In my previous article I suggested that farmers need some fresh thinking about the value they are producing for the consumer. Unfortunately, the majority of North American farmers still value their production only on the basis of quality and price, whereas research shows that only about half of consumers now base their food purchasing decisions on these traditional values.
In 2015, Deloitte Consulting LLP surveyed 5,000 U.S. consumers to determine the values that drive their food purchases. The report of this study, “Capitalizing on the Shifting Consumer Food Value Equation,” found 49 per cent of consumers listed food safety, impact of food choices on health and wellness, the social impact of food production, and even the experience of food purchasing, preparation, and enjoyment as the values that guide their food purchase decisions.
The impact of this change in consumer preferences can be seen in actual sales figures. The Deloitte study revealed: “For example, from 2009 to 2013, the 25 biggest U.S. food and beverage manufacturers averaged only 1.0 per cent annual growth, while smaller brands and private brand manufacturers grew more rapidly (4.9 per cent and 4.0 per cent, respectively).”
That study also found 55 per cent of consumers were willing to pay a 10 per cent premium for food products which they valued “healthy,” 23 per cent were willing to pay 10 to 20 per cent more, and three per cent were willing to pay more than 20 per cent. In other words, 81 per cent of consumers are willing to pay more for food they consider to be more “healthy.”
This is a premium well worth pursuing as an industry. Unfortunately, though, it is hard to pinpoint the exact meaning of “healthy.” It depends on each individual consumer and ranges from “organic” and “all-natural” to “fewer artificial ingredients” and everything in between.
The Nielsen’s 2015 Global Health & Wellness online survey of over 30,000 individuals mirrored the Deloitte results. This study found: “some 88 per cent of those polled are willing to pay more for healthier foods.” That report went on to conclude “Consumer mindset about healthy foods has shifted and they are ready to pay more for products that claim to boost health and weight loss.”
Farmers complain about a “cheap food policy” and consumers complain about the price of food, but when given a choice of cheap food or food that meets their values, most consumers willingly pay more.
This is not news to farmers who direct market to consumers. However, a focus on value is just as applicable to commodity producers.
In 2009, the Dairy Farmers of Canada started labelling milk products with a “100 per cent Canadian Milk” symbol. This may seem redundant since, by law, milk and cream sold in Canada must be sourced within Canada.
Yet the 2016 study “Consumer Willingness to Pay for Dairy Products with the 100 per cent Canadian Milk Label: A Discrete Choice Experiment” by Shelicia Forbes-Brown, Eric T. Micheels, and Jill E. Hobbs found: “The results show that Canadian consumers are willing to pay more for milk and ice cream products that carry the label.”
Amazingly, the researchers found: “respondents are willing to pay an additional C$2.29 for a 2-litre carton of milk with the 100 per cent Canadian Milk symbol,” and “respondents also prefer ice cream with the 100 per cent Canadian Milk symbol, with an estimated WTP premium of $1.56 for a 2-litre carton of ice cream containing this label.”
This study also revealed that most study participants believed the 100 per cent Canadian Milk symbol indicated a higher-quality product, which is why they were willing to pay more. However, those respondents who knew all milk sold in Canada had to be Canadian sourced actually discounted the price they were willing to pay.
Furthermore, milk and ice cream carrying an organic label were also discounted by consumers. This differing reaction to a label shows it is not only important to truly understand the values of the consumer but labelling must be done in a way to position the product to meet those values.
Addressing consumers’ values is even more important in the Canadian grain system. Too often grain farmers see the grader at the local terminal as the end buyer, when in fact the grader is a middleman in a long food processing chain. Ultimately it is the consumer who eats the products who creates the demand. And unless we listen and respond to what they are telling us, someone else will supply their needs and possibly earn a premium for it.
Canada was very successful in branding its wheat as the best quality in the world. Canada also developed canola as a healthy vegetable oil crop. Unfortunately, producers have gradually moved away from embracing these values. Farmers have switched to higher-yielding, lower-quality varieties in a pursuit of higher production.
We are demanding access to pesticides which are not acceptable to consumers. There is a feeling that consumers need to accept what farmers do and grow rather than producing what the consumer is asking for. As a result Canada’s reputation as a premium producer is in question and we have lost quality premiums and markets.
We are at a crossroads. We must choose whether to regain our position as a quality leader, or to compete with lower cost producers in Ukraine, Russia, South America, and even Australia.
The new consumer value which is likely to have the biggest impact on farmers is transparency of food production, and that extends right back to the farm. The Deloitte study rates transparency as “more important than any other value that producers have to be aware of. Driven by a variety of issues and events, consumer demand to know more about the food they eat has intensified. More than ever, today’s consumers want access to relevant information, when they want it, and in a clear, comprehensive, and understandable way to make informed choices.”
The study found clear and accurate labelling was second only to nutritional content as the reason why consumers make a purchase.
The Deloitte study also interviewed food company executives, finding “nearly all executives agreed that transparency is one of the top priorities for their respective organizations, and for the food manufacturing and retailing industries as a whole.”
But to provide such transparency poses a number of problems for food companies including: “ability to capture and verify data from multiple stakeholders across the value chain, consistency of data definitions and quality, concerns about sharing proprietary information or processes, introduction of brand risk or potential liability due to brand commitments or claims, and additional costs.”
Like it or not, scrutiny of our farms will continue to grow as consumers demand more information about where their food comes from, food companies seek production information so they can target niche markets with new labels, and governments respond to demands for more traceability.
Oklahoma State University in January 16, 2015 asked consumers if they support or oppose a number of food-related government policies. In all, 55 per cent of respondents supported a ban on the sale of food products made with transfat, 82 per cent want mandatory labels for foods produced with genetic engineering, and 86 per cent want mandatory country-of-origin labelling of meat.
Perhaps the most shocking response was support by 80 per cent of respondents for mandatory labelling of foods containing DNA. Since all known cellular life has DNA, I am not sure what information labelling a product as “contains DNA” would provide. But it does point out the demand for information, no matter how useful, from consumers about food. It also shows the necessity of the entire food industry to provide real information about the food we produce. Most importantly, it shows there must be better understanding by producers about the values consumers have regarding food, and for producers to address those values.
This does not necessarily mean farmers must produce new products or change production methods to meet those values. It may be simply showing consumers that what we produce and how it is produced now actually do meet those values.
But unless farmers understand what consumers are demanding and explain how current farming practices address consumer values, the farming industry will suffer. On the other hand, if food producers meet consumer values, there are potential premiums.
Regardless, the Deloitte study concludes: “Deloitte’s research clearly highlights a seismic shift in what consumers expect from the food and beverage industry.” This is a lesson farmers need to take to heart.
The New Consumer Value Equation
The following chart is reprinted from “Capitalizing on the Shifting Consumer Food Value Equation”
by Deloitte Consulting LLP. It breaks down the new values consumers hold toward food.