MF - 2457 • Beef Marketing

Although beef demand improved modestly in 1999, 20 years of declining demand has plagued the beef industry. Inflation-adjusted retail beef prices were collapsing at the same time per capita consumption was declining. The result, beef demand declined precipitously from 1980 through the late 1990s. For example, Purcell’s beef demand index indicates 1998 Choice retail beef prices were 50 percent lower than they would have been if beef demand had been held constant at its 1980 level (Figure 1). If the beef industry is to successfully improve long-run beef demand, individual beef demand determinants must be quantified. This study was designed to determine the major factors causing beef demand to shift over time. Defining Beef Demand One challenge facing the beef industry is a poor understanding of beef demand and its determinants. Part of the problem is confusion over terminology. Economists differentiate between two related, but distinctly different, terms; 1) quantity demanded and 2) demand. A meaningful discussion of beef demand requires a clear distinction between these two terms. Quantity demanded refers specifically to the quantity of beef consumers will purchase at a given beef price, holding all other factors constant. On the other hand, demand, also referred to as a demand curve, is a schedule of beef quantities consumers will purchase over a range of beef prices. A shift in beef demand occurs when the entire beef demand curve shifts up (demand increase) or down (demand decrease). Changes in beef price or the quantity of beef consumed do not cause the beef demand curve to shift. Rather, changes in other factors, such as prices of competing meats (e.g., pork or poultry), demographics (e.g., income, age distribution, etc.), or health or food safety concerns cause the beef demand curve to shift. When beef demand increases (i.e., shifts up), say as a result of an increase in the price of poultry that causes consumers to substitute beef for poultry, the result is higher beef prices at any level of beef consumption than prior to the demand shift. Conversely, when beef demand decreases (i.e., shifts down) beef prices are lower at any beef consumption level than prior to the demand shift. Figure 1. Choice Retail Beef Demand Index, 1980-1999 (1997=100).