Does everybody prefer organic?

A few years ago I was giving a talk at a conference in Europe, and I showed the following figure illustrating demand curves for organic milk.  The curves were created based on an analysis of grocery store scanner data (the underlying estimates and analysis are in this paper in the journal Food Quality and Preference).  

I showed the graph to illustrate to the group how demand for organic milk was lower for people that placed a higher relative importance on food safety than it was for people who placed a lower relative importance on food safety.  But, almost in passing, I told the audience that they might take the figure with a grain of salt because it shows that even if organic was the same price as conventional (i.e., the organic premium was $0), the demand curves predict market shares for organic of only about 8% and 14% (depending on the importance of food safety), which I thought was implausibly low.  

After my presentation, an individual who worked for a European food retailer asked why I thought the figures were implausibly low.  I said that I presumed most people would choose organic if it were priced the same as conventional. He said, however, that his retail experience was fully consistent with the graph I showed - even when he substantially lowered the price premium for organic, the market share remained relatively low.   

I've had those anecdotal thoughts in my mind for a while and recently was able to test them out in a more controlled, survey setting where we could vary product price in a way that there aren't confounds.  One of the "confounds" with the European's observation was likely the fact that the organic attribute was likely to appear on less-well-known brands, so we don't know if it was the lesser-known brand or the organic attribute causing the low market share.  Our attempt to remove these confounds is this new paper in the journal Applied Economics Letters co-authored with Seon-Woong Kim and Wade Brorsen.  

We conducted studies with apples and with milk.  In the studies, people made choices between different apples that varied by color (red or green), condition (bruised or not bruised), price, and production method (organic or conventional).  Alternatively, people made choices between milk that differed by fat content (skim, 1%, 2%, or whole), package type (cardboard or plastic), price, and production method (organic or conventional).  

We used the choices to infer the demand curves for organic vs. conventional, allowing for the fact that different consumers are likely to have different preferences for organic and other milk/apple attributes.  Here's what we found.

Even in these controlled studies, we find that if organic were priced the same as conventional (a price premium of 0%), not everyone would buy organic.  Priced evenly with conventional, organic would pick up only about 60% of the apple market (the remaining 40% going to conventional), and organic would pick up only about 68% of the milk market (the remaining 32% going to conventional).  

Given differences in yield and production costs, organic is almost surely going to be routinely higher priced than conventional. But, even if this weren't the case and organic could be competitively priced, these survey results show us that not every prefers organic food.

Twitter conversations about GMOs

Last week, an organization called Right Relevance, put out a fascinating post analyzing Twitter interactions surrounding the topic of GMOs during a single month - January 2017.  I don't claim to fully understand all the methods they used or precisely how to interpret the figures they generated, but here's one of their conclusions:

“The retweets-only graph (Fig 2) is even more stark in bringing out the partisanship. It visualizes the echo-chamber like nature of the partisan groups. Also, it shows higher diversity and broader participation on the anti-GMO side.”

The go on to document and rank popular themes, topics, and individuals.  I was a bit curious about the graphs, and even though I didn't recall tweeting much about GMOs in January of 2017, I though I saw my name in tiny font next to NYT Science in the above graph, so I emailed the author of the post asking for a higher resolution figure.  Instead, they sent me the following two graphs focused specifically on my Twitter account (the second one I believe is only based on re-tweets). 

I suppose I shouldn't be at all surprised to recognize most of the names in these figures since they're the same people I'm interacting with on Twitter.  Still, there are many names I don't recognize but who are apparently in my "network".  I'm not sure whether I should be frustrated that my Twitter network on this topic isn't bigger and more diverse or just be thankful for the network I have.  It would also be interesting to see these same figures at different points in time.  From personal experience, I can tell you that when I've had articles on GMOs in the New York Times or Wall Street Journal, I get a lot of people tweeting at me that have widely opposing views.  

The intractability of the soda tax debate

This recent article claims that the new soda taxes in Philadelphia are causing a larger than expected drop in soda sales.  

Did that piece of news change your mind on whether the soda tax is a good or bad idea?  My guess is: probably not.  As humans, we're adept at finding ways of confirming our prior beliefs and positions.  That is, we suffer from various forms of confirmation bias.  

Let's take the above story at face value: after the tax was implemented, we find a large reduction in soda consumption.  What are the expected reactions by the competing camps? (note: by definition, a large reduction in soda consumption implies that the receipts from the tax are smaller than expected as people are avoiding the tax by buying less soda).

The pro-tax folks would say:

• "Ah-ah!  This simple solution has a big public health benefit.  It got people to stop consuming all those useless, empty calories, and now we'll finally make headway on obesity and diabetes.”

• “This big drop in consumption was accomplished without costing consumers much.  In fact their expenditures on soda fell!  Now they have more money to spend on healthier items.”  

The anti-tax folks would say:

• “We told you this tax policy would cost jobs.  Nobody is buying soda anymore, and people will have to be laid off at the beverage manufacturing plants and the beverage distributors.”
• “You promised that the tax would fund public education but there aren’t enough new tax receipts to fund any new programs or to give teachers meaningful raises.”
• “People may have stopped buying soda, but look now they’re buying more [insert the untaxed, unhealthy food of your choice here].  

Now, instead imagine the opposite case was observed.  Suppose that after the tax was implemented, we find no (or a small) reduction in soda consumption.  What are the possible reactions by the competing camps? (note: by definition, a small reduction in soda consumption would imply that the receipts from the tax are higher than expected – the government is raking in money as people are still buying soda and paying the tax).

The pro-tax folks would say:

• “Look at all the new money we’ve raised to finally get to work on [insert your favorite public program or cause here].”
• “We're finally making "Big Soda" pay for all the costs they've been imposing on society.”
• "The soda tax is just one small part of an overall plan to reduce obesity and improve public health." 

The anti-tax folks would say:

• “This policy created a bureaucratic agency to oversee the tax, increased the size of government, and look, it didn’t have any impact on obesity or public health as promised.”
• “We told you this was a regressive tax.  The majority of the new tax dollars being generated are being paid by lower income households.”
   

This sort of conundrum shows that it is hard to have an intellectually honest debate about the evidence.  It also suggests that policy advocacy (or policy opposition) is often more about competing values or philosophies than it is about empirical evidence (after all, both sides claim to want evidence-based decision making). In general, I think it is troubling if someone can't answer the question: "What evidence would it take to convince you that you were wrong?"

As more locations - from Seattle to Santa Fe - are considering the adoption of soda taxes, it would be useful if folks stated, before adoption takes place, what outcomes would or would not support their initial opposition or advocacy to the tax.  Because right now, any post-tax outcome can be interpreted as evidence in favor of either position. Or, just be honest, and say that opposition or advocacy for the tax is not an evidence-based position, but rather one based on some underlying philosophy or set of values.

As for me, I'll admit that much of my opposition to soda taxes is indeed value-based based.  I tend to favor freedom of choice and limited government, and I haven't been convinced by the market-failure arguments that would justify the tax.  Now, let me put that to the side and say that most of my writing on the subject has argued that, empirically, soda taxes are unlikely to have much effect on obesity/diabetes rates.  As a result, I see the policy as an ineffective means to achieve the desired end (by the way if we want to fund more public education, there are likely more efficient was of doing that than taxing soda).  Moreover, if it is true that the tax doesn't much change consumption, it implies consumer demand is relatively inelastic, which also implies that the tax burden primarily falls on the consumer rather than the producer (note: economic theory indicates that it doesn't matter whether the tax is technically imposed on the producer or the consumer - it is the underlying elasticities of supply and demand that determine who actually bears the burden of the tax). So, if the claim in the above article is true and the soda tax has a "large" effect on soda consumption, that would undermine many of my empirical arguments against the soda tax.  

But, I'm not sure that evidence showing that a soda tax had a large reduction in soda consumption would turn me into a tax advocate.  After all, if you showed me that a tax on broccoli caused a large reduction in broccoli consumption, I wouldn't suddenly become a broccoli-tax advocate.  Rather, I think the kind of evidence I'd find more persuasive, if one wanted to substantively more me away from an anti-soda tax position, is evidence that soda consumption causes an externality (and "no" the presence of Medicare/Medicaid is not evidence of an efficiency-reducing externality) or that, in this particular case, there were substantively perverse information asymmetries (although the appropriate policy here is probably information provision not a tax), or behavioral biases that citizens themselves want "corrected" via government action (just because a soda tax passes with more than 50% of the vote doesn't really "count" as evidence here because many of the people who vote in favor of the tax don't consume much taxed soda).  

Rising Input Costs and Farmers' Responses

Low commodity prices have prompted farmers to be ever more cognizant of their costs.  I've run across a couple interesting articles of late that touch on this issue.  The first is a piece by David Widmar, who discusses the rising cost of seed for farmers.  He writes the following about corn seed prices and provides the associated figure:

“Since 2002 seed expense has increased rapidly. From 2006 to 2014 alone, the seed expense nearly doubled in real dollars; increasing from $51 per acre in 2006 to $101 per acre in 2014 (in nominal dollars, the increase was from $44 to $101).”

He concludes:

“this environment seems ripe for a seed manufacture to cut prices as a strategy for gaining market share.”

While farmers are waiting on incumbent firms to cut prices or for new low-cost entrants, they can act too.  This article in the Wall Street Journal discusses how some farmers are turning to online outlets to source lower priced inputs such as fertilizers and herbicides.  Here's one excerpt:

“Online sellers, including some wholesale distributors and national farm retailers, often offer generic versions of popular pesticides that are cheaper than the branded counterparts frequently sold by co-ops. FBN says it also can offer products at a discount because it lacks expenses associated with brick-and-mortar facilities and is able to get better deals from manufacturers because of its national scale.

“It’s infuriating knowing how deeply we’ve been gouged,” said Nebraskan farmer Clay Govier, who said he saved more than $12,000 on herbicides for his 3,000-acre corn and soybean farm by checking prices on FBN’s network.”

Measuring Beef Demand

There has been a lot of negative publicity about the health and environmental impacts of meat eating lately.  Has this reduced consumers' demand for beef?  Commodity organizations like the Beef Board run ads like "Beef It's What's for Dinner."  Have these ads increased beef demand?  To answer these sorts of questions, one needs a measure of consumer demand for beef.  In my FooDS project, I try to measure this by using consumers' willingness-to-pay for meat cuts over time.  But, there are other ways.

I just ran across this fascinating report Glynn Tonsor and Ted Scroeder wrote on beef demand.  At the onset, they explain their overall approach.

“One way to synthesize beef demand is through construction of an index that measures and tracks changes in demand over time. An index is appealing because it provides an easy to understand, single-measure indicator of beef demand change over time. A demand index can be created by inferring the price one would expect to observe if demand was unchanged with that experienced in a base year (Tonsor, 2010). The “inferred” constant-demand price is compared to the beef price actually transpiring in the marketplace to indicate changes in underlying demand. If the realized beef price is higher (lower) than what is expected if demand were constant, economists say demand has increased (decreased) by the percentage difference detected. Applying this approach to publically available annual USDA aggregate beef disappearance and BLS retail price data provides information such as contained in Figure 1 indicating notable demand growth between 2010 and 2015 based upon existing indices currently maintained at Kansas State University.”

They then show the beef demand index that Glynn has been updating for several years now based on aggregate USDA data.

In their report, Tonsor and Schroeder show, however, that measures of beef demand depend greatly on: 1) the data source being used, 2) the cut of beef in question, and 3) consumers' region of residence.  For example, here is a different beef demand index based on data from restaurants (or the "food service sector") segmented into different types of beef.  You'll notice the pattern of results below differs quite a bit from the aggregate measure above.  And, whereas demand for steak fell during the recession, demand for ground beef rose.

Another interesting result from their study is that the commonly used retail beef price series reported by the Bureau of Labor Statistics doesn't always mesh well with what we learn from from retail scanner data (in their case, data from the compiled by the company IRI).  Not only are BLS prices a biased estimate of scanner data prices, the bias isn’t constant over time.  In the report, Tonsor and Schroeder speculate a bit on why this is the case.  

In the near future, Glynn and I aim to compare my demand measures from FooDS with these demand measures.