1 INTRODUCTION

Consumer demand for specialized markets of healthier and environmentally friendly goods is on the rise, with large supermarket chains continually increasing their assortment of organic and ecofriendly products (Wong et al., 2010). Grass-fed beef is one of the production claims, along with naturally raised (raised without antibiotics and/or hormones) and certified organic, that aims to distinguish these products from conventionally raised grain-fed beef. Buoyed by growing interest among American producers and consumers, the grass-fed beef market has gained traction as a rapidly growing niche market (see Gillespie et al., 2016; McCluskey et al., 2005). The US grass-fed beef retail sales increased from less than $5 million in 1998 to $400 million in 2012 (Qushim et al., 2018; Williams, 2013). According to Nielsen data published in a report by Bonterra Partners, retail sales of grass-fed beef doubled every year from 2012 to 2016, growing from $17 million to $272 million (Bayless, 2018; Cheung et al., 2017). While the grass-fed beef market has been rapidly growing, it remains a relatively small portion of the beef market. In 2019, only about 4% of total beef sales were marketed with some type of label claim (Cattlemen's Beef Board, 2020). Moreover, beef products classified as grass-fed accounted for less than 2% of total retail beef volume (Cattlemen's Beef Board, 2020). This pattern of rapid growth and a small current market share points to a strong growth potential of the grass-fed beef market.

Consumer interest in grass-fed beef is motivated by a number of factors. Chief among them is the belief that it offers more nutrition and is more environmentally friendly than conventional grain-fed beef (Cheung et al., 2017; Shinn & Pledger, 2021). Cheung et al. (2017) argue that some consumers believe that grass-fed beef has a lower total fat content, better omega-6 and omega-3 fatty acid ratio, higher levels of antioxidants, a lower risk of Escherichia coli infection, and higher levels of conjugated linoleic acid (CLA), a cancer fighter, making it a healthier meat. Other primary drivers of consumer demand for grass-fed beef include concerns regarding animal welfare, as well as concerns regarding the use of growth-inducing, subtherapeutic antibiotics and hormones. A study by Consumer Reports (2015) compared multidrug resistant samples in grass-fed and conventional beef, and found that the former had three times lower likelihood of containing multidrug resistant bacteria. Consumers are often concerned about environmental stewardship. A recent wave of information highlighting the regenerative aspects of grass-fed grazing has further prompted consumer interest in grass-fed beef (Cheung et al., 2017; Shinn & Pledger, 2021). If managed properly, grass-fed grazing has been shown to improve soil quality, promote the growth of healthy grasses, and sequester carbon in the ground to mitigate climate change (Shinn & Pledger, 2021). However, other studies show that soil carbon sequestration is unstable and reversible (Hayek & Garrett, 2018). Additionally, when combating environmental impacts, people are more interested in discussing plant-based products rather than grass-fed meat (Davis et al., 2022). Ultimately, grass-fed cattle of the right breed, produced at the highest standards, can result in beef that is more tender, well-marbled and better-tasting than grain-fed beef (Cheung et al., 2017). However, achieving this quality of grass-fed meat is rare, and it is important to note that few consumers are buying it just for its flavor, and many would still prefer the flavor of conventional beef over grass-fed (Umberger et al., 2002).

The growth of the grass-fed market has precipitated several studies focusing on consumer demand for grass-fed beef. For example, Cheung et al. (2017) concluded that “baby boomers” and others who care about health and fitness would be likely buyers of grass-fed beef. A 2014 survey by the Consumer Reports National Research Center also showed that when shopping for food, consumers feel that it is important that their purchases “support local farmers, protect the environment, support companies that treat workers well, provide better living conditions for animals, and reduce the use of antibiotics” (Consumer Reports, 2015, p. 6). Gwin et al. (2012) found that at baseline, uninformed consumers in Portland, Oregon, would pay $0.90–$0.94/pound more for grass-fed ground beef. Moreover, information about production and nutritional factors increased this premium. Similarly, Umberger et al. (2002) showed that 23% of US consumers are willing to pay a premium of $1.36 per pound for Argentine grass-fed beef relative to US grain-fed beef. Furthermore, Tonsor et al. (2018) found that media reports, especially those related to climate change and sustainability, could have a significant effect on meat demand by altering preferences. These examples show that consumer preferences for claims-based foods are typically elicited using the data from interviews, written surveys, and experimental auctions (see Alphonce & Alfnes, 2012; Lim et al., 2013; Steenkamp et al., 2010; Umberger et al., 2002, e.g.). However, these approaches may be riddled with hypothetical biases in survey and/or experimental design.

The goal of our study is to estimate premiums consumers paid for grass-fed beef based on observed national retail-level data from the US Department of Agriculture (USDA)'s Agricultural Marketing Service (AMS) over the period 2014–2021. Our study explores the heterogeneity in premiums across the 12 most common cuts of grass-fed beef as well as the factors that affect these premiums. Figure 1 shows the relative shares of market sales across various beef cuts in 2021 indicating larger market shares of more expensive cuts, like ribeye, tenderloin and filet mignon. Thus, 10 out of 12 beef cuts that we discuss in this paper cover more than half of the total beef cut sales. To the best of our knowledge, market-based grass-fed beef premiums and premium variation across different cuts of beef have not been explored in the extant literature.

Consistent with the consumer-focused nature of our study, we explore the effects of consumers' real income, food consumption away from home, and media information on observed price premiums. Specifically, we assess the determinants of price premiums for each beef cut, both individually and jointly in a panel framework. Our findings indicate that the grass-fed beef price premiums were negatively affected by the consumption of food away from home. The premiums for some individual cuts were sensitive to changes in information about beef's protein, mineral, and fat content, its taste, the revocation of the USDA grass-fed certification program in 2016 and the COVID-19 pandemic. However, premiums were not sensitive to changes in information about climate change.

The rest of this paper is organized as follows. Section 2 presents the conceptual framework. Section 3 offers a description of the data and the relevant sources. In Section 4, we present our empirical results and conduct relevant sensitivity analyses regarding our model specification. Our concluding remarks are presented in Section 5.

2 CONCEPTUAL FRAMEWORK

The relative price premium form (PP) will serve as the base of our analysis while the raw price premium measure (RPP) will serve as a test of robustness of our results.

Previous studies suggest that consumers' income positively affects premia in various niche markets, such as naturally produced beef (Umberger et al., 2009) and Raised Carbon Friendly (RCF) beef (Li et al., 2016). Specifically, Umberger et al. (2009) indicated that consumers with a higher income are more likely to pay a higher premium for natural products. Li et al. (2016) showed that higher-income consumers will support and pay more for RCF-certified beef.

Furthermore, Umberger et al. (2002) suggested that consumers' habit of eating at home is likely to affect the price premiums as well. Specifically, using survey data, Umberger et al. (2002) found that consumers who more frequently eat at home would prefer grass-fed beef steak to corn-fed beef steak. This suggests that food consumption patterns may affect price premiums. This factor may also be growing in relevance as Saksena et al. (2018) found that “over the past 30 years, FAFH's share of US households' food budgets and total food spending grew steadily.”

Beef has important nutrients including high-quality protein, iron, and zinc, which are potentially beneficial to good health for human beings (McAfee et al., 2010; Van Wezemael et al., 2014). Unsurprisingly, consumers' beliefs regarding beef's nutritional value and taste can also affect beef demand and price premiums (Tonsor et al., 2018). These beliefs are often influenced by media reports. In particular, information on the human health impacts of zinc, iron, and protein became prevalent. Additionally, medical journal articles linking nutrition including protein and minerals such as iron and zinc, have been positively linked to beef demand by Tonsor et al. (2010). Thus, more publications and media information on such nutritional elements leads to more consumer interest in products containing these characteristics. In this regard, Tonsor et al. (2010) found that the number of published articles related to fat negatively affected beef demand. Using a food demand survey (FooDS) from 2013 to 2017, Tonsor et al. (2018) argued that food taste is the most important food value and nutrition is the fourth most important food value to participating consumers. Furthermore, based on a rank of factors describing consumer perceptions regarding steak and ground beef, Tonsor et al. (2018) showed that “consumers, on average, perceive steak to be convenient, tasty, attractive, and novel but they also perceive steak to be poor for animal welfare, nutrition, and environment while also being expensive.” (p. 29)

Examination of grass-fed beef price premiums has to take into account relevant policy changes during the period of study. On January 12, 2016, the USDA revoked the “USDA Grass-fed” label, while leaving the standards for the claim on their website for producers to follow USDA-AMS (n.d.).3 At the same time, the USDA Grass Fed Small and Very Small Producer Program (SVS), administered by AMS, remained intact. Consequently, the AMS continued to collect and disseminate price information for meat products labeled grass-fed. The revocation meant that ranchers and restaurants became the third party certifying grass-fed beef. Yet little is known about whether the revocation of the USDA label affected the premiums for beef marketed as grass-fed. As such, we will explicitly investigate this issue in this study.

Another important market shock during the period of study was associated with COVID-19 pandemic. On January 20, 2020, the US Center for Disease Control and Prevention (CDC) confirmed the first US laboratory-confirmed case of COVID-19 of a domestic case in Washington state. By March 2020, cases were dispersed throughout the country. This culminated in the US Government declaring a nationwide emergency on March 13, 2020.4 The pandemic led to a growth in demand for organic and sustainable foods worldwide (Ecovia, 2020) and in the United States (Askew, 2020). To the best of our knowledge, the effect of the pandemic on grass-fed beef premiums has not been explored in the previous literature, but will be explicitly examined in our study.

The vector of parameters $${\psi }_{i}$$ captures the impact of the (annual) percentage changes of the exogenous variables on our grass-fed beef premium measure. The parameters $${\beta }_{i}$$ and $${\gamma }_{i}$$ capture the impact of the grass-fed label revocation and COVID-19 pandemic, respectively. $${\theta }_{i}$$ shows the effect of time trend, $$t$$; and $${\varepsilon }_{i}$$ denotes the error term.

We estimated Equation (6) using two approaches. First, we used OLS models to show the differential effects of the various factors on the grass-fed price premium for each individual cut. Second, we utilized a cut-panel estimation to examine whether these factors commonly affect price premiums.

3 DATA

Monthly retail price data for the 12 most common cuts of grass-fed and conventional beef from January 2014 to December 2021 were obtained from the National Monthly Grass-Fed Beef Report and USDA Weekly Retail Beef Feature Activity, respectively.6 Both are published by USDA-AMS.

Figures 2 and 3 present the price levels (of grass-fed and conventional beef) and our computed premiums. Specifically, Figure 2 shows that the gap between the grass-fed and conventional beef varies over time and across cuts (ordered from least to most expensive). When expressed in premium terms, some more intriguing dynamics emerge. Figure 3 shows a decreasing trend in the beef premiums for some beef cuts (such as filet mignon and short ribs), whereas others (such as rump roast and chuck roast) exhibit an increasing trend before 2018 and a decreasing trend after 2018. Figure 3 also captures spikes in the premiums of expensive beef cuts such as filet mignon and tenderloin in 2016 due to the lower conventional beef prices shown in Figure 2.7

Table 1 corroborates these patterns. On average, the grass-fed beef premiums were between 48% and 193% of conventional beef prices. The “premium-quality” cuts seem to enjoy the largest average price premiums with sirloin steak (193.15%), tenderloin (165.46%), ribeye steak (156.08%), and filet mignon (150.02%) being the top contenders. Despite being some of the cheaper cuts of beef, roasts generated substantial premiums in the grass-fed beef market. The average premium for chuck roast and rump roast is as high as 105.54% and 132.80%, respectively. On the other hand, several cuts had average premiums of less than two times (100%) the conventional price. These include stew meat (93.39%), flank steak (77.31%), and skirt steak (74.72%). The lowest average premiums were observed for short ribs (48.25%). We interpret this as a signal that these cuts are less attractive (relative to others) in the grass-fed market. In general, these observations demonstrate heterogeneity in premiums of grass-fed beef cuts.

It is well documented that prices within the meat market are seasonal in nature (see Chavas & Mehta, 2004; Wang & Tomek, 2007, e.g.). Table 2 shows considerable seasonality in some cuts, especially brisket, with higher premiums both in the warmer (May, June, and August) and cooler (February, March, and November) months relative to January.8 Premiums for premium steaks, like filet mignon and tenderloin, were higher during the summer. On the other hand, premiums for flank steak and chuck roast were lower during the summer months. There is also evidence that premiums for filet mignon, tenderloin, as well as short ribs and stew meat, have declined over time.

We conducted tests of stationarity to determine whether any transformations were necessary to avoid potential spurious regression issues in our empirical analysis. We checked the stationarity of price premiums using unit root tests including the Augmented Dickey-Fuller (ADF) tests (Dickey & Fuller, 1981), Phillips-Perron tests (Phillips & Perron, 1988), and Kwiatkowski, Phillips, Schmidt, Shin (KPSS) tests (Kwiatkowski et al., 1992). Stationarity test results, shown in the bottom panel of Table 1, support the conclusion that the annual changes in price premiums are largely stationary at the 5% level of significance.9

Table 3 describes the data sources and variable specifications. We measured the impact of changes in income on grass-fed beef premiums using the seasonally adjusted monthly real disposable personal income per capita published by the US Bureau of Economic Analysis. These data were collected from the Federal Reserve Economic Data (FRED) at the Federal Reserve Bank of St. Louis. Food away from home (FAFH) and food at home (FAH) data were collected from USDA's Economics Research Service (USDA-ERS) and combined to derive the FAFH share of total food expenditures.10

Following the approach of Tonsor et al. (2018), we used media and medical information to measure the environmental concerns, beef taste, and nutritional information such as protein, minerals, and fat. Specifically, environmental information included news related to climate change and cattle. The taste consisted of the number of released articles regarding beef taste. Protein and minerals included the number of published literature on the topics of protein, zinc or iron in beef, respectively. Similarly, fat consisted of the number of published articles regarding fat in beef. The news releases associated with climate change and beef taste were collected from NewsBank. The published literature related to beef protein, minerals and beef fat was collected from PubMed. The monthly released news and published articles from 2014 to 2021 were collected by searching the articles with specific keywords listed in Table 3. These numbers of articles would represent the variables for climate change, beef taste, protein & minerals, as well as fat. However, we acknowledge that we cannot distinguish between positive or negative news using this approach.

Where possible, the independent variables entered Equation (6) in percentage change form. This facilitates easier interpretation of the model results in Equation (6). Descriptive statistics in Table 3 indicate that real disposable income increased by about 2.59% annually within our sample. With respect to news and information, the number of articles related to climate change increased by 20.87% annually, while the number of articles discussing fat decreased by 0.19% annually.

4 EMPIRICAL RESULTS

Columns (1)–(8) in Table 4 show the OLS estimation results of differential effects of the exogenous variables on premiums for specific cuts of grass-fed beef and Column (9) shows the results of a cut panel model that measured the average effects across cuts. In this table and the discussion that follows, we will focus our discussion on the cuts described by models that are overall significant. According to the low explanatory power indicated by the F-tests, we will omit the models for filet mignon, skirt steak, brisket, and chuck roast and focus our discussion on the remaining eight cuts.

A number of key tests were performed before estimating the cut panel. First, we used the panel structural break tests established by Ditzen et al. (2021). The novelty of their approach is that we are able to estimate and test for many known and unknown breaks in the panel data. Specifically, we conducted the hypothesis test of two unknown breaks during the sample period. We rejected the null of no breaks and hence the test detected two structural breaks in August 2016 and August 2017.11 With the break date known, we conducted the panel unit root tests developed by Karavias and Tzavalis (2014). This test permits structural breaks in panel data with known break dates. We rejected the null of unit roots and concluded that our data are panel stationary. We also checked the slope heterogeneity for the model using the tests established by Hashem Pesaran and Yamagata (2008) and Blomquist and Westerlund (2013). The results showed that all slope coefficients are identical across panels. In effect, this indicates that the effects of exogenous variables on grass-fed beef premiums are similar across the beef cuts. Thus, a pooled panel estimation would yield meaningful insights into our research question. In addition, serial correlation tests established by Drukker (2003) and Wooldridge (2010) suggested that the idiosyncratic errors have an autocorrelation structure. Therefore, we estimated Equation (6) using a pooled feasible GLS with an autocorrelation AR(1) process common to all the 12 beef cuts.

The OLS model results regarding the effect of income on the price premiums were mixed. In fact, only three cuts indicated a statistically significant relationship. A 1% growth in real annual disposable income increased the sirloin steak and short rib premiums by 7.90% and 1.28%, respectively, but decreased premiums for rump roasts by 3.31%. When pooled in the panel framework (Column 9), we observed that the overall effect of income on grass-fed beef premiums was positive, albeit not statistically significant.

Consumption of food away from home (FAFH) was the strongest negative driver of price premiums for grass-fed beef with significant effects observed for the panel specification and two individual beef cuts, tenderloin and sirloin steak. Tenderloin and sirloin steak appear to be the most sensitive to the increase in FAFH's share of the total food budget. Specifically, a 1% increase in FAFH resulted in a 5.67% and 6.22% decrease for tenderloin and sirloin steak premiums, respectively. The pooled panel results, on the other hand, revealed an average effect of −0.98% across all cuts following a 1% rise in FAFH. These results show that as the share of FAFH increased grass-fed beef premiums declined.

Increased media attention to climate change and cattle did not appear to affect grass-fed beef premiums. From the individual and pooled regressions, climate change information did not have significant effects on the premiums. On the other hand, media information about taste was positively associated with the grass-fed premium for ribeye steak. In particular, a 1% rise in media information on taste led to a 0.84% increase in price premiums for ribeye steak. The average effect across all cuts, however, was not statistically significant as per the pooled panel results.

The increase in articles related to nutritional information about protein and minerals had different effects on grass-fed beef premiums. Specifically, a 1% rise in articles associated with protein and mineral led to an increase of rump roast and stew meat premiums by 0.36 and 0.17%, respectively. On average, this effect was not significantly different from zero across all cuts.

Increased media information regarding fat had negative impacts on the grass-fed price premiums. Specifically, a 1% rise in media information on fat results in a fall in price premiums for tenderloin and flat iron steak by 0.33% and 0.17%, respectively. However, the average effect of increased media attention to fat on grass-fed premiums was not statistically significant.

The revocation of the grass-fed beef certification by USDA had a heterogeneous impact on the eight cuts estimated. In the case of a flat iron steak and flank steak, the revocation increased that cut's premium. Stew meat premium was negatively affected in the period following the discontinuation of this certification. When assessed in the pooled framework, the average effect was positive but not statistically significant. We attribute this to the fact that grass-fed labeling continues to be used by grocers and consumers may not be aware of the fact that this information is self-certified in most cases.

Lastly, our panel model showed that grass-fed stew meat premiums were roughly 22.46% lower during the COVID-19 pandemic. However, the panel results suggested that the average grass-fed beef premiums have not changed significantly across all cuts during COVID-19. Our findings for the trend also indicated that annual changes in grass-fed premiums did not change significantly over time.

5 SUMMARY AND CONCLUSIONS

This study examined price premiums for various cuts of grass-fed beef in the US retail markets over the period January 2014–December 2021. To the best of our knowledge, this is the first study to examine price premiums in grass-fed beef markets using observed market data rather than surveys or experiments.

Our results show that the observed premiums for grass-fed beef were heterogeneous across cuts. The highest premiums of 150%–193% were observed for premium stakes, specifically, sirloin, tenderloin, ribeye, and filet mignon. The lowest premiums of 48%–77% were observed for flank steak, skirt steak and short ribs. This evidence indicates that grass-fed beef premiums are not consistent with the price levels of various cuts, but rather driven by certain quality characteristics consumers are looking for and highlights the fact that grass-fed beef is more attractive for some cuts but not for others.

Since market data is not accompanied by quality characteristics, we attempted to measure them through general media attention to certain attributes, such as taste, protein, minerals, and fat. Our findings suggest that ribeye premiums were positively affected by information about taste, while rump roast and stew meat premiums were positively related to increased concerns and information flows regarding protein and minerals. While grass-fed beef is considered leaner and healthier (Cheung et al., 2017), these health benefits may result in negative taste implications, as less marbled beef usually appears to be less tender. Our findings show that increased information about fat decreased grass-fed premiums for tenderloin and flat iron steaks. However, our study did not find any significant impacts of information on fat on grass-fed premiums for other beef cuts. As the grass-fed beef industry continues to grow, these findings can be used to develop coefficient marketing strategies that would help motivate grass-fed beef consumption and enhance premiums. Specifically, increasing information about protein and minerals would enhance purchases of grass-fed rump roast and stew meat while promotion of grass-fed ribeye steaks should focus on their superior taste.

Since Tonsor et al. (2018) demonstrated that beef is not viewed as an environmentally friendly product, we attempted to assess whether the grass-fed production claim examined in this study appears to address consumer concerns about climate change and enhance the premiums they are willing to pay. However, we did not find any evidence that information about climate change is associated with changes in grass fed beef premiums.

According to our results, the biggest driver of grass-fed beef premiums in our sample was consumption of food away from home. In fact, as consumers increased their consumption of food away from home by 1%, the premiums accrued to grass-fed beef decreased by 0.98% on average. However, at the individual beef cut level, only tenderloin and sirloin steak were significantly affected by the consumption of food away from home. This finding is consistent with survey-based results in Umberger et al. (2002) study. Given the long-term trend of increasing consumption of food away from home highlighted in Saksena et al. (2018), this trend may lead to lower grass-fed beef premiums on average in the long run.

Consumption of food away from home also likely captured the impact of COVID-19 pandemic on grass-fed beef premiums. For example, in April of 2020, consumption of food away from home decreased by 16.2% from the previous year. This period was also associated with increase in premiums for ribeye steak, tenderloin, sirloin steak, brisket, short ribs, and stew meat by 0.05%, 1.11%, 90.64%, 149.36%, 8.35%, and 1.95%, respectively. At the same time an indicator variable for COVID-19 pandemic did not capture many additional effects, as it was only significant and negative for stew meat, but not in any other cases.

Changes in disposable income had a positive impact on premiums for grass-fed sirloin steak and short ribs, but not for other cuts. The lack of a significant positive link between income and grass-fed beef premiums in our panel results is not consistent with other studies (e.g., Li et al., 2016; Umberger et al., 2009) and may be a limitation resulting from our aggregated national-level data. Our measure of real income reflects general income trends in the US population, but it is not able to segment consumers in various income brackets to capture higher preferences for grass-fed beef among higher-income consumers. Furthermore, lack of the impact of the revocation of the grass-fed certification is likely associated with the fact that many consumers are not aware of this change as the program continues for small farms and the labeling continues to be observed at the grocery stores.

Although our models explain a relatively small proportion of annual variation in grass-fed beef premiums, our findings shed light on their relative magnitude and some of the main motivations behind grass-fed beef consumption. While we rely on indirect measures of consumer preferences as captured by media release information, it is important to recognize that our findings are largely consistent with survey-based conclusions of previous studies, as mentioned above. Confirming survey-based findings of previous studies with observed market data available from public sources is important and valuable, but it carries several limitations. We already mentioned that our aggregated national income data is unable to differentiate preferences for grass-fed beef across various income groups. Similarly, our aggregated national price data is unable to pick up any regional differences in price premiums in the niche markets that were highlighted in the previous literature (Badruddoza et al., 2022; Chang et al., 2010; Greene & McBride, 2015; Umberger et al., 2009). These limitations may be addressed by using disaggregated transaction-level data in future studies.

CONFLICT OF INTEREST

The authors declare no conflict of interest.