Country of Origin Labeling and Cattle Imports

My post from back in November about the (lack of a) relationship between the repeal of mandatory country of origin labeling (MCOOL) and cattle prices seems to have been receiving a lot of attention lately.  A main driver seems to be that Tomi Lahren, a conservative journalist with a large social media following, again promoted the idea that MCOOL was a cause of declining cattle prices in a video interview with R-CALF's CEO.  For a summary of the controversy see this article by Carrie Stadheim in the Tri-State Livestock News. 

I won't re-adjudicate my original arguments as you can read them for yourself.  However, I do want to bring some data to bear on an additional claim that has been made in relation to MCOOL and cattle prices.  The article in the Tri-State Livestock News contains a quote that seems to be attributed to me, but I said nothing of the sort.  I presume, instead, the "he" in quote below is the R-CALF CEO.  Here's the quote:

““Without COOL…meatpackers can reach out and source live cattle and beef from 20 countries, bring it into the US, sell it to unsusepecting consumers with a US inspection sticker on it, even though it comes from a foreign source and consumers don’t know the difference,” he said.”

So, let's take a look at the implication of this argument.  We repeal MCOOL, and now meatpackers turn to the 20 countries and import more meat.  And, presumably, this caused the decline in cattle prices?

Well, here is USDA data on meat and veal imports to the US and on live cattle imports to the US.  The solid black line is the date of the repeal of MCOOL.

There was an uptick in live cattle imports right after repeal of MCOOL but then an even more dramatic decline.  Overall the above figure suggests no discernible impact of MCOOL on US imports of beef or cattle.  If I look at the total imports the first 11 months of 2015 prior to repeal of MOOL and compare it to the first 11 months of 2016 after the repeal of MCOOL (I use the first 11 months because the December 2016 data is not yet out), I find that, if anything, US imports of beef and cattle are, in fact, down after the repeal of MCOOL by 369 million pounds and by 297,290 head, respectively.   

Here's the thing.  Yes, it is true that: "meatpackers can reach out and source live cattle and beef from 20 countries, bring it into the US".  But, all those countries selling meat to the US can sell it instead to dozens and dozens of other countries instead.  And, why would these countries try to sell more meat to the US when prices are down in this country?  They wouldn't and the didn't.  

In any event, the point of all this isn't to argue for or against MCOOL.  Rather, I'm simply trying to make sure the claims being made about MCOOL mesh with the best evidence we have, and that evidence suggests that repealing MCOOL seems to have had very little effect on cattle prices.  Attention would be better focused on other issues to help ranchers and cattle producers who are currently experiencing financial hardship.  

The Benefits of Mandatory GMO Labeling

I ran across this post over at RegBlog which notes that the USDA will have to do a cost-benefit analysis of the new mandatory labeling law for GMOs.  The post relies heavily on this paper by Cass Sunstein written back in August.  Sunstein's article discusses the fact that regulatory agencies typically do a very bad job at quantifying the benefits of mandatory labeling policies (and identifying when or why those benefits only apply to mandatory rather than voluntary labels).

Sunstein argues that, in theory, consumer willingness-to-pay (WTP) is the best way to measure benefits of a labeling policy.  I wholeheartedly agree (and have even written papers using WTP to estimate the benefits of GMO labels) but I want to offer a couple important caveats.  

The issue in ascertaining the value of a label isn't whether consumers are willing a premium for non-GM over GM food.  Rather, as emphasized in this seminal paper by Foster and Just, what is key is whether the added information would have changed what people bought.  If you learn a food you're eating contains GMOs (via a mandatory label) but you're still unwilling to pay the premium for the non-GMO, then the the label has produced no measurable economic value.  Thus, a difference in WTP for GMO and non-GMO foods is a necessary but not sufficient condition for a labeling policy to have economic value.  

The Foster and Just paper outlines the theory behind the value of information.  Here's the thought experiment.  Imagine you regularly consume X units of a product.  Some new information comes along that lowers your value for the product (you find out it isn't as safe, not as high quality, or whatever).  Thus, at the same price, you'd now prefer to instead consume only Y units of the product.  The value of the information is the amount of money I'd have to give you to keep consuming X (the amount you consumed in ignorance) in spite of the fact you'd now like to consume only Y.  Given an estimate of demand (or WTP) before and after information, economists can back out this inferred value of information.      

But, here is a really important point: this conception of the value of information only logically applies in the case of so-called "experience" goods - goods for which you know afterward whether it was "high" or "low" quality.  Just and Foster's empirical example related to a food safety scare in milk.  In their study, people continued to drink milk because they didn't know that it had been tainted.  By comparing consumer demand (or consumer WTPs) for milk before and after the contamination was finally disclosed, the authors could estimate a value of the information.  In this case, the information had real value because the people would really have short and long term health consequences if they kept consuming X when they would have wanted to consume Y.

It is less clear to me that this same conceptual thinking about the value of information and labels applies to the case of so-called "credence" goods.  These are goods for which the consumer never knows the quality even after consumption.  Currently marketed GMOs are credence goods from the consumers' perspective.  Unless you're told by a credible source, you'll never know whether you ate a GMO or not.  So, even if a consumer learned a food was GMO when they thought it was non-GMO, and wanted to consume Y instead of X units, it is unclear to me that the consumer experienced a compensable loss.  

Expressing a view with which I'm sympathetic, Sunstein also notes that mandatory labels on GMOs don't make much sense because the scientific consensus is that they don't pose heightened health or environmental risks.  Coupling this perspective with the credence-good discussion above reminds me a bit of this philosophical puzzle published by Paul Portney back in 1992 in an article entitled "Trouble in Happyville".  

“You have a problem. You are Director of Environmental Protection in Happyville, a community of 1000 adults. The drinking water supply in Happyville is contaminated by a naturally occurring substance that each and every resident believes may be responsible for the above-average cancer rate observed there. So concerned are they that they insist you put in place a very expensive treatment system to remove the contaminant. Moreover, you know for a fact that each and every resident is truly willing to pay $1000 each year for the removal of the contaminant.

The problem is this. You have asked the top ten risk assessors in the world to test the contaminant for carcinogenicity. To a person, these risk assessors - including several who work for the activist group, Campaign Against Environmental Cancer - find that the substance tests negative for carcinogenicity, even at much higher doses than those received by the residents of Happyville. These ten risk assessors tell you that while one could never prove that the substance is harmless, they would each stake their professional reputations on its being so. You have repeatedly and skillfully communicated this to the Happyville citizenry, but because of a deep-seated skepticism of all government officials, they remain completely unconvinced and truly frightened - still willing, that is, to fork over $1000 per person per year for water purification.”

What should the Director do?  My gut response to this dilemma is the same as what my Ph.D. adviser Sean Fox wrote in a chapter for a book I edited a few years ago:

“It’s a difficult question of course, and the answer is well beyond both the scope of this chapter and the philosophical training of the author.”

Country of Origin Labeling and Cattle Prices

Last week, I traveled quite a bit - from Georgia to Montana and back to Oklahoma.  In all three locations, I heard a claim that I hadn't yet heard before.  Namely that the low cattle prices we are now observing is a result of the repeal of mandatory country of origin labeling (MCOOL) for meat around the first of this year (note: the repeal came about a result of a series of World Trade Organization rulings against the U.S. policy).

I have to admit to being skeptical of the claim.  Agricultural economists have been researching this issue for quite some time (e.g., I have a paper on the topic with John Anderson published more than a decade ago back in 2004).  By and large the conclusion from this body of research is that MCOOL has had detrimental effects on beef producers and consumers (e.g., see this recent report prepared for the USDA chief economist by Tonsor, Schroeder, and Parcell).  It is true that some consumer research (including my own) reveals consumer interest in the topic and willingness-to-pay premiums for U.S. beef over Canadian or Mexican beef in surveys and experiments; however, most consumers were unaware MCOOL was even in place, and research using actual market data hasn't been able to identify any shifts in retail demand as a result of the policy (a summary of this research is in the aforementioned report).

So, let's put my initial skepticism to the side and look at the data.  Here is a graph of fed steer prices (blue line) and number of fed steers marketed (red line) over the past several years (these are USDA data from the LMIC and represent the 5-market weekly weighted average including all grades).   

The solid black vertical line indicates the point where MCOOL stopped being enforced by the USDA (just prior to January 1, 2016).  Looking at cattle prices, one can see how the claim that the repeal of MCOOL caused a drop in cattle prices came about, as the repeal came right after the peak of fed steer prices, after which prices began to fall rather dramatically.  

But, is this just a coincidence?  Correlation is not always causation.  

The red line in the graph shows the number of steers marketed (I plotted the 6 week moving average to smooth out some of the "jumpiness" in the line).  There is a strong inverse correlation between the number of fed steers marketed and the price of fed steers.  When more cattle are brought to market, prices fall and vice versa.  The correlation coefficient is -0.78 over this time period (January 2, 2000 to early November 2016).  

What started happening at almost the exact same time MCOOL was repealed?  Producers started marketing more cattle.  Here's the thing: one can't create a fed steer overnight.  The production decisions that led to the increase in fed steers around January 1, 2016 would have had to have been made around two years before.  Were producers so prescient that they could anticipate the exact time of the repeal of MCOOL two years prior?  Or, rather, was this a "natural" part of the cattle cycle?  

As the above graph shows, producers started having many fewer cattle to sell beginning in '08 on into 2012 for a variety of reasons such as drought and high feed prices.  These lower cattle numbers led to higher prices, which in turn eventually incentivized producers to retain heifers and add more supply to reap the benefits of higher prices.  When did all those extra cattle start hitting the market?  It turns out (largely by chance) that it was the same time MCOOL was repealed.  

Let's go one step further.  Because the supply of fed cattle is relatively fixed in the short run (as production decisions have to be made many months prior), we can use the above data to get a very crude estimate of the demand for fed cattle.  Using just the data shown in the above graph, I find that 81% of the variation in (log) live steer prices is explained by changes in the (log) quantity of steers marketed.  Estimates suggest that a 1% increase in the (six month moving average of the) number of steers marketed is associated with a 0.5% decline in live steer prices.  

Since the 1st of the year there has been a roughly 120% increase in the number of steers marketed (from an average of around 14,600 head/week just prior to the first of the year to an average of around 32,500 head today), and our simple demand model would suggest that this would lead to a 120*0.5=60% decline in cattle prices.  Yet, cattle prices have "only" declined about 25% (from around $133/cwt at the first of the year to around $100/cwt now).  So what?  Well, if MCOOL was the cause of the reduction in cattle prices, we would have expected an even larger fall in cattle prices than our simple demand model predicted, but instead, we're actually seeing a smaller fall than expected.  

Now, let's address one possible criticism of the above discussion.  What if the rise in fed steers marketed in the graph above is because of cattle flowing into the US from Canada and Mexico once MCOOL was repealed?  Here is data on imports of cattle from Canada to the US (again from LMIC).

There was a fall and then a larger uptick in the number of cattle imported from Canada to the US right after MCOOL, but nothing out of the ordinary from the typical fluctuations in the three years prior.  For example, the "spike" in total imports (slaughter cows + fed cattle + feeder cattle) around May of 2016 is at least 5,000 head smaller than the five previous spikes that occurred when MCOOL was in place.   

Even if I take the roughly 5,000 extra imports of fed cattle that came in from Canada after MCOOL from January 1, 2016 to the middle of May, and assumed even than 75% were steers, this would represent only 13% of the number of steers in the 5-market dataset sold to packers.  At most, this would cause a 13*0.5 = 6.5% decline in U.S. fed cattle prices according to my simple demand model.  This is nowhere near the 25% decline actually observed since the 1st of the year.  Moreover, look at what happened to cattle imports during this summer.  They fell.  They fell at a time when U.S. cattle prices were falling.  So, it can't be that extra Canadian imports were the cause of falling U.S. prices during mid summer.

In summary: while it is conceptually possible that the repeal of MCOOL could adversely affect U.S. cattle prices, any actual effect appears to be quite small (if there is any effect at all).  The fact that cattle prices fell immediately after the repeal of MCOOL appears to be a coincidence.  The falling prices seem more to do with "normal" changes in supply resulting from the cattle cycle than anything to do with MCOOL.  

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.”

Mandatory GMO Labeling Closer to Reality

I've written a lot about mandatory labeling of genetically engineered foods over the past couple years, and given current events, I thought I'd share a few thoughts about ongoing developments.  Given that the Senate has now passed a mandatory labeling law, and discussion has moved to the House, it appears the stars may be aligning such that a nationwide mandatory GMO labeling will become a reality.  

The national law would preempt state efforts to enact their own labeling laws, and it would require mandatory labeling of some genetically engineered foods (there are many exemptions and it is unclear whether the mandatory labels would be required on only foods that contain genetic material or also those - such as oil and sugar - which do not).  Food manufacturers and retailers can comply with the law in a variety of ways including on-package labeling and via QR codes.  Smaller manufacturers can comply by providing a web link or phone number for further information.  

Many groups that have, in the past, advocated for mandatory labeling are against the bill because, they say, it doesn't go far enough (e.g., this group is upset because it doesn't "drive Frankenfoods . . . off the market."). Other anti-mandatory labeling folks also don't like the bill because of philosophical opposition to signalling out a technology that poses no added safety risks.  

I suppose this is how democracy works.  Compromise.  Neither side got everything they wanted, but at least from my perspective, this is a law that provides some form of labeling, which will hopefully shelve this issue and allow us to move on to more important things in a way that is likely to have the least detrimental economic effects.   

I'm sympathetic to the arguments made by folks who continue to oppose mandatory labeling on the premise that our laws shouldn't be stigmatizing biotechnology.  Because a GMO isn't a single "thing" I agree the law is unhelpful insofar as giving consumers useful information about safety or environmental impact.  The law is also a bit hypocritical in terms of exempting some types of GMOs and not others.  One might also rightfully worry about when the government should have the power to compel speech and when it shouldn't.  And, I think we should be worried about laws which potentially hinder innovation in the food sector.  

But, here's the deal.  The Vermont law was soon going into effect anyway. The question wasn't whether a mandatory labeling law was going into effect but rather what kind.   The Vermont law was already starting have some impact in that state and would likely have had nationwide impacts.  Moreover, there didn't seem to be a practical legal or legislative way to prevent the law from going into effect in the foreseeable future.  

The worst economic consequences of mandatory labeling would have come about from those types of labels that were most likely to be perceived by consumers as a "skull and cross bones".   In my mind the current Senate bill avoided this worst case scenario while giving those consumers who really want to know about GMO content a means for making that determination.  That doesn't mean some anti-GMO groups won't use the labels as a way of singling out for protest companies that use foods and ingredients made with the technology, but at least the motives are more transparent in this case.  For some groups it was never about labeling anyway - it was about opposition to the technology.  That, in my opinion, is a much less tenable position, and is one that will hopefully be less successful in the long run.