New Views on Meat Prices
In the fall of 2021, NC Choices observed prices from nine mainstream grocery stores and 16 farms that sell at farmers markets in the Greater Raleigh-Durham area of North Carolina. We found that farm prices for beef, pork, and lamb were higher than in grocery stores.
Differentiated meats are marketed for attributes that set them apart from conventionally produced meats. These attributes may include claims on labels such as “no antibiotics, no added hormones, and grass-fed.” Differentiation can be based on breed, feed, handling, certifications, or geography. By default, locally raised meat marketed by farms is differentiated because it is locally raised and supports local agriculture and the economy. For our comparison, we looked at conventional meats, as well as two levels of differentiated meats. We were surprised to find only a few types of differentiated meat products at grocery stores. As a result, there are limited observations in the average for some store products.
Given the small scale of production on most direct-to-consumer farms in North Carolina, any individual farm will have higher production costs than the large systems that commonly supply grocery stores. These costs not only include production costs, but also higher trucking, processing, and marketing costs per unit relative to the grocery stores. Thus, it is unlikely that any North American farm can profitably bring meat to market at prices lower than grocery stores.
Farm prices in the Raleigh-Durham area were generally higher than grocery store prices. North Carolina farms with prices lower than store prices may need to reconsider their pricing, especially when they account for costs, such as the value of owner time and hired labor. In many cases, farms may need to increase prices to sell meat profitably, which can be uncomfortable. Here is a “pep talk” to help farms that are unsure about raising prices on meat products.
1. Consumers are already paying high prices for meat. Based on the prices observed at stores and farmers’ markets, many farms could raise meat prices without charging significantly more than stores. For example, a consumer who walks into a grocery store to buy a ribeye steak will pay $22.70 on average (see Table 2), regardless of whether they seek a differentiated product or not. If customers are paying that price for an “ordinary” steak, some shoppers who seek differentiated steaks would be willing to pay more. Customers who shop at farmers’ markets and farm stores are not necessarily price-driven shoppers. It is likely that such shoppers are seeking products that are differentiated by breed, feed, handling, or simply by location and connection to the farmer. These consumers are more willing to pay premium prices.
2. Your target customers already value what you produce. Many farmers worry about customer reactions and the possibility of losing customers over price increases. Some customers may decline to purchase higher priced products and not return, although those customers may not be your target clientele. For local, farm-raised meat sold by-the-cut at farm stores and farmers’ markets, the target customer is one who already values what you produce. Customers who seek the lowest price for meat are not compatible with these options. If you are working with cost-conscious consumers, you can sell them a quarter or half instead. It is important to know your customer and their values before beginning to sell your products.
3. “Fewer units sold” is not the same as less money earned. Losing customers or product sales because of increased prices is possible, although it does not necessarily result in lower gross sales or profit. For example, the average price in the store for one pound of grain-finished, no antibiotics, no added hormones, 90/10 ground beef was $7.49 (see Table 2). If a farm currently selling at $6.49/lb were to raise its price to $7.49, they could observe a reduction in sales from 75 to 65 lb and still gross nearly the same amount (see Table 1). In addition, the farm will have another 10 lb of ground beef to sell. If raising the price from $6.49 to $7.49 seems too abrupt, gradual increases that are planned over time can ease the shock that regular customers might experience.
|Ground Beef Price/Lb (P)||Lb Sold (Q)||Total Sales (P×Q)|
It is important to consider time when discussing the effect of price changes on sales. In the example shown in Table 1, we assume that the drop in sales from 75 to 65 units occurred over a given period, such as pounds sold per month. Although the units sold in a given time period might fall, gross sales are approximately equal. After all 75 lb of ground beef are sold, the farm has realized an extra $75 in ground beef sales. In addition, most farms sell frozen versus fresh meat, and will have more time to sell their meat at their target price point.
4. Prices can be used to aid inventory management. Farms that sell meat by the cut struggle with the need to sell every cut on the carcass. Consumers love to buy premium steaks and bacon. But, for each pound of popular cuts, there are also several additional pounds of less desirable meat to sell. Pricing can be used to manage the rate at which cuts sell over time. Higher prices on popular cuts will slow down sales and give sellers an opportunity to direct customers to other cuts. Customers who are seeking a ribeye steak may be surprised by the farm’s price, but they do not need to leave empty-handed. Instead, there is an opportunity to move the customer “down carcass” to cuts with lower prices. In fact, the new online Meat Price Calculator (developed by Cornell University and NC Choices) allows farms to experiment with different pricing scenarios, while ensuring they reach their targeted profit goal. Increasing prices on cuts that tend to sell out quickly may encourage the lowering of prices on other cuts that tend to sell more slowly. In this way, farms can develop pricing scenarios that more closely match the pounds/carcass of cuts to the pounds sold in time, which helps them effectively manage inventory to avoid selling out or stockpiling cuts.
5. Price elasticity. Consumers are accustomed to regular price changes and react to those price changes by what is called “the price elasticity of demand.” This is a measure of how much demand changes in response to a change in price. With “inelastic responses,” the percentage change in demand will be less than the percentage change in price. That is, the elasticity will be less than one. With aggregate level data, the price elasticities of demand for meat products are usually inelastic. A recent study that used aggregate data found price elasticities for “all” beef, pork, and poultry in the US to be -0.2, -0.5, and -0.7, respectively. More specifically, a 1% increase in the price of beef reduces demand by 0.2%. When demand is inelastic, increases in prices will result in an increase in total revenue ($), because the price increase (a positive influence on sales) more than offsets the decrease in demand (a negative influence on sales). When your products have inelastic demand responses, you have an opportunity to increase sales revenues through price enhancement. Of course, elasticities on individual cuts and in individual markets will vary (ground beef is likely more price inelastic than a ribeye steak), but knowing how consumers react to prices in local markets is extremely helpful as you make pricing decisions. It is important to remember that we all experience price changes on the products that we purchase, and we often do not notice. Thus, price changes do not usually mean that we completely stop buying certain products, but they may shift our purchase to either a smaller package of meat, or a different cut of steak.
Note: Farm and grocery store meat prices (average price per pound) observed in September and October 2021 in North Carolina (n=observations; r=range). Some farm pork chops did not distinguish “bone-in” or “boneless.” Farm ground beef did not specify a lean/fat ratio.
Ground Beef, 80/20+: Ground beef products with a lean/fat claim of 80/20 or 85/15.
Ground Beef, 90/10+: Ground beef products with a lean/fat claim of 90/10, 93/7, 95/5, or 96/4.
Raising prices can be challenging. There are many factors to consider such as the local market, population, economic conditions, and seasonality in demand. Ultimately, pricing must be based on the farm’s expenses and profit goals. Observing prices at grocery stores can be surprising and may challenge our assumptions about store versus farm prices. Store prices may also give the farm confidence to make changes, with the knowledge that consumers are already paying these prices for non-differentiated products.
Classification of Meat Products for Price Comparison
For our meat price comparison project, we wanted to compare prices of like products. We developed three categories of products based on the primary product descriptions and claims. Product claims are found on product labels, in-store signage, and farm signage (such as at a farmers market), as well as store and farm websites.
Products were then classified as:
- “Conventional” which represents products without claims that differentiate the product.
- Level 1 products are those that are differentiated from conventional products with claims that refer to the production practices (animal feeds and handling) or that state they were “locally raised.”
- Level 2 products are those that are further differentiated by production practices. Level 2 products are more differentiated from conventional than the Level 1 products.
Labels that claim a breed of livestock (such as “angus”), the country of origin, or USDA Quality Grades can be designated into any of the three categories based on the presence or absence of additional claims.
Beef and Lamb
Conventional: Includes store products and farm products without claims and those that claim “all natural.” The USDA definition of “natural” is “minimally processed,” and does not refer to livestock production practices.
Level 1: Includes store products and farm products that primarily claim “no antibiotics,” “no added hormones,” or “locally raised.” Any one of these claims qualifies a product for Level 1 designation.
Level 2: Includes store products and farm products that primarily claim “grass-fed” (100%) or “certified organic.” Any one of these claims qualifies a product for Level 2 designation.
Conventional: Includes store products and farm products without claims and those that claim “all natural.” The USDA definition of “natural” is “minimally processed” and does not refer to livestock production practices.
Level 1: Includes store products and farm products that primarily claim “locally raised,” or that are sold in local markets (farm products).
Level 2: Includes store products and farm products that primarily claim “pasture raised,” “forest raised,” or “non-GMO feed.” Any one of these claims qualifies a product for Level 2 designation.
This material is based upon work supported by the Agriculture and Food Research Initiative [grant number 2021-68006-33891] from the US Department of Agriculture, National Institute of Food and Agriculture, the Farmers Market Promotion Program Initiative [grant number 2022-1200 / 21FMPPNC1068-00] from the US Department of Agriculture, Agricultural Marketing Service, and by the Golden Leaf Foundation [grant number 2021-0528 / FY2021-025]. The views expressed are the authors’ and do not necessarily represent the policies or views of any sponsoring agencies.
Publication date: July 12, 2022
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