Revisiting the 42 degrees in Fargo fallacy

Healthy Full American Breakfast with Eggs Bacon and PancakesMichael Swanson, Ph.D., Wells Fargo Chief Agricultural Economist

I had the great pleasure to visit with my friends in Fargo in January. And, it reminded me of the problem with averages. The joke with Fargo’s well-known weather is that the annual average temperature in Fargo is 42 degrees. However, if you dress for 42 degrees in Fargo, you will be intensely uncomfortable nine months out of the year and dead due to hypothermia the other three. Economists and statisticians often point out that understanding the variation often matters more than the average. I find that this fallacy of the average appears over and over again in the food industry as I travel to producer events throughout the country.

I think that the American food plate is full. In fact, it’s overflowing. Estimates from the USDA say that a staggering amount of food ends up as plate waste, but this doesn’t mean that everyone has enough good food to eat. That’s the fallacy of the average at work right off the bat. But the reality is that most Americans have too much food in front of them. You can’t wish away the problems of obesity and poor health. The problems result because most Americans have lots of tasty and appetizing food in front of them, and they have a hard time limiting their consumption.

U.S. Per Capita Calories Daily Consumption Chart

At the same time, I hear over and over again that a certain producer group wishes that Americans would eat more of their product, as they extol the product’s health benefits and appeal. Without a doubt, they have a point. The food they produce is delicious and healthy. However, I point out that in order to gain more share on a consumer’s plate, they will need to push someone else’s product off the plate or out of the cup. All foods and beverages are substitutes. Americans could start drinking tap water today, and completely displace soft drinks, coffee, juices, milk, energy drinks, and alcoholic beverages. The calories and nutrients lost from drinking tap water could easily and cheaply be replaced by food. And, while the individuals would end up healthier and wealthier, this won’t be happening since everyone loves the flavor and variety that these beverages bring to their lives.

On top of needing to displace competitors, I often hear said, “The average American only eats X amount of my product; the amount is so small that I can get them to double that amount.” Let me use an example from the protein world. On average, Americans eat 0.2 lbs. of veal, 0.7 lbs. of lamb, and 0.4 lbs. of duck per year. This is a perfect example of the 42 degrees in Fargo fallacy. The average American doesn’t eat any veal, lamb, or duck, although some geographic regions or ethnic groups really enjoy veal, lamb, or duck, and eat many pounds of it every year. The real question and challenge for the different food producers involves getting some Americans to try their product and add it into their food rotation. They need their product to be top of mind with some particular people when they ask the never-ending question, “What should we eat today?” A better way for producers to measure their market penetration is to gauge how many Americans out of a thousand eat their product more than once a month.

Every consumer tries to balance variety, ease of preparation, and budget, and each individual has their own particular binding constraint. For the American with less disposable income, the budget aspect will overshadow both variety and ease of preparation. So, it doesn’t make sense for higher cost foods and beverages to try to increase market penetration with this group. Conversely, Americans with more disposable income consider variety and ease of preparation to be more important than budget. So, if the food producers in the veal, lamb, and duck protein categories want to get into the rotation of these higher income consumers, they should concentrate on the variety and ease of preparation first. Food producers and industry associations need to move past the stated averages with a real game plan for solving the perceived consumer problems. And, they need to constantly remember that there are no average consumers.