Bullock, J. Bruce

Womack, Abner W.

English

Research Papers in Economics

SOUTHERN  JOURNAL  OF AGRICULTURAL  ECONOMICS  JULY,  1986
DISCUSSION:  CHANGES  IN  DOMESTIC  DEMAND  FOR  FOOD:
IMPACTS  ON  SOUTHERN  AGRICULTURE
J. Bruce  Bullock  and Abner  Womack
Professor  Capps has done  an excellent  job  As we observe  changes  in the total amount
of examining  changes  in food  consumption  of meat consumption over time (and the mix
in the  United  States  and  identifying  impli-  of  beef,  pork,  and  poultry within  the  total
cations  of those  changes  for  southern  agri-  meat  category),  we  need  to  keep  in  mind
culture.  There  can  be  little  doubt  that  that  annual per capita  meat consumption  is
expanded  discussion  about  the  relationship  basically  determined  by  meat  production.
between diet and health has made consumers  Frozen  meat  stocks  and  meat  imports  have
more  aware  of what  they  eat.  For  example,  historically  accounted  for  a relatively  small
given our own taste preferences, we certainly  and  fairly  stable  proportion  of  total  meat
cannot explain  the  sharp  increase  in yogurt  consumption.  (The recent influx of Canadian
consumption  in  recent  years  other  than  in  pork imports  is  a notable  exception.)
response to an expanded preference for health  In spite  of our  efforts to  do so, we found
foods.  nothing  in  Capps'  paper  to  argue  with,  so
However,  we  need  to be  careful  in trans-  we decided  to expand  on his set of research
lating  all  observed changes  in consumption  challenges.  Capps points  out that  "there ex-
patterns  into  conclusions  about  changes  in  ists the need to develop more complete the-
consumer  preferences.  Capps  correctly  oretical and empirical analyses which
pointed out that changes in consumption pat-  permit clearerpictures  of changingpatterns
terns  do  not  necessarily  reflect  changes  in  of demand  their causes, and their likely
demand. However,  there is quite often a tend-  longrun effects.  Weagree.
The  major  research  challenge  regarding
ency  to  forget  this  as  we  try  to  interpret  conher demand  for food  is  to  determine
changes  in  consumption  patterns.  For  ex-  wh  er  ered chan  in  consumption
ample, in 1974-75 there was a sharp increase  ters  re  changes  in  consum  pf
in non-fed beef consumption  relative  to fed  p  c  c  p in non-fed  beef consumption  relative  to fed  erences or shifts in demand caused by changes
beef  consumption.  Many  observers  jumped  in  suppes  of  competing  commodities  and in  supplies  of competing  commodities  and
to  the  conclusion  that  consumer  "prefer-  therefore  changes  in relative  prices.
ences"  had  sharply shifted  in favor  of lean  What do we mean by a change  in consumer
beef away from well marbled beef. The facts  preferences?  There  has  been  almost  no  re-
are that consumers temporarily changed their  search  designed  to  test  hypotheses  about
consumption pattern in 1974-75 because beef  changes  in consumer  preference.  Consumer
producers  abruptly  changed  the  mix  of fed  preferences  are  defined  by  the  consumer's
and non-fed beef sent to slaughter in response  utility function.  Fred Waugh's award winning
to the sharp increase  in feed grain prices that  paper, A Partial  Indifference Surface  for Beef
had  occurred  without  corresponding  in-  and Pork, provides  a  rich  foundation  for
creases in fed beef prices.  Proponents  of the  empirical  research regarding  the nature and
shifting preference  structure ignored the fact  stability  of  consumer  preferences.  Unfortu-
that during that  time,  fed beef continued  to  nately,  if Waugh's  insightful  paper was  sub-
sell  at  a  price  premium  relative  to non-fed  mitted for journal publication today, it would
beef,  as  it  does  today,  even though  pounds  be rejected for using  a mathematical form of
of fed  beef  consumption  exceeded  pounds  the  utility  function  that  implies  cardinal
of non-fed  beef consumed  per capita.  measurement  of utility. Fear of being accused
J. Bruce  Bullock is Professor and Chairman, and Abner Womack is Associate  Professor, Department  of Agricultural
Economics,  University  of Missouri-Columbia.
Invited  discussion  paper presented  at the  annual  meeting  of the  Southern  Agricultural  Economics  Association,
Orlando,  Florida,  February  2-5,  1986.  Invited discussion  papers  are  routinely published  in the July SJAE without
editorial  council review  but with  review  of the copy  editor  (as per Executive  Committee action June  25,  1982).
Copyright  1986,  Southern  Agricultural  Economics Association.
37of using cardinal  measures  of utility has  ap-  Expansion  of equation  (3)  to include  other
parently scared demand researchers away from  goods  then  provides  an  empirical  test  for
using price and consumption data to develop  appropriateness  of  alternative  assumptions
and test hypotheses  about  consumer  prefer-  about the separability  properties  of the con-
ences.  This  fear  certainly  has  not inhibited  sumer utility function.'  For example, we can
production  economists  from  postulating  all  not reject  the hypotheses  that goods  i  and  j
sorts of mathematical  forms of farmer utility  are  separable  from  all  other  goods  in their
functions  in efforts  to  explore  farmer  deci-  utility function,  if we observe  the following
sionmaking  processes.  Why have demand  re-  properties  of coefficients  estimated  in  equa-
searchers  not  shown  equal  imagination  and  tion  (3):
innovation  in  exploring  consumer  prefer-  (4)  (P/P)/Qk =  0 for all k  5  i  j
ences  for food products? 
Let  us  examine  some  of  the research  im-  See  Bieri and  de Janury  (p.  13)  for specifi-
plications  of  Waugh's  insights.  We  do  not  cation of other conditions of separability that
have  to  assume  anything about the measure-  could  be  tested  by alternative  specification
ment of utility to derive  the first  order con-  and  estimation  of equation  (3).
ditions of utility maximization  subject to an  Stable  consumer  preferences  means  that
income  constraint.  That  is,  the  utility  function  does  not  change  over
(1)  MU1 MU2 MUn  time.  Shifts  or changes  in consumer  prefer-
(.)  -=_  =....=  /I,  ences  mean  that  the  utility  function  has
P1 P2 Pn  changed.  A  shift  in  consumer  preference
where MU, and P,  are the marginal utility and  (utility  function)  will be  reflected  as  shifts
price,  respectively,  of the  ith good  and  I  is  in the coefficients  of equation (3). Thus, one
the consumer's disposable  income. Thus, for  has empirical evidence  of shifts in consumer
any two  goods  i  and  j,  preference  only if hypotheses  about shifts in
~2) ~MUs  MU  ^  Pthe  parameters  of  equation  (3)  can  not be
(2)  =  --  rejected.  Moreover,  testing for  shifts  in  the
P 1 Pi  magnitude  of  coefficients  of  demand  equa-
or  tions can be justified only if one  has a priori
MUi  Pi  evidence  that there  has been a shift in  pref-
MUj  P  erence  structures.
Therefore,  the observed price ratio is equal  Stae  consmer  preferences  imply  that
to the ratio  of marginal  utilities  of the two  hifts in relative prices (consumption)  of two
goods  at the  observed  level  of consumption  goods can be explained by changes in relative
and prices.  quantities  (prices)  of the two  commodities.
The  first  and second  order  conditions  for  This  relationship  is  examined  for pork  and The  first  and second  order conditions  for broilers  in  Figure  1.  Casual  observation  of utility maximization  require  that  the  utility  these  data  offers  no indication  of  a  change
function be twice differentiable with respect  in  consumer  preferences  between  pork and
to the quantity of goods being consumed.  It  broilers  over  the  1949-1979  period.  A  log
therefore  follows that,  linear  regression  of the  ratio  of  retail  pork
(  MU)  PI  f(Q_  Qi)  price against  the per capita  consumption  of
MU(  P  pork, broilers,  and beef explains 99 percent
where  f is  a  continuous  function.  Equation  of the variation in the ratio of pork and broiler
(3)  thus provides  a basis  for examining  the  prices  Moreover,  hypotheses  that  shifts  in coefficients  occurred  in  1960  or  1970  are stability  of  consumer  preference  structures
wit  observ  e prce  n  consumpton  t  rejected at the 99 percent level of confidence with observable  price and consumption  data (Bullock).  In  short,  there  is  no  empirical provided the marginal utility of each of these  eidence tosupportthehypothesesthahere evidence to support the hypotheses that there
two  goods  is  independent  of  the  level  of  has been a preference shift in favor of broilers
consumption  of  other  goods.  The  compati-  and against pork during the  1949-79 period.
bility of this  latter  condition with  observed  Changes  in  the  consumption  mix  between
data can be empirically tested  by adding ob-  pork  and  poultry  are  fully  explained  by
served  consumption  of other  goods  to  the  changes  in relative  prices  and visa versa.
analysis  and  testing  the  hypothesis  that the  There  has  clearly  been  a  downward  shift
coefficient  on  these  quantities  equals  zero.  in the  demand for pork  as larger  quantities
Income  is not an argument of equation  (3)  since  the price flexibility with respect to income  =  1 for all goods
(Houck).  Therefore,  O(P,/P,)/dI  =  0 for  all prices  of goods.
38260
u  240
oE  '  .*=  76
n 0 220  78  i
0  ,.  .0  - 79
AC  0  77 75  *72
o  °  200  -
0  U  -^  70®074
,0...  180  -- X'  0:180  _73®e6667  71
O  =  69  e68
160  65  6  62
L  140  64463
0  58  0
05  0 
a  120  57  55
uX  '55653  54  51 50
.00  t  1  049
.80
I  I  I  I  I  I  I  I  I  I  I  I  I1
100  140  180  220  260  300  340
Per  Capita  Pork  Supplies  as  a
Percent  of  Per  Capita  Supplies  of  Chicken
Figure  1.  Relative  Prices  and Relative  Quantities: Pork-Chicken,  United States,  1949-79.
of poultry has been consumed at lower prices.  will not be productive.  Rather,  the effective
However,  there is no evidence to support the  approach  to  expanding  the  pork  industry's
hypothesis that there has been a shift in con-  share  of the  domestic  meat  market  is to re-
sumer  preferences  of beef relative  to pork.  duce  the  cost of producing  pork relative  to
Prices of competing products and income are  the cost of producing poultry. The 4:1 versus
shifters  in  the  demand  for  pork.  Thus,  de-  the  2  feed conversion for pork and poultry
mand  can  shift without  a  change  in prefer-  is the problem facing the pork industry share
ences. However, a change in preferences will,  of  the  meat  market  not  shifting  consumer
by definition,  change  the  demand curve.  preferences
Capps correctly points out the significance  e  question  about stability and nature  of
of knowing whether observed changes in con-  The  que  stion  about stability and  nature  of
sumption patterns reflect preference changes  consumer  preferences  is  not  trivial.  We join
or  shifts  in  demand  caused  by  changes  in  Capps in challenging  demand researchers  to
relative  prices.  The  above  analysis  suggests  expand research  to provide  improved  infor-
that efforts  to expand pork consumption rel-  mation about the nature and stability of con-
ative to poultry consumption via advertising  sumer preference  structures.
REFERENCES
Bieri,  J.  and  A.  de  Janury.  Empirical Analysis of Demand Under Consumer Budgeting.
Giannini  Foundation.  Monograph  No.  30.  University  of California,  Berkeley,  1972.
Bullock,  J.  B.  "Consumer  Preference  Structure for Meats:  Has  it Shifted?" Journal  Paper No.
J3853,  Oklahoma Agricultural  Experiment  Station,  1981.
Houck, James P. "A Look and Flexibilities and Elasticities." Amer. J. Agr. Econ., 48,2(1966):
225-32.
Waugh,  F.  V.  "A Partial  Indifference  Surface  for Beef and Pork." J. Farm Econ., 38(1956):
102-12.
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DISCUSSION: CHANGES IN DOMESTIC DEMAND FOR FOOD: IMPACTS ON SOUTHERN AGRICULTURE

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