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Impact of Process Labeling

The Council for Agricultural Science and Technology (CAST) just released a new paper on the impact of process food labeling.  The paper was written by a number of top-notch ag economists including Kent Messer, Marco Costanigro,  and Harry Kaiser.  It's a nice summary of the issues involved in the labeling of food processes (like organic or non-GMO or rbST free) as opposed to labeling food outcomes (like calories).

The summarize five points after reviewing the literature:

“1. Consumers want to have a sense of control over the foods their families eat.
2. Food markets are characterized by asymmetric information. Producers know more about the quality of the products than consumers. Many important quality traits are unknown until after consumption, or they are never revealed.
3. Consumers are not well informed about the various technologies used in the agricultural and food sector of the United States; however, they have greatly benefited from the tremendous technological progress that has occurred over the past century.
4. Consumers use process labels as cues to infer quality traits that are important to them, such as taste, food safety, and the environmental and societal impacts.
5. There is strong evidence that consumers consider process labels, frequently adjust their behavior in response to them, and, when these labels imply a negative aspect of a food, can shun that product. ”

They also present a number of challenges presented by these sorts of labels, such as

“Process labels can be used by marketers to stigmatize rival conventionally produced products, even when there is no scientific evidence that food produced in this manner
causes harm.”

The authors end with some policy recommendations.  Here's the first one:

“Mandatory labeling should only occur in situations in which the product has been scientifically demonstrated to harm human health.”

Ecomodernism

I've never really considered myself much of an environmentalist.  Its not that I don't care about clean air, endangered species, or rain forests, only that so much of what I've read from self-described environmentalists tends to be anti-technology, anti-growth, and anti-free markets - basically "anti" many of the things I happen to believe are quite good for the planet overall.

Of course, those aren't the views of every environmentalist but they do seem to represent the modal view I read in the media.  For many years, I've been aware of organizations like PERC which advocates for free market environmentalism.  But, it was only this summer that I became aware of a related movement after a call from Michael Shellenberger who is the President of the Breakthrough Institute.  

He and others are heading up a movement they call Ecomodernism.  I'm sympathetic to many of the views espoused in the Ecomodernist Manifesto that was put out in April.  They write, for example:

“Intensifying many human activities — particularly farming, energy extraction, forestry, and settlement — so that they use less land and interfere less with the natural world is the key to decoupling human development from environmental impacts. These socioeconomic and technological processes are central to economic modernization and environmental protection. Together they allow people to mitigate climate change, to spare nature, and to alleviate global poverty.”

and

“We offer this statement in the belief that both human prosperity and an ecologically vibrant planet are not only possible but also inseparable. By committing to the real processes, already underway, that have begun to decouple human well-being from environmental destruction, we believe that such a future might be achieved. As such, we embrace an optimistic view toward human capacities and the future.”

I'm not yet ready so say I'm an ecomodernist, but this certainly seems a much more attractive kind of environmentalism than I've encountered in the past. 

Breakfast Cereal Economics 101

Yesterday evening I happened to be in the gym while the NBC nightly news was playing on a  screen above my treadmill.  A video of the segment is embedded below.

The premise of the story is that the price of breakfast cereal is on the rise.  As the reporter put it, "sticker shock in the cereal aisle.  The morning staple is getting more expensive."

The story reported that over the past five years, the price of a pound of cereal has increased $0.20 to $3.09.  That doesn't seem like an enormous increase to me.  That works out to a 6.9% price increase over 5 years - or just a 1.4% increase per year (if the price of cereal rose at the same pace as the overall rate of inflation, we'd expect it to have risen by roughly the same amount as it actually has over the past five years).  But, let's leave that aside for now.  I want to focus on the economic arguments made in the piece.

The story says that consumption is down 7% over the same time period.  So far so good.  Prices rise, consumption falls, showing the demand curve is downward sloping.  In econ-speak, we'd say there was a movement along the demand curve.

Where the story runs off the rails is when trying to discuss the causes of the price "spike".  They say "shoppers are looking for healthier and faster food.  They've gone to Greek yogurt, they've gone to power bars, . . ."  The story talks about cereal brands trying to become healthier by adding fiber and cutting sugar.  Then the key phrase at the 1:33 mark:

“As the demand for cereal falls . . . ”

Here's the problem: as we teach in Econ 101, if the demand curve falls (or shifts inward) because of health concerns or change in the price of substitutes then the price will also fall.  But, the whole NBC story was motivated by the fact that cereal prices are rising not falling.

Unless something is happening on the supply-side, falling demand cannot occur at the same time as rising prices.  Either NBC got the facts wrong (cereal prices aren't falling in real terms) or they got the explanation wrong (cereal demand isn't falling but rather the supply curve was shifting).  I suspect the they also did what a lot of students in our intro classes do: they confused a movement along the demand curve for a shift in the demand curve.   

Consider this a friendly lesson in cereal economics 101.

End of Doom

Ronald Bailey has an excellent piece in the October print edition of Reason Magazine entitled, "The End of Doom" and a recently released book with the same title.  It's a nice counterweight to the oft-heard refrain that the world is going to hell.  

Here are a a few quotes I found particularly interesting.  In critiquing Rachel Carson's Silent Spring:

“At its heart is this belief: Nature is beneficent, stable, and even a source of moral good; humanity is arrogant, heedless, and often the source of moral evil. Carson, more than any other person, is responsible for the politicization of science that afflicts our contemporary public policy debates.”

In discussing our out-sized fears of cancers from synthetic chemicals and of biotechnology:

“It should always be borne in mind that environmentalist organizations raise money to support themselves by scaring people. More generally, Bonny observes, “For some people, especially many activists, biotechnology also symbolizes the negative aspects of globalization and economic liberalism.” She adds, “Since the collapse of the communist ideal has made direct opposition to capitalism more difficult today, it seems to have found new forms of expression including, in particular, criticism of globalization, certain aspects of consumption, technical developments, etc.””

He ends with some choice words about the precautionary principle.  

“Why does it matter if the population at large believes these dire predictions about humanity’s future? The primary danger is they may fuel a kind of pathological conservatism that could actually become a self-fulfilling prophecy.”

and

“The precautionary principle is the opposite of the scientific process of trial and error that is the modern engine of knowledge and prosperity. The precautionary principle impossibly demands trials without errors, successes without failures.

...

”An indirect implication of trial without error is that if trying new things is made more costly, there will be fewer departures from past practice; this very lack of change may itself be dangerous in forgoing chances to reduce existing hazards.” ”