A Case for a Carbon Tax - Meat and Livestock Edition

Frequent readers of this blog know I’m not a big fan of many food and agricultural regulations (I did write the Food Police after all), and I’ve been skeptical of “externality” arguments use to advance food and agricultural interventions. As such, the title of this post might seem out of place. However, stick with me for a moment.

Anyone who has been paying attention knows animal agriculture has come under various lines of attack in recent years (something I recently referred to as the coming meat wars). Whether it be animal welfare, health, or environmental arguments, there is a fairly consistent refrain in many media circles that we are eating “too much” meat and dairy.

What does it mean to say someone is “over-consuming” or having “too much” of any product? There is paternalism: I think I know better what someone else should be eating/consuming. Beyond cajoling our children or spouse, few will concede this motivation for broad policy action. There are claims of information asymmetries: perhaps people don’t know or understand the impacts of consumption on their health or the environment. This would seem to point to policies surrounding information provision rather than outright prohibitions or taxes. Finally, the most cogent argument is that of externalities: your consumption is imposing a cost on me that you’re not considering when deciding what to buy.

If “externality” is the basis of one’s claim that another is “over consuming,” then the economist’s normal answer to fix the problem is some sort of tax to encourage buyers to factor in the costs imposed on others (in fact, I’ve argued elsewhere it’s often more complicated than that, but let’s ignore those arguments for now).

Here’s an often overlooked point about taxing exernalities: even after such a tax, consumption will not be zero, and indeed consumption might still be very high if its a good (like meat) people enjoy consuming. I ran across a quote from the now retired agricultural economist, Luther Tweeten, which colorfully summed up the way economists think about the issue:

“St. Augustine called for people to ‘Love God and do as you please.’ The economist advises to ‘Price right and do as you please.”

Once the prices are “right” - perhaps via some sort of tax - there is no need for the buyer/consumer to feel guilt or discomfort in their purchases; they’ve already paid for their costs on others and can eat and consume as they please. Here is Steven Landsburg in his book The Big Questions in a section entitled A Cost is Not A Sin:

“When things are priced correctly, there’s no need to moralize about them. Every time you eat an orange, you leave the world one orange poorer. But nobody thinks it’s sinful to eat an orange, because the eater pays for the privilege - and thereby reimburses the rest of us for the damage done. Under the right tax system, emitting small amounts of additional pollution would be as unobjectionable as eating an orange. ”

Ok, back to meat and dairy consumption. Much of the popular writing on the subject casts consumption of such products as almost sinful. One advantage of a carbon (or carbon-equivalent) tax is that it would undercut much of the argument that people are “over consuming.” It’s not the cow or meat that’s the “sin,” it’s the carbon and methane.

There are several factors to consider before such a tax would be effective in this regard.

First, it must be broad based across the economy, not just focused on meat and livestock, otherwise, there is no guarantee people wouldn’t just substitute from one emitting category to a now relatively cheaper emitting category and have no impact on overall emissions. If it is indeed the case that, as the EPA suggests, agriculture in general and livestock in particular, are relatively small sources of greenhouse gas emissions in the U.S., then the impacts of such a tax on the sector need not be particularly pronounced, especially if revenue from the tax is refunded to taxpayers. Indeed, in a global context, such a worldwide tax might be competitively advantageous to U.S. producers greenhouse gas emissions per pound of meat or gallon of milk produced is much lower in the U.S. than in other parts of the world because of greater efficiencies here.

Second, a cow isn’t just a cow. Any effective system of this sort would need to reward producers who are more efficient and who find ways, whether it be different genetics, different feed, or different grazing practices, to reduce greenhouse gas emissions. That is, any effective system would have to allow possibilities for producers to monitor, register, and update their own particular impacts. Something as crude as $X per cow or $Y per pound lacks the incentives to motivate innovation in greenhouse gas reducing activities. Such a policy would be as silly as charging a fixed tax per car regardless of whether it was a Honda civic or a Hummer.

Finally, if producers (and everyone else) are taxed for emitting greenhouse gases, it seems logical that producers (and others) ought to be paid for sequestering carbon. I know there is a lot of debate on this subject, and it’s a topic about which I’m intimately knowledgeable, but suffice it to say that it is not unrealistic to imagine particular farming or ranching practices that sequester more carbon than they emit.

I suspect many environmental organizations would be downright shocked if meat and livestock industry associations banded together in support of a carbon tax. I’m not necessarily advocating such a tax, as indeed there are many complications and unintended consequences that I haven’t discussed here, but it is one mechanism available to address the combat much of this implicit “sinful” type rhetoric suggesting that people are “over consuming” meat. Of course, there’s also the possibility some anti-animal agriculture groups might balk at the proposal. Here’s Landsburg again:

“So why don’t we have such taxes? I suspect it’s at least partly because in a world with rational taxation, there would be fewer jobs for priests. Solve a social problem and there’s no evil left to rail against.”

I’ll end with one last observation. Let’s say you are a conscious consumer worried about the greenhouse gas emissions that result from meat eating. Is the answer to completely refrain from burgers, yogurt, and steak? No. Just reduce your consumption by the amount you would have reduced it had the price been slightly higher. Landsburg described how to follow the Economist’s Golden Rule (EGR) in the context of the question: Is it okay to burn carbon-based fuels?

“In our less then ideal world [without a carbon tax], the EGR tells you to curb your pollution as if you were paying a fair price. It’s been estimated that you cause about 50 cents’ worth of environmental damage for every gallon of gas you burn. If you believe that estimate, and if you currently pay $3 for gas, pretend you’re paying about $3.50 and adjust your driving habits accordingly.”

And, I should add: drive without guilt.

So, what does that mean for meat consumption. The first website that came up when I searched the subject, suggested 1 burger is responsible for 8.8 kg of carbon-equivalent emissions [this is probably an overstatement; see a previous crude calculation I made here based on EPA’s numbers]. A commonly used social cost of carbon is about $40/ton or $0.04/kg. So, the questions is: how many fewer burgers in a year would you consume if the cost were $0.04*8.8 = $0.35 higher?

Why don't we vote like we shop?

Readers of this blog will know I’ve been interested in the divergence of voting and food shopping behavior for some time (e.g., see here, here, or here). Much of this interested was prompted by the stark example provided by Proposition 2 in California back in 2008, when about 64% of Californian’s went to the polls and outlawed the production of a good they routinely bought (caged eggs) resulting in a so-called vote-buy gap. I think it was Glynn Tonsor who I first heard refer to the outcome as an unfunded mandate: voters required producers to adopt costlier production practices for which shoppers had already revealed they were unwilling to provide sufficient compensation in the marketplace.

While we know this phenomenon exists, it isn’t clear why. Along with Glynn Tonsor, Bailey Norwood, and Andrew Paul, we set out to tackle this question by conducting some real-food, real-money experiments. The resulting paper is now forthcoming in the Journal of Behavioral and Experimental Economics.

What did we do? We recruited people to participate in a series of decision making exercise, where they first made a shopping choice. The shopping choice options were: A) a more expensive cookie made with cage free eggs, B) a less extensive cookie made with conventional eggs, C) a snack without animal products, or D) refrain from buying anything. Then, in a second step, people were placed into groups (of small or large size), where they voted on whether to ban option B (the cookie made from conventional eggs) for the people in their group. Finally, if the vote passed, people re-chose from the constrained set of options. This basic set-up was repeated in several conditions that varied information, group size, and more to test different reasons for vote-buy gap.

The first result is that we can replicate the vote-buy gap in our experimental setting. We note:

“approximately 80% of the individuals who chose snacks with caged eggs when shopping subsequently voted to ban snacks with caged eggs. The finding rules out the suggestion that the vote-buy gap is an illusion or statistical artifact, as it can be re-created in an experimental lab setting at an individual level. ”

As the above results suggests, we are immediately able to rule out one explanation for the vote-buy gap - something we call the non-buyer hypothesis. The non-buyer hypothesis suggests the vote-buy gap is something of an illusion because, proverbially speaking, apples (voters) are being compared to oranges (shoppers). In the “real world”, many consumers of eggs are voters; however, not all voters are egg consumers. For example, individuals who are vegan do not buy eggs, but they may vote in favor of initiatives similar to that of Proposition 2. But, in our study we can compare each individual’s shopping choice to their own vote, and as the foregoing quote indicates, 80% of people switch.

We find a bit of support for the following, which is tested by giving one group more salient information about which options used cage and which used cage free eggs:

“Knowledge Hypothesis: The vote-buy gap is caused by the fact that consumers themselves believe, or perceive that other consumers believe, that they are buying cage-free eggs when in fact they are buying cage eggs; better, more salient information about housing practices when shopping will reduce the vote-buy gap.”

But, even in the condition where clear-transparent information was given about the types of eggs used to make each cookie, the share of people who voted to ban cage eggs was 15 to 20 percentage points higher than was the market share of purchased snacks made with cage free eggs.

I was personally most excited to test two hypotheses that related to group size (people voted in groups of roughly five or fifty). Here were those hypotheses, both of which suggest greater likelihood of voting “yes” to ban snacks with cage eggs in larger groups as compared to smaller groups.

“Public Good Hypothesis: The vote-buy gap is caused by the fact that more animals and people are impacted by a ban than the impact of a single shopping choice for cage-free eggs; as the size of the group affected by a vote increases, individuals are more likely to vote in favor of the initiative if it has a desirable public good component, thereby increasing the vote-buy gap.

Expressive Voter Hypothesis: The vote-buy gap is caused by the fact that in large groups, an individual’s vote is unlikely to be a deciding factor, privileging expressive preferences over instrumental preferences; as a group size increases, and the likelihood that an individual’s vote is consequential and decisive falls, individuals are more likely to vote in favor of the initiative, thereby increasing the vote-buy gap.”

Both hypotheses conjecture that the vote-buy gap will be larger in large groups than small groups. However, our data shows that when moving from small to large groups, the vote-buy gap is actually larger in the small groups than the large group, exactly the opposite of what is predicted.

In the end, we can be fairly confident the vote-buy gap is real and replicatable, but alas we still don’t have a good answer as for why. Here’s how we leave it in the paper:

“A residual hypothesis that remains if all others fail to explain the gap is inconsistent preferences. That is, people may have different preferences when shopping as compared to voting. This sort of preference inconsistency is at the heart of the so-called consumer vs. citizen phenomenon. The thought is that people adopt more public-minded preferences when in the voting booth but rely on more selfish motives when shopping privately. ... While this explanation is perhaps not intellectually satisfying, it is perhaps consistent with one long strain of economic thought, De gustibus non est disputandum, while contradicting another, fixed and stable preferences. ”

But, make no mistake: just because we don’t know the answer to the “why” doesn’t imply the vote-buy gap is inconsequential. Recall the unfunded mandate? Here’s what happened in our experiment.

“many individuals who originally chose to purchase a cookie decided, after the ban, to select “none” in their second selection when only higher-priced cookies were available. Depending on the treatment, anywhere from 21.74% to 43.38% of consumers who purchased cookies prior to the ban no longer did so after the ban. These lost purchases are precisely the worry of egg producers.”

The Future of Meat

Several weeks ago, I was interviewed by Stephen Dubner for Freakonomics radio and their associated podcast. The topic was the future of meat, and they just released the episode today. It’s not uncommon to do an hour long interview only to have the producers pull out a half minute clip to include in the show, so I was surprised to see how much of our interview they used. The other voice that gets a lot of air time is Pat Brown, a Stanford biomedical researcher who is the CEO and Founder of Impossible Foods - a company aiming to replace meat by using genetically engineered yeast to produce animal-like proteins via a fermentation process (I’ve reviewed the Impossible burger in a previous post). The transcript of the Freakonomics show is here. Or, download the episode from your favorite streaming service.

Consumer perceptions of "healthy" claims

Last week I wrote about a study I conducted on how consumers think about the word “natural.” As a part of the same project, I also delved into consumer’s perceptions of the word “healthy.”

“Healthy”, at least as a food package claim, has been defined by the FDA since 1993 by reference to total fat content, with changes made in 2016 to discriminate between different types of fat. Recently, however, the FDA has begun a process to potentially re-define the term, suggesting the need for more information on consumer’s current perceptions of the term and labeling claim.

One of the first questions on this topic I asked my sample of over 1,200 nationally representative food consumers was an open-ended question: “What does it mean to you for a food to be called ‘healthy’?” A word cloud constructed from the responses is below (the full report is available here). Words like good, fat, nutrition/nutrient/nutritional, natural, sugar, calorie, and organic were most commonly mentioned. Responses provided some support for current FDA definition as “fat” is one of the most commonly mentioned words (mentioned by 10.4% of respondents), although nearly as many (6.6%) mentioned sugar. More than a quarter of respondents provided imprecise or tautological-like definitions like “good ingredients,” “good for you,” or “healthy ingredients.”

In addition to the open-ended question on the meaning of “healthy”, respondents were provided with a list of 13 factors that consumers might use to judge whether a food is healthy. The figure below shows that about a quarter of respondents indicated sugar content and use of hormones or antibiotics, 19.2% pointed to fat content, and 18.4% pointed to pesticide residues. The top four answers included two nutrients (sugar and fat) and two food production processes/ingredients (hormones and pesticides), suggesting consumers consider healthiness to be more than just defined by nutrient content. However, it should be noted that hormones and pesticides were infrequently mentioned (both mentioned by less than half a percent of respondents) when unaided.

To further explore how consumers define and think about healthiness, a couple binary choice questions were posed. Consumers were about evenly split on whether a food can be deemed healthy based solely on the foods’ nutritional content (52.1% believing as such) or whether there were other factors that affect whether a food is healthy (47.9% believing as such). Consumers were also evenly split on whether an individual food can be considered healthy (believed by 47.9%) or whether this healthiness is instead a characteristic of one’s overall diet and the combination of foods consumed (believed by 52.1%). These responses suggests difficulty in creating a definition of “healthy” on food packages that is broadly acceptable to consumers. Answers to these two questions are not determinative of each other, but rather there are four distinct consumer segments with regard to healthy food conceptions. The figure below indicating the percent of respondents who answered these two questions in the four possible manners.

Respondents were also provided a list of 15 foods in random order and were asked to indicate whether each was healthy, unhealthy, or neither healthy nor unhealthy. For each item, a healthiness score was created by subtracting the percent of respondents who considered a process unhealthy from the percent of respondents who considered a process healthy. The figure below shows the results.

Almost all respondents (96.2%) considered fresh vegetables to be healthy, and almost none (0.9%) considered them unhealthy, yielding a net healthy score of 96.2-0.9=95.3% for fresh vegetables. Fresh fruit, fish, eggs, and chicken were likewise broadly considered healthier than not. Frozen vegetables/fruit were considered less healthy than fresh, and canned were considered less healthy than frozen, although even canned was considered, on net, more healthy than unhealthy. Only three of the 15 items listed were considered by more respondents to be unhealthy than healthy: vegetable oil, bakery and cereal items, and particularly candy.

To explore how consumers conceptualized the healthiness of different foods, the questions used to create the figure above were further analyzed using factor analysis. The first factor, shown on the vertical axis of the following figure shows all animal products with high values and other non-animal products with lower values, suggesting consumers use animal origin as a primary factor in judging whether a food is healthy. Another factor illustrated on the vertical axis, indicates freshness or degree of processing is another dimension to healthiness evaluations. These results indicate that healthiness is not a single unifying construct, but rather consumers evaluate healthiness along a number of different dimensions or factors. A food, such as beef or fish, can be seen as scoring high in some dimensions of healthy but low in another.

Respondents were asked to indicate their extent of agreement or disagreement with eight statements. The highest levels of agreement were with the statement, “Individual needs determine whether various foods are healthy for an individual.” Only 7.8% of respondents disagreed with this statement, whereas more than 70% agreed with it. There were also strong beliefs that healthy food is safe to eat and natural. There was only moderate agreement that healthier food is tastier. About 44% of respondents neither agreed nor disagreed with this statement. There was slightly more disagreement than agreement that healthy food is more convenient to eat. A majority of consumers (58%) disagreed that healthy is more affordable.

There is a lot more in the full report.

The Superbowl and Chicken Wing Demand

With the Superbowl coming up this Sunday, I thought I’d take a quick look at whether this annual event has much effect on the market for a food it has come to be closely associated with: chicken wings.

I turned to USDA data compiled by the Livestock Marketing Information Center, which reports weekly prices on whole wings going back to 1992. Here is the price trend in nominal terms. There has been a strong upward trend in chicken wing prices over this time period, but of course some of that is due to inflation. However, even after adjusting for inflation, wings were about $0.90/lb in the early 1990s ($0.50/lb in nominal terms), and they averaged about $1.50/lb in 2018; during the latter part of 2018, prices were above $2.00/lb.

In the graph above, it’s hard to make out when, exactly, the Superbowl occurred. Looking at the history of the event over this time period, the Superbowl occurred in late January or early February every year since 1992. With that knowledge, I added orange lines to the graph to indicate the periods surrounding the Superbowl.

It sure looks like there is a price spike right around the time of the Superbowl each year, with a price decline immediately following. Indeed, if I look at the most recent decade, prices rise about 7% from early January to the Superbowl period (late January, early February), and then fall about 5% going in to mid- to late-February.

The price spikes are indicative of increasing demand over this time period. This is also consistent with data we collected in the monthly Food Demand Survey, were we often found a spike in consumer willingness-to-pay around the event.

Too bad I don’t have data on napkins and antacids …

P.S. One might wonder why this price phenomenon is different than that for turkeys. As I discussed back in November, turkey prices tend to fall around Thanksgiving when demand is peaking, perhaps due to strategic pricing behavior by retailers or from producers planning ahead and increasing supply around this time. A key difference with turkeys and wings, is that one is a whole and the other is a part. If there isn’t an overall demand increase for chicken around the Superbowl, then the wings will be in relatively short supply. It might make sense for a turkey producer to grown a whole bird in anticipation of the holidays, but it’s not possible for a producer to only grown wings in anticipation of the Superbowl.