spend an average 27% of total expenditures on food.

In general, higher income consumers have diets that are more varied and have a higher share of protein from animal sources. Higher income also leads to increased demand for other food attributes, such as variety, added food preparation and convenience, and intrinsic characteristics of the product, such as taste and how the food was produced and processed. Although per capita consumption of meat in Canada has remained relatively stable since 1990, consumption in the United States has increased by about 12% (Figure 1). The largest share of meat is from red meat sources. In contrast, consumption of meat in Mexico has increased more than 50% since 1990, and consumption of poultry has increased in importance (Figure 1). Demand for small-serving muscle cuts is the common preference in industrialized, urban regions. In contrast, demand for roasts, legs and quarters, especially of sheep and lamb, is strong by consumers with more time and less income available to purchase more processed muscle cuts. The global nature of the food market today expands market opportunities and allows markets to take advantage of consumers' varied preferences for meat cuts.

Major changes are occurring in retail markets. Twenty years ago, traditional groceries in the United States represented 90% of at-home food purchases; today, they represent less than 70%. Wal-Mart is the largest food retailer in both the United States and Mexico. In Canada, increased consolidation and concentration in retail food markets has meant that the large retailers control a larger share of retail sales than in the United States or in Mexico. The increased power of nontraditional grocery retailers, combined with consumer preference for convenience, easy-to-handle, prepackaged meat and other food products, have resulted in low-cost, nearly-identical-quality products available to all customers. In addition, the food service industry has increasingly demanded prepackaged products and cuts to substitute for costly labor input at the service end.

Food retailing through the food-away-from-home category has also grown to meet the needs of higher income and time-starved consumers in North America who demand more convenience with their meals. In the United States, nearly 50% of food expenditures today are for food eaten away from home; in Canada the share of food expenditures spent on meals away from home has risen to 34% today (USDA-ERS, 2005; Zafiriou, 2005). In Mexico, consumption of traditional foods, such as tacos and tortas, has declined, and consumption from fast-food places has risen, especially in the rapidly growing urban areas.

Although the major change in retailing has been the dominance of large retail giants in the food retailing industry, new segmentation of the retail market is reflected in small retail units becoming an increasingly vigorous segment of the food retail market. Specialty stores, Internet-based markets, smaller-sized retail markets, and direct marketing methods for meats have strengthened the presence of this niche market segment of food retailing. Organics have become one of the fastest growing segments of the food market and, although organic meat and poultry have lagged behind in other areas, organic dairy and eggs are sold widely in conventional markets.

Forces and Drivers of Change

Income

Rising Obesity Rates

Population Growth and Changing Demographics

During the next two decades, population growth in the United States and Canada will be strongly influenced by immigration. The growth of more ethnically diverse populations in the United States and Canada will result in new demand for different types of meat, including lamb and goat, and introduce changes in the types of foods and food preparations consumed throughout the population both at home and away from home.

Changing Food Markets and Foods

While the retail shopping experience seems to be losing its diversity, there is some evidence of an increase in market segmentation across a variety of products. In many markets, though primarily in metropolitan areas, there is growth in specialty stores for breads, coffees and deli items. Farmers' markets, which offer fruits, vegetables, and some animal-sourced products, meet the preferences of some consumers for local suppliers, organic foods, or other fresh products.

Technological innovations, as well as improved information and transportation technologies, have significantly changed the way food is produced, processed, transported, and delivered to consumers. Buyers are now associated with large retail food networks, where reputation, quality, and delivery are important attributes of the transactions. Larger, more coordinated systems enable food retailers to track food inputs through supply networks and demand products with more specific attributes. In such systems, retailer and brand name are often used to assure consumers of attributes that are difficult to observe or measure.

Fundamental attributes that drive consumer demand for animal products are that the foods are safe and provide nutrition, taste good, provide variety in the diet, are convenient, and contribute to good health. In general, consumers in both the United States and Canada are confident in the safety of their own country's food supply. Changes in retail food marketing are likely to lead to a more diverse market for animal products. Growing populations and incomes in developing economies will increase demand for safe, wholesome, and affordable animal protein products. Developed economies with higher, but still rising, incomes are expected to fuel demand for niche market products that are produced and marketed to deliver specific attributes for the consumer.

Implications

1. Food safety will continue to be a paramount consumer expectation.

2. As North American incomes continue to increase, consumers will choose products on the basis of varied attributes, including taste, variety and convenience.

Labeling is an important tool to communicate product attributes, including food safety. To some extent, increased use of labels reflects the public's interest in informed choice regarding complex, and sometimes controversial, new agricultural technologies and the growing market for imported foods. Informing consumers may be a complicated and costly task. If labels provide large amounts of product information, or when the information is complex or requires understanding of nutritional and other science-based relationships, consumers may not be fully informed. Complex food ingredients or processes would require consumers to become more sophisticated in understanding product comparisons.

3. Continued concentration of large-scale processing, food distribution and retailing may reduce consumer choice in markets.

Policy Options

1. Make product standards and certification programs more uniform across North America.

Alternatively, the growth of strong retailing chains can support private systems for food safety and quality control through internal mechanisms, e.g., vertically integrated food supply chains or private mechanisms such as brand names, contracting arrangements, animal identification and tracking systems. New technologies have allowed more rapid measurement of product attributes (e.g., fat content, drug residue) allowing the buyer to specify attributes of interest and better match consumers' tastes. It is important to recognize consumer preferences for food products are different in the three countries. Mexican consumers prefer animal cuts and products that differ from those preferred in Canada and the United States. Trade that takes advantage of differences in consumer preferences is likely to benefit consumers in all three countries.

2. Enhance the ability of consumers to obtain information on products and make use of labeling information.

3. Educate consumers about production agriculture.

The challenge is to use effective methods for communicating about the increasing scientific complexity of food production and processing, and to help consumers in making choices concerning more complex issues regarding nutritional content and health when there is scientific uncertainty.

4. Promote a competitive retail and distribution environment.

In addition to weighing policy options, there are continuing needs for information to allow informed policy choices. In an increasingly competitive and global environment, do consumers benefit or lose with consolidation of retailing? Consolidation among food retailers is relatively high in Canada and the United States and is increasing in Mexico. Yet, compared to other nonfood industries, concentration is not very high. Can smaller niche markets co-exist in the current retail environment, and under what conditions?

Many consumers have indicated a willingness to change eating habits to reduce weight, but so far the efforts have been relatively short-lived. What are the most effective approaches to reining in weight gain? How can long-term gains be made that meet consumers' preferences for variety, as well as food that is safe, tastes good, is convenient and meets more limited calorie requirements? Understanding how consumers obtain and process information is a major challenge. What will improve the consumer's ability to balance new information and conflicting messages from many different sources about complex scientific information?

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