Chicken Price Manipulation?

This article in the New York Times by Stephanie Strom argues that something may be fishy with chicken prices.  

The main focus of the article is about a widely used price index of chicken prices (the so-called Georgia Dock index) that is used by some retailers to negotiate prices with poultry producers.  Apparently the Georgia Dock price of chicken is higher than a couple of other price indices of wholesale chicken prices (one of which the USDA just created), and the Georgia Dock price hasn't fallen by as much as another index in recent months.  The article insinuates that something nefarious could be going on to artificially inflate the Georgia Dock price (and by extension the retail prices you and I pay for chicken).  

I have no deep insights into the allegations in the article.  However, I do want to push back just a bit on the broader issue of chicken prices relative to beef and pork.  Here is Strom: 

“Beef prices at grocery stores are lower. So, too, are pork prices. But chicken? Steady as she goes.

A glut of corn and soybeans has led to lower prices for a variety of meats. But chicken in grocery stores has bucked the trend, leaving prices up for shoppers and buoying the fortunes of major chicken producers.”

I'm not so sure about that first line - that beef and pork have become cheaper relative to chicken. Using data from the USDA-ERS on retail meat prices, I constructed the following graph showing the retail price of chicken relative to the retail prices of beef and pork.  Unfortunately, the last data point is September (the USDA bases it's calculations on retail prices reported by Bureau of Labor Statistics, but BLS hasn't released October prices yet), so it is possible that there have been some changes in recent weeks that aren't reflected in the graph below (but, even still, one might wonder why it's just now in the past month or two that the poultry producers figured out how to rig the wholesale price).  

Two broad points: 

1) As of September, the ratio of chicken to pork prices is essentially flat (i.e., chicken isn't getting more expensive relative to pork).  While chicken is a tad more expensive than beef in August and September relative to July, overall the trend looks pretty flat to me.  

2) Chicken is really cheap!  It is about half the price of pork and about a third the price of beef.

Moreover, if we take a step back and take the long view, chicken has progressively gotten cheaper relative to beef.  (note: the graph below uses the price for a whole chicken rather than composite retail prices as in the prior graph because the whole chicken data series goes back further in time).  Whereas whole chickens sold about 40% the price of beef in the 1970's, today they're about 25% the price of beef.

So, are poultry producers manipulating a price index leading us to pay more than we otherwise would have paid for chicken?  I don't know.  But, as the above graph shows, there's a whole lot of other things poultry producers have done over time (better genetics, better feed, better housing, etc.) to make chicken ever more affordably priced compared to other proteins.  

Oklahoma State Question 777 (Right to Farm)

The presidential election is now less than a week away.  In Oklahoma, we will have several "state questions" that will also appear on the ballot.  One of the most widely discussed is state question 777 - aka "right to farm".  

My colleagues Shannon Ferrell and Larry Sanders put together this short two and half page fact sheet explaining the question and the issues involved.  Or, see this power point presentation they also created.

New York Times on GMOs

A New York Times article by Danny Hakim came out this weekend arguing that genetically engineered crops (aka "GMOs") have failed to live up to their promise: namely that they haven't increased yields or reduced pesticide use.  

The implications seems to be that Hakim believes farmers shouldn't be using biotechnology or that they were duped into adopting.  Even if we grant Hakim's premises that biotech crops increased herbicide use and didn't increase yield (as I'll detail below, there are good reasons not to fully accept these claims), the conclusions that benefits are "over hyped" seems a bit misplaced.   

To see this, let's consider a different example.  When Apple came out with the first edition of the iPhone, one might too have said its benefits were over-promised.  After all, we already had flip phones to make mobile calls, the iPod to listen to music, the Blackberry to type emails and texts, and so on.  Did the iPhone really offer that much new?  Was it all that much better than what previously existed?

Well, rather than trying to studiously compare features of the new iPhone to all the previous devices, shouldn't we just look and see whether consumers actually bought it?  Look at the millions of decisions of individual consumers who weighted the relative costs and benefits.  It seems millions of consumers judged the new phone to be worth the extra money (indeed, some people stood outside in lines for days to get it).  In short, we know the iPhone delivered on its promise because millions of customers bought the phone and have come back again and again to buy new versions.

This is what economists call revealed preferences.  If we want to know whether people think product A is better than product B, we don't have to survey and ask, we just have to look and see what they chose.  

Ok, what about biotech seeds?  Here is a graph from the USDA on farmer adoption of biotech corn, soybeans, and cotton in the U.S.  For each of these these three crops, adoption of genetically engineered varieties (including both herbicide tolerant (HT) and insect resistant (Bt)) is over 89% of acres planted.  So, when we look at the decisions made by thousands of real-life flesh and blood farmers who have weighted the costs and benefits, they have voluntarily adopted GMOs en mass.  The fact that biotech was so readily adopted by farmers (and is still so widely in use) aught to tell us something. 

Now, one possible explanation explanation is that farmers have no choice - they have to buy the biotech seed.  Yet, as you can read in many places (see here, here, or here), farmers have lots of seed choices.  Indeed, farmers pay hefty premiums to have the biotech varieties.  

Yet, if we are to believe the NYT's story, farmers are paying these higher premiums but aren't getting higher yields and they're spending more on herbicide.  They must be really dumb right?  I'm going to reject the dumb farmer hypothesis, which means that either the NYT's data are wrong or there are other benefits to biotech aside from yield (or some combination of both).  

The data and comparisons used in the Times story to support their claims are pretty crude (comparing national aggregates over time in the US and France).  It is curious they used these data when we have recent, well-done research summaries such as this one from the National Academies of Science.  Weed scientist, Andrew Kniss, has the best, most well-reasoned response to the article I've seen.

Kniss writes:

“I have to say this comparison seems borderline disingenuous; certainly not what I’d expect from an “extensive examination” published in the New York Times. The NYT provides a few charts in the article, one of which supports the statement about France’s reduced pesticide use. But the figures used to compare pesticide use in France vs the USA are convoluted and misleading. First, the data is presented in different units (thousand metric tons for France, compared to million pounds in the US), making a direct comparison nearly impossible. Second, the pesticide amounts are not standardized per unit area, which is critically important since the USA has over 9 times the amount of farmland that France does; it would be shocking if the U.S. didn’t use far more pesticide when expressed this way.”

and

“It is true that France has been reducing pesticide use, but France still uses more pesticides per arable hectare than we do in the USA. In the case of fungicide & insecticides, a LOT more. But a relatively tiny proportion of these differences are likely due to GMOs; pesticide use depends on climate, pest species, crop species, economics, availability, tillage practices, crop rotations, and countless other factors. And almost all of these factors differ between France and the U.S. So this comparison between France and the U.S., especially at such a coarse scale, is mostly meaningless, especially with respect to the GMO question. If one of France’s neighboring EU countries with similar climate and cropping practices had adopted GMOs, that may have been a more enlightening (but still imperfect) comparison.

Given all of these confounding factors, I wonder why France was singled out by Mr. Hakim as the only comparison to compare pesticide use trends. Pesticide use across Europe varies quite a bit, and trends in most EU countries are increasing, France is the exception in this respect, not the rule.”

My take?  As I've noted in previous posts before, it is pretty well acknowledged that biotech likely increased herbicide (but not pesticide) use, though it is important to consider relative toxicity of different pesticides used (which the Times article didn't do as best I can tell).  It is also important to recognize that research shows that adoption of herbicide resistant soy has led to greater adoption of low- and no-till farming practices.  And, while the biotech traits have sometimes been incorporated into varieties that were lower yielding, if you look, on average, at a large number of studies, that yield tends to increase with biotech adoption.   Moreover, as I wrote in a post about a study in Nature Biotechnology: 

“the biotech varieties had an important risk-reducing effects, even if they sometimes led to slightly lower yields. Moreover, biotech can save on other inputs like labor. When I was a teenager, I spent a lot of time hoeing and spraying cotton weeds. That job is (thankfully) now obsolete due to biotechnology. ”

I don't know whether GMOs have fail to live up to their promise.  That would require us to know something about farmers' expectations prior to adoption.  What I do know is that the vast majority of corn, soybean, and cotton farmers have continued to buy higher priced biotech seeds.  Why?  The NYT article makes no attempt to answer this question.   

New Research on the Berkeley Soda Tax

You may remember the discussion surrounding a research paper released back in August that used interviews and survey data to suggest that the tax on sodas that went into place in Berkeley caused a significant reduction in soda consumption.  

As several other locales are considering new soda taxes in the upcoming election season, this sort of research is valuable in trying to sort out the potential effects of the policies.  

Now there is new research by Scott Kaplan, Rebecca Taylor, and Sofia Villas-Boas at UC Berkely.  The authors utilize a dataset on retail sales of various drinks in dining locations at "a large university" - presumably Berkeley.  Importantly, the authors do not actually look at the effect of the implementation of the tax, but rather they look at what happened to soda sales because of the publicity and information surrounding the vote.  That is, they look at soda sales surrounding the time of the vote but before the tax actually went into place.

Here is a figure from the paper summarizing the main findings: 

The authors write:

“We find a 30% drop in soda sales relative to other product groups during the post-election
period. In a related and contemporaneous study using survey data, Falbe et al. (2016) find
an average 21% drop in SSB quantity sold. However, because the surveys were completed
only before the election and after the tax implementation, Falbe et al. (2016) are unable to
distinguish whether this effect was from the campaign and election or from the tax itself.
Our results show that soda sales fell on-campus after the soda tax election yet before prices
changed due to the tax. This suggests that comparing pre-campaign to post-implementation
consumption may confound a tax effect with an information effect. This has important
implications for external validity. If the Berkeley SSB tax is replicated elsewhere without
a proceeding campaign war and affirmative election outcome, its effects on consumption
may differ substantially. In other words, given the amount of money spent in the Berkeley
campaign on each side of the battle, it is important to understand how much behavioral
change was due to the election and how much was due to the tax itself.”

My take on the results is that these soda tax policies may well have sizable "signaling" or "information" effects aside from whatever pecuniary effects exist.  I have found similar results related to animal welfare regulations: that the publicity surrounding a vote has a significant impact on what people buy aside from whatever impacts the policy actually has on the price or foods offered.  In short: information dissemination campaigns may be as important or more important than taxes or bans on products.  In my assessment, information policies are often far more justifiable than are more coercive policies that restrict choice. 

It will be interesting to see as future research emerges whether and how the actual implementation of the tax changes soda consumption and how long lasting are these information effects.  

Assorted Links

• A Nielsen report on the market for "clean" and "natural" meats
• David Zilberman at UC Berkeley has a nice post summarizing the ups and downs in the history of Monsanto
• A report, based on USDA data, suggests that there has been a rapid rise in the number of hens in cage free systems 
• Remember the controversy over the World Health Organization's cancer agency classifying glyphosate (aka Roundup) a probable carcinogen?  According to this story, the agency is now asking experts who participated in the decision not to share emails an communications in response to freedom of information requests.