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No, Farm Policy Doesn't Have Much to Do with Obesity

Yesterday, David Ludwig and Kenneth Rogoff, prominent pediatrician and economist respectively, published an article in the New York Times about obesity.  The following is a passage from the piece.  

Farm policies have made low-nutritional commodities exceptionally cheap, providing the food industry with enormous incentive to market processed foods comprised mainly of refined grains and added sugars. In contrast, vegetables, whole fruits, legumes, nuts and high-quality proteins are much more expensive and, in “food deserts,” often unavailable.

The authors have already taken a bit of a beating about this on Twitter from the agriculturally-literate-intelligentsia. Why?  Because these sentences give the incorrect impression that farm policy is a major contributor to obesity.  That's not saying farm policies aren't inefficient, only that they do not have the effects many people claim they do.

Why would farmers support policies that would make commodities "exceptionally cheap" and thus lower their profits?  Yes, there are some policies that likely increase production beyond what would happen in an un-distorted market, but there are other policies that reduce production.  Take corn, for example, which is the largest agricultural crop in the U.S. in terms of value of production.  The existence of subsided crop insurance subsidies and commodity programs might increase the tendency to produce more than would otherwise be the case, but ethanol policies from the EPA re-direct much of that production to fuel rather than food. Moreover, there are countervailing policies such as the Conservation Reserve Program (CRP), which remove land from production.  In addition, sugar policies push the price of sugar up, not down.  

The authors also point to processed food as another big evil, but in so doing they (correctly) undercut the argument that farm policy is a major culprit.  How so?  Well, for every $1 we spend on food, only about $0.15 results because of the cost of the farm product.  The other 85% of the cost is from transportation, processing, packaging, marketing, retailing, etc.  As a result, changes in farm commodity prices have relatively small impacts on retail prices.  

Fruits and vegetables are indeed more expensive than many commodity crops, but that's because of biology not policy (see more on that here and here).  Here's what I wrote in one of those posts:

why do we grow so much corn, soy, and wheat in the U.S.? A primary answer is that these plants are incredibly efficient at converting solar energy and soil nutrients into calories (they’re the best, really the best). Moreover, these calories are packaged in a form (seeds) that are highly storeable and easily transportable - allowing the calories to be relatively easily transported to different times and to different geographic locations. Contrast these crops with directly-human-edible fruits/vegetables like kale, broccoli, or tomatoes. These plants are poor converters of solar energy to plant-stored energy (i.e., they’re not very calorie dense), and they are not easily storeable or transportable without processing (mainly canning or freezing), which requires energy.

If you don't believe me, there is a long literature by agricultural economists on this subject.  See this book by Julian Alston and Abby Okrent or these papers in American Journal of Agricultural Economics or Journal of Health Economics, the later of which was co-authored with Brad Rickard.  Other papers take entirely different approaches but arrive at the same conclusion.  See this paper in Food Policy by Corey Miller and Keith Coble or this one by Alston, Sumner an Vosti, also in Food Policy.

As for the efficacy of the other policies proposed by Ludwig and Rogoff, I'm skeptical of their efficacy in truly affecting obesity.  See this paper I recently published in Applied Economic Perspectives and Policy or my 2013 book, The Food Police.

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.

fresh_fruit_consumption.JPG

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

fresh_veg_consumption.JPG

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.

fruit_prices.JPG

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.

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.