Trade Matters

Trade has been taking it on the chin as of late.  Leading politicians are decrying trade partnerships like TPP and NAFTA.  In addition, the Environmental Working Group (EWG) released a report a few weeks ago challenging the argument that US agriculture needs to "feed the world".  While I happen to agree that "we need to feed the world" is not perhaps the best way to frame the future challenges, I'm not so sure about the arguments they make either.   Basically they argue something along the lines of the following: well, we don't really export that much anyway, and the people we export to are pretty rich, so we're not really feeding the world.  More on that in a minute, but first on the statistics.  

Trade is a big deal for U.S. agriculture.  The data from the USDA shows that we export about 20% of all the agricultural output (both in terms of volume and in terms of dollars).     

And, the share of agricultural output that is exported is much higher for particular commodities.  As the below graphs shows, for example, more than 80% of the U.S. cotton crop and over half the U.S. wheat crop was exported to other countries in 2013.  

While trade has no doubt has some deleterious effects on certain kinds of manufacturing jobs, these data make it quite clear that if you're a wheat or cotton farmer, trade is a very big deal.  Most of their customers reside outside the United States.  

Let's take a look at wheat since it is mainly used as human food.  Where does that wheat go?  Here's some USDA data.

Yes, some of these countries, like Japan, are relatively wealthy.  It shouldn't be surprising that relatively wealthy countries are relatively big importers of U.S. products: they have the money to buy things that poorer countries can't afford (this shows up particularly when one looks at meat exports because meat is a relatively expensive food).

Back to the Environmental Working Group's argument.  Many, if not most, of the countries in the above list have hunger and food insecurity rates far above that in the U.S.   Moreover, their per-capita GDP is far below that of the U.S.  What would be interesting to see, but I don't have the time to compile, is how these trade statistics look compared to domestic production in say, Japan, Mexico, Nigeria, etc.  That is, of all the food eaten in these countries, how much comes from the U.S.?  

A couple other points about trade are worth noting.  First, there are other large producers of wheat, corn, soybeans, etc.  And we all compete for international customers (and sometimes we trade with each other).  That is a very good thing because if we have a drought in the U.S. or in China, trade allows us to smooth out the impacts.  So, even if one looks just at a snapshot in time and says, "see trade isn't that big a deal", look again when we have a major crop failure in a particular part of the world.  Prices and food consumption in the U.S. would be more volatile if we didn't have world trade buffering the shocks.  

Second,  many developing countries have really restrictive trade policies and trade barriers.  Thus, in some cases we don't send food to hungry people in other countries because their governments don’t allow it (here's a great paper comparing agricultural policies across the world).  

Finally, I'm not sure whether and to what extent food donations and assistance to developing countries are counted in trade trade statistics.  To the extent they're not, people in the developing world are eating more U.S. food than the trade statistics would suggest.   

So, the next time the issue of trade comes up, don't forget about the diverse foods we enjoy at lower prices than we otherwise would because we buy from farmers in other countries, and don't forget the extra income that U.S. farmers enjoy from being able to sell to customers in other parts of the world.  

P.S.  After some Twitter feedback, I should clarify that not ALL farmers benefit from trade.  Here is data on U.S. food and agricultural imports (the biggest are seafood and fruit).  U.S. farmers who, for example, grow catfish are indeed in competition with foreign fishermen and fish farmers.  However, for most agricultural goods, the U.S. is a net exporter.  But, even if we weren't, it wouldn't mean trade is bad.  Even in this case, U.S. consumers would benefit by having access to less expensive food (and different types of food) from other parts of the world.  It isn't helpful to think of trade as a zero-sum game (or in the old mercantilist mindset), but rather trade expands the size of the pie making more food available for consumers everywhere (though of course there are some winners an losers along the way).  It isn't just the volume of trade that matters either.  For example, we export beef to Mexico and we import beef from Mexico.  How does this make sense?  Because it isn't the same type of beef: we're importing high value steaks and we're exporting different cuts that Mexicans prefer in their cuisine.      

Philosophical Soylent Haters

David Sax has a recent article in the New Yorker where he decries everything wrong with the new food, Soylent and other tech-derived foods.  He comes to his conclusions despite admitting he's never tried Soylent.  Rather, it seems he's philosophically opposed to the idea.  Sax writes:   

The problem with all this food-2.0 stuff isn’t that it sometimes tastes horrible but that it misses the mark on how our eating is evolving. The tech world approaches food from the perspective of engineering: a defined problem to be solved, with the right equations, formulas, compounds, and brainpower. Soylent was developed by its creator, Rob Rhinehart, to compress all the nutrition the human body needs to live into one single, easily digestible formula, like the twenty-first-century version of manna. But that is fundamentally the opposite of the way we increasingly want to eat in America and in much of the developed world.

But, what is it that people "really want" when they eat?  My research consistently shows it's, healthy, affordable, safe, tasty food; whether it is natural or "fair" or from a particular origin matters far less.  I believe Sax is also mistaking what people say they want which what they actually choose.  As I previously discussed via USDA statistics, the amount of farmland in organic, for example, represents a very small share of all agricultural acreage.  

I don't deny that there is increasing demand for organic, "clean", etc., but I think Sax is mistaking what people want for the method of how it's provided.  The theme of my book Unnaturally Delicious is that if we really want to tackle many of our most pressing problems in agriculture it will require exactly the sort of stuff (like math, science, engineering) that Sax says he wants to keep away from food.  

Sax concludes:

Most humans are happy to eat real food, and crave it in its most natural form. A strawberry picked at the height of summer. Fish pulled from a river and grilled over wood coals. Sourdough bread made from a twenty-year-old starter, and kneaded by hand. Wine grown on knobby vines, and aged in a dark cellar. Why would you disrupt that?

I can think of a lot of reasons why you'd want to "disrupt that."  Because, for examples, his vision is too expensive, unavailable but for the most wealthy, too time consuming, and would use too many of our natural resources if everyone ate this way.  No one I know is trying to keep these "natural" alternatives from consumers, and it is a testament to our vibrant food economy that the market provides these "natural" foods for consumers who are willing to pay for them.  But, that doesn't mean we can't have Solyent too.   

Let me state things differently.  Modern food and agricultural technologies are providing us more affordable food than at any time in our history, reducing hunger all over the world, while at the same time reducing the amount of land we need to bring into production.  We're adopting new technological approaches to keep food safe, quite literally saving lives, and using science to understand how to make a more nutritious, affordable food supply even for people in some of the most impoverished places on the planet.  Scientists are using math, chemistry, engineering and the like to reduce the number of animal we need to produce meat and milk, thereby reducing our carbon impacts. Why would you want to stop all of that?

What's going on in your brain?

Ever wonder why you choose one food over another?  Sure, you might have the reasons you tell yourself for why you picked, say, cage vs. cage free eggs. But, are these the real reasons?

I've been interested in these sorts of questions for a while, and along with several colleagues, have turned to a new tool - functional magnetic resonance imaging (fMRI) - to peak people inside people's brains as they're choosing between different foods.  You might be able to fool yourself (or survey administrators) about why you do something, but you're brain activity doesn't lie (at lest we don't think it does).  

In a new study that was just released by the Journal of Economic Behavior and Organization,  my co-authors and I sought to explore some issues related to food choice.  The main questions we wanted to know were: 1) does one of the core theories for how consumers choose between goods of different qualities (think cage vs cage free eggs) have any support in neural activity?, and 2) after only seeing how your brain responses to seeing images of eggs with different labels, can we actually predict which eggs you will ultimately choose in a subsequent choice task?   

Our study suggests the answers to these two questions are "maybe" and "yes".  

First, we asked people to just look at eggs with different labels while they were laying in the scanner.  The labels were either a high price, a low price, a "closed" production method (caged or confined), or an "open" production method (cage free or free range), as the below image suggests.  As participants were looking at different labels we observed whether blood flow increased or decreased to different parts of the brain when seeing, say, higher prices vs. lower prices.  

We focused on a specific areas of the brain, the ventromedial prefrontal cortex (vmPFC), which previous research had identified as a brain region associated with forming value.  

What did his stage of the research study find?  Not much.  There were no significant differences in brain activation in the vmPFC when looking at high vs. low prices or when looking at open vs. closed production methods.  However, there was a lot of variability across people.  And, we conjectured that this variability across people might predict which eggs people might choose in a subsequent task.  

So, in the second stage of the study, we gave people a non-hypothetical choice like the following, which pitted a more expensive carton of eggs produced in a cage free system against a lower priced carton of eggs from a cage system.  People answered 28 such questions where we varied the prices, the words (e.g., free range instead of cage free), and the order of the options.  One of the choices was randomly selected as binding and people had to buy the option they chose in the binding task.  

Our main question was this: can the brain activation we observed in the first step, where people were just looking at eggs with different labels predict which eggs they would choose in the second step?

The answer is "yes".  In particular, if we look at the difference in the brain activation in the vmPFC when looking at eggs with a "open" label vs. an "closed" label, this is significantly related to the propensity to choose the higher-priced open eggs over the lower-priced closed eggs (it should be noted that we did not any predictive power from the difference in vmPFC when looking at high vs. low priced egg labels).  

Based on a statistical model, we can even translate these differences in brain activation into willingness-to-pay (WTP) premiums:

Here's what we say in the text:

Moving from the mean value of approximately zero for vmPFCmethodi to twice the standard deviation (0.2) in the sample while holding the price effect at its mean value (also approximately zero), increases the willingness-to-pay premium for cage-free eggs from $2.02 to $3.67. Likewise, moving two standard deviations in the other direction (-0.2) results in a discount of about 38 cents per carton. The variation in activations across our participants fluctuates more than 80 percent, a sizable effect that could be missed by simply looking at vmPFCmethod value alone and misinterpreting its zero mean as the lack of an effect.

More on soda taxes

A few days ago, the World Health Organization (WHO) came out with report, suggesting the use of food taxes and subsidies to encourage healthy eating.  They were particularly in favor of soda taxes.  Soda taxes seems to be picking up steam in the U.S..  After passage in Berkeley, they will now be on the ballot in several locales in coming weeks.  

I've written so much on these topics, it's hard to know what more to say.  So, I thought I'd just, for the record, tell you what I had to say on a recent Food Sommelier podcast when the host asked me about this topic (and revealed her support for soda taxes, which came about in part because she said she felt guilty for having worked for PepsiCo earlier in her career).  

I'm in episode 38 and the discussion on soda taxes starts at about the 20 minute mark.  Here is my lightly edited discussion on the issue. 

“I’m not a fan of soda taxes for a whole host of reasons . . . but let me first say, though, that it’s really not that big a deal.  And that’s probably one of the reasons I’m against it . . .  As much as I’ve written about it, you’d think I’d get my feathers ruffled a lot [over things like the Philadelphia soda tax], but I don’t have a dog in the fight really one way or the other.  It’s not a big deal in the sense that, number 1, it’s just not going to have much of an effect on obesity rates if you look at the best available research.  We are talking about taxes that will have very, very small effects on people’s weight, and there a lot of reasons for that.  

There are substitutes for sugar sweetened beverages.  People can switch to juices or even non-beverage alternatives that may have calories in them.  I’ve seen a number of studies that suggest that.  Just because we put a tax on something doesn’t mean people are not going to consume calories; they might instead switch to something else equally caloric.  . . . 

We have these intuitions . . . and little thumb rules like for every 3,500 kcal we cut out, we lose a pound.  The reality is that relationship is not linear at all.  It’s nonlinear . . .  When we’re thinking in a linear way, each calorie I cut out will cause a constant reduction in weight, but it doesn’t really happen that way.  There are diminishing returns.  You may lose a little bit initially but then it will really level off.  . . .

When you look at the burden of the tax, and this is really true of almost any food tax, its going to tend to be borne relatively (at least relative to income) more by people in the lower economic strata of society.  The reason for that is that if you look at the share of spending on food, it tends to go down as we make more money.  What that means is that poor people are spending a larger proportion of their income on food. So, anything we do to make food more expensive, that burden or that tax, is going to tend to fall more heavily on lower income populations. . . .

I’ve got a paper actually coming out . . . where we compare very low income to regular income consumers.  What we tended to find there is that is that, especially in the case of subsidizing healthy foods, the richer consumers benefit the most because they’re already, first of all, consuming relatively health foods.  And, because we found . . . that the poor tended to want to stick to their original diets. They were more habit prone, so they didn’t change quite as much either when it was a tax . . . or a subsidy trying to get them to eat something a little healthier.  

I would say lastly, I’m going to bring up this sort of elitism. . . . This sort of paternalism argument.  We feel like we know how other people should be eating.  . . . I think it’s really hard to put ourselves in the shoes of other people, and so for us to take a step back and say ‘you should be doing something different; you should be eating more like me’ presumes that we know what it’s like to have their life and have their kind of income and know all the other sorts of things they’re facing. . . .  I have a problem philosophically with that. . . .

And I do think it’s different than . . . cigarette taxes.  With cigarette taxes there really was this externality – the second hand smoke.  When you’re smoking, that really does have an effect on the people around you.  With the drinking of soda, it’s really less clear there’s that same kind of phenomenon at play.  Most of what’s happening here is some kind of redistribution within our healthcare system because of Medicare and Medicaid.  But, that’s much more complicated than most people realize.  Most of what’s happening here are subsidies flowing from relatively wealthy people to relatively poor people because relatively wealthy people pay more in taxes. . . . It’s not a popular solution but part of the argument is that if people know their health care expenses are going to be taken care of, they’re going to eat in an unhealthy way . . . Economists call that a moral hazard.  The answer for a moral hazard is that people need to have some skin in the game.  We need people to pay a little bit of the costs of their health care.  It doesn’t have to be the same for everybody, and maybe it’s just a small amount for people who don’t have much income, but I think if the concern is that if people are going to behave “irresponsibly”, there needs to be a bit of a price for that in terms of their health care costs.  But, of course, there is a real price for being obese.  That’s something we tend to forget – that there is a lot of social shame associated with being obese, wages can be lower especially for women, and there are all the attendant medical costs, some of which are shielded from the consumer because of our health care system but a lot of those are borne directly.  There is a real cost to being overweight and obese, and people bear a lot of that just through their own daily lives.  

I’m running on here, but one last point that is really important because I hear so many people get this wrong.  What they say is, ‘well our farm policy system subsidizes food and makes sugar cheaper.’  That is absolutely false.  I’m not a fan of farm subsidies, but that particular argument is false for two reasons.  One is that if you look at cane sugar.  Cane sugar has a set of really convoluted policies, but they essentially restrict supply. . . . What [sugar producers via policy] are able to do is keep out foreign competition and keep other producers from growing sugar cane.  . . . World sugar prices are much higher than they would be if we didn’t have our US cane sugar policies.  The other thing is high fructose corn syrup (HFCS).  Right now roughly 40% of our corn supply goes to ethanol.  Ten years ago, that was mostly going to livestock and food processing. . . .  It’s not exactly a farm policy, but the energy policies we’ve had over the past 10-20 years have dramatically shifted corn production from going to places like HFCS to instead ethanol production and our cars, and as a result has made HFCS more expensive than it would be otherwise.  

Should we tax sugar?  In some ways, we already do, it’s just not very transparent that we’re doing it."                                       

Food Demand Survey (FooDS) - October 2016

The latest edition of the Food Demand Survey (FooDS) is now out.  

From the regular tracking portion of the survey, a few items stood out.  First, there was a notable rise both in consumers' awareness of GMOs in the news over the past couple weeks and in concern that GMOs pose a food safety risk.  Here is the graphic on awareness of GMOs in relation to the other issues tracked.  I'm not aware of any major news items driving the uptick in awareness and concern for GMOs, but perhaps I've missed something.

In addition to this issue, consumers' said they expect somewhat lower beef, chicken, and pork prices this month as compared to last, and planned purchases of beef, chicken, and pork all rose as well.  In fact, compared to one year ago, planed purchases of all three meat products are markedly higher.  You can read the whole report to see changes in willingness-to-pay, etc.

Several ad hoc questions were added to the survey this month. The questions focused on consumers’ purchases of and beliefs about seven “niche” or “emerging” food products, and for comparison purposes, one conventional product, beef.

Participants were initially asked: “Have you consumed the following foods at least once in the past five years?” The question was followed by a list of eight food items and respondents simply answered “yes” or “no”. 

Approximately 95% have eaten beef in the last five years. Less than 25% of participants have consumed either goat, rabbit, kombucha, or emu in the last five years. A little over a quarter of respondents said they had eaten bison. About one third of participants stated they have eaten chia seed or quinoa. Less than 10% of participants stated they had eaten emu in the last five years.

I had a little bet running with some of my graduate students on the popularity of these items (and truth be told, some of the suggested items came from them).  One student - who will remain nameless - predicted half the population had tried kombucha.  I'd never heard of it (it's a kind of fermented tea which allegedly has a variety of health benefits).  My guess was less than 10%.  I suppose we were both wrong, as the answer was  14.1%.   

The survey proceeded to ask about the perceived health (1=very unhealthy; 5=very healthy), tasty (1=very untasty; 5=very tasty), and affordability (1=very unaffordable; 5=very affordable) of each of the eight items.  The results are below.  

On average, people thought chia seed and quinoa were the most healthy followed by beef and bison.  All foods averaged above a three, meaning they were perceived as more healthy than not.

Beef dominated the other items in terms of perceived taste. About 88% of respondents said beef was either “very taste” or “somewhat tasty”.  By contrast for the next most tasty item, only 49% of respondents said the same about bison.  On average, beef was perceived as most tasty followed by bison and then rabbit.   Kombucha was the only item for which the mean score was less than three - meaning it was perceived as more untasty than tasty.


Finally was the question on affordability.  Somewhat surprisingly, beef was rated as most affordable on average followed by quinoa and chia seed.  Bison and emu were seen as least affordable, and the mean rating indicates both were viewed as more affordable than affordable.