ABC, BPI, and LFTB

A couple weeks ago, the lawsuit between BPI, the maker of lean finely textured beef (LFTB), aka "pink slime", and ABC news finally came to an end after the two parties agreed to an settlement for an undisclosed amount of money (here's one summary from CNN).

Here's another story from Inside Sources that touches on the economic impacts of the original ABC news coverage.  They reached out to me for comment and you can read a tad bit of what I had to say at the link above.  

Better yet, check out the chapter in my book 2016 Unnaturally Delicious entitled "Waste Not Want Not."  In that chapter, I talked about the history of BPI and it's founder Eldon Roth, the technology used in creating LFTB, some intriguing background on how BPI wound up in the documentary Food, Inc., and more.  Here are the law few paragraphs from that chapter.    

“It’s a bit hard to know what to make of all that transpired. To be sure, much of what was said about BPI was sensationalized. BPI didn’t use organ meats or bones or hoofs or hides or
“dog food.” The company used slightly fattier versions of same beef cuts that usually become roasts or ground beef. In fact, the day I visited BPI’s South Dakota plant, which is adjacent to a
Tyson packing facility, I was amazed at the beef entering BPI’s facility. The meat traveled on a conveyer belt in a tunnel that connects BPI and Tyson. A steer or heifer enters one end of the
Tyson facility, and a few hours later beef trimmings emerge at BPI without ever seeing the light of day. The trimmings consist of some small cuts of beef but there are also huge hunks of meat that looked almost identical to the briskets that I love to barbeque for get-togethers with friends and family. Lean finely textured beef is beef. That’s all. I suppose that’s why the company created a website called beefisbeef.com. No bone goes into the process. Big beef hunks go in one end and out the other end come three products: tallow, cartilage (which is the only waste), and lean finely textured beef.

I’ve visited a lot of food plants, and BPI’s was one of the most technologically advanced, safety-conscious plants I’ve seen. That a company that proactively invested millions in food safety measures found itself embroiled in controversy involving perceived (but unfounded) safety concerns is deeply ironic. What tarnished BPI’s reputation was no actual sickness or recall or outbreak; it was a series of TV shows and news stories.

But, given the information that consumers received, it is hard to fault them for their reaction. After all, best-selling authors and journalists have primed the public’s distrust of Big Food. In
an era when processed food has come to be seen as almost evil, “pink slime” struck a chord with consumers. Perhaps BPI should have required labeling of the beef that contained its products. Surely some of the public outcry arose from a feeling of having been deceived and of having no control over what is in our food. But from BPI’s perspective, what’s to label? “This product of ground-up beef parts contains more ground-up beef parts”? More fundamentally, BPI didn’t sell directly to consumers. Rather, the company sold to other processors, who sold to restaurants and grocery store chains. BPI was hardly in a position to force others to label products that contained lean finely textured beef.

So where does that leave us? Many shoppers, although I am not among them, no doubt want to avoid lean finely textured beef and are willing to pay a premium to purchase lean ground beef that does not contain it. There’s no harm in that.

But if we are really concerned about food waste, we probably need to change some of our narratives. We shouldn’t say we want companies to recycle and reuse and then turn around and vilify them for doing so.

The comedian Jon Stewart, who was more than willing to jump on the Big-Food-is-bad bandwagon, remarked that pink slime should instead be called “ammonia-soaked centrifuge-separated by-product paste.” He was working off a popular narrative. He could have instead featured the harm to a family owned business that was innovating to make food safer and more affordable by preventing food waste. But that’s not very funny.”

Why is the milk at the back of the store?

That was the question asked in a Planet Money podcast, which re-aired earlier this week.  

The conventional answer was provided by the food writer Michael Pollan:

“I’ve come to understand the landscape of a grocery store as a brilliantly designed landscape to get us to buy as much food and as much expensive food as possible. So my general impression is that the milk is in the back.

And it’s - but - and it’s not just that the milk is in the back. It’s also usually very far from the bread. Both of them are very common items that everybody needs, and so it makes you cover a lot of ground if you want them.”

Another perspective was provided by the economist Russ Roberts:

“Russ thinks the reason the milk is in the back is practical. It’s easier to keep the milk cold if it’s there. The delivery trucks come into the back of the store. Milk goes right into this refrigerated room that’s often right behind the cooler where you grab your milk. No one has to lug the milk through the store to some cooler in the front.

ROBERTS: Milk spoils very easily. I was told that for every degree of temperature it rises, it loses a day of being available and being sellable. So the argument I’m making, which is kind of a radical argument, is that you and I want the milk in the back, even though it’s a little less convenient. If it were in the front, it would be more expensive, and we’re not willing to pay that extra price. So I think they’re actually doing what we want, not what they want.”

How can we know whose view is right?  To answer the question, we'd need to observe a world where milk doesn't need to be refrigerated and then see where grocery stores - in this alternative universe - place the milk.

As it turns out, such an alternative universe actually exists!  It's called France.

I spent part of 2011 on sabbatical and Paris, and when first grocery shopping I was surprised to find the milk often sitting right next to the laundry detergent or the cereal, unrefrigerated.  How is this possible? For reasons that aren't entirely clear to me, much of the milk sold in France is ultra-high temperature (UHT) pasteurized.  The process makes the milk "shelf stable" - it doesn't spoil when left unrefrigerated (I personally thought it tasted pretty terribly).

So, where do French grocery stores stock the milk?  I only have anecdotal evidence based on my own shopping experiences, but by and large I'd say it was NOT at the back of the store. It was often situated somewhere near the center of the store.  Moreover, some stores sold both UHT milk and "regular" refrigerated milk, and the refrigerated milk as typically at the back in a refrigerated case while the UHT milk was situated elsewhere in the store.  

My take: Russ Roberts 1, Michael Pollan 0.

P.S.  There is another line of evidence in favor of Russ's view.  Where do you typically find (unrefrigerated) soy milk in your grocery store?  In our local Walmart, it's in the center of the store, not at the back.

How US Companies Should Help Farmers Increase Sustainability

That's the title of an article by a marketing guru, Doug Austin, in the Farm Journal.

While some of the discussion is sensible, I found it a bit interesting to see the "solution" proposed to increased sustainability:

“When large companies partner with farmers, they have more influence on how farmers take their products to market, and they’re involved much earlier in the process. For instance, a corporation could instruct a farmer to plant 10,000 acres of corn without any pesticides, GMO seeds, etc., and the farmer would be under contract to deliver. This is a big shift away from the traditional farming mindset that uses yield as the primary success metric.”

First, I don't know that corporations "instruct" farmers. They can offer incentives.  They can offer premiums.  Or, as Austin suggest, they can offer contracts.  

The idea is hardly new.  And indeed, the rate of contracting is already increasing at a rapid clip, precisely for many of the reasons suggested by Austin - food companies trying to achieve more uniformity ad price stability, and to be responsive to consumer concerns.  

Here for, for example, is a graph out of a USDA report by William McBride and Nigel Key on the percent of hogs marketed in the US under contract from 1992 to 2009.  In some parts of the U.S. virtually 100% of hogs are produced under contract.

There are many advantages to contracting (mainly protection against price or production risk), but the practice also opens up food production industries to all kinds of criticism (e.g., see how Tyson was vilified in The Meat Racket for its use of contracts).  If a corporation wants to exert the kind of control it needs to achieve various end-use characteristics, that means farmers conceding some freedom (in exchange for certainty of income).  However, this relationship can get construed as "big bad market power exerted by Big Food."

The contracting situation isn't unique to hogs.  Many (perhaps most) vegetable growers produce under contract with processors.   And, here is another graph from the USDA-ERS by James McDonald on the extent of contracting for the major commodity crops

The other problem with the quote above is the implicit assumption that the use of GMOs or pesticides are not sustainable.  Or, that yield isn't one metric of sustainability.  Corporations may (one day in the future), in fact, want to contract with farmers to plant certain GMOs precisely because they are more sustainable.

What's the good of advertisers?

Much of what I read and hear in debates about obesity, nutrition, and public health seems to assume that all corporate food marketing is "bad".  Food marketers are nudging us away from healthful choices toward the more profitable (for them) unhealthful ones (never mind that some companies sell healthy products).  Many people argue that the government needs to make its own commercials to counter-nudge us back toward health eating.

With that backdrop, I was interested to read the back-and-forth letters between Rory Sutherland and George Loewenstein at the beginning of this paper, The Behavioral Economics Guide 2014. (HT: Andreas Drichoutis)

Here's an interesting point by Sutherland:

“Interestingly the late, mostly great, Gary Becker (in a paper with Kevin Murphy) seems to agree with me on this. Their model of advertising seems to suggest that advertising should be viewed not as persuasion (something which distorts preferences, as you suggest) but as a complementary good, the consumption of which, alongside the main product, increases the value of that main advertised product and which therefore allows sellers to capture more of the consumer surplus. He sees advertising as potentially a value-add, not as manipulation.

Nonetheless, I agree that we are right to be suspicious of manipulation. After all, the most successful advertisers over the past 150 years have been totalitarian regimes. ”

Sutherland also responds to Loewenstein's story about a recent joy-ride to the country ending in a meal of burgers and beer which was ruined when Loewenstein learned he was simply playing out a scene he'd seen in a credit card commercial.  Sutherland writes: 

“But what is strange is that we are already affected by frames, without being remotely aware of them. When you described your cycling experience, it was clear that you saw the cycle ride as virtuous and the food and beer as sinful. Yet people have been enjoying the consumption of beef products and fermented beverages since the time of the pharaohs.

Indeed, perhaps 900m people in China would have read your story and said, “The beer and the burger I understand. What I don’t understand at all is why a presumably wealthy Yankee professor would get to the restaurant by bicycle, when I have been dreaming of owning a car for the last ten years. Travelling by bicycle is the lowest form of drudgery.” You have clearly been manipulated here. But it’s not the credit card company I blame, it’s Nike.”

Loewenstien responds with some interesting observations of his own.  Do read the whole exchange. 

How high are the food companies standards?

"Big Food" is often vilified, and there are often calls for more regulation of food production and processing.  Is it possible, however, that private companies' food standards are actually "too high"?  Or, that food companies' standards are higher than government standards?  A recent paper in the American Journal of Agricultural Economics by Thijs Vandemoortele and Koen Deconinck sheds some light on these issues.  

They start with an interesting (if not widely mis-perceived) observation:

Empirical evidence shows that 70-80% of retailers assess their own private standards slightly or significantly higher than public standards

They offer several possible reasons for this phenomenon.  First,

private standards may reduce consumers’ uncertainty and information asymmetry about product characteristics such as safety, quality, and social and environmental aspects, thus increasing consumer demand.

Second, 

firms may use private standards as strategic tools to differentiate their products, thus creating market segmentation and softening competition.

Third,

firms may use private standards strategically to improve bargaining power over their suppliers.

Fourth,

private standards may also serve to preempt government regulations.

The authors construct a conceptual model, in which they argue that market power is a primary motive.  This is something of a counter-intuitive outcome: a "bad" (market power) creates a "good" (high standards).  As they point out, the political economy relationship between companies and government probably also has something to do with the extent to which private standards are greater than public ones.  So does consumer demand; if consumers want an are willing to pay for higher standards, there will be an incentive for companies to provide it.  But, as this article points out, high standards can also be used to create barriers to competition.