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.

What happens when we ban the slaughter of horses?

One of my former Ph.D. students, Mallory Vestal, sought to answer that question in a paper that we just published in the Journal of Agricultural and Applied Economics.  Mallory is a horse-lover, a former graduate assistant coach of the Oklahoma State University Equestrian team, and is now an assistant professor at West Texas A&M University. Here's the abstract of the paper:

“As a result of several judicial rulings, processing of horses for human consumption came to a halt in 2007. This article determines the change in horse prices resulting from elimination of horse-processing facilities. As expected, lower-valued horses were more affected by the ban than higher-valued horses. The analysis suggests the slaughter ban reduced horse prices, on average, by about 13% and resulted in a loss in producer surplus to sellers of approximately 14% at the sale we analyzed. We also show horse prices are affected by a myriad of factors including breed, gender, age, coat color, and sale catalog description.”

Because "lower value" horses were those most likely to (eventually) head to the slaughter house, we anticipated that their prices would be most affected by the slaughter ban, and that's indeed what we found.  Here's the impact of the ban on horses priced in the upper 20$, 40% . . and 80% of the price distribution.  

There were a number of interesting side-results, like these . . .

“The indicator variables related to the horse catalog descriptions were significantly
associated with horse prices. Consistent with Levitt and Dubner (2005), an ambiguous description such as “nice” was shown to negatively impact prices by −5% to −10% across all models. A more objective descriptive variable such as “finished” was significant in several of the quantiles examined and in the OLS model. Including the word “finished” in the horse’s description was associated with increased prices from 26% to 68%. This result is intuitive as it indicates the horse has specialized training and will be ready to show in the specified discipline. Another descriptive and informative variable, “100% sound,” positively impacted prices from 8% to 11%, whereas “athletic” and “quiet/gentle” negatively impacted higher-quantile prices by −10% and −8% respectively.”

Want to know my own view on eating horse meat?  I hinted at it in this editorial.

New Dietary Guidelines

The federal committee that makes dietary guidelines and recommendations has just released their newest report.  As expected, they've incorporated "sustainability" objectives and have recommended a move away from meat eating.  I've previously commented on the the problem with a single committee making both nutritional and sustainability recommendations, and I had a piece in the Wall Street Journal on environmental impacts of meat production.   Now we can take a look at what's actually been proposed.

Here's one tidbit from a Washington Post summary on the issue.

““We’re not saying that people need to become vegans,” said Miriam Nelson, a professor at Tufts University and one of the committee’s members. “But we are saying that people need to eat less meat.”

The panel’s findings, which were released to the public in the form on a 572 page report this afternoon, specifically recommend that Americans be kinder to the environment by eating more plant-based foods and fewer animal-based foods. The panel is confident that the country can align both health goals and environmental aims, but warns that the U.S. diet, as currently constructed, could improve.”

Other conservative news sources point to some pretty heavy handed portions of the report.  The Dietary Guidelines Advisory Committee (DGAC):  

“called for diet and weight management interventions by “trained interventionists” in healthcare settings, community locations, and worksites.”

"Interventionists" is the right word here, but rarely are interventionists so forthcoming in their intentions.They also want to tax foods, limit speech, and monitor TV use.   

“DGAC also called for policy interventions to “reduce unhealthy options,” limit access to high calorie foods in public buildings, “limit the exposure” of advertisements for junk food, a soda tax, and taxing high sugar and salt items and dessert.

“Align nutritional and agricultural policies with Dietary Guidelines recommendations and make broad policy changes to transform the food system so as to promote population health, including the use of economic and taxing policies to encourage the production and consumption of healthy foods and to reduce unhealthy foods,” its report read.

“For example, earmark tax revenues from sugar-sweetened beverages, snack foods and desserts high in calories, added sugars, or sodium, and other less healthy foods for nutrition education initiatives and obesity prevention programs.”

The amount of sedentary time Americans spend in front of computers and TV sets is also a concern to the federal panel.”

If you think this is a one-off isolated example, you haven't been paying attention.

Farm Policy on EconTalk

Great discussion about history and politics surrounding farm policy between Dan Sumner at UC Davis and Russ Roberts on EconTalk.  

I enjoyed this story that Sumner conveyed about midway through

“ And I have to tell you, Russ, my favorite story in all this. Back when I was a kid I was a young professor at North Carolina State. I ran a conference: I brought in luminaries of the agricultural economics world. And I invited some local agricultural commodity people. A man named Northly[?] came—he was the Executive Vice President of the North Carolina Peanut Association. Wonderful guy. He stood up as this conference was ending, and he said, ‘Let me tell you about the peanut program. There’s only two people in America who understand how the peanut program works. It’s my job to keep it that way.’ And I took that statement, one, to be true; and two, the fact that he was willing to say it out loud, to us, was a reflection of how irrelevant he thought we were. Now, I don’t think he was quite right that we were that irrelevant”

Effect of New California Laws on Egg Prices

A number of recent articles have reported on California's new egg law.  Here's a summary of what's happening if you're unaware:

“To recap, in 2008 California voters passed Prop 2 which essentially outlawed the use of “battery” cages in egg production in the state. California producers, fearful they would be put out of business by cheaper eggs from out of state, then secured passage of a state law in 2010 that also banned grocery stores from selling eggs that didn’t meet the new California standard. Several state attorney generals challenged the law, on the grounds that it violated the interstate commerce clause, but their initial attempt was unsuccessful.

In any event, all this finally went down on January 1, 2015. ”

Now that the new law is in place, there has been much interest in the effects on California egg prices.  I've seen a large number of articles written on the topic either before the law went into effect on Jan 1 which speculated on the potential change in egg prices or articles reporting on the effects after the fact.  I previously showed a picture taken in a grocery store that one of my students from California sent me suggesting that California consumers were taking note of rising prices.

Most of what I've read in these stories, however, is anecdotal.  They often only indicate what happened to egg prices in California without comparing to prices elsewhere (how to we know there isn't an overall price increase in every location due to some other factor besides the new law?).  As a result it has been difficult to get a sense of whether the increase in egg prices in California is due to the new law or some other factor.

To delve a bit into the issue, I was able to locate some data from the USDA, Agricultural Marketing Service (AMS).  Almost every day since the first of January, the AMS has released the National Shell Egg Index Price Report, which reports egg prices nationally and in California. Because this is a new report in 2015, I had to contact the AMS to get the data going back into 2014. To make things simple, I only focus on the prices of large eggs and the data are reported in cents per dozen.  

Here's a graph of the two price series over time, with the bold black vertical line indicating when the new CA law went into place. 

The first thing to note is that beginning in November, egg prices started increasing in California, but they were also increasing in the rest of the US.  Thus, attributing the November price increase to the new CA law (as many news stories did) seems misplaced.  

However, toward the end of November, and especially after the 1st of the year, the two price series begin to diverge.  After almost a year of moving up and down in tandem, something clearly happened around the first of the year that caused a divergence, and that "something" is almost certainly the new CA law.

One way economists try to sort out the effects of a policy such as this is to calculate a "difference in difference."  The reported price premium for CA eggs may be due to the way the AMS is measuring these data relative to the National price series, making us skeptical of the reported premium at any point in time.  However, we can be more confident in how this premium changes over time, because a "difference in difference" nets out these measurement effects, among other factors.  

Before Jan 1, 2015, the average price difference between the California price series and the National price series was 17.54 cents/dozen.  After Jan 1, the California premium over National prices increased 10 fold to 175.62 cents/dozen.  Thus, as of the date of this writing, it appears the new CA law has caused a 175.62-17.54 = 158.08 cent/dozen increase in the price of eggs in CA.  Given that the average price of large eggs in California in 2014 was 131.05 cent/dozen, we can thus say that the new law caused a (158.08/131.05)*100 = 120.6% increase in the price of California eggs.  

Now, as we can see from the figure above, the price series appears to be coming back together at the beginning of February, so we don't yet know how much of this price increase is due to a temporary shock (partially resulting from CA producers reducing flock size) and how much is a long-term price increase due to increased marginal costs of producing eggs.  The only way to answer that question is to wait and see what happens to egg prices.