Rising food prices and social unrest

Worldwide, food prices have been rising over the past decade.  Here, for example, is the UN FAO food price index.

In real terms, the world food price index is higher today than it has been in 40 years.

Enter this new paper by Marc Bellemare just published in the American Journal of Agricultural Economics.  He finds:

“for the period 1990–2011, food price increases have led to increases in social unrest, whereas food price volatility has not been associated with increases in social unrest.”

As is typical of Marc's work, this is a careful analysis of the issue.  He takes issues like endogeneity seriously (do higher food prices cause social unrest or does social unrest cause higher food prices or does some third factor case both?) and he considers the sensitivity of his results to the data he uses and model specification.  

A couple excerpts from the conclusions:

“Do food prices cause social unrest? The results in this article indicate that the answer to this question is a qualified “yes.” While rising food prices appear to cause food riots, food price volatility is at best negatively associated with and at worst unrelated to social unrest. These findings go against much of the prevailing rhetoric surrounding food prices. Indeed, whereas many in the media and among policy makers were quick to blame food price volatility for the food riots of 2008 and of 2010–2011, the empirical results in this article indicate that rising food price levels are to blame and that increases in food price volatility may actually decrease the number of food riots. ”

and

“the objective of keeping prices low would be best attained by policies aimed at increasing the supply of food where it will be the most helpful, whether this means investing in agricultural research aimed at increasing agricultural yields (Dorward et al. 2004), encouraging urban or peri-urban agriculture (Maxwell 1995), liberalizing the international trade of agricultural commodities, increasing access to and the use of biotechnology in developing countries (Paarlberg 2009), eliminating farm subsidies in industrialized countries, and so on.”

The new dietary wisdom

Carbs are out.  Fats are in.  

We seem to be bombarded by messages these days warning of the evils of carbs, particularly sugar.  The recently released documentary, Fed Up, produced by Katie Couric presents one conspiratorial, over-wrought perspective on the issue.

In their indictment of farm policies, somehow the makers of Fed Up, failed to look at some of the best economic research on the topic, which shows that sugar import quotas, among other policies, make US sugar prices 2-3 times higher than the world price.  Moreover, ethanol policies have driven up the price of corn and have made high fructose corn syrup (HFCS) more expensive as well.  Here, for example, is USDA data on the price of HFCS over the past 14 years.  As you can see, prices have more than doubled since 2005.

Of course, that's just one example.  This week in the Sunday Review edition of the New York Times ran an editorial by David Ludwig and Mark Friedman, which a argued that over-eating is actually making us hungrier.  They seem to place the blame mainly on carbs, writing:

By this way of thinking, the increasing amount and processing of carbohydrates in the American diet has increased insulin levels, put fat cells into storage overdrive and elicited obesity-promoting biological responses in a large number of people. Like an infection that raises the body temperature set point, high consumption of refined carbohydrates — chips, crackers, cakes, soft drinks, sugary breakfast cereals and even white rice and bread — has increased body weights throughout the population.

One reason we consume so many refined carbohydrates today is because they have been added to processed foods in place of fats — which have been the main target of calorie reduction efforts since the 1970s. 

Last week, the Wall Street Journal also ran an editorial on the issue by Nina Teicholz, who has a recently released book, The Big Fat Surprise: Why Butter, Meat and Cheese Belong in a Healthy Diet.  In the editorial, she argues that past nutritional guidelines that emphasized carbs and demonized fat were a major cause of the rise in obesity, writing:

Seeing the U.S. population grow sicker and fatter while adhering to official dietary guidelines has put nutrition authorities in an awkward position. Recently, the response of many researchers has been to blame "Big Food" for bombarding Americans with sugar-laden products. No doubt these are bad for us, but it is also fair to say that the food industry has simply been responding to the dietary guidelines issued by the AHA and USDA, which have encouraged high-carbohydrate diets and until quite recently said next to nothing about the need to limit sugar.

Indeed, up until 1999, the AHA was still advising Americans to reach for "soft drinks," and in 2001, the group was still recommending snacks of "gum-drops" and "hard candies made primarily with sugar" to avoid fatty foods.

Teicholz does a good job describing how previous dietary guidelines were based on tenuous scientific evidence and largely represented group think and a desire to "do something."  

Here's my question: How can we be so sure we now know more?  It seems to me this history lesson would cause us to be much more cautious about what we know about nutritional science and about the ability of public policy to beneficially affect food choice, weight, and health.  Yet, the aforementioned writings, and others, often contain as much hubris as ever.  It is unhealthy to eat too many carbs (or too much fat for that matter), but do we really know enough to design policies that will have intended effects?  I'm skeptical.

One reason is that writings by medical doctors and nutritionists on carbs often narrowly focused and miss larger "macro" issues.  Here, for example, is USDA data on per capita sugar consumption.  I've added in the recent trend lines, which show a strong downward trend in consumption over the past decade.

I suspect some of the downward trend is due to increased public awareness of the dangers of over-consumption of sugars, but also because of market conditions and aforementioned government policies.   

Another factor that many of these writers seem to overlook is that we grow a lot of carb-producing grains not just because of nutritional guidelines but because of economic forces.  The reality is that, by far, the most cost efficient producers of calories and protein are crops like corn, wheat, soybeans, and rice.  Historically, the challenge has been (and it remains a current challenge in many parts of the world), producing enough food and calories to keep pace with a growing population.  Moreover, if you're concerned about environmental issues, you also want to get as many calories and nutrients using the least amount of land and other resources, and that's precisely why economic forces lead farmers choose to grow so much corn, wheat, soybeans, and rice (not to mention these can be stored and will not spoil and waste soon after harvest).  I'm not saying we shouldn't re-think how much of these types of grains we eat, often in processed food, but I think it is useful to have some perspective on why these crops are so prevalent on our farms and in our diet.

I'll conclude with this passage I recently read from Sara Hara, a nutritionist who was dismayed by what she saw in Fed Up.   

An important note for those who are earnestly trying to sort through the abundance of the information and misinformation about "good foods" and "bad foods" in search of the truth: know the source of the information being promoted and the difference between a real nutrition expert and a self-proclaimed "expert". Most medical doctors are well trained in medicine, but have less than a semester of nutrition education in the entirety of their training (there are a few rare exceptions). Medical doctors are smart, but are not typically experts in nutrition. Investigative journalists are also a talented lot, but rarely have formal education in nutrition.Registered Dietitians/Nutritionists (RD or RDN) have at least a 4 year degree in nutrition (many have an additional 2 year master's degree), have completed a clinical nutrition internship, and maintain continuing education requirements to retain their credential. THESE are the nutrition experts... along with researchers and other professionals who have advanced degrees in Nutrition. I was struck by the fact that the new film Fed Up has a list of "experts" that includes medical doctors, a psychologist, politicians and journalists...all very intelligent and respected professionals, but none with extensive training in nutrition. There are no RDN's among their "experts"... and for good reason. Most true nutrition experts do not agree with the propaganda being promoted by this film. The RDN experts know that the issue is multi-faceted and cannot be reasonably blamed on a single factor. Nutrition needs to be viewed in context of lifestyle habits, genetics, personal preferences, and so much more. Sensationalism sells... but healthy living and common sense are what will fix our nation's failing health.

Future of Food

National Geographic has launched a series of stories and videos on the future of food.  One of the big questions they intend to answer is: how will we feed 9 billion people by 2050 without harming the planet? 

A video on the site hints at their five answers:

• use resources more efficiently
• grow more on existing farmland
• stop expanding farms
• change our diets
• reduce waste

It's not a bad list.  The first three will require science and new agricultural research and development if they are to be achieved.  The need for technological progress often gets short shrift in discussions about food sustainability, but here it is (implicitly) a prominent solution.  Even the last "food waste" issue has an important technological dimension.  In many developing countries, food waste is a result of poor storage facilities and transportation infrastructure; it isn't all just a result of rich people throwing away too much food (although that is part of it too).  It seems to me that Land Grant Universities are well poised to address precisely these issues, although I suspect we won't get much mention in National Geographic's stories.   

It is also important to discuss the role of economics - particularly the role of prices - in achieving these outcomes.  We may well need to "change our diets."  But, the question is whether this outcome will result from paternalistic policies and dictates or whether changes in relative prices will cause us to change our diets.  If eating a particular food is, truly, "unsustainable", then the price for it must rise as the resources needed to produce the food become more scarce.  

Here is what I had to say on this issue in the Food Police when discussing organics.

Economics teaches that price differences are important, though sometimes imperfect, signals about resource use.  The price we pay for food in the grocery store must reflect all the costs that went into producing it: from land rent to the value of the farmer’s labor to the prices of seed and fertilizer.  Higher prices for organic means that somewhere along the line, organics used more land, more labor, more seed, more fertilizer, or more of any of the other inputs required to produce food.  The prices of all these inputs were each determined by their scarcity relative to people’s desires to use them for other purposes unrelated to food production.  So, when we see that organic is higher priced, it signals us that organics are using many more of the resources that society finds valuable than non-organics.  Using up more resources is exactly the opposite of sustainable.      

Normally the price mechanism is used to ration scarce resources and signal us as to how to allocate resources over time.  Rising prices for increasingly scarce resources like oil and fertilizer cause us to naturally back away from consuming them – thereby resulting in a “sustainable” future.  The fact that we are now using a lot of oil and fertilizer in agriculture means they are currently in ample supply relative to demand.  The sustainability movement represents an elitist attempt to ration scarce resources using social pressure, guilt, and regulation.

As I've previously discussed, desiring sustainable outcomes is uncontroversial - it's how we go about it that matters.  We need to let price mechanism work in telling us when to cut back on particular foods.  That last sentence in the above quote might seem a tad harsh, but shielding consumers from price changes, and distorting market forces, is truly unsustainable.  

Why are beef prices so high?

If you've been down the meat aisle in the grocery store recently, you might have noticed that beef is getting pricey.  Indeed, cattle prices have recently been near historically high levels in recent months.  For some perspective, here are inflation-adjusted retail meat prices since January 2000 (these are monthly USDA data compiled by the Livestock Marketing Information Center and the USDA-ERS; final data point is January, 2014).  

As you can see, real beef and pork prices are higher now than they've been in at least 15 years (and that means they're substantially higher in nominal terms).

As the graph reveals, starting in about 2010, beef and pork prices began to rise, although the rate of increase has been faster for beef than for pork.  Over the same time period, chicken prices have remained relatively constant, and are actually slightly lower in real terms today than in the early 2000s.  

The graph above masks what has been happening in the last few weeks and months.  On that issue, here is a graph from the Livestock Marketing Information Center showing wholesale boneless beef prices (fresh, 90% lean - mainly used in ground beef) in recent weeks.  As you can see, 2013 prices were above the 2008-2012 average, and 2014 prices are much higher still.

What is happening that has caused the run-up in beef prices?  

The answer to that question is a dissertation topic unto itself, but here are a few rough thoughts:

• I don't think the answer is primarily on the demand side.  Despite all the negative publicity for meat products (from media coverage of food safety, animal welfare, global warming, health, water use, etc. etc.), estimates from our Food Demand Survey and from the demand indices compiled by Glynn Tonsor at Kansas State suggests relatively stable to slightly increasing demand.  Higher demand will tend to pull up prices, but I don't think the demand changes are anywhere near large enough to explain the price rises.
  • Increased demand for meat products from other countries might tell part of the story, and although there has been a general rise in beef exports in recent years, it also doesn't seem big enough to explain the trend.
• That leaves supply-side issues.  Cattle inventories are at their lowest level since the 1950s. Because of technological advancement, we don't need as many cattle today today to produce the same amount of beef as we did in 60 years ago.  Still, fewer cattle numbers means less beef, and less beef supplied means higher prices.  Contraction in cattle supplies can be explained by a number of factors, such as drought in the plains states that limited the amount of grass and hay available and higher feed (mainly corn) prices due to drought, ethanol policy, etc., which pushed pushed more cattle to slaughter several years ago, leading to smaller inventories today.  Feed prices have now come down off their highs but cattle prices are still rising, partially because producers are holding back breeding stock to rebuild inventory.  Still, if high feed prices were THE answer, I would have expected chicken prices to rise in tandem with beef and pork (at least over part of the period), but as the above graph reveals, they didn't.
• It is also worth noting that on the supply side, the beef industry has stopped using technologies that previously generated more meat from each animal.  
  • The industry largely moved away from using lean fine textured beef (LFTB - aka "pink slime") in March 2012.  It has been estimated that not using LFBT is akin to reducing the cattle supply by about 1 to 1.5 head million annually.  So, removal of LFTB had an effect of further reducing supply on top of the other aforementioned factors.  One study suggests that removal of LFTB increased ground beef prices by about 3.5%.  Here is a recent TV news story about the role of LFTB and beef prices (I was happy to see they interviewed Kate Brooks from University of Nebraska - one of my former students).
  • The industry also moved away from using the beta-agonist, Zillmax.  According the the product's manufacturer, Zilmax added 24-33 lbs of additional hot carcass weight.  Multiply that by millions of head of cattle, and that's millions of pounds of beef that are now "missing" relative to a year or two ago.  
• On the pork side of the equation, there is a lot of concern about the porcine epidemic diarrhea virus (PED), which is kills young pigs.  It is yet unclear what effects it may be having, but speculation suggests it might be tightening supplies and pushing up pork prices.  This is a relatively recent phenomenon and can't explain the 2010-2011 increases.

Addendum:

Scott Irwin sent me a note with a couple links to posts at farmdocdaily, which touch on these same issues.  First, he noted (in a post almost four years ago!) that the corn/soy prices then were likely to lead to much higher livestock prices.  So what we are seeing now may be the fruition of this longer-term adjustment.  Second, Chris Hurt posted on March 3 about PED, and it does appear to be a big deal - hog futures are at record levels.  Chris concluded:

At the farm level, current futures markets are suggesting a live price for 2014 at a record high of $73 per hundredweight compared to $64 last year. This will provide record high industry revenues and the highest profit per head since 2005.

Who is going to pay for these record high pork producer revenues? Unfortunately, the consumers of pork are expected to be large net losers from PED-V as they will have to pay record high retail pork prices and also have less pork availability.

What has caused the recent rise in commodity prices?

Brian Wright from UC Berkeley attempts to answer that question in a recent review article in the Journal of Economic Perspectives.  His provocative answer:

The rises in food prices since 2004 have generated huge wealth transfers to global landholders, agricultural input suppliers, and biofuels producers. The losers have been net consumers of food, including the large numbers of the world's poorest peoples.  The cause of this large global redistribution was no perfect storm.  Farm from being a natural catastrophe, it was the result of new policies to allow and require increased use of grain and oilseed for production of biofuels.  Leading this trend were wealthy countries, initially misinformed about the true global environmental and distributional implications.