In the Market for Organic, Grass-fed Beef, What Would Cause a Price Increase?

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When raising prices, there are many factors to consider including local market, population, and economic atmospheric condition and seasonality in demand.

By Matthew LeRoux, with Todd Schmit and John Rogers

grocery-meat: A package of steak at a major grocery concatenation.
Matthew LeRoux / Cornell Cooperative Extension

Over the summer, we observed prices from half dozen Ithaca grocery stores and 17 farms around NY. Farm prices are from farmers markets and farm-endemic farm stores in Ithaca as well as other parts of the state. I found the results (below) to be quite surprising. Overall, grocery stores had higher prices for beefiness and lamb. Grocery store pork that was differentiated by the feeding or handling was also more expensive than subcontract price averages.

In this discussion, differentiated meats are those that are marketed for attributes to set them apart from conventionally produced meats. Differentiation tin come up from breed, feed, treatment, certifications, and geography. For our comparison, nosotros looked at conventional meats as well as two groups of differentiated meats. By default, locally raised meat marketed past the farm is differentiated, if for no other reason than information technology is locally raised, supporting local agriculture and the economy.

Whatever individual NY farm likely has higher costs than the system that supplies grocery stores. In addition to product costs, farms selling their ain meat have college trucking, processing, and marketing costs relative to grocery stores. Thus, it is unlikely that any NY farm can profitably bring meat to market at prices lower than stores. This makes me think that many NY farms need to revisit their pricing and account for their costs, especially their time. Raising prices is intimidating, no doubt. Nosotros all have affordability on our mind and are nervous to raise prices on our customers. Thus, what follows is a pep talk about prices.

1. Consumers are already paying "high" prices for meat.

   

   Lamb cuts from Willow Pond Sheep Farm on display at a farmers market place.
   Matthew LeRoux / Cornell Cooperative Extension

   Based on the prices observed at Ithaca stores and farms this summertime, most farms could raise prices WITHOUT charging significantly more than the stores. For instance, a consumer walking into an Ithaca grocery store seeking a ribeye steak is going to pay $15.85 on average (run across Table 2), regardless of whether they seek a differentiated product or not! If customers are paying that price for an "ordinary" steak, certainly shoppers seeking differentiated steaks are willing to pay more. Customers who shop at farmers markets and subcontract stores are not necessarily price-driven shoppers. Information technology is more likely that such shoppers are seeking products differentiated by breed, feed, handling, or simply location. These consumers are likely more willing to pay premium prices (above conventional product prices).

2. Your target customers already value what y'all produce. Many farmers worry about client reactions and the possibility of losing customers over cost increases. Indeed, certain customers may exit and not return upon seeing a price increase; however, those customers are not your target client! For local, farm-raised meat sold past the cutting at farm stores and farmers markets, the target customer is one who already values what you lot produce. Customers who seek only the lowest price are non compatible with these channels or products, perhaps y'all can sell them a quarter or half instead.
3. Fewer units sold is non the aforementioned as less coin earned. Losing customers or product sales volume due to increased prices is possible, just it does not necessarily mean losing dollars in sales. For example, the farm average price for one pound of ground beef (non grass-finished) is $vi.29 (Table 2). The grocery store average price for grain-finished, no antibiotics, no added hormones, fourscore/20 ground beef was $7.85/LB (Table ii). If a farm were to raise their toll from $vi.29 to $vii.85 they could detect a reduction in sales from fourscore to 64 lbs. and even so gross nearly the same amount (see Table 1). Moreover, they will have another 16 lbs. of footing beef to sell! Jumping a cost straight from $6.29 to $vii.85 may be a bit abrupt simply steady and gradual increases planned over time can ease the shock regular customers might experience.

Tabular array one: Price increases that effect in selling fewer units do non necessarily consequence in reduced sales ($).

Basis Beefiness Price/LB (P)	LBS Sold (Q)	Total Sales (PxQ)
$6.29	fourscore	$503.twenty
$7.85	64	$502.forty
$7.85	80	$628.00

When discussing the impact of price changes on sales, time must exist considered. In the example in Table 1, we assume that the driblet in sales from 80 to 64 units occurs over a given a period, perhaps pounds sold per month. The bespeak is that while the units sold in a given time period might fall, gross sales are approximately equal. Once all fourscore pounds of ground beef are sold, the farm has realized an extra $125 in ground beef sales. Since near farms sell frozen meat, we tin call back of the production as having low perishability. The perishability of meat, or rather its preservation in the freezer, allows the seller to store the product and sell at the cost needed for profit.

4. Prices can be used to help inventory management. Farms selling meat wrestle with the demand to sell every cut on the carcass. Consumers love to buy premium steaks and salary, simply for each pound of popular cuts, there are likewise several more pounds of less desirable meat to sell. Pricing can be used to manage the charge per unit at which cuts sell (over time). Higher prices on pop cuts will "slow down" sales and give the seller an opportunity to direct customers to other cuts. Customers seeking a ribeye steak may exist surprised by the farm's loftier price but that doesn't mean they need to leave empty-handed. Rather, at that place is an opportunity to move the customer "down carcass" to cuts with lower prices that the subcontract needs to sell. In fact, the new Cornell Meat Price Estimator (nether development) allows farms to experiment with different pricing scenarios while ensuring they attain their targeted profit goal. Increasing prices on cuts that tend to sell out quickly may permit the lowering of prices on other cuts that tend to sell slowly. In this way, farms can develop pricing scenarios that more closely lucifer the pounds/carcass of cuts to the pounds sold in time, effectively managing inventory to avoid selling out or stockpiling cuts.
5. Cost elasticity.

   

   Carrie Wasser of Willow Pond Sheep Subcontract sells lamb at the Rhinebeck Farmers Market.
   Matthew LeRoux / Cornell Cooperative Extension

   Consumers see price changes regularly and they are used to them. How they react to price changes can be summarized in a term called the cost elasticity of demand. It is a measure of how much demand changes to a change in price. In the case of inelastic responses, the percentage alter in demand will exist less than percentage change in toll; i.e., the elasticity will be less than one. With aggregate level information, price elasticities of demand for meat products are commonly constitute to be inelastic, e.k., a recent report using aggregate data found own-price elasticities for "all" beef, pork, and poultry in the U.Due south. to exist effectually -0.2, -0.v, and -0.7. Specifically, a one% increase in the toll of beefiness reduces demand past 0.2%. When demand is inelastic, increases in prices will issue in an increase in total revenue ($) considering the price increase (a positive influence on sales) more than offsets the decrease in demand (a negative influence on sales). In brusk, when your products accept inelastic demand responses, you have an opportunity to increase sales revenues through toll enhancement. Of class, elasticities on private cuts and in private markets volition vary (eastward.1000., footing beef is likely more than toll inelastic than a ribeye steak), but knowing how consumers react to prices in local markets is extremely helpful in pricing decisions. Recollect, we all experience toll changes on the products that we purchase, frequently we don't even notice. Those changes don't usually mean that we completely stop ownership the products. Our current research with livestock producers will allow us to guess elasticities from their sales data. Stay tuned!

Summary: Raising prices tin can feel like a challenging task. There are many factors to consider including local market, population, and economic weather and seasonality in need. Ultimately, pricing must originate with the farm'southward costs and turn a profit goals. Observing prices at grocery stores can be surprising and may challenge our assumptions about store versus farm prices. Store prices may also give the farm confidence to make changes, knowing that consumers are already paying these prices for non-differentiated products.

Table 2. Subcontract and grocery shop meat prices observed from June 28 to August xviii, 2021, Ithaca, NY.

AVG Price/LB Due north=sample size R = range	Conventional	Natural		Pasture-raised, Grass-fed and/or Organic
	Shop Prices	Shop Prices	Farm Prices	Store Prices	Farm Prices
Beefiness
Chuck Roast	$7.17 N=13 R=5.99-8.69	$eleven.49 N=3 R=eleven.49-eleven.49	$6.43 N=3 R=4.80-nine.50	$8.45 N=3 R=six.78-9.29	$6.85 N=5 R=6.00-7.25
Basis Beef, 80/xx+	$5.29 North=17 R=iii.39-vi.89	$7.85 N=5 R=7.29-viii.69	$6.29 Due north=3 R=iv.88-9.00	$6.47 N=12 R=4.65-9.99	$6.00 Northward=6 R=5.l-6.50
Ground Beef, 90/x+	$6.12   N=16 R=4.49-vi.99	$8.54 N=2 R=eight.29-viii.79		$seven.78 N=17 R=4.99-10.99
Ribeye Steak	$15.85 N=12 R=11.97-17.99	$26.94 N=4 R=26.32-28.78	$12.49 N=3 R=eleven.49-14.00	$17.82 N=five R=ix.99-25.49	$14.67 Northward=6 R=eleven.00-xviii.00
Sirloin Steak	$10.twoscore N=12 R=7.99-11.99	$14.49 N=1 R=fourteen.49	$9.15 Northward=3 R=7.99-nine.97	$17.69 N=4 R=14.64-25.49	$10.83 N=half dozen R=7.00-thirteen.00
Pork
Ground Pork	$4.06 N=ix R=2.89-5.54	$five.42 North=3 R=3.99-6.14	$half dozen.07 North=four R=4.79-7.00	$seven.19 N=2 R=vii.19	$5.92 N=6 R=5.00-8.00
Pork Chop, Bone-in	$4.57 North=xiv R=3.79-5.39	$8.66 N=three R=8.66-eight.66	$6.xi    N=5 R=4.99-7.00	$10.12 N=3 R=10.12	$nine.75 N=7 R=7.00-16.00
Pork Tenderloin	$4.49 Due north=10 R=2.29-4.99	$6.08 N=iii R=3.99-7.27	$ix.07 N=two R=v.14-xiii.00	$xiv.99 Northward=3 R=xiv.99-14.99	$eleven.00 North=2 R=viii.00-14.00
Lamb
Ground Lamb	$8.46 N=3 R=8.19-8.99	$8.27 N=iii R=seven.44-8.69	$9.00 N=1 R=ix.00	$7.32 Northward=3 R=6.99-7.49	$eleven.l N=4 R=9.00-fifteen.00
Lamb Loin or Rib Chop	$17.49 N=4 R=17.32-17.99	$22.69 N=7 R=15.78-31.32	$13.00 N=ane R=13.00	$14.99 N=1 R=14.99	$eighteen.lxxx North=5 R=12.00-25.00

Annotation: Some farm pork chops did not distinguish "bone-in" or "boneless." Farm ground beef did non specify a lean/fat ratio.

Natural: Products with label claims of "no antibiotics" and/or "no added hormones."

Conventional: Products without claims that refer to handling/feeding and those referring to "natural" on the characterization where it is defined every bit "minimally processed."

Pasture-raised, Grass-fed and/or Organic: Products with principal label claims including pasture-raised, grass-fed and/or USDA Certified Organic.

Ground Beef, eighty/20+: Basis beef products with a lean/fat claim of eighty/20 or 85/15.

Ground Beefiness, 90/10+: Footing beef products with a lean/fat merits of 90/10, 93/7, 95/five, or 96/4.

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Source: https://smallfarms.cornell.edu/2022/01/raising-prices-on-meat-a-pep-talk/

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