This morning I appeared on Fox Business Network with Varney & Co to discuss the idea of meat taxes (something proposed by many groups and authors - e.g., see this recent piece in Bloomberg). The short segment is below. It cut out before my last comment where I argued that efficiency is also good for the consumer because it helps bring down food prices.
Blog
Assorted Papers of Interest
- The Journal of Economic Behavior and Organization just published this paper I co-authored with Vincenzina Caputo and Rudy Nayga. We argue that the choices survey-takers make depend not only on the prices used in hypothetical shopping choices in the survey itself but on people's perceptions about the level and variability of prices outside the survey. We derive a conceptual model showing that when the variability (or uncertainty) about prices in "real life" increases, people are more likely to refrain from making any purchase at all. The results stemming from our study, which manipulated information about the level and variability of prices outside the study, are broadly consistent with this hypothesis in addition to re-confirming the often-found loss aversion phenomenon (i.e., people are more sensitive to price changes above a reference point than below).
- In case you missed it, last month the Congressional Research Service released a report outlining the possible effects on agriculture of a US withdrawal from NAFTA. The short summary is that if the US looses most favored nation status with Canada and Mexico, the overall effects are likely to be negative for US producers and consumers.
- In the past couple months I've noticed a couple interesting papers suggesting new ways of learning about consumer behavior and welfare.
- The first is this paper by Robert Allen in the American Economic Review. Allen proposes doing away with the World Bank's "$1 a day" measure of poverty and instead proposes to measure poverty by calculating the least cost to attain an "adequate" diet given the particular prices and income in a given country. His paper suggest people may be poorer than we thought they were.
- The second is this paper by Scott Schuh in Economic Inquiry who discusses a method to measure consumer expenditures based on records of daily authorizations made by different payment types (cash, check, or debit/credit card). He finds significantly higher levels of spending with this method compared to other popular government methods of measuring consumer expenditures. The results seem to suggest people may be spending more on food than we thought they were.
Are Steaks Too Big?
Then answer, according to a paper just published in the journal Food Policy by Josh Maples, Derrell Peel, and me is "yes" - at least for most consumers.
The issue is that improved genetics and feeding technologies, along with various economic incentives, have led to much larger cattle. To provide some perspective, USDA data indicate that the average weights of commercially slaughtered cattle hovered around 1,000 lbs from the 1950s and the mid 1970s. Since that time, however, there has been a fairly steady increase in the size of cattle. Since 1975, finished cattle weights have increased about 9 lbs/year on average. In 2016, the average weight was 1,363 lbs. That's a whopping 366 lbs higher in 2016 than in 1975!
Larger cows mean larger steaks. On the surface, that seems like a good thing for consumers as it means we have more steaks. However, most people don't want to eat a 32oz steak. In fact, most restaurants and grocery stores offer relatively fixed serving sizes for steaks like 12oz or 16oz, for examples. So, what happens if cattle carcasses have gotten much bigger, and along with it, the muscles that are cut into steaks, but consumers still only want a 16oz steak? The consequence is that today, steaks are cut thinner. Thus, the core question is: for a fixed weight, do consumers prefer "traditional" thicker steaks that take up a smaller area or "newer" thinner steaks that take up a larger area?
To answer this question, we surveyed over 1,000 US consumers and presented them with a series of choices like the following that varied the type of steak, the thickness or the steak, the area of the steak, and price. Note that one you know the thickness and the area of a steak, the weight is pre-determined.
The findings?
“Our results imply that consumers are heterogeneous in preferences for steak size but are generally in unison in their dislike for the thinnest cuts of steaks”
About half the consumers preferred steaks with the largest area, but about half preferred steaks with a medium-sized area. Overall, the results suggest that the roughly 50% of consumers who prefer steaks with larger areas is way more than offset by the near universal dislike of steaks becoming much thinner.
Here's an excerpt from the conclusion:
“The decrease in consumer welfare by moving from a choice set containing small area and thick steaks to a choice set that includes large area and thin steaks implies that the changes in carcass size have led to a decrease in consumer utility from today’s steak choices relative to the steak choices of a few decades ago. The aggregate welfare loss from the increase in carcass weight with respect to ribeye and sirloin steaks is $8.6 billion for the two largest classes. Of course, steaks are only one piece of the carcass, and the increase in carcass size may have increased welfare with respect to other beef cuts. The decrease in welfare due to larger steaks can be offset by increased welfare resulting from the increases in quantity produced of other cuts. Ground beef is a prominent example. Because the form of this product remains generally unchanged as carcass size increases, the increased efficiency (i.e. more meat per animal) has likely led to increases in consumer welfare through lower prices (or smaller increases in prices resulting from the decrease in number of cattle slaughtered). However, steaks represent an important portion of the total carcass value and it is possible that the increasing size of other cuts have also created less desirable end products for consumers. Future research should focus on the impact of increased carcass weights on consumer welfare across multiple cuts. Such studies might find that while welfare losses exist for some cuts, the gains in welfare from other cuts lead to a net increase in consumer welfare due to larger cattle.”
Willful Ignorance
“Wilful ignorance is a documented human behaviour whereby people deliberately avoid information. Although much work has documented consumer attitudes toward farm animal welfare, few studies have questioned whether people even want to know how farm animals are raised. Using an internet survey of 1,000 subjects from the US state of Oklahoma, it is shown that around one-third admit to being wilfully ignorant regarding pork production. One-third also chose to look at a blank screen rather than a picture of how pregnant hogs are housed. Avoidance of guilt is shown to be a motivator for this behaviour.”
That's the abstract of a paper by Eryn Bell, Bailey Norwood, and me that was just published in the journal Animal Welfare.
Thanksgiving Likely Less Expensive This Year
Next week is Thanksgiving, and it seems as suitable a time as any to take a look at changes in food prices. I turned to the Bureau of Labor Statistics (BLS) data to investigate how prices of frozen turkey have evolved over time in the month of November. The BLS hasn't yet reported retail prices for the month of November (or for the month of October for that matter), but nonetheless I can project this year's November turkey price based on past correlations between prevailing prices in September and November.
As the above table shows, I'm projecting the price this November for a 20lb turkey to be $29.92, which is slightly less than last year but similar to 2014 and 2015. By and large, one of the stories of turkey prices (and poultry more generally) is how stable prices have become over time. This can be seen more dramatically by comparing turkey prices with the prices of other meats.
My family isn't a big fan of turkey. We often opt for steak. The figure below shows past and projected November prices for turkey and beef steak (on a $/lb basis).
Prices for steak have increased more than a dollar per pound in both real and nominal terms over the past 20 years; however, turkey prices have hovered around $1.45/lb in real terms for the past two decades, which a slight up-tick in 2013. Projected prices for steak this November are within a nickle per pound of where they were in November 2016.
If you're considering whether to have turkey or steak, another interesting comparison is the ratio of beef steak prices to turkey prices. This ratio tells you how many pounds of turkey can be purchased for each pound of steak for the same budget.
In November 2015, one could purchase about 5.5lbs of turkey for each pound of beef steak for the same total cost. This year, I'm projecting that a consumer can only buy 4.88 lbs of turkey for each pound of beef steak. That is, steak is projected to be relatively less expensive than turkey was in 2015 (though slightly more expensive than last year in 2016).
Of course, a Thanksgiving meal consists of more than just turkey or beef. Thus, it might be useful to compare overall how expensive food is this November compared to non-food items. Using BLS data on price indices for food at home and non-food items, I calculated the change in cost of food at home relative to non-food over time.
Compared to the base year, which I set to 1998, November prices of food at home rose at a slower rate than November prices of non-food items (i.e., food at home became less expensive relative to non-food items). That pattern reversed course in 2008, when food prices began increasing at a faster rate than non-food prices.
In 2016, and I'm also projecting for 2017, food at home has again started becoming less expensive relative to non-food items. So, this Thanksgiving, be a good economist, buy fewer non-food items, and eat well!