Two farm policy ideas

Despite the delays in getting a farm bill passed, the final products is not much different than what it has been in the past. Yes, the names of the programs have changed and the details of how payments get calculated have altered. But, these basic fact remain: the federal government remains heavily involved in production agriculture and hundreds of millions of dollars flow from taxpayers to farmers in ways that distort production decisions and lead to inefficient outcomes.

How do we get beyond this status quo? It will require new ideas.

Here are a couple that I've recently run across (although the ideas themselves have been around a while).

The first is an idea discussed by Graig Gunderson of the University of Illinois and three folks from the USDA, Betsey Kuhn, Susan Offutt, and Mitchel Moorehart. In a piece published by the USDA Economic Research Service back in 2004, they make the case for the devolution of agricultural policy - returning to the states the power to make their own farm policies. They write:

Current agricultural policy is concentrated at the Federal level, rather than at more decentralized levels. In light of agricultural diversity among States and the possible advantages to more local control of government programs, it is time to consider whether this concentration of power may impede the ability of agricultural policy to effectively address the new face of agriculture in the United States.

The authors suggest that about a third of federal spending on agricultural policy can be returned to the states via block grants, and they suggest various means for deciding on the allocations.

Second, Greg Colson, Octavio Ramirez, and Shengfei Fu of the University Georgia, in an article just released in Applied Economic Perspectives and Policy, make the case for crop insurance savings accounts as an alternative to subsidized federal crop insurance. They write:

This research explores the viability of an alternative design for crop insurance based upon farmer-owned savings accounts that are regulated, monitored, and marginally assisted by the government. Such accounts could be an effective risk management tool for many farmers and could operate without major government subsidization. Relative to the current program, the proposed design should exhibit minimal moral hazard and adverse selection problems, and since farm-level risk does not have to be priced, the proposed design eliminates the premium rating difficulties that weaken actuarial soundness and trigger the need for substantial external subsidies. In addition, administrative costs should be considerably lower.

Neither of these proposals is perfect or a cure-all, but they both have some promise in shaking up the status-quo and moving in a more promising direction.

 

Biggest food policy developments of 2014

Over at Reason.com, Balyen Linnekin has a post where he asked several "experts" to indicate what they thought were the

most interesting food-policy development so far this year—for better or worse—and where they see us heading for the rest of the year.

He asked me to contribute, and I tried to think of a topic that would likely be ignored by others and yet might have non-trivial effects on consumers and agricultural producers.  Here was what I had to say:

After California voters passed an initiative in 2008 banning certain livestock production practices, notably battery cages in egg production, the California legislature, fearful that its poultry producers would now be at a competitive disadvantage, passed a law requiring imported eggs to meet the same standard. Earlier this year, the Missouri attorney general (now joined by five other states) filed a federal lawsuit challenging the California law. Proponents of California's law point to state's rights to set their own minimum quality standards. Opponents posit that the law violates the federal interstate Commerce Clause and they argue that farmers and ranchers should be free to sell to consumers in any state, presuming they can find willing buyers. The outcome could have significant implications for states’ abilities to set their own food safety/quality standards and for the free trade of agricultural products across state lines.

Other commentators mentioned things like the new nutritional labeling standards, the implementation of the food safety modernization act, raw milk and feral hogs, and sriracha.  It seems we all ignored the new farm bill.

I liked this comment on my statement:

So, California is arguing for states' rights (What, are they racist?!), and their opponents are citing the interstate Commerce Clause, hoping that the federal courts will use it to protect an individual's right to buy or sell what they want.

Did I wake up in Bizzaro World this morning?

More on Soda Taxes

The Huffington Post just ran a piece I wrote in response to prior post in the same outlet by a doctor advocating for soda taxes.  Here are some excerpts: 

Jeff Ritterman, Vice Present of the Board of Directors for his local chapter of the Physicians for Social Responsibility recently wrote on The Huffington Post that we should "Tax a Cola, Save the Planet."

I've read lots of editorials advocating soda taxes, but this one beats them all in promising what a soda tax will deliver. He argues that:

"A simple policy change like the Soda Tax can help us waste less water, lower our GHG production, and lessen the pollution of our air, water and soil. At the same time, it can fund vital programs in our schools, parks and neighborhoods to improve nutrition and physical education opportunities for our children. It's a win-win-win: a win for the environment, a win for our children, and a win for our communities."

Wow, one tax will do all that! H.L. Mencken reportedly said that "for every complex problem there is an answer that is clear, simple, and wrong."

After discussing the literature showing how price changes and soda taxes cause people substitute toward other beverages and foods, I argued:

Ritterman argues that a soda tax will results in less soda being consumed, and he's probably right. But does that mean that there will be less water and less aluminum consumed? Well, it depends what consumers drink and eat instead of soda. If people instead drink more milk or more beer, as previous studies have suggested, will water consumption really be cut? If more cows are needed to produce more milk due to the increased demand caused by soda taxes, will greenhouse gases really fall?

Ritterman is right to suggest that enacting a soda tax can raise revenue for the government. But, that hardly makes it an economically efficient thing do. A tax is akin to reducing in one's income. No one likes having less income. Using taxes to direct people to buy goods they didn't purchase before the tax cannot make people better off. 

Effects of restaurant menu labels

Brenna Ellison, David Davis, and I have a paper forthcoming in the journal Economic Inquiry and that is finally available online.

Here's are the study objectives:

The overall purpose of this research is to perform an in-depth examination of menu labeling and pricing policies in a full-service, sit-down restaurant. Specifically, this research determines: (1) whether caloric labels in a fullservice restaurant influence food choice, (2) whether symbolic calorie labels are more/less influential than numeric calorie labels, (3) how effective menu labels are relative to “fat taxes” and “thin subsidies” at reducing calories ordered, and (4) the economic value of menu labels.

Our projections of the short-run effects of different policies (numeric label, symbolic label, 10% tax on high calorie items, or 10% subsidy on low calorie items) on the number of calories ordered at the restaurant we studied are as follows:

The only policy option which resulted in a statistically significant change in calories (where the 95% confidence interval on the change didn't include zero) was a "symbolic" calorie label - essentially a traffic light label with a red dot next t the highest calorie items, a yellow dot next to medium calorie items, and a green dot next to lowest calorie items.  We put the point estimate on the value of the symbolic label at about $0.13/person/meal.

It is important to note that the symbolic label policy option was also the one that had the most detrimental effect on restaurant revenues (these results are in Brenna's dissertation).  Also, curiously enough, Brenna's surveys suggest most people say they don't want the symbolic label.  Here's what we wrote in a different paper discussing a post-meal survey conducted with some of the diners:

Interestingly, despite the calorie+traffic light label’s effectiveness at reducing calories ordered, it was not the labeling format of choice. When asked which labeling format was preferred, only 27.5% of respondents wanted to see the calorie+traffic light label on their menus. Surprisingly, 42% preferred the calorie-only label which had virtually no influence on ordering behavior.

What has caused the recent rise in commodity prices?

Brian Wright from UC Berkeley attempts to answer that question in a recent review article in the Journal of Economic Perspectives.  His provocative answer:

The rises in food prices since 2004 have generated huge wealth transfers to global landholders, agricultural input suppliers, and biofuels producers. The losers have been net consumers of food, including the large numbers of the world's poorest peoples.  The cause of this large global redistribution was no perfect storm.  Farm from being a natural catastrophe, it was the result of new policies to allow and require increased use of grain and oilseed for production of biofuels.  Leading this trend were wealthy countries, initially misinformed about the true global environmental and distributional implications.