Are Fruits and Veggitable Subsidized?

To hear food pundits talk you'd think that growers of fruits and veggies don't receive subsidies from the government.  Indeed, the pundits often argue vegetables should receive subsidies because they don't receive them now.  Just to give one example, here is Mark Bittman writing in the New York Times:

Simply put: taxes would reduce consumption of unhealthful foods and generate billions of dollars annually. That money could be used to subsidize the purchase of staple foods like seasonal greens, vegetables, whole grains, dried legumes and fruit.

It might come as a surprise, then, to hear that many fruits and vegetable growers already receive (implicit and explicit) subsidies of one form or another.  Here is an issue, for example, that came to light during the fiscal cliff debate:  

Many folks have picked out the extension of "market loss assistance" for asparagus farmers, for example, but this dates back to the farm bill from the last year of the Bush administration. Senator Patty Murray (D-WA) brags about it on her website and Senator Maria Cantwell (D-WA) was talking about fighting for it back in 2007, so I think we can gather than a lot of asparagus is grown in Washington State.

This is said to be needed because American asparagus farmers have been "devastated" by cheap imported Peruvian asparagus.

The reality of farm and food policy and its impacts is much more complicated than is often made to appear in foodie books and blogs.

Who Will be the Paternalist for the Paternalists?

With lawmakers seemingly still struggling to come up with solutions to the fiscal cliff dilemma (now only a day away from the cliff), I am reminded of this paper I ran across a while back by Niclas Berggren in the Review of Austrian Economics.  Here is the abstract:

This study analyzes leading research in behavioral economics to see whether it contains advocacy of paternalism and whether it addresses the potential cognitive limitations and biases of the policymakers who are going to implement paternalist policies. The findings reveal that 20.7% of the studied articles in behavioral economics propose paternalist policy action and that 95.5% of these do not contain any analysis of the cognitive ability of policymakers. This suggests that behavioral political economy, in which the analytical tools of behavioral economics are applied to political decision-makers as well, would offer a useful extension of the research program. Such an extension could be related to the concept of robust political economy, according to which the case for paternalism should be subjected to “worst-case” assumptions, such as policymakers being less than fully rational.

That is precisely the problem with much of the behavioral economics research which advocates for policy action.  This research typically finds people are not perfectly rational and then the researchers make a logical deduction that a paternalistic policy can make "irrational" people better off.  But the vast majority of these studies never actually test how the people (for whom paternalism is supposedly needed) will respond to the choices or nudges made on their behalf or how political influences might affect the best-laid nudging plans.

I will note that for over a year now, I've been working on a couple papers with Bailey Norwood and Stephan Marette, which summarize the results of some experiments we ran in the US and France looking at how people respond to paternalistic food choices made for them.  I'll write more about these studies when the papers are accepted for publication.  For now, I'll reveal one finding, which isn't terribly surprising: people value the freedom to make their own choices.

Does the Food Stamp Program Subsidize Obesity?

At his NYT blog, Mark Bittman says that beneficiaries of SNAP (otherwise known as food stamps) shouldn't be allowed to pay for sodas.  Here is Bittman:

What’s to be done? How to improve the quality of calories purchased by SNAP recipients? The answer is easy: Make sure that SNAP dollars are spent on nutritious food.

This could happen in two ways: first, remove the subsidy for sugar-sweetened beverages, since no one without a share in the profits can argue that the substance plays a constructive role in any diet. . . . 

Simultaneously, make it easier to buy real food; several cities, including New York, have programs that double the value of food stamps when used for purchases at farmers markets. The next step is to similarly increase the spending power of food stamps when they’re used to buy fruits, vegetables, legumes and whole grains, not just in farmers markets but in supermarkets – indeed, everywhere people buy food.

On one level, I'm sympathetic to Bittman's argument.  Why should my tax dollars be used to subsidize bad behavior?  But, if we are going to accept that argument, where do we stop?  As a professor, I indirectly get a paycheck from the State of Oklahoma.  What is to stop someone like Bittman one day proposing that the federal or state government dictating where and how I can spend the portion of my paycheck that comes from taxpayers?     

Aside from this "slippery slope" argument, it is useful to consider the broader debate in economics on whether foods stamps, in general, cause obesity.  Unless a person (before receiving food stamps) is constrained in the food they buy, a standard economic model suggests that food stamps simply act as an income transfer.  Stated differently, under the aforementioned situation, a person shouldn't treat food stamps any differently than a monthly cash gift.  There are lots of empirical papers studying whether this true and the evidence is a bit mixed but I think its safe to say that a big part of the effect of food stamps (if not the total effect) is simply an income effect.  

This is useful to consider this perspective because - if we are going to give food stamps out of some feeling of charity or benevolence - we have to realize that restricting their use may not have the intended effect.  Money is fungible.  If you can't use food stamps to buy sodas, you'll use them to buy more of something else - freeing up money to buy soda.  

I also think it isn't particularly helpful to claim that food stamps are "subsidizing" obesity simply because sodas can be bought directly with food-stamp dollars.  Food stamp recipients are choosing to use their dollars (and food stamp coupons/debit cards) to buy sodas.  Food stamps are only "subsidizing" obesity to the extent that extra income is subsidizing obesity.  It isn't food stamps per se that are causing soda consumption - it is people's preferences for sodas that are leading to soda consumption.  

Efficacy of Fat Taxes and Thin Subsidies

Science News reported the following results from a recent study:

Taxes on soft drinks and foods high in saturated fats and subsidies for fruit and vegetables could lead to beneficial dietary changes and potentially improve health, according to a study by experts from New Zealand published in this week's PLOS Medicine.

and

The authors say: "Based on modelling studies, taxes on carbonated drinks and saturated fat and subsidies on fruits and vegetables are associated with beneficial dietary change, with the potential for improved health. "

My first reaction was "duh."  Clearly if you raise prices of (say sugar or fat) high enough, you will get people to eat less.  In fact, one way researchers often model a ban on a substance is by simulating what happens when the price gets high enough that no one buys the product.  

Thus, the key question isn't whether one can change consumption and nutrient intake with sufficiently high taxes or subsidies.  The better questions are by how much? and at what cost?  An even better question still: where is the market failure that would justify the tax or subsidy?  The answer to that last question is actually much less obvious than most public health professionals presume (see here or here).

On the former question of how much?, let's turn to the original study mentioned at the first of this post.  The study is actually a literature review, pulling together the findings of previously published papers (including one that I co-authored).  Below is a graph showing some of the key results from different studies simulating how much change in consumption (or energy intake) would occur from a change in the price of a good. Pay attention to the scale of the vertical axis.  My take (see the middle chart) is that it would take very large price changes to get energy consumption to change by much (a 20-40% increase in price results in a 0.2-0.4% reduction in calories consumed).  

Stated differently, these sorts of policies are likely very costly in achieving the desired health outcomes.  Moreover, we must ask why - if these health changes are really so inexpensive and beneficial - people are not already voluntarily making them?

The Need for Agricultural Research

Five agricultural economists published an article in the latest issue of Science on the effects of public and private R&D spending on agricultural research.   

Here is the summary:

Most of the increase in global agricultural production over the past half-century has come from raising crop and livestock yields rather than through area expansion. This growth in productivity is attributed largely to investments in research and innovation (1). Since around 1990, there has been a decline in the rate of growth in yield per area harvested for several important crops (2). In parallel, the rate of growth in public spending on agricultural research and development (R&D) has also fallen, which may account for declining crop yield growth and may be contributing to rising food prices (3).

To this, I would add that a deluge of books and documentaries on food have demonized precisely those research developments responsible for yield growth.  It's hard to know exactly what effect these cultural influences have had on firm and government decisions to invest in agricultural research.  

However, many in the food community haven't connected the dots.  Mark Bittman wrote just two days ago about hunger, saying:

It seems absurd to have to say it, but no one in this country should go hungry.

His answer for the problem was more government spending on food stamps and food banks.  Yet, he has repeatedly denounced modern agricultural technologies and has called for food policies that will ultimately increase food prices.  

There is the old saying that if you give a man a fish, you feed him for a day; If you teach him how to fish, you can feed him for a lifetime.  Food stamps give people fish for the day.  Developments in agricultural R&D are the gifts that keep on giving.