Performing Department
Agri Economics & Agribusiness
Non Technical Summary
The food industry is one of the largest sectors of the U.S. economies. It has a sophisticated marketing system that generated about 1.85 trillion dollars of sales revenue in 2013 (Plunkett Research, 2014). About 2.2 million farms with an average size of 418 acres are producing the raw material used in final food products. Advancement in production technology and subsequent adoption by growers has substantially increased average farm yield and reduced per unit cost of producing food crops. As a result, the average farm share on consumer food dollar has decreased from more than 40 cents in early 1970s to 17.4 cents in 2012 (http://www.ers.usda.gov/data-products/food-dollar-series.aspx).While food costs have fallen, factors such as increasing consolidation of the food industry, rising labor and other input costs, changing consumer taste and preference, and intense competition from global suppliers are challenging the long-term profitability of domestic producers in general and small growers in particular. For instance, increasing consolidation of food processing and retail industry has reduced small producer's bargaining power and their ability to sell farm products through large commercial establishments (Sexton, 1996; Richards, Patterson, and Acharya 2001). Moreover, frequent labor shortages and rising input costs have substantially reduced the overall profitability of labor-intensive enterprises such as fresh market strawberries, green chili and iceberg lettuce (Sexton and Zhang, 1996). Likewise, recent free trade agreements and other trade liberalizations have provided easy access to U.S. markets primarily for cheap imports from countries with lower labor costs and food safety standards. As a result, domestic production of labor intensive crops such as strawberries, cucumber, and chile (which is one of the principal crops grown mostly by small growers in New Mexico) is dwindling.In a dynamic global market, firms that are capable of offering innovative products that satisfy ever changing consumer taste and preferences at reasonable prices are more likely to prevail. Realizing these dynamics, industry leaders are developing innovative ways to reduce production and distribution costs, improve food quality and safety, and gain customer support and loyalty. In an effort to provide better value to their clients, most businesses are now using innovative technologies to reduce production and distribution costs (Acharya, Kagan, and Lingam, 2008). For instance, an increasing number of small growers are serving their customers directly through the internet, roadside stands, and farmer's markets, bypassing costly distribution channels (Darby et al., 2008). As a result, direct sales volume increased from $812 million in 2002 to $1.2 billion in 2007. During the same period, the number of farms selling their products directly to consumers rose by 17 percent reaching over 116,000. According to 2014 National Farmers Market Directory, there are over 8,268 farmers markets in the U.S. (http://www.ams.usda.gov/AMSv1.0/farmersmarkets).With the increasing incidence of globalization, food quality, food security, food safety, and the integrity of its supply chain has become a primary concern. A number of recent food safety outbreak incidence such as the Hepatitis A outbreak linked to green onions consumed at a restaurant in Pennsylvania in 2003, the E. coli contamination of bagged spinach in 2006, the spread of salmonella poisoning among jalapeno chili consumers in 2008, and the recent Salmonella contamination traced back to a peanut processing plant in Georgia highlight the importance of maintaining a safe and secure food supply system. These events have lead to a host of initiatives from growers, food processors and distributors, retailers, and legislators to ensure the safety and integrity of domestic food supply chain (Cline, 2007; Richards, Nganje, and Acharya, 2009).Consumers are becoming increasingly concerned about how and where the food they eat was produced, packaged, and distributed. In particular, consumer's changing attitude towards the environment (Lusk, Nilsson, and Foster, 2007; Anderson, Goeree, and Holt, 1998), animal welfare (Morris, 2009; Barnes, Vergunst, and Topp, 2009), food quality (Lempert, 2008; Fernández-Olmos, RoseII-Martínez, and Espitia-Escuer, 2009; Mergenthaler, Weinberger, and Qaim, 2009), food safety (Banterle and Stranieri, 2008; Fritz and Schiefer, 2009), food security, personal health (Acharya et al, 2006), production location (Brown, 2003; Darby et al, 2008; Ferguson, Dadzie, and Johnston, 2008), and genetic composition (Belcher, Nolan and Phillips, 2005; Barber, Hobbs, and Nolan, 2008) are affecting consumer purchase decisions. Consumers are using their personal food choices to influence public outcomes (Lusk, Nilsson and Foster, 2007).For instance, increasing realization that the rising food mileage can induce global warming has energized the 'Locavores' (those who try to eat food grown or produced within 100-mile radius of their residence) to start the local food movement (Thilmany, Bond, and Bond, 2008). Likewise, the rising concern about intentional food contamination possibilities and the recent food safety scares have increased the consumer interest in understanding the process involved in producing, processing, and transporting food. In this light, it is important to understand how factors such as rising food production costs, expanding imports, and changing consumer taste and preferences affect consumer demand for domestic food products and the long-term profitability of agribusiness firms.
Animal Health Component
0%
Research Effort Categories
Basic
40%
Applied
40%
Developmental
20%
Goals / Objectives
The primary goal of this proposed research is to evaluate emerging issues challenging the food and agribusiness industry at local, regional, national, and international levels. The food industry is influenced by a wide range of determinants such as improved technology, rising income disparity, emerging food safety and security issue, increasing trade volumes, and changing consumer taste and preferences on food products. Some of the questions this research project may focus on include: a) the impact of expanding imports on domestic enterprises (such as chile and pecans), c) the possibility of using product attributes such as price and region of production to promote locally grown foods, and d) the impact of rising income and wealth disparity on food safety and security.
Project Methods
Both primary, as well as secondary data, may be collected and used in the study. Based on the existing literature, appropriate mathematical, econometric or simulation approach will be used to analyze empirical evidence and draw plausible policy recommendations.