What has caused the recent rise in commodity prices?

Brian Wright from UC Berkeley attempts to answer that question in a recent review article in the Journal of Economic Perspectives.  His provocative answer:

The rises in food prices since 2004 have generated huge wealth transfers to global landholders, agricultural input suppliers, and biofuels producers. The losers have been net consumers of food, including the large numbers of the world's poorest peoples.  The cause of this large global redistribution was no perfect storm.  Farm from being a natural catastrophe, it was the result of new policies to allow and require increased use of grain and oilseed for production of biofuels.  Leading this trend were wealthy countries, initially misinformed about the true global environmental and distributional implications. 

The Dust Bowl

I just finished the Worst Hard Time by Timothy Egan, published back in 2006, about the Dust Bowl.  

On several levels, I had a deep connection to the themes in the book.  I can recall stories from both my mother's and father's mothers (my grandmothers) about growing up in the dust bowl era in and around the regions Egan discusses in his book.  As a child I can remember going with my dad to a nearby shelter-belt (which I presume was part of Roosevelt's plan to avert the dust bowl, at least according to Egan) to chop wood for our fireplace.  

Egan repetitively makes the argument (with a tedium that bored me at times) that the the great plains should have never been plowed.  It should, in his assessment, have been left in natural grasses.  The dust bowl itself, in Egan's account, was a result of man's hubris that nature could be tamed.  

Egan's account paints both a cynical and overly-optimistic view of government.   On the one hand, the government partially caused the great plow up (citing mainly from government reports at the time):

"Mistaken public policies have been largely responsible for the situation," the report proclaimed.  Specifically, "a mistaken homesteading policy, the stimulation of war time demands which led to over cropping and over grazing, and encouragement of a system of agriculture which could not be both permanent and prosperous."  

...

"The settlers lacked both the knowledge and the incentive necessary to avoid these mistakes.  They were misled by those who should have been their natural guides.  The Federal homestead policy, which kept land allotments low and the requirement that a portion of each should be plowed, it now seems to have caused immeasurable harm.  The Homestead Act of 1862, limiting individual holding to 160 acres, was on the western plains almost an obligatory act of poverty."

On the other hand, Egan suggests the government-man Hugh Bennett's plans of contour plowing and grass-reseeding along with Roosevelt's plan of shelter-belts and farm price support policies saved the day.  

I'm not so sure.  It is tough to separate compelling journalistic story from data-driven explanations.  My own  sense coming into the book is that much of the land I grew up around, which falls within the area Egan draws around the dust bowl era, is as plowed up as it ever has been.  The data would seem to support that too.  I dug up USDA data on the number of acres planted to wheat in Cimarron Co, OK (which is where Boise City is located - one of the spots featured in Egan's book).

While there was indeed a big plow-up just prior to the dust bowl (which occurred in the 1930s), we can see that we've had just as much land in wheat production in the late 1940s and almost as much in the late 1970s.  To the extent that the same is true in other regions and with other crops, it doesn't seem that replanting back to grass is THE explanation (although it might have played some role on more erodible lands in other areas).

A better question.

In the past several years, we've had severe droughts in the great plains similar to the one in the 1930's.  Why no repeat of the dust bowl?  

Egan asks a similar question, and he points mainly to the aforementioned government policies. He also gives the impression in the end that big corporate agribusinesses have taken over this land (which is largely false; there are fewer farmers today and those farmers are indeed bigger, but they are family farms; moreover his statements on this topic are somewhat ironic given the aforementioned quote that larger farm sizes were needed to avoid poverty).  As indicated in the graph above, I don't think the full answer can be that the land has reverted back to idyllic native grasses.  

My sense is that it is mainly a result of two factors: better farming technologies/practices and irrigation.  To be fair, Egan points to these as potential answers too.  Many of the people who moved out to farm the great plains had no prior farming experience.  Its no wonder they adopted some practices that were doomed for failure (I'm sure I'd have done the same thing; I'd hate to think what would happen if I were forced to try to make a living at farming today!)  Knowledge and experience matter.  And sometimes it takes really bad consequences to teach us to do things differently.

On the issue of irrigation, there was an interesting paper (earlier ungated version here) that recently appeared in the American Economic Journal: Applied Economics by Richard Hornbeck and Pinar Keskin.  They write:   

Agriculture on the American Plains has been constrained historically by water scarcity. Post-WWII technologies enabled farmers over the Ogallala aquifer to extract groundwater for large-scale irrigation. Comparing counties over the Ogallala with nearby similar counties, groundwater access increased agricultural land values and initially reduced the impact of droughts. Over time, land use adjusted toward water intensive crops and drought sensitivity increased. Viewed differently, farmers in nearby water-scarce areas maintained lower value drought-resistant practices that fully mitigate naturally higher drought sensitivity. The evolving impact of the Ogallala illustrates the importance of water for agricultural production, but also the large scope for agricultural adaptation to groundwater and drought.

Ultimately, we may never know the ultimate causes and consequences of the dust bowl.  It seemed to arise from a unique combination of an adverse turn in weather/climate, poor farming practices, poor economic conditions (the Dust bowl and the Great Depression occurred at the same time - how's that for bad luck!), unscrupulous land salesmen, and bad government policies.  The consequences, it seems, were long lasting.

Hornbeck has another 2012 paper (earlier ungated version) specifically on the dust bowl in the American Economic Review related to how long the impacts of the dust bowl were felt.  He wrote:

The 1930s American Dust Bowl imposed substantial agricultural costs in more eroded Plains counties, relative to less-eroded Plains counties. From 1930 to 1940,
more-eroded counties experienced large and permanent relative declines in agricultural land values: the per acre value of farmland declined by 30 percent in high erosion counties and declined by 17 percent in medium-erosion counties, relative to changes in low-erosion counties. 

and

The Dust Bowl provides a detailed context in which to examine economic adjustment to a permanent change in environmental conditions. The Great Depression may have slowed adjustment by limiting access to capital or outside employment opportunities. Agricultural adjustment continued to be slow, however, through the 1940s and 1950s. Further research on historical shocks may help understand what conditions facilitate long-run economic adjustment. The experience of the American Dust Bowl highlights that agricultural costs from environmental destruction need not be mitigated mostly by agricultural adjustments, and that economic adjustment may require a substantial relative decline in population.

Are Sugar-Sweetened Beverage Taxes a Cost-Effective Means of Reducing Weight?

That was the title of a short paper I just published (ungated version) in the Canadian Journal of Diabetes.  The piece was written in response to a prior article by Buhler et al. arguing that a consensus had been reached on the need for soda taxes.  I pointed out that their consensus didn't include any economists.

 A few snippets:

More fundamentally, one must ask what conceptual basis is being used to assert that SSB taxes will increase consumers' welfare? Presumably, some consumers already consider health impacts when they choose what to eat and drink. More generally, taxing food or SSBs is analogous to reducing consumers' real income, which almost certainly harms the consumers (9 ). . .If the argument is that people do not understand the risks of SSBs, then the appropriate policy response is information provision, not a tax.

and

One of the most common assertions is that SSB taxes are required because one individual's choices impose costs on others because of the existence of public healthcare programs. However, forgotten in such claims is the fact that many of the obesity-related costs are private, not public (12). Moreover, the costs to the public health programs are actually transfers among people in an insurance pool, not an economic deadweight loss to society that reduces Pareto efficiency (12). 

In conclusion:

In sum, Buhler et al (1) are correct that obesity is a complicated and multifaceted issue. So too are the consumption, weight and economic-welfare effects of SSB taxes. SSB taxes often appear to be a simple (if partial) solution for a big problem but, as witnessed by Denmark's recent decision to rescind its versions of the “fat tax,” the consequences and impacts of such taxes are anything but simple.

Coming to a Grocery Store Near You: A New Nutrition Facts Panel

According to this story from the AP:

After 20 years, the nutrition facts label on the back of food packages is getting a makeover.

and

The FDA has sent guidelines for the new labels to the White House, but Taylor would not estimate when they might be released. The FDA has been working on the issue for a decade, he said.

and

The revised label is expected to make the calorie listing more prominent, and Regina Hildwine of the Grocery Manufacturers Association said that could be useful to consumers. Her group represents the nation's largest food companies.

Hildwine said the FDA also has suggested that it may be appropriate to remove the "calories from fat" declaration on the label.

It's not yet clear what other changes the FDA could decide on. 

Personally, I think it is a good idea to bring research to bear on the design of the nutrition facts panel.  I've been critical of certain aspects of the implications people draw from the research in behavioral economics.  But, here is an area where the research is useful and has direct relevance.  

The government is going to provide nutrition information anyway (and has been doing it for 20 years), and as such, shouldn't it at least be presented in a way that is most understood by the consumer?  It is impossible to believe that the current little black box with dozens of horizontal lines is the most effective format.  

How do we know which type of information is "most effective"?  Effective, of course, could have many meanings.  One definition could relate to the extent to which the information is accurately understood by the consumer (I'd prefer that over whether the label causes some change in behavior desired by particular nutritionist).  Another way is to see what types of information arise in markets (i.e., what information consumers demand and how companies provide it).  For example, I've notice cereal boxes with color coded labels on the front of the package in the upper left-hand corner.  Similar private initiatives abound.

I'm  sure interest groups on all sides - from food companies to health activists - will want a say.  I just hope solid consumer research is brought to bear on the issue as well.

Is More Information Always Better?

Last year, I wrote a report for the Council on Food, Agricultural, and Resource Economics (C-FARE) on the value of USDA data products.  There, I reviewed much of the literature on the value of providing information about market conditions, and discuss the ability of information provision to resolve some asymmetric information problems.

Thus, I was interested to see this paper published in the American Economic Journal: Policy by Sacha Kapoor and Arvind Magesan (earlier ungated version here).  They write:

We find that although countdown signals reduce the number of pedestrians struck by automobiles, they increase the number of collisions between automobiles. They also cause more collisions overall, implying that welfare gains can be attained by hiding the information from drivers. Whereas most empirical studies on the role of information in markets suggest that asymmetric information reduces welfare, we conclude that asymmetric information can, in fact, improve it.

Asymmetric information improving outcomes?  That is an interesting result - I wonder whether there are examples in markets where something similar is at play?  

I should note that it is possible to imagine other situations where more information isn't always better.  In a paper I published last year with Stephan Marette, we wrote:

In a one-good case with unlimited attention, we show consumer welfare is always improved with the provision of accurate information. However, in a two-good case with limited attention, we show that consumer welfare is not always improved with the provision of accurate information. When attention is constrained, welfare may fall with information provision policies irrespective of their costs. The results suggest information and labeling polices may sometimes be counterproductive when attention is limited