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Varney and Co

Tune in on Tuesday to Varney & Co at 11am on the Fox Business Network. I'll be talking meat, environment, and economics.

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Livestock, Externalities, and the Environment

The Wall Street Journal published a piece  today that I wrote dealing with externalities in livestock production.  I didn't choose the title - my argument isn't that livestock production doesn't have environmental impacts, rather I question the relative size of the impacts and discuss the best way to handle those impacts.

A few snippets:

“That the price of meat is too low might come as news to food consumers who, according to data from the Bureau of Labor Statistics, paid 14% higher prices for ground beef this June than they did in June 2013 and 29% more than two years ago. Recent droughts and high corn prices—due in part to Washington’s support for ethanol—are largely to blame. It is unclear how high prices must rise to overcome the view that meat is “too cheap.” Some industry critics have even called for new “meat taxes” to discourage consumption.”

and

“The Environmental Protection Agency estimates that U.S. agriculture, including livestock production, accounts for only about 8% of total greenhouse-gas emissions in the country. Livestock in the U.S. have lower greenhouse-gas footprints than in other parts of the world. This is partly because American producers generally use higher-quality feeds, higher-yielding breeds, and more productivity-enhancing technologies such as probiotics, vaccines and growth hormones. Future improvements in feed and animal genetics could further reduce animal-agriculture’s impact. As economists have shown, one should not underestimate the ability of innovation, markets, the courts and private negotiation to resolve the adverse effects of externalities.

Moreover, the concept of externalities when applied to food is nebulous. At a recent Institute of Medicine meeting I attended, a room full of Ph.D.s struggled to understand exactly what to measure.”

and

“Let us also not gloss over what is beef’s most obvious benefit: Livestock take inedible grasses and untasty grains and convert them into a protein-packed food most humans love to eat. We may be able to reduce our impact on the environment by eating less meat, but we can also do the same by using science to make livestock more productive and environmentally friendly.”

For more on that last point, see my previous post.

The piece was in part motivated by the fact that social commentators’ accounts of externalities often reflect a shallow understanding of complexity of the subject.  The economists A.H. Barnett and Bruce Yandle accurately discerned the fact that, “economists unwittingly developed a weapon of mass destruction that, in the hands of journalists and popular policy analysts, at times corroded almost to the point of uselessness the beneficial theory of markets and competition.”  As a participant in one of the CDC-IOM planning workshop on “Exploring the True Costs of Food”, I have witnessed the disconnect that often exists between public health advocates and economists on the nature and role of externalities (I discuss some that disconnect and the complexity of externalities in this article published in Agricultural and Resource Economics Review).  Often, factors that are argued to be externalities are simply zero-sum transfers (as is the case for health care costs paid by public insurance programs like Medicaid), have effects that are actually internalized in other market prices (such as the risk of injury to workers in meat packing plants), or are not externalities at all. 

If the issue is that livestock are consuming "too much" water and that water isn't appropriately priced, the key is to think about how to develop water rights and markets so that the price of water reflects its relative scarcity.  But, it should also be clear - given the correlation between drought and beef prices - that a lot of the water use is factored into the price of beef.

That there are externalities in beef production is hardly news.  The much more difficult question is how to address them.  Technological progress is a key solution.  Research shows that the carbon footprint of beef production fell 16% from 1977 to 2007, with much of that reduction resulting from responsible use of technologies.  Many consumers are averse to these externality-reducing practices and technologies, but more “natural” production systems are often associated with lower productivity, greater water and land use, and higher carbon footprints.  

 

Food Demand Survey (FooDS) - August 2014

The August 2014 edition of the Food Demand Survey (FooDS) is now out.

A few noteworthy highlights:

  • Willingness-to-pay (WTP) for meat products remains steady.  Beef and poultry WTPs are virtually unchanged from last month but are up relative to a year ago.
  • WTP for the two pork products (chops and ham) significantly rose in August relative to July.
  • For the first time since we've been doing Foods (over a year and a half), more people told us they plan to buy more beef in the coming weeks than said they plan to buy less beef.
  • Consumers continue to expect to see increasingly higher prices for beef in the coming weeks; inflationary expectations for chicken and pork remain similar to last month but are higher than a year ago.
  • More people are planning to eat out than was the case a year ago.
  • Concern for "pink slime" and for lean fine textured beef rose this month relative to July, although consumers did not report hearing more about these topics in the news.
  • The largest drops in concern this month were for mad cow, bird flu, and GMOs.

Tournament contracting and managerial ability - FFA edition

Yesterday I posted some thoughts on the book, The Meat Racket.  The book takes aim at poultry contracting, and in particular the use of tournament contracts to reward growers for performance.  People who abhor the tournament system liken it to a lottery, where only chance determines who gets bonuses and who gets penalties.

A former student read yesterday's post and passed along an interesting and highly relevant anecdote.  The student was a former high school ag teacher.  One of the jobs that comes with being an ag teacher is helping students prepare for and participate in various FFA competitions.  One of these competitions is a broiler competition.

The interesting thing about the high school FFA broiler competition is that it works very much like the Tyson contract tournament system.  All students are required to buy their chickens from the same place and grow the same number of days before competition.  Then there is a competition where there are only a handful of winners. Surely winning must be due only to luck - right?

Here's what the former FFA teacher had to say (with the school identity removed and replaced with "XXX"): 

“Before grad school I taught at three different schools, one of which was XXX High School. They had a history of success in the broiler competition. My principal’s sons won grand and reserve grand in the same year! . . . Everyone registers for baby chicks. Everyone gets chicks 49 days prior to show day. Everyone has to provide feed and transportation to the show. XXX had to transport these giant birds (who seem to just look for ways to die) 4 hours while many of the [other schools] just had to drive up the road. However, the XXX High School kids (or ag teacher, principal, and dads) had figured out how to compete. They researched the ideal environment, feeds, and care. And they won. Another year before they had grand and reserve, they had 4 in the top ten, not to mention other years they won or were in the top 3. They did not get better bird; did not mix their own feed, or use drugs. Everyone in the state had access to the same feed and products and research as the people in XXX. (XXX isn’t the only program that excels; year-in and year-out it seems the same programs rotate the top spots)”

Clearly, there are some difficult to measure managerial talents that help drive success in raising chickens.  How do we know this?  There is an FFA competition at the end of the year that reveals that there is a non-random component to growing successful chickens.  FFA kids know this.  So does Tyson.