The Impact of Food Scares on Canadian Meat Consumption: Could Identity Preservation Help?

1. The Impact of Food Scares on Canadian Meat Consumption: Could Identity Preservation Help? Getu Hailu, Ellen Goddard, Cindy Wang Cooperative Program In Agricultural Marketing and Business Symposium 2003 Edmonton, Alberta

2. Outline • History of food scares related to meat • Issues related to Canadian meat consumption • Canadian meat consumption results • Comparison to similar studies in other countries • Would traceability help?

3. History of Food Safety Related to Meat • Canada is well known world wide for its safe and high quality food. • In April of 1997 Canada created a centralized food safety agency called the Canadian Food Inspection agency (CFIA). • The Canadian Food Inspection Agency became the core agency in food safety with a partnership with Health Canada and Agriculture and Agri-Food Canada. • Canadian Food Inspection Agency is responsible for the majority of the monitoring and enforcing of the laws.

4. Food safety in Canada • Health Canada estimated that 2.2 million cases of food borne illnesses occur annually in Canada (1/15). • Consumers want to know that their food is being produced in a safe manner on the farm. • A recent poll found that 74 per cent of Canadians are concerned about food safety. • The poll found that 35 per cent of Canadians are ‘very concerned’ about food safety issues, while 39 per cent are ‘somewhat concerned’ (Globe and Mail, 2001).

5. Meat Food Safety Issues in Canada • Food safety concerns relate to: • Escherichia coli – occur in Canada/U.S. • Salmonella - occur in Canada/U.S. • Listeria - occur in Canada/U.S. • Bovine Spongiform Encephalopathy (BSE) –other countries • hormones and antibiotics - ?? • More pressure on food safety

6. Meat recalls in Canada by CFIA

7. BSE in Canada • In 1993, a single cow in Red Deer, Alberta, is found with BSE. The cow had been imported from Britain in 1987. • In 1997, the CFIA bans the use of animal parts in animal feed. • May 20, 2003 the lab in Britain confirmed that the cow killed in Northern Alberta had BSE. • May 20, 2003 the United States and other countries banned all imports of Canadian beef.

8. BSE in U.K…. • 1732 - Scrapie first recorded in sheep. • 1900 - Meat and bone meal (MBM) is used in ruminant feeds. • 1970 - Agriculture Act 1970 introduces labeling. Feeds must be marked before removal from manufacturer. • Nov. 1986 - ‘BSE was first identified as an entity’. • August 1987 - a BSE database is created to keep track of all confirmed BSE cases.

9. …BSE in U.K…. • 25 October 1987 - the first BSE report in a national newspaper. • 4 December 1987- Initial suggestion that affected cattle should not be slaughtered for human consumption. • 15 December 1987 - Initial suggestion that ruminant-derived MBM is a factor in the cause of BSE. • 18 July 1988 - Ruminant feed ban comes into force.

10. …BSE in U.K. • 13 June 1989 - ‘A total ban from human consumption of certain cattle offal’ announced by MAFF. • 16 June 1989 - Pet food manufacturers impose a voluntary ban on the use of brain, spinal cord and other Specified Bovine Offal (SBO). • 28 July 1989 - EU ban on the export of cattle born before 18 July 1988 and offspring of affected or suspected animals. • Late May 1990 - France, Austria, West Germany and Italy ban British beef. • Mar. 20 1996, Britain announced that there was a possible link between BSE in cattle and vCJd in human.

11. Number of BSE Cases in U.K. over time Cumulative =177,000 cases The cumulative budgetary cost of BSE to the U.K. between March 1996 and March 2001 was roughly US$6.4 billion.

12. 120 25 100 20 80 15 Kgs 60 Index Value 10 40 5 20 0 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year Beef Demand Index (1985=100) Per Capita Beef Consumption Beef demand index and per capita consumption in the UK After the 1996 announcement, household consumption of beef fell by 26% from 1995.

13. Number of BSE cases in ROW till 2001

14. Effect of BSE in Japan • On September 10, 2001, the Japanese government reported the first case of BSE within the country. • Many wholesalers and retailers have suffered drops in sales ranging from 5 to 50 percent due to the concern over BSE (Jin & Koo, 2003). • Nearly 60% of Japanese consumers have stopped eating beef since the first case of BSE was reported (Jin & Koo, 2003). • When the government found the second infected cow on November 2001, the situation was aggravated and severely affected Japan’s beef industry.

15. Per capita Beef & Veal Consumption (2001)

16. Issues related to Canadian meat consumption • Do food safety issues in foreign countries have spillover effects on the domestic demand for meat (through media coverage)? • Can information such as advertising ameliorate the impacts of food safety issues on demand for meat? • Are consumers willing to pay for the cost of traceability and identity preservation to reduce food safety issues? • How long do the effects of food safety incidences/recalls last?

17. Question #1 • Do food safety issues in foreign countries have spillover effects on the domestic demand for meat (through media coverage)?

18. Trends in BSE Media coverage in Canada - 1990-2002

19. Trends in the Media Coverage of E. coli in Beef & Chicken in Canada 1978-2002 Chicken

20. Trends in Media Coverage of Salmonella in Chicken in Canada- 1978-2002

21. Other Media Activity -Advertising expenditures • Generic advertising funded by Beef Information Centre, provincial pork producer organizations, national and provincial chicken organizations. • Brand advertising by processors. • Fast food chain restaurant advertising.

22. Trends in Real Generic Advertising on Meat

23. Trends in Real Brand Advertising on Meat

24. Trends in Real Restaurant Advertising

25. 60 50 40 30 kg/person 20 10 0 1977 1983 1985 1987 1989 1991 1993 1995 1999 2001 1975 1979 1981 1997 Year Per capita Meat Disappearance Beef Pork Chicken

26. 120 45 40 100 35 80 30 25 60 Kgs Index Value 20 40 15 10 20 5 0 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year Beef Demand Index (1985=100) Per Capita Beef Consumption Beef demand index and per capita consumption in Canada

27. In this study- Meat Demand • Two-stage analysis • 1st – expenditure function • Expenditure=f (weighted prices, prices substitutes, income, time, habit formation and aggregate generic, brand, restaurant advertising, beef and chicken food safety) • 2nd – Demand system (shares) wi=f(individual product prices, expenditure, beef, pork, chicken generic, brand and restaurant advertising,beef food safety,chicken food safety, time, seasonality, habit formation)

28. Price elasticities

29. Generic Ads

30. Brand Ads

31. Restaurant Ads

32. Beef Food Safety

33. Effects of BSE? • How does the impact of BSE in U.K. established for Canada compared to other countries? • Similar to U.S. • Much less than countries in which outbreak occurs.

34. Offsetting effects of Ads- Canadian Results

35. Summary of Canadian Results • Advertising expenditures have significant joint effects on demand for meat. • Generic • Brand • Restaurant • Beef food safety scare has a statistically significant spillover effect on pork consumption. • Beef food safety scare has a statistically significant substitution effect on chicken consumption.

36. S Da D Dfs Question #2 • Can information such as advertising ameliorate the impacts of food safety issues on demand for meat? P Q

37. Offsetting effects of Ads- U.K. • Strak (1998) investigated beef promotion effects during BSE crisis (monthly data from 1990-1997): • Beef market share suffered very significantly from BSE publicity whilst pork, lamb, and poultry meat gained market share. • MLC’s beef recovery promotion have generated a positive return to the GB beef industry. • For every ₤1 invested beef promotion a ₤3.97 of beef sales resulted during the BSE crisis.

38. Offsetting effects of Ads- Germany • Herrmann et al (2002) assessed the offsetting effects of generic advertising in Bavaria during BSE crisis (monthly data from 1995-1998): • Information and public awareness about BSE crisis reduced beef consumption by 6.9% . • Generic promotion of beef increased beef consumption by 4.6%. • Although successful, the promotion induced demand shift could not totally compensate for the negative impact of BSE information.

39. Offsetting effects of Ads- Belgium • Verbeke & Ward (2001) investigated the impact of negative TV press and advertising on meat consumption (monthly data from 1995-1998): • Negative press resulted an overall lower expenditure of about €195 million for beef and €125 million for poultry • The beef expenditure gained attributed to beef advertising amounts to some €40 millionwhich is five time lower than the negative press impact

40. Offsetting effects of Ads- U.S. • Richards and Patterson (1999) investigated strawberry safety and found that: • Losses due to bad news regarding strawberries to range from $273.4 ml to $83.5 ml in the long run. • The value of defensive media efforts or commodity promotion range from $144.8 ml to $33.8 ml.

41. Question #3 • Are consumers willing to pay for the cost of traceability and identity preservation to reduce food safety issues?

42. Food Safety Concerns and Traceability • Food safety cannot be addressed without considering the route that meat makes to the consumer’s table. • The ability to track the inputs used to make food products backward to their source at different levels of the marketing chain (Liddell and Bailey 2001). • Traceability is the ability to follow and document the origin and history of a food product. • Concerns have arisen because contaminated meat products can result in serious risk to health of consumers. • As a result, there is a need for meat supply chain traceability initiatives along with identity preservation.

43. WTP for Quality Assurance

44. WTP for Informationabout Beef Safety and Quality in Finland • 59% of respondents were willing to pay a premium to get additional information (Latvala & Kola, 2000).

45. WTP for high-quality beef which should not transmit CJD in France Respondents are WTP 13.7% higher prices for best-quality beef that should not transmit CJD (Latouche et al., 1998).

46. Lusk et al (2003) estimated cross-country WTP premium (/lb) for beef from cattle not administered growth hormones and not fed GM corn:

47. WTP for food safety assurance • Vessels and Anderson (1995) estimated that consumers (U.S.) are WTP (on average) • 5.1% higher prices for seafood safety assurance inspected by FDA. • 4.9% higher prices for seafood safety assurance inspected by USDA. • 3.3% higher prices for seafood safety assurance inspected by processors.

48. WTP for safer food • Buzby et al. (1998) estimated U.S. consumers’ WTP per week for safer Produce ($):

49. European Consumers Willingness to Pay for U.S. Beef (Alfnes & Rickertsen)

50. Willingness to Pay for COOL • Loueiro & Umberger (2003) for consumers in Boulder, Denver, and Fort Collins, Colorado, in a survey conducted in Grocery stores consumers would be WTP: • $183.77 / household / year for mandatory COOL • $1.53/lb. more for Steak (38%) • $0.70/lb. more for Hamburger (58%)