Value of USDA Data

Today, the Council on Food, Agricultural, and Resource Economics (C-FARE) released a report I lead authored on the value of USDA Data Products entitled From Farm Income to Food Consumption: Valuing USDA Data Products.

Frequent readers of this blog know my free-market orientation.  Provision of information is, however, one of those areas where the government (potentially) has a legitimate role to play  (the report itself discusses these motivations).  In the book Free to Choose, Milton and Rose Friedman, in their discussion of the proper role of government, use the analogy of government as umpire - not a player in the game or picking sides, but a facilitator and enforcer of the rules of the game.  Providing information on prices, production, etc. is, in my mind, an umpire-like role.  And a potentially useful one at that. 

Now that doesn't tell us anything about whether the government is providing too little or too much information, whether it is doing it cost effectively, or whether private companies might fill the gap if the government stopped providing information.  And these were the sorts of questions the report sought to provide insight into.  One of the things we learned is that we just don't know as much about those questions as we probably should.  

Interestingly (and perhaps ironically), the report was set to release the day the government shutdown occurred.  After the shutdown, the USDA blocked access to most of its online data sources, which I personally found annoying because it is hard to see how it requires any additional cost to run to servers that provide the data vs. the servers that put up pages blocking me from the data.  It came across as a show of power and blatant attempt to make the shutdown more difficult than it need be - hardly a way to make the public believe this is "our" government owned by "us" (admittedly, there may have been legal reasons of which I am unaware explaining why the data couldn't be displayed).  

In any event, the shutdown provided an interesting case study into the value of USDA to many agricultural sectors.  There was a lot of hand wringing, for example, in livestock industries because many cattle and hogs are priced on some formula based off of a USDA reported price (which went unreported during the shutdown).  However, there were several stories (e.g., here or here) of feedlots and packers quickly adjusting, and I suspect that if the shutdown would have continued longer, new institutions would have evolved to fill the role that the USDA data currently serves.  They may not have been as efficient or trustworthy (or they might be more so), we just don't know.  An aspiring researcher could use the government shutdown as one way to test how the provision of USDA data affects market performance.  

One of the key outputs of the C-FARE report is a strategy or approach for the USDA to use when prioritizing data products.  Regardless of one's view on the appropriate size of government, I think we would all agree that it is good that the government uses whatever resources it acquires most effectively.  In a climate of tightening budgets, that means thinking carefully and systematically about which data product eliminations (or which alterations in data products) are most efficient.  I hope the report can help, even if just a little, in that task.

Are Local Foods Good for the Economy?

I addressed that question, among others, in chapter 9 of the Food Police. For myriad conceptual reasons outlined in the chapter, on my blog, and elsewhere, I do not find this sort of argument to be very compelling. Today, a colleague forwarded an article in the Economic Development Quarterly by some agricultural economists (the lead author was a student in one of my courses at Purdue) which provided some empirical evidence on the issue.

Here are the authors on the motivation for the study:

Local markets are believed to provide farmers with a higher share of the food dollar, with money spent at a local farm and nonfarm businesses circulating within the community, creating a multiplier effect and providing greater local economic benefits (USDA, 2012). Furthermore, agritourism generates additional dollars in the local economy as visitors spend money in associated regional travel. As a result, CFA is seen as a potential contributor to local economic growth.

What did they find?

Using Census of Agriculture data, regional growth models are estimated on real personal income per capita change between 2002 and 2007. We find no association between community-focused agriculture and growth in total agricultural sales at the national level, but do in some regions of the United States. A $1 increase in farm sales led to an annualized increase of $0.04 in county personal income. With few exceptions, community-focused agriculture did not make significant contributions to economic growth in the time period analyzed.

Rather, one of the factors they find to have the biggest effect on growth in per capita income is how "tradable" a county is - as measured by the share of business establishments that are in tradable sectors. A 1% increase in the share of establishments in tradable sectors was associated with a $3,235 increase in per capita in county personal income.

I've said it time and time again, but trade (facilitated by comparative advantage and specialization) is what makes us wealthy. Do what you do well and trade with others for what they do well, and both are better off. Policies or movements that seek to deny that basic axiom, even when applied to local food production, have dubious economic merit.

Effects of Climate Change

Matt Ridley has an interesting piece in the Spectator on the effects of climate change.  He makes the rather unremarkable observation that we should count the benefits, not just the costs of climate change.  Unremarkable except that people almost exclusively focus on the costs.  

What are these benefits?  He writes: 

The chief benefits of global warming include: fewer winter deaths; lower energy costs; better agricultural yields; probably fewer droughts; maybe richer biodiversity.

and  

The greatest benefit from climate change comes not from temperature change but from carbon dioxide itself. It is not pollution, but the raw material from which plants make carbohydrates and thence proteins and fats.

Ridley reads the scientific research to suggest that the benefits will exceed the costs unless temperature rises too high - or until about 2080 - according to some projections.  He writes: 

You can choose not to believe the studies Prof Tol has collated. Or you can say the net benefit is small (which it is), you can argue that the benefits have accrued more to rich countries than poor countries (which is true) or you can emphasise that after 2080 climate change would probably do net harm to the world (which may also be true). You can even say you do not trust the models involved (though they have proved more reliable than the temperature models). But what you cannot do is deny that this is the current consensus. If you wish to accept the consensus on temperature models, then you should accept the consensus on economic benefit.

Overall, Prof Tol finds that climate change in the past century improved human welfare. By how much? He calculates by 1.4 per cent of global economic output, rising to 1.5 per cent by 2025. For some people, this means the difference between survival and starvation.

It will still be 1.2 per cent around 2050 and will not turn negative until around 2080. In short, my children will be very old before global warming stops benefiting the world. Note that if the world continues to grow at 3 per cent a year, then the average person will be about nine times as rich in 2080 as she is today. So low-lying Bangladesh will be able to afford the same kind of flood defences that the Dutch have today.

Public Opinion about Food Stamps

In October's release of the monthly Food Demand Survey (FooDS), I mentioned that we asked a few questions about preferences for changes in the food stamp program being batted around in ongoing debates about the farm bill.

I discuss the results in detail in a post over at farmdocdaily: http://farmdocdaily.illinois.edu/2013/10/public-opinion-about-food-stamp-program.html

Here is what I had to say there:

Uncertainties surrounding the future of farm policy remain
but these results provide some insights into which policies are likely to be
most popular in public opinion. Although
there is little support for large cuts in benefits, moderate cuts are more
palatable. Moreover, there are issues
such as adding work requirements, reducing the length of participation, and
maintaining eligibility rules that have budgetary implications and that are
popular in public opinion. While the
House decision to decouple farm programs from SNAP may ultimately cause a break
down in the urban-rural political collation that has held together the farm
bill for decades, it is a move that the vast majority of
Americans support.

As I mentioned there, it is important to recognize that public opinion does not necessarily equate with economically efficient policies, nevertheless, it is important to know what the public thinks.

Here are the main results from the survey.

Food Demand Survey (FooDS) - October 2013

The latest results from my Food Demand Survey (FooDS) are now out. 

We've been doing the survey for six months now, and this is the first month we've noted big changes in several key variables.  Changes are likely driven by consumer uncertainty regarding the government shutdown and by a widely publicized Salmonella outbreak that occurred just prior to the survey release.  

There were significant drops in consumer willingness-to-pay for most meats (and non-meats) and a large increase in how much people said they heard about Salmonella. Although awareness of Salmonella increased markedly, stated concern for Salmonella only increased slightly.  It was also interesting to note that 3.37% of participants reported having food poisoning in October, a 27.65% increase from September; a change that might be explained by people attributing prior illnesses to the outbreak in light of the news stories.  

We kept a question added last month on awareness and knowledge of Zilmax (about 85% still hadn't heard of it) and we added a couple new questions on opinions about changes to the food stamp program that are being proposed in ongoing farm bill debates.  I plan to comment on those result in a separate post.