Double Dipping?

With debates over the farm bill likely to heat up over the next year, it's interesting to see the lines of arguments coming out from different camps.  Today, the Environmental Working Group, an opponent of many farm subsidies, came out with a new publication.  They focus on what they call "double dipping", in which farmers receive payment when a loss occurs both from commodity programs (ARC or PLC) and from subsidized crop insurance programs.  

In their words:

“But farmers can – and hundreds of thousands do – participate in either ARC or PLC and in the crop insurance program. Most of the double dipping in the 2014 and 2015 growing seasons came from duplication of crop insurance and ARC payouts.

You don’t need a degree in agricultural economics to see the result: multiple payments going to the same farmers in the same counties to cover the same “drop” in revenue from crop sales. The interactive map below shows the counties where farmers received duplicate payments from at least two of the three programs.

In 2015, more than 2,300 counties received an ARC or PLC payment for losses incurred in 2014. Crop insurance policies paid out in more than three-fourths of those counties in 2014. The pattern was repeated the following year. ”

They created several maps illustrating where they argue "double-dipping" has most occured.

Over the last few farm bills, there seems to be less emphasis on traditional commodity programs and more focus on crop insurance.  To the extent arguments like this hold sway, I suspect that transition will continue.   

Do we produce enough food already?

Earlier this week I had the pleasure of giving the George Morris AgriFood Policy lecture at the University of Guelph.  I primarily focused my talk on the benefits of food and agricultural technologies and the importance of productivity growth for solving our future world food problems.  

At the conclusion of my talk, an audience member played devils advocate asked an important question that deserves more widespread discussion.  In short, the question was something along the lines of the following: don't we produce enough food already?  It is a question reflected in many popular writings.  This headline, for example, is "We Don't Need to Double World Food Production by 2050." Here's Mark Bittman writing in the New York Times: "The world has long produced enough calories . . .".  Here's Bittman again under a headline in the same outlet "Don't Ask How to Feed the 9 Billion" because, in his words, "The solution to malnourishment isn’t to produce more food." 

Here are my main main thoughts on this line of thinking:

1) Even if we produce enough calories today to meet today's population, that doesn't mean we produce enough for tomorrow's population.  Productivity growth is gradual and incremental, and if we found ourselves in a situation of needing more food, the new technologies to produce them cannot be created over night.  This is particularly true of our ability to produce in the future is hampered by climate change.

2) There is no binary category of "enough food."  Greater food production leads to lower food prices and lower food insecurity.  I haven't yet met a food consumer who wouldn't prefer paying lower food prices, holding quality constant. 

3) I may be true in an accounting sense that we produce enough calories today to meet total caloric needs.  But accounting isn't economics, and we need to consider the incentives of the system that produces the sufficient calories today relative to an alternative system that is either less productive or involves widespread redistribution.  Massive redistribution of food can destroy the incentives of people to produce the food.  One cannot disentangle the fantastic productivity of our current system with the market forces that led to it's origin.  Stated differently, there is no reason to imagine we'd produce the same number of calories if "the system" were changed to one with massive confiscation/redistribution.  Brady Deaton altered me to this fascinating paper in the Journal of Political Economy showing that 75% of the increase in China's agricultural productivity after 1978 was due to strengthening of individual incentives.

4) It's important to look at productivity through the lens of sustainability.  Higher productivity means getting more (or the same) amount of food output using fewer inputs and resources.  Are people really wanting to argue that they'd prefer systems that require more of our natural resources - more land, more water, more fossil fuels? Since when is lower productivity and inefficiency preferred?  Even if "enough" food is produced today, improved productivity means we can keep producing the same quantity but shrink agricultural's footprint on the land, use less water, fewer pesticides, etc.    

5) If the solution to the food problem is simply shipping food from high productivity countries and sending (or stated more pejoratively "dumping") in lower productivity countries with hungrier citizens, this may harm the livelihoods of producers in low productivity countries and reduce their incentives to adopt efficient forms of agriculture.

6) If places like the US decided to forego new food and agricultural technologies and farmers were forced or incentivized to adopt lower productivity systems, what would happen to patterns of global trade and production.  US farmers compete with farmers all over the world to serve US consumers and consumers worldwide.  Not only would such policies likely reduce US exports, it would make imports relatively more attractive.  Is the solution then import tariffs to prop up our lower productivity system?

7) One can go back to writings from over 100 years ago and find claims that the problem of production and scarcity had essentially been solved, and all that was needed was a heavier handed state to ensure "fair" distribution (e.g., see Edward Bellamy's Looking Backward, published in 1888).  Imagine the world we would live in today if that premise were widely accepted back in 1888 - that the state of production was "good enough" and we could stop worrying about growth and progress.  How much growth would we have lost out on had we stopping innovation in 1888?  We'd still be hand-picking cotton, planting with mules, eating much more salt- and vinegar-cured meats, and more.  What will the food and agriculture future look like in 2088, and what will we give up if we stop working on productivity-enhancing technologies today? 

Food Flows

Last week I posted some crude calculations on how much states import and export various foods from other U.S. states.  Sandy Dall'erba from the University of Illinois alerted me to a dataset that gets at this question in a different way through records of interstate shipments (the FAF database from the Bureau of Transportation).  Sandy graciously agreed to let me share this figure he created based on these data.

You can read more about Sandy's work with Zhanglaing Chen here or contact Sandy to get a copy of their working paper "Drought, Interstate Trade and Agricultural Profit: Theory and Evidence" presented this year at the North American Regional Science Conference in Vancouver.

Free Markets in Donated Food

“Imagine that someone gave you 300 million pounds of food and asked you to distribute it to the poor—through food banks—all across the United States. The nonprofit Feeding America faces this problem every year. The food in question is donated to Feeding America by manufacturers and distributors across the United States. As an example, a Walmart in Georgia could have 25,000 pounds of excess tinned fruit at one of its warehouses and give it to Feeding America to distribute to one of 210 regional food banks. How should this be accomplished [when the food cannot be sold to food banks]? ”

That's the opening paragraph of an article in the latest issue of the Journal of Economic Perspectives by Candice Prendergast.  His answer to the question was to create a market to allocate the food while attempting to feed the most people and have some equity across food banks.  He shows that there were myriad details and market design issues that had to be overcome, but the ultimate outcome appears to be wildly successful.  He writes: 

“Feeding America knew that its previous system of offering the same amount, and kind of food, to food bank clients might not be optimal, but it did not have the hard information to design a better system. Indeed, given the information that Feeding America had available with the queuing system, it is likely that offering everyone the same thing was close to the best option. The Choice System has allowed the participants to match outcomes to their preferences more effectively. Auctions have revealed willingness to pay for different kinds of food (who would have guessed that one pound of cereal was worth almost 50 pounds of produce?), which has allowed food banks to sort more efficiently on the quality–quantity dimension. In this way, the market system has allowed gains not possible with centralized assignment.”

For those wanting to learn more, a couple years ago, Prendergast was on the Econ Talk podcast with Russ Roberts discussing these markets.

How Much Does Your State Rely on Other States for Food?

With all the ongoing discussion of benefits and costs of trade and NAFTA, I thought it might be useful to look at some agricultural trade within the United States.  We don't usually think of sending corn from Iowa to Louisiana as "trade" but it's hard to see how it is much different than sending corn, for example, from Iowa to Alberta, except of course for crossing national rather than state boarders.  These sorts of discussions also relate to efforts to move toward local and regional food systems.  How feasible is it, really, for a state to "feed itself"?  

Unfortunately, there simply isn't good data on how much states trade with each other. Thus, I thought I'd make some very crude calculations based on a variety of tenuous assumptions.  First, I'll report what I found and then discuss the details and assumptions I had to make below.  

The table above shows my crude calculation of how much a state imports or exports for various food products on a per-capita basis.  For example, for every Iowan, 3,896 lbs of hogs leave the state for every pound that comes in.  Iowa is thus a net exporter of hogs/pork.  By contrast, for every New Jerseyan, 111 lbs of hogs enter the state for every lb that leaves New Jersey.  New Jersey is a net importer of hogs.  By these calculations, 11 states "feed" the other 39 states pork. 

For eggs (this includes both table eggs and hatching eggs because these were the most complete data available at the state level), in Iowa, 3,747 eggs per person leave the state for every egg that enters the state.  These calculations suggest Massachusetts and the District of Columbia are the largest net importers of eggs with more than 300 eggs entering the state/district per person for every egg that leaves.     

For cattle, 18 states "export" lbs of cattle on a per capita basis and the other 32 states import lbs of cattle.  Rice is the most extreme case shown.  Only six US states produce meaningful quantities of rice according to USDA; people in the rest of the US have to import from these locations.

A state like Massachusetts, for example, heavily relies on other states for these four agricultural products.  The average Bostonian imports 110 lbs of hogs, 302 eggs, 130 lbs of cattle, and 62 lbs of rice from other states.  California is a big producer of agricultural products, but it is also a populous state, and as a result, it is also a net importer of hogs, eggs, and cattle.  

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On the details of the calculations -  I'll admit up front that the figures in the above table leave a lot to be desired.  I'll describe what I've done and leave it to the reader to decide whether there is more information than noise.  

I went to USDA-NASS data and obtained production by state. The USDA doesn't always report production for all states, and in many cases, it withholds reporting for some states due to confidentiality issues.  In these cases, I "fudged" and simply divided the total production that was unaccounted for equally among states for which the USDA did not report data.  

These USDA data yield crude estimates of production by state.  We do NOT have good data on consumption by state, but we do have data on population by state.  Making the assumption that per-capita consumption of various food products is the same in every state, we can then make an inference as to how much of any food product is consumed in a state.  It is simply the share of the US population in a given state multiplied by the total US production of a given agricultural commodity.  The difference in the state production and the inferred state consumption is a crude estimate of net exports/imports into a state.  I then divided the total pounds (or eggs) of net exports/imports by a state's population to put the figures in per capita terms.  

There are some shortcomings with these calculations.  First, I've ignored trade with other countries.  For example, if eggs leave Iowa for Mexico, then the above figures over-state how many eggs are consumed within a given state in the US.  I similarly ignore imports, which will instead under-state how much is imported into certain states.  Also, the figures above suggest per-capita consumption numbers that are substantially higher than that reported by the USDA-Economic Research Service.  The main reason, for beef and pork, is that the USDA production data report farm-level lbs produced by a state not the amount of retail meat lbs.  There is some double counting in these figures.  If an Indiana farmer raises a hog to 20 lbs and then sells it to a finishing operation in Illinois that raises the hog to 200 lbs, then the USDA statistics will say Indian had 20 lbs of production and Illinois had 200 lbs of production, which added together is 220 lbs.  But, there aren't 220 lbs of pork, only 220. The way around this would be to only count retail lbs produced, but the USDA doesn't report this on a state level for pork or beef.  Also, there are a lot of other foods, like vegetables or table eggs, that we might desire to create statistics like those in the above table; however, there is very sparse reporting at the state-level by the USDA, and often the "other states" category has more quantity produced than the total of the quantity specified for named states.