Demand for quality-differentiated beef in Japan Die Nachfrage nach qualitätsdifferenziertem Rindfleisch in Japan

Transcription

1 Agrarwrtschaft 53 (2004), Heft 8 Demand for qualty-dfferentated beef n Japan De Nachfrage nach qualtätsdfferenzertem Rndflesch n Japan Sayed H. Saghaan and Mchael R. Reed Unversty of Kentucky, Lexngton, USA Abstract In ths artcle, we apply a model of vertcal product dfferentaton to the Japanese beef market. We theoretcally derve a system of consumer demand functons for qualty-dfferentated beef n Japan. We choose a partcular utlty functon whch s nonlnear n the consumpton of the qualty-dfferentated product and lnear n the consumpton of all other goods. We employ a seemngly unrelated econometrc model to estmate Japanese consumer demand functons for four beef types from the four orgns. The emprcal results show Japanese consumers prefer domestcally produced beef to mported US and Australan. We also fnd seventeen substtuton and two complementary effects among the varous orgns. Key words vertcal qualty dfferentaton; consumer demand; beef; Japan Zusammenfassung In desem Betrag wenden wr en Modell der vertkalen Produktdfferenzerung auf den japanschen Rndfleschmarkt an. Wr leten theoretsch en System von Nachfragefunktonen für qualtätsdfferenzertes Rndflesch ab. De zugrunde legende Nutzenfunkton st nchtlnear m Konsum des dfferenzerten Gutes und lnear m Konsum aller anderen Güter. Wr verwenden en SUR (seemngly unrelated regresson)-modell, um de Nachfragefunktonen für ver Rndfleschtypen aus ver Herkünften zu schätzen. De emprschen Ergebnsse zegen, dass japansche Verbraucher hemsches Rndflesch gegenüber Importen aus den USA und Australen bevorzugen. Darüber hnaus fnden wr sebzehn sgnfkante Substtutonsund zwe Komplementärbezehungen zwschen den verschedenen Herkünften. Schlüsselwörter vertkale Produktdfferenzerung; Qualtätsdfferenzerung; Verbrauchernachfrage; Rndflesch; Japan 1. Introducton Nowhere n the world s qualty heterogenety n food products more mportant than n Japan, where consumers have very dscrmnatng tastes and are wllng to pay very hgh prces for hgh-qualty food. Qualty dfferentals are especally apparent and mportant to Japanese beef consumers (HAYES et al., 1990). Survey results have shown that Japanese consumers have strong preferences for qualty n beef and can readly dentfy dfferent qualtes of beef n the market (KHAN et al., 1990). The Japanese beef market s manly made up of four dfferent types: two domestc types, wagyu and dary, and two mported types, from the US and Australa. These beef types are specfcally dentfed at retal outlets by type of beef for domestc cuts (wagyu s specfcally dentfed) and country-of-orgn labelng on mports. In most stores, domestc and mported beef cannot be dsplayed n the same case, so consumers clearly know the orgns of ther beef purchases. The qualty and retal beef prces by country of orgn, and by type of domestcally produced beef, vary wdely n the Japanese market (LONGWORTH, 1989). Among these four beef orgns n 1999, Australan beef had the hghest overall market share for chlled muscle cuts, accountng for 30.8% of the Japanese market. They were followed by Japanese dary beef (26.1%), Japanese wagyu beef (21.6%), and US beef (21.3%). The chuck, clod, and round cuts accounted for the hghest market share (60%) n Ths category of cut was followed by lon (21.1%) and rb (19.0%). For 1999, there were substantal quanttes of each beef cut suppled from all orgns. The cut/orgn combnaton wth the largest market share n 1999 was Australan chucks (ncludng clods and rounds) wth 19.9%, whle the cut/orgn wth the smallest market share was wagyu rbs wth 3.0%. All of these data came from the LIVESTOCK INDUSTRY PROMOTION CORPORATION (LIPC) (varous ssues). Japanese consumers consder wagyu to be the hghest qualty beef. Japanese dary beef s consdered to be lower n qualty than wagyu, yet hgher than mported US gran-fed beef. Domestc beef s vewed as much more fresh than mported beef and ths s a major consderaton n purchasng decsons (KHAN et al., 1990). Japanese consumers perceve Australan grass-fed beef to be the lowest qualty beef. beef and hgh-qualty cuts of Japanese dary beef are characterzed as the so-called super beef. The prme wagyu beef s well marbled and s generally used for tradtonal beef dshes such as sukyak, shabu-shabu, or other varants collectvely known as nabemono. The marblng and texture of wagyu beef allows ts use n these dshes; other beef types are much less desrable for these cookng technques. Fgure 1 shows the large monthly retal prce dfferences among these four beef types for the specfc lon cut durng the 1992: :07 perod. Tradtonally fsh was the man source of anmal proten n the Japanese det. Beef was not consdered a substtute for fsh ffty years ago because of culture, eatng habts, and cookng methods. As socal structures changed and real percapta ncome ncreased, consumers gradually accepted beef and ts consumpton grew faster than any other meat. Per-capta consumpton ncreased from 4.1 kg n 1986 to reach 7.7 kg n Japanese beef consumpton ht metrc tons n Aprl-September 2000, up 3.2% from the total reached over the same perod n Forecasts suggest that the growth n beef consumpton wll contnue, reachng between 9.6 and 11 kg per capta by 2005 (MAFF, varous ssues). The way beef dshes are served has a great mpact on the Japanese beef market. In 1991, 48% of the beef consumed 344 Copyrght:

2 Agrarwrtschaft 53 (2004), Heft 8 n Japan was eaten n the home whle 42% was consumed through the foodservce market. By 1996, the pcture had changed consderably wth only 41% eaten at home and 50% n the foodservce sector. A MAFF survey shows that of the beef eaten at home n 1996 over 80% was domestcally produced Japanese beef compared to just 60% n However, the opposte s the case n the foodservce sector where mported beef accounts for over 90% of the market, up from 70% n In ths artcle, we apply a model of vertcal product dfferentaton to the Japanese beef market. The contrbutons of ths study are twofold. Frst, we theoretcally derve a system of consumer demand functons for qualty-dfferentated beef n Japan, based on the general substtute model of SPENCE (1976) and DIXIT and STIGLITZ (1977). Second, the theoretcal dervatons of consumer demand functons are the bass for our emprcal work. We employ a seemngly unrelated econometrc model to estmate Japanese consumer demand functons for four beef types: chuck, lon, rbs, and round, from the four orgns. The emprcal results ndcate hgh Japanese consumers preference for domestcally produced beef types and lend support to nonprce qualty competton. 2. Lterature revew Products dffer wth respect to many attrbutes. These products wth varyng attrbutes, whch are developed to satsfy ndvdual varatons n tastes and preferences, are sad to have dfferent varetes. These varetes of a gven product have ether real or perceved dfferences n ther characterstcs. The assumpton s that ndvduals consder themselves to be better off or have a hgher utlty when they can exercse choce by havng varous combnatons of goods from whch to choose. There are two famles of product dfferentaton models: models of horzontal dfferentaton and those of vertcal dfferentaton. In models of horzontal product dfferentaton, each product wll have a postve market share when all the varetes are offered at the same prce. The most utlzed models wthn ths category are the locaton, or HOTELLING-type, models. In those models, consumers are unformly dstrbuted on a preference scale and are characterzed by the dstance from ther locaton to that of ther deal product. HOTELLING (1929) frst studed ths type of product dfferentaton, whch LANCASTER (1979) later labeled horzontal dfferentaton. In models of vertcal product dfferentaton, varetes of products are ranked by qualty. The defnng characterstc s that all consumers have the same rankng of product varants so f two product varetes are offered at the same prce, all consumers prefer the same one the one wth the hgher qualty. Consumers only dffer n ther wllngness to pay for qualty. GABSZEWICZ and THISSE (1979) and SHAKED and SUTTON (1982) consdered ths approach, whch LANCASTER (1979) labeled vertcal dfferentaton. Product dfferentaton has attracted wde attenton (SPENCE, 1976; DIXIT and STIGLITZ, 1977; MUSSA and ROSEN, 1978; LANCASTER, 1979; GABSZEWICZ and THISSE, 1979; PERLOFF and SALOP, 1985 and 1986; SHAKED and SUTTON, 1982; HELPMAN and KRUGMAN, 1985; ANDERSON et al., 1989; FEENSTRA and LEVINSOHN, 1989; MOTTA, 1993; ETHIER, 1994; BRESNAHAN, 1981, among others). However, despte ncreasng nterest n studyng product dfferentaton and consumer behavor n such markets, most studes focus on the theoretcal ratonale and ramfcatons of product dfferentaton. The body of emprcal research s much smaller. As farmers and agrbusnesses are encouraged to pursue value-added producton to mprove ther compettveness, they need nformaton on the returns to developng vertcally dfferentated products. Three general approaches are used to formulate consumer demand for dfferentated products: non-address, address, and logstc. The studes that have used the above approaches focus on horzontal product dfferentaton. In the non-address approach, consumer preferences for dfferentated goods are defned over a predetermned set of all possble goods, whch s ether fnte or countable nfnte. It s called the goods-are-goods or the non-address branch (SHAPIRO, 1989). These models are generally assocated wth CHAMBERLIN s monopolstc competton model (1933). Dversty of consumer demand for dfferentated goods stems from the consumer s desre to consume all varetes (the love of varety). A representatve consumer captures the aggregated preferences for dfferentated goods (SPENCE, 1976; DIXIT and STIGLITZ, 1977). In those monopolstc models, t s usually assumed that there are a large number of products avalable n a market. Product demand s derved from utlty maxmzaton by a representatve consumer wth a strctly quas-concave utlty functon: u = U (x 0, V (x 1, x 2, x 3, )), where x 0 s the quantty of a composte commodty and x s the quantty of the th product. Prces are normalzed and cost functons are usually product-specfc. Snce a representatve consumer purchases every product n these models, each product competes wth every other product (CHAMBERLIN s symmetry assumpton). In contrast to the non-address approach, competton among products n a market s localzed n the address approach. Consumer preferences are generally assumed to be dstrbuted over some contnuous space of parameters or varables. Because of dfferences n consumer tastes or other factors, such as dfferences n ndvdual consumers ncomes, dfferent consumers have dfferent preferred products (deal products) or locatons (geographc ponts). In a geographc locaton model, products are located on a lne or on the crcumference of a crcle, whch denotes dsperson. Products n HOTELLING s (1929) orgnal lnear cty model were homogeneous products, but dffered n travelng costs for an ndvdual consumer to purchase them. In LANCASTER s (1979) characterstc model, t s assumed that there s an nfnte spectrum of potental products, of whch only a fnte number are actually avalable. Utlty s obtaned from consumng characterstcs embedded n the product. Consumers who consume the avalable products that are not ther deal products suffer penaltes n term of costs or utlty. Indvdual consumer demand s derved from a two-stage consumer decson process: 1) whch product to buy and 2) how much to buy (HELPMAN and KRUGMAN, 1985). In the frst stage, a compensaton functon s used to determne a pont where a consumer s ndfferent f ether of the two adjacent avalable products (to the left or rght of hs/her most preferred) s purchased. The boundary ponts for a product are the two ndfference ponts on both 345 Copyrght:

3 Copyrght: Agrarwrtschaft 53 (2004), Heft 8 sdes of that product. Consumers fallng wthn the nterval defntely buy that product and thus consumers who buy a product are dentfed. The logstc approach s based on the dscrete choce theory developed n econometrcs and was used n PERLOFF and SALOP s (1985) probablstc choce model. Ths model s sometmes called a hybrd of the address and non-address models because t starts wth dfferences n consumer preferences and ends wth each product competng wth every other product n a market. In ths approach, an nfnte number of products are assumed, but only a fnte number of them are avalable n the market. Vertcal product dfferentaton The three approaches descrbed have generally focused on horzontal product dfferentaton. To formulate consumer demand under vertcal product dfferentaton, t s no longer vald to assume that consumer preferences for qualty are dfferent. Alternatvely, t s normally assumed that consumers have common agreement on rankng of qualtydfferentated products. Every consumer prefers hghqualty products to low-qualty products. Dversty of consumer demand arses from dfferences n other factors, such as consumer ncome (GABSZEWICZ and THISSE, 1979; SHA- KED and SUTTON, 1982). Market demand functons for the qualty-dfferentated products generally possess the same propertes as the characterstc models. Yet, consumers wth dfferent ncomes have dfferent deal qualty products due to dfferences n wllngness to pay for qualty. They purchase the avalable product that s the closest one to ther deal product. Therefore, competton among qualtydfferentated products s also localzed, as n the address approach. Emprcal studes n dfferentated products. Only a few studes attempt to emprcally estmate consumer demands for dfferentated products, despte a rch body of theoretcal lterature on product dfferentaton. BRESNAHAN (1981) derved a vertcally dfferentated product demand system and emprcally analyzed the extent of departure from margnal-cost prcng n the Amercan automoble ndustry. Consumer preferences were assumed to be unformly dstrbuted wth a constant densty. Dversty of consumer demands came from dfferences n consumers sumers tastes, not from consumer ncomes. Gven auto prces, boundary ponts could be determned from the condton that consumers wth the same tastes were ndfferent between buyng ether of two neghborng autos wth dfferent qualtes. Thus, consumers wthn the taste nterval would only buy a partcular model, the one that maxmzes ther utlty. FEENSTRA and LEVINSOHN (1989) extended BRESNAHAN s (1981) one-dmensonal qualty-dfferentated model nto a mult-characterstc model to study the competton among auto producers n an olgopolstc framework. Ideal products (combnaton of characterstcs) were derved from utlty maxmzaton and determned by taste parameters. The ndrect utlty functon was used to dentfy consumers wth deal products (a partcular model of car). They emprcally estmated neghbor models by determnng the ndfference ponts, whch are mdponts of lnes drawn between pars of models. Consumer demand functons were 346 then emprcally estmated along wth an optmal olgopolstc prcng equaton. 3. The theoretcal model u (x) = G [ ] Economsts commonly use the Almost Ideal Demand System and the Rotterdam models to estmate demand systems. Ths s due to the fact that these models are not only compatble wth demand theory, but also have flexble functonal forms and are easy to estmate. For examples of these studes and ther applcatons see ALSTON and CHALFANT (1993). However, these models are not qute applcable to vertcally dfferentated products where non-prce competton (ncludng varatons n stylng and qualty) s practced. The model of consumer behavor we use s a specal form of a general substtute model ntroduced by SPENCE (1976), and DIXIT and STIGLITZ (1977). SPENCE (1976) suggested the general form for the beneft functon to be φ ( x) d where G and φ were concave func- β tons. If u (x) has the form u (x) = a x, then t has the form of a CES functon. DIXIT and STIGLITZ (1977) assumed a separable utlty functon wth convex ndfference surfaces: u (x) = U (x 0, V (x 1, x 2, x 3 )), where V s the subutlty derved from consumpton of dfferentated products x = (x 1, x 2, x 3 ) and u (x) s the upper-ter utlty functon representng the overall welfare level. They further smplfed V to be a symmetrc functon and consdered two specal cases: (1) V was gven a CES form, but U was allowed to be arbtrary: u (x) = U 1/ ρ ρ x 0, x. (2) U was taken to be Cobb-Douglas but V had a general addtve γ γ form: u (x) = 1 x V ( x), subject to the budget con- n x0. strant + px = I In ths research, we choose a general functonal form of the two product model by SINGH and VIVES (1984), and HÄCKNER (2000): 1 where x s the quantty of dfferentated product and x 0 (1) ( ) 2 U x0 x = x0 + xα x β + 2 s all other goods. Hence, the second and thrd terms n equaton (1) represent a specal form for V, the subutlty functon of dfferentated products n the general substtute model by SPENCE (1976), and DIXIT and STIGLITZ (1977). HÄCKNER (2000) argues that ths utlty functon allows for two dmensons of product heterogenety: vertcal product dfferentaton and substtutablty. The parameter α measures qualty n a vertcal sense. Other thngs equal, an ncrease n α ncreases the margnal utlty of consum- 1 n n n n 1, x x jλj = 1 2 = 1 = 1 j= 1 j We are ndebted to an anonymous revewer for nsghts nto the theoretcal model and ts use n nterpretng the emprcal results. θ

4 Agrarwrtschaft 53 (2004), Heft 8 ng product. The λj s can be used to measure the substtutablty between the dfferentated products: postve λj s mply goods are substtutes, whle negatve λj s mply they are complements. HÄCKNER (2000) argues that when goods are substtutes, the degree of substtutablty could be nterpreted n terms of horzontal product dfferentaton. In ths model, the condtons for perfect substtuton between good and good j are: β j = λ j + λ j, β = λ j + λ j, and λ jk + λ kj = λ k + λ k k [1;n\{;j}]. The representatve consumer maxmzes utlty subject to the budget constrant, px + x0 = I, where I denotes ncome and the prce of the composte good x 0 s normalzed to one. Dfferences among consumers are gnored; all demand functons are consdered to be proportonal to those of a typcal or standard consumer who maxmzes utlty defned over all commodtes consumed. The frst-order condton determnng the optmal consumpton of product s: U ( x x) (2) n ( λj + j ) x j p, 0 = α x β λ = 0 x j=1 j where p s the prce of product. From the frst-order condtons, one can solve for the nverse demand functon for product. These nverse consumer demand functons form a system of smultaneous equatons, whch s the bass of our emprcal work. Because of beef qualty dfferentals n Japan, strong consumer preferences n beef qualty, reflected n terms of marblng, freshness, and color, contrbute to a wde range of retal prces (fgure 1). In ths case, as argued by THEIL and SUHM (1981), qualty s summarzed by means of one sngle number - prce. Snce hgh qualty beef commands hgher costs than low qualty beef, the average prce that a Fgure 1. Japanese Monthly Retal Prces of Beef Lon by Type for the 1992: :07 Perod 1200 famly pays for a unt of qualty-dfferentated beef s representatve of beef qualty. Ths vew s consstent wth emprcal results from hedonc regressons where more product attrbutes generally lead to hgher consumer prces. Ths lterature mantans that prce s the best measure of product qualty (GRILICHES, 1971). However, the use of prce as a cue or sgnal for qualty has also shown to have theoretcal mplcatons wth mxed emprcal results (e.g., HJORTH- ANDERSON, 1991; ZEITHAML, 1988). 4. Data descrpton The model s appled to chlled beef cuts (chuck, lon, rbs, and round) n the Japanese market. Monthly data for the perod 1992:02 to 1999:07 were collected. Data for the retal prces of chlled US and Australan beef cuts n yen per 100 grams were taken from LIPC (varous ssues) publcatons. US and Australan beef mports were also taken from the LIPC and are measured n metrc tons. The orgnal source of these data s MAFF: Meat Marketng Statstcs, Japan s Mnstry of Fnance, Japan Exports and Imports. Imports are assumed to equal consumpton because nformaton on stocks s not avalable. The data for quanttes of Japanese wagyu and dary beef and ther retal prces were taken from AGRICULTURAL AND LIVESTOCK INDUSTRIES CORPORATION (ALIC) (2001). There are no data avalable pror to February Ths source only provdes monthly (and calendar year) carcass weght of wagyu and dary beef produced n Japan. Domestc consumpton by type and cut s not avalable. We used USDA gudelnes to calculate the amount of beef chuck, lon, rbs, and round produced from these carcasses. In general, a 1000-pound steer yelds 615 pounds of beef (61.5% of the lve weght) to retalers. The retaler trms away 183 pounds of fat, bone, and waste to end up wth 432 pounds of retal beef cuts. Of these retal cuts, pounds are salable chuck, 77.7 pounds are salable lon, 47.5 pounds are salable rbs, and 83.8 pounds are salable round. We assume that all wagyu and dary beef lon produced n Japan s domestcally consumed. Yen/Kg Dary U.S. Australan 5. Econometrc model and dagnostcs The theoretcal model serves to gude the specfcaton of the emprcal demand system for qualty-dfferentated beef consumed n Japan. Equaton (2) shows that each of the four endogenous varables representng consumer nverse demands for wagyu, dary, US, and Australan beef cuts are lnearly related to the quantty of beef varetes consumed as a system of smultaneous equatons. The emprcal model for the nverse demand system for each beef cuts s gven by (3): Source: MAFF Month Pwt = αw βwqwt λwdqdt λwuqut λwaqat + εw (3) Pdt = αd βdqdt λdwqw t λduqut λdaqat + εd Put = αu βuqut λuwqw t λudqdt λuaqat + εu Pat = αa βaqat λawqw t λadqdt λauqut + εa where w, d, u, and a subscrpts denote wagyu, dary, US, and Australan beef, respectvely, and t ndexes tme. Note that each λ j n the emprcal model of equaton (3) repre- Copyrght: 347

5 Copyrght: Agrarwrtschaft 53 (2004), Heft 8 sents the sum ( λ j + λ j ) from equaton (2) of the theoretcal model. Thus, the coeffcents of the Qj s n the emprcal model are an abbrevaton for the complex sumcoeffcents of each x j n the equaton (2). The nterpretaton of these estmated coeffcents s complex and s not pursued n ths paper. Also, note the cross prces are not present n ths model; competton n vertcally dfferentated products hnges on qualty rather than prce. SHAKED and SUTTON (1982) fnd that vertcal product dfferentaton relaxes prce competton. Ths demand system s dentfed wth respect to the order and rank condtons of dentfcaton. In ths model, contemporaneous correlaton across equatons renders tradtonal ordnary least-squares estmates unbased and consstent, but neffcent. Hence, we estmate the unknown structural parameters of the model by usng the seemngly unrelated regresson (SUR) routne, because ts estmates are more effcent than the OLS estmates, and account for heteroskedastcty between equatons and contemporaneous correlaton n the resduals. The estmates of the crossequaton covarance matrx are based upon parameter estmates of the un-weghted system. Varous dagnostc tests were performed to make sure that the emprcal technques used were vald. All Durbn- Watson d statstcs, after correcton for autocorrelaton, usng the AR(1) model n EVIEWS, exceed the upper lmt crtcal value n the bounds test, ndcatng frst-order seral correlaton does not exst at the fve-percent level. Also, we faled to reject the null hypothess that the resduals were normally dstrbuted at the fve-percent level of sgnfcance when usng the standard Jarque-Bera test statstc. Thus, the emprcal resduals from the fnal structural model mantaned the necessary theoretcal propertes to ensure the ntegrty of our statstcal nferences and hypothess testng. Fnally, note that the emprcal model derved n equaton (3) has some negatve sgns. However, the results presented n the tables are from the estmaton of a model wthout use of negatve sgns; we have reported the sgns n the table as they were estmated. Hence, a negatve coeffcent on own-quantty (β) means that the demand curve s downward slopng and a negatve coeffcent on cross-quantty ( λ j ) shows a substtuton relatonshp. 6. Emprcal results Analyses of consumer demand for qualty-dfferentated products are hndered by the lack of approprate data and emprcal testng. Furthermore, few attempts have been made to address the demand for food products n vertcally dfferentated markets, or non-prce competton among product varetes wth vertcal attrbutes. Ths study has 348 developed a model of vertcal product dfferentaton and has appled the model to the Japanese beef market, whch s manly made up of four qualty-dfferentated types: domestcally produced wagyu and dary and mported US and Australan for four beef cuts (chuck, lon, rbs, and round). Based on the theoretcal dervaton, a smultaneous equaton econometrc model of Japanese beef demand for the four beef types was constructed by usng monthly data for the perod 1992: :07 perod. Table 1. Pont estmates of parameters n the econometrc model for chuck α w = β w = λ wd = λ wu =0.002 λ wa =0.000 (41.72) *** (-3.02) ** (-2.09) ** (1.16) (0.006) R 2 67% Durbn-Watson 2.07 Dary α d = β d = λ dw = λ du =0.001 λ da = (40.40) *** (-2.33) * (-2.23) * (0.47) (-0.13) R 2 54% Durbn-Watson 1.95 U.S. α u = β u = λ uw =0.000 λ ud = λ ua = (18.47) *** (-0.44) (0.08) (-2.51) * (-1.35) R 2 77% Durbn-Watson 2.03 Australan α a = β a = λ aw =0.000 λ ad = λ au = (15.29) *** (-2.52) * (0.31) (-0.42) (-2.20) * R 2 82% Durbn-Watson 2.26 Note: t-statstc values are n parentheses. Source: authors computatons *** =1%, ** =5%, and * =10% sgnfcance level. The emprcal results for beef chuck As can be seen from table 1, the emprcal results for chuck show that all α s are sgnfcantly dfferent from zero and have postve sgns. These estmated coeffcents ndcate that Japanese consumers rank wagyu as havng the hghest qualty chuck, followed by dary, US, and Australa. chuck sells for a 64% premum over dary chuck; dary chuck sells for a 65% premum over US chuck; and US chuck sells for a 12% premum over Australan chuck. All of these dfferences are sgnfcantly dfferent from zero at the 5% level, except for the US/Australa dfference. Clearly, Japanese consumers prefer domestcally produced chuck to the mports. Estmated nverse demand coeffcents (βs) are negatve and statstcally dfferent from zero for wagyu, dary, and Australan chuck. The estmated nverse demand coeffcents are small, whch means that the actual demand curves are hghly elastc. Several substtuton coeffcents (λs) are statstcally sgnfcant. The results show λs for wagyu-dary; dary-wagyu, US-dary, and Australan-US are sgnfcantly dfferent from zero. These estmated coeffcents have negatve sgns ndcatng that they are substtutes; dary chuck s substtuted for wagyu and wagyu chuck for dary, dary chuck s substtuted for US chuck; and US chuck s substtuted for Australan chuck. The estmated values are small but, as ndcated before, an nterpretaton of the magntude of these substtuton effects s complcated and beyond the scope of ths paper.

6 Copyrght: Agrarwrtschaft 53 (2004), Heft 8 The emprcal results for beef lon The results for the α parameters dd corroborate the obvous superorty of wagyu and dary beef lon evdent from the prce chart (fgure 1). All α s are hghly sgnfcantly dfferent from zero and all the estmated coeffcents are postve (table 2). The α parameter plays a crucal role n ths analyss, measurng qualty n a vertcal sense (as α ncreases for a product, so does the margnal utlty of that product). The qualty rankng s the same as for chuck: wagyu, dary, US, and Australan. All of the dfferences are sgnfcantly dfferent from zero at the 5% level, except the US/Australa dfference. The results are smlar to those for chuck: wagyu lon enjoys a 75% premum over dary lon; dary lon enjoys a 56% premum over US lon; and US lon has a 16% premum over Australan lon. Domestcally produced beef lon s clearly preferred to mported beef. Table 2. Pont estmates of parameters n the econometrc model for lon α w = β w = The results show the nverse demand coeffcent (β) of wagyu s statstcally dfferent from zero at the 5-percent level. Other estmated nverse demand coeffcents have the expected negatve sgns, ndcatng consumers are facng downward slopng demand curves, but they are statstcally nsgnfcant. All own-quantty coeffcents are small n absolute value, whch shows the demand curves are elastc. The results of the estmatons for the λ s ndcate there are three sgnfcant lnkages among the beef lon orgns; all nvolvng the US. The cross-quantty effects that are sgnfcantly dfferent from zero are the wagyu-us wth a negatve sgn and the dary-us, and Australa-US cross effects (n one drecton) wth postve sgns, meanng some US beef lon s substtuted for wagyu, and there exts some complementary relatonshp between US and dary and US and Australan beef lon. The emprcal results for beef rbs The emprcal results for beef rbs shown n Table 3 agan ndcate that Japanese consumers rank domestc beef hgher than mported beef. All theα s are hghly sgnfcantly 349 dfferent from zero wth the expected postve sgns and the estmated coeffcents ordered by value (from hghest to lowest) are wagyu, dary, US, and Australan, respectvely. However, the premums are dfferent than for chuck or lon, especally for US beef. rbs have a 50% premum over dary rbs, but dary rbs have only a 2% premum over US rbs. Further, US rbs have a wde premum (82%) over Australan rbs. All of the dfferences are sgnfcantly dfferent from zero at the 5% level, except the US/dary dfference. US rbs are commonly used as an ngredent n the Japanese beef bowl chans, a style of restaurant that saw rapd sales growth durng the 1990s n Japan (REED and SAGHAIAN, 2004). The estmated nverse demand coeffcents (βs) all have negatve sgns, ndcatng downward-slopng demand curves, and are sgnfcantly dfferent from zero for wagyu, λ wd =0.003 λ wu = λ wa =0.000 (58.95) *** (-2.39) ** (0.49) (-1.62) * (0.09) R 2 88% Durbn-Watson 1.82 Dary α d = β d = λ dw = λ du =0.009 λ da = (24.15) *** (-0.08) (-1.02) (2.48) ** (-0.83) R 2 88% Durbn-Watson 1.99 U.S. α u = β u = λ uw = λ ud =0.008 λ ua = (21.10) *** (-0.77) (-0.56) (1.09) (-1.00) R 2 86% Durbn-Watson 1.95 Australan α a = β a = λ aw =0.003 λ ad = λ au =0.004 (22.13) *** (-0.07) (0.93) (-1.25) (1.92) * R 2 93% Durbn-Watson 1.88 Note: t-statstc values are n parentheses. Source: authors computatons *** =1%, ** =5%, and * =10% sgnfcance level. dary, and Australan cuts. The substtuton coeffcents (λs) are sgnfcantly dfferent from zero for wagyu-us, wagyu-australan, dary- US, dary-australan, and US- Australan rbs. All these coeffcents have negatve sgns, whch means some of the US and Australan mported rbs are substtuted for domestcally produced wagyu and dary rbs. Ths two-way substtute relatonshp s sgnfcant for wagyu-us and wagyu-australan (wagyu rbs are substtuted for US and Australan rbs and vce versa). The emprcal results for beef round The emprcal results for beef round also show Japanese consumers have a hgher preference for domestcally produced beef n contrast to mported US and Australan beef. Theα s n table 4 are all sgnfcantly dfferent from zero wth hgher estmated values for wagyu and dary compared to US and Australan round. The premums for the beef types were smlar to the results for chuck and round: wagyu round has a 51% premum over dary round; dary round has a 67% premum over US round; and US round has a 20% premum over Australan round. All of the dfferences are sgnfcantly dfferent from zero at the 5% level, except the US/Australa dfference. The estmated nverse demand coeffcents (βs) have negatve sgns, but all are statstcally nsgnfcant. The estmated substtuton coeffcents (λs) show a two-way relatonshp between US and wagyu, and US and dary round (US round s substtuted for wagyu and dary, and vce versa). The results also show that some US round s substtuted for Australan round (but ths s a one-way substtuton only). 7. Summary and conclusons The emprcal results show consstently that Japanese consumers prefer domestc wagyu and dary beef to mported US and Australan. These results clearly show that by Japanese consumers preferences and standards, domestcally

7 Copyrght: Agrarwrtschaft 53 (2004), Heft 8 Table 4. Pont estmates of parameters n the econometrc model for rbs α w = β w = produced beef s consdered as hgher qualty when compared to mported beef. had more than a 50% premum over dary for all cuts, dary had at least a 50% premum over US for all cuts except rbs, and the US had a 10-20% premum over Australan for all cuts except rbs. Japan has a hgher valued use for US rbs, reducng the dscount to dary rbs to only 2% and ncreasng the premum over Australan rbs to 80%. All of the compettors n the Japanese market have at least one beef type wth a negatvely sloped nverse demand functon, except for the US. There were three such demand functons for wagyu and two such demand functons for dary and Australan cuts. In all of these cases, the elastcty was qute small n absolute value. In addton, we found λ wd =0.015 λ wu = λ wa = (26.58) *** (-1.79) * (1.56) (-2.04) ** (-2.39) ** R 2 88% Durbn-Watson 2.01 Dary α d = β d = λ dw = λ du = λ da = (12.22) *** (-2.56) ** (-0.87) (-1.60) * (-1.68) * R 2 91% Durbn-Watson 2.18 U.S. α u = β u = λ uw = λ ud =0.006 λ ua = (21.08) *** (-1.02) (-2.77) ** (0.73) (-1.11) R 2 44% Durbn-Watson 1.96 Australan α a = β a = λ aw = λ ad = λ au = (13.05) *** (-2.39) ** (-1.92) * (-1.25) (-1.94) * R 2 75% Durbn-Watson 2.15 Note: t-statstc values are n parentheses. Source: authors computatons *** =1%, ** =5%, and * =10% sgnfcance level. Table 3. Pont estmates of parameters n the econometrc model for round α w = β w = λ wd =0.003 λ wu = λ wa =0.001 (36.67) *** (-1.00) (0.63) (-1.85) * (1.13) R 2 77% Durbn-Watson 2.05 Dary α d = β d = λ dw = λ du = λ da = (93.11) *** (-1.07) (-0.58) (-2.48) ** (-0.11) R 2 79% Durbn-Watson 2.01 U.S. α u = β u = λ uw = λ ud = λ ua =0.001 (9.30) *** (-1.42) (-1.68) * (-1.97) ** (1.36) R 2 92% Durbn-Watson 2.04 Australan α a = β a =0.001 λ aw =0.001 λ ad =0.002 λ au = (10.71) *** (1.28) (0.97) (0.60) (-2.19) ** R 2 93% Durbn-Watson 2.04 Note: t-statstc values are n parentheses. Source: authors computatons *** =1%, ** =5%, and * =10% sgnfcance level. 350 that there were mostly substtuton effects among beef types (wagyu, dary, US and Australan), except for beef lon that showed some complementary effects. The results are generally consstent wth those of HAYES et al. (1990) though ther beef categores were somewhat aggregated. They found some net substtutablty between an aggregate wagyu beef and an mport-qualty beef, whch ncluded both aggregate qualty mports and domestc dary beef. They also rejected the hypothess that those beef types were perfect substtutes. Yet one must be skeptcal of many past emprcal models based on the results presented here. Japanese demand for beef s very specfc wth respect to cut and orgn, so models that aggregate cuts and especally orgns are makng assumptons about substtutablty that are not supported by ths analyss. Gven these facts, an approprate strategy for the US and Australa, the two man supplers of mported beef to Japan, s to ncrease qualty and advertsng to promote ther beef n Japan n order to overcome the stgma of mported beef. They cannot emulate the qualty of wagyu beef and these mported cuts are often vewed as nferor to domestc dary beef. KHAN et al. (1990) have argued that younger Japanese have a preference for leaner, mported beef and that as ther dsposable ncomes grow, beef mports wll ncrease. Further, f the mporters can develop specalzed uses for ther beef that are popular wth Japanese consumers and that captalze on ther beef characterstcs (as the US has wth the use of ts rb cuts n the beef bowl restaurants); they wll dfferentate ther beef products n a postve manner. The US and Australa should not count on ncreased exports to Japan smply because wagyu and dary supples are dwndlng. Japanese consumers must be convnced that mported beef can meet the requrements of tradtonal cookng methods used for domestc beef, partcularly wagyu. Wth promotonal and educatonal programs and product qualty developments by US and Australan cattle feeders, and Japanese demographc changes, the long-run prospects for mported beef could mprove. Both the US and Australa have launched campagns to promote ther beef products n Japan (ACKERMAN, 1993). One challenge that the US n partcular wll face s the acceptance of ts beef after the outbreak of bovne spongform

8 Agrarwrtschaft 53 (2004), Heft 8 encephalopathy (BSE) n the US. At ths wrtng, US beef exports to Japan are banned because of the BSE outbreak. These food safety problems wth US beef wll lkely further dfferentate t from other supplers, so US exporters wll need to work hard to overcome ths stgma. The data seres analyzed n ths study dd not nclude data durng the outbreak, but ths occurrence wll obvously have serous and potentally long-run consequences on US beef exports to Japan. Future analyses of beef demand n Japan and possbly other countres wll need to ncorporate more detaled data n ther analyss. Each beef cut and orgn have dfferent uses n the cookng styles of the mportng country. There s substtutablty among cuts and orgns n some cases, but certanly not all. Wthout a dsaggregated analyss that can dentfy these dfferences, emprcal models of beef and other meat trade wll not have the detal necessary to understand these mportant markets. References ACKERMAN, K. 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Barnhart Buldng Lexngton, KY , USA phone: +(1) , fax: +(1) e-mal: mrreed@uky.edu 351 Copyrght: