What's the Price of Milk?

The excellent team at the new Center for Food Demand Analysis and Sustainability (CFDAS) has just pulled together a new dashboard illustrating data on the prices of more than 50 food and beverages items over time (underlying data come from the Bureau of Labor Statistics). Click on a food, and the dashboard shows the price of of the food over time in nominal terms, switch over to another tab and the same price trend will be shown in inflation-adjusted terms, or switch over to the final tab and see the time-price of the food. The time-price is the amount of the food that can be bought with an hour’s worth of work given the average wage rate (also measured by BLS) at the time the price was measured.

Check out the dashboard here.

Oh, and if you’re wondering, the price of milk was $3.74/gallon in December 2021 (the most recent data available from BLS). And, a worker at the average wage in December 2021 could buy 8.39 gallons of milk with one hour of work.

Effects of Prop 12 in California

Back in November 2018, 63% of California poll-goers voted in favor of Proposition 12. The effect of the passage of Prop 12 is to require shell eggs sold in the state to come from cage free production systems. For pork, Prop 12 would impose certain space requirements and effectively ban the use of some housing practices like gestation crates. Prop 12 was slated to take effect on Jan. 1, 2022.

Prior to implementation, many good economic studies were conducted to estimate the potential impacts of Prop 12 on the prices and consumption of eggs and pork in California. For example, this excellent paper by Sohae Eve Oh and Tom Vukina, which was just released by the American Journal of Agricultural Economics, projected that because of Prop 12 in California, “the new marginal costs of what used to be conventional eggs would increase, on average, by 56%. The prices of originally conventional eggs would increase by 65%.” Other studies by Barry Goodwin and by Dan Sumner and Rich Sexton and by Christine McCraken have provide estimates of the cost of Prop 12 on the pork industry.

Now that January 1, 2022 has come and past, what’s actually happening?

For eggs, it appears that the rules around Prop 12 have taken place and are in force. To get a sense of what impact the policy is having, I took a look at the data reported by the USDA in the National Shell Index Price Report. Because the report lists 5-day rolling averages of wholesale prices, I looked at the Friday report of egg prices in California and for the U.S. for the weeks just before and after the first of the year.

Unsurprisingly egg prices in California are higher than in the rest of the U.S. What’s more relevant to the debate around Prop 12 is how that price premium has changed. The average gap between California and U.S. egg prices jumped from 70 cents/dozen prior to Jan 1st to 142 cents/dozen after Jan 1st. As we and others have done in other studies of the effects of prior California egg policies (e.g., see here, here, or here), we can calculate the so-called difference-in-difference, which in this case amounts to 142-70=72 cents/dozen.

That is, California egg prices are 72 cents/dozen more expensive after the 1st of the year than they would have been if the California price-premium had staid at 2021 levels. The California premium jumped 103%. If I apply this changed to premium to the average national egg prices after the 1st of the year, it implies an increase in egg prices in California of about 85%. Why is this observed jump (85%) higher than the projections by Oh and Vukina (65%)? Hard to know, but as Dan Sumner pointed out in a comment on my paper with Conner Mullally on the effects of a prior California animal welfare regulation, legal and regulatory uncertainty can have effects above and beyond the direct effect of the policy itself. Whatever the causes, the evidence here suggests Prop 12 is having significant price impacts on the prices of eggs in California, at least in the initial month following implementation.

Speaking of regulatory uncertainty, let’s turn now to pork. It appears implementation of Prop 12 for pork has been put on hold for at least a few months because the state of California has yet to release final rules, and a state judge pushed off enforcement until final rules are released. So for now, we’ll have to satisfy ourselves with the aforementioned ex ante projections of the potential impacts of the policy on pork prices. For what it’s worth, here’s a slide I prepared for a talk yesterday where I used some of the previous pork demand estimates from an analysis with Glynn Tonsor, coupled with an economic model, to project potential of Prop 12 if it is conceptualized as a tax.

Finally, in case you missed it, my University President, Mitch Daniels, recently weighed in on Prop 12 in an op-ed in the Washington Post.

Slump in Sales of Meat Alternatives

A few days ago, Beyond Meat released their quarterly earnings report and indicated lower than expected profits and sales, leading to a tumble in the firm’s stock price. On Twitter, Julian Melletin noted the firm lost $1.25 for every $1 sold, and he showed some interesting data on the history of sales over the past few years.

Beyond Meat is just one company, and it would a mistake to take these headlines and draw broad conclusions about the market trends surrounding plant-based meat alternatives. After all, Beyond Meat might be losing sales because of new entrants and competition to this space.

There isn’t good public data available on sales of meat alternatives, but IRI (a purveyor of grocery store scanner data) has released a series of interesting dashboards showing aggregate trends in a variety of grocery categories, including meat and meat alternatives. Here is what their data imply about total sales meats and meat alternatives.

Derived from IRI data at https://indices.iriworldwide.com/covid19/?i=0

The figure above suggest the downward trend in meat alternative sales extends beyond Beyond Meat. For example, in the week ending October 31, 2021, sales of alternative meats were down 7% relative to the same week last year in 2020. By contrast, sales of beef are up 5%, chicken up 6%, pork up 8%, and turkey up a whopping 38%.

In addition to reporting sales, IRI also reports changes in prices.

Derived from IRI data at https://indices.iriworldwide.com/covid19/?i=0

Whereas prices of traditional meat items are all up 10% or more relative to the same time last year, the same isn’t true of meat alternatives. Indeed, despite all the headlines about overall food price inflation, the price of meat alternatives is actually lower now than it was a year prior.

The two figures above indicate: 1) prices of meat alternatives is down and 2) sales of meat alternatives are down. Taken together, these two facts are strong evidence that demand (i.e., consumers’ willingness-to-pay) for meat alternatives has fallen.

Why is demand for meat alternatives down relative to the same time last year? It isn’t entirely clear. However, note the data above relate only to grocery store sales. It is possible demand is up in the restaurant sector; however, at least in the grocery store, demand for meat alternatives is down. Moreover, the phenomenon can’t be explained by an overall reduction in grocery sales because sales of other meat items is, in fact, now higher than was the case at the same time last year.

What Is Driving the Increase in Food Prices?

That’s the title of a piece I wrote for Econofact. In it, I discuss the latest figures out from the Bureau of Labor Statistics, and discuss some of the drivers of volatility in food prices since the onset of the pandemic.

“More than a year into the pandemic, they are facing another unfamiliar trend when it comes to accessing food: notably higher prices. Increases in wages in the food sector, rising agricultural commodity prices, transportation bottlenecks, and strong consumer demand have led to the highest annual grocery price increases in a decade and the highest annual restaurant price increases since the early 1980s.”

The main facts I outlined and discussed were:

• Food prices have risen at a faster average rate since the onset of the pandemic than they did over the prior decade.

• Food prices have been extraordinarily volatile throughout the pandemic.

• Meat price changes have been a primary driver of overall food price increases.

• Agricultural commodity prices have increased.

• Heightened consumer demand has contributed to food price increases.

• Wage rates in the food industry have significantly risen over the course of the pandemic and these higher wages get reflected in higher food prices.

• Food isn’t necessarily less affordable — especially when considering a longer horizon.

You can read the whole thing here.

Food Prices are Increasing - Again

The topic of food price inflation has surfaced again, with a lot of concern being expressed about the issue. Earlier today, I participated in a webinar for the US Chamber of Commerce on the topic. I presented data on the current rate of food price increases and then discussed monetary, demand, and supply-side factors contributing to the phenomena. For those who might be interested, my slides are here. Some of the key graphs are below.