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A Case for a Carbon Tax - Meat and Livestock Edition

Frequent readers of this blog know I’m not a big fan of many food and agricultural regulations (I did write the Food Police after all), and I’ve been skeptical of “externality” arguments use to advance food and agricultural interventions. As such, the title of this post might seem out of place. However, stick with me for a moment.

Anyone who has been paying attention knows animal agriculture has come under various lines of attack in recent years (something I recently referred to as the coming meat wars). Whether it be animal welfare, health, or environmental arguments, there is a fairly consistent refrain in many media circles that we are eating “too much” meat and dairy.

What does it mean to say someone is “over-consuming” or having “too much” of any product? There is paternalism: I think I know better what someone else should be eating/consuming. Beyond cajoling our children or spouse, few will concede this motivation for broad policy action. There are claims of information asymmetries: perhaps people don’t know or understand the impacts of consumption on their health or the environment. This would seem to point to policies surrounding information provision rather than outright prohibitions or taxes. Finally, the most cogent argument is that of externalities: your consumption is imposing a cost on me that you’re not considering when deciding what to buy.

If “externality” is the basis of one’s claim that another is “over consuming,” then the economist’s normal answer to fix the problem is some sort of tax to encourage buyers to factor in the costs imposed on others (in fact, I’ve argued elsewhere it’s often more complicated than that, but let’s ignore those arguments for now).

Here’s an often overlooked point about taxing exernalities: even after such a tax, consumption will not be zero, and indeed consumption might still be very high if its a good (like meat) people enjoy consuming. I ran across a quote from the now retired agricultural economist, Luther Tweeten, which colorfully summed up the way economists think about the issue:

St. Augustine called for people to ‘Love God and do as you please.’ The economist advises to ‘Price right and do as you please.

Once the prices are “right” - perhaps via some sort of tax - there is no need for the buyer/consumer to feel guilt or discomfort in their purchases; they’ve already paid for their costs on others and can eat and consume as they please. Here is Steven Landsburg in his book The Big Questions in a section entitled A Cost is Not A Sin:

When things are priced correctly, there’s no need to moralize about them. Every time you eat an orange, you leave the world one orange poorer. But nobody thinks it’s sinful to eat an orange, because the eater pays for the privilege - and thereby reimburses the rest of us for the damage done. Under the right tax system, emitting small amounts of additional pollution would be as unobjectionable as eating an orange.

Ok, back to meat and dairy consumption. Much of the popular writing on the subject casts consumption of such products as almost sinful. One advantage of a carbon (or carbon-equivalent) tax is that it would undercut much of the argument that people are “over consuming.” It’s not the cow or meat that’s the “sin,” it’s the carbon and methane.

There are several factors to consider before such a tax would be effective in this regard.

First, it must be broad based across the economy, not just focused on meat and livestock, otherwise, there is no guarantee people wouldn’t just substitute from one emitting category to a now relatively cheaper emitting category and have no impact on overall emissions. If it is indeed the case that, as the EPA suggests, agriculture in general and livestock in particular, are relatively small sources of greenhouse gas emissions in the U.S., then the impacts of such a tax on the sector need not be particularly pronounced, especially if revenue from the tax is refunded to taxpayers. Indeed, in a global context, such a worldwide tax might be competitively advantageous to U.S. producers greenhouse gas emissions per pound of meat or gallon of milk produced is much lower in the U.S. than in other parts of the world because of greater efficiencies here.

Second, a cow isn’t just a cow. Any effective system of this sort would need to reward producers who are more efficient and who find ways, whether it be different genetics, different feed, or different grazing practices, to reduce greenhouse gas emissions. That is, any effective system would have to allow possibilities for producers to monitor, register, and update their own particular impacts. Something as crude as $X per cow or $Y per pound lacks the incentives to motivate innovation in greenhouse gas reducing activities. Such a policy would be as silly as charging a fixed tax per car regardless of whether it was a Honda civic or a Hummer.

Finally, if producers (and everyone else) are taxed for emitting greenhouse gases, it seems logical that producers (and others) ought to be paid for sequestering carbon. I know there is a lot of debate on this subject, and it’s a topic about which I’m intimately knowledgeable, but suffice it to say that it is not unrealistic to imagine particular farming or ranching practices that sequester more carbon than they emit.

I suspect many environmental organizations would be downright shocked if meat and livestock industry associations banded together in support of a carbon tax. I’m not necessarily advocating such a tax, as indeed there are many complications and unintended consequences that I haven’t discussed here, but it is one mechanism available to address the combat much of this implicit “sinful” type rhetoric suggesting that people are “over consuming” meat. Of course, there’s also the possibility some anti-animal agriculture groups might balk at the proposal. Here’s Landsburg again:

So why don’t we have such taxes? I suspect it’s at least partly because in a world with rational taxation, there would be fewer jobs for priests. Solve a social problem and there’s no evil left to rail against.

I’ll end with one last observation. Let’s say you are a conscious consumer worried about the greenhouse gas emissions that result from meat eating. Is the answer to completely refrain from burgers, yogurt, and steak? No. Just reduce your consumption by the amount you would have reduced it had the price been slightly higher. Landsburg described how to follow the Economist’s Golden Rule (EGR) in the context of the question: Is it okay to burn carbon-based fuels?

In our less then ideal world [without a carbon tax], the EGR tells you to curb your pollution as if you were paying a fair price. It’s been estimated that you cause about 50 cents’ worth of environmental damage for every gallon of gas you burn. If you believe that estimate, and if you currently pay $3 for gas, pretend you’re paying about $3.50 and adjust your driving habits accordingly.

And, I should add: drive without guilt.

So, what does that mean for meat consumption. The first website that came up when I searched the subject, suggested 1 burger is responsible for 8.8 kg of carbon-equivalent emissions [this is probably an overstatement; see a previous crude calculation I made here based on EPA’s numbers]. A commonly used social cost of carbon is about $40/ton or $0.04/kg. So, the questions is: how many fewer burgers in a year would you consume if the cost were $0.04*8.8 = $0.35 higher?

The Future of Meat

Several weeks ago, I was interviewed by Stephen Dubner for Freakonomics radio and their associated podcast. The topic was the future of meat, and they just released the episode today. It’s not uncommon to do an hour long interview only to have the producers pull out a half minute clip to include in the show, so I was surprised to see how much of our interview they used. The other voice that gets a lot of air time is Pat Brown, a Stanford biomedical researcher who is the CEO and Founder of Impossible Foods - a company aiming to replace meat by using genetically engineered yeast to produce animal-like proteins via a fermentation process (I’ve reviewed the Impossible burger in a previous post). The transcript of the Freakonomics show is here. Or, download the episode from your favorite streaming service.

The Superbowl and Chicken Wing Demand

With the Superbowl coming up this Sunday, I thought I’d take a quick look at whether this annual event has much effect on the market for a food it has come to be closely associated with: chicken wings.

I turned to USDA data compiled by the Livestock Marketing Information Center, which reports weekly prices on whole wings going back to 1992. Here is the price trend in nominal terms. There has been a strong upward trend in chicken wing prices over this time period, but of course some of that is due to inflation. However, even after adjusting for inflation, wings were about $0.90/lb in the early 1990s ($0.50/lb in nominal terms), and they averaged about $1.50/lb in 2018; during the latter part of 2018, prices were above $2.00/lb.

wing1.JPG

In the graph above, it’s hard to make out when, exactly, the Superbowl occurred. Looking at the history of the event over this time period, the Superbowl occurred in late January or early February every year since 1992. With that knowledge, I added orange lines to the graph to indicate the periods surrounding the Superbowl.

wing2.JPG

It sure looks like there is a price spike right around the time of the Superbowl each year, with a price decline immediately following. Indeed, if I look at the most recent decade, prices rise about 7% from early January to the Superbowl period (late January, early February), and then fall about 5% going in to mid- to late-February.

The price spikes are indicative of increasing demand over this time period. This is also consistent with data we collected in the monthly Food Demand Survey, were we often found a spike in consumer willingness-to-pay around the event.

Too bad I don’t have data on napkins and antacids …

P.S. One might wonder why this price phenomenon is different than that for turkeys. As I discussed back in November, turkey prices tend to fall around Thanksgiving when demand is peaking, perhaps due to strategic pricing behavior by retailers or from producers planning ahead and increasing supply around this time. A key difference with turkeys and wings, is that one is a whole and the other is a part. If there isn’t an overall demand increase for chicken around the Superbowl, then the wings will be in relatively short supply. It might make sense for a turkey producer to grown a whole bird in anticipation of the holidays, but it’s not possible for a producer to only grown wings in anticipation of the Superbowl.

The Coming Meat Wars

By now, I suspect many of you have seen the report by the EAT-Lancet Commission on Healthy Diets from Sustainable Food Systems, which was released on January 16th.

Among other things, the report recommends a dramatic reduction in consumption of meat and animal products. Here is their recommended plate.

new my plate.JPG

Much has been made on Twitter and other places about the size of the small meat and animal product proportions suggested (e.g., 1/4 egg per day), and the fact that more added sugar is suggested than most meat products.

Rather, than going line-by-line through the report, I think it’s useful to take a step back and see this report as another front in what seems to be an escalating war on meat and animal food products (recall the debate surrounding the scientific advisory report on dietary guidelines back in 2015? Here were my thoughts then). What I thought I’d do in response is to provide some broader thoughts about some of the debates that have arisen about meat consumption. My purpose isn’t to defend meat and livestock industries, but to help explain the consumption patterns we see, add some important context and nuance to these discussions, and help ensure consumer welfare isn’t unduly harmed. (Full disclosure: over the years, I’ve done various consulting projects for meat and livestock groups such as the Cattlemen’s Beef Board, the Pork Board, and the North American Meat Institute. All of this work was on specific projects or data analysis related to labels or demand projections, and none of these groups support writing such as this, but I mention it here for sake of transparency).

Here are my thoughts.

  • These debates can be contentious because meat, dairy, and egg production is big business and critically important to the economic health of the agricultural sector. For example, these USDA data show in 2017 in the U.S. the value of cattle/calves was about $67 billion, poultry and eggs about $43 billion, diary about $38 billion, and hogs about $21 billion, for a total of $176 billion at the farm gate. Contrast this with the value of corn ($46.6 billion), vegetables and melons ($19.7 billion), fruits and nuts ($31 billion), or wheat ($8.7 billion). In many ways, livestock/poultry can be see as “value added” production because these animal products rely on corn, soy, hay, and grass

  • Given the farm-level statistics, it shouldn’t be surprising to learn that consumers spend a lot on meat, dairy, and eggs. Data from the Bureau of Labor Statistics, Consumer Expenditure Survey suggest that in 2017 consumers spend about $181 billion on animal products eaten at home. This doesn’t count food away from home, which is 43.5% of food spending according to these data (spending on food away from home isn’t segregated into food types as is food at home). Of total spending on food at home, 32% goes toward meat, dairy, and eggs.

  • If anything, data suggest demand for meat (i.e., the amount consumers are willing to pay for a given quantity of meat) has been steady or rising over the past decade. For example, see these demand indices created by Glynn Tonsor. His data also shows there has been a steady increase in demand for poultry for the past several decades. At the same time, my FooDS data suggests a slight increase in the share of people who report being vegetarian or vegan over the past five years - going from around 4% in 2013 to around 6% in 2018. So, aggregate demand for animal products is up, although there seems to be increasing polarization on both ends of spectrum. We also find that meat consumption is increasingly related to political ideology, with conservatives having higher beef demand than liberals.

  • There are important demographic differences in meat consumption, but the results highly depend on which meat cuts we are talking about. For example lower income households have higher demand for ground beef and lower demand for steak than higher income households. Broadly speaking, meat consumption is a “normal good”, which means that consumption increase as incomes rise. This is particularly true in developing countries. One of the first things people in developing countries add to their diet when they get a little more money in their pockets is animal protein.

  • Given the high levels of aggregate meat consumption indicated above, the evidence suggests strong consumer preferences for meat and animal-based products. Taxes on such products will harm consumer welfare, and will be costly if, for no other reason, because of the size of the industry. Stated differently, consumers highly valuing having animal protein in their diets. This study shows the average U.S. consumer places a higher value on having meat in his or her diet than having any other food group.

  • Calls for taxes are often predicated on the notion that there are externalities from meat, egg, and dairy production that need to be internalized (otherwise, this would amount to little more than “nannying” or paternalism). The externalities on the health care front presumably come from the fact that we have Medicare and Medicaid, which socialize health care costs. As I’ve written about on many occasions (e.g., see this paper), these “externalities” do NOT create economic inefficiencies because they simply represent transfers from healthy to the sick. Any inefficiencies that arise occur because of moral hazard (i.e., people eating unhealthy because they think the government/taxpayers will foot the bill), and the solution to this insurance problem is typically to require deductibles or risk-adjusted insurance pricing, which nobody seems to be proposing as a solution. As for environmental externalities, the key is to ensure prices for inputs such as water or energy, or outputs such as carbon or methane, reflect external costs. In this sense it isn’t the cow or chicken that is the “sin” but the under-priced water or carbon. Here the goal is to adopt broad policies that apply to all sectors (ag and non-ag) and that encourage and allow for innovation to reduce impacts.

  • On climate impacts of animal agriculture, it is important not to confuse global figures of climate impacts with U.S. figures, which tend to be much lower (e.g., see my piece in the WSJ a few years ago on this topic). Why would climate impacts be lower in the U.S.? Because we tend to be more intensified and productive than elsewhere in the world. I know it sounds counter-intuitive, but more intensive livestock operations (because of the massive productivity gains) can significantly reduce environmental impacts when measured on a per unit of output (e.g., pound of meat or egg) basis.

  • As for carbon impacts, the big culprit here is beef and to a lesser extent (due to the smaller cattle numbers), dairy. Why? Because cattle are ruminants. The great benefit of ruminants is that they can take foodstuffs inedible to humans (e.g., grass, hay, cottonseed) and convert them into products we like to eat (e.g., cheese, steak) (see further discussion on this here). The downside is that ruminants create methane, which is a potent greenhouse gas (GHG). The good news is that the GHG emissions from beef production have significantly fallen over time because of dramatic productivity gains (see this paper), but they’re not zero. It’s also important to note that not all greenhouse gasses are created equal, and while methane is a potent greenhouse gas, my understanding is that the impacts from livestock are less persistent in the atmosphere than are other types of greenhouse has emissions. While we can cut GHG emissions by eating less beef, at least in the U.S., the impacts are fairly small (the EPA puts contributions from livestock at around 3-4% of the total), we can also make strides by continuing to increase livestock productivity.

  • While cattle are more problematic on the GHG front, it is important to note that there are likely tradeoffs (real or perceived) on the animal welfare front in comparison with other species. Most beef cattle live most of their lives outdoors on a diet of grass or hay. Cattle often make use of marginal lands that would be environmentally degrading to bring into row crop production. By contrast, most pork and poultry live the vast majority of their lives indoors on a diet of corn and soy. See my book with Bailey Norwood on the topic of animal welfare.

  • There are some interesting innovations happening on the “lab grown meat” and “plant-based protein” space, which aim to replace protein from animal based sources. I haven’t seen these innovators make many claims about relative health benefits, but they often suggest significant benefits in terms of environmental impacts. I hope they’re ultimately right, but they’ve got a long way to go. Lab-grown meat isn’t a free lunch, and all those cells have to eat something. As I’ve also noted elsewhere, it is curious that these products (plant- or cell- based) are still more expensive than conventional meat products. If these alternative proteins are really saving resources, they should ultimately be much less expensive. Time will tell.

  • Despite the excitement around the alternative protein sources, I don’t think we’ll see an end to cattle production anytime in the near future. Why? Well, there is the aforementioned marginal land issue; many agricultural lands aren’t very productive for use in other activities other than feeding cattle or housing other livestock or poultry. Another issue is that cattle and other livestock are food waste preventing machines. A big example here is distillers grains. What happens to all the “spent” grain that runs through ethanol plants or beer breweries? Its feed to livestock. The same is true of “ugly fruit”, non-confirming bakery items, and more. Also, without animal agriculture, where will organic agriculture get all it’s fertilizer, which currently comes from the manure of conventionally raised farm animals?

  • Back to the EAT-Lancet commission, one of the big arguments for reducing meat consumption is health. While there are many studies associating meat consumption with various health problems, the strength of evidence is fairly weak. One big problem is that it’s really tough to do dietary-impact studies well and a lot of the evidence comes from fairly dubious dietary recall studies, but the other issue is that there is generally little attempt to separate correlation from causation. As I’ve written in other contexts, “Its high time for a credibility revolution in nutrition and epidemiology.”

  • The EAT-Lancet report focuses both on health and sustainability issues. However, as I noted with regard to the 2015 dietary guidelines, which initially aimed to do the same, this conflates science and values. As I wrote then, “Tell us which foods are more nutritious. Tell us which foods are more environmentally friendly. But, don't presume to know how much one values taste vs. nutrition, or environment vs. nutrition, or price vs. environment. And, recognize that we can't have it all. Life is full of trade-offs.”

  • Finally, I’ve heard it suggested that we need new policies and regulations to offset bad farm policies, which have led to overproduction of grains and livestock. This view is widely believed and also widely discredited. For example, see this piece by Tamar Haspel in the Washington Post. In the U.S., beef, pork, broilers, and eggs receive no direct production subsidies. Yes, there are various subsidies for feedstocks like corn and soy, but there are also other policies that push the prices of these commodities up rather than down (why would farmers want policies that would dampen the prices of their outputs?). Large scale CAFOs (confined animal feeding operations) must comply with a host of rules and regulations that raise costs (it should be noted that the government provides some funding, through the Environmental Quality Incentives Program (EQIP) program, to incentivize certain practices by CAFOs thought to improve environmental outcomes). If U.S. farm bill was completely eliminated, there would not doubt be some change, but it wouldn’t do much to change the volume of meat, dairy, and egg produced.

That’s more than enough to chew on for now.

Reducing Meat Consumption?

A couple weeks ago, The Economist ran this story about people’s stated efforts to reduce meat consumption. Here is their key graph, which shows demographic breakdowns in how people responded to this question.

meat_politics.JPG

These demographic results are largely consistent with many of the survey results I’ve generated over the past few years. For example, here are demographic breakdowns of people who self declare as vegetarian/vegan vs. meat eater. Like the study mentioned in The Economist, we find politically liberal individuals are much more likely to be vegetarians/vegans as compared to politically conservative individuals.

Also, see this study where I estimated beef demand. Again, demand for steak and ground beef increases the more conservative the respondent.

More broadly, the study mentioned by The Economist suggests:

Twenty-seven per cent of respondents in our survey say they have made an effort to reduce their consumption of meat in the past year.

That’s a bit of a strange framing because if you look at USDA data on consumption (or “disappearance”), over the past four to five years it has been increasing. As for measures of meat demand, such as these complied by Glynn Tonsor at K-State, demand today for beef and pork is quite a bit higher than in 2010 or 2011.

Maybe, this is a way of saying that I’m skeptical of questions like that in The Economist that ask, in a somewhat leading way, how much are one trying to reduce consumption of X. A more balanced question shows much different results.

For example, see the results of this study on pork I conducted with Glynn Tonsor, Ted Schroeder, and Dermot Hayes for the Pork Board. We report:

One of the initial questions asked respondents, “Over the past five years, has your consumption of pork chops increased or decreased?” 32.9% indicated consumption had increased, 57.5% responded “stayed the same,” and the remaining 9.6% indicated consumption had decreased.

For the 9.6% who said “decrease”, we asked why, and the most common response was, “Other meat options have become more attractive.” So, in this case, even among people who said they were eating less pork, it’s because they’re eating more of other types of meat.

Or, here are the results of a survey I conducted last year, where I asked the same question but this time about chicken consumption. The result?

One of the initial questions asked respondents, “Over the past five years, has your consumption of chicken increased or decreased?” 47.4% indicated consumption had increased, 48.5% responded “stayed the same,” and the remaining 4.1% indicated consumption had decreased.

The most commonly stated reason among the 4.1% who said “decrease” was “Chicken has become less tasty.”

It’s interesting that when given the option of “increase or decrease”, I only find 9.6% of pork consumers and 4.1% of chicken consumers say they’re decreasing consumption, both of which are far lower than the 27% suggested by The Economist.