Farm Management Update

Quarterly Publication of Ohio State University Extension

Fall 2003

Evaluating Opportunities for Niche Markets

Stan Ernst, Program Manager
Dave Hahn, Professor
Agricultural, Environmental, and Development Economics

A couple times each generation, we see a flurry of interest in "niche markets," products promoted with the idea of bringing new revenue to rural America. From where we sit, three related sets of issues offer good signals for evaluating the "next big thing" for rural Ohio. This article touches briefly on some things we're being asked more frequently about by food consumers and producers. Evaluate your idea by considering consumption trends, basic demographics, and health-related issues.

Consumption Trends. It's hard to say whether consumption trends are driven by the demographic and health issues we'll talk about later, or vice versa. Either way, a couple points come to front. First, American income overall is growing and so is total food consumption. While there are still concerns about the widening gap between rich and poor, there's more being spent on food throughout the economy. Total food spending per American dropped slowly but steadily during the 1990s and averages around $2,000 annually. During that same time, we saw continued trends toward spending more on eating out and less for food at home. Over the next 20 years, expect total food spending to go up about 26 percent with away-from-home eating growing a little faster than at-home food spending. It's unclear how lasting the rescission in eating-out will be that followed increased concern about terrorism. Additionally, more types of food are demanded, driven by ethnic diversity; globalization; health concerns; food quality issues; and convenience.

Demographic Trends. It's no secret that Baby Boomers (folks born 1946­1964) are aging. By 2030, one-in-five Americans will be a senior citizen. Look around your family or job. Boomers are generally well off financiallythey'll be the bulk of the 8 million households with $100,000-plus incomes in 2010. Income is the major determinant in food spending, and since a lot of these folks' income is investment based, the general economy matters to food demand in the next decade. They're inclined to eat out because it's convenient. Despite financial conservatism, Boomers want what they like. They'll pay for food experiences and ingredients they loveor remember from childhood. Nostalgia is important to themtheir food preferences are likely to be regional and based on their roots. But they've moved around enough to broaden tastes somewhat. As more Boomers move "home" in retirement, they'll bring demand for foods and ingredients that are not traditional to the area.

Baby Boomers' demands actually complement the second major demographic trend we watch. The ethnic mix of America is changing dramatically and rapidly. About 36 percent of Americans will be non-Caucasian by 2020, up from 28 percent in 2000. Hispanics are the fastest growing ethnic group in the countryone-in-four Americans by 2020. Most importantly, income among non-Caucasians is growing, which will increase their food spending. Based on these shifts, we expect increased demand for fruits (especially citrus), nuts, seeds, eggs, poultry, and fish. Beef demand will increase as ethnic groups' income goes up, but not as much as fish and poultry. Demand for frozen and other convenient forms of ethnic foods is growing among group members who are a generation or more away from their culinary roots. Availability of these products also plays to what is perhaps the most significant impact of shifting ethnicity on food markets: expansion of the palettes of "traditional" eaters due to broader exposure to other cultures. Consider growing demand for specialty vegetables in the past 15 years; the wider range of eateries in even the smallest Midwestern towns. Immigration and migration starts such shifts but does not sustain them long-term.

Health-related Issues. This topic is of particular interest to the authors since one of us is "senior" and the other is "fat." We're in good companyBoomers are aging and the American population in general is way overweight. Both issues are affecting what goes on the plates. Some foods are "good." Some are "bad." A complicated set of scientific, social, and political issues affect markets. Producers can't control most of it, but aggressively tracking consumer and social trends may lead you to an emerging health-related market or move you out of a dying one quicker. Two other health-related points are especially worth mentioning:

Quality is now expectedconsumers won't pay more for higher quality; they expect it at base price. How quality is defined may vary by geographic and cultural marketso you better know the expectations where you sell. Quality can include selection, presentation, taste, and all the organoleptic factors. And quality is now evaluated by consistency and the buyer knowing what to expect.

Interest in nutraceuticalsfoods that address specific health problemsis booming. We are starting to untangle the science behind what happens to certain food components in the body. Berries have cancer-fighting properties. Lycopine in tomatoes is good for your heart. All vegetable oils are not equal. Such findings affect demand.

So what's the bottom line for producers? Pay attention. When you track trends make sure you're looking broadly enough. Your customers aren't your neighbors anymoreat least not the neighbors you've known for many generations. There are good resources online about demographic change and health research. Producer associations are doing more to help members track such things. If you really want to see what's going on, go grocery shoppingat your community store, and especially in the major regional and national chains that are situated throughout the state. These retailers work on margins that require them to be on the cutting edge of demand. You're bound to get some new ideas about what's hot in product types, processing, and presentation.