How economics change when marketers demand certain farming practices

How economics change when marketers demand certain farming practices

University of Illinois researchers question how consumers and farmers are affected when marketers request cage-free eggs or free-range meat

With more talk about food characteristics like cage-free, antibiotic-free or free-range, marketers are listening – and they've asked farmers to meet these demands to serve new markets.

According to a new University of Illinois farmdoc daily post, these characteristics typically place restrictions on the production process (e.g., use of chemicals, geographic location of the farm, or treatment of farm animals), perceived fairness of marketing arrangements to farmers or farm laborers, and perceived implications of production and consumption of the product for the environment.

Related: Millennial Consumers Remain an Important Market for Beef Industry

A sign showing a the new "Responsibly Grown" rating system is displayed in the produce section at a Whole Foods market on October 15, 2014, in San Francisco, Calif. (Justin Sullivan/Getty Images)

But post authors, Tina L. Saitone, Richard J. Sexton, and Daniel A. Sumner, say this trend can reduce consumer choice and increase food costs.

"Our recent research shows that a common result may be that restaurant chains, food-service operators, or grocers offer only a limited number of food items produced using tightly specified processes instead of offering a selection of products with alternative bundles of characteristics," the authors note.

While intermediary buyers – those who select products for stores or restaurants, for example, have long specified the observable attributes of products they look for, the authors write, some are seeking deeper involvement in the production chain by specifying production and marketing practices such as traceability, environmental standards, animal-welfare requirements, labor standards, and other means to meet "sustainability" criteria.

"Such actions may be motivated by demands of final-product consumers, but they also seem to be inspired by external pressures from groups such as the Humane Society and notions of corporate responsibility, even with limited demand for the practices by the final-product consumers," authors note.


Some examples of this situation are Burger King, Hyatt, and Sodexo, which all have announced plans to sell only products made from cage-free eggs. Chipotle sells only pork that it claims is "all-natural," and "antibiotic-free." McDonald's is contemplating related standards for its suppliers.

Related: Millennials have new set of animal welfare expectations

Plant materials also are not exempt –General Mills, for example, is requiring non-genetically modified inputs for its Cheerios cereal, and Post is doing the same for its Grape-Nuts cereal.

In their study, researchers reviewed the issue of intermediary buyers imposing farm production practices on suppliers. They also traced the economic impacts on producers and consumers.

Analysis was applied to proposed restrictions on pork production practices as an example, focusing specifically on the prohibition of use of antibiotics for growth promotion or disease prevention.

They found that, based on willingness to pay models for AF pork, the pork industry could increase sales and profits through aggressive adoption of AF pork.

"Even with relatively small (5% - 15%) shares of consumers who view AF pork as a superior product to conventional pork, substantial growth in pork sales and revenue is possible if the reported estimates of incremental willingness to pay are accurate," the researchers write.

If they are inaccurate, however, both consumers and farmers could be negatively affected by intermediaries' restrictions due to higher production and processing costs that trickle down to the consumer, ultimately decreasing pork purchases.

Read the full study, "What Happens When Food Marketers Require Restrictive Farming Practices?" by Tina L. Saitone, Richard J. Sexton, and Daniel A. Sumner on farmdoc daily.

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