Chicago Fed Insights

How Are Consumers’ Food Preferences Changing?

December 4, 2020

Two themes were repeated by the featured speaker and three panelists at the Chicago Fed’s December 1 virtual conference on changes in our food system: Covid-19 has had an impact on how we shop and eat now and perhaps into the future. However, regardless of the pandemic, new consumer expectations are affecting the entire agricultural ecosystem.

Disruptions caused by Covid-19 have altered consumption, such as panic grocery buying early in the pandemic, leading to disruptions in the supply chain. The processing sector with fixed assets can’t change quickly, causing frictions in the market, said featured speaker, Jayson Lusk, distinguished professor and head of the department of agricultural economics, Purdue University. As an example, shell egg prices shot up over 200% in a short period of time early in the pandemic, because producers couldn’t change their production and packaging quickly enough to meet greater grocery store demands, Lusk said. Besides a lack of packaging materials, powdered or liquid eggs produced for food services fall under different regulations and couldn’t be moved to retail markets without regulatory relief.

Prior to the pandemic, there was a long-term shift from eating food at home to away, noted Leslie McGranahan, vice president and director of regional research, Federal Reserve Bank of Chicago. However, since the start of the pandemic period, consumers have spent around 15% more on groceries after the initial surge from stockpiling.

“People are eating at home more, eating in different ways,” said Alexia Elejalde-Ruiz, business reporter, food industry, Chicago Tribune, noting the run on commercial meal kits delivered to homes.

The recession caused by the pandemic’s effects on the economy will impact food purchases and food security, which Lusk sees as an economic issue, not a food supply problem. Food insecurity is a huge issue, said Elejalde-Ruiz. Figures for those people who are food insecure normally stand at 10%, but it is reported that currently 20% to 30% of Americans are food insecure.

“The challenges this year have had a profound impact on food,” said Nicholas Fereday, executive director, food and agribusiness, RaboResearch, Rabobank. There is the general sense that we all have to think about food more and not take it for granted as we have for a long time, Fereday said. “And once we do something for a long time, like pandemic behavior, it becomes a habit. We’ve all become our own barristas now,” Fereday joked, as people are making their coffee at home instead of picking up a cup on their way to the office.

Fereday noted that “uncool products” like favorite cereals from childhood and canned soups are back in vogue. Certainly, what is defined as convenience has changed in pandemic times, like shopping online, but a lot of fundamentals haven’t. Climate change and sustainability are still important to consumers when making food choices, Fereday said. How much will change once vaccines are prevalent remains a big question.

Many consumer preferences and habits developed during Covid-19 will likely remain post-pandemic, like online ordering and home delivery of groceries. During the pandemic, food prices have become more important to consumers, especially those with lost income, said Lusk, adding he wonders if this is a long- or short-term phenomenon.

Yet, Lusk expected that the supermarket of the future will be smaller and stocked with more fresh food as consumers crave more sustainable products. Lusk suggested some other changes in the food sector will be ambiguous retail price trends, an accelerated trend to e-grocery, and a shift toward labor-saving automation, plus increased scrutiny on concentration and anti-competitive behavior. He also sees a shakeup in the food service sector, more ghost kitchens (restaurants that do only meal delivery), and growing interest among some segments in local, direct farm delivery.

Still, Sam Funk, director, agriculture analytics and research, and senior economist, Iowa Farm Bureau Federation, noted that some small farms can market directly, but they need to be near a population center for that to work. “We can’t feed the world by farm-to-table,” Funk said. Commercial processing is necessary to supply larger demand and export markets. Covid-19 has changed a lot of things, but whole systems won’t change, Funk added.

Elejalde-Ruiz said some small producers that have found ways to repackage their products to sell to consumers are having their best year ever as their customers are willing to pay more for that connection.

The restaurant side, said Elejalde-Ruiz, is “the great unknown.” Takeout is important to restaurants’ survival in the time of Covid-19, and people are growing accustomed to eating that way. Will that persist post-Covid? Will fewer restaurant spaces be needed, fewer workers? Will new patterns of dining affect the real estate sector?

McGranahan suggested that one can expect some impact on employment as consumer demand changes, which in turn affects the whole agricultural ecosystem. One question is how the financial sector will evolve as consumer preferences change.

The industry is also seeing food system realignments, Lusk said, citing new outside investors and start-ups, like FBN and Indigo. There are notable acquisitions by incumbents or new entrants, such as Amazon’s purchase of Whole Foods Markets, and mergers of input suppliers, for example Bayer and Monsanto. Forward and backward integration is also occurring. Walmart is in the beef business, with acquisition of a packing house in Georgia; Perdue Farms has begun a direct-to-consumer platform. Costco has built a Nebraska supply chain for its $5 rotisserie chickens.

Some of the drivers of these realignments are: pressure from investors to meet sustainability initiatives, an attempt to control supply and quality of inputs, a quest to acquire informational advantages, and the need to be more responsive to consumer demands, according to Lusk.

There is also a need for increased resiliency, Lusk said. And while there are no easy answers, some steps that might ease food processing bottlenecks or disruptions to the supply chain include processing flexibility, storehousing for emergencies, the dismantling of legal and regulatory barriers that prevent the free flow of food, market mechanisms to facilitate reallocation, and increased automation.

David Oppedahl, senior business economist, Federal Reserve Bank of Chicago, and moderator of the program, relayed a question from the audience: How do the panelists think the incoming Biden Administration might affect the nation’s food system? Fereday said what he finds interesting is how little agriculture and food were talked about during the political campaign, especially during a pandemic.

Oppedahl suggested we may see a greater focus on climate change from the new Administration. Fereday responded that big food companies had already been lining up to talk about sustainability, such as more recyclable packaging, because that’s what customers want. Funk added that sustainability depends on the location and requires tailoring to site characteristics, citing differences between Iowa and California, for example.

Elejalde-Ruiz concurred that the new Administration will bring a larger focus on climate change, and “you can’t talk about that without talking about the food system.” There may also be more conversations about vertical farming and controlled environments, steps to avoid cross-country transport of produce to the Midwest and East.

Fereday expressed some excitement around development of more greenhouses. So much more technology exists for innovation; for example, the small island nation of Singapore has designs to become a food tech hub. Fereday also pointed out that there’s much unused real estate for growing produce, such as rooftops, and added, “There never should be a single solution to a problem.”

Oppedahl raised the topic of organic foods: Will they be, or remain, profitable? Fereday noted that food labeled organic is seen as a premium product, largely for an elite group of people. However, the amount of land certified organic is tiny, around 1%. Still, organics can be part of a larger solution to food production. There will always be something premium, Fereday said. “Farmers look for value addition, if organic does it, fine.” Fereday mentioned that quinoa is now grown in Colorado, an example of farmers looking for alternative crops.

Changes will take place based on the global picture, said Funk. The future of the food system is not totally based on what’s happening in United States. Global changes have and will continue to affect U.S. agriculture, as exports leverage comparative advantages.

Oppedahl asked the panel if so-called healthy foods are gaining in the market. Funk suggested that it depends on how you define healthy foods, adding that some see animal proteins as healthy, as they contain zinc, which can boost the immune system.

Elejalde-Ruiz said there is already a years-long shift to reading the back of the box. “People want to know what’s in their food. They want less processing and more nutrient-dense products.”

The panelists’ final thoughts reflected the current state of the food system brought about by a year of pandemic and changes in consumer preferences. Fereday noted the uncertainty in the world today. Elejalde-Ruiz said this is a moment of major disruption in the food system. “It is exciting to see what happens when life resumes some sort of normalcy,” Elejalde-Ruiz said. Funk had the final word: “The world is going to shift, and we’ll see how we react to the changes.”


The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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