A Case for a Carbon Tax - Meat and Livestock Edition

Frequent readers of this blog know I’m not a big fan of many food and agricultural regulations (I did write the Food Police after all), and I’ve been skeptical of “externality” arguments use to advance food and agricultural interventions. As such, the title of this post might seem out of place. However, stick with me for a moment.

Anyone who has been paying attention knows animal agriculture has come under various lines of attack in recent years (something I recently referred to as the coming meat wars). Whether it be animal welfare, health, or environmental arguments, there is a fairly consistent refrain in many media circles that we are eating “too much” meat and dairy.

What does it mean to say someone is “over-consuming” or having “too much” of any product? There is paternalism: I think I know better what someone else should be eating/consuming. Beyond cajoling our children or spouse, few will concede this motivation for broad policy action. There are claims of information asymmetries: perhaps people don’t know or understand the impacts of consumption on their health or the environment. This would seem to point to policies surrounding information provision rather than outright prohibitions or taxes. Finally, the most cogent argument is that of externalities: your consumption is imposing a cost on me that you’re not considering when deciding what to buy.

If “externality” is the basis of one’s claim that another is “over consuming,” then the economist’s normal answer to fix the problem is some sort of tax to encourage buyers to factor in the costs imposed on others (in fact, I’ve argued elsewhere it’s often more complicated than that, but let’s ignore those arguments for now).

Here’s an often overlooked point about taxing exernalities: even after such a tax, consumption will not be zero, and indeed consumption might still be very high if its a good (like meat) people enjoy consuming. I ran across a quote from the now retired agricultural economist, Luther Tweeten, which colorfully summed up the way economists think about the issue:

“St. Augustine called for people to ‘Love God and do as you please.’ The economist advises to ‘Price right and do as you please.”

Once the prices are “right” - perhaps via some sort of tax - there is no need for the buyer/consumer to feel guilt or discomfort in their purchases; they’ve already paid for their costs on others and can eat and consume as they please. Here is Steven Landsburg in his book The Big Questions in a section entitled A Cost is Not A Sin:

“When things are priced correctly, there’s no need to moralize about them. Every time you eat an orange, you leave the world one orange poorer. But nobody thinks it’s sinful to eat an orange, because the eater pays for the privilege - and thereby reimburses the rest of us for the damage done. Under the right tax system, emitting small amounts of additional pollution would be as unobjectionable as eating an orange. ”

Ok, back to meat and dairy consumption. Much of the popular writing on the subject casts consumption of such products as almost sinful. One advantage of a carbon (or carbon-equivalent) tax is that it would undercut much of the argument that people are “over consuming.” It’s not the cow or meat that’s the “sin,” it’s the carbon and methane.

There are several factors to consider before such a tax would be effective in this regard.

First, it must be broad based across the economy, not just focused on meat and livestock, otherwise, there is no guarantee people wouldn’t just substitute from one emitting category to a now relatively cheaper emitting category and have no impact on overall emissions. If it is indeed the case that, as the EPA suggests, agriculture in general and livestock in particular, are relatively small sources of greenhouse gas emissions in the U.S., then the impacts of such a tax on the sector need not be particularly pronounced, especially if revenue from the tax is refunded to taxpayers. Indeed, in a global context, such a worldwide tax might be competitively advantageous to U.S. producers greenhouse gas emissions per pound of meat or gallon of milk produced is much lower in the U.S. than in other parts of the world because of greater efficiencies here.

Second, a cow isn’t just a cow. Any effective system of this sort would need to reward producers who are more efficient and who find ways, whether it be different genetics, different feed, or different grazing practices, to reduce greenhouse gas emissions. That is, any effective system would have to allow possibilities for producers to monitor, register, and update their own particular impacts. Something as crude as $X per cow or $Y per pound lacks the incentives to motivate innovation in greenhouse gas reducing activities. Such a policy would be as silly as charging a fixed tax per car regardless of whether it was a Honda civic or a Hummer.

Finally, if producers (and everyone else) are taxed for emitting greenhouse gases, it seems logical that producers (and others) ought to be paid for sequestering carbon. I know there is a lot of debate on this subject, and it’s a topic about which I’m intimately knowledgeable, but suffice it to say that it is not unrealistic to imagine particular farming or ranching practices that sequester more carbon than they emit.

I suspect many environmental organizations would be downright shocked if meat and livestock industry associations banded together in support of a carbon tax. I’m not necessarily advocating such a tax, as indeed there are many complications and unintended consequences that I haven’t discussed here, but it is one mechanism available to address the combat much of this implicit “sinful” type rhetoric suggesting that people are “over consuming” meat. Of course, there’s also the possibility some anti-animal agriculture groups might balk at the proposal. Here’s Landsburg again:

“So why don’t we have such taxes? I suspect it’s at least partly because in a world with rational taxation, there would be fewer jobs for priests. Solve a social problem and there’s no evil left to rail against.”

I’ll end with one last observation. Let’s say you are a conscious consumer worried about the greenhouse gas emissions that result from meat eating. Is the answer to completely refrain from burgers, yogurt, and steak? No. Just reduce your consumption by the amount you would have reduced it had the price been slightly higher. Landsburg described how to follow the Economist’s Golden Rule (EGR) in the context of the question: Is it okay to burn carbon-based fuels?

“In our less then ideal world [without a carbon tax], the EGR tells you to curb your pollution as if you were paying a fair price. It’s been estimated that you cause about 50 cents’ worth of environmental damage for every gallon of gas you burn. If you believe that estimate, and if you currently pay $3 for gas, pretend you’re paying about $3.50 and adjust your driving habits accordingly.”

And, I should add: drive without guilt.

So, what does that mean for meat consumption. The first website that came up when I searched the subject, suggested 1 burger is responsible for 8.8 kg of carbon-equivalent emissions [this is probably an overstatement; see a previous crude calculation I made here based on EPA’s numbers]. A commonly used social cost of carbon is about $40/ton or $0.04/kg. So, the questions is: how many fewer burgers in a year would you consume if the cost were $0.04*8.8 = $0.35 higher?

The Coming Meat Wars

By now, I suspect many of you have seen the report by the EAT-Lancet Commission on Healthy Diets from Sustainable Food Systems, which was released on January 16th.

Among other things, the report recommends a dramatic reduction in consumption of meat and animal products. Here is their recommended plate.

Much has been made on Twitter and other places about the size of the small meat and animal product proportions suggested (e.g., 1/4 egg per day), and the fact that more added sugar is suggested than most meat products.

Rather, than going line-by-line through the report, I think it’s useful to take a step back and see this report as another front in what seems to be an escalating war on meat and animal food products (recall the debate surrounding the scientific advisory report on dietary guidelines back in 2015? Here were my thoughts then). What I thought I’d do in response is to provide some broader thoughts about some of the debates that have arisen about meat consumption. My purpose isn’t to defend meat and livestock industries, but to help explain the consumption patterns we see, add some important context and nuance to these discussions, and help ensure consumer welfare isn’t unduly harmed. (Full disclosure: over the years, I’ve done various consulting projects for meat and livestock groups such as the Cattlemen’s Beef Board, the Pork Board, and the North American Meat Institute. All of this work was on specific projects or data analysis related to labels or demand projections, and none of these groups support writing such as this, but I mention it here for sake of transparency).

Here are my thoughts.

• These debates can be contentious because meat, dairy, and egg production is big business and critically important to the economic health of the agricultural sector. For example, these USDA data show in 2017 in the U.S. the value of cattle/calves was about $67 billion, poultry and eggs about $43 billion, diary about $38 billion, and hogs about $21 billion, for a total of $176 billion at the farm gate. Contrast this with the value of corn ($46.6 billion), vegetables and melons ($19.7 billion), fruits and nuts ($31 billion), or wheat ($8.7 billion). In many ways, livestock/poultry can be see as “value added” production because these animal products rely on corn, soy, hay, and grass

• Given the farm-level statistics, it shouldn’t be surprising to learn that consumers spend a lot on meat, dairy, and eggs. Data from the Bureau of Labor Statistics, Consumer Expenditure Survey suggest that in 2017 consumers spend about $181 billion on animal products eaten at home. This doesn’t count food away from home, which is 43.5% of food spending according to these data (spending on food away from home isn’t segregated into food types as is food at home). Of total spending on food at home, 32% goes toward meat, dairy, and eggs.

• If anything, data suggest demand for meat (i.e., the amount consumers are willing to pay for a given quantity of meat) has been steady or rising over the past decade. For example, see these demand indices created by Glynn Tonsor. His data also shows there has been a steady increase in demand for poultry for the past several decades. At the same time, my FooDS data suggests a slight increase in the share of people who report being vegetarian or vegan over the past five years - going from around 4% in 2013 to around 6% in 2018. So, aggregate demand for animal products is up, although there seems to be increasing polarization on both ends of spectrum. We also find that meat consumption is increasingly related to political ideology, with conservatives having higher beef demand than liberals.

• There are important demographic differences in meat consumption, but the results highly depend on which meat cuts we are talking about. For example lower income households have higher demand for ground beef and lower demand for steak than higher income households. Broadly speaking, meat consumption is a “normal good”, which means that consumption increase as incomes rise. This is particularly true in developing countries. One of the first things people in developing countries add to their diet when they get a little more money in their pockets is animal protein.

• Given the high levels of aggregate meat consumption indicated above, the evidence suggests strong consumer preferences for meat and animal-based products. Taxes on such products will harm consumer welfare, and will be costly if, for no other reason, because of the size of the industry. Stated differently, consumers highly valuing having animal protein in their diets. This study shows the average U.S. consumer places a higher value on having meat in his or her diet than having any other food group.

• Calls for taxes are often predicated on the notion that there are externalities from meat, egg, and dairy production that need to be internalized (otherwise, this would amount to little more than “nannying” or paternalism). The externalities on the health care front presumably come from the fact that we have Medicare and Medicaid, which socialize health care costs. As I’ve written about on many occasions (e.g., see this paper), these “externalities” do NOT create economic inefficiencies because they simply represent transfers from healthy to the sick. Any inefficiencies that arise occur because of moral hazard (i.e., people eating unhealthy because they think the government/taxpayers will foot the bill), and the solution to this insurance problem is typically to require deductibles or risk-adjusted insurance pricing, which nobody seems to be proposing as a solution. As for environmental externalities, the key is to ensure prices for inputs such as water or energy, or outputs such as carbon or methane, reflect external costs. In this sense it isn’t the cow or chicken that is the “sin” but the under-priced water or carbon. Here the goal is to adopt broad policies that apply to all sectors (ag and non-ag) and that encourage and allow for innovation to reduce impacts.

• On climate impacts of animal agriculture, it is important not to confuse global figures of climate impacts with U.S. figures, which tend to be much lower (e.g., see my piece in the WSJ a few years ago on this topic). Why would climate impacts be lower in the U.S.? Because we tend to be more intensified and productive than elsewhere in the world. I know it sounds counter-intuitive, but more intensive livestock operations (because of the massive productivity gains) can significantly reduce environmental impacts when measured on a per unit of output (e.g., pound of meat or egg) basis.

• As for carbon impacts, the big culprit here is beef and to a lesser extent (due to the smaller cattle numbers), dairy. Why? Because cattle are ruminants. The great benefit of ruminants is that they can take foodstuffs inedible to humans (e.g., grass, hay, cottonseed) and convert them into products we like to eat (e.g., cheese, steak) (see further discussion on this here). The downside is that ruminants create methane, which is a potent greenhouse gas (GHG). The good news is that the GHG emissions from beef production have significantly fallen over time because of dramatic productivity gains (see this paper), but they’re not zero. It’s also important to note that not all greenhouse gasses are created equal, and while methane is a potent greenhouse gas, my understanding is that the impacts from livestock are less persistent in the atmosphere than are other types of greenhouse has emissions. While we can cut GHG emissions by eating less beef, at least in the U.S., the impacts are fairly small (the EPA puts contributions from livestock at around 3-4% of the total), we can also make strides by continuing to increase livestock productivity.

• While cattle are more problematic on the GHG front, it is important to note that there are likely tradeoffs (real or perceived) on the animal welfare front in comparison with other species. Most beef cattle live most of their lives outdoors on a diet of grass or hay. Cattle often make use of marginal lands that would be environmentally degrading to bring into row crop production. By contrast, most pork and poultry live the vast majority of their lives indoors on a diet of corn and soy. See my book with Bailey Norwood on the topic of animal welfare.

• There are some interesting innovations happening on the “lab grown meat” and “plant-based protein” space, which aim to replace protein from animal based sources. I haven’t seen these innovators make many claims about relative health benefits, but they often suggest significant benefits in terms of environmental impacts. I hope they’re ultimately right, but they’ve got a long way to go. Lab-grown meat isn’t a free lunch, and all those cells have to eat something. As I’ve also noted elsewhere, it is curious that these products (plant- or cell- based) are still more expensive than conventional meat products. If these alternative proteins are really saving resources, they should ultimately be much less expensive. Time will tell.

• Despite the excitement around the alternative protein sources, I don’t think we’ll see an end to cattle production anytime in the near future. Why? Well, there is the aforementioned marginal land issue; many agricultural lands aren’t very productive for use in other activities other than feeding cattle or housing other livestock or poultry. Another issue is that cattle and other livestock are food waste preventing machines. A big example here is distillers grains. What happens to all the “spent” grain that runs through ethanol plants or beer breweries? Its feed to livestock. The same is true of “ugly fruit”, non-confirming bakery items, and more. Also, without animal agriculture, where will organic agriculture get all it’s fertilizer, which currently comes from the manure of conventionally raised farm animals?

• Back to the EAT-Lancet commission, one of the big arguments for reducing meat consumption is health. While there are many studies associating meat consumption with various health problems, the strength of evidence is fairly weak. One big problem is that it’s really tough to do dietary-impact studies well and a lot of the evidence comes from fairly dubious dietary recall studies, but the other issue is that there is generally little attempt to separate correlation from causation. As I’ve written in other contexts, “Its high time for a credibility revolution in nutrition and epidemiology.”

• The EAT-Lancet report focuses both on health and sustainability issues. However, as I noted with regard to the 2015 dietary guidelines, which initially aimed to do the same, this conflates science and values. As I wrote then, “Tell us which foods are more nutritious. Tell us which foods are more environmentally friendly. But, don't presume to know how much one values taste vs. nutrition, or environment vs. nutrition, or price vs. environment. And, recognize that we can't have it all. Life is full of trade-offs.”

• Finally, I’ve heard it suggested that we need new policies and regulations to offset bad farm policies, which have led to overproduction of grains and livestock. This view is widely believed and also widely discredited. For example, see this piece by Tamar Haspel in the Washington Post. In the U.S., beef, pork, broilers, and eggs receive no direct production subsidies. Yes, there are various subsidies for feedstocks like corn and soy, but there are also other policies that push the prices of these commodities up rather than down (why would farmers want policies that would dampen the prices of their outputs?). Large scale CAFOs (confined animal feeding operations) must comply with a host of rules and regulations that raise costs (it should be noted that the government provides some funding, through the Environmental Quality Incentives Program (EQIP) program, to incentivize certain practices by CAFOs thought to improve environmental outcomes). If U.S. farm bill was completely eliminated, there would not doubt be some change, but it wouldn’t do much to change the volume of meat, dairy, and egg produced.

That’s more than enough to chew on for now.

Diet quality, environmental impacts, and food waste

A few years ago when the federal dietary guidelines were being discussed, there seemed to be a growing consensus that nutritional goals and sustainable goals could be jointly achieved with a single diet.  I pushed back some on that at the time (e.g., see here or here).

I ran across this paper by Zach Conrad and colleagues that was just published in PLoS ONE.  The paper shows that there is unlikely to be a silver bullet diet free of trade-offs when multiple dimensions of comparison are involved.  Here's from the abstract:  

“Higher quality diets were associated with greater amounts of food waste and greater amounts of wasted irrigation water and pesticides, but less cropland waste. This is largely due to fruits and vegetables, which are health-promoting and require small amounts of cropland, but require substantial amounts of agricultural inputs. These results suggest that simultaneous efforts to improve diet quality and reduce food waste are necessary.”

How to Feed the World

That's the title of a new book edited by Jessica Eise and Ken Foster that was just released last week.  The book is a collection of essays primarily from my colleagues in the Department of Agricultural Economics here at Purdue, but it includes contributions from Purdue faculty in other academic disciplines as well.  I had the privilege of writing the afterward.  

Here is the table of contents:

Chapter 1. Inhabitants of Earth- Brigitte S Walforf
Chapter 2. The Green, Blue, and Gray Water Rainbow- Laura C Bowling and Keith A Cherkauer
Chapter 3. The Land that Shapes and Sustains Us- Otto Doering and Ann Sorensen
Chapter 4. Our Changing Climate- Jeff Dukes and Thomas W Hertel
Chapter 5. The Technology Ticket- Uris Baldos
Chapter 6. Systems- Michael Gunderson, Ariana Torres, Michael Boehlje, and Rhonda Phillips
Chapter 7. Tangled Trade- Thomas W Hertel
Chapter 8. Spoiled, Rotten, and Left Behind- Ken Foster
Chapter 9. Tipping the Scales on Health- Steven Y Wu
Chapter 10. Social License to Operate- Nicole J Olynk Widmar
Chapter 11. The Information Hinge- Jessica Eise
Chapter 12. Achieving Equal Access- Gerald Shively

Gains to Chinese Agricultural Research and Extension

Last week, Nature published this piece on a massive study conducted by Chinese agricultural researchers.  Accompanying the piece was a summary/editorial describing the study:

“Running from 2005 to 2015, the project first assessed how factors including irrigation, plant density and sowing depth affected agricultural productivity. It used the information to guide and spread best practice across several regions: for example, recommending that rice in southern China be sown in 20 holes densely packed in a square metre, rather than the much lower densities farmers were accustomed to using.

The results speak for themselves: maize (corn), rice and wheat output grew by some 11% over that decade, whereas the use of damaging and expensive fertilizers decreased by between 15% and 18%, depending on the crop. Farmers spent less money on their land and earned more from it — and they continue to do so.”

The project appears to have created substantial economic benefits.  The authors of the study write:

“Direct profit, calculated from increased grain output and reduced nitrogen fertilizer use, was US$12.2 billion (Table 1), which does not include relevant environmental benefits associated with reductions in reactive nitrogen losses and in GHG emissions. On the basis of the rough estimates, the cost:benefit ratio would be 1:226. ”

The cost-benefit ratio is in some ways over- and in other ways under-estimated.  The benefits are over-estimated in the sense that it does not appear it takes into consideration the fact that greater grain production will dampen prices (it is also unclear how the benefits and costs are discounted or not over time).  The benefits are under-estimated because they do not include any of the environmental improvements.  

It is useful to contrast these findings with the rather large research on the value of agricultural R&D and extension investments in the U.S.  Jin and Huffman calculated the rate of return on spending on agricultural extension in the U.S. at 100%.  More broadly, Julian Alston gave the fellow's address at this this year's AAEA meetings on precisely this topic, and his remarks were recently published in the American Journal of Agricultural Economics.  He writes:

“Our estimates (Alston et al. 2010a, 2011) indicate that U.S. federal and state government expenditure on agricultural research and extension generates benefit-cost ratios of at least 10:1 (more likely 20:1 or 30:1)—evidence of a serious underinvestment. Pardey and Beddow (2017), echoing Pardey, Alston, and Chan-Kang (2013), suggested that a reasonable first step would be to double U.S. public investment in agricultural R&D—an increase of, say, $4 billion over recent annual expenditures. A conservatively low benefit-cost ratio of 10:1 implies that having failed to spend that additional $4 billion per year on public agricultural R&D imposes a net social cost of $36 billion per year”

Given the lower level of development in China, it is certainly possible to imagine that the rate of return on investments in agricultural research and extension being higher than is the case in the U.S.  But, can the benefit cost ration really be 10 times higher in China than the U.S. (226:1 vs. 20:1)?  One interesting thing about Chinese study in Nature is that, if I read correctly, it didn't entail development of any new genetics, pesticides, etc; rather it seemed to largely entail the application of previously developed "science" and practices to the particular geographies in question, and as such, the costs might have been much lower than in situations where new technologies are being created. 

In a sense, the shows an enormously high value to "better information."  This contrasts with perspectives such as this one by David Pannell, who argues that better technologies are much more impactful than "better information."  One way to reconcile this seeming paradox is that that the "information" conveyed to the Chinese farmers was to use better technologies and practices that were already known to exist.  Here in the developed world, the knowledge/technologies are likely already more widely dispersed.  

I'll end with this quote from Alston's paper, who articulated the value of increased productivity in a createive way:

“Clearly agricultural productivity growth is enormously valuable. Of the actual farm output in 2007, worth about $330 billion, only one-third (i.e., 100/280 = 0.36) or about $118 billion could be accounted for by conventional inputs using 1949 technology, holding productivity constant. The remaining two-thirds (i.e., 180/280 = 0.64) or about $212 billion in that year alone, is attributable to the factors that gave rise to a 180% increase in productivity since 1949—including improvements in infrastructure and inputs (if not captured already in the indexes), as well as new technology, developed and adopted as a result of agricultural research and extension, and other sources of innovations.”