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What do consumers do when the price of beef rises?

A reader recently sent me an interesting set of questions that I've actually been thinking about for a while.  

The context is the rising price of beef.  As I've written about several times in the past, beef prices have increased steadily for the past two years.  Here is data from the BLS for the price of all 100% ground beef ($/lb) over the past four years.  Over this time period, nominal prices have almost doubled. There were big jumps in retail prices in 2014, but throughout much of 2015, prices have leveled off. 

The questions:

“has the increased cost in beef caused people to eat “healthier” foods like vegetables? Are people substituting beef for cheaper, processed meats? Or perhaps chicken? Is there any indication that people are consuming less beef and replacing it with “healthy” alternatives? ”

The first thing to note is that if the price increases are caused by supply shocks (as is almost certainly the case),  higher beef prices are unambiguously bad news for consumers.  So, even if consumers are today eating "healthier", they aren't happier.  If people really wanted to be eating more veggies or chicken, they could have voluntarily chose to do so five years ago without a beef price spike forcing them into that outcome.  

The core of the question relates to substitutability.  When the price of beef rises, what do people substitute toward?  This is the so-called cross-price elasticitiy of demand.  There is an enormous academic literature in agricultural economics estimating  the cross-price elasticity of demand for beef and other types of food.  

The problem with a lot of this literature is that, due to data limitations, all beef is lumped together as an aggregate  category and the researchers study how consumers substitute aggregate beef for aggregate pork and aggregate poultry.  Most of the studies I've seen put the cross-price elasticities between aggregate beef and aggregate pork/poultry at something less than 0.3 and often much smaller than that.  So, a 1% increase in the price of beef causes a less than 0.3% increase in pork and poultry.  A 100% increase in the price of beef (something like what we've seen over the last 5 years) causes a less than 30% increase in quantity of pork an poultry demanded.

There are a few studies that look at how demand food categories is affected by aggregate meat (lumping together beef, pork, and poultry).  This study, for example, estimates that a 1% increase in the price of meat would cause a 1% increase in quantity demanded for eggs, a 0.32% increase in demand for fruits and vegetables, a 0.24% increase in alcoholic beverages, and smaller effects on other categories of foods. 

But, most of these types of studies only study the inter-related demands for different aggregate meats and do not include effects on fruits and vegetables or other foods.  In so doing, the researchers are assuming beef demand is "separable" from demand for other foods.  Separability is a bit of a complicated concept but it basically means that my demand for one good is not directly affected by the price of another good (though it may well be indirectly affected as I have to re-allocated my budget to different categories in light of the price increase).  

There are some studies that have relaxed this separability assumption to look how consumers substitute among different types of meat.  For example, when the price of steak rises, are consumers more likely to substitute toward another beef product (like roast or ground beef) or similar product from a different species like a pork chop or chicken breast?   This older paper suggests in fact suggests that the latter is the case:  

In any event, one of the big challenges with answering these sorts of questions is that we simply don't have good data.  We can get aggregate "disappearance" data from the USDA which lumps all beef together.  We can get grocery store scanner data, but most of that is of limited use for fresh meat products or fresh veggies because these are "random weight" items and the datasets don't have information on product weights (it's tough to estimate demand when you don't know exactly how much people are buying).  That's one of the reasons I've been running the Food Demand Survey (FooDS) survey for over two years now, to provide better data to answer these questions.  My colleague Glynn Tonsor (whose written a lot on the very issues I mention here) from K-State and I are polishing up a paper now that uses the FooDS data to look at substitution patters among different types of meat and non-meat items in this period of high beef prices, but it's not quite ready for preview yet.  

Legislators potentially stall changes to dietary recommendations

An appropriations bill in the House of Representatives was passed out of the agricultural subcommittee last week.  It contained the following language:

“None of the funds made available by this Act may be used to release or implement the final version of the eighth edition of the Dietary Guidelines for Americans, revised pursuant to section 301 of the National Nutrition Monitoring and Related Research Act of 1990 (7 20 U.S.C. 5341), unless the Secretary of Agriculture and the Secretary of Health and Human Services comply with each of the following requirements:
(1) Each revision to any nutritional or dietary information or guideline contained in the 2010 edition of the Dietary Guidelines for Americans and any new nutritional or dietary information or guide line to be included in the eighth edition of the Dietary Guidelines for Americans—
(A) shall be based on scientific evidence that has been rated ‘‘Grade I: Strong’’ by the 6 grading rubric developed by the Nutrition Evidence Library of the Department of Agriculture; and
(B) shall be limited in scope to only matters of diet and nutrient intake. ”

Not surprisingly, the move has raised the ire of some nutritionists.  Here's one who pushes back by saying

“The type of studies that could produce “Grade 1: Strong” evidence is extremely difficult to do in nutrition science research, because of the realities of studying free-living human beings”

and

“It makes no sense to use different standards for existing recommendations than for new recommendations. ”

So, because it is too hard to get good evidence that goes beyond correlational analysis, we should be permitted to continue to use the voice of the government to promote weak evidence and advise millions of people how to eat?  And, because we've used weak science in the past, we should continue to to use it now?  

I'd ask many of these same people if drug companies should be able to get approval from the FDA for a new drug based on the same types of studies being used to make nutritional recommendations?  If the issue here is standards of scientific evidence, why the different bars of scientific scrutiny in one case vs. the other?

I'm sympathetic to the nutritionist's concerns about politics affecting science, and I don't have a position one way or the other on aforementioned language in the appropriations bill (which may or may not make into law).  Nonetheless, there is a presumption implicit in many arguments that support the recommendations that the scientists are relying on good, compelling scientific evidence.  But, they are people too, after all, as are our elected officials.  Moreover, as I've pointed out before with regard to these guidelines, there is as much value judgement going on here as there is science.  Another challenge is that the authors of the guidelines seem to presume that people will follow - precisely - the recommendations to a tee (rather than, say, substituting meat for more carbs) and will ignore cost implications, but this misses insights from behavioral research on how people will actually respond and substitute.  Most people won't follow the precise recommendations and that should be taken into consideration by the recommendation makers. The fact that we citizens are "free-living humans beings" not only makes the research hard, it should give us pause in expecting too much of high minded regulation.  

Environmental Impacts of Vegetarianism

Given the latest report from the new dietary guidelines committee that recommends less meat eating (see some of my previous discussion on that here), I found this study just published in Ecological Economics by Janina Grabs quite interesting.

Grabs ask an important question that is rarely asked.  If people stop spending money on meat, what will they spend their money on instead?  And, what are the environmental impacts of those other non-meat expenditures?  Using data based on Swedish consumers, she calculates that, at first blush, a vegetarian diet does indeed appear to have slightly smaller energy use and carbon impacts, BUT if you take into consideration what the vegetarians do with the extra money they used to spend on meat, those environmental gains become dramatically smaller.  She calls this the rebound effect.

Here's the abstract:

“Sustainable diets, in particular vegetarianism, are often promoted as effective measures to reduce our environmental footprint. Yet, few conclusions take full-scale behavioral changes into consideration. This can be achieved by calculating the indirect environmental rebound effect related to the re-spending of expenditure saved during the initial behavioral shift. This study aims to quantify the potential energy use and greenhouse gas emission savings, and most likely rebound effects, related to an average Swedish consumer’s shift to vegetarianism. Using household budget survey data, it estimates Engel curves of 117 consumption goods, derives marginal expenditure shares, and links these values to environmental intensity indicators. Results indicate that switching to vegetarianism could save consumers 16% of the energy use and 20% of the greenhouse gas emissions related to their dietary consumption. However, if they re-spend the saved income according to their current preferences, they would forego 96% of potential energy savings and 49% of greenhouse gas emission savings. These rebound effects are even higher for lower-income consumers who tend to re-spend on more environmentally intensive goods. Yet, the adverse effect could be tempered by purchasing organic goods or re-spending the money on services. In order to reduce the environmental impact of consumption, it could thus be recommended to not only focus on dietary shifts, but rather on the full range of consumer expenditure.”

A couple caveats.  First, it is important to notice an important clause to sentence claiming a 16% reduction in energy use and 20% reduction in greenhouse gas emissions - this is the reduction related only to their diet.  In terms of overall impact, I believe these only translate to 1.8% and 4.15% reductions, quite simply because food only makes up a small part of the consumers overall energy use and carbon impact.  Of course, all this relates to the "first round" impacts and ignores the rebound effect, which is the main point of this study.

Second, the later part of the abstract, which suggests that the, "adverse effect could be tempered by purchasing organic goods" is mainly due (if I'm understanding the study correctly) to an income effect NOT because organics have substantively less energy/carbon impacts.  Because organics cost more, that leaves less money for the consumer to spend on other things that would require energy.  You could create the exact same kind of result by simulating a person who bought and ate less food, and then took all the dollar bills that were saved, and burned them.  This little thought experiment ought to reveal that the goal in life is not to minimize energy use per se, only to reduce it to the extent that you're not taking into account the impacts on others that are not already reflected in the market price.

None of that should distract from the overall important message of this study: that we need to look at all the effects (even unintended ones) when trying to look at policies that encourage people to change dietary habits.  

A comedian's take on contract poultry farming

On the HBO show Last Week Tonight, comedian John Oliver (formerly with the Daily Show on Comedy Central) weights in on the issue of contract poultry farming.  His piece is a take-off of the themes in Christopher Leonard's book, The Meat Racket (which I critically reviewed here).  

Here's the episode, which already seems to be garnering quite a bit of attention.