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Milan Food Expo

World’s Fairs used to be an opportunity to examine a better future for society. They were about innovation, progress and development, and brought together inventors and businesses eager to demonstrate technological advancements designed for the greater good of all.

This year’s Expo Milano 2015, with the theme “Feeding the Planet, Energy for Life,” could have followed the same mold. Since the Industrial Revolution, the West has experienced what economic historian Deirdre McCloskey has called “the great enrichment.” With prosperity, nutrition has made huge leaps forward: Better preservation and refrigeration systems, agricultural advancements and antiseptic packaging have made our diet both richer and more varied. There is much to celebrate.

Instead, the Expo has fallen prey to an anti-industrial ideology dressed up as romantic nostalgia.

That's from a piece in the Wall Street Journal by Alberto Mingardi.  He concludes:

We didn’t become richer and wealthier by eating locally. One thing that made us richer and wealthier was the ability to trade and better preserve food. We have enjoyed much progress since our grandfathers’ time, and progress is precisely what developing countries long for. Why feed them with fairy tales of a romanticized past that never existed?

Bailey Norwood on the Future of Teaching

My good friend Bailey Norwood gave a talk earlier this spring for a TEDx event we had on the Oklahoma State University campus.  He talked about how to improve education, and he featured his Massive Open Online Course (MOOC) on agriculture: from farm to fork.

It's well worth hearing what Bailey has to say about making our classwa worthy of Netflix.

Chipotle and GMOs

Last week I mentioned Chipotle's decision to go semi-non-GMO when discussing consumer sovereignty vs. scientific integrity.  

I've been astounded at the voluminous, and nearly unanimous, backlash against Chipotle's decision in the media.   The criticism has ranged from discussions on:

  • The inconsistency of Chipotle's position.  They're getting rid of GMOs in some foods but not others (particularly soda and in all likelihood the feed used for the animals).
  • The hypocrisy of claiming to look out for customer's health while selling 1,600 calorie burritos.
  • Ignoring evidence on relative risk of herbicides.  One of Chipotle's stated reasons for moving away from soybean oil toward sunflower oil is that that most soybeans use biotech varieties that are resistant to the herbicide glyphosate, which Chipotle implies is problematic.  However, as many commentators have pointed out the herbicides used on sunflowers are likely more toxic and are equally connected (if not more now that glyphosate is off patent) to "big agribusiness".
  • And, generally stoking fear when the scientific evidence suggest there is none.  That is, they've been roundly criticized for being anti-science. 

Amazingly, I haven't seen one story in a major media outlet that has applauded Chipotle's move. Mary Mangan, aka @mem_somerville, has compiled a list of stories that have appeared on the issue.  Negative stories or editorials have been run in the New York MagazineWall Street Journal, Slate, Chicago Tribune, LA Times, Washington Post, and many others.  

I'm not sure what these developments imply for the politics surrounding GMO labeling (an issue which appears to be gaining a bit more traction in the US House of Representatives), but I'm almost certain this wasn't the outcome Chipotle was expecting.  You might be able to pick up a bit of market share in the short run by stoking fear and paranoia, but when science isn't on your side, it's bound to catch up with you in the long run.  

Consumer sovereignty vs. scientific integrity

This post by Olga Khazan at Atlantic.com highlights some recent food company decisions to remove ingredients of concern to certain consumers.  Yet, the best science we have available suggests these same ingredients are perfectly safe.

Examples mentioned in the story include announcements that Diet Pepsi is removing aspartame, Ben and Jerry's and Chipotle are removing GMOs (the former company's decision is a bit ironic given that they're essentially selling frozen fat with sugar; the later is duplicitous since  they're still selling sodas and cheese that will contain GMOs), Pepsi dropping high fructose corn syrup in some of their drinks, and Clif's Luna Bars going gluten-free.  To that we could add a long list of others such as Cheerios dropping GMOs, many milk brands years ago dropping rBST, etc.  

It's difficult to know what to make of these moves.  On the one hand, we ought to champion consumer freedom and sovereignty.   Whatever one might think about the "power" of Big Food, these examples clearly show food companies willing to bend over backwards to meet customer demands.  That, in principle, is a good thing.  

The darker side of the story is that many consumers have beliefs about food ingredients that don't comport with the best scientific information we have available.  As a result, food companies are making a variety of cost-increasing changes that only convey perceived (but not real) health benefits to consumers.  

The longer-run potential problem for food companies is that they may inadvertently be fostering a climate of distrust.  Rather than creatively defending use of ingredient X and taking the opportunity to talk about the science, their moves come across as an admission of some sort of guilt:  Oh, you caught us!  You found out we use X.  Now, we'll now remove it.  All the while, we'll donate millions to causes that promote X or prevent labeling of X, while offering brands that promote the absence of X.  It's little wonder people get confused, lose trust, and question integrity.  

I'm not sure there is an easy answer to this conundrum.  In a competitive environment, I'm not sure I'd expect (or shareholders would expect) one food company to try to make a principled stand for ingredient X while their competitor is stealing market share by advertising "no-X".  On the other hand, I'd like consumers to make more informed decisions, but I'm not all that sure "education" has much impact or that, at least for many middle- to upper-income consumers, that given the price of food they have much economic incentive to adjust their prior beliefs.  

Faced with the conundrum, I suspect some  people would advocate for some sort of policy (i.e., ban ingredient X or prevent claims like "no-X"), but I don't think that's the right answer.  Despite my frustration, I suspect the marketplace will work it out in a messy way.  Some companies will adopt "no-X", will incur higher costs than their consumers are willing to pay, and will go out of business or go back to X. Some companies that are seen as lacking integrity will lose market share. Some consumers will pay more for "no-X" only later to find out it wasn't worth it, and switch back.  Maybe the scientists wind up being wrong and some consumers avoided X for good reason, and all companies drop X.  The feature of the marketplace, dynamism, that is, at times, frustrating is also the key to ultimately solving  some of those same frustrations.  

How will avian influenza (bird flu) affect egg and turkey prices?

I was asked to make an appearance on Fox Business with Neil Cavuto this afternoon to talk about the impacts of the avian influenza (aka bird flu) outbreak on food prices.  I had a couple other commitments that prevented me from going on air, but I'll share a few thoughts on the matter here via the lens of ECON 101.

When a farm encounters a case of the bird flu, some birds die and others are euthanized.  This reduces the supply of birds.  In the graph below, this shifts the supply curve (the blue line) to the left.  In the immediate short run, this translates into a direct reduction in the amount of turkey or eggs on the market as the supply curve is perfectly inelastic.  

Consumers are now left to bargain over less quantity, and the shape of the demand curve (the red line) determines how high prices will rise.  The more inelastic the demand curve (the less price responsive are consumers), the greater the price increase.  In the longer run, the industry can adjust by adding new breeding stock, new houses, etc. (this makes the supply curve upward sloping rather than perfectly inelastic as shown in the right-hand graph), so the ultimate price effects will dampen over time.  

 

This simple economic framework can be put to use to calculate possible impacts.  According to data from USDA-APHIS, there have been around 3.3 million turkeys lost due to the flu.  There are about 240 million turkeys in the nation.  So, this represents a loss of about 1.4% of the turkey supply (this is the size of the supply shift in the quantity direction expressed in percentage terms).  Assuming the elasticity of demand for turkey is about -0.5, this would imply that we could expect a (0.014/0.5)*100=2.8% price increase in the immediate short run.  If the longer-run supply elasticity is, say, 0.8, the the longer-run price increase resulting from this supply reduction would be only (0.012/(0.5+0.8))*100=1.07%.  What if the outbreak grows in size and doubles?  Such that 6.6 million turkeys die?  This would be a 2.8% reduction in supply which would cause a (0.028/0.5)*100=5.6% short-run increase in turkey prices.

Demand for eggs is likely much more inelastic because of fewer substitutes.  The elasticity of demand for eggs is probably somewhere around -0.15 to -0.20.  The USDA-APHIS data indicates that about 4 million chickens (I believe these are egg-laying chickens) have been killed due to the flu.  There are about 300 million laying hens in the U.S., implying this is a supply reduction of about 1.3%.  Following the same logic as before, a 1.3% supply shock in the short run would cause a (0.013/0.15)*100=8.7% increase in egg prices in the immediate short run.  Why so much higher than for turkey?  Because demand for eggs is likely more inelastic than is demand for turkey.  If the outbreak in egg laying hens doubles, reducing supply by 2.6%, that would imply a price increase of 17.3% in the short run.  

There are a couple reasons to suspect these effects may be overstated.  First, exporters have slowed imports of chickens, turkey, and eggs because of the outbreak of the bird flu.  That means domestically - within the U.S. - we'll have more supply on the market because not as much is going out of the country.  Larger domestic supplies will mean downward pressure on  domestic prices that push against the effects of the initial supply shock (although it should be noted that either way, world prices will rise).  Second, the above analysis ignores substitutes.  Higher turkey and egg prices will cause people to substitute toward beef and pork, which will have feedback effects on turkey and egg prices.