Why is the milk at the back of the store?

That was the question asked in a Planet Money podcast, which re-aired earlier this week.  

The conventional answer was provided by the food writer Michael Pollan:

I’ve come to understand the landscape of a grocery store as a brilliantly designed landscape to get us to buy as much food and as much expensive food as possible. So my general impression is that the milk is in the back.

And it’s - but - and it’s not just that the milk is in the back. It’s also usually very far from the bread. Both of them are very common items that everybody needs, and so it makes you cover a lot of ground if you want them.

Another perspective was provided by the economist Russ Roberts:

Russ thinks the reason the milk is in the back is practical. It’s easier to keep the milk cold if it’s there. The delivery trucks come into the back of the store. Milk goes right into this refrigerated room that’s often right behind the cooler where you grab your milk. No one has to lug the milk through the store to some cooler in the front.

ROBERTS: Milk spoils very easily. I was told that for every degree of temperature it rises, it loses a day of being available and being sellable. So the argument I’m making, which is kind of a radical argument, is that you and I want the milk in the back, even though it’s a little less convenient. If it were in the front, it would be more expensive, and we’re not willing to pay that extra price. So I think they’re actually doing what we want, not what they want.

How can we know whose view is right?  To answer the question, we'd need to observe a world where milk doesn't need to be refrigerated and then see where grocery stores - in this alternative universe - place the milk.

As it turns out, such an alternative universe actually exists!  It's called France.

I spent part of 2011 on sabbatical and Paris, and when first grocery shopping I was surprised to find the milk often sitting right next to the laundry detergent or the cereal, unrefrigerated.  How is this possible? For reasons that aren't entirely clear to me, much of the milk sold in France is ultra-high temperature (UHT) pasteurized.  The process makes the milk "shelf stable" - it doesn't spoil when left unrefrigerated (I personally thought it tasted pretty terribly).

So, where do French grocery stores stock the milk?  I only have anecdotal evidence based on my own shopping experiences, but by and large I'd say it was NOT at the back of the store. It was often situated somewhere near the center of the store.  Moreover, some stores sold both UHT milk and "regular" refrigerated milk, and the refrigerated milk as typically at the back in a refrigerated case while the UHT milk was situated elsewhere in the store.  

My take: Russ Roberts 1, Michael Pollan 0.

P.S.  There is another line of evidence in favor of Russ's view.  Where do you typically find (unrefrigerated) soy milk in your grocery store?  In our local Walmart, it's in the center of the store, not at the back.

Large-scale farming good?

The New York Times is slated to run a piece I wrote in the Sunday edition.  

Here's a snippet:

Large farmers — who are responsible for 80 percent of the food sales in the United States, though they make up fewer than 8 percent of all farms, according to 2012 data from the Department of Agriculture — are among the most progressive, technologically savvy growers on the planet. Their technology has helped make them far gentler on the environment than at any time in history. And a new wave of innovation makes them more sustainable still.

Working with the Times editors, I pulled together the following figure to illustrate the great strides being made in agriculture.  

Here's the conclusion:

There are no easy answers, but innovation, entrepreneurship and technology have important roles to play. So, too, do the real-life large farmers who grow the bulk of our food.

You can read the whole thing here.

Is Organic Agriculture Taking Over?

A few days ago, the USDA released a new report on the amount of farmland and farm production that is certified organic.  I've seen a number of news stories tout the main result from the report summary:

Certified organic farms operated 4.4 million acres of certified land in 2015, up 20 percent from 2014

Given the price premiums for organic, I suspect there have been some more conversions over the last year, but I see several things wrong with the way this statistic has been covered.  First, what happened to the rest of (non-organic) farm acres in the US?  Are they up or down?   Second, Politico noticed something interesting about the result:

Organic acreage might be up 20 percent from 2014, according to the USDA’s 2015 organic census, but it’s not quite the good news the industry was hoping for. The vast majority of the bump — 96 percent of the new acres — is thanks to the certification of 700,000 acres in Alaska. Organic Trade Association spokeswoman Maggie McNeil says the new Alaska acreage stems from a single rangeland certification . . .

Finally, to get a real sense of the impact of organic production on the agricultural landscape, we need to put the figures in perspective.  As it turns out, organic still represents a very small segment of the farm sector.  I took the latest USDA organic report and tried to mesh it with other USDA data to figure out what percent of the acreage is organic for a given crop, and what percent of the value of production is organic.  I somewhat randomly picked a number of fruits and vegetables to compare and then also pulled out the major commodity crops.*  

The above figure suggests that 22.7% of all acres devoted to growing lettuce in the US were certified organic.  For eggs, 3.6% were organic.  For wheat acres, only 0.7% were organic.  Only 0.1% of beef cows were organic, and 001% of hogs and pigs were organic.  

It is important to note that the amount of acreage devoted to lettuce, carrots, apples, and snap beans is tiny compared to corn, soy, and wheat.  For example, in 2015, about 1.2 million acres were devoted to lettuce, carrots, apples, and snap beans - an amount that is only 1.4% of the amount of land devoted to corn alone.  The point is that even though fruits and vegetables seem to have a higher share devoted to organic than commodity crops, because commodity crops account for the vast majority of land farmed , the total or overall share of cropland in organic remains very small.  For corn, soybeans, and wheat acreage combined, only 1% of the land is organic.

Here's a similar figure but calculated instead as a share of the value of production (i.e., the share of dollars).  

One might expect that organic would represent a larger share of the value of production since prices of organic are higher.  Indeed, this is the case for eggs and apples.  However, it is important to realize the organic yields tend to be lower.  Thus, we tend to not get as much output (or quantity) for each unit of land in production.  So, in the case of lettuce, for example, 22.7% of the acres are organic but only 13.6% of the dollars come from organic.  I suspect this is a result of lower yields for organic despite the fact that organic commands a price premium.  

*Note on the calculations and comparisons: Which numbers should be used in the comparison wasn't always clear, and it also wasn't clear whether the regular USDA production numbers include organic or not (I assumed they did in my calculations, an assumption that, if wrong, would make the organic % higher than it actually is).  The organic report provided values for vegetables grown in the open and under protection; I summed the value of production for both types but because no acreage is provided for the production "under protection", the value is not included calculations.  For non-organic fruits and vegetables, I summed the production for both fresh and processed.  All that said, I tried to make the comparisons as fairly as I could. 

Food Spending

A colleague sent me a couple articles highlighting recent trends in spending on food at home and away from home.  Here's Ashley Lutz at Business Insider from back in July:  

Restaurant sales growth has stalled in America.

McDonald’s, which had previously executed a huge turnaround, saw a slowdown in the most recent quarter. Other chains ranging from Chipotle to Buffalo Wild Wings also reported sales declines.

And, here's a story from a couple days ago by Bob Bryan also at Business Insider:

Fast-food chains have watched their sales growth drop off a cliff.

Executives advance plenty of reasons for the slowdown — or, in the case of some brands, the outright decline in sales. Some blame politics, others blame the oil crash, and so on.

The real reason may be a bit simpler: It’s getting cheaper for Americans to eat at home.

The price of food at grocery stores has actually been on the decline since the end of 2015, based on the Consumer Price Index for food at home. In fact, in July (the most recent data available), the cost of food at home declined 1.55% from the same month a year ago.

On the other hand, the cost of food away from home — what you pay at restaurants — is still on the rise. In July, prices for food away from home rose 2.79% from same month last year.

I thought I'd track down the numbers myself and see what's going on.  Here is the CPI data from the BLS, confirming the decline in prices of food at home and the increase in prices of food away from home.

The difference in trends looks even more dramatic if plotted in relative terms.  Here is the CPI for food at home divided by the CPI for food away from home.  Clearly, food at home has become relatively cheaper (compared to food away from home) over the past year.  

If the price of food at home is falling compared to the price of food away from home, does that that mean consumers are spending less on food at home or away from home?  Not necessarily.  Lower prices for food at home will induce consumers to buy more food at home.  Whether they ultimately spend more or less on food at home depends on the magnitude of the own-price elasticity of demand for food at home, and the cross-price elasticities of demand for food at home and away from home (I've previously estimated these parameters as discussed here).  

My data suggests these relative price changes have had a more complicated impact on food spending than suggested by the Business Insider articles.  Here is data from my monthly Food Demand Survey (FooDS) on estimated weekly food spending.  Interestingly, it appears there is a bit of an upward trend in spending on food away from home (spending on food away from home has increased 22% since January 2016), but by contrast spending on food at home has remained relatively more stable (spending is only 0.8% higher than in January, although it is about 5% higher than it was in June).  Thus, the increase in the relative price of food away from home hasn't led to a big drop off in spending on food away from home.  

As a consequence of the above trends, the share of food spending directed toward food away from home has risen from about 0.34 at the first of the year to about 0.38 today, as shown in the graph below.

All this might seem a bit counter-intuitive.  Prices on food at home fall, and yet people spend a smaller share of their food dollar on food at home.  Why?  The answer is because: spending = price paid * quantity purchased, and the two variables on the right hand side of the equation tend to work in opposite directions of each other.  When prices are lower, people tend to buy more quantity.  Whether the effect of changing prices has a bigger effect on spending than the effect of changing quantities, again, depends on the underlying demand elasticities.    

Value of Nutritional Information

There is a general sense that nutritional information on food products is "good" and "valuable."  But, just how valuable is it?  Are the benefits greater than the costs?

There have been a large number of studies that have attempted to address this question and all have significant shortcomings.  Some studies just ask people survey questions about whether they use or look at labels.  Other studies have tried to look at how the addition of labels changes purchase behavior - but the focus here is typically limited to only a handful of products. As noted in an important early paper on this topic, by Mario Teisl, Nancy Bockstael, and Alan Levy, nutritional labels don't have to cause people to choose healthier foods to be valuable.  Here is one example they give:

consider the individual who suffers from hypertension, has reduced his sodium intake according to medical advice, and believes his current sodium intake is satisfactory. If this individual were to learn that certain brands of popcorn were low in salt, then he may switch to these brands and allow himself more of some other high sodium food that he enjoys. Better nutritional information will cause changes in demand for products and increases in welfare even though it may not always cause a backwards shift in all risk increasing foods nor even a positive change in health status.

This is why it is important to consider a large number of foods and food choices when trying to figure out the value of nutritional labels.  And that's exactly what we did in a new paper just published in the journal Food Policy.  One of my Ph.D. students, Jisung Jo, used some data from an experiment conducted by Laurent Muller and Bernard Ruffieux in France to estimate consumers' demands for 173 different food items in an environment where shoppers made an entire day's worth of food choices.  This lets us calculate the value of nutritional information per day (not just per product).  

The nutritional information we studied relies on two simple nutritional indices created by French researchers.  They are something akin to a NuVal label system or a traffic light system.  We first asked people where they thought each of the 173 foods fell on the nutritional indices (and we also asked how tasty or untasty each of the foods were), and then after making a day's worth of (non-hypothetical) food choices, we told them were each food actually fell.   Here's a bit more detail.  

The initial “day 1” food choices were based on the individuals’ subjective (and implicit) health beliefs. Between days 1 and 2, we sought to measure those subjective health beliefs and also to provide objective information about each of the 173 foods. The beliefs were measured by asking respondents to pick the quadrant in the SAIN (Nutrient Adequacy Score for Individual foods) and LIM (for Limited Nutrient) table (Fig. 2) that best described where they thought each food fit. The SAIN and LIM are nutrient profiling models and indices introduced by the French Food Safety Agency. The SAIN score is a measure of “good” nutrients calculated as an un-weighted arithmetic mean of the percentage adequacy for five positive nutrients: protein, fiber, ascorbic acid, calcium, and iron. The LIM score is a measure of “bad” nutrients calculated as the mean percentage of the maximum recommended values for three nutrients: sodium, added sugar, and saturated fatty acid.2 Since indices help reduce search costs, displaying the information in the form of an index is a way to make the information available in an objective way but also allows consumers to better compare the many alternative products in their choice set.

Here are the key results:

In this study, we found that nutrient information conveyed through simple indices influences consumers’ grocery choices. Nutrient information increases willingness-to-pay (WTP) for healthy food and decreases WTP for unhealthy food. The added certainty provided by objective nutrient information increased the marginal WTP for healthy food. Moreover, there is a sort of loss aversion at play in that WTP for healthy vs. neutral food is lower than WTP for neutral vs. unhealthy food, and this loss aversion increases with information. . . . This study estimated the value of the nutrient index information at €0.98/family/day. The advantage of our approach is that the value of information reflects choices over a larger number of possible foods and represents an aggregate value over the whole day.

I should also note that people valued the taste of their food as well.  We found consumers were willing to pay 4.33 eruos/kg more for a one-unit increase in on the -5 to +5 taste scale.  To put this number in perspective, let's take a closer look at the average taste rating given to all 173 food items. Most items had a mean rating above zero. The highest rated items on average were items like tomatoes (+4.1), green salad (+4), and zucchini (+3.9). The lowest rated items on average included cheese spread ( 0.2) and Orangina light ( 1.9). [remember: these were French consumers] Moving from one of the lower to higher rated items would induce a four-point change in the taste scale associated with a change in economic value of 4.33 ⁄ 4 = 17.32 euros/kg.”