Farm size and community prosperity

Darby Minnow Smith in an article for Grist writes:

“As the total number of farms goes down, the number of big* farms is going up — and this shift hurts rural America. According to an analysis by Food and Water Watch: “Communities with more medium- and smaller-sized farms have more shared prosperity, including higher incomes, lower unemployment, and lower income inequality, than communities with larger farms tied to often-distant agribusinesses.””

I didn't find a lot in the report by Food and Water Watch that would seriously substantiate a causation between increasing the number of small farms and higher income for a community.  What I did find there was a lot of correlational analysis and, in a few spots, some cherry picking of dates to make the argument more convincing.  

First, the article is correct that there is a long-term trend toward fewer, larger farms.  The cause isn't corporatization or greed or any of these factors, but rather increased technological progress that substitutes capital for labor and increases the returns to size.  The driving force on the other side of the supply chain are we consumers who relentlessly demand lower prices, higher quality, and more consistency.

When discussing the book Meat Racket, I previously listed a bunch of research on effects of vertical integration and concentration in animal agriculture (which is the focus of much of the above report). This review of the research by Michael Wohlgenant, for example, concludes:

“Studies on market power in meatpacking indicate that concentration in procurement of livestock (cattle or hogs) has not adversely affected prices received by producers or prices paid by consumers.”

Indeed, as I showed in this article in Animal Frontiers, the long run trend is much more output (due to technology gains) resulting in lower prices for consumers.  

So, what of the argument that communities with more small farms are financially better off than communities with more large farms?  That statistic may be true (or may not; I'm not sure what a representative look at the data would say).  But, even if so, I doesn't necessarily imply causation: that more small farms would increase the economic prosperity of a community.  Rather, I suspect the causation is the other way around.  

Most of the farms in this country are small farms, and you can be defined as a farm if you have just $1,000 is gross sales.  Most of these small farms/farmers aren't making a living from farming and they account for a very small share of the value of agricultural output.  The USDA classifies some of these as "residential" or "lifestyle" farms.  I suspect the more likely direction of causation is that people living in communities that happen to growing for some other reason  can afford to take on a "hobby farm."  That is, my guess is that economically growing communities spur growth in small farms, not the other way around.  

Moreover, if you look at work by my colleagues Brian Whitacre and Trey Malone, what you'll see in their graphs is that farmers markets and CSAs are largely an urban phenomenon.  They write: 

“Generally, in counties where high percentages of Community Supported Agriculture or direct-to-human consumption exist, residents have higher incomes and population density is also high. In other words, the farms that enjoy high levels of support from their local populations are not typically located in more rural parts of the country.”

This leads me to believe that  urban areas experiencing economic growth for reasons beyond agriculture are one of the key causes of more small farms.   So, again, it's not the small farms causing economic growth and vitality, it's the economic growth and vitality enabling small farming.  

Food Demand Survey (FooDS) - April 2015

The April 2015 edition of the Food Demand Survey (FooDS) is now out.  

Compared to last month, April witnessed reduction in willingness-to-pay for pork products and an increase in willingness-to-pay chicken products and for beef steak.  There was a 4% increase in stated expenditures on food away from home.

There was a spike in stated awareness of and concern for bird flu, an issue that has been much in the news in past weeks.  There was a fall in awareness of and concern for GMOs in April compared to March.

We added three ad hoc questions in response to suggestions by followers of FooDS.  The first two questions dealt with knowledge and concern regarding Bisphenol A (BPA).

We first asked, “Which of the following is true about Bisphenol A (BPA)?”

Overall, respondent's didn't seem to know much about BPA.  For each item, the majority of respondents answered “I don’t know”. The most believed statement (a factually true statement), with 34.8% of respondents answering “true”, is that BPA is used to make plastics. The least believed statement (a factually false statement), with 19.15% of respondents answering “false”, is that BPA is a fertilizer. 

Then, on the next page, we asked, "Relative to the other issues we previously asked about, how concerned are you that BPA poses a health hazard in the food you eat?” The modal response, with 37.64% of respondents, was “neither unconcerned or concerned” that BPA would pose a health threat. 39% stated they were either somewhat or very concerned. The average level of concern on a five-point scale was 3.19, which would place BPA concern below concerns over E. Coli, Salmonella, Hormones, Farm Animal Welfare, Antibiotics, and GMOs but above concerns over Bird Flu, Mad cow, Swine Flu, Pink Slime, and Greenhouse Gases.

Finally, the last ad hoc question shifted gears and asked respondents to indicate their beliefs about McDonald's vs. Chipotle.   We asked, “Which of the following companies do you think best fits each of the following descriptions?”

Over half of the respondents stated that McDonald's is more profitable, more convenient, and
more affordable. 61% of respondents stated that Chipotle is higher in quality and 58.42% stated they sell fresher food. Approximately one third of participants responded saying they did not know who was more socially responsible, Chipotle or McDonalds. 

Effects of lower commodity prices on food consumers

Yesterday, CNBC ran a story about lower farm commodity prices

“As a strong U.S. dollar and bountiful harvest expectations weigh on agricultural commodities, wheat futures have fallen 11 percent this year while live cattle futures are down 10 percent. Meanwhile, soybeans are down 7 percent, corn is down 5 percent, and sugar futures have fallen by 12 percent—a sharp turnaround from just a couple of years ago, when a drought put severe pressure on crop yields.”

They asked me what this might imply for the food consumer.  Here's what I had to say.

“Still, Americans will not see an equivalent drop in the prices on supermarket shelves, at least not immediately.

”Agricultural commodities are an important component of food prices, but they often comprise a pretty small share of the overall food dollar,” commented Jayson Lusk, a professor of agricultural economics at Oklahoma State University.

Lusk says that the percentage of food prices comprised by the raw materials ranges from as high as 40 percent for beef, to 10 percent or lower for highly processed food products such as those made from corn, wheat and soybeans.

In other words, a 10 percent moves in wholesale oat, sugar, and corn price probably won’t impact the price you pay for a box of Lucky Charms.

Still, “20 to 30 percent [of the overall price made up by agricultural products] does matter, and to the extent those prices fall, we should see lower food prices,” Lusk said.”

and

“Taking the broader view, the story for consumers is distinctly positive.

”Americans spend 10 percent of their disposal income on food, which is about the lowest in the world, and lower than at any time in our nation’s history,” Lusk said. “We’re seeing a very long-term trend toward more affordable food for many.””

Distributional Effects of Selected Farm and Food Policies

The Mercatus center released a report yesterday that I wrote on the farm-to-consumer effects of food policies, focusing crop insurance subsidies, SNAP, and ethanol promotion.  

The federal government subsidizes the premiums farmers pay for crop insurance - often around 65% of the premium.  What effect does that have on farm and food prices?  Here's a summary:

“Federal crop insurance is a textbook example of concentrated benefits and diffuse costs. Most food producers and consumers receive some benefit from crop insurance through the direct subsidy and decreased food prices. Those who stand to benefit most from the program are best able to convince legislators to continue it. But taxpayers as a body, less able to advocate for their own interests, suffer a net loss as money is transferred from the pockets of all taxpayers through higher taxes to the pockets of producers and consumers of food, meaning people pay higher taxes rather than choosing to pay higher grocery bills. The $932 million in projected savings if federal crop insurance were ended represents the deadweight loss of subsidies: the economic cost of transferring money from many to some and the cost of the lobbying necessary to maintain the system.

Some farmers win from subsidies while other farmers lose. While farmers in the plains states that produce the bulk of the food insured by the government would lose money if the program were eliminated, farmers in western states such as California, Oregon, and Washington would benefit because products such as fruit, vegetables, and nuts, which are not heavily subsidized, would no longer be disadvantaged.

Consumers pay more in taxes rather than more at the grocery store. Consumers would pay higher prices for food if subsidized crop insurance were removed, but the benefit to taxpayers more than compensates for the higher food prices. Taxpayers have to pay about $1.80 for every $1 in lower food prices owing to federal crop insurance.”

I also find that SNAP (or food stamps) is a very inefficient form of farm support: for every dollar spent by taxpayers, farmers benefit by only one cent.  A reduction in demand for corn-based ethanol would reduce food - especially meat - prices, while hurting corn producers.  

Nightly Show on Food Policies

A colleague alerted me to this episode of the Nightly Show on Comedy Central.  The entire show focused on two food polices: restrictions on food stamps and minimum wage for fast food workers.  Maybe I'm getting old, but I didn't find much of it very funny.  Which is too bad, because I agree with the underlying premise of at least one of their arguments.  Which also happens to undermine their other argument.

First, the episode takes issue with state laws that would restrict what food stamp recipients can buy with the money they receive.  I've written before about how food stamp restrictions are unlikely to have much effect.  But, here they focus on the paternalism of it.  Should the government tell people what they should and shouldn't eat?

I'm somewhat sympathetic to the conservative argument that these are not "earned" dollars but rather a government handout, and as such the state might have some leeway in dictating how they're spent.  However, as I explain at the above link, the restrictions are really an allusion anyway in the sense that most recipients can "get around" them by simply reallocating their budget.  Moreover, if the government can assume the right to tell food stamp recipients what to eat, what's to stop regulators from assuming they know better how you and I should eat?  In short, we ought to respect the choices of others.  We may not agree with everyone's choices, but we live in a free country.  Give people the dignity of the presumption that they know best how to better their own situation with whatever resources they might have.  

The Nightly Show

In the second half of the show, they take on minimum wage.  I find this a bit ironic because the first half of the show repeatedly makes the case that we shouldn't tell people what they can and cannot do with their money (in this case money received by the state).   But, apparently when it comes to minimum wage, the government SHOULD tell people what they can and cannot do with their money (in this case money that employers have earned in the market).  You can't pay people a wage they'd willingly accept.  It's not a ban on soda, it's a ban on hiring low skill workers at a wage  equal to their marginal productivity.

The show also seem to miss the potential substitutions between labor and mechanization that will be hastened with higher worker wages.  As I said in a tweet  last week: Here's how I ordered at McDonalds the last time I was in France where minimum wage is ~12/hr