Trade as Insurance

With the food supply chain disruptions that have come from COVID-19, weather, and other factors, there has been a lot of discussion about how to increase resilience and security of food supply. There is common view that more local food production-consumption systems would be more resilient. That may be true if it is layered on top of the existing food supply chains, but not if one envisions local food instead of the existing food system.

I wrote about this in my 2013 book, The Food Police:

“It would be foolish to invest all your retirement savings in a single stock. The financial experts tell us to diversify. And if we shouldn’t keep all our financial eggs in one basket, the same goes for the real ones. One of the things that makes farming unique compared to other businesses is its unusually large reliance on the weather. An unexpected drought, a rain at the wrong time, an early freeze, or a hail storm can devastate a whole farming community or even an entire region. While farmers protect themselves financially against these kinds of risk by buying crop insurance, what about the food consumer?

In a world of extensive food trade, there is little need to worry about the consumers of Northville if their farmers face a flood because Northville consumers can readily buy from elsewhere. But a world where the locavores have tied the hands of farmers in Northville, Southville, Eastville, and Westville to supply only their local consumers is one where a weather disaster in one location could have dire effects on the consumers that live there. After all, agriculture is a business that requires long production lags. A farmer can’t produce potatoes on a whim – it takes months of planning and foresight. The world sought by the locavores isn’t more food secure, it’s much riskier - both in terms of the availability of food and the prices we’d have to pay. ”

Against that backdrop, I was interested to read this new paper by Sandy Dall'Erba, Zhangliang Chen, and Noé Nava just published in the American Journal of Agricultural Economics. They look at trade across the United States and explore how interstate shipments, and farmer’s profits, are affected by weather.

“Our results indicate that crop grower’s profit is sensitive to local weather conditions and is positively affected by exports. The latter, in turn, significantly increase when destination places experience a drought, a result confirmed in all the robustness checks we performed on our gravity estimates. Because a sudden drought in destination places reduces their crop production but not the demand from their livestock and food manufacturing sectors, imports increase. Inversely, a drought reduces the capacity for a state to export, and further investigations through a decomposition of the intensive and extensive trade margins allow us to highlight that droughts decrease the exported volume and value more than the number of destinations places to which a state exports.

We also estimate the capacity for trade to mitigate the adverse effect of future weather conditions and discover that it is worth $14.5 billion (in 2012 prices). Indeed, a $11.2 billion nationwide loss in crop growers’ profits is expected when trade is disregarded, as this traditional approach exacerbates the local impact of future local weather conditions. However, when trade is accounted for, its presence turns our projections into a $3.3 billion gain, or a 3.4% percent increase in annual profit. ”

In our quest to increase resilience through local foods, let’s not also forget about the impact of local weather on our ability to feed ourselves solely through local sources.

***

P.S. One of the authors of this latest paper let me know he has another working paper directly addressing a different aspect of local foods issues.

Comparing the views of the Italian general public and scientists on GMOs

You might recall the widely discussed 2015 study from the Pew Foundation comparing attitudes of the general public to that of scientists. The headline finding that captured public attention was the following:

“A majority of the general public (57%) says that genetically modified (GM) foods are generally unsafe to eat, while 37% says such foods are safe; by contrast, 88% of AAAS scientists say GM foods are generally safe. The gap between citizens and scientists in seeing GM foods as safe is 51 percentage points. This is the largest opinion difference between the public and scientists [out of more than a dozen issues].”

In a new paper with Gioacchino Pappalardo and Mario D’Amico, we were curious about the extent to which this finding extrapolated to other countries that have purportedly been even more averse to GMOs. Gioacchino and Mario are with the University of Catania in Italy, so naturally, we extended this question to Italians. Our work was recently accepted for publication in the International Journal of Food Science and Technology. Here is the abstract:

“The gap between statements from scientific organizations about the safety of genetically modified (or GMO) food and public concerns about the technology is puzzling, raising questions about the extent to which expert opinion and scientific consensus can sway public opinion and whether scientific progress might be hindered by public opposition. This study sought to determine whether beliefs about GMO safety are high among experts in countries where there has been significant public opposition to the technology. Surveys conducted among 1,006 members of the Italian general public and 258 members of the Italian Association of the Agricultural Science Societies (AISSA) reveal that whereas 54% of our sample of the Italian general public believes GMOs are generally safe to eat, 81% of sample of the Italian agricultural scientists believe the same. Despite the gap in lay‐expert safety beliefs, results reveal greater similarity between scientists and the general public on topics related to beliefs about the impact of GM food on food prices, the developing world, and concentration in the agricultural supply chain.”

Market Shares and Substitution Toward Plant Based Meat

In the past, I’ve discussed research we’ve conducted on consumer demand for emerging plant-based meat alternatives vs. traditional meat (e.g., see here or here). Today, I’m happy to link to a new, extensive study on the topic conducted with Glynn Tonsor and Ted Schroeder at Kansas State for the Cattlemen’s Beef Promotion and Research Board.

There are a lot of interesting results stemming from four different experiments and multiple questions asked, but I’ll hit just a few highlights. Firs, along a variety of dimensions, consumers’ perceptions of beef are favorable relative to consumers’ perceptions of plant-based alternatives. For example, here is one series of questions.

Second, if given a pair-wise choice between a beef burger and a Beyond Meat burger at the same price, roughly a quarter of consumers choose the Beyond Meat option. Interestingly, the choice wasn’t much affected by whether we provided nutrition facts panels, ingredient lists, or whether the beef burger was organic, as shown below.

Another experiment, framed in a foodservice environment, explored how choices for beef burgers were affected by a Beyond Meat alternative vs. a Chicken Wrap. Short story: Introducing a Beyond Meat alternative has about the same impact as introducing a Chicken Wrap.

Finally, we conducted some simulated shopping choices (in both food service and grocery framings) to estimate own- and cross-price elasticities of demand for plant-based alternatives and traditional meat options.

As it turns out this sort of analysis is quite timely. On February 2, Impossible announced a 20% price reduction. Here is our estimated demand elasticities for all consumers and segmented by people we classify as regular meat consumers vs. those wo do not regularly consume meat (those who classified their diet as vegetarian, vegan, flexitarian, or other).

As the table above shows, a 1% drop in Impossible Burger’s price would lead to a 0.14% reduction in purchases of Store-Brand ground beef at retail grocery (across all consumers). If we extrapolate that to a 20% decrease, that suggests the recently announced price change will lead to a a 2.8% decline in Store Brand ground beef.

This reduction comes almost entirely from consumers who are not regular meat eaters (cross-price elasticity of +0.26) vs regular meat consumers (cross-price elasticity of +0.05). In fact, within the regular meat consuming segment we would project the price drop in Impossible would result in nearly 3x the impact on Beyond Beef as Store Brand ground beef.

There is much, much more in the report. You can read the whole thing here.

Bacon Causes Cancer: Do Consumers Care?

That’s the title of a new working paper I’ve co-authored with Purdue PhD student, Xiaoyang He. The answer to the question is: “yes,” retail bacon prices and sales fell following the pronouncement that processed meat was classified as a carcinogen; however, we did not find the same for other processed meat categories, ham and sausage. Maybe all those headlines like “The great bacon freak-out” and “Eating just one slice of bacon a day linked to higher risk…” really served to focus people’s attention. Here is the abstract:

“In October 2015, the International Agency for Research on Cancer (IARC) released a report classifying processed meat as a type 1 carcinogen. The report prompted headlines and attracted immediate public attention, but the economic impacts remain unknown. In this paper, we investigate the impacts of the IARC report on processed meat prices and purchases using retail scanner data from U.S. grocery stores. We compare changes in prices and sales of processed meat products to a constructed synthetic control group (using a convex combination of non-meat food products). We find a significant decrease in bacon prices and revenues in the wake of the IARC report release, but we find no evidence of a demand reduction in ham and sausage. At the same time, we find beef sales and revenue increased significantly after the report, while beef price significantly fell.”

That bacon prices fell alongside the volume sold is a clear signal that consumer demand for bacon fell as a result of the IARC report.

As we discuss in the paper, a key challenge with identifying the effects of the IARC report rests in constructing a counter-factual prediction of what would have happened to prices and sales of processed meat products had the IARC report not been released. We cannot use data from an unaffected location because the media reports were widely distributed across the U.S. Instead, we use statistical methods (the so-called synthetic control method) to identify alternative food products as controls. We describe the approach as follows:

“The synthetic control method sidesteps this problem and uses a combination of candidate controls instead. We Nielsen retail scanner data to determine the effect of the IARC report on processed meat markets. This data contains weekly information regarding sales, price, and revenue for processed meat categories as well as categories that are included in the synthetic control group. We use the data from 2014 to 2016, which includes approximately one year of data before and one year of data after IARC report released date. The post-IARC time period is long enough to determine, if any impact exists, how long it lasts.”

In essence we use the the estimated relationship among dozens of possible grocery item prices and bacon prices prior to IARC report release to predict what bacon prices would have been had the report release not occurred. Here is the calculation of actual and counter-factual bacon prices ($/oz) before and after the report release:

After a few weeks of bacon prices remaining above their predicted values, bacon prices ultimately averaged 6.5% lower than what we predict would have occurred had the IARC report not been released.

You can read the whole thing here.

Resetting the Table: Straight Talk About the Food We Grow and Eat

That’s the tile of Robert Paarlberg’s latest book, set to be released on February 2. I talked to Rob a bit about the project a couple years ago when he was in Indiana interviewing a few farmers for background research. I should note Rob is a West Lafayette native, and his father Don Paarlberg was a faculty member in the Agricultural Economics Department at Purdue, in addition to serving in a variety of government roles including Assistant Secretary of Agriculture under Eisenhower.

Here is my “blurb” for Resetting the Table.

““In Resetting the Table, Robert Paarlberg fact checks the most central myths of the modern food movement. Paarlberg’s firm grasp on the realities of modern agriculture lend credence to his insights on how we might take meaningful steps toward solving our dietary and environmental ills. He argues that food policy, rather than farm policy, should serve as the focal point of action. In doing so, he offers valuable straight talk to commercial farmers and highlights the critical importance of continued innovation and entrepreneurship in agricultural production. This is a must read book for anyone interested in understanding where their food comes from and the policies that affect how we eat”

You might also check out a review of the book in the Wall Street Journal, where Paarlberg’s book is reviewed alongside Mark Bittman’s predictably polemical new release entitled Animal, Vegetable, Junk.