Changing Consumer Demands

The Government of Canada and the provincial and territorial governments are working with the industry and interested Canadians to develop an agricultural policy for the 21st century. The objective is for Canada to be the world leader in food safety, innovation and environmentally-responsible production. This proposed policy direction recognizes the increased challenges that Canadian producers face as they work to adapt to rapid advances in technology and compete against other countries in an increasingly complex global food market.

The following is one of a series of three background briefs on key challenges that need to be addressed in building a stronger agriculture and agri-food sector in Canada:

• The effects of competition and subsidies in global markets;
• Rising consumer demands for food safety, enhanced environmental stewardship and other quality attributes; and
• The importance of skills and knowledge in an era of advancing science and technology.

Meeting consumer demands | Ensuring food safety | Agriculture and the environment | Changing demands and the agri-food chain | Summary

Meeting consumer demands

Consumer demands are changing the face of agriculture

As the standard of living in Canada and other developed countries has risen, per capita food consumption has stabilized and basic food needs are being met. At the same time, consumers are more discriminating about the food they buy. They want safe food, as a minimum, but they also want a greater choice of food with look, taste, nutritional value and convenience as the key factors. They also want assurances that it is produced in an environmentally-responsible manner.

Many suppliers are developing systems that demonstrate to both existing and potential customers that their products meet the specifications demanded by consumers. At the same time, these suppliers are taking advantage of changing consumer preferences to gain new markets and develop niche markets with potential price premiums, which consumers may be willing to pay. This willingness presents opportunities in agriculture because studies show that as the average income of consumers rises, their willingness to pay for specific quality attributes also rises.

The challenge facing producers and processors is how to respond to these rising consumer demands. They must adapt if they want to capitalize on the opportunities that are available by meeting these consumer demands.

Ensuring food safety

Food safety is essential

Food safety has always been important to consumers and continues to be a basic requirement of a modern food system. Surveys show that food safety is a high priority for almost 80 per cent of Canadians. Recent high-profile food safety catastrophes include Mad Cow Disease (BSE), dioxin contamination in Europe and E-coli 0157:H7 in hamburger and unpasteurized juice here in North America. If producers and processors cannot assure Canadians of food safety, producers and processors risk major interruptions to their business, loss of exports and a downgrading of Canada's reputation as a supplier of safe and high-quality food.

These concerns are the driving force behind the use of new standards and systems to promote quality assurance and food safety. Programs based on the Hazard Analysis Critical Control Points (HACCP) and tracing systems in some parts of the food chain, particularly the processing sector, are now extending to other parts of the food chain including the farm level. Major commodity groups are developing programs.

For example, producers are tagging the ears of beef cattle to allow tracing of individual animals back to the producers.

Tracking and tracing systems can also contain the cost of disease outbreaks. The recent outbreak of Foot and Mouth Disease (FMD) in the United Kingdom was very costly. It is widely acknowledged that the control of the outbreak was complicated by difficulties in tracing animal movements, due in particular to a lack of an effective identification of all farm animals. In this case, the tracking of the movement of sheep proved difficult and in some cases impossible. Infected sheep criss-crossed the country prior to authorities realizing they had an outbreak. The Federation of Veterinary Surgeons of Europe is now calling for the identification of all farm animals with a more effective system for tracing movement internationally, within country, or between individual farms.

Cost of disease outbreaks can be large

Helping contain disease outbreaks is a major benefit of food safety systems, given the potentially devastating cost of disease outbreaks. For example in 1996, with the outbreak of Mad Cow Disease, the United Kingdom had an immediate 40 per cent drop in sales of beef products and a 26 per cent drop in household consumption of beef and veal.

Similarly, the economic impact of the recent FMD outbreak to the United Kingdom and the European Union in 2001 was estimated at $C6-$18 billion. Even though FMD is not a human health issue, the impact was widespread because of restrictions imposed by various countries on travel, trade and animal movement affecting agriculture, tourism, trade and food consumption. If a similar outbreak were to happen in Canada, it is estimated that livestock producers would experience approximately a 50 per cent decline in the price of their products.

The costs to society are also high. According to the USDA, the social and economic cost of food-borne illnesses from five known pathogens in the United States (Campylobacter spp, salmonella,
E-coli 0157:H7, E-coli non-0157 STEC, and Listeria monocytogenes) was estimated at $US7 billion annually.

Consumer attitudes towards selected issues, 2001
% of citizens who consider the issue a high priority

Agriculture and the environment

More progress is needed on the environmental front

Environmental concerns are also considered a high priority by 84 per cent of Canadians, who increasingly recognize the role of the environment in quality of life and human health issues. They also recognize the fundamental link that exists between agricultural production and the environment. They are placing increasing demands on farmers and processors concerning the environmental soundness of their production methods.

Producers are responding to these concerns. Many are beginning to implement environmental farm plans (19 per cent of Canadian farm operators had intentions to do so in 2001) and management practices that will ensure long-term sustainability and prosperity. Implementing these plans and practices will also help to address growing concerns about certain practices such as intensive farming operations. There has been a marked increase in the number of media reports covering the opposition to intensive farming operations in recent years.

These concerns are consistent with knowledge of the pressure points on the environment arising from farm production and practices. Agri-environmental indicators, which measure success in managing these pressure points, show mixed results, as indicated in the box below:

Changing demands and the agri-food chain

Relationships along the agri-food chain are changing

As consumers increasingly express greater concern for food safety and the environment and demand specific food quality attributes, changes are occurring throughout the agri-food chain. Major commercial buyers at the processing and retail levels, who are quite often at the forefront of changing market trends, are placing new demands on input suppliers regarding tighter specifications on attributes and methods of production. They are establishing new marketing relationships and linkages with producers to position themselves to respond to changing consumer demands. These linkages include developing contracts with producers that combine rigid production protocols with a greater certainty on sales and guarantees on prices.

The potential for price premiums is increasingly evident in markets where producers are responding to consumer preferences for specific product attributes. In Ontario, soybean producers developed an identity preservation system that allowed them to expand sales into the lucrative Asian market for food-grade white hilum soybeans. About 30 per cent of Ontario sales are currently identity preserved. By moving quickly into niche markets, these producers have been capturing price premiums of between 10 per cent and 50 per cent.

Another example is organic food in the United States. Consumers are paying price premiums of 50 per cent for cereal crops, 60 per cent for dairy and up to 100 per cent on fruits and vegetables for what they perceive to be safer, more nutritious food.

Other countries' responses to rising consumer demands

Throughout the world, other countries are responding to consumer concerns about food safety and the environment. The United States is considering more funding for environmental programs, such as technical assistance to farmers to learn about environmentally friendly production practices and expansion in conservation programs. Australia, New Zealand and various countries in the European Union are introducing systems of quality assurance and food safety as well as environmental farm plans, certifications and regulations to address citizens' concerns.

Many countries are also considering more stringent technical standards for both domestic production and imports, including restrictions on certain varieties and increased demand for documentation of food content. Given the importance of export markets for most Canadian food products, the way Canada responds will directly affect the future growth opportunities of the agri-food sector.

Summary

• Increasing consumer demands for food safety, food quality, and new production methods are transforming agriculture and agri-food sectors.
• Major players in the agri-food chain are responding by developing new marketing relationships and placing new demands on producers and processors.
• Other countries are responding to consumer demands by reforming domestic policies and increasing technical standards for imports.
• For Canada and its export markets, the ability of the industry and governments to respond to consumer demands will determine success in the future.

Bibliography

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