When fat taxes meet the supply side

Last week at the European Association of Agricultural Economist's meetings, I saw Louis-George Soler present a keynote talk on food and nutrition policies.  The paper-version of the talk, written with Vincent Réquillart  is being published in the European Journal of Agricultural Economics.

One of the key points of his talk was that much of the policy analysis on effects of fat taxes, soda taxes, veggie subsidies, etc. only consider consumer responses and ignore how firms will react to the policies.  It is often the case that such supply-side responses will substantively reduce the health impacts of the policies.

For example, suppose Congress passed a law banning advertising of sweetened sugared cereal to children.  How might Kellogg's or General Mills respond?  Given that the firms can no longer  use their revenue on promotion and advertising, they might instead re-direct those funds to cost-cutting efforts that reduce the cereals' prices.  Competition moves from who has the most compelling ad to who has the lowest price.  Lower prices will encourage more consumption: exactly the opposite of what was intended by the ban.

Another point they raise is related to the "pass-through" effect of taxes on firms profits and retail prices.  Given the nature of competition between firms and the type of tax (excise or ad valorem), a tax can be "over-shifted" or "under-shifted" to consumers.  Thus, tax policies might cause a larger or smaller reduction in consumption than anticipated.

Take another example.  Suppose the government requires firms to add "high fat" labels to certain products.  The research cited in the Requillart-Soler paper suggests that firms may respond by lowering the price of the high fat items and increasing the price of the low fat items.  While the "high fat" label will tend to discourage consumption, the now lower relative price for high fat items will tend to encourage consumption.  

None of this is to say that food policies won't have any impact on health, only that studies which ignore food companies' responses to the new policy environment will often overestimate the health impacts of food policies.   

Is Food the New Sex?

That's the title of an article by Mary Eberstadt from a couple years ago in the Hoover Institution's Policy Review.  I found the whole thing fascinating.  In the piece, Mary describes the complete reversals that have happened with food and sex.  Over the past half century, sex has become much more liberalized, and much that was taboo is now o.k.  Precisely the opposite has happened with food.  

Here's one interesting sentence

“In the end, it is hard to avoid the conclusion that the rules being drawn around food receive some force from the fact that people are uncomfortable with how far the sexual revolution has gone — and not knowing what to do about it, they turn for increasing consolation to mining morality out of what they eat.”

Slovenia

I'm excited to be in Slovenia this week giving a couple talks at the European Association of Agricultural Economists triennial congress in Ljubljana Slovenia.

One of my talks is an invited plenary address on the implications of behavioral economics for food policy.  The paper version of the talk was recently published by the European Review of Agricultural Economics.

A couple views just outside my hotel.

An exciting food future

This article in the NYT by Kate Murphy provides a nice anecdote to the prevailing view that the way forward for food is to look backward and be more "natural".

She writes:

“Following Steve Jobs’s credo that “people don’t know what they want until you show it to them,” a handful of high-tech start-ups are out to revolutionize the food system by engineering “meat” and “eggs” from pulverized plant compounds or cultured snippets of animal tissue. One company imagines doing away with grocery shopping, cooking and even chewing, with a liquid meal made from algae byproducts.”

Her proposal sounds like an excerpt out of a book proposal I have in the works . . 

Buffalo extermination - environmental catastrophe or savior?

Given my Wall Street Journal article earlier this week, I've received a large number of questions and comment about beef cattle production and the environment.  One comment on the piece in the WSJ made an observation that had never occurred to me.

One of the big concerns with beef production is methane emissions.  Methane is a more potent greenhouse gas than carbon.  Cattle are ruminants, and their digestion produces methane (which is released not from the back-end of the cow as is typically asserted but rather the front-end).  

In any event, it seems a common presumption of many who are worried about this issue is that if we got rid of all the beef cattle in the US (or at least drastically reduced their numbers), that would be a great thing because we could significantly cut greenhouse gas emissions and help curb climate change.

In fact, we did something very much like that in the US in the mid to late 1800s, and it is almost universally considered a tragedy.

According to some environmental groups, there was once more than 20 million bison roaming the Great Plains.  This number may not be far fetched.  According to one academic paper, the bison carrying capacity of the Great Plains in 1860 was estimated between 13.78 to 20.67 million bison.   According to EPA calculations, American bison generate as much or more methane as do beef cattle on a per-head basis (compare table A-184 to A-187).  

In 1990, there were only about 50,000 head of bison in the US.  Today there are less than 200,000.  Thus, there has been a 100 fold reduction in bison numbers since the mid 1800s.

Were these bison causing climate change back in the 1800s?  Is it a great victory for the environment that they were almost eradicated?    

Logically consistency would seem to dictate that we think about the methane emissions of the ~20 million American bison in the 1800s the same way we think about the methane emissions of the ~29 million beef cattle in the US today.   I suspect the total amount of methane emissions from 1860s bison population and 2014 US beef cattle population are roughly similar (according to the EPA, feedlot beef cattle have much lower per-head methane emissions than bison - about half as much).  [addendum: a reader subsequently emailed me and correctly pointed out that, including dairy cattle, there are actually more than 90 million cattle in the US today - a figure roughly 3 to 4 times more than the number of bison existing in the 1800s]

So, bison depopulation - environmental boon or ecological travesty?  Neither?  Both?