The Need for Food Innovation

In his recent New York Times column, Tyler Cowen ​echos some of the key themes in my forthcoming book.  Here are a few excerpts:

THE drought-induced run-up in corn prices is a reminder that we’re nowhere near solving the problem of feeding the world.

 and:

For all its importance to human well-being, agriculture seems to be one of the lagging economic sectors of the last two decades. That means the problem of hunger is flaring up again, as the World Bank and several United Nations agencies have recently warned.

and:​

There is no shortage of writing — often from a locavore point of view — in support of more organic methods of farming, for both developed and developing countries. These opinions recognize that current farming methods bring serious environmental problems involving water supplies, fertilizer runoff and energy use. Yet organic farming typically involves smaller yields — 5 to 34 percent lower, as estimated in a recent study in the journal Nature, depending on the crop and the context. For all the virtues of organic approaches, it’s hard to see how global food problems can be solved by starting with a cut in yields. Claims in this area are often based on wishful thinking rather than a hard-nosed sense of what’s practical.

WHAT to do? First, put food problems higher on the agenda. In the United States, there is no general consciousness of the precarious state of global agriculture. Even in the economics profession, the field of agricultural economics is often viewed as secondary in status.

Being an agricultural economist, you probably won't be shocked to hear that I agree with the last sentence.  But, it's nice to hear someone else say it.  And it's nice to see a nod to my fellow agricultural economists who have been studying these types of issues for decades but whose voices often tend to get overlooked or drowned out by those pushing the latest fashionable food fads or development policies.  

Food Insecurity and The Politics of Rising Food Prices

Record high temperatures in the Midwest this summer have been met with near-record high prices for corn, soybeans, wheat, and other commodities.  Thanks to federal disaster payments and crop insurance, many corn and soybean farmers will withstand the drought with finances relatively unscathed.  Many livestock producers won’t be so lucky.  Neither will many food consumers.

Although most analysts anticipate the drought will increase future retail food prices only around four to five percent, the hike comes on the back of a 2.3 percent rise in the food component of the consumer price index over the past year.  Add that to the impacts of the recession and the result is that 14.9 percent of US households (more than 50 million people) are food insecure according to the USDA's latest report.  The prevalence of food insecurity is about 33 percent higher than it was before the recession.     

The rise in food insecurity has occurred even as the rolls of the federal food stamp program have swelled.  A record number of Americans - one in seven of us - were on food stamps last year, causing critics to name Obama the “food stamp president.”  Undaunted by the label, his administration has begun running radio ads encouraging further enrollment.  And, his administration recently announced efforts to reverse the Clinton-era welfare reforms by removing work requirements for some people soliciting welfare money.  

Obama’s election-year strategies to address the issue heighten class divisiveness: expanding social entitlements for the poor while raising taxes on the rich.  Although the strategy might be successful in buying votes from those so downtrodden that a helping hand is needed to put food on the table, the longer-term impacts of this administration’s policies are as much the cause of the food price problems as they are a help. 

Obama rode a tide of hope-and-change into office that captivated a core group of elite foodies who had been preaching messages like “pay more, eat less” for years.  While more Americans have had a harder time finding enough food to eat, the White House planted a back-yard garden and began giving preferential treatment to local-food purchases in federal contracts.  Despite the tastiness of local foods, they certainly aren’t cheaper; and anyone who has been to a parched Midwestern farmers’ market this summer can attest to why consumers need access to non-local fare (one of my colleagues claims to be on pace for growing a two hundred-dollar watermelon this summer).  But, local food policies only scratch the surface.  The Obama administration has sought to keep farmer’s kids from working on the family farm, fine farmers for kicking up too much dust, require beef processors justify quality-adjusted pricing strategies, and require schools to plate more veggies.  Whatever might be said about the benefits of any of these policies, they all serve to increase the prices consumers pay for food.  And that’s just the tip of the iceberg. 

Three months ago, I gave a talk to a planning workshop sponsored by the administration’s Centers for Disease Control and hosted by the Institute of Medicine of the National Academies entitled “Exploring the True Costs of Food.”  The underlying premise is that food in this country is under-priced, and that taxes, subsidies, restrictions, and bans must be engineered to get the prices of food up to the “right” level.  Thus, what the administration giveth in terms of food stamps and unemployment insurance, they taketh away in terms of higher food prices from onerous food regulation.

There is a long term solution to food insecurity that has been pursued for decades.  But, it is no longer politically popular with today’s fashionable foodies who spurn food technology and promote a return to nature.  Yet, we seem to have forgotten that “nature” didn’t give us domesticated livestock, abundant, readily edible seeds, microwavable rice, or pre-washed baby carrots.  The food we enjoy today is a result of man’s triumph over nature’s indifference to us.  The solution to today’s food price problem is what it has been for hundreds of years; the application of human creativity, innovation, and research to food and agriculture.  Previous public spending on agricultural research has more than paid itself, with current estimates indicating the benefits resulting from lower food prices exceeding the costs by a factor of thirty two to one.  Private research has been similarly effective.  Yet, spending on agricultural research has stagnated.  We have adopted a food culture that, by rejecting food biotechnology, nanotechnology, cloning, and pesticides, is on path to prove Malthus right. 

If Obama is really concerned about the economic downtrodden – and not just getting their votes in November – he’ll start thinking less about how to get others to grow their own gardens and more about how to make drought tolerant wheat.

The Price of Happy Hens

​After Californians passed Prop 2 in 2008 banning egg production from so-called battery cage systems, there has been much speculation about the impacts on egg prices in California once the law is fully enacted.  It is said that politics makes strange bedfellows, and that is certainly true of the agreement struck between the United Egg Producers (UEP) and the Humane Society of the Unites States (HSUS) to extend Prop 2 like legislation for egg laying hens across the US (we speculate here on why such an agreement was reached for eggs but not pork). 

Although Congress has not yet given the agreement the force of law, prospects of likely passage have raised further questions about the impacts on the prices of everything from your morning omelet to your evening Chocolate Soufflé.  Given the ubiquity of eggs in our diet (they are in foods as diverse as mayonnaise to chef’s salad), there has particular concern about the prices paid by the poor. 

Frankly, I don’t know exactly what will happen to prices and let me tell you why. 

We published a paper in 2010 in the Journal of Agricultural and Resource Economics containing the graph at the bottom of the post which plots the average price of three types of eggs ($/egg) paid by consumers across the US from 2004 to 2008 as determined by grocery store scanner data.

Over this time period, organic eggs sold at an average premium of 142% and cage free sold at an average premium of 86% relative to conventional eggs.  

Yet, a study led by Dan Sumner at UC Davis suggests the costs of producing cage free eggs are only about 25% higher than the costs of producing conventional eggs. 

So what explains the discrepancy between the roughly 25% cost difference and the 86% retail price difference between conventional and cage free?  It could be that, given the lower volume of cage free sold, the marketing and shelf-space costs of cage free are substantially higher than conventional.  Alternatively, producers and retailers may be able to use the cage-free label as a mechanism to price discriminate and charge less-price-sensitive egg consumers more for “boutique” eggs. 

All this begs the question: what will happen if the UEP-HSUS agreement becomes law?  Will the price of cage free stay where it (or perhaps even rise) or will prices fall as cage free becomes the new conventional?  If the marketing cost explanation is correct, one would expect the prices of cage free to fall closer to the level of current conventional prices (only about 25% higher than current conventional prices).  If the price-discrimination explanation is correct, cage free prices will also fall but the relative premium for “niche” eggs like organic could grow.  Either way, it seems likely that the agreement will lead to lower prices for cage-free eggs albeit at higher levels than current conventional egg prices.  Overall egg prices will be higher, and as a result, overall industry sales will be lower relative to the current situation.

In our recent book on the animal welfare, we project the long-run impacts (after the industry has had time to adjust and invest in new housing systems) are that consumers would be about $1.8 billion/year worse off and producers would be about $187 million/year worse off than they were before a ban on batter cages.  The short-run losses are much higher.