Update on Meat Prices

It's been a little less than a year since I last weighed in on the change in  meat prices.  So, what's been happening?  

Below is a graph of retail prices from the  Bureau of Labor Statistics over approximately the last five years (from January 2010 to February 2015).

Beef prices (ground beef and steak) have continued their rise, while pork products (pork chops and ham) have come down a bit off their highs in the summer/fall.  Chicken prices have remained relatively steady.  

It is a little easier to focus in on changes by looking at the following graph, where I've plotted the changes in each meat's price relative to its price in January 2010 (and multiplied by 100).

Compared to five years ago, ground beef prices are 54% higher (an annual increase of over 10%) and steak prices are 43% higher (an annual increase of 8.6%).  Pork chop and ham prices are 30% and 39% higher than they were five years ago despite the recent declines.  Chicken prices today are only about 10% higher than 5 years ago (experiencing annual increases of only 1-2%).  

On at least a couple of occasions (here and here), I've discussed the driving factors behind these price changes, and none of that has really changed.  The fact that pork prices are now falling and beef isn't is likely due to the shorter life-cycle of pork relative to beef.  A sow can produce two litters per year (with about 9-12 pigs/litter) and those baby pigs are big enough for our dinner plates in about half a year.  By contrast, a cow will typically have one calf in a year, and it takes a little less than 2 years before that calf becomes our hamburger.  Both hog and beef producers want to produce more animals to take advantage of the higher prices (a move that will eventually bring down prices), but biological lags mean pork producers will be able to respond more quickly.  

So, when will beef prices begin to come down?  If biological lags are the answer, I'd say wait about a year and a half.    

TSE Economist weighs in on nutrient taxes

In the most recent issue of the Toulouse School of Economics (TSE) Magazine (pg 8) features some work by Vincent Requillart and Celine Bonnet on ability of nutrient taxes (like soda taxes) to fight obesity. 

Soda and sugar taxes don't always have the anticipated effect:

“The fact that we take into account the way the industry and retailers react via their pricing decisions. Most research assumes that the tax is passed on to the consumer. There’s no reason that should be the case! Firms are not passive, they develop strategies. They can raise prices more than is strictly necessary to cover the tax or, on the contrary, reduce their profit margins so as to maintain their sales.”

The point out that the effects of a sugared-soda tax are small, and that the actual policy passed in France (taxing all sweetened drinks - even those with artificial sweeteners) would not be expected to reduce weight.

“Taxing all drinks, be they sugar-sweetened or light, is counter to health recommendations. In practical terms, the tax implemented does not reach its goal of reducing sugar consumption. It acts primarily as an instrument to increase the State’s budget revenue.”

They seem to favor voluntary arrangements between food companies and the government to reduce sugar and salt content.  Even still, in places like the UK, where such an approach has been taken, the effect appears to be virtually nil.

“Having said that, despite all the measures implemented, obesity has not been eliminated. ”

One of the challenges is the complexity of it all

“ In the case of food, defining what is good and what is bad when dealing with a large number of nutrients, is complex.What’s more, eating habits change very slowly.”

For a more in depth and academic treatment of the topic, you might check out some of the published work by these authors.

How do consumers respond to rising food prices?

That's the question asked in this working paper by Rachel Griffith, Martin O’Connell and Kate Smith.  The abstract: 

“Over the Great Recession real wages stagnated and unemployment increased. Concurrently, food prices rose sharply, outstripping growth in food expenditure, and leading to a reduction in calories purchased. This has led to concern about rising food poverty. We study British households to assess how they adjusted to changes in the economic environment. We show they switched to cheaper calories; implying food consumption was smoother than expenditure. We use longitudinal data to quantify the way households lowered their per calorie spending, and show they done this in part by increasing shopping effort, and without lowering the nutritional quality of their groceries.”

When we feel the pinch, we can substitute away from more expensive to less expensive foods.  But, we can also increase the effort we expend in finding better prices.  In short, our time is a valuable commodity that we treat like other economic goods.  

That fact was also emphasized in a paper by Broda, Leibtag, and Weinstein in the Journal of Economic Perspectives in 2009.  They used some creative methods to ask the question: do the poor pay more or less than the rich?  They write:

“In this paper, we circumvent the problems of previous studies by using a dataset that contains actual purchases of around 40,000 households collected by Nielsen. By focusing on the actual prices paid by households, we show that poor households systematically pay less than richer households for identical goods. The poor pay less in part because they shop in cheaper stores and in part because they pay less for the same goods even in the same store. This latter effect probably arises because poorer households are more likely than richer households to buy goods on sale, even in the same store. We also confirm that the poor shop more in convenience stores—where prices are 11 percent higher than in traditional grocery stores—but show that this effect is dominated by their higher share of expenditure in supercenters where prices are 10 percent lower than in grocery stores.”

Note that these authors aren't comparing apples to oranges.  They compare the prices paid by rich and poor households for exactly the same goods.  

When asked how consumers respond to higher prices or lower incomes, so often we economists refer to indifference curves and budget constrains or do a fair amount of hand-waving.  Yet, as these studies show, reality is more complex.  We can use our time to find better prices, or we can alter out consumption bundle to provide the same nutritional quality in a less expensive fashion.   

Reducing Food Insecurity

Last week, I mentioned the new USDA report on food insecurity.  I also mentioned a WSJ editorial by James Bovard arguing that food stamps don't reduce food insecurity because the number of people enrolled in food stamps has risen dramatically while food insecurity remains essentially unchanged.

I noted that we don't know the counterfactual (i.e., how much food insecurity would have changed had enrollment in food stamps not increased).  And, I also noted that there is some good academic research on the relationship on food insecurity and food stamp participation.

One of the big problems with trying to tease out the link between these two is that they are jointly determined.  That is, I may enroll in food stamps precisely because I'm food insecure. This sort of selection effect will make it look like being on food stamps is associated with food insecurity, but clearly this is just correlation, not causation.

Here is a careful paper published in the Journal of the American Statistical Association that tries to get at the issue:

“Under the weakest restrictions, there is substantial ambiguity; we cannot rule out the possibility that SNAP increases or decreases poor health. Under stronger but plausible assumptions used to address the selection and classification error problems, we find that commonly cited relationships between SNAP and poor health outcomes provide a misleading picture about the true impacts of the program. Our tightest bounds identify favorable impacts of SNAP on child health.”

One of the measures of "child health" is food insecurity, and this research seems to suggest null to positive effects of food stamp participation and child food insecurity.  

A lot of the discussion on the web related to the USDA report seems to be wrapped up in ideological baggage associated with beliefs about the desirability of cutting or expanding the food stamp program (or, for example, utilizing work requirements).  Those who would like to reduce the size and scope of the food stamp program often try to argue that food stamps do not reduce food insecurity and may actually increase it.  My view is that the best analysis doesn't support such an argument.  There may be other good reasons for reducing the size of the food stamp program, but the food security argument isn't one of them.  

Another argument I made in my previous post was that technological development that leads to lower food prices seems a comparatively good strategy for reducing food insecurity.  

As such, I was intrigued to see this white paper by Graig Gundersen at the University of Illinois on food insecurity.  One of the five drivers he discusses to reduce food insecurity is to focus on the importance of low food prices.  

He also writes, when discussing, what food groups can do (or perhaps what they shouldn't do):

“Third, they can view proposals encouraging organic foods and local foods with skepticism. While proposals to encourage, say, local food procurement by supermarkets can have ancillary benefits, these benefits do not generally extend to low-income households because they cannot afford these items. Instead, the benefits are more likely to extend to upper-income households that can afford these items. Moreover, by devoting scarce resources to encouraging the entrance of these into the food supply chain, this diverts resources away from factors that would help low-income households. ”

Food insecurity remains essentially unchanged

Yesterday the USDA Economic Research Service released a report on the prevalence of food insecurity in the U.S.  Over 14% of US households (that's 17.5 million households or 49 million people) remain food insecure, a number that hasn't much budgeted since the recession began in '07-08.

As pointed out in a Wall Street Journal editorial today, the USDA's measure of food insecurity isn't a direct measure of hunger.  Rather, the measure is derived from responses to a set of survey questions.  Respondents are shown 10 questions (18 if they have children), and if they respond "yes" more than three times to questions like, "In the last 12 months, did you or other adults in the household ever cut the size of your meals or skip meals because there wasn’t enough money for food?" then the household is classified as food insecure.  

Over at the US Food Policy blog, Parke Wilde remarks:

“In previous years, the United States solemnly adopted targets for reducing the prevalence of food insecurity from 12% (the level observed in the mid-1990s) to 6%. As my chart (based on USDA data) shows, this effort to improve U.S. food security has failed. Yet, neither Democrats nor Republicans talk much any more about any substantial realistic strategy for poverty reduction — with serious objectives, quantitative targets, and implementation steps. Though food assistance is of course important, poverty reduction is the most promising approach to improving household food security in the United States.”

James Bovard in the WSJ notes that the food insecurity results are surprising given the rise in food stamp participation over this period

“In 2013 the USDA reported that federal food programs—most notably food stamps provided by the Supplemental Nutrition Assistance Program (SNAP)—“increase food security by providing low-income households access to food, a healthful diet, and nutrition education.” But food insecurity was more widespread in 2013 (14.3%) than in 2007 (11.1%), while food-stamp recipients rose to 47 million from 26 million.”

Bovard makes an interesting and relevant observation.  However, I'm not sure that I fully agree with his characterization of the literature on the (lack of) causal relationship between food stamp participation, food insecurity, and hunger.  It could be that we would have had even higher rates of food insecurity had enrollment in food stamps not swelled.  As econ-speak: we didn't observe the counter-factual.  

A few comments I've read point out that food insecurity would likely have been lower in 2013 had we not experienced higher food prices over the last several years (particularly for protein over the past year).  That's almost certainly is true.  Just last year, two USDA-ERS researchers (two of the same people who authored the recent report on food insecurity) published a paper (which I previously discussed here) in the journal Applied Economic Perspectives and Policy showing that food stamp participants who live in areas with higher food prices are more likely to be food insecure than food stamp participants who live in areas with lower food prices.  They write:

“We find that the average effect of food prices on the probability of food insecurity is positive and significant: a one-standard deviation increase in food prices is associated with increases of 2.7, 2.6, and 3.1 percentage points in household, adult, and child food insecurity, respectively. These marginal effects amount to 5.0%, 5.1%, and 12.4% increases in the prevalence of food insecurity for SNAP households, adults, and children, respectively.”

If we want less food insecurity, one way to achieve that outcome is to have lower food prices.  How to we get lower food prices? Rain would help (but not too much rain).  The primary systematic way to achieve long-term reduction in food prices is through scientific development and technological innovation that increases agricultural productivity.