Author: Dr. Christopher Wolf, E.V. Baker Professor of Agricultural Economics, Dyson School of Applied Economics and Management, Cornell University

Twitter: @WolfCA3

Consumers are increasingly interested in the methods employed in food production, especially as it relates to livestock, dairy and poultry. As a result, commercial agriculture is facing increased pressure to adopt changes to production processes. Pressure for changes relates to the production process rather than the output characteristics of the product (i.e., the cow, not the milk or meat).

With the increasing interconnectedness, communication and publicity available through social media coupled with the lack of experience and knowledge typical U.S. consumers have about agriculture, production practices on farms have been under scrutiny in some quarters. With this increased scrutiny comes both costs and benefits. Let’s consider some of the lessons we have learned through research on consumer perceptions and demands for dairy products as they relate to production characteristics. In general, we can conclude that most people claim to care a great deal about production practices, but when given the need to pay for practices, many will not pay extra for said practices.

Let’s begin with some non-controversial statements about consumer demands:

  • Consumers want to trust their food supply in several dimensions, including safety, ethics, etc.
  • Consumers want to avoid feeling guilty about food choices.

To avoid regulation, producers must maintain social trust. Social trust is the acceptance of a business or industry’s operational practices by the public and relevant stakeholders. Without social license, industry ends up regulated, monitored and/or litigated for compliance with laws and expectations. Farmers and agriculture are and have traditionally been trusted and admired.

Farm production practices happen through one of three avenues: regulation, markets or voluntary industry initiatives. Regulation includes legislation or ballot initiatives. The market is manifested through retailers or processors encouraging or requiring change. Retailers often mandate these changes because of pressure from interested parties and to help corporate image and value. The final method is when producers voluntarily adopt, confirm and/or verify production practice changes to maintain trust, social license and market access, and receive premiums.

Potential solutions to avoid regulation and maintain social license include labels to assure customers, consumer education and voluntary certification programs. Process labels describe how animals are raised, crops are grown or ingredients are transformed. Examples include rbST-free, grass-fed and antibiotic-free. These labels often emphasize what was not done. Advantages of labels include providing information, enhancing trust and assistance in segmenting markets. However, there are also many disadvantages, including a) potential information overload (when additional information can be distracting and complicate decisions); b) confusion and misperception; c) elevated food safety and risk perceptions; d) labels communicating a production technology often induce a negative reaction; e) decreased demand for safe products; f) labeling costs, and g) potential reduction in agricultural productivity.

One solution often mentioned is educational programs for the general public to understand modern agriculture. The primary advantage of educational programs is that few people know/have context for production agriculture (<2% of U.S. citizens are farmers). There is also some evidence that education works. Disadvantages are that people must want to be educated, the public still lacks context to understand generally accepted practices and that education can sometimes work against intended goals with lack of context and understanding of production agriculture.

Increasingly, farm groups are adopting voluntary programs that include standards, verification and certification. The Farmers Assuring Responsible Management (FARM) program is a good example. Consumer acceptance of these programs depends largely on certification, with the majority of consumers preferring USDA certification. Consumers generally do not trust industries to police themselves. Also, in order to maintain trust, violations of standards need real consequences as the entire industry is injured when a public incidence occurs.

Most consumers indicate a willingness to pay premiums for animal welfare practices and other production factors. Sometimes the result is actually a premium for providing these practices, while other times it is a discount for failing to provide practices, assurances or verification. The current dairy industry market is not really structured to return premiums to farm level. One possibility is premiums that give way to discounts or limited market access.

Implications for dairy producers and cooperatives are as follows:

  • Get ahead on animal welfare market and policy issues. Set the tone and drive the conversation.
  • Make education available but realize few may avail themselves.
  • Police yourself. Incidents cost everyone — not just the offending operation.
  • Third party verification has value.

ConsumerCorner.2020.Letter.05