Cage free eggs: Too many or too few?

Depending on what you read, we either have way too many or way too few cage free eggs at the moment.  Here's from a USDA report on September 29, 2017 suggesting current pledges to go cage free are far outstripping the production of cage free eggs, resulting in a "shortage":

“it would take 227 million hens by 2026 to satisfy the combined demand from all restaurants, food distributors, hospitality & travel firms, grocery retailers, food manufacturers, and convenience stores that have committed to cage-free, to date. . . . Using USDA’s figures from above, the 29 million hens currently in non-organic cage-free production could indicate a shortage of 198 million hens to meet the expected demand over the next 8 years.”

And yet, according to this October 4th article, the largest egg producer in the U.S. (Cal-Maine) suggests there is an over-supply of cage-free eggs and retailers are having to offer significant discounts to move them off the shelf.  Here is what Cal-Maine said in their press release:

“our largest customers, have made public commitments to transition away from conventional eggs and exclusively offer cage-free eggs by future specified dates. However, the higher price gap between conventional eggs and specialty eggs has resulted in reduced demand for specialty eggs. We have adjusted our production levels in line with current customer demand for cage-free eggs, and we are well positioned to increase our capacity when demand trends change.”

The shortage of cage free eggs mentioned by the USDA refers to the gap between the future promises and comments made by retailers and others to go cage free and the current level of cage free production.  The oversupply of cage free eggs mentioned by Cal-Maine is referring to the gap between the current number of cage free eggs being produced and what the final consumers are currently willing to pay and buy. 

At some point there will have to be a reckoning between the long term commitments by retailers to go cage free and the willingness of real-life consumers to cover the added costs of cage free eggs.  Consumer demand will have to shift out as more cage free eggs come on the market, retailers will have to live with selling fewer eggs, or some of the cage free commitments will ultimately have to be receded.  

Food Values of the Rich and Poor

As I've discussed in the past, I've been measuring consumers "food values" in the monthly Food Demand Survey (FooDS) for the past four years.  The way this works is that a list of 12 items is presented to respondents and they are asked which are most and which are least important when buying food.  Respondents have to click and drag four of the items into a "most important" box and also put four in a "least important" box, leaving four in neither box (for exact question wording see page 7 of this document).  

The advantage of this questioning approach is that it requires a tradeoff - respondents can't say all issues are important and they have to indicate some food values as least important.  To create a scale of importance, I simply calculate the percent of times an issue is placed in the most important box and subtract it from the percent of times it is in the least important box, creating a measure that ranges from 100% to -100%.  

Month in and month out, we consistently find that taste, safety, nutrition, and price are the four most important food values and environment, origin, fairness, and especially novelty are the least important.  Issues like appearance, naturalness, animal welfare, and convenience fall in the middle.  

While the above rankings of values are true on average, it is useful to ask: how do food values differ across consumers with different incomes?  This question is important because not all consumers have the same preferences, and the people with the ability and connections to affect public policy (and grocery store bottom lines) may give priority to food issues that are less relevant to people in the lower end of the socioeconomic spectrum.  

To address this issue, I used some statistical analysis to control for differences in age, gender, education, etc. and then compare how people in different income categories rate each food value.  For ease of comparison, I always set the food value of people lowest income category (less than $20,000 in annual household income) at zero and compare how much higher or lower (again on the -100% to +100% scale) people in other income categories are relative to consumers in the lowest category.    
 

Food Values Relatively More Important to the Poor than the Rich

There were three food values for which importance tended to decline with income: price, safety, and taste.  The big one is price.

Compared to consumers in the highest income category (more than $160,000/year in household income), consumers in the lowest income category (less than $20,000/year in household income) place 42 percentage points higher level of importance on the price they pay for food.  Recall that the scale only spans from +100 to -100, and as such, this is a huge difference in the importance of price.  The implication is that policies and actions that adversely affect food prices will matter much more to lower than higher income consumers.  This isn't necessarily surprising, but as the above graph shows, the difference in magnitudes is remarkable. 

Lower income consumers also place relatively more importance on food safety than higher income consumers as indicated in the graph below, however the differences aren't as pronounced as that for price.  Note that this doesn't mean high income consumers don't care about food safety per se, only that safety is less important than other food values to the rich compared to the poor.

Lower income consumers also tend to place a lower relative value on taste than higher income consumers, however, the differences aren't particularly pronounced (at most a 7 percentage point spread between high and low income).

Food Values Relatively More Important to the Rich than the Poor

There were five food values for which importance tended to increase with income: naturalness, nutrition, environment, novelty, and origin.

As the figure above shows, the highest income consumers placed about 12-14 percentage points higher importance on naturalness than lower income consumers; for nutrition and environment (see below), the results are similar.  

The environment result is somewhat relevant to debates about the environmental Kuznets curve, which posits that as a country's income increases from a low to mid level, the environment degrades, but then as income increases from a mid to higher level, the environment improves.  One reason cited for the later results is that as people become wealthier, they care more about environmental amenities.  The above graph suggests this is true for the environmental impacts of food production as well.

The figure below also shows that higher income households place a higher relative value on the novelty of food than lower-income consumers.  This results is consistent with other research that suggests that lower-income households cannot afford to purchase novel or unfamiliar foods that other household members may not like and that might go uneaten.  That is, higher income households can afford the "risk" of trying new foods that may ultimately go to waste.

GMO labeling: Text vs. QR codes

“Taken together, these results indicate that respondents were willing to pay a premium for food products with labels that communicate the absence of GM [genetically modified] material relative to GM labels. Furthermore, there was a premium associated with a QR code compared to text communicating the presence of GM. Thus, respondents reacted more negatively to text that communicates the presence of GM relative to a QR code that must be scanned. We should note that we do not know if respondents scanned the QR codes, but it seems unlikely that all respondents did, given the premium associated with the QR code. While this may seem strange, we chose to use an experimental design similar to the purchasing environment for consumers after the establishment of the NBFDS. Finally, comparing these results for the two products reveals that consumers are more sensitive to GM whole foods than GM manufactured foods.”

That's from a new paper I co-authored with Brandon Mcfadden, which was just released by the journal Applied Economic Perspectives and Policy.  The work was motivated by the National Bioengineered Food Disclosure Standard (NBFDS), which was signed into law in last summer and has yet to be implemented.  Under the current wording of the NBFDS, companies may disclose the presence of GMO material by text, symbol, or an electronic digital link like a Quick Response (QR) code. 

To investigate how consumers might respond to these new "contains GMO" labels compared to existing labels indicating absence of GMOs (organic and non-GMO project verified), we conducted a survey of over 1,100 US food consumers.  We asked people how much they were willing to pay for whole and processed foods, and we randomly assigned people to different treatments where the food labels systematically varied.  Here is how willingness-to-pay (WTP) premiums varied for different labels placed on granola bars (the full text has a similar figure for apples).

Aside from treatment 5 (which seems something of an aberration), WTP premiums for organic or non-GMO are higher when GMOs are disclosed via text vs. QR code.  Also note that combined organic and non-GMO labels aren't much different than when either label is used in isolation (I blogged on this result last week).  

Given that mandatory GMO labels are coming, food companies will need to decide how to respond.  Below is a flow chart Brandon put together describingthe options available to food companies who are currently sourcing GMO ingredients.  Hopefully these research results will be useful in deciding which decisions to make.

Are Organic and Non-GMO Labels Substitutes or Complements?

For the first time today, I saw the following label on a packaged food.

In a way, the label seems a little odd.  An organic seal on a product should already convey to consumers that the ingredients came from a process that excluded GMOs.  However, the very presence of the label suggests many consumers may not be aware of this fact.  

I have a paper with Brandon McFadden forthcoming in journal Applied Economic Perspectives and Policy (sorry, I don't yet have a link to the paper on the AEPP's website; I'll pass it along when I get the link and discuss the whole paper in more detail).  In the paper we delve into this issue and others.  Here's part of the motivation.  

“It appears that organic organizations are concerned that consumers perceive non-GM and organic labels to be substitutes. Although many organic food companies supported the general idea of mandatory labeling, now that the policy has passed, organic producers have expressed concern that non-GM verification may be perceived as a substitute for the more expensive and encompassing organic certification. For examples, California Certified Organic Farmers (CCOF) initiated a campaign “Organic is Non-GMO and More” to highlight the differences in the two claims, and the Organic Trade Association (OTA) emphasizes, “Organic = Non-GMO…and so much more!!” Despite these concerns, little is known about the extent to which the two most common non-GM labels, USDA Organic and Non-GMO Project, are demand substitutes or complements. Whether the labels are demand substitutes or complements can be determined, in our context, by investigating whether WTP [willingness-to-pay] is supra- or sub-additive when the labels are combined. If the premium for displaying both labels is less than the sum of individual premiums for each label, then the two labels must be providing some of the same underlying characteristics of value to the consumer and implies the two labels are substitutes. By contrast, if the premium for displaying both labels is greater than the sum of individual premiums, then the two labels are complements and provide more value when provided together. ”

We ultimately find that products with the organic seal and products with the non-GMO verified seal are indeed demand substitutes.  Here's one paragraph related to those results:

“For apples, the results revealed large and statistically significant substitution effects for Non-GMO and USDA Organic labels. In fact, results indicated that the two are almost perfect substitutes as WTP [willingness-to-pay] premiums for apples with both Non-GMO and USDA Organic labels roughly the same as WTP premiums for apples that display only one label. This result is made obvious by the third column of results. The WTP premium for apples with the Non-GMO label only (vs text label) is $0.446, the WTP premium for apples with the organic label only (vs text label) was $0.474, and the WTP premium for apples with both Non-GMO and USDA Organic labels was $0.446+$0.447-$0.461=$0.432, which is actually lower than when either label is present in isolation. ”

Because it is more costly to be organic than non-GMO (since the latter is a subset of the former), it is easy to see why many food companies would want to add the additional label that "Organic is non-GMO and more".

Food Spending by Age and Household Size

I received several emails and comments about my post a couple days ago on food spending by households with different incomes.  For example, over on twitter Adam Ozimek asked:

Can you do this by age of householder too? And how about by income or age stratified by # kids?

— Modeled Behavior (@ModeledBehavior) September 21, 2017

I'm happy to help provide additional information.  Here is total food spending by age and income.

As the figure shows, low income households all spend about the same on food regardless of age.  People aged 65-74 years tend to spend the least on food regardless of income until the highest income categories at which point the oldest respondents spend the least on food.  Households between the ages of 25 and 44 years tend to spend the most on food (holding constant factors such as household size, etc.)

How much of this food spending is away from home?  Here is how households allocate their food budget between away from home vs. at home by age and income.

Regardless of age, households with higher incomes tend to spend more of their food budget eating out than lower income households.  However, the youngest consumers tend to spend much more of their budget away from home than older consumers.  At the lowest income category, for example, people age 18-24 spend 38% of their food budget way from home whereas people age 65-74 only spend 25% of their food budget away from home. All high income households (above $160,000) allocate more than 40% of their food budget to away from home spending - the highest is by 25-34 year olds who spend 46% of their food budget away from home.  

What about household size?  It's fairly well known that there are economies of scale in household food spending (i.e., two people can eat more cheaply than one on a per-person basis).  For example, the SNAP (or food stamp) program provides up to $194/month for a one person household.  If every person was expected to spend the same, then one should give $194*2=$388 for a two person household.  But, that's not what the SNAP program does.  They only give up to $357/month for a two person household.  The program administrators didn't just decide this willy-nilly, but rather they observed in spending data (like the kind I'm using here) that spending doesn't increase 1:1 for each additional person in the household.  

In my data, for example, the estimated spending on food at home for a household of size one is $73.60/week, but the spending at home for a household of size two is far less than double ($73.60*2=$147.20) and is only $92.12/week.  The figure below shows spending on food at home and away from home for households with 1, 2, 3, and 4 members holding constant income, age, education, etc. Spending on food away from home is essentially flat.  Does that mean a four person household can eat out for the same as a two person person household?  Not necessarily.  It may mean that 4 person households are eating at McDonald's while 2 person household are eating at something a little higher end.