A primer on USDA food assistance programs

With the help of my colleagues and the leadership of Maria Marshall and Kami Goodwin, the Department of Agricultural Economics at Purdue has a new effort to educate and provide analysis around food and farm policy issues.  We are calling it: Policy Briefs by the Purdue Agricultural Economics Department. Here's a short summary from the new website:

“We are pleased to launch Policy Briefs by the Purdue Agricultural Economics Department. We aim to provide short insights, readable for the general public, on policy issues that are national in scope with an Indiana flare. We were initially motivated by the need to provide timely analysis in the lead up to 2018 Farm Bill discussions. However, the breadth of expertise in our department and the ongoing policy discussions related to farm, food, environment, trade, and development issues warrants a longer view and broader scope. The plan is to add new briefs on a monthly basis, although we may add more frequent contributions when more timely information is needed. We hope to enrich policy debates by providing data and context, quantifying impacts, and offering alternatives. ”

If you click on the link to the site, you'll see a couple short pieces by Roman Keeney explaining the Farm Bill and providing some background context for upcoming Farm Bill debates.  We also recently added a post by yours truly providing a short primer on USDA food assistance programs.  I provide an overview of programs like SNAP (aka "food stamps"), WIC, and school lunch, provide some history, look at the effects of SNAP, and outline some of the proposals to change SNAP.  All that in only about 1,000 words!

Here are the first two paragraphs from the piece:

“Looking just at spending, the U.S. Department of Agriculture (USDA) and the Farm Bill might be more aptly described as the U.S. Department of Food Assistance and the Food Assistance bill. In 2017, the USDA is estimated to spend about 77% of its $133 billion in outlays on food assistance programs.

USDA food assistance programs are administered by the Food and Nutrition Service (FNS), and the largest program administered by FNS is the Supplemental Nutrition Assistance Program (SNAP), historically known as “food stamps.” About 70% of the FNS budget authority is allocated to SNAP. The next largest programs, representing about 21% and 6% of FNS budget authority, are Child Nutrition Programs (CNP) and the Women, Infants, and Children (WIC) programs. The CNP primarily delivers free and reduced-price breakfasts and lunches to school children. In December 2017, about 22 million school children participated in the free or reduced lunch program and about 12.6 million participated in the free or reduced breakfast program. The WIC program primarily targets women who are pregnant or who have infant children by providing coupons for infant formula, milk, cheese, and other staple foods. There were about 6.9 million WIC participants in December 2017. SNAP and CNP are entitlement programs (i.e., every person who meets eligibility criteria is allowed to participate), but WIC is a discretionary program whereby the federal government grants a specific dollar amount to be spent each year.”

Want non-GMO? How much more will it cost?

The journal Food Policy just released a new paper I co-authored with Nicholas Kalaitzandonakes and Alexandre Magnier entitled, "The price of non-genetically modified (non-GM) food." 

As retailers consider reformulating products or how they'll respond to new mandatory labeling laws, it is important to consider how these decisions may affect the prices consumers pay for foods that avoid GMOs.  The matter is increasingly of note because sales of non-GMO products have significantly risen over time (below is a graph from the paper showing the trend in sales of breakfast cereal making non-GMO claims).

In the paper, we used a U.S. national sample of grocery store scanner data from the years 2009- 2016 to investigate the prices stores charged for 144 different salad and cooking oil products (or Universal Product Codes, UPCs), 1,288 tortilla chip UPCs, 2,227 breakfast cereal UPCs, and 5,626 ice cream UPCs. We picked these product categories because they represent classes of products for which the potential impact of changes in the raw ingredients on the final retail price might be large (i.e., soybean or corn oil for which the supply is primarily GMO) to small (i.e., ice cream where the value share of GMO crops and their derivatives (e.g. corn syrup) is probably less than 5%).

Here's a short summary:

“we use hedonic modeling to estimate the retail price premiums consumers paid during the 2009–2016 period for non-GM and organic foods in four product categories: breakfast cereal, tortilla chips, salad and cooking oil, and ice cream. There are almost 11,000 ready-to-eat foods in our sample, 1350 of which are labeled as non-GM or organic. We selected these four product categories for their differences in the value shares of GM ingredients and hence their potential differences in reformulation costs. We show that the estimated price premiums for non-GM and organic foods in these four product categories are in line with the expected added costs for supplying such products. ”

The key results are summarized in the table below:

We write:

“The estimated price premiums paid by US consumers over the 2009–2016 period, 9.8% to 61.8% for non-GM products and 13.8% to 91% for organic products in the four categories examined here, are orders of magnitude higher than those projected by economic impact analyses of proposed mandatory GM labeling produced in recent years ”

and

“Perhaps the most important conclusion to be drawn from our results is that non-GM foods are more costly than GM foods, and policies that encourage food companies to shift toward non-GM ingredients are likely to increase food costs. Our results therefore suggest that there is a pressing need for further research in order to clarify the added costs consumers may have to pay under mandatory disclosure of GM ingredients and how such added costs might be distributed.”

Market Potential for Cage Free Eggs

Many food manufacturers and retailers have made pledges to go "cage free."  In fact, if all the pledges are maintained, about 75% of the entire egg laying flock will have to be converted to cage free by the year 2025, as the graph below suggests.     

Is there sufficient consumer demand to support this level of commitment (particularly when one acknowledges that, according to USDA data, cage free eggs are currently selling at about a $1/dozen (or 68%) premium to conventional)?

I recently completed a study for the Food Marketing Institute, Animal Agriculture Alliance, and the Foundation for Food and Agricultural Research on the market potential for cage free eggs to help provide some insights into these issues.

The study was conducted with more than 2,000 consumers.  The core of the study involved people making a series of simulated retail shopping choices like the one below.  

Answers to these questions allow us to infer consumer willingness-to-pay, market shares, and more.  In fact, if you want to run your own market share simulations, I created this handy downloadable spreadsheet.

The main finding is the following:

“When provided no additional information, choices imply half of consumers are willing to pay no more than a $0.30/dozen premium for cage free eggs; however, the mean premium is $1.16/dozen, suggesting a small fraction of consumers are willing to pay sizeable amounts for the cage free label. Almost 60% of consumers have a willingness-to-pay for cage free less than $0.40/dozen, but 33% have a value greater than $1.00/dozen.”

and

“Ultimately, the results suggest there is potential for the market-share for cage free eggs to rise above the current state even at premiums as high as $1.00/dozen. However, even at much more modest price premiums, the potential for cage free eggs to attain majority market share is unlikely, particularly if conventional eggs advertise other desirable attributes. Completely removing more affordable conventional eggs will significantly increase the share of consumers not buying eggs.”

Here are a couple key graphs:

and

There is much, much more in the full report, and you can also download the market share simulator here.

How to Feed the World

That's the title of a new book edited by Jessica Eise and Ken Foster that was just released last week.  The book is a collection of essays primarily from my colleagues in the Department of Agricultural Economics here at Purdue, but it includes contributions from Purdue faculty in other academic disciplines as well.  I had the privilege of writing the afterward.  

Here is the table of contents:

Chapter 1. Inhabitants of Earth- Brigitte S Walforf
Chapter 2. The Green, Blue, and Gray Water Rainbow- Laura C Bowling and Keith A Cherkauer
Chapter 3. The Land that Shapes and Sustains Us- Otto Doering and Ann Sorensen
Chapter 4. Our Changing Climate- Jeff Dukes and Thomas W Hertel
Chapter 5. The Technology Ticket- Uris Baldos
Chapter 6. Systems- Michael Gunderson, Ariana Torres, Michael Boehlje, and Rhonda Phillips
Chapter 7. Tangled Trade- Thomas W Hertel
Chapter 8. Spoiled, Rotten, and Left Behind- Ken Foster
Chapter 9. Tipping the Scales on Health- Steven Y Wu
Chapter 10. Social License to Operate- Nicole J Olynk Widmar
Chapter 11. The Information Hinge- Jessica Eise
Chapter 12. Achieving Equal Access- Gerald Shively

I Will Give You My Vote but Not My Money: Preferences for Public versus Private Action in Addressing Social Issues

That's the title of a paper by Bailey Norwood, Glynn Tonsor, and myself that was just released by the journal, Applied Economic Perspectives and Policy.

We start the paper as follows:

“Social issues in agriculture such as animal welfare and food insecurity pose two primary concerns: whether any action is going to be taken and, if it is, the extent to which action is taken in the private or public realm. Those who are concerned about animal welfare in conventional egg production can take private action by purchasing cage-free eggs, or they can encourage public action by voting for bans on the use of cages in egg production. Private action to mitigate food insecurity includes donating to food banks, while its public counterpart is government programs like the Supplemental Nutrition Assistance Program”

A summary of the study and findings:

“This study explores the extent to which individuals will support public action but, in its absence, will not commit their own voluntary efforts. An internet survey was administered to over 3,500 individuals with hypothetical scenarios in which they could donate their own money toward a cause and/or support government action. When asked to choose between public or private action, most chose a combination of the two, suggesting that public and private partnerships are the preferred vehicle for solutions to social problems. Close to 20% indicated they would vote for laws to confront an issue but not contribute their own private donations.”