A Basket-Based Choice Experiment

That’s the title of a new working paper I’ve co-authored with Vincenzina Caputo.

Much of research seeking to understand consumers’ preferences for food products and attributes relies on “choice experiments”, which are like simulated shopping scenarios. What makes choice experiments different from a true shopping scenario, however, is that respondents are only asked to choose one product out of a set. In reality, people often choose multiple products from different product categories when shopping, and their preference for one product may depend on what they’ve already put in the shopping basket.

Here’s a brief summary from the paper:

consumers make multiple food choices at a time and prefer to choose on average 4.4 out of 21 possible foods items. This is especially the case when looking at fresh meat and vegetables. For example, the selection frequency of salad/lettuce increased as respondents selected more items since salad is often used as a side dish. Further, our results reveal that food items act as complements or substitutes. Finally, while in standard [discrete choice experiments] cross-price elasticities are forced to be positive due to single discrete choices, our results also imply negative cross-price elasticities. Overall, these results suggest that the BBCE [basket based choice experiment] is a promising experimental approach that allows for a richer set of substitution and choice patterns as it brings together the advantages of standard [discrete choice experiments] and the advantages of traditional demand system analysis.

The following figure shows the most common items consumers put in their basket.

BBCE products chosen.JPG

Perhaps more interesting, however, are the combinations of items people place in their baskets. For example, given that someone chooses ground beef, the next most common items in the basket are salad/lettuce, potatoes, and then tomatoes. Given that someone has picked ground beef, there is more than a 50% chance each of these vegetables/vegetables also appears in the basket. These sorts of results illustrate the challenge of suggesting people to just increase fruit or vegetable consumption because their values for these items increase when accompanied with meat. For example, one of our model specifications suggests that the value of lettuce/salad increases by more than $4 if it is also accompanied with ground beef.

There’s much more in the paper, which Vincenzina will present at the Agricultural and Applied Economics Association meetings next month.

Some French Reflections

I was fortunate to spend the better part of 2011 on sabbatical in Paris working with the French National Institute for Agricultural Research (INRA) and the Organization for Economic Cooperation and Development (OECD). Stephan Marette from INRA was a fantastic host.

Although I have returned many times since then to attend conferences and serve on an INRA advisory board, last week was the first time I revisited the city and our old neighborhood with my family. Here are a few reflections on the trip that relate to some of the themes on this blog.

1) We spent one morning on a food tour with a French chef. He took us to some familiar spots and some new ones too. In the course of conversation, I mentioned that I’d worked some with INRA, and I found his reaction interesting. For context, INRA is a bit like the USDA Agricultural Research Service (ARS) and a bit like the USDA National Institute for Food and Agricultural Research (NIFA), except rather than indirectly funding university professors through state agricultural experiment stations (as NIFA does in the US), INRA directly employs many PhD scientists who are housed at universities in addition to scientists at their own facilities. In any event, my guess is that if you mentioned ARS or NIFA to a chef in, say, New York, Chicago, or LA, they’d have no idea what you were talking about. ARS or NIFA who? But our French chef knew exactly who INRA was - and apparently he wasn’t much of a fan. He said that INRA only cares about producing more quantity and didn’t care about food quality, the later of which he argued was of greater importance to French consumers. I don’t think that characterization is exactly true (INRA does a lot of research on diets, health, food quality, and sustainability), but his perception of their objectives and purpose is nonetheless interesting and not entirely inaccurate. To the extent American consumers and taste-makers are familiar with US agricultural research agencies and universities, I wonder if they’d say the same? The research is clear that agricultural research produces significant benefits, but it is also true that future funding for agricultural research will depend, in part, on public support. That’s why we have to continue to find new ways to articulate the value of productivity enhancing research (for example, focusing on sustainability) and highlight the agricultural research that improves the both the price and the quality of food for consumers.

2) Given French consumer’s aversion to GMOs, attempts to ban glyphosate, and more, one might be tempted to argue that the French are more fearful of food safety risks. But, that can’t be exactly true. Below are a few pictures I snapped on the recent trip. These are not out of the ordinary in any way, but items one can find on the streets or usual supermarkets in Paris. What foods are available? Unrefrigerated eggs, unrefrigerated milk (it’s ultra high temperature pasteurized) sitting out next to the laundry detergent, cheeses from unpasteurized milk, hog legs (with hoof intact), raw rabbit carcasses for sell by street vendors, and much more. Many Americans I suspect would be very fearful of these common French foods. The French seem more accepting of “natural” food risks and less accepting of “modern/technological” food risks relative to Americans, although the example of the ultra-high pasteurized milks runs counter to that theme.


3. The French seem acutely interested in the origin/provenance of food and they often seem to use this attribute as a proxy for quality in the same way many Americans use brands. One of my current PhD students, Kendra Rash, is presenting some research at the upcoming meeting of the Agricultural and Applied Economics Association. We are analyzing some data from an experiment conducted by Laurent Muller and Bernard Ruffieux with French consumers related to the value of different types of information. We found that information on origin is more highly valued than information on brand, price, organic, and more. I was a bit skeptical of this finding (mainly because other research I’ve done in the US shows origin to be a relatively unimportant food value), but my resent visit was reassuring and suggests our French findings are probably right. A good example is wine. In the US, we normally shop for wine by grape variety (Cabernet, Merlot, or Pinot Noir), but in France, wine is typically advertised by location and vineyard (and one is supposed to know which types of grapes are grown there).

4. Despite the differences, I’ll point to one of my favorite papers by by Pierre Dubois, Rachel Griffith, and Aviv Nevo  that appeared in the American Economic Review. In many ways, their results suggest the food preferences of the French and Americans are not all that different; but our different economic systems alter the relative prices and food options available to us leading to different food choices. Here’s what I had to say about it when the paper first appeared about six years ago.

I find these results interesting because there are many Americans who seems to subscribe to a view that the French have some kind of moral superiority when it comes to food and weight. I read these results to say that the French are, in large part, just responding to the economic incentives they face. And while they consume fewer calories than we do, it isn’t all that clear they’re better off given that they must pay more for many of the foods they desire than do Americans.

Spending on Beef over Time

Meat demand has been a frequent topic on this blog (e.g., see here, here, here, or here). As some of the previous posts indicate, “demand” is a hard thing to measure. A slightly easier thing to measure is spending. As it turns out, the Bureau of Labor Statistics (BLS) has been tracking consumer spending at the household level on food at home in a number of categories, including beef, pork, and poultry, in their annual Consumer Expenditure Survey.

Using these data, I constructed the following animation showing the relationship between spending on beef and total household expenditures by quintiles of income.

The figure shows, at any point in time, higher income households (or those with greater total spending) spend more on beef than lower income households (or those with less total spending). In econ-speak, beef is a “normal” good. However, for any given income (or total spending) level, spending on beef has fallen precipitously since 1984 (all figures are in inflation-adjusted 2017 dollars). The change over time is most dramatic for the higher income/spending households. In 1984, the lowest and highest quintile income households spent $265 and $681 per year (in 2017 dollars), respectively, on beef for consumption at home. By 2017, these figures had fallen to $158 and 352, respectively.

These data could be reflective of downward demand shift - i.e., consumers willing to pay less for each pound of beef than they were in the past. Other possible explanations for the downward decline in spending include changing beef prices over this period, changing household demographics (the average number of people in today’s households is slightly smaller today than in the mid 1980s; fewer people normally means less spending), other protein sources, such as poultry, becoming relatively less expensive or more attractive, a shift toward more food spending away from home (the BLS only tracks spending for individual food categories for food eaten at home), and more.

How do the data in the above figure square with measures of demand (such as these constructed by Glynn Tonsor), which show no clear trend in beef demand since the early 1990s? Well, as I mentioned above, spending isn’t “demand” because while the figure controls for income, it doesn’t control for prices. Another possible explanation is that the data in the figure above are for households, while aggregate demand statistics like those created by Tonsor are calculated nationally. It is possible for total aggregate demand to rise even if each individual household’s demand is falling if population is increasing and more households are being added. That is, in fact, what has happened. There were about 86 million households in the US in 1984. Today there are about 128 million households.

Food Affordability Over Time

On a number of occasions, I’ve written about the Engel Curve, which relates the share of consumer spending on food to the consumer’s income (or total expenditures on all goods). Whether we compare consumers within a country or compare spending across countries, a common relationship holds: the higher a consumer (or country’s) income, the smaller the share of their income they tend to spend on food.*

This relationship indicates that as consumers and countries get richer, we’d expect food expenditure shares to fall, a phenomenon generally thought to be associated with higher consumer well-being. While this relationship is widely known among economists, there is another fact that is not as widely known. In particular, the entire Engel Curve has been shifting downward over time. That is, for any given level of income, consumers today are spending less on food than they were in the past.

To illustrate this phenomenon, I pulled data from the Consumer Expenditure Survey that has been collected annually since 1984 by the Bureau of Labor Statistics (BLS). The BLS report food expenditures and total expenditures by quintiles of income. These data were used to create the following animation.

The video shows that, despite the year-to-year variation, there is a fairly steady shift in the Engel Curve over time downward and to the right. That is, consumers are getting richer over time (i.e., their total expenditures are rising), and for any given level of total expenditures, the share being spent on food is generally falling. There are several possible drivers of this phenomenon, but one likely culprit is technological progress. For any given level of income or total expenditure, innovation and technological change has brought down the price of food such that consumers are able to eat what they want while being able to spend more of their income on other, non-food items. That is, food today is more affordable (at least by this metric) for households of all incomes (or total expenditure categories).

*Note: just because the food share falls, it doesn’t mean total spending on food falls as income increases. In general, richer consumers spend more on food than poorer consumers. However, spending on non-food items tends to increase at a faster rate than spending on food as income rises, leading to a smaller share of income being spent on food.

Reducing Food Waste - Where's the Incentive?

In recent years, there has been a lot attention being focused on reducing food waste. While I have argued for more nuance than one often sees in popular exhortations to reduce waste, the issue is important: it would be nice to find ways to save all the resources that go into producing food that ultimately winds up in the garbage.

A number of discussions over the past couple months have led to an aspect of this problem that hasn’t received much attention. Namely, what is the incentive of food producers and manufacturers to reduce waste? Or, what are the most effective mechanisms to reduce waste?

One way of reducing waste is what we might call the “demand side” strategy. Try to convince consumers to consume all of what they buy and throw out less. Our stomachs and pantries are only so large, and as a result, this presumably means consumers would ultimately buy less food. In economic terms, this leads to a downward shift in demand, which results in lower prices and less food sold. For producers, this is certainly a bad outcome: selling less food at lower prices means lower revenues and profits. From the perspective of a food producer, all they care about is whether the product sells. What you do with it after you buy it is of little consequence to the seller. As such, one might wonder how much incentive food producers and sellers have to reduce waste, at least via this demand side strategy. To boot - we don’t know for sure whether consumers are better or worse off. They pay lower prices but also buy less food, and as a result the impacts on consumers is ambiguous.

A different way to try to reduce food waste might be called a “supply side” strategy. One challenge with popular conceptions of food waste is that they seems to imply there are large inefficiencies in food supply chains. That some people seem to indirectly imply that farms, food manufacturers, and grocers are losing or throwing out food that they could profitably sell. To be sure, there are likely some inefficiencies in the food supply chain, but food and ag are tend to be competitive, low margin businesses which makes it hard to believe they’re leaving dollar bills lying around that they could easily pick up. To incentivize these firms to reduce waste, loss, and spoilage, something has to change to reduce the cost of preservation. That “something” is likely investment in research and the creation of technologies that enable farms and food manufacturers to affordably make use of food that might otherwise have been unsalable. An old example might be the advent of canning or refrigerated rail cars. More modern examples might include better grain storage bins or storage management practices, vacuum packaging, high pressure pasteurization, etc.

In economic terms, these technologies can be conceptualized as shifting the supply curve downward shift - i.e., lowering the marginal cost of delivering a given quantity of food to the market. Such a shift would lower the price of food while enabling more more food to be sold. Consumers are definitely better off: they get to have more food at lower prices. Whether producers as a group are better off from the supply shift depends on how sensitive producers and consumers are to price changes, but producers who are early adopters of the new technology are almost certainly better off.

Whether the demand-side or supply-side strategy leaves “society” better off (at least as defined by producer profits and consumers’ economic well-being) is not completely predictable because it depends on relative elasticities of supply and demand for the foods in question, among other factors. Ignoring any externalities from food that is thrown out, I would generally expect the “supply side” strategy to be better: we know it makes consumers better off and likely makes producers better off too (though not always). But, it ultimately results in more food being sold and potential (and perhaps ironically) more consumer waste. So, the big unanswered question is the nature and size of the “externality” of food thrown away.