Consumers Pay Organic Premiums – Chicken is King and Beef Lags
“Local” and “Organic” are two forms of production that have received considerable public attention in the last 10 years. The label of “Local” and “Organic” are noticeably vague and at times can cause confusion among consumers. The USDA has no specific definition of the “Local” label but work to promote locally grown products. The “Organic” label is more specific and “regulations require that animals are raised in living conditions accommodating their natural behaviors (like the ability to graze on pasture), fed 100% organic feed and forage, and not administered antibiotics or hormones” (USDA 2019).
Converting part or all an operation to certified “Organic” is one way to potentially add more profit to an enterprise. Each operation is different so careful analysis of the costs and benefits of switching production practices is clearly warranted prior to making any decisions. When processing the decision to convert production, one of the most common question I receive from producers is “Are consumers willing to pay more for Organic or Local beef over conventional beef?” The answer is generally, it depends.
This question is difficult to answer in part due to the lack of price reporting by USDA and the many retail cuts that can/should be monitored. Advertised prices from supermarkets provide a signal on what retailers believe is the profit maximizing price for select cuts but tell nothing about quantity purchased by consumers. Nevertheless, these advertised prices can be used to used to calculate the organic price premium during weeks where a select cut is advertised as Organic and Conventional. Using weekly data from the United States Department of Agriculture Agricultural Marketing Service (USDA-AMS) between December 2018 to January 2020 I determine organic price premiums for select cuts for beef, pork, and chicken.
Organic Premiums Vary by Meat Product
Table 1 (see below) shows a summary of the USDA-AMS data from December 2018 to January 2020. Column one has the name of the select cuts of beef, pork, and chicken. Columns two and three are the average number of stores per week where both a conventional and organic price was listed. Columns four and five is the Organic premiums ($/lb.) and the percent of Organic premium over the conventional price. Column six is the number of weeks between December 2018 and January 2020 that a conventional and organic price was listed.
The premium for organic beef ranged from $2.96/lb. for a boneless top sirloin steak to $6.47/lb. for a boneless New York strip steak. Organic ground beef premiums ranged from $2.00/lb. to $2.50/lb. Thus, on average, an organic steak was advertised at a $5.26/lb. premium over conventional steak and organic ground beef was advertised at a $2.18/lb. over conventional ground beef. Ground beef was the most advertised product whereas the type of steak advertised varied. Chicken products ranged from $2.01/lb. to $5.21/lb. Boneless organic products commanded a higher premium than bone-in products. For example, organic boneless and skinless chicken breasts had a $4.64/lb. premium compared to $2.01/lb. split bone-in breast. Likewise, stores tended to frequently advertise the same subsection of chicken products week to week. For example, of the 30 weeks of data, boneless and skinless organic chicken breasts was advertised during 28 of those weeks. The type of pork products advertised varied considerably. The most common was bacon and commanded a $4.17/lb. premium. Likewise, different types of sausage were advertised but premiums were generally lower than bacon.
Comparing organic beef premiums to organic premiums in pork and chicken sheds some light on why adoption of organic practices (i.e. no hormones and no antibiotics) in chicken has been more rapid than beef. Organic premium for a boneless chicken breast was $4.64 (194% of conventional price) compared to $6.02/lb. for a boneless ribeye steak (63% of conventional price). There appears to be a larger organic premium, as a percentage of conventional price, for lower valued products than for higher valued products. Given this premium there would be a greater incentive for adoption in chicken production than in beef production. Thus, the additional adoption of no hormones and no antibiotics in beef production is likely more of a result of towards capturing export, rather than domestic, demand for these attributes.
Notes: Data comes from USDA-AMS Reports WA_LO100 and WA_LO101; a Organic premium is defined as organic advertised product minus conventional advertised products; b Organic premium as a percentage of the conventional price; c How many weeks a meat item was featured in an ad. Used as a measure of price signal strength.
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