Are Steaks Too Big?

Then answer, according to a paper just published in the journal Food Policy by Josh Maples, Derrell Peel, and me is "yes" - at least for most consumers.  

The issue is that improved genetics and feeding technologies, along with various economic incentives, have led to much larger cattle.  To provide some perspective, USDA data indicate that the average weights of commercially slaughtered cattle hovered around 1,000 lbs from the 1950s and the mid 1970s.  Since that time, however, there has been a fairly steady increase in the size of cattle.  Since 1975, finished cattle weights have increased about 9 lbs/year on average.  In 2016, the average weight was 1,363 lbs.  That's a whopping 366 lbs higher in 2016 than in 1975!

Larger cows mean larger steaks.  On the surface, that seems like a good thing for consumers as it means we have more steaks.  However, most people don't want to eat a 32oz steak.  In fact, most restaurants and grocery stores offer relatively fixed serving sizes for steaks like 12oz or 16oz, for examples.  So, what happens if cattle carcasses have gotten much bigger, and along with it, the muscles that are cut into steaks, but consumers still only want a 16oz steak?  The consequence is that today, steaks are cut thinner.  Thus, the core question is: for a fixed weight, do consumers prefer "traditional" thicker steaks that take up a smaller area or "newer" thinner steaks that take up a larger area?  

To answer this question, we surveyed over 1,000 US consumers and presented them with a series of choices like the following that varied the type of steak, the thickness or the steak, the area of the steak, and price.  Note that one you know the thickness and the area of a steak, the weight is pre-determined.  

The findings?

“Our results imply that consumers are heterogeneous in preferences for steak size but are generally in unison in their dislike for the thinnest cuts of steaks”

About half the consumers preferred steaks with the largest area, but about half preferred steaks with a medium-sized area.  Overall, the results suggest that the roughly 50% of consumers who prefer steaks with larger areas is way more than offset by the near universal dislike of steaks becoming much thinner.   

Here's an excerpt from the conclusion:

“The decrease in consumer welfare by moving from a choice set containing small area and thick steaks to a choice set that includes large area and thin steaks implies that the changes in carcass size have led to a decrease in consumer utility from today’s steak choices relative to the steak choices of a few decades ago. The aggregate welfare loss from the increase in carcass weight with respect to ribeye and sirloin steaks is $8.6 billion for the two largest classes. Of course, steaks are only one piece of the carcass, and the increase in carcass size may have increased welfare with respect to other beef cuts. The decrease in welfare due to larger steaks can be offset by increased welfare resulting from the increases in quantity produced of other cuts. Ground beef is a prominent example. Because the form of this product remains generally unchanged as carcass size increases, the increased efficiency (i.e. more meat per animal) has likely led to increases in consumer welfare through lower prices (or smaller increases in prices resulting from the decrease in number of cattle slaughtered). However, steaks represent an important portion of the total carcass value and it is possible that the increasing size of other cuts have also created less desirable end products for consumers. Future research should focus on the impact of increased carcass weights on consumer welfare across multiple cuts. Such studies might find that while welfare losses exist for some cuts, the gains in welfare from other cuts lead to a net increase in consumer welfare due to larger cattle.”

Willful Ignorance

“Wilful ignorance is a documented human behaviour whereby people deliberately avoid information. Although much work has documented consumer attitudes toward farm animal welfare, few studies have questioned whether people even want to know how farm animals are raised. Using an internet survey of 1,000 subjects from the US state of Oklahoma, it is shown that around one-third admit to being wilfully ignorant regarding pork production. One-third also chose to look at a blank screen rather than a picture of how pregnant hogs are housed. Avoidance of guilt is shown to be a motivator for this behaviour.”

That's the abstract of a paper by Eryn Bell, Bailey Norwood, and me that was just published in the journal Animal Welfare.

Thanksgiving Likely Less Expensive This Year

Next week is Thanksgiving, and it seems as suitable a time as any to take a look at changes in food prices.  I turned to the Bureau of Labor Statistics (BLS) data to investigate how prices of frozen turkey have evolved over time in the month of November.  The BLS hasn't yet reported retail prices for the month of November (or for the month of October for that matter), but nonetheless I can project this year's November turkey price based on past correlations between prevailing prices in September and November.  

As the above table shows, I'm projecting the price this November for a 20lb turkey to be $29.92, which is slightly less than last year but similar to 2014 and 2015.  By and large, one of the stories of turkey prices (and poultry more generally) is how stable prices have become over time.  This can be seen more dramatically by comparing turkey prices with the prices of other meats.  

My family isn't a big fan of turkey.  We often opt for steak.  The figure below shows past and projected November prices for turkey and beef steak (on a $/lb basis).

Prices for steak have increased more than a dollar per pound in both real and nominal terms over the past 20 years; however, turkey prices have hovered around $1.45/lb in real terms for the past two decades, which a slight up-tick in 2013.  Projected prices for steak this November are within a nickle per pound of where they were in November 2016.

If you're considering whether to have turkey or steak, another interesting comparison is the ratio of beef steak prices to turkey prices.  This ratio tells you how many pounds of turkey can be purchased for each pound of steak for the same budget.    

In November 2015, one could purchase about 5.5lbs of turkey for each pound of beef steak for the same total cost.  This year, I'm projecting that a consumer can only buy 4.88 lbs of turkey for each pound of beef steak.  That is, steak is projected to be relatively less expensive than turkey was in 2015 (though slightly more expensive than last year in 2016).  

Of course, a Thanksgiving meal consists of more than just turkey or beef.  Thus, it might be useful to compare overall how expensive food is this November compared to non-food items.  Using BLS data on price indices for food at home and non-food items, I calculated the change in cost of food at home relative to non-food over time.  

Compared to the base year, which I set to 1998, November prices of food at home rose at a slower rate than November prices of non-food items (i.e., food at home became less expensive relative to non-food items).  That pattern reversed course in 2008, when food prices began increasing at a faster rate than non-food prices. 

In 2016, and I'm also projecting for 2017, food at home has again started becoming less expensive relative to non-food items.  So, this Thanksgiving, be a good economist, buy fewer non-food items, and eat well!  

Double Dipping?

With debates over the farm bill likely to heat up over the next year, it's interesting to see the lines of arguments coming out from different camps.  Today, the Environmental Working Group, an opponent of many farm subsidies, came out with a new publication.  They focus on what they call "double dipping", in which farmers receive payment when a loss occurs both from commodity programs (ARC or PLC) and from subsidized crop insurance programs.  

In their words:

“But farmers can – and hundreds of thousands do – participate in either ARC or PLC and in the crop insurance program. Most of the double dipping in the 2014 and 2015 growing seasons came from duplication of crop insurance and ARC payouts.

You don’t need a degree in agricultural economics to see the result: multiple payments going to the same farmers in the same counties to cover the same “drop” in revenue from crop sales. The interactive map below shows the counties where farmers received duplicate payments from at least two of the three programs.

In 2015, more than 2,300 counties received an ARC or PLC payment for losses incurred in 2014. Crop insurance policies paid out in more than three-fourths of those counties in 2014. The pattern was repeated the following year. ”

They created several maps illustrating where they argue "double-dipping" has most occured.

Over the last few farm bills, there seems to be less emphasis on traditional commodity programs and more focus on crop insurance.  To the extent arguments like this hold sway, I suspect that transition will continue.   

Do we produce enough food already?

Earlier this week I had the pleasure of giving the George Morris AgriFood Policy lecture at the University of Guelph.  I primarily focused my talk on the benefits of food and agricultural technologies and the importance of productivity growth for solving our future world food problems.  

At the conclusion of my talk, an audience member played devils advocate asked an important question that deserves more widespread discussion.  In short, the question was something along the lines of the following: don't we produce enough food already?  It is a question reflected in many popular writings.  This headline, for example, is "We Don't Need to Double World Food Production by 2050." Here's Mark Bittman writing in the New York Times: "The world has long produced enough calories . . .".  Here's Bittman again under a headline in the same outlet "Don't Ask How to Feed the 9 Billion" because, in his words, "The solution to malnourishment isn’t to produce more food." 

Here are my main main thoughts on this line of thinking:

1) Even if we produce enough calories today to meet today's population, that doesn't mean we produce enough for tomorrow's population.  Productivity growth is gradual and incremental, and if we found ourselves in a situation of needing more food, the new technologies to produce them cannot be created over night.  This is particularly true of our ability to produce in the future is hampered by climate change.

2) There is no binary category of "enough food."  Greater food production leads to lower food prices and lower food insecurity.  I haven't yet met a food consumer who wouldn't prefer paying lower food prices, holding quality constant. 

3) I may be true in an accounting sense that we produce enough calories today to meet total caloric needs.  But accounting isn't economics, and we need to consider the incentives of the system that produces the sufficient calories today relative to an alternative system that is either less productive or involves widespread redistribution.  Massive redistribution of food can destroy the incentives of people to produce the food.  One cannot disentangle the fantastic productivity of our current system with the market forces that led to it's origin.  Stated differently, there is no reason to imagine we'd produce the same number of calories if "the system" were changed to one with massive confiscation/redistribution.  Brady Deaton altered me to this fascinating paper in the Journal of Political Economy showing that 75% of the increase in China's agricultural productivity after 1978 was due to strengthening of individual incentives.

4) It's important to look at productivity through the lens of sustainability.  Higher productivity means getting more (or the same) amount of food output using fewer inputs and resources.  Are people really wanting to argue that they'd prefer systems that require more of our natural resources - more land, more water, more fossil fuels? Since when is lower productivity and inefficiency preferred?  Even if "enough" food is produced today, improved productivity means we can keep producing the same quantity but shrink agricultural's footprint on the land, use less water, fewer pesticides, etc.    

5) If the solution to the food problem is simply shipping food from high productivity countries and sending (or stated more pejoratively "dumping") in lower productivity countries with hungrier citizens, this may harm the livelihoods of producers in low productivity countries and reduce their incentives to adopt efficient forms of agriculture.

6) If places like the US decided to forego new food and agricultural technologies and farmers were forced or incentivized to adopt lower productivity systems, what would happen to patterns of global trade and production.  US farmers compete with farmers all over the world to serve US consumers and consumers worldwide.  Not only would such policies likely reduce US exports, it would make imports relatively more attractive.  Is the solution then import tariffs to prop up our lower productivity system?

7) One can go back to writings from over 100 years ago and find claims that the problem of production and scarcity had essentially been solved, and all that was needed was a heavier handed state to ensure "fair" distribution (e.g., see Edward Bellamy's Looking Backward, published in 1888).  Imagine the world we would live in today if that premise were widely accepted back in 1888 - that the state of production was "good enough" and we could stop worrying about growth and progress.  How much growth would we have lost out on had we stopping innovation in 1888?  We'd still be hand-picking cotton, planting with mules, eating much more salt- and vinegar-cured meats, and more.  What will the food and agriculture future look like in 2088, and what will we give up if we stop working on productivity-enhancing technologies today?