2018 in Review

With a few hours left in 2018, it’s time to post the traditional annual year in review.

This was my first full year as department head at Purdue and it was a busy one. I won’t recount all the departmental events, but you can catch up on our department’s annual report or our monthly newsletters, which chronicle some of the highlights. Just some of the fun: hiring five new faculty, helping institute several new endowed chairs, hiring several new staff members, ushering in new graduate and undergraduate coordinators, an extension coordinator, a center director, and much more.

2018 was also very active on the research front. I was author or co-author on more than 20 peer-reviewed publications in academic journal articles that will bear a 2018 publication date. I won’t recount all of them, but I was especially glad to see my paper with Jane Kolodinsky on GMO labeling published in Science Advances, a paper on GMO price effects with Nicolas Kalaitzandonakes and Alex De Maisonneuve appear in Food Policy, my paper on effects on California animal welfare laws on retail egg prices with Conner Mullally hit the American Journal of Agricultural Economics, and several papers with Trey Malone finally hit the presses this year. I also wrapped up a couple big projects related to consumer preferences for cage free eggs and slow growth chickens and another on pork quality grade labels with Glynn Tonsor, Ted Schroeder, and Dermot Hayes which finally finished up with publication in Food Policy.

There were a number of memorable trips and meetings this year. I finished my term as past president of the Agricultural and Applied Economics Association at the annual meetings in Washington, D.C. I really enjoyed the dinner talk I gave for the Atlanta Federal Reserve and getting to hang out with Raphael Bostic, the bank’s president. My talk for the Council for Agricultural Science and Technology (CAST) in the USDA atrium/patio in D.C. was fun (but noisy) as was getting to follow Sunny Perdue at the National Grain and Feed Association meeting in Arizona (no, he didn’t stick around for my talk). After a year away, I rejoined Maurizio Canavari, Andreas Drichoutis, and Rudy Nayga to teach the seventh (I think!) edition of our summer school on experimental auctions this time in Bolzano, Italy, which was a nice off-the-beaten-path destination. There were, of course, many more trips and talks, some of which are noted here.

This year on the blog, I had about 56 new posts, and there were over 84,000 page views during the year. The number of page views is about on par with the past couple years, but the number of posts is about half of what I’ve generated the past couple years. My goal in 2018 was to post at least once a week, and I hit that target, but it was below what I’d aimed at in previous years. The decline is fully the result of pressing administrative duties which tend to take up every free moment on my calendar. I’m hoping to keep about the same pace for next year - about one post a week.

Here were the most viewed posts, as judged by pageviews, on the blog in 2018:

• HIERARCHY, DISAGREEMENT, AND FOOD POLITICS

• WANT NON-GMO? HOW MUCH MORE WILL IT COST?

• THE NEW GMO LABELING LAW

• DISRUPTIVE TRENDS IN FOOD AND AGRICULTURE

• LOOK AT ME, I'M BUYING ORGANIC
  

One of the nice things about blogging for over six years (I started this site in mid-2012) is that there is a lot of back material that continues to get attention. In fact, in 2018 about two-thirds of the 20 most viewed posts were written in a prior year. The most popular prior posts relate to topics like vegetarianism, meat demand, demand estimation, and the relationship between income and food consumption.

Thanks for tuning in!

Retail Food Prices in 2018 and Beyond

The December 2018 edition of the Purdue Ag Econ Report is out. Some of the questions addressed by my colleagues include:

• Why will the U.S. economy slowdown in 2019?

• What are the implications of the Administration’s trade policy in 2019?

• What was accomplished for agriculture in the new farm bill?

• Record corn yields and higher corn prices increase corn returns. How much?

• Record bean yields, Chinese tariffs and trade assistance payments. What’s the net effect?

• Crop costs for 2019. What crops to plant?

• Cash rents and land values. Up or down for 2019?

• What will you be paying for food in 2019?

My contribution was to weigh in on the last question about retail food prices.

Changes in the retail price of food at home have remained low, averaging just 0.5% year-over-year growth over the past five years and 0.4% year-over-year growth thus far through 2018 according to data from the Bureau of Labor Statistics.  Inflation of food prices away from home, by contrast, is higher but has remained fairly stable over time at about 2.6% year-over-year increases.  Since 2016, prices of food at home have grown much more slowly than overall prices in the economy, implying food at home is becoming cheaper in real terms.  Since 2017, changes in prices of food away from home have been at about the same level as prices changes in the rest of the economy. 

The U.S. Department of Agriculture, Economic Research Service (ERS) projects annual food price inflation, for combined food at home and away from home, of between 0.75% and 1.75% for the year 2018, increasing to 1.5% to 2.5% for 2019.  In 2018, low agricultural commodity prices helped keep downward pressure on food price inflation.  Several commodities, such as pork, dairy, and processed fruits and vegetates experienced overall price declines, or deflation, in 2018.  A few commodities have experienced more significant retail price increases in 2018, including beef (expected to increase about 1.75%) and eggs (expected to increase more than 9% from 2017 to 2018).

 As the foregoing suggests, food price affordability is driven in part by where consumers choose to buy their food.  ERS calculations indicate that since 2010, consumers have been spending more money on food away from than they are on food for at-home consumption.  In 2017, consumer spent almost $870 billion on food away from home and about $747 billion on food at home, implying 54% of food expenditures were for food consumed away from home. 

Even for food consumed at home, consumers are changing their purchasing habits.  Two decades ago, 71% of food for at-home consumption was bought at grocery stores; today the figure is only 58%.  Consumers have shifted food purchases away from grocery stores toward warehouses clubs and superstores.  For food away from home, there has been a slight shift toward more food spending at limited-service restaurants over the past two decades, but overall the share of meal spending at full service restaurants compared to other outlets has remained steady at about 36% of all food away from home spending. 

Trends in Farm Land Acreage

I hear a lot of talk about the impacts of federal farm policy on our food system. It is sometimes suggested that farm policy is to blame for “cheap food” and thus obesity (see this nice twitter response by Tamar Haspel) or that many of our purported modern day farm and food ills can be traced back to Earl Butz, who as Secretary of Agriculture in the early 1970’s encouraged producers to plant “fence row to fence row.”

One way to evaluate these sorts of claims is to look at how much (or little) crop acreage in the U.S. has changed over time. Here is data according from the USDA, National Agricultural Statistics Service on the amount of land planted to nine major commodity crops over time (note: vegetable acreage, which comprises only about 1% of all acreage is not included; nor is fruit or nut acreage, which is also a very small share of the total).

The figure below shows the cumulative acreage in the U.S. planted to nine major commodity crops over 93 year time period from 1926 to 2018. Over the entire time period, there was an average of 246 million acres planted to these nine crops each year. Seven out of the 10 highest planting years were prior to 1937 with the remaining three being in 1980, 1981, and 1982.

The coefficient of variation (the standard deviation divided by the mean) is only about 7.5%, implying relatively low variation over time (usually a figure less than 100% would be considered low variation). Since 1990, there have been relatively small year-to-year changes. Over the most recent 28 year time period, about 225.7 million acres are planted each year to these nine commodity crops, with a coefficient of variation of only 1.8%. This lower variation in recent years is interesting because farm policy has been much more market-oriented since 1996, and this is precisely the period over which there has been more stability in planted acreage.

Total land devoted to farming (or crop acreage) today is about 12% lower than the highs of the 1930’s and the early 1980’s. This is amazing in many ways given that the U.S. population is now 130% higher than it was in the 1930’s. Stated differently, twice as many people are now being fed on fewer crop acres.

Moving away from total acreage, it is instructive to look at the mix of acreage (see the two following figures). Here, we can see some significant changes in which crops are planted in the U.S. over time. For example, in 1926, there were only 1.9 million soybean acres but in 2018, for the first year in history, more acreage (89 million acres) was planted to soybeans than any other crop. Prior to that corn had been king every year except 1981-1983, when more acres were devoted to wheat than corn.

Another big change was a reduction in the number of acres planted to oats. Prior to the 1960’s, more than 40 million acres of oats were routinely planted each year. In 2018, only 2.7 million acres were in oats. Why the change? One big reason is that there aren’t as many mules and horses that need to be fed. Cotton also experienced a precipitous reduction in acreage from the late 1920’s to the early 1960s, stabilizing a bit thereafter.

The following figure shows the same data, but with acreage dedicated to each crop expressed as a percentage of total acreage in a given year.

Taken together, these three figures suggests the big change hasn’t been the total farmland planted but rather the change in which crops are planted to the acres. Moreover, this crop mix issue (the rise of soy and the decline of oats) probably had little to do with farm policy.

Given all the concerns expressed these days about mono-cropping, it might be interesting to look at the variation in planted acreage (in terms of the mix of crops planted) today than in the past. To see this, I calculated the coefficient of variation across the number of acreages planted to each of the nine crops in each year. This gives a feel for how much crop variation there in a given year. Here are the results plotted over time.

The coefficient of variation ranges from about 87% to 138%. Comparing this to the coefficient of variation for total acreage planted (which was 7.5%), implies there is more variation in which crops are planted to which acreages in a given year than there is variation in the total planted acreage over time.

The figure above shows that the crop-mix variation (at least among these nine crops) has been increasing since the 1960s, and the variation is higher in the past decade than at any point in the preceding 80 years.

Reducing Meat Consumption?

A couple weeks ago, The Economist ran this story about people’s stated efforts to reduce meat consumption. Here is their key graph, which shows demographic breakdowns in how people responded to this question.

These demographic results are largely consistent with many of the survey results I’ve generated over the past few years. For example, here are demographic breakdowns of people who self declare as vegetarian/vegan vs. meat eater. Like the study mentioned in The Economist, we find politically liberal individuals are much more likely to be vegetarians/vegans as compared to politically conservative individuals.

Also, see this study where I estimated beef demand. Again, demand for steak and ground beef increases the more conservative the respondent.

More broadly, the study mentioned by The Economist suggests:

“Twenty-seven per cent of respondents in our survey say they have made an effort to reduce their consumption of meat in the past year.”

That’s a bit of a strange framing because if you look at USDA data on consumption (or “disappearance”), over the past four to five years it has been increasing. As for measures of meat demand, such as these complied by Glynn Tonsor at K-State, demand today for beef and pork is quite a bit higher than in 2010 or 2011.

Maybe, this is a way of saying that I’m skeptical of questions like that in The Economist that ask, in a somewhat leading way, how much are one trying to reduce consumption of X. A more balanced question shows much different results.

For example, see the results of this study on pork I conducted with Glynn Tonsor, Ted Schroeder, and Dermot Hayes for the Pork Board. We report:

“One of the initial questions asked respondents, “Over the past five years, has your consumption of pork chops increased or decreased?” 32.9% indicated consumption had increased, 57.5% responded “stayed the same,” and the remaining 9.6% indicated consumption had decreased. ”

For the 9.6% who said “decrease”, we asked why, and the most common response was, “Other meat options have become more attractive.” So, in this case, even among people who said they were eating less pork, it’s because they’re eating more of other types of meat.

Or, here are the results of a survey I conducted last year, where I asked the same question but this time about chicken consumption. The result?

“One of the initial questions asked respondents, “Over the past five years, has your consumption of chicken increased or decreased?” 47.4% indicated consumption had increased, 48.5% responded “stayed the same,” and the remaining 4.1% indicated consumption had decreased. ”

The most commonly stated reason among the 4.1% who said “decrease” was “Chicken has become less tasty.”

It’s interesting that when given the option of “increase or decrease”, I only find 9.6% of pork consumers and 4.1% of chicken consumers say they’re decreasing consumption, both of which are far lower than the 27% suggested by The Economist.

Turkey Prices

It’s almost Thanksgiving. That means its time for the annual news stories on trends in turkey prices. I put out a story a week or so ago that has been picked up in a number of print, radio, and TV spots. The headline is that this November’s turkey prices are expected to be at a 10 year low.

For a bit of background and context, this claim is based on average price data reported by the Bureau of Labor Statistics (BLS). These data are collected as a part of the BLS’s effort to construct the consumer price index (CPI) and monitor inflation. Here is a graph of inflation-adjusted retail prices for frozen turkey for the past eleven years in the months of October, November, and December.

The blue line represents November prices (we don’t yet know the 2018 November’s price, so it is foretasted based on past price movements). This year’s November price is expected to be around $1.45/lb, which is about 22% lower than the peak in 2013 and about 6% lower than back in 2008.

A couple comments based on the above graph. Interestingly, prices tend to fall from October to November. On average during the past 10 years, November prices are about 8% lower than October prices. At first blush, this might seem a bit strange. Doesn’t demand for turkey increase during thanksgiving, which should drive up turkey prices? Yes, but other factors are also at play. For one, retailers may strategically cut the price of turkey to get people in the door to buy the rest of their thanksgiving meal - i.e., turkey is potentially a “loss leader.” Second, producers expect the demand shift and produce more birds around the holiday. Here is a figure from the Livestock Marketing Information Center (LMIC) based on USDA data. As you can see, turkey production tends to peak each year in November.

I should note that the American Farm Bureau puts out an annual cost of Thanksgiving, and their estimates are for prices to be down this year as well. The USDA Economic Research Service estimates overall food price inflation and they’re also projecting historically low price increases. For 2018, they forecast prices for food at home to only rise only between 0 and 1% for the year; the 20 year average is about 2.1%. Why the low food prices?

One answer is that food production in general, and turkey production in particular, has become much more productive. We get more using less. Here is data again from the LIMC and USDA showing the number of turkeys slaughtered in federally inspected facilities since 1960 alongside the calculated number of pounds produced per turkey.

Prior to the 1970s, turkeys averaged about 15 lbs/bird, a figure that’s increased almost linearly since the 1980s up to the point now where we are over 30 lbs/bird. In fact, compared to the mid 1990’s we now have about 5 million fewer turkeys slaughtered every month even though we’re actually producing more total lbs of turkey today than in the early 1990s. Here’s total lbs of production over time.

The other big factor driving the recent affordability of turkey and other foodstuffs is that commodity (e.g., corn, soy, wheat) prices are low and have been low for the past couple years. Of course, this can’t be the only explanation because the price of retail foodstuffs is comprised of much more than just commodities, so it must mean that the prices of other inputs like labor, energy, and packaging have also remained relatively affordable.