CONSUMER FOOD MARKETS OF THE FUTURE:
AN OVERSEAS (US) PERSPECTIVE
Julie A. Caswell
Department of Resource Economics
University of Massachusetts
Amherst, MA USA
caswell@resecon.umass.edu

I will touch on several points regarding consumer food markets:

Which Quality Attributes Are in Demand?

WHICH QUALITY ATTRIBUTES ARE IN DEMAND AND BY WHOM?

When we look at food products, we see an array of characteristics or attributes that make up product quality, and when combined with price, form consumers’ perception of value. Here is the list of attributes (with examples) that I work with when considering quality:

What I see happening with consumer food markets is that these quality attributes have gained in prominence as incomes have risen, especially in developed countries. Here food quantity is no longer a central issue for many consumers.

This trend has occurred across countries but cultural differences persist. It is not just a cliche that French consumers care more about sensory and process attributes than do US consumers. However, it is also true that some US consumers are more like the average French consumer and vice versa.

Thus when we talk about which attributes are in demand and by whom, we are looking at both markets and market segments. And we are looking at attributes that differ fundamentally in the information that consumers have available to them. Economists like to classify attributes by differences in consumer information, using three categories.

• Search Attributes
• Experience Attributes
• Credence Attributes

• In the US, Quality Assurance is a:
• Secondary Factor in Increases in Concentration
• More Important Factor in Increases in Contracting

Market and economic considerations, plus a legal and regulatory environment that is currently permissive towards mergers, are the main drivers behind increases in concentration in US markets. For example, the top 5 retail chains now control 40% of the US market, up from 20% just 5 years ago (in 1993 in took the Top 20 to get to a 40% market share).

Quality assurance has played little role in this development, nor has it played a major role in increasing concentration in food processing. It has played a more important role in encouraging the growth in contracting at the production level but here too I would venture to say that quality assurance has not been the driving force.

While EU markets may be different, quality assurance for consumer markets has not made it to the top of the list in the US. Thus the trend is there but not crucially important, at least not yet.

But to what extent can the US or any national market stand alone?

HOW SEPARATE ARE MARKETS (WITHIN AND ACROSS COUNTRIES)?

• Evidence of Both
• More Separation
• Less Separation

We have evidence of more separation between markets within countries, with more market segmentation. But in important respects, we are seeing less separation between markets, especially in a global sense.

In this respect, biotech offers some interesting lessons from a US perspective.

• Biotech’s Lessons:
• Globalization
• Trading Up?

The US is the world leader in adoption of biotech, beginning with rBST for milk production and continuing through rapid adoption of many new seed varieties.

In my view, the biotech companies made strategic decisions about how to approach the introduction of biotech based on the idea that if the technology was accepted by the US government as safe, it could be introduced into the food supply chain as "just another new technology" and not be differentiated at the consumer level.

Early US labeling policy with rBST supported this view, with labeling essentially being discouraged. This strategy was accompanied by the claim by members of the industry that segregation of product was impossible. The early going was not smooth but there was and is little concern or protest among US consumers about GMOs so the ultimate success of the strategy perhaps looked promising.

However, the US market has run headlong into the current lack of separation between it and other markets, particularly the EU market. The EU has refused to budge and there are now glimmers that the US will end up adapting to the EU approach rather than vice versa.

US grain companies such as Archer-Daniels-Midland have now told the grain supply chain to get ready to segregate GM and non-GM product. And US Secretary of Agriculture Dan Glickman has from time to time talked favorably about labeling as a solution to the EU/US GMO controversy.

Thus, despite the Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBT) Agreements of the WTO and how the US would like to see them be applied, globalization appears to mean that the future of GMOs will lie in an identity preserved and labeled world.

In my view, this is an example of trading up or harmonizing up, with the country with the less strict standards being forced by political and market conditions to adapt to the standards of its more strict trading partners.

We don’t have a crystal ball, ever, but this experience with biotech raises the question:

REGARDING BIOTECH’S MARKET ACCEPTANCE:

• Are Companies Slow Learners, Overly Optimistic, and/or Blind?

OR

• Is It Too Early to Judge?

I think in the case of some companies there was a combination of factors that prevented them from predicting where the market for GMOs would go. In part, this failure is the result of an over reliance on the "science knows best" approach. The introduction strategies for biotech were not consumer aware or very politically aware, particularly in the EU context.

This is not to say that GMOs will not eventually gain market acceptance. In many respects it is simply too early to tell. I have no doubt, however, that the market acceptance of GMOs has been significantly slowed down by miscues in the early phases of introduction.

WHAT’S NEXT IN CONSUMER MARKETS?

The biotech experience to date gives clear signposts to consumer markets of the future. All the attributes of food products will be important to at least some segments of the consumer market.

For companies, the:

• Tickets to Play Will Be
• Quality Assurance Systems
• Labeling
• Persuasion

Companies will need to persuade consumers that they have nothing to hide and that they are doing a good job. They will also have to persuade consumers of the benefits of the products they are offering for sale. Governments are not going to be able to do that for companies in the area of new technology.

Government to government relations are shaping consumer markets but in conjunction with private market developments. Harmonization and equivalence efforts by governments only work when they fundamentally agree on approaches to regulating food products and even there the process is difficult and slow.

Where they disagree, the struggle is on. The current SPS and TBT Agreements of the WTO do not fully address these problems.

The New Round of WTO Negotiations may try to go further in smoothing regulatory differences between countries but at this time I do not see a route to that happening.

The EU position will be to bring more factors beyond science into regulatory decisions. The US position has been to steadfastly keep those considerations further in the background of regulatory decision making.

There is little room for compromise in those two positions so I think it likely that consumer markets will develop in the future under our current institutional framework. That means there are many lessons to be learned from our experience with the introduction of biotechnology in terms of how consumer markets will develop and operate in the future.

Thank you. I would be happy to hear comments and questions.

REFERENCES FOR RELATED PAPERS

Caswell, Julie A. 1999. An Evaluation of Risk Analysis as Applied to Agricultural Biotechnology (with a Case Study of GMO Labeling). Paper presented at ICABR Conference on The Shape of the Coming Agricultural Biotechnology Transformation: Strategic Investment and Policy Approaches from an Economic Perspective, University of Rome "Tor Vergata", June 17-19 and at NE-165 Conference on Transitions in Agbiotech: Economics of Strategy and Policy, Washington, DC, June 24-25.

Caswell, Julie A. 1998. How Labeling of Safety and Process Attributes Affects Markets for Food. Agricultural and Resource Economics Review 27 (2):151-158.

Caswell, Julie A. 1998. Valuing the Benefits and Costs of Improved Food Safety and Nutrition. The Australian Journal of Agricultural and Resource Economics 42(4, December):409-424.

Caswell, Julie A. and Eliza M. Mojduszka. 1996. Using Informational Labeling to Influence the Market for Quality in Food Products. American Journal of Agricultural Economics 78(December):1248-1253.

Caswell, Julie A., Maury E. Bredahl, and Neal H. Hooker. 1998. How Quality Management Metasystems Are Affecting the Food Industry. Review of Agricultural Economics 20 (2):547-557.

Hooker, Neal H. and Julie A. Caswell. 1999. A Framework For Evaluating Nontariff Barriers to Trade Related to Sanitary and Phytosanitary Regulation. Journal of Agricultural Economics 50 (2):234-246.