It’s Election Season – For Food Too. California Prop 12 Edition

At this point, you’ve probably seen enough campaign ads that you don’t need me to tell you that elections are around the corner. 

Among several food and agricultural issues up for vote this year across the country is Proposition 12 in California.  The official California voter guide has the following information on the initiative:

If this feels like deja vu, you’re right. California votes passed a similar law in 2008 (Prop 2).  The new bill (Prop 12) goes further by explicitly specifying a minimum amount of space per farm animal and by requiring cage free production systems for egg laying hens by 2022.

Allison Van Eenennaam, animal scientist at UC Davis, has weighed in with her (critical) thoughts on Prop 12, and she pointed out the irony that the main donor against Prop 12 is an animal advocacy organization that would like the conversion to cage free to happen sooner than is required in this proposition.

I’ve received a few calls from reporters asking my thoughts on potential market impacts of Prop 12. I’ll share them here.

• I’ve co-authored two papers on market impacts of the previous Prop 2 and the associated state legislation that went into effect in 2015 (see this paper with Conner Mallally and this one with Trey Malone). The paper with Conner showed a roughly 30% price impact of Prop 2 immediately after it went into place, an effect which fell to about 10% about a year and a half later.

• There are reasons to expect Prop 12 to have smaller or larger effects than what we measured for Prop 2.

  • Why smaller? An increasing share of egg production, nationwide, is coming from cage free production systems (see data here), and if pledges by food retailers to go cage free are upheld, more than three quarters of the industry will be cage free by 2025. Moreover, a number of other states have passed laws to go cage free. Given these apparent trends toward increasing cage free, the effects of Prop 12 per se may be small. That’s not to say that egg prices won’t rise (they will), but that Prop 12 may not be the ultimate proximate cause.

  • Why larger? Well, retailer pledges may not be upheld and industry conversion to cage free has slowed. Cage free and organic combined are only around 17% of the total laying flock at present. Moreover, our previously estimated price impacts of Prop 2 occurred in a situation where producers did not have to undertake large capital investments. Producers could comply with the space requirements that resulted from Prop 2 by removing a hen or two from a cage. By contrast, Prop 12 will require entirely new housing systems, resulting in significantly higher conversion costs than did Prop 2.

• If I was forced to make a guess about the effect size coming from a future study of the impacts of Prop 12 (a future study like the ones I conducted with Conner or Trey), I’d guess something around a 15-25% price increase in retail shell egg prices by mid-2022 relative to the counterfactual of no Prop 12.

• There are other impacts of Prop 12 that are getting less attention but could have big impacts. In particular, Prop 12 would prohibit sales of pork from gestation crate systems. Because California relies on the rest of the U.S. for virtually all it’s pork, I could imagine situations in the short run where retailers have difficulty sourcing enough supplies that comply with the new regulation. If this seems far fetched, remember when Chipotle had to stop selling carnitas, and then, for at time, sold the pork dish with supplies that did not meet it’s guidelines? Another potential consequence, noted by Van Eenennaam is that Prop 12 would prevent “scientific and agricultural” research from studying animal behavior in conditions that don’t comply with Prop 12. It’s hard to quantify the impact of the inability to learn about certain research questions, but the impact isn’t zero.

Happy voting!

Look at Me, I'm Buying Organic

That’s the title of a new paper I co-authored with Seon-Woong Kim and Wade Brorsen, which was just published in the Journal of Agricultural and Resource Economics.

We know consumers have a number of motivations for buying organic food - from perceptions about health, taste, safety, and environment to perceptions about impacts on smaller farmers. Whether these perceptions are accurate is debatable. In this paper, we were interested in an all together different motivation: the extent to which consumers feel social pressure to buy organic.

In our study, people made simulated choices between apples or milk cartons, where one of the characteristics was the presence or absence of the organic label. People were divided into one of four groups:

1) The control (CTRL): no manipulation.

2) The eye (EYE) treatment. This is going to sound crazy, but following some previous research, we showed an image of a person’s eyes on the screen as people were making their apple and milk choices. Prior research suggest that exposure to an image of eyes creates the aura of being watched, which increases reputational concerns and cooperative behavior.

3) The name (NAME) treatment. Just prior to the apple/milk choices, people in this group were asked to type in their first name, and we ask them to confirm if they lived in the location associated with their IP address. The idea was to remove the perception of anonymity and increase social pressure.

4) The friend (FRND) treatment. Here we used a vignette approach. Jut prior to the apple/milk choices, people were told, “Now, imagine you are in the specific situation described below. Your good friends have family visiting. They’ve asked you to help out by taking their sibling, whom you’ve never met, to the grocery store. While you’re there with your friend’s sibling, you also need to do some shopping for yourself.”

If social pressure is a driver of organic food purchases, willingness-to-pay for the organic label would be expected to be higher in the EYE, NAME, and FRND treatments relative to the control.

Here are some summary statistics showing the percent of choices made by consumers in each treatment group in which a product with the organic label was chosen.

We see some support for the idea that organic is more likely to be chosen in the social pressure treatments (EYE, NAME, FRND) than the control. The effects are statistically different, but that aren’t huge for every treatment considered. However, the above table doesn’t consider price differences. When we convert the choices into a measure of willingness-to-pay, we find the biggest effect is for the vignette (FRND). For this treatment, we find willingness-to-pay for organic is about 88% higher for apples and 82% higher for milk than the control.

For all groups, we found that education levels moderate the relationship between the social pressure treatment variables and willingness-to-pay for organic. In particular, social pressure is higher for more highly educated consumers. The effect was particularly large in the EYE treatment, where more highly educated consumers valued the organic label between 150% and 200% than less educated consumers when exposed to eyes.

These results provide evidence that at least a portion of organic consumption is likely driven by a form of conspicuous consumption. Some might call it a form of conspicuous conservation, but that’s a whole other can of worms.

Trends in National School Lunch Program

Back in 2010, the U.S. Congress passed the Healthy, Hunger-Free Kids Act. The Act, championed by Michelle Obama, provided funding for free and reduced price school lunches and breakfasts, introduced a variety of new nutritional guidelines, and provided incentives for schools to offer healthier options.

The law went into effect at the beginning of the 2012-2013 academic year. There was a fair amount of initial push back. A video from these Kansas students protesting the calorie restrictions has been viewed more than a million times, and other students took to social media with photos of the new lunches using the hashtag #ThanksMichelleObama. This CNN article from 2017 provides some background and also reports on the efforts of a large school food service industry association to roll back some of the guidelines.

The new guidelines may well have generated some positive health benefits for students who ate school lunches. But, how have these policies potentially affected participation in the National School Lunch Program (NSLP)? Students are not required to eat the school-provided NSLP lunches. Students can bring food from home, go off campus, or find other substitutes at school.

I downloaded some data from the US Department of Agriculture (USDA), Food and Nutrition Service (FNS). These data show that in 2017, 4.89 billion lunches were served under the NSLP, with 73.6% being free or reduced price and the remaining 26.4% of students paying full price. How have these statistics changed over time?

As the figure below shows, there was a nearly linear increase in the number of lunches served each year in the NSLP right up until 2010, after which there was a slowdown and then a slow decline.

The effects can be seen even more dramatically by converting the data in the above figure to annual percentage changes in the number of NSLP meals served. From 1990 to 2008, the school lunch program grew every year. Since 2011, the program has gotten smaller every year except in 2016. In the six years prior to the law’s enactment in 2010, there was an average annual increase of 1.4% in the number of NSLP meals served, but in the six years since the law’s enactment (from 2012 to 2017), there was an annual average decrease of -1.2% in the number of NSLP meals served.

The data also suggest another interesting dynamic at play. Below is the percent of NSLP meals that are free or reduced priced. Throughout most of the 2000’s just under 60% of NSLP meals were free or reduced price. Since then, there has been a fairly steady increase in the share of meals that are subsidized. Given that the increase started prior to the enactment of the 2010 Healthy Hunger-Free Kids Act, it is likely that other factors (such as the Great Recession) were playing a role. However, there has continued to be an increase in the share of NSLP meals that are free or reduced price well after the recession ended.

These data show there are fewer meals being served that fall under the National School Lunch Program umbrella and that students who pay full price have increasingly chose to eat meals not governed by the program.

The figures presented above do not causality prove that the 2010 Healthy, Hungry-Free Kids Act led to the decline in the meals served under the USDA National School Lunch Program, but they are interesting trends about which I was previously unaware.

Market Impacts of GMO Labeling

Readers might recall the result from the study Jane Kolodinsky and I published in Science Advances earlier this year. We found that the provision of mandatory labels in Vermont appears to have reduced opposition to GMOs in that state. However, as I noted at the time,

“Our result does NOT suggest people will suddenly support GMOs once mandatory labels are in place. ”

Indeed, the data suggest consumers will still want to avoid products with GMO labels, which provides incentives for food retailers and manufacturers to find ways to avoid GMO ingredients.

Colin Carter and Aleks Schaefer just published an interesting new study in the American Journal of Agricultural Economics, which powerfully shows that mandatory GMO labels are already having significant market impacts. They found a creative way to explore this issue by focusing on the market for sugar. They provide the following background:

“In the United States, sugar is produced from both sugarcane and sugarbeets. Sugarcane stalks are milled to produce raw sugar. Raw cane sugar is then sent to a refining facility to be transformed into refined sugar. Sugbarbeets, in contrast, have no raw stage; they are processed from beet to refined sugar in one continuous process. The U.S. market share for beet (cane) sugar is approximately 58% (42%). Almost all U.S. sugarbeet production is GE, while cane sugar is GE-free. However, sugar derived from beets is chemically identical to sugar derived from cane.”

This summary data they provide on prices of sugar from cane and beet sources suggests “something” change around the same time as the Vermont mandatory GMO labeling law.

Source: Carter and Schaefer, American Journal of Agricultural Economics

Here are the main findings.

“Our analysis supports the explanation that the divergence in U.S. prices for refined cane and beet sugar was the result of Vermont’s mandatory GE labeling. The divergence occurred on or around July 2016— the month the Vermont Act took effect.

Counterfactual price estimates generated by a regression model suggest that GE food labeling initiatives generated a small premium for cane sugar and a price discount for beet sugar of approximately 13% relative to what prices would have been in the absence of such legislation.”

These changes in raw ingredient prices will ultimately have impacts on retail food prices. All this is suggests that mandatory labels aren’t a free lunch.

Are Consumers Eating Out Less Frequently?

According to this Grub Street article, the answer is yes.

“The average American’s restaurant visits reached a 28-year low this year, falling from an average of 215 a year in 2000 to 186 a year in 2018. Data gathered by the NPD Group shows a particular and precipitous decline since 2008. Today, 82 percent of meals in America are made at home.”

And, they speculate on causes in the slow-down on restaurant spending:

“Going out to restaurants doesn’t seem like such a good idea when you’re saddled with student debt and contending with wage stagnation. (In fact, many Americans saw their wages decline over the last year.)

Meanwhile, restaurants are becoming increasingly more expensive compared to eating in. ”

I’m a little skeptical of these data? Why? Well, here’s data from the Bureau of Economic Analysis (BEA) data on personal consumption expenditures (these are the data that feed into calculation of GDP) for food at home and away from home.

In inflation-adjusted terms, all consumer spending is up about 36% since 2001. Spending on food at home only rose about 24% over this time periods, but spending away from home increased 54%. (I’ve also shown spending on clothing for reference). Spending on food away from home fell during the Great Recession, but it has significantly rebounded since.

Now, it’s not impossible for both of these statistics to be simultaneously true - one can eat out less frequently but spend more money on each trip, and total expenditures could still rise.

But, the BEA also reports quantity indices, which provide an estimate of the volume of food sold away from home. Here are those data. These data suggest little evidence for a slowdown in the amount of food consumed away from home.

The headline on the Grub Street article asks “Should Restaurants be Worried?” The BEA data suggest the answer is “no.”