Inconsistent evidence for price substitution between butter and margarine - a shallow review (Rethink Priorities)

Executive summary

1. One prominent strategy for reducing animal product usage is to decrease the prices of plant-based analogs for meat, dairy and eggs. Cross-price elasticities measure how prices of analogs affect sales of animal products, and vice versa.

2. Previously, we found cross-price elasticities that sometimes indicated decreased plant-based milk prices could cause increased consumption of dairy milk. To see whether this result replicated, we studied elasticities of butter and margarine.

3. 1. We expected butter and margarine to be substitutes. Instead, we observed wide variation in estimates, complementarity, and even opposite signs of two elasticities for the same pair of products in the same setting (study, time, country, etc.).
   2. Margarine was a substitute for butter in two thirds of estimates, while butter was a substitute for margarine in about half of estimates.We synthesize 51 cross-price elasticities from 18 demand studies of butter and margarine.

4. The results are likely explained by some combination of methodological issues and complex consumer behavior.

   1. Estimating elasticities from observational data is very difficult, and there is some evidence of methodological issues in the literature. Consumer behavior may be highly context specific.
   2. Our best highly uncertain guess is that complex consumer behavior contributes slightly more of the observed variation in results, with methodological issues accounting for the remaining slight minority of variation.

5. Price substitution between plant-based analogs and animal products is not a certainty.

   1. It is possible that decreasing plant-based analog prices causes harmful increases in animal product usage in some contexts.
   2. Research aiming to test behavioral theories that might explain our results and to validate observational estimates of elasticities against experimental methods may help clarify consumer behavior.

Abstract

Previously, we found unexpected results in a synthesis of cross-price elasticities between plant-based and animal-based milk: the estimates display a large amount of variation (including contradictory economic interpretations) within studies, time periods, geography, and even within pairs of products in a single study. We further examine this problem in a brief review of the demand estimation literature and relevant meta-analyses. We next synthesize cross-price elasticities for a new pair of animal- and plant-based analog products—butter and margarine—to see whether we find similarly unexpected results in a different context. We find that margarine is a substitute for butter in two thirds of estimates, while butter is a substitute for margarine in about half of the estimates; this lack of consensus is similar to the unexpected results we found in milk. We examine methodological issues and complex consumer behavior as potential explanations, and we discuss the implications of each explanation. If these results indeed reflect consumer behavior, they suggest that reducing prices of plant-based analogs may sometimes cause increases, rather than decreases, in consumption of corresponding animal products.