6
Innovations in Food Marketing and Food Value Chains and Implications for Food Systems
Session 5 moderator Christina Khoo, Ocean Spray Cranberries, Inc., opened the session by explaining that it would explore additional topics in food flow, including water and land use, contracting in the supply chain, and food labeling and marketing.
WATER AND LAND USE: CONSIDERATIONS FOR THE FEASIBILITY OF VALUE CHAINS AND THE FOOD SYSTEM
Christian Peters, Tufts University, spoke about land and water as fundamental natural resources for supporting food systems, why they are important for food system sustainability, and how transdisciplinary science can impact assessment of the feasibility and sustainability of supply chains. He pointed out that in the United States, most land is privately owned, and water is used for private benefit, yet land and water are essential public goods.
Historical Context
Peters began his presentation by providing context on changes in land use, the development of irrigation, and increased agricultural efficiency. He showed a series of maps displaying the geographic shift in total U.S. cropland from the 1860s to the late 1990s, with farms being located continually farther west as the country developed until they became concentrated in the central United States by the mid-20th century. He added that the United States transitioned many decades ago from being a country of expanding
farmland to one that works within its existing footprint, and given that the most suitable land is already used for agriculture, innovations have focused on ways to grow more food by increasing the productivity of that land. Referencing the index for total factor productivity, which calculates the return on all agricultural inputs, including land, labor, and other inputs such as fertilizer, Peters stated that worldwide, increased food production is due primarily to increased productivity of land and more efficient use of water, as has been the case in the United States since 1948.
Peters explained further that irrigation has been a key contributing factor to the increase in output per unit of land. He pointed out that irrigation increased significantly from 1890 through most of the 20th century until it leveled off about 20 years ago. He suggested that water is another resource for which innovation needs to focus on more efficient use.
Peters then provided the example of the increase in the total factor productivity for corn. As he explained, crop yields for corn increased from about 20 bushels per acre in 1900 to about 140 bushels per acre in the late 1990s. Innovations that drove this increase in productivity included the development of a light tractor, corn hybrids, use of fertilizers and herbicides, and biotechnology (Fernandez-Cornejo, 2004).
Peters went on to say that there is now an expanded range of concerns related to land and water use that include (1) production efficiency, (2) ecological impact and sustainability, and (3) health impacts. Referencing Welch and Graham (2000), he noted that the production paradigm of increasing output and the efficiency of its production was predominant during most of the 20th century (Welch and Graham, 2000). He added that the sustainability paradigm focuses on mitigating ecological impacts, while the food systems paradigm emphasizes human health, as well as other social and community impacts. These concerns, he stressed, are all additive.
Innovation of the Transdisciplinary Study of Food Systems
Peters next spoke about the innovation of the transdisciplinary study of food systems as a way to understand the sustainability of natural resources such as food and water. He distinguished transdisciplinary research from multidisciplinary or interdisciplinary research by explaining that transdisciplinary research involves partners from multiple disciplines (including academia and elsewhere) working together to address a common question, problem, or solution (Kajikawa, 2008) that provides the impetus for collaboration and the organizing of the work. In contrast, multidisciplinary research involves multiple fields that work in parallel but are not integrated. And interdisciplinary research involves interaction at the interfaces between disciplines, but this interaction may not be focused on a central problem, question, or solution.
Case Study: The Eastern Broccoli Project
As an example of transdisciplinary research, Peters described the Eastern Broccoli Project, an initiative funded by the U.S. Department of Agriculture (USDA) and led by Cornell University, in which academia and industry partners are working to create a regional food network for broccoli as a model for other specialty crops. While 89–98 percent of fresh broccoli production in the United States currently takes place in the western United States, relying on irrigation, broccoli-growing areas that are part of the Eastern Broccoli Project range from Maine to Florida and many locations between, depending on the weather and the time of year. Peters added that moving fresh broccoli sourcing from the southern portion of the eastern United States to the northern states reduces the seasonality of broccoli production and creates a year-round supply in the eastern states.
Peters referenced a study that examined the potential cost savings from moving a portion of broccoli production to the eastern states, considering various increases in broccoli acreage, production costs, and transport costs. Overall, he reported, the study found that the savings in transport costs resulting from no longer needing to distribute broccoli from the West Coast to the East Coast more than compensated for a small increase in production costs (Atallah et al., 2014). Therefore, relocation of production to the East Coast could take place without an increase in costs to the consumer.
To implement this system, Peters explained, development and testing would be needed for broccoli varieties that grow well on the East Coast, as most of the existing varieties were developed for the climates of the Western United States. A sufficient supply of seeds for commercial production would also need to be created and commercial vegetable growers identified; needed as well would be a new or enhanced distribution system for the crop, retailer acceptance, and market pickup. According to Peters, plant breeders, agronomists, horticultural scientists, extension researchers, agricultural economists, and the broccoli industry are all working together in a transdisciplinary manner to effect these changes.
Challenges with Transdisciplinary Research
Peters concluded his presentation by pointing out that transdisciplinary research is often difficult. He highlighted five key challenges: (1) framing of a research question or problem that will motivate all players; (2) integration of methods across disciplines; (3) the time required for the research process and knowledge production; (4) the need to engage practitioners, who often have different needs and timelines from those of researchers; and (5) the fact that generating impact often requires multiple projects over a long period of time (Brandt et al., 2013).
With respect to funding, Peters pointed out that total investment in agricultural research and development has risen and fallen in the past 45 years, with a slight overall rising trend. In the past 10–20 years, he added, public funding has leveled off or decreased, while private-sector funding has increased. He asserted, however, that as public and private funds are used for different types of research, both types of funding are needed.
INNOVATIONS IN SUPPORT FOR CONTRACTING IN SUPPLY CHAINS
Jill McCluskey, Washington State University, spoke about innovations in support for contracting with universities and plant breeders in the initial stages of supply chains.
Development of New Plant Varieties
As McCluskey explained, universities can patent the intellectual property rights from the research they conduct, providing them with needed revenue for research and development in the face of declines in funding from other sources. She emphasized the importance of public research in the development and marketing of new crop varieties to support the long-term profitability of farmers. As consumer expectations for quality and variety increase, she added, there is a continual need to develop and market new and improve existing crop varieties. She pointed out that as new crop varieties need to be commercialized, her team is focused on how universities could commercialize them. She noted that different licensing schemes can have different impacts on producers in plant-breeding programs, and that the goal of universities is to maximize their own profits as well as the profits of their licensees.
McCluskey explained that Washington State University began an apple-breeding program in 1994, with the aim of providing new varieties that could command higher prices. In Washington State, she elaborated, apple growers pay assessments to the Washington Tree Fruit Research Commission, and the funds are used to support research.
Example: The Cosmic Crisp® Apple
McCluskey used the example of the Cosmic Crisp apple variety to explain the process of the development and commercialization of new plant varieties. As she explained, while this variety was developed in 1997, the product only became available in 2019, 22 years later. She observed that it often takes even longer than that for trees to mature and produce fruit.
Only Washington State growers will be allowed to grow the Cosmic Crisp variety, she added, and it is being commercialized by a private firm. She noted that when the Cosmic Crisp saplings first became available, growers’ demand for 4 million trees outpaced the 300,000 available, so a lottery was held to distribute the first available trees, and that 13 million trees were planted within 3 years. While the first crop of 200,000 apples was expected to be available in 2019, supply is expected to grow exponentially over the next few years, up to 10.5 million in 2022. McCluskey expressed concern that the large volume of apples being produced has the potential to erode prices. She explained that whereas most agricultural research is focused on reducing costs, the Cosmic Crisp innovation is intended to increase demand, and therefore price.
Contracting and Licensing Schemes
McCluskey shared an economic model developed by her team that could be used to maximize profits for both innovators and licensees, consistent with a land-grant university’s goals (Akhundjanov et al., 2020). Under this model, she said, each grower decides whether to pay for the license that allows use of a demand-enhancing innovation and what quantity of the product to produce, using both the old and new technology. Based on these data, the university then chooses the scheme that maximizes the weighted sum of its own and the licensees’ profits, considering different pricing schemes, assumptions of consumer demand, and various weighting of the division of profits between the university and the growers. According to McCluskey, the licensing mechanism that maximizes the joint profits of the university and the growers depends on the number of growers and the innovation level. Her team found that a two-part tariff (a combination of a one-time, per-tree fee and a per-box royalty) maximizes joint profits when the level of innovation is high, as is the case with Cosmic Crisp, and a per-unit royalty does so when the innovation level is low.
To test their model, McCluskey and her team conducted a study with apple growers with an average of 23 years of experience in apple production and collectively 16 percent of all apple acreage in Washington. Participating growers were provided with information on various licensing options and asked to submit bids under each option. McCluskey explained that growers whose bids were at least as high as the randomly selected market price would be required to purchase the right to grow the variety. Participants were also asked to complete a survey in which they were presented with assumptions related to the production cost, price, and yield of a new apple variety, allowing them to calculate hypothetical profits. Depending on their bid, they could either gain or lose money (up to $10.00 out of a $20.00 participation stipend). McCluskey and colleagues calculated the willingness
to pay under different licensing schemes and found that growers’ willingness to pay depended on the apple variety they currently grew. However, consistent with the researchers’ theoretical modeling, overall, growers were willing to pay most under a two-part tariff.
Final Remarks
In conclusion, McCluskey emphasized that there are political and institutional limitations on licensing contracts involving a public university whose plant-breeding programs are focused on creating new varieties available to all growers statewide. She reported that, consistent with her team’s research, the Cosmic Crisp has a two-part tariff, which includes a fee for trees and a per-box royalty.
MARKETING CHANNELS AND PRODUCTION CLAIMS/CONSUMER BEHAVIOR RELATED TO FOOD LABELS
Brenna Ellison, University of Illinois at Urbana-Champaign, spoke about marketing channels and production claims and consumer behavior related to food labels.
Marketing Channels
Ellison began her presentation by describing the multiple channels through which food reaches consumers, ranging from direct (producer to consumer) to mediated (potentially involving agents, wholesalers, distributors, and retailers in between). She explained that direct marketing strategies, such as on-farm stores, community-supported agriculture (CSA) farms, and online sales, are commonly used by smaller producers for local distribution, allowing farmers to share their story and their values directly with consumers. She cited data showing that as farm size grows, the use of mediated channels does as well (Low et al., 2015).
In contrast to that trend, however, Ellison pointed out that large retailers are also increasingly eliminating intermediaries. To illustrate, she noted that Walmart is establishing its own beef supply chain, while Costco is adopting a similar strategy for rotisserie chicken. She added that, because mediated marketing channels can make it difficult for producers to communicate their story and values, many use labels to provide such information and signal their values to consumers.
Research on Food Labels
As Ellison explained, labels provide information about attributes of a product that cannot otherwise be easily seen or verified. For example, she elaborated, an animal welfare label may be used because it is not possible for the consumer in the grocery store to see how animals were treated on the farm. She added that the information on labels is particularly strong when it is verified by a trustworthy party and that nutrition labels may be viewed as a public surveillance system and an indication that the food supply is being monitored. Labels can also signal public values and allow consumers to vote with their dollars, she observed, and may be used by producers to differentiate their products from others in the marketplace.
At the same time, Ellison pointed out that there are many challenges associated with labels: most have multiple claims competing for attention; consumers may not understand the meaning of the claims or know which to trust; and many are conflicting or duplicative. As an example, she cited four chocolate bars with four different fair trade labels reflecting different fair trade components. She also shared the example of the front of a package of cheese with four different labels, with two of the labels stated more than once. She added that the back also repeats some of the same claims as those on the front and contains conflicting information related to the product’s origin. Ellison noted as well that non–genetically modified organism (GMO) is a subset of organic, yet producers often pay to put both labels on the same product.
Ellison explained that research shows consumers are willing to pay more for a product with a specific attribute, such as being local or organic. Yet, she observed that while research often attempts to isolate the effect of a single label, this scenario does not reflect the consumer environment.
Ellison then presented findings from her research showing that consumers perceive the same product differently depending on where it is sold. For example, she pointed out that consumers have different perceptions of similar products sold in Walmart and Target, even though to use the organic label, they must meet the same standards, and in some cases, they may be the same product. Ellison’s research also found that healthy products, such as produce carrying the organic label, are typically purchased based on perception of taste; however, less healthy products labeled as organic, such as cookies or ice cream, are perceived as more healthful than their nonorganic counterparts (Ellison et al., 2016). As a takeaway for producers from these findings, Ellison highlighted that the organic label will not be interpreted uniformly across products or retail settings, so it is important for them to consider trade-offs between differences in brand reputation and sales volume when deciding where to sell a product and the labels to put on it.
Ellison stated further that consumers have a different perception of the percent organic content of various products with an organic label. For example, respondents in her study estimated organic strawberries to be 85 percent organic, while organic cookies were estimated to be 62 percent organic, yet both products must meet the same 95 percent organic requirement to use the organic label (Ellison et al., 2016).
Ellison next presented the results of her research examining which livestock production claims matter most to consumers. This study involved a nationwide survey of more than 1,000 consumers to assess which of seven livestock production claims across four product types (beef, chicken, milk, and eggs) resonate most with consumers. The label claims focused on specific on-farm practices. Respondents were asked to indicate which of the claims were most important and least to them across a range of products. Ellison reported that across product types, the top three labels were those that stated no growth hormones, non-GMO, and humanely raised (Ellison et al., 2017). She added that humanely raised was particularly important for milk and eggs, products for which the animals live through production. Ellison also pointed out that although the addition of growth hormones is prohibited for all poultry and pork products, most of these products have this label because consumers care about the information and do not know this fact. In addition, she suggested, producers likely feel compelled to include this information on their labels when it is on the labels of competing products. Ellison expressed her surprise that organic was considered the least important claim, given the popularity of organic products.
Ellison closed by presenting the key takeaway from her research: that many factors play into consumers’ food purchase decisions, and taste and price are the ultimate drivers of their decision making. She stressed that while labels can be useful in differentiating between products, consumers must be able to understand and use them relatively quickly if they are to make a difference, and that may be difficult given the large amount of information they currently contain.
AUDIENCE DISCUSSION
Khoo opened the audience discussion by asking Ellison and McCluskey to what extent consumer preferences influence production changes at the farm level. Ellison replied that consumer preferences have driven a number of production changes. She cited as examples changes promised by companies such as Panera, Chick-fil-A, and McDonald’s, including switching to eggs from cage-free chickens. McCluskey agreed that consumer preferences are becoming more important to producers because they realize that satisfying those preferences will help increase their profits. Indeed, she said,
innovations are increasingly focused on meeting consumer preferences, such as development of an apple that does not brown.
Peters was asked for his thoughts on how to reconcile the need to address some of the water or land resource issues related to climate change quickly when it can take 22 years to grow a new orchard or plant variety. Peters responded that, given such long lead times, it is important to be able to anticipate potential problems and solutions and plan ahead accordingly. He also suggested that moving slowly and deliberately in the right direction is not necessarily problematic.
In addressing a question from Barbara Schneeman, University of California, Davis, about how consumers might respond to seeing a front-of-package label with both positive and negative nutrition information, Ellison responded that she expects consumers would continue to make decisions based on habit, as the front-of-package information would compete with other label claims. She added that some production label claims address food production issues rather than nutrition or health, but that some consumers may still think they are making a healthy choice when selecting a product based on such claims. She pointed out this is the case, for example, with fair trade chocolate.
An audience member from the U.S. Environmental Protection Agency asked Ellison how she expects consumers to respond to label claims or indications that certain products support local social programs, especially when this messaging may compete with other label claims Ellison had referenced. Ellison responded that research has shown consumers are willing to pay more for products with these types of labels; however, she acknowledged that research results to date are insufficient for understanding how consumers prioritize when viewing products with multiple labels.
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