IMPORT DEMAND FOR GOAT MEAT, SHEEP AND LAMB, AND OTHER LESSER MEAT BY THE UNITED STATES DORIS NEKESA SANDE. (Under the Direction of Jack E.

Transcription

1 IMPORT DEMAND FOR GOAT MEAT, SHEEP AND LAMB, AND OTHER LESSER MEAT BY THE UNITED STATES by DORIS NEKESA SANDE (Under the Drecton of Jack E. Houston) ABSTRACT Amercan dets, especally meat consumpton, have changed dramatcally over the past decade. There has been a shft away from red meats towards whte meats. These changes are not n solaton; they seem to be n lne wth detary changes worldwde. Changes n consumpton patterns n the Unted States have manly been prompted by the current wave of populaton dversty, as well as the health conscousness of the Amercan populaton. These factors have created a favorable envronment for goat meat. Ths thess nvestgates the mport demand elastcty for goat meat, along wth sheep and lamb, and other lesser meats as a system of mnor meats. Due to lack of local producton data on goat meat, mport data was utlzed to determne the mport demand. The Generalzed Composte Commodty Theorem was employed to test for separablty of mports from local producton. It was determned that mport demand for goat meat and sheep and lamb are both prce nelastc and luxury goods, whch mples that mport demand does not vary much wth changes n mport prces. INDEX WORDS: Food Consumpton, Import Demand, Mnor Meats, Goat Meat, Ethnc Communty, Separablty, LA/AIDS Demand System

2 IMPORT DEMAND FOR GOAT MEAT, LAMB AND MUTTON, AND OTHER LESSER MEAT BY THE UNITED STATES by DORIS NEKESA SANDE B.Sc. Agrculture, The Unversty of Narob, Kenya, 1994 A Thess Submtted to the Graduate Faculty of The Unversty of Georga n Partal Fulfllment of the Requrements for the Degree MASTER OF SCIENCE ATHENS, GEORGIA 2005

3 2005 Dors Nekesa Sande All Rghts Reserved

4 IMPORT DEMAND FOR GOAT MEAT, LAMB AND MUTTON, AND OTHER LESSER MEAT BY THE UNITED STATES by DORIS NEKESA SANDE Major Professor: Commttee: Jack E. Houston Caesar Escalante John McKssck Electronc Verson Approved: Maureen Grasso Dean of the Graduate School The Unversty of Georga December 2005

5 ACKNOWLEDGEMENTS Frst and foremost, I would lke to thank my major professor, Dr. Jack E. Houston, for belevng n me rght from the begnnng. You were such an nspraton and you made such effort to ensure I went through my program successfully. Thank so much for beng such a wonderful professor. I would also lke to thank Dr. Epperson for helpng to dentfy the source of data for my thess and for enablng me to publsh my frst paper n the department. Your postve complement at the tme gave me a sprngboard to wrtng my thess. I would lke to thank the other members of my commttee, Dr. Caesar Escalante and Dr, John McKssck for wllng to be on my commttee and for all the effort they put n to see me graduate. Lkewse, I want to thank Dr Mchael Wetzsten for beng so welcomng and understandng as a graduate coordnator. I especally wsh to thank the Fort Valley Unversty Goat Project, The Afrcan Studes Department at UGA and to Dr Whte, who made my graduate studes at UGA possble. Fnally, I am deeply ndebted to my famly. To my husband, Peter, who was there for me and encouraged me always. To my kds, Alce and Wllam, who were understandng when I had to be gone all the tme. v

6 TABLE OF CONTENTS Page ACKNOWLEDGEMENTS... v LIST OF TABLES... v LIST OF FIGURES... v CHAPTER 1 INTRODUCTION...1 Shfts n global dets...1 Changes n nternatonal trade patterns...2 Amercan dets...3 Goat meat...7 Sheep and lamb...9 Problem statement and objectves...9 Organzaton of the thess LITERATURE REVIEW...13 Changes n the structure of nternatonal trade...13 Shfts n global dets due to economc development...16 Internatonal meat trade...17 Effects of dstrbuton technology...21 Multnatonal busness structures and nternatonal trade...22 Changes n world meat consumpton patterns...23 Amercan meat consumpton patterns...25 v

7 Goat meat versus other meats...27 Domestc producton...29 Sheep and lamb THEORY AND METHODOLOGY...33 Neoclasscal consumer theory...33 Aggregaton and separablty...35 Model specfcaton...40 Data and estmaton procedure RESULTS AND DISCUSSION...51 Sample descrptve statstcs...51 Import demand estmaton...53 Prce effects...55 Expendture elastcty SUMMARY AND CONCLUSIONS...58 Summary...58 Conclusons and mplcatons...60 Lmtatons and further research...61 REFERENCES...68 APPENDIX...74 v

8 LIST OF TABLES Page Table 2.1: Comparson of Goat Meat to Other Meats...27 Table 4.1: Descrptve Statstcs for the Varables used n the LA/AIDS Model...63 Table 4.2: Dckey Fuller tests (dfferenced seres)...64 Table 4.3: Correlaton coeffcents for the mnor meat group...64 Table 4.4: ITSUR Parameter Estmates of the LA/AIDS Model for Goat Meat Import Demand, Homogenety and Symmetry Restrctons mposed, Table 4.5: ITSUR Parameter Estmates of the LA/AIDS Model for Sheep and Lamb Import Demand, Homogenety and Symmetry Restrctons mposed, Table 4.6: ITSUR Parameter Estmates of the LA/AIDS Model for Other Meat Import Demand, Homogenety and Symmetry Restrctons mposed, Table 4.7: Estmated Import Demand Expendture and Uncompensated Prce Elastctes, Table 4.8: Compensated Import Demand Prce Elastctes, Table 4.9: Test Results for Homogenety and Symmetry Restrctons...67 v

9 LIST OF FIGURES Page Fgure 2-1: Composton of World Agrcultural Trade...15 Fgure 2-2: Global Meat Producton and Trade...18 Fgure 2-3: Income Level and Source of Calores...19 Fgure 2-4: World Meat Exports, Fgure 2-5: Total U.S. per Capta Consumpton of Red Meat and Poultry...26 Fgure 2-6: Goat Meat Importers...29 Fgure 2-7: Per Capta Consumpton of Lamb, Fgure 3-1: Varous Levels of Commodty Aggregaton n Demand Estmaton...37 Fgure A-1: Values of Mnor Meat Imports by the U.S., Fgure A-2: Import Prce for Mnor Meats to the U.S Fgure A-3: Import Shares for Mnor Meats to the U.S...75 v

10 CHAPTER 1 INTRODUCTION Amercan consumers are among the best fed n the world, and anmal proten s a major consttuent n ther dets. Amercans dets are dverse, and many speces of anmals are consumed, wth beef, pork and poultry beng the most mportant. Recently, goat meat has become a component n some Amercans dets. Goat meat s consumed wdely n many countres of the world, partcularly n developng countres; however, consumpton of goat meat s lmted n the Unted States (Locaso and Degner, 1988). Hstorcally, n the Unted States, the prmary purpose of goats has been fber producton, mlk producton or brush control. Ths hstorcal bas s represented n current goat numbers found wthn the country. Of the two to fve mllon goats n the Unted States, approxmately two mllon are consdered fber goats, one mllon are mlk goats, and one-half mllon are "meat goats". In general, the meat goat ndustry s unorganzed and s not well defned. Few offcal statstcs are kept and much of the avalable nformaton found on the number of anmals, the demand for goat meat, and the retal prce of goat meat s contradctory n nature. Whle there s generally a postve outlook on the demand for goat meat translatng nto a postve outlook for the meat goat ndustry, lttle of the publshed lterature has quantfed ths demand for goat meat for the whole U.S. Ths postve outlook s arsng from detary changes n Amerca that seem to be n lne wth smlar changes worldwde. Shfts n global dets The last two centures have seen a fundamental detary transformaton n essentally all affluent countres. Globalzaton and ncreased per capta ncome are changng the eatng habts 1

11 of ndvduals all around the world (Regm, 2001). One of the man forces drvng these changes n global food consumpton s trade. Trade ncreases the array and the avalablty of food to consumers. Trade, n turn, s affected by supply factors, such as relatve growth n factors of producton, and demand-drven factors, such as growth n dsposable ncome and changng consumer preferences (Regm, 2001). Changes n nternatonal trade patterns Internatonal trade s usually defned as trade between two or more partners from dfferent countres (an exporter and an mporter). Early nternatonal trade conssted mostly of barter transactons. Accordng to Wkpdea, the free encyclopeda, barter s a form of trade where goods or servces are exchanged for a certan amount of other goods or servces;.e., there s no money nvolved n the transacton. It can be blateral or multlateral trade. The dsadvantage of usng blateral barter n the past was that t depended on the mutual concdence of wants. Before any transacton could be undertaken, the needs of one person had to complement the needs of another person. When money evolved as a medum of exchange, ths mproved trade because then money could be used to obtan whatever good or servce that was demanded. Changes n food consumpton n one regon generally have mplcatons for producton and trade n other countres. In each country, trade acts to balance the dfference between producton and consumpton, whle at the same tme trade lnks countres n a global economy. Wth growng nterdependency, shfts n consumpton can have major mpacts on food markets throughout the world. In the last two decades, the composton of world agrcultural trade has undergone a dramatc shft. Today, gran trade no longer serves as a proxy for agrcultural trade as t once dd. Bulk commodtes (grans, olseeds, cotton, and tobacco) have become less 2

12 mportant n world trade, representng less than 30 % of world agrcultural trade. Now, countres exportng a hgher content of non-bulk commodtes have ncreased ther share n the world market, as bulk commodtes become less mportant n total trade value (Gehlhar and Coyle, 2001). The major determnants of changes n the structure of global food trade, as addressed by Coyle et al. (1998), are ncome growth and food expendtures, factors of producton, transport costs, and trade polcy changes. Of these determnants, ncome growth and ts mpact on food consumpton was most mportant n explanng changes n trade patterns over the perod 1980 to Amercan dets As global consumpton patterns have changed, food consumpton patterns n the Unted States have also been changng dramatcally. These changes n the Amercan det have occurred gradually over tme, resultng n part from ncreased ethnc dversty n the populaton, greater dsposable household ncome, ncreased trade and mproved transportaton, greater numbers of women n the labor force, and ncreased awareness and consumer preference for mproved qualty and more healthful products (Regm, 2001). These changes n food consumpton patterns have resulted n large changes n per capta food consumpton n the Unted States over tme (Regm, 2001). Amercans are changng the way they eat and the foods they buy. New lfestyles, shftng demographcs, and growng concerns about nutrton and health contrbute to these changes. In response to Amercan consumers, the food system may be shftng from volume producton for general consumer markets to marketng and producton for specalzed markets. The food ndustry has tred to adapt to these changng 3

13 demands by shortenng the path from farm to consumer wth a more tghtly ntegrated market structure and ndustralzaton. Frms n the food system have changed from a here s what we produce to here s what consumers want perspectve (Schluter, 1999). Amercans at the begnnng of the 21st century are consumng more food and several hundred more calores per person per day than dd ther counterparts n the late 1950s (when per capta calore consumpton was at the lowest level n the last century), or even n the 1970s (USDA, ). Consderng the basc relatonshp of calores n versus calores out, people tend to gan more pounds f they consume more calores or expend fewer calores. Yet many are unwllng or unable to make the sacrfce of eatng less and/or exercsng more. As an alternatve to more exercsng and less eatng, there are many specal dets that emphasze changng detary preferences rather than decreasng the amount of food consumed. Two of the most popular and competng dets durng the last 15 years have been frst the low-fat, low-cholesterol det and later the low-carb det. As a large number of Amercans adopted these dets, the consumpton of dfferent foods changed (Mljkovc and Mostad, 2005). Mljkovc and Mostad (2005), showed that beef represents one of the foods whose demand fluctuated as the percepton about ts healthness changed. New products, partcularly more convenent ones, also contrbute to shfts n consumpton, along wth ncreasng mports, growth n the away-from-home food market, expanded advertsng programs, and ncreases n nutrent-enrchment standards and food fortfcaton. Soco-demographc trends that also drve changes n food choces nclude smaller households, more two-earner households, more sngle-parent households, an agng populaton, and ncreased ethnc dversty (Schluter and Lee, 1999). 4

14 Consumpton patterns for meat and meat products n the Unted States have also changed consderably over the last few decades. Declnng beef, fast growng poultry, and levelng-off pork consumpton characterzed the well-known shft from Red to Whte meat (Nelson and Lu, Amercan meals have tradtonally centered around the consumpton of meat. Today t s common to observe meat and meat products beng served at each daly meal: ham, bacon, and sausage at breakfast, a meat sandwch at lunch, and a cut of red meat or poultry at dnner. Fortutously, Amercan consumers revealed tastes and preferences for meat are well accommodated by the ample resource base of the Unted States (Haley, 2001). Now more than ever, Amerca s a naton of meat eaters. In 2000, total meat consumpton (red meat, poultry, and fsh) reached 195 pounds (boneless, trmmed-weght equvalent) per person, 57 pounds above average annual consumpton n the 1950s. Each Amercan consumed an average of 7 pounds more red meat than n the 1950s, 46 pounds more poultry, and 4 pounds more fsh and shellfsh. Rsng consumer ncomes, especally wth the ncrease n two-ncome households, and meat prces n the 1990s that were often at 50-year lows, when adjusted for nflaton, explan much of the ncrease n meat consumpton. In addton, the meat ndustry has provded scores of new brand-name, value-added products processed for consumers convenence, as well as a host of products for food servce operators (USDA, ). Nutrtonal concern about fat and cholesterol has encouraged the producton of leaner anmals (begnnng n the late 1950s), the closer trmmng of outsde fat on retal cuts of meat (begnnng n 1986), the marketng of a host of lower fat ground and processed meat products, and consumer substtuton of poultry for red meats snce the late 1970s sgnfcantly lowerng the meat, poultry, and fsh group s contrbuton to total fat and saturated fat n the food supply. Despte near record-hgh per capta consumpton of total meat n 2000, the proporton of fat n 5

15 the U.S. food supply from meat, poultry, and fsh declned from 33 percent n the 1950s to 24 percent n Smlarly, the proporton of saturated fat contrbuted by meat, poultry, and fsh fell from 33% n the 1950s to 26% n 2000 (USDA, ). Recent Economc Research Servce (ERS) research has dentfed three broad demographc trends that wll shape future U.S. food markets: more mature consumers, more dversty, and more people to feed (Cromarte, 2002). The agng of the baby boom generaton, born between 1946 and 1964, wll accelerate growth n the number of Amercans older than 65, who wll number 54 mllon by Older Amercans typcally eat less food than younger ones, due to lower actvty levels and energy needs, and they typcally dne out less frequently. Accordng to ERS projectons, small declnes n per capta consumpton of fred potatoes, cheese, sugar, beef, and poultry are expected, whle the ncrease n older consumers could sgnal an ncrease n per capta consumpton of "other potatoes" (such as baked), eggs, fsh, fruts, and vegetables (Blsard et al., 2002). Amercan consumers partcpate n a food system that s characterzed by the fulfllment, f not sataton, of basc needs what s termed as a mature market (Ballenger and Blaylock, 2003). Consumers of all ages and recent mmgrants have hgher standards of lvng now than n earler tmes, and they beneft from a hghly productve agrcultural sector. Consequently, most people are generally very well-fed and not apt to need or want larger quanttes of food. However, rsng ncomes allow Amercans to contnue to upgrade ther food choces to nclude, for example, more expensve cuts of meats, exotc vegetables, luxury food tems, ready-to-eat meals, and hgher prced restaurants. Accordng to Ballenger and Blaylock (2003), hgher ncomes drve up per capta food expendtures more rapdly than per capta quanttes consumed for vrtually all foods. Hence, more of the extra consumer dollar wll go to "qualty" than to 6

16 quantty. More prosperous consumers prefer select cuts of meat, value-added products lke lamb chops trmmed and dressed and ready to pop n the oven, pre-marnated fsh, sngle-servng lunchbox snacks, and pre-washed and bagged salad greens. Prevous studes have found that, as U.S. ncomes rse, consumers spend more on expensve fresh foods, prepared foods, and dnng out. Hgher consumer ncomes are lkely to engender small shfts n demand for partcular foods and commodtes due to dfferent consumpton patterns observed among those wth dfferent ncome levels. Growng ethnc dversty has contrbuted to shfts n food preferences, as well as a notable expanson of the Amercan food repertore. ERS researchers reported that the expandng ethnc populaton base wll ncrease per capta beef consumpton very slghtly and poultry and fsh consumpton somewhat more. The Unted States s ndeed growng, as seen n the 2000 census count of 281 mllon people, 54 mllon more than n A large share of U.S. populaton growth results from a hgh tde of mmgraton ntated n the 1960s and contnung at least nto the near future. By 2020, the U.S. populaton wll lkely grow another 18 to 28 percent, mplyng another mllon people to feed (Ballenger and Blaylock, 2003). Goat meat Food preferences vary between dfferent natonaltes, cultures, relgous and ethnc groups. Current demographc patterns n the Unted States favor ncreased consumpton of goat meat (Thompson et al., 2004). Increased ethnc dversty s hypotheszed to ncrease the demand for many ethncally dentfed foods, ncludng goat meat, lamb and mutton, and other meats. Domestc consumpton s centered n areas wth sgnfcant Hspanc, Muslms, and varous Carbbean and Asan markets where goat meat s a tradtonal staple (Hansen, 2004). Goat meat, 7

17 commonly referred to as chevon or cabrto, s, however, the most popular meat product n the world and s often served n specalty dshes centered on festval or holday events (Sande et al., 2005). There s a large goat populaton n the tropcal regons of the world, and accordng to the FAO Producton Yearbook (1984), 95 % (432.7 mllon) of the goats are found n developng countres, whle only fve percent (26.9 mllon) are located n developed natons (Gelaye and Amoah, 1991). Consumpton n the Unted States, however, s not wdespread, although chevon offers consumers a tasty, low-fat meat compared to beef or pork (Getz, 1998). In addton, the meat goat busness seems to hold new economc potental, partcularly for small scale producers who fnd t easer to rase goats n comparson to the other larger lvestock because goats requre less land per anmal. In the Unted States, the goat ndustry s stll n ts nfancy, but wth a promsng trend for growth (Gelaye and Amoah, 1991). Goat meat consumpton n the Unted States has grown sharply over the past 20 years (Gpson, 1999). Ths ncrease n consumpton s drven by the popularty of goat meat wth the dverse ethnc groups that mmgrate yearly to the Unted States from countres where goat meat s popular, and also the popularty of heart-frendly ethnc foods. In the past, the perceved scarcty of goat meat n the Unted States dscouraged the mmgrants from holdng onto ther goat meat eatng tradton (Stanton, 2004). In recent years, there has been a swtch n phlosophy to one that encourages people to celebrate ther dverse cultural backgrounds. Ths has encouraged most mmgrants to redscover ther goat meat eatng habts, hence creatng an ncrease n demand (Stanton, 2004). In addton, there has been an ncrease n the U.S. mmgrant populaton n recent years. These two factors have greatly ncreased demand for goat meat wthn the Unted States. Snce meat goats have been a mnor enterprse n the past, ther producton was very low, leadng to a low local supply of goat meat. 8

18 Ethnc communtes also come from countres where sheep and lamb are consumed. For most of these communtes, goat meat and sheep and lamb are consdered substtutes. Sheep and lamb Lamb and sheep can typcally be marketed wthn the same ethnc markets as goats. Sheep and lamb consumpton s very low compared wth other red meats, and ts consumers are culturally and ethncally dstnct. Consumpton has remaned constant wthn these groups who persst n mantanng ther ethnc practces, whether related to habt, tradton or relgous belefs (Jones, 2004). On the other hand, most Amercans eat no lamb and mutton at all, whle some consume more than a pound. On average, lamb s purchased by fewer than 5 % of households on a weekly bass. The lamb and sheep ndustry has been n a steady declne over the past decade. Due to ths, demand surpassed supply and thus mports were used to meet ths excess demand. Problem statement and objectves Demand potental for goat meat has drawn a lot of attenton to the goat ndustry n recent years. Yet n contrast to other meat products, goat meat remans a largely neglected product on the meat market and an ssue less dscussed n academa. The man problem s that few offcal statstcs are kept and much of the avalable nformaton found on the number of anmals, the demand potental, and the retal prce of goat meat s contradctory n nature. Whle there s generally a postve outlook on the demand for goat meat translatng nto a postve outlook for the meat goat ndustry, lttle of the publshed lterature has quantfed the demand for goat meat n the Unted States. 9

19 Meat goats have been a mnor enterprse n the U.S. n the past. Goats were ntally kept for fber and mlk producton, wth chevon as a by-product. Also, the majorty of the predomnantly whte Amercan populaton has never consumed goat meat. Due to ths, a relatvely thn body of publshed lterature regardng goat meat demand exsts. In addton, most prce and supply data are unreported, snce the USDA stopped tallyng natonwde goat numbers many years ago. Thus, estmates of prce and supply are poorly documented. Accordng to the U.S. Census Bureau, ethnc populaton ncreased from 9.6 mllon n 1970, to 14.1 mllon n 1980, to 19.8 mllon n 1990 and to 28.4 mllon n 2000, wth a 57.9% ncrease n the Hspanc populaton between 1990 and The Unted States s currently experencng the largest sustaned wave of mmgraton n ts hstory, wth 1.2 mllon legal and llegal alens arrvng each year (CIS, 2001). Most of these mmgrants are goat meat, lamb and mutton, and other lesser meat consumers. Goat meat s partcularly popular wth Hspancs, especally Mexcans. Muslms also consume greater quanttes of goat meat, and ther numbers have ncreased tremendously n the past decade as well. Not only dd the ethnc populaton ncrease at an unantcpated rate, but the household ncome of ethnc groups n the Unted States has also ncreased n the past decade. Accordng to the Unted States Census Bureau ( the average household ncome ncreased by 18.8% durng the past decade, wth Asan household ncome ncreasng at a rate of 51.3% after adjustng for nflaton. In addton, there s the Yuppe communty, whch fances gourmet fare, and a secton of the Amercan populaton who are becomng ncreasngly health conscous and are thus revertng to better health meat products. Snce a majorty of ths meat demand s ethncally based and the desre for mmgrants to mantan ther dentty s so strong, some researchers have theorzed that the demand for goat 10

20 meat s relatvely prce nelastc (less than one n absolute terms). Whle ths hypothess s yet to be tested (a search of the lterature revealed no publshed emprcal studes on the demand elastcty for goat meat), t appears to be n accordance wth other emprcally tested demand elastctes for red meat (Lllywhte, 1999). There s a notceable lack of research regardng goat meat demand. Ths s manly due to lmted supply and prce data. The most recent estmate of goat meat demand was done by Gpson (1999). He concluded that about 800,000 goats were slaughtered for U.S. consumpton n Almost seven years snce, there s stll no relable supply and prce data. Ths therefore opens a vast area for research opportuntes. The only relable source for supply s stll mport data, whch can be used for estmatng mport demand elastcty for goat meat. Snce t s beleved that ethnc communtes are also the man consumers of lamb and mutton, then t wll be approprate to estmate mport demand for lamb and mutton as well. The objectves of ths thess are: 1. Use mport data to estmate mport demand elastctes for the mnor meats group (goat meat, sheep and lamb and other meats), wth partcular emphass to goat meat, by the US 2. Determne the mpact of the Hspanc populaton on mport demand for the mnor meats Organzaton of the thess Ths thess s organzed nto sx chapters. The ntroducton, problem statement and justfcaton are presented n the frst chapter of ths thess. Ths frst chapter dscusses the changes n world consumpton patterns and how they have led to the change n the structure of nternatonal trade. The chapter also dscusses changes n meat consumpton patterns and n populaton structure n the Unted States, and how these changes are contnually creatng a 11

21 market for ethncally dentfed foods. Chapter two covers the lterature revew on the factors that have led to changes n consumpton patterns and nternatonal trade. Chapter three presents the theoretcal background on consumer demand theory, utlty maxmzaton and separablty of preferences. Chapter three also presents the regresson model specfcaton and functonal form. Chapter four presents descrptve sample results, emprcal fndngs and a dscusson of these fndngs and ther mplcatons. The last chapter presents the summary and conclusons derved from the study. 12

22 CHAPTER 2 LITERATURE REVIEW The purpose of ths chapter s to present the essental theory underlyng the current state of nternatonal trade and of consumpton dets worldwde. The chapter begns wth a dscusson of the change n the level of exports and mports as well as agrcultural trade commodty composton between developng and developed countres. Next s a dscusson of the varous factors that have led to these changes and ther mpact on trade and consumpton patterns. Ths dscusson also covers the mpact of these factors on nternatonal meat trade and the shft n meat consumpton patterns n the U.S. and the lnk to mnor meat consumpton. The fnal secton dscusses the emergence of the goat meat ndustry. Ths gves detals of the characterstcs of goat meat compared to other meats and ts emergng ncreased demand n the Unted States. A dscusson of domestc producton and the level of supply of goat meat s also covered. Next s a dscusson of the sheep and lamb ndustry trend over the past decade and the current stuaton n lght of the shfts n meat consumpton patterns n the U.S. Changes n the structure of nternatonal trade Over the course of the past 40 years, the net flow of agrcultural commodtes between developed and developng countres has reversed drecton. In the early 1960s, developng countres had an overall agrcultural trade surplus of almost US$7 bllon per year. By the end of the 1980s, however, ths surplus had dsappeared. Durng most of the 1990s and early 2000s, developng countres were net mporters of agrcultural products. FAO has projected that ths agrcultural trade defct s lkely to wden markedly. The change has been even more 13

23 pronounced for the less developed countres (LDC), whch over the same perod have changed from beng net exporters to sgnfcant net mporters of agrcultural commodtes. By the end of the 1990s, mports by the LDCs were more than double ther exports. Global trade n foodstuffs has grown rapdly and changed radcally over recent decades. Between 1970 and 2001, gross world food mports, measured n terms of calore equvalents, rose by almost 60%. But ths growth dffered markedly among both country and commodty groups. Gross mports of food by developng countres grew by 115 % over ths perod. Imports by developed countres, whch already mport a hgher proporton of ther food, grew by 45 %. A closer look at the data reveals that food mports by developng countres ncreased rapdly durng the 1970s, grew more slowly durng the 1980s and accelerated agan over the 1990s. Ths pattern holds true both for the volume of food mports and for the rato of food mports to avalablty for consumpton per capta. The expanson of food mports meant that the food trade surplus of US$1 bllon of developng countres was transformed nto a defct of more than US$11 bllon durng ths perod. Moreover, ths trend s expected to contnue: accordng to FAO projectons, by the year 2030, the net food trade defct of developng countres s expected to swell to more than US$50 bllon n constant US$. Despte substantal dfferences n the trade and detary profles of developed and developng countres, mports of partcular commodtes appear to be evolvng n a smlar manner (FAO, 2004). Agrcultural trade conssts of food and non- food commodtes n both raw and processed forms. A useful classfcaton of agrcultural trade s a breakdown of agrcultural trade nto four components; bulk commodtes, processed ntermedate products, fresh hortcultural products, and processed consumer goods. From 1980 to 1997, the share of bulk commodtes steadly dropped (Fg. 2-1) whle the shares of non-bulk categores remaned steady or ncreased. Over 14

24 the past 15 years, many of the faster growng categores n trade are non-bulk packaged products, where consumers dfferentate products carryng unque brands and labels (Gehlhar and Coyle, 2001). Among the fve broad food commodty groups cereals, edble ols, anmal products, sugar, and frut and vegetables cereal foodstuffs once domnated nternatonal trade 1. Now, however, the share of cereals n total agrcultural mports has fallen below 50% n developng countres and below one-thrd n developed countres. Whle the share of cereal mports has declned, both developed and developng countres are mportng greater quanttes of hghervalue and processed foods, partcularly edble ols, lvestock products and fruts and vegetables (FAO, 2004). Year Fgure 2-1: Composton of world agrcultural trade (Source: U.N. COMTRADE, ERS) 1 Bulk commodtes consst of raw grans, olseeds, tobacco, and cotton. Intermedate processed commodtes consst of semprocessed goods such as flours, meals, and ols. Fresh hortcultural products consst of unprocessed fruts and vegetables such as bananas and tomatoes, and nursery products ncludng cut flowers. Consumer-processed products nclude processed products at or near where a substantal degree of processng has taken place. Items n ths category nclude beverages, bakery products, ready to eat cereals and snack food, fresh and frozen meat, and preserved frut and vegetables 15

25 Shfts n global dets due to economc development One of the prmary factors affectng food consumpton patterns s the ablty to purchase food. The last two decades have wtnessed major ncreases n per capta ncome levels of households all over the world. Consumers n hgh-ncome countres, such as the Unted States, spend a large share of ther food budget on meat, whle cereal s the predomnant component of the food budget for consumers n poorer countres (Regm, 2001). Generally, as the populaton grows wealther, the consumpton of meat and fresh produce ncreases. At very hgh-ncome levels, such as n the Unted States, changes n ncome and food prces may not translate to perceptble changes n food expendture patterns at a natonal level. However, changes may occur wthn the composton of sub-categores of food, such as substtutng grocery store brands wth qualty-assured organc brands, or replacng store brand meat and cheese wth mported products perceved to be of better qualty. Smlarly, at very lowncome levels, changes n ncome and food prce may not result n changes n consumpton of certan food groups. Ths s due to consumpton shfts wthn a food sub-category. As ncome levels ncrease beyond a certan threshold and consumers mgrate to the mddle-ncome category, they appear most lkely to change ther food basket by consumng a more dverse and hgher valued det (Regm, 2001). Income growth, relatve prce changes, urbanzaton and shfts n consumer preferences have altered detary patterns n both the developed and developng countres. When people have more money to spend, they add more varety and more expensve and hgh-value foods to ther dets. These changes are reflected n both the volume and the composton of world trade n agrcultural commodtes. Expendtures on foodstuffs and responses to ncome changes dffer between developng and developed countres. In the latter, most consumers can already afford 16

26 the foods they prefer. When ther ncomes rse, changes n ther dets and food purchases are, therefore, relatvely small. In developng countres, on the other hand, rsng ncomes have an mmedate and pronounced mpact on dets and consequently on trade n both commodtes and processed foods, as people adjust ther budgets to nclude hgher-value food tems. Smlarly, declnng real food prces have allowed poor consumers access to mproved dets at exstng ncome levels (FAO, 2004). When the basc demand for a well-balanced meal s met, further ncreases n ncome result n demand for other qualty attrbutes n the food consumed. The demand for qualty attrbutes n developed countres has escalated n recent years, due to ncreased meda attenton and publc awareness resultng from varous ncdences of large-scale food contamnaton. Consumers n developed countres are ncreasngly demandng food products perceved to be safer, specfcally products that are free from dsease-causng organsms, chemcal resdues, and that are not produced usng any chemcal nputs or genetc modfcatons (Regm, 2001). Internatonal meat trade Internatonal trade has been ncreasng faster than global GDP (GDP s tself the nternal trade among the people of a country) over the past 25 years (Clarke, 2000). Internatonal trade n meat s also ncreasng rapdly, n both absolute terms and relatve to total global meat producton (Fg. 2-2). Increasng meat trade s not an solated trend, but rather a part of an overall world economy that s becomng ever more dependent on trade n goods and servces. From 1961 to 2003, total global meat producton ncreased from 71 mllon tons to 271 mllon, and trade ncreased from only 3.5 mllon tons to 26 mllon. As a percentage of meat producton, global trade ncreased from about 5% n 1961 to about 10.5% n Furthermore, there s a hgh 17

27 correlaton between the ncrease n meat trade and per person global GDP. Ths results because as the world gets rcher, the need to trade meat ncreases (Elam, 2005) Fgure 2-2: Global meat producton and trade (Source: FAO STAT) Detary changes usually come about due to ncreased household ncome whch results from economc development. Wth ncreased ncome, households can purchase more food and hgher valued foods, such as meat (Regm, 2001). Economc development also brngs urbanzaton. Urbanzaton (whch can also occur n the absence of economc growth) ncreases household access to meat sold n shops and brngs changes n occupatonal and household structure that favor consumpton of food away from home, ncludng meat. The mportance of detary changes to meat mports s shown by the case of Japan, the world s largest mporter of beef and pork, both n value and volume (Dyck and Nelson, 2003). Japan s natonal det changed durng the perod, 1960 to 1995, due to growng affluence, urbanzaton, and exposure to global 18

28 trends. Ths changed consumpton per person sx-fold. As ncome grows, meat typcally becomes a more mportant source of calores n the human det (Fg 2-3). Whle the relatonshp between ncome and lvestock product consumpton s well known, the lnk between economc growth and meat trade s less clear. Regons wth faster growth n meat consumpton do not necessarly become larger mporters of meat. Expanson of domestc meat producton plays an mportant role n determnng mport growth. Imports wll depend on how compettve domestc producers are n producng for the home market (Gehlhar and Coyle, 2001). To meet changes n meat demand, countres can ether ncrease domestc producton or tap nto world markets through trade. For example, countres whch want to rapdly ncrease meat consumpton but have lmted resources, can mport poultry meat, whch s relatvely less expensve n relaton to other meats and also mport the technology needed to produce chcken. Country Fgure 2-3: Income level and source of calores (Source: FAO STAT) 19

29 However, n some cases, ncreasng domestc output s mpossble. For example, land constrants and polluton are forcng the governments of Hong Kong and Sngapore to mplement polces amed at haltng domestc pork producton. Sngapore now mports lve hogs for slaughter from the Phlppnes and Hong Kong mports hogs from Chna (Shagam, 1989). As ncomes go up, there s a strong tendency for values of dfferent meat cuts to dverge (Elam, 2005). It s, after all, value (not cost) dfferences that are the major drvng force for trade, whether domestc or nternatonal. A tendency for dvergng parts prces can be seen clearly f the extremes of the world s ncome range are compared. In relatvely poor countres, most meat s sold n lve-anmal (wet) markets, and there s lttle or no dfference n value attached to dfferent parts. The most extreme example s the lve broler market where the entre brd s sold for one prce. On the other end of the spectrum, there are places, such as the U.S., Japan and Europe, where dfferent broler parts have very dfferent prces. Ths dfference n prcng s due to more ncome, whch causes people to be more selectve about what they buy at the grocery store. The preferences are probably there all along, but people wth lmted ncome cannot be as pcky about what they eat. As prcng of the preferred parts ncreases, producers have an ncentve to ncrease producton, but ths creates a new problem. As the producton of the preferred parts ncreases, so does the producton of the parts people don t lke as well. Those less favored parts prces fall as ther supply ncreases. In total, producers contnue to cover total costs, but cost recovery becomes more and more dependent on the wllngness of consumers to pay premum prces for the parts they want most ncomes go up, there s a strong tendency for values of dfferent meat cuts to dverge. 20

30 Internatonal meat trade has a long hstory, but recent decades have seen fast growth of trade volume and value (Fg. 2-4). Reducton n protectonsm s one reason. Assocated wth the reduced protectonsm, ether as causal factors or as consequences of lberalzed trade, are mportant changes n dets, dstrbuton technology, and multnatonal busness structures (Dyck and Nelson, 2003). Fgure 2-4: World meat exports, (Source: FAO STAT, 2003). Effects of dstrbuton technology Trade opportuntes have ncreased wth technologcal advances n transportaton of hghly pershable products lke meat. Technology has also ncreased shelf lfe, mproved product packagng and presentaton, and affected preparaton; mcrowave cookng s an example. All these developments n turn nfluence consumpton and trade patterns (USDA, 1992). 21

31 In the past, fresh meat could not be transported over long dstances because of ts pershablty. Frozen meat could not be shpped to destnatons lackng refrgeraton and an adequate dstrbuton system. New technologes now allow for chlled meat, whch can stay fresh for long perods of tme, to be shpped to many locatons. In parts of the world where t s customary to pck out the lve anmal mmedately before slaughter, advertsng and other promotonal actvtes encourage consumers to try fresh, chlled, or frozen cuts. Such marketng efforts are mprovng acceptance of frozen and packaged meat (Shagam, 1989). Households n developed countres prefer fresh meat, although chlled meat s usually a close substtute for fresh meat and has a longer shelf-lfe than frozen meat (Dyck and Nelson, 2003). Current technology advances have made t possble to shp beef and pork for long dstances n chlled rather than frozen form. New technology (especally controlled-atmosphere refrgerated contaners, vacuum packng, and mproved mcrobal control) has lengthened the tme n whch meat can be kept marketable and has encouraged transoceanc trade n chlled meat by shp. Multnatonal busness structures and nternatonal trade Hundreds of frms of all szes engage n world meat trade, but a few very large frms are clear market leaders. These frms tend to be mportant meat frms n ther home countres, and they are able to sell and/or produce meat n more than one foregn country. A larger, nternatonal market may enable ncreases n plant and frm sze that lead to economes of sze. As a frm sells to a larger market, ts costs per unt of meat fall, because t can expand ts sze of operaton. Seen from another perspectve, large frms can delver larger orders of meat of consstent qualty, more often, and at lower cost than smaller frms, and thus are successful n 22

32 competng for export markets. Frms may also realze economes of scope (for example, realzng cost savngs by provdng centralzed management, sales force, or research to several operatons). In general, large frms domnate frst the meat markets of countres wth large populatons, then reach out to foregn markets to attan better prces for cuts and byproducts than can be realzed n ther home markets. Frms can also take advantage of dfferences n meat cut preferences. Shppng a cut to a foregn market where t commands a hgher prce can ncrease a frm s net returns. Transportaton and dstrbuton costs may be lower for larger quanttes and more frequent shpments. Thus, large frms whch can relably and consstently produce large quanttes of cuts (or byproducts) may have a compettve edge over smaller frms n supplyng such cuts. The decson to nvest n producton n another country or to smply export to that country s nfluenced by the possbltes for ncreasng returns to plant sze. Another reason for multnatonal operaton may be the opportunty to extend technologes or management practces to a country where they are not yet n use, and to capture profts as an early adopter of these methods (Dyck and Nelson, 2003). Changes n world meat consumpton patterns Changng lfestyles also affect consumpton and trade patterns. As consumers demand more food away from home, ths usually results n an ncrease n the demand for foods whch are quckly and easly prepared or are pre-made. For example, the market for fast foods, such as fred chcken and hamburgers, ncreases. In many hgher ncome countres, consumer preferences have shfted from large cuts of meat lke roasts, toward foods that are smple to prepare, lke steaks, chops, and de-boned chcken breasts. 23

33 Consumers wll also change ther food choces n response to concerns over the qualty and quantty of foods avalable. In many countres, ths led to a move away from meat products contanng hgh levels of fat and cholesterol. For example, some people may swtch from pork and beef to chcken and turkey, products perceved as lower n fat and cholesterol. Even wthn the same meat class, health conscousness about the fat content of foods has ncreased demand for leaner cuts of meat (Shagam and Baley, 1992). In addton to changes n ncomes, lfestyles, and technology, cultural factors can affect consumpton patterns (Gehlhar and Coyle, 2001). Natons where the populaton s predomnately Moslem or Jewsh wll not use pork products. Therefore, ncreases n meat demand n these countres wll be for beef, lamb, and chcken. Inda, whch s predomnately Hndu and therefore vegetaran, has a very low demand for meat. Other cultural practces, such as cookng style or servce, can nfluence demand for specfc cuts of meat. For example, a socety whch s used to str-fryng foods, such as the Japanese, wll be less lkely to purchase roasts or lean cuts of beef. Fnally, governments can ndrectly nfluence consumpton patterns through trade or producton polces. Many barrers beyond those related to transportaton and pershablty exst to the nternatonal meat trade. To protect domestc producers from competton, many governments mpose mport quotas, hgh tarffs, and other trade barrers that make trade dffcult or mpossble. The concept of self-suffcent food producton keeps some natons producng certan commodtes whch could be mported more cheaply. Strngent veternary regulatons amed at protectng the wholesomeness of a country's meat supply also hnder trade. Legtmate concerns about preventng dsease do exst. For example, the occurrence of hoof and mouth dsease n some countres precludes shppng fresh meat from these countres to those where the dsease s not evdent. In the Sovet Unon and Eastern Europe, governments are caught between 24

34 a desre to upgrade natonal dets and an nablty to purchase mported feed components. Snce poultry speces are more effcent than cattle or hogs at convertng feed to meat, Sovet Bloc governments are redrectng resources nto poultry producton. In the European Communty, agrcultural polces have led to consderable overproducton n the dary sector, and a polcy decson to cut the dary herd resulted n more beef (Shagam, 1989). Amercan meat consumpton patterns Substantal changes n meat demand and consumer preferences have been experenced n the past decades (Nelson and Lu, 2005). At the begnnng of the 21st century, Amercans are consumng greater quanttes of meat products than n the past. Unted States Department of Agrculture (U.S.D.A.) statstcs ndcate that U.S. per capta meat consumpton ncreased more than 11% from (Fg. 2-5). However, data also show that sgnfcant wthn-category changes have occurred snce the md- 1970s. U.S. per capta consumpton of poultry products has ncreased dramatcally, whle per capta beef and veal consumpton have declned (Haley, 2001). Over the three decades pror to 1989, there was an evdent trend away from the consumpton of "red meats" and toward "whte meats" n the Unted States (Chavas, 1989). At least four forces may explan ths trend. Frst, consumers could be substtutng out of beef and nto poultry and pork n response to changng relatve prces (Moschn and Melke, 1989; Menkhaus et al., 1985). Second, ncomes (and assocated expendtures on meat) have ncreased, and the ncome elastcty of demand may be less for beef than for ether poultry or pork. Thrd, changes n the value of the tme of famly members (such as mght result from ncreased labormarket partcpaton by women) may lead to changes n eatng and cookng habts (Chalfant and 25

35 Alston, 1988). Fourth, tastes may have shfted n response to ncreased nformaton about the healthness of saturated fat and cholesterol (Cho and Sosn, 1990; Chavas, 1983). Year Fgure 2-5: Total U.S. per capta consumpton of red meat and poultry (Source: ERS, USDA). Increased ethnc dversty and health conscousness, together wth ncreased ncomes of the Amercan populaton, have brought about an ncreased demand for other meats lke goat meat, lamb and mutton. Whle t s true that many mmgrants come to the Unted States to begn new lves as Amercan ctzens, there s ncreasng evdence that many of these same mmgrants wsh to mantan ther ethnc dentty. It has been argued that for many ethnc and relgous groups wthn the Unted States, ths desre to mantan dentty plays a sgnfcant role n consumpton and consumer demand. That s, members of ether of these two groups may make ncreased efforts wthn ther consumpton patterns to mantan an dentty wth ther homeland. Ths effort s readly evdenced n food preference and selecton (Lllywhte, 1999). The majorty 26

36 of these ethnc groups have a preference for goat meat, lamb and mutton, and other exotc meats, all lnked to ther cultural or relgous belefs. Goat meat versus other meats The US goat ndustry s predomnantly an nfant ndustry wth consderable demand potental. The fastest growng anmal ndustry n the Unted States s the goat meat ndustry. The man consumers of goat meat emanate from varous ethnc groups, and the health and gourmet food sectors (Sngh-Knghts and Knghts, 2005). The substantal changes n meat markets and the evoluton of consumer preferences slowly created a market envronment favorable for meat goat consumpton (Nelson and Lu, 2005). Goat has won favorable recognton for ts qualty (Babker et al., 1990), whch match some consumer preferences for low-fat and consumer concerns on health. When compared to other meats, goat meat s low n calores and fat. In addton, t s hgh n proten and other mportant nutrents (Table 2.1). Table 2.1. Comparson of Goat Meat to Other Meats Meat Type Energy Total Fat Saturated Proten Iron (g) Cholesterol calores Fat (g) (g) Goat Beef Pork Lamb Chcken Source: Current Trends n Goat Producton n the Unted States, Davd M. Sherman 27

37 Some evdence (Nelson et al., 2004) suggests that goat meat fares favorably n palatablty when compared wth lamb and beef. In one study (Degner, 1991), 600 consumers (25% of whom had eaten goat before) were asked to evaluate undentfed samples of barbecued goat and beef. Although the results were not sgnfcantly dfferent (P > 0.05), overall appeal ratngs ndcated that 42% of the respondents preferred goat, 38% preferred beef, and 20% dd not dstngush between the two. In another study (Grffn et al., 1992), two groups (ten members each-one group made up of members natve to the U.S., and one made up of members from dfferent ethnc groups, all of whch had eaten goat before) compared goat and lamb meat. The partcpants found sheep meat to be more palatable, but flavor scores were smlar between the two (Mller, 1999). Statstcs show that the Unted States does not have enough meat goats to keep up wth the demand and hence depends on mports to meet most of the excess demand (Pnkerton, 1995). The Foregn Agrculture Servce (FAS) of the USDA demonstrates that the U.S. shfted from a net exporter to a net mporter n 1991 (Pnkerton, 1995). Snce 1991, net mports of goat meat have experenced substantal growth (Gpson, 1999). These ncreases n mports are a clear ndcaton of unmet demand. Currently, a major part of ths exstng demand s met by mports, manly from Australa and New Zealand. As shown n fgure 2.6 below, the Unted States mports more goat meat than any other country (Mauldn and Mauldn, 2003). Between 1989 and 1998, mportaton of chlled/frozen goat meat contnued to ncrease lnearly, whle exportaton decreased quadratcally (Gpson, 1999). 28

38 Domestc producton The total goat market n the U.S. s thought to be growng at a rate of more than ten to ffteen percent annually. Stll, there are not enough goats produced n the U.S. to meet domestc needs (Johnson, 2002). Goats were ntally produced for fber and mlk wth goat meat as a co- Fgure 2-6: Goat meat mporters (Source: Meat goat monthly magazne, 2003) product of these two enterprses. Wth the declne n the mportance of fber, most farmers dverted ther attenton to rasng meat goats. The number of farms producng meat goats has also ncreased. Ths ncrease n number of farms and goat producton has been encouraged manly by ncreases n nche market populatons wth hstorc preferences for goat meat. Nye and Moore (2002) reported that meat goat producton s also growng because of goat s economc value as effcent converters of low qualty forages nto qualty meat, mlk and hdes products for many specalty type markets. 29