Chapter 2: Economic Importance of Marketing Activities

Value added – form, space, time

Conceptual and Measurement Issues

Sources: Food Expenditure Data

Trends: food expenditures and consumption

Alternative Measures of Marketing Services

Price spreadsOther measures - GDP/employment

Conceptual and Measurement Issues (marketing services)

What is the concept you want to measure?• data available correspond to the concept?

Aggregate Measurement Concept:

(aggregate food retail value - aggregate farm gate value)

Aggregate retail expenditures; aggregate agr output problems with implementation

Comparability of agr and food products

What is a retail food product ? (home, food service, institutional)

What is an agriculture product ? (pet food, tobacco, fibres - cotton/flax)

Industrial uses (ethanol, biodiesel, starch)

Data Sources: Food ExpendituresDifferent data sources are different – different objectives

United StatesUSDA - Agr. Marketing Service - ERSUS Dept of CommerceBur. of Labour Statistics

CanadaAgriculture and Agri-food Canada:Statistics CanadaHealth Canada

Private and Other Public Sources

Private Corporations: A.C. NielsonIndustry OrganizationsUniversity InstitutionsPrivate “Think Tanks” (George Morris Center; Guelph)

International: FAO, IFPRI, World Bank, ILO

Measuring Food Expenditures and the Value of Marketing Agr + Food Products

What’s an Agri-Food Product?

Practical Challenges:

What is included?

Fish, beef bones, Pet food, cotton, hemp

Beer/Wine Spirits, ethanol, biodiesel

Conceptual Issues

working with the data you have

Individual Food Products Measurement Concept

Excludes export marketing servicesIncludes import marketing services

Tomato on farm versus tomato at retail

Tomato => many products (pizza)

Challenge: Converting from primary to processed

Joint production - co-products

Beef (steak vs beef on the hoof)Wheat (loaf of bread vs bushel of wheat

Food away from home Lettuce in a hamburger

Adjustments for trade Retail expenditure data

US Retail Food Expenditure Data

USDA – Concept 1: Total retail value of FOOD consumed in the USA

Different expenditure data from USDA and Commerce Dept.

USDA – Concept 2: Personal expenditure data

Purchases, donated, home-produced for human consumption–all sources+ Government/business food services

– excludes non-purchases & food provided to employees

– measures expenditures out of personal income

Department of Commerce Food Expenditure Data

Personal Food Expenditures

Results in different proportion of disposable income spent on food

Includes pet food, ice, prepared feed

Changes in Food ExpendituresRole of marketing services

Expenditures on food and marketing are increasing

Growth in away from home consumption

More processing

Prices increasing (even adjusted for CPI)

Population growth

Some Canadian Data

Canada – expenditures out of household income

1961 – 20% of household income on food and non-alcoholic beverages:2005 – 9.3%

2005 – Canadian food expenditures (AAFA)

$131 Billion – food & beverage (including alcohol)$4K per capita (32 Million Population)

$ 71 B in grocery stores (66%)

$ 37 B in food service establishments (34%)--------------$ 108 food expenditures

$ 24 B for alcohol

Changes in Consumption of Individual Products

US - Bur of Labour Statistics and USDACanada - Statistics Canada; AC-Nielson (scanner data)Expenditure weights for CPINutritional status analysis

1) Disappearance data

Production + (beg. stocks - end. stocks) + (imports - exports)

Defined for primary food commodities (beef, eggs, milk)Approximate per capita consumption (waste is estimated)Adjusted for industrial and nonfood use to estimate food consumption

2) Periodic household surveys

Data Sources - Food Expenditures

Canada

Agriculture and Agri-food Canada:Statistics Canada – Food Expenditure SurveysHealth Canada

Consumer Expenditures (2013 active)

http://www4.agr.gc.ca/AAFC-AAC/display-afficher.do?id=1171288446081&lang=eng

United States

USDA - Agr. Marketing Service, Economic Research ServiceUS Dept of Commerce, BLS

USDA food consumption (per capita) data system (2013 active)

http://www.ers.usda.gov/data-products/food-availability-%28per-capita%29-data-system/.aspx#.Ug6UbKyZaVY

1970 - 1996

Serecon Management Consulting - 2005, for AAFC

Alternatives to Aggregate ExpenditureRetail-Farm Price Spreads

Value of Marketing Services

Concept: Calculated for individual products

(retail price - imputed farm values)

Imputed farm valuesFarm prices and conversion factors

Practical Difficulties - adjustments

Multi-ingredient productsCo-products

USDA Market Basket Concept

Retail-farm price spread – set (Basket) of products

• retail prices for home consumption (no restaurants)

• excludes seafood, and nonalcoholic beverages

• Weighted by average quantities of food products purchased

Farm value based on farm prices

Difference = value of marketing services

Narrow range of products

Set of products relatively static

USDA Marketing Bill Concept

Share of consumer $ spent on marketing

1) Compute total retail food expenditures

– All/most food products (includes non-alcoholic drinks)– includes away-from-home purchases– excludes imports and seafood

2) Farm values - based on farm gate prices

(1) – (2) = Estimated value of marketing services

Measures vary

market basket (static) or marketing bill (dynamic)

• what is included

• how pattern of purchases evolves

Farm Share of Retail Food Expenditures

Market basket => higher farm share

Both measures => declining farm share

Based on 2007 USDA data

Other Economic Measures

Contribution to GDP

– Includes import and export marketing services

Employment

Schrimper provides US data

Canadian Data Follow

An Overview of the Canadian Agriculture and Agri-Food System 2013, Research and Analysis Directorate, Strategic Policy Branch, Agriculture and Agri-Food Canada, Ottawa. ISSN 1708-4164 2013

Revenues generated for each sector

An Overview of the Canadian Agriculture and Agri-Food System 2013, Research and Analysis Directorate, Strategic Policy Branch, Agriculture and Agri-Food Canada, Ottawa. ISSN 1708-4164 2013

Canadian AAF System GDP: 8.0% (2011)

Primary Agriculture 1.7% GDP Marketing System 6% (Post Farm-Gate)

$100 Billion Total GDP

Employment: AAFS 12.5% (2.1 Million Canadians)

87.5% Marketing Activities

Exports: $ 40 BillionImports $ 31 Billion

2011 Consumer spending: food, beverages and tobacco = $181 Billion

18% of personal spending

Spending on food and non-alcohol = 10% of personal household expenditures

Government support to the AAF System (all levels) = $ 7.5 Billion (2011/12)

$2.7 Billion in program payments to primary agriculture (PSE 2011 = 14%)

A few more numbers from the AAFC 2013 Report

Research Support (In real terms):

1990 $500 Million ($ 2002)2011/12 $430 Million ($ 2002)