Food Spending

A colleague sent me a couple articles highlighting recent trends in spending on food at home and away from home.  Here's Ashley Lutz at Business Insider from back in July:  

“Restaurant sales growth has stalled in America.

McDonald’s, which had previously executed a huge turnaround, saw a slowdown in the most recent quarter. Other chains ranging from Chipotle to Buffalo Wild Wings also reported sales declines. ”

And, here's a story from a couple days ago by Bob Bryan also at Business Insider:

“Fast-food chains have watched their sales growth drop off a cliff.

Executives advance plenty of reasons for the slowdown — or, in the case of some brands, the outright decline in sales. Some blame politics, others blame the oil crash, and so on.

The real reason may be a bit simpler: It’s getting cheaper for Americans to eat at home.

The price of food at grocery stores has actually been on the decline since the end of 2015, based on the Consumer Price Index for food at home. In fact, in July (the most recent data available), the cost of food at home declined 1.55% from the same month a year ago.

On the other hand, the cost of food away from home — what you pay at restaurants — is still on the rise. In July, prices for food away from home rose 2.79% from same month last year.”

I thought I'd track down the numbers myself and see what's going on.  Here is the CPI data from the BLS, confirming the decline in prices of food at home and the increase in prices of food away from home.

The difference in trends looks even more dramatic if plotted in relative terms.  Here is the CPI for food at home divided by the CPI for food away from home.  Clearly, food at home has become relatively cheaper (compared to food away from home) over the past year.  

If the price of food at home is falling compared to the price of food away from home, does that that mean consumers are spending less on food at home or away from home?  Not necessarily.  Lower prices for food at home will induce consumers to buy more food at home.  Whether they ultimately spend more or less on food at home depends on the magnitude of the own-price elasticity of demand for food at home, and the cross-price elasticities of demand for food at home and away from home (I've previously estimated these parameters as discussed here).  

My data suggests these relative price changes have had a more complicated impact on food spending than suggested by the Business Insider articles.  Here is data from my monthly Food Demand Survey (FooDS) on estimated weekly food spending.  Interestingly, it appears there is a bit of an upward trend in spending on food away from home (spending on food away from home has increased 22% since January 2016), but by contrast spending on food at home has remained relatively more stable (spending is only 0.8% higher than in January, although it is about 5% higher than it was in June).  Thus, the increase in the relative price of food away from home hasn't led to a big drop off in spending on food away from home.  

As a consequence of the above trends, the share of food spending directed toward food away from home has risen from about 0.34 at the first of the year to about 0.38 today, as shown in the graph below.

All this might seem a bit counter-intuitive.  Prices on food at home fall, and yet people spend a smaller share of their food dollar on food at home.  Why?  The answer is because: spending = price paid * quantity purchased, and the two variables on the right hand side of the equation tend to work in opposite directions of each other.  When prices are lower, people tend to buy more quantity.  Whether the effect of changing prices has a bigger effect on spending than the effect of changing quantities, again, depends on the underlying demand elasticities.    

Value of Nutritional Information

There is a general sense that nutritional information on food products is "good" and "valuable."  But, just how valuable is it?  Are the benefits greater than the costs?

There have been a large number of studies that have attempted to address this question and all have significant shortcomings.  Some studies just ask people survey questions about whether they use or look at labels.  Other studies have tried to look at how the addition of labels changes purchase behavior - but the focus here is typically limited to only a handful of products. As noted in an important early paper on this topic, by Mario Teisl, Nancy Bockstael, and Alan Levy, nutritional labels don't have to cause people to choose healthier foods to be valuable.  Here is one example they give:

“consider the individual who suffers from hypertension, has reduced his sodium intake according to medical advice, and believes his current sodium intake is satisfactory. If this individual were to learn that certain brands of popcorn were low in salt, then he may switch to these brands and allow himself more of some other high sodium food that he enjoys. Better nutritional information will cause changes in demand for products and increases in welfare even though it may not always cause a backwards shift in all risk increasing foods nor even a positive change in health status.”

This is why it is important to consider a large number of foods and food choices when trying to figure out the value of nutritional labels.  And that's exactly what we did in a new paper just published in the journal Food Policy.  One of my Ph.D. students, Jisung Jo, used some data from an experiment conducted by Laurent Muller and Bernard Ruffieux in France to estimate consumers' demands for 173 different food items in an environment where shoppers made an entire day's worth of food choices.  This lets us calculate the value of nutritional information per day (not just per product).  

The nutritional information we studied relies on two simple nutritional indices created by French researchers.  They are something akin to a NuVal label system or a traffic light system.  We first asked people where they thought each of the 173 foods fell on the nutritional indices (and we also asked how tasty or untasty each of the foods were), and then after making a day's worth of (non-hypothetical) food choices, we told them were each food actually fell.   Here's a bit more detail.  

“The initial “day 1” food choices were based on the individuals’ subjective (and implicit) health beliefs. Between days 1 and 2, we sought to measure those subjective health beliefs and also to provide objective information about each of the 173 foods. The beliefs were measured by asking respondents to pick the quadrant in the SAIN (Nutrient Adequacy Score for Individual foods) and LIM (for Limited Nutrient) table (Fig. 2) that best described where they thought each food fit. The SAIN and LIM are nutrient profiling models and indices introduced by the French Food Safety Agency. The SAIN score is a measure of “good” nutrients calculated as an un-weighted arithmetic mean of the percentage adequacy for five positive nutrients: protein, fiber, ascorbic acid, calcium, and iron. The LIM score is a measure of “bad” nutrients calculated as the mean percentage of the maximum recommended values for three nutrients: sodium, added sugar, and saturated fatty acid.2 Since indices help reduce search costs, displaying the information in the form of an index is a way to make the information available in an objective way but also allows consumers to better compare the many alternative products in their choice set.”

Here are the key results:

“In this study, we found that nutrient information conveyed through simple indices influences consumers’ grocery choices. Nutrient information increases willingness-to-pay (WTP) for healthy food and decreases WTP for unhealthy food. The added certainty provided by objective nutrient information increased the marginal WTP for healthy food. Moreover, there is a sort of loss aversion at play in that WTP for healthy vs. neutral food is lower than WTP for neutral vs. unhealthy food, and this loss aversion increases with information. . . . This study estimated the value of the nutrient index information at €0.98/family/day. The advantage of our approach is that the value of information reflects choices over a larger number of possible foods and represents an aggregate value over the whole day.”

I should also note that people valued the taste of their food as well.  We found consumers were willing to pay 4.33 eruos/kg more for a one-unit increase in on the -5 to +5 taste scale.  To put this number in perspective, let's take a closer look at the average taste rating given to all 173 food items. Most items had a mean rating above zero. The highest rated items on average were items like tomatoes (+4.1), green salad (+4), and zucchini (+3.9). The lowest rated items on average included cheese spread ( 0.2) and Orangina light ( 1.9). [remember: these were French consumers] Moving from one of the lower to higher rated items would induce a four-point change in the taste scale associated with a change in economic value of 4.33 ⁄ 4 = 17.32 euros/kg.”

Food Demand Survey (FooDS) - September 2016

The latest results of the Food Demand Survey (FooDS) are now out.  A few results of note:

• Willingness-to-pay (WTP) for beef products was essentially unchanged compared to last month, and there were small movements in pork and chicken WTP.
• Spending on food away from home increased about 8.7% from August to September.
• Compared to last month, there was an uptick in awareness and concern for bird flu.  Pink slime was less in the news and of less concern compared to September.  Both awareness and concern for GMOs fell relative to last month.  
• Respondents reported being less concerned about losing weight this month compared to last.  

We asked a few ad hoc questions, but these will be discussed at a later date as analysis is still underway.  

Evaluating the Policy Proposals of the Food Movement

That is the title of a paper I presented a few months ago at a conference put on by the American Enterprise Institute.  

The paper is a critical evaluation of the food policy proposals put forth by by Mark Bittman, Michael Pollan, Ricardo Salvador, and Olivier De Schutterand (see here, here, and here).  As I argue in the paper, these policy proposals have largely escaped serious criticism, but it is important to take a closer look for the following reasons.

“While members of the so-called food movement have historically had much less influence on farm and food policy than, for example, farm commodity organizations, recent events suggest that power dynamic could be changing. Food movement members have been extraordinarily adept in fomenting the modern day food and farm zeitgeist, selling numerous bestselling books and garnering space in influential media outlets. For example, in 2015 the New York Times hosted a “Food for Tomorrow” conference which focused on food and farm policy issues that are centerpieces of the food movement agenda. First Lady Michelle Obama made food policy a signature issue by planting a White House garden, retooling school lunches, and including the White House chef as a policy advisor. The emergence of the local food and farm-to-table movements, as well as state ballot initiatives on labeling of genetically modified food and farm animal housing, can also be seen as outgrowths of the impacts of the food movement.”

The authors first start by painting a dire picture of the state of food and agriculture.  Then they offer a set of "guiding" principles before putting forth more than 20 specific policy proposals.  In the paper, I go point by point and address each one.  Here I'll just offer my summary:

“I demonstrate that the authors offer no consistent, underlying philosophical basis for when the federal government should (and should not) intervene and offer no framework for making tradeoffs when proposed “guarantees” come into conflict. Moreover, the authors misjudge the trajectory and impacts of changes in food and agriculture and thus overstate the urgency and scope for intervention. The authors’ numerous specific policy proposals tend to represent a hodge-podge of ideas that have already been tried, are already being undertaken by the USDA, or fail to hold up under close scrutiny, although there is some common ground on a few proposals. ”

In a particularly telling example, where the authors propose funding for all sorts of youth activities to promoting cooking and agriculture, they make no mention of the largest food and agricultural youth organizations already working in schools across the country: 4-H and FFA.  

Tragedy of the commons- have we been buffaloed?

We all know the story about how buffaloes almost went extinct - it's a phenomenon economists call the tragedy of the commons.  Here's how Bailey Norwood and I described it in our undergraduate textbook:

“Consumers want beef today and they will want beef in the future. Ranchers understand this, and when they sell cattle they reserve some males and females for breeding. This is an investment. They forego the money they could have earned by selling cattle today, electing instead to produce more by breeding, earning greater profits at a later date. . . . Consumers in the nineteenth century wanted buffalo hides today and in the future, so it was in society’s interest to not kill all the buffalo. By leaving some males and females alive, one could be assured of buffalo hides in the future. Despite this obvious truth, hunters tried to kill them all. The reason is that no one owned the buffalo, so if you decided to leave some males and females alive to breed, another person may come and kill them. Better you benefit from the kill than someone else. ”

Is this common knowledge about the tragedy of the commons all wrong?  The economist Peter Hill thinks so.  Here is a snippet from his contrarian take in The Independent Review:

“The history of the American bison is one of rational individuals operating under an institutional framework that did not create a tragedy of the commons. It is true that property rights were not well defined and established for bison on the open prairies, but because bison were not a valuable resource, property-rights entrepreneurs put little effort into establishing rights for them. And even if there had been well-defined and enforced property rights, cattle would still have replaced bison as the primary converter of grass on the Great Plains. The adjustment from bison to cattle may not have been perfect, but there is no evidence of large-scale rent dissipation. When bison did become valuable as they came close to complete extermination, entrepreneurs established rights to live animals and prevented their complete demise. Thus, economists who wish to describe how rational individuals under an open-access resource will overuse that resource should turn to some other example than that of the American bison. And economists should recognize that other situations of rapid depletion of a resource do not necessarily represent the tragedy of the commons if the analysis has ignored important opportunity costs.”