USDA Economic Research Service (ERS) and National Institute for Food and Agriculture (NIFA) to Move

For those of you that aren't academic agricultural economists or statisticians, this may seem a bit "inside baseball", but for those of you that are, this is a big deal.  I don't know for sure, but I suspect the federal government is the largest employer of PhD-level agricultural economists, and many (most?) of those economists are in the Economic Research Service (ERS).  Employees of the ERS and NIFA unexpectedly received emails today indicating a re-organization of their agencies and a re-location.  

Here is a broader release that was sent out about an hour ago.  I'll simply post it here without editorializing.  For ease of reading, the following isn't in block quotes but it is a copy-paste from an email.

USDA to Realign ERS with Chief Economist, Relocate ERS & NIFA Outside DC

(Washington, DC – August 9, 2018) – U.S. Secretary of Agriculture Sonny Perdue today announced further reorganization of the U.S. Department of Agriculture (USDA), intended to improve customer service, strengthen offices and programs, and save taxpayer dollars.  The Economic Research Service (ERS), currently under USDA’s Research, Education, and Economics mission area, will realign once again with the Office of the Chief Economist (OCE) under the Office of the Secretary.  Additionally, most employees of ERS and the National Institute of Food and Agriculture (NIFA) will be relocated outside of the National Capital Region.  The movement of the employees outside of Washington, DC is expected to be completed by the end of 2019.

“It’s been our goal to make USDA the most effective, efficient, and customer-focused department in the entire federal government,” Perdue said.  “In our Administration, we have looked critically at the way we do business, with the ultimate goal of ensuring the best service possible for our customers, and for the taxpayers of the United States.  In some cases, this has meant realigning some of our offices and functions, or even relocating them, in order to make more logical sense or provide more streamlined and efficient services.”

Realigning ERS with OCE

Moving ERS back together with OCE under the Office of the Secretary simply makes sense because the two have similar missions.  ERS studies and anticipates trends and emerging issues, while OCE advises the Secretary and Congress on the economic implications of policies and programs.  These two agencies were aligned once before, and bringing them back together will enhance the effectiveness of economic analysis at USDA.

Relocating ERS and NIFA outside National Capital Region

New locations have yet to be determined, and it is possible that ERS and NIFA may be co-located when their new homes are found.  USDA is undertaking the relocations for three main reasons:

1. To improve USDA’s ability to attract and retain highly qualified staff with training and interests in agriculture, many of whom come from land-grant universities.  USDA has experienced significant turnover in these positions, and it has been difficult to recruit employees to the Washington, DC area, particularly given the high cost of living and long commutes.
2. To place these important USDA resources closer to many of stakeholders, most of whom live and work far from the Washington, DC area. 
3. To benefit the American taxpayers.  There will be significant savings on employment costs and rent, which will allow more employees to be retained in the long run, even in the face of tightening budgets. 

No ERS or NIFA employees will be involuntarily separated. Every employee who wants to continue working will have an opportunity to do so, although that will mean moving to a new location for most.  Employees will be offered relocation assistance and will receive the same base pay as before, and the locality pay for the new location.  For those who are interested, USDA is seeking approval from the Office of Personnel Management and the Office of Management and Budget for both Voluntary Early Retirement Authority and Voluntary Separation Incentive Payments.

“None of this reflects on the jobs being done by our ERS or NIFA employees, and in fact, I frequently tell my Cabinet colleagues that USDA has the best workforce in the federal government,” Perdue said.  “These changes are more steps down the path to better service to our customers, and will help us fulfill our informal motto to ‘Do right and feed everyone.’”

Perdue previously announced other significant changes at USDA.  In May 2017, USDA created the first-ever Undersecretary for Trade and Foreign Agricultural Affairs and reconstituted and renamed the new Farm Production and Conservation mission area, among other realignments.  In addition, in September 2017, Perdue realigned a number of offices to improve customer service and maximize efficiency.  Those actions involved innovation, consolidation, and the rearrangement of certain offices into more logical organizational reporting structures. 

The Most Popular Fruits and Vegetables

I recently had some questions about which fruits and vegetables are most commonly consumed. The USDA Economic Research Service reports data on per-capita availability of different foods.  This is not a direct measure of consumption per se, but it is an indirect extrapolation of what was left in the U.S. for consumption after accounting for exports and storage.  Their latest update was for the year 2015.

Here is per-capita "consumption" of fresh fruit.

And, per-capita "consumption" of fresh vegetables is below.

Do any of these findings surprise you?  One of the results that was a little surprising to me is that melons were the 2nd most commonly consumed fresh fruit. Why are melons so commonly consumed?  There are likely a variety of reasons, but I suspect price is one factor.

Here is 2016 retail data from USDA Economic Research Service for fresh fruit.  I've shown prices in $/lb and $/cup equivalent ("a 1-cup equivalent equals the weight of enough edible food to fill a measuring cup") for some of the most commonly fresh fruits.

Why do people eat a lot of fresh melons?  Apparently one reasons is that they're relatively affordable.

Farmer's Share of the Retail Dollar - Enough Already

Every so often, the people seem to get excited about the farmer’s share of the retail dollar – particularly when USDA updates the figures or a news article mentions the issue.  A couple months ago, for example, the National Farmer’s Union issued a press release decrying the fact that farmers “only” receive 14.8 cents of every dollar consumers spend on food.  About the same time, the Food Tank put out this tweet.

For every dollar consumers spend on food, only 7.8 cents goes to farmers pic.twitter.com/NZrqJ6OVsw

— Food Tank (@foodtank) May 15, 2018

The widespread implication seems to be that a lower share of the retail dollar is an unambiguous sign that farmers are worse off.  But one has very little to do with the other.  Let me try to illustrate with an example.   

Suppose there are two countries where the farmer’s share of the retail dollar differs dramatically.  In Country A, the share is only 10% and in Country B, the share is 90%.  So, when a consumer spends $1 on food, the farmer in Country A receives 10 cents and the farmer in Country B receives 90 cents.  On a dollar-spent-on-food basis, it thus looks like a farmer would much prefer to live in Country B than Country A.  But, let’s dig a little deeper.

Suppose the farmers in our two countries actually produce the same value of agricultural output.  To make the math easy, let’s say farmers in Country A produce $100 billion worth of ag output and farmers in Country B do the same. 

What are consumers in the two countries spending on food?  By definition, consumers in Country A are spending $100 billion/0.1 = $1,000 billion and consumers in country B are only spending $100 billion/0.9 = $111.11 billion. By definition, for a fixed value of ag output, a smaller value for the farmer's share of the retail dollar implies a larger total food economy. As I'll show in a minute, it matters a lot if you're selling into a $1 trillion market or a $111 billion market.

Why might consumers in Country A spend so much more on food than consumers in Country B despite the same volume of ag output in both countries?  Well, it could be there is more market power with greedy agribusinesses and retailers siphoning off profits in Country A than B (that seems to be the common layman’s interpretation).  But, it could also be that consumers in Country A have the preferences or ability to pay more for better packaging, increased food safety, better working conditions in food processing, more convenience (they pay the processor or a restaurant to do more of the preparation for them), etc.

So, what happens if there is a 10% increase in consumer demand for food in both Country A and Country B?  This could happen, for examples, if the populations increase in each country or if the respective food industries run advertisements or there are post-farm innovations that increase quality. 

Now, let’s construct a very simple economic model (such as the one we use in this paper), where, in both countries, the elasticity of demand is -0.8 and the elasticity of supply is 0.2, and the farm product is supplied to the retail sector in fixed proportions. 

In this situation, a 10% increase in consumer demand in country A (with only a 10% farmer’s share of the retail dollar) will increase farmers' profits by $29 billion.  However, in country B, where farmers “get” a full 90% of the retail dollar, that same 10% increase in consumer demand only increases farmers' profits by $8.8 billion.  So, for the same percentage increase in consumer demand, farmers in country A are more than 3x better off than farmers in country B despite the fact that their share of the retail dollar is only 10% instead of 90%. 

So, here’s a fundamental lesson: a small share of a big number can be much higher than a larger share of a smaller number.

Now, none of this means that one cannot construct scenarios in which producers are worse off when the farmer’s share of the retail dollar falls.  That’s easy to do too.  But, as I’ve shown here, I can easily do the opposite. 

The point?  Changes in the farmer’s share of the retail dollar are meaningless insofar as telling us whether farmers are better or worse off. 

Don't believe me?  Listen to other agricultural economists.  Here is Gary Brester, John Marsh, and Joseph Atwood and colleagues writing in a 2009 journal article:

“We have empirically demonstrated that [the farmer’s share of the retail dollar] statistics and, by construction, farm-to-retail marketing margins, are not reliable measures of changes in producer surplus (welfare) given exogenous shocks to various economic factors … In fact, little or no accurate information is conveyed by [farmer’s share of the retail dollar] statistics … Consequently, these data should not be used for policy purposes.”

New Published Research

I've had several new papers published in the last month or so that I haven't had a chance to discuss here on the blog.  So, before I forget, here's a short list.

• What to Eat When Having a Millennial over for Dinner with Kelsey Conley was published in Applied Economic Perspectives and Policy.  We found Millennials have higher demand for cereal, beef, pork, poultry, eggs, and fresh fruit and lower demand for “other” food, and for food away from home relative to what would have been expected from the eating patterns of the young and old 35 years prior.  I'd previously blogged about an earlier version of this paper.
• A simple diagnostic measure of inattention bias in discrete choice models with Trey Malone in the European Review of Agricultural Economics. Measuring the "fit" of discrete choice models has long been a challenge, and in this paper, we suggest a simple, easy-to-understand measure of inattention bias in discrete choice models. The metric, ranging from 0 to 1, can be compared across studies and samples.
• Mitigating Overbidding Behavior using Hybrid Auction Mechanisms: Results from an Induced Value Experiment with David Ortega Rob Shupp and Rudy Nayga in Agribusiness.  Experimental auctions are a popular and useful tool in understanding demand for food and agricultural products. However, bidding behavior often deviates from theoretical predictions in traditional Vickrey and Becker–DeGroot–Marschak (BDM) auction mechanisms. We propose and explore the bidding behavior and demand revealing properties of a hybrid first price‐Vickrey auction and a hybrid first price‐BDM mechanism. We find the hybrid first price‐Vickrey auction and hybrid first price‐BDM mechanism significantly reduce participants’ likelihood of overbidding, and on average yield bids closer to true valuations. 

GMO labels - not as bad as I thought

Science Advances (the open-access version of Science Magazine) just published a paper I co-authored with Jane Kolodinsky from the University of Vermont.  I suspect the paper's findings may raise a few eyebrows, as we find that opposition to GMOs in Vermont fell relative to that in the rest of the U.S. after mandatory labeling was adopted in that state.

Some background context might be useful here.  Several years go, I was decidedly in the camp that thought imposition of mandatory labels would cause people to be more concerned about GMOs because it would signal that something was unsafe about the technology.  Prominent scholars such as Cass Sunstein have argued the same.  A few years ago, Marco Costanigro and I put this hypothesis to the test in a paper published by Food Policy, and we found little evidence (in a series of survey-based experiments) that the label per se neither increased or decreased aversion to GMOs.  So, I was less convinced that this particular argument against mandatory GMO labeling was valid, but I was still unsure.  

Then, last summer at the annual meetings of the Agricultural and Applied Economics Association (AAEA), I saw Jane present a paper based on survey data she collected in Vermont before and after mandatory labels went into place there.  Her data suggested opposition to GMOs fell at faster rate after mandatory labels were in place.  Despite my findings in Food Policy, I remained dubious and Jane and I went back and forth a bit on the robustness of her findings. 

I'd been in enough conversations with Jane to know that we had different philosophical leanings about the desirability of GMOs, but this was an empirical question, so we put our differences aside and decided to join our data and put the hypothesis to the test.  Through the Food Demand Survey (FooDS), I had been collecting nationwide data on consumer's concerns about GMOs, and I suggested we combine our two sets of data and do a true "difference-in-difference" test: Did the difference in concern among consumers in VT and the result of the US increase or decrease after mandatory labeling was adopted in VT?

Our article in Science Advances has the result:

“This research aims to help resolve this issue using a data set containing more than 7800 observations that measures levels of opposition in a national control group compared to levels in Vermont, the only U.S. state to have implemented mandatory labeling of GE foods. Difference-in-difference estimates of opposition to GE food before and after mandatory labeling show that the labeling policy led to a 19% reduction in opposition to GE food. The findings help provide insights into the psychology of consumers’ risk perceptions that can be used in communicating the benefits and risks of genetic engineering technology to the public.”

One important caveat should be mentioned here.  Our result does NOT suggest people will suddenly support GMOs once mandatory labels are in place.  Rather, our findings suggest that people will be somewhat less opposed than they were prior to labels.  I mention this because in the wake of my paper with Marco in Food Policy some of the media's interpretation of our results (such as that of the New York Times editorial board), could have been construed as suggesting that imposition of mandatory labels would not cause economic harm.  That may or may not be true.  But, this new study suggest that labels per se may in fact reduce opposition.

It was great to work with Jane on this project, and for me it was a good lesson to test your beliefs, particularly when there are theoretical reasons that could support the opposing point of view.

I'll end with a key graph from the paper.