An alternative approach to measuring demand changes in meat markets

Abstract

Commodity groups, academics, government agencies, and marketing analysts often have strong interests in understanding changes in demand for products. It is often the case, however, that only equilibrium price and quantity data are available for identifying changes in demand. But, such equilibria are the result of both changes in demand and changes in supply – the latter of which causes changes in quantity demanded. Although an existing index-based method is widely used to identify demand shifts, we consider its theoretical foundation and empirical performance against a proposed alternative. We find that when using widely available but highly aggregated annual-level price and quantity data, our alternative better characterizes demand shifts for goods such as beef, pork, poultry, and lamb. For many agribusinesses that require information about market dynamics in their industry, our method is likely to provide a more accurate, low-cost assessment of demand changes over time.