Trade and Resilience

Stories continue to emerge about inflation and supply chain disruptions throughout the economy. When talking to reporters about these issues, I’ve routinely been asked questions premised on the idea that our dependence on imports and exposure to international markets and trade are partially at fault for the volatility. The stories about ships being backed up at ports, the increasing prices of containers, and shortages of truck drivers all contribute to this narrative.

However, my view is that a more localized world, less reliant on trade, is one - at least in the realm of food and agriculture - that would generally be more vulnerable to random supply shocks, not less.

Consider an extreme example. Imagine a small community, Isolationville, exists where the citizens eat only what is grown locally within the community. Now imagine an adverse shock. Perhaps Isolationville experiences a drought in the growing season, or a wildfire, or a flood. Or, a tornado wipes out all the greenhouses or food storage. Isolationville no longer has enough food to feed it’s citizens. Food prices will, as a result, spike in Isolationville. Maybe Isolationville can turn to it’s neighbors in it’s time of need. But if the disaster is climate or weather related, their neighbors’ food supplies are also likely to be adversely affected at precisely the same time Isolationville is in need. Moreover, if their neighbors are like Isolationville - only focused on internal needs - they haven’t planned to plant and grow more in anticipation of their neighbors needing help.

Now, imagine a different community, Cosmopolitanville. Citizens of Cosmopolitanville eat some of their food from local sources but also import food from all around the world. Suppose Cosmopolitanville experiences the same adverse shock as Isolationville - the drought, fire, flood, or tornado. What happens to food prices and food availability in Cosmopolitanville relative to Isolationville? Because Cosmopolitanville’s diet is less reliant on local conditions, it is also less prone to local supply shocks, and Cosmopolitanville will have less food price inflation and less food insecurity than Isolationville despite experiencing the exact same shock.

Seen in this way, trade can act as a form of insurance for food consumers against adverse local shocks. The old saying “don’t put all your eggs in one basket” applies here. Relying only on local production is literally putting all your eggs in one local basket. Of course the same problem would arise if Cosmopolitanville only imported food from a single foreign location. A more resilient strategy would entail trading with a large number of partners unlikely to be affected by the same adverse shocks.

One advantage of the agricultural world in which we live is that we have large globally-linked commodity markets for many products like corn, wheat, and pork. A disaster in any one geographic location may have an impact on the global prices of these products (depending on the locations size and production volume), but it will be muted by production in other regions. Moreover, the rising prices in an adversely affected location serve as the profit signal for firms to incur the costs to shift gears and re-direct food and agricultural products to those areas where it is most needed.

My Purdue colleague, Tom Hertel, serves on the Scientific Group of the UN Food Systems Summit 2021, and as a part of that effort he recently co-authored a paper addressing “Building Resilience to Vulnerabilities, Shocks and Stresses.” Here is what they wrote on the subject of trade as it relates to resilience:

“There are important trade-offs between integration into global supply chains and world markets, on the one hand, and the desire for locally sourced products, with shortened supply chains and greater food self-sufficiency, on the other. Better integration into world markets can ensure food security in the face of local drought, flooding and other natural disasters. In pre-colonial India, weather-induced famines were common, resulting in tens of millions of deaths when flooding or drought destroyed local crops. However, with the introduction of railroads in colonial India, Burgess and Donaldson (2010) find a dramatic reduction in the number of deaths associated with comparable extreme weather events, suggesting that improved market integration greatly enhanced food security by allowing for timely food imports. Recent studies of the role of international trade in mitigating adverse impacts of climate change reinforce the benefits of globalization for resilience to adverse climate impacts (Baldos and Hertel 2015; Gouel and Laborde 2018). However, when the source of adverse shocks is the global market, countries may have an incentive to insulate themselves from these developments. The problem with this strategy is that, the more countries insulate themselves from world markets, the more volatile those markets will become, as was found in the context of the food price crises of 2006-2008 and 2010-2011 (Martin and Anderson 2012). This harms those countries – often the poorest – who rely on these markets for critical food imports.”

The Ebbs and Flows of Fashionable Food

A recent article in Forbes ran under the headline “Regenerative Agriculture: The Next Trend In Food Retailing.” It appears regenerative is a trend that is taking a while to get going. Here is my comment on an article in the New York Times from almost exactly one year ago today.

Regenerative is the new sustainable, which was the new local, which was the new organic. It's a halo treadmill. And, a corporatization treadmill. https://t.co/RNDBGBo33U

— Jayson Lusk (@JaysonLusk) August 28, 2020

As shown in the figure below - taken from a presentation I gave about a month ago - Time Magazine had a cover image that said “Forget Organic. Eat Local” back on 2007. We subsequently seemed to move from local to sustainable. Now it’s regenerative. Next, it will be something else.

What causes the rise and fall, or rather the rise and plateau, of various food marketing claims?

None of these movements would have any traction if there wasn’t at least some underlying demand from consumers and investors for lowering the environmental impacts of food production, improving our health, giving farm animals a desirable life, or improving incomes of small farmers. That these base concerns exist provides the context for new movements to make their case for a place on dinner plates. Given that background context, upswings of food movements are driven the following factors.

• Desire for authenticity and trustworthiness,

• Myth making and seeking (“silver bullet” solutions that solve all the food system ills - environment, health, food security, and otherwise - seem particularly persuasive),

• Romanticism of the small and natural,

• Status-seeking (food as fashion), and

• A core of committee devotees who are able to garner institutional support for the movement.

At some point, these movements lose their luster and become blasé. It’s not that the movement “dies” (e.g., organic food still appears to be experiencing strong sales growth), but rather the movements eventually lose their moral force and cultural cache. Why?

Here are a few thoughts.

• As a movement grows, there is a need for standardization. What, exactly, is “local”? Food grown in your same state? Or region? Within 100 miles? Or 50 miles? What is “regenerative”? I still don’t know the answer to the last one. In the case of organic, competing definitions and conflicting standards ultimately led to U.S. federal standards and a certification program in 2002. While certification helps improve transparency and consumer communication, choices made in the process can alienate “true believers.” Consider, for example, the contentious issue of whether hydroponic crops can obtain an organic certification. Whatever decision the USDA made on that question (and countless others) was going to create winners and losers, with some people arguing that the movement has lost it’s way to gain mainstream appeal.

• Corporatization and greenwashing. When these movements are small and growing and attracting consumers, the profits generated attract new entrants and competition, which eventually include “Big Food” and “Big Ag.” Large players can bring new knowledge, economies of scale, and open marketing channels, which helps bring down cost and helps the movement grow. However, many of these food movements are premised on the appeal to “natural” and “small,” and in many ways the movement ideology is often antithetical to scale. The very things that need to happen to mainstream a movement undermine credibility among a certain set of movement promoters.

• Science evolves. When a movement is new and undefined, as “regenerative” is at the moment, it is easy to attach to it all of one’s hopes and dreams of food system reform. But, as the movement becomes more defined and standardized, scientists begin to conduct studies and find that the world is complex and nuanced. Studies find, for example, that organic food isn’t substantively more nutritious than conventionally produced food; and, that while organic uses fewer synthetic pesticides it also has lower yields and thus requires more land to produce the same amount of food. Studies find that localness of food has little relationship with greenhouse gas emissions. And so on. A movement loses some of its luster when it isn’t a silver bullet.

• Mainstreaming removes prestige. When everyone can have organic food, it is no longer cool to eat organic food. Part of the appeal of high-end fashion, in both clothes and food, is exclusivity. The high price point helps these products maintain their position as status symbols, but as standardization, corporatization, competition, and scale economies come about, prices often fall. For some people, and for some goods, this can lead to a type of Veblen Good Effect, where demand falls as prices fall because the good loses its position as a status symbol.

It’s unlikely we’ll ever reach a point where there aren’t ebbs and flows in sustainability-related food trends, but there may be some ways to potentially partially step off the treadmill. One possibility is to move toward more outcome-oriented and objective (rather than process-focused, subjective) sustainability labels. That said, the advent of nutrition fact panels seems to have done little to stop the cycle of dietary-related fads and trends from low fat to low carb to high protein to gluten free to plant based. Maybe these ebbs and flows are just a part of human nature.

Trade as Insurance

With the food supply chain disruptions that have come from COVID-19, weather, and other factors, there has been a lot of discussion about how to increase resilience and security of food supply. There is common view that more local food production-consumption systems would be more resilient. That may be true if it is layered on top of the existing food supply chains, but not if one envisions local food instead of the existing food system.

I wrote about this in my 2013 book, The Food Police:

“It would be foolish to invest all your retirement savings in a single stock. The financial experts tell us to diversify. And if we shouldn’t keep all our financial eggs in one basket, the same goes for the real ones. One of the things that makes farming unique compared to other businesses is its unusually large reliance on the weather. An unexpected drought, a rain at the wrong time, an early freeze, or a hail storm can devastate a whole farming community or even an entire region. While farmers protect themselves financially against these kinds of risk by buying crop insurance, what about the food consumer?

In a world of extensive food trade, there is little need to worry about the consumers of Northville if their farmers face a flood because Northville consumers can readily buy from elsewhere. But a world where the locavores have tied the hands of farmers in Northville, Southville, Eastville, and Westville to supply only their local consumers is one where a weather disaster in one location could have dire effects on the consumers that live there. After all, agriculture is a business that requires long production lags. A farmer can’t produce potatoes on a whim – it takes months of planning and foresight. The world sought by the locavores isn’t more food secure, it’s much riskier - both in terms of the availability of food and the prices we’d have to pay. ”

Against that backdrop, I was interested to read this new paper by Sandy Dall'Erba, Zhangliang Chen, and Noé Nava just published in the American Journal of Agricultural Economics. They look at trade across the United States and explore how interstate shipments, and farmer’s profits, are affected by weather.

“Our results indicate that crop grower’s profit is sensitive to local weather conditions and is positively affected by exports. The latter, in turn, significantly increase when destination places experience a drought, a result confirmed in all the robustness checks we performed on our gravity estimates. Because a sudden drought in destination places reduces their crop production but not the demand from their livestock and food manufacturing sectors, imports increase. Inversely, a drought reduces the capacity for a state to export, and further investigations through a decomposition of the intensive and extensive trade margins allow us to highlight that droughts decrease the exported volume and value more than the number of destinations places to which a state exports.

We also estimate the capacity for trade to mitigate the adverse effect of future weather conditions and discover that it is worth $14.5 billion (in 2012 prices). Indeed, a $11.2 billion nationwide loss in crop growers’ profits is expected when trade is disregarded, as this traditional approach exacerbates the local impact of future local weather conditions. However, when trade is accounted for, its presence turns our projections into a $3.3 billion gain, or a 3.4% percent increase in annual profit. ”

In our quest to increase resilience through local foods, let’s not also forget about the impact of local weather on our ability to feed ourselves solely through local sources.

***

P.S. One of the authors of this latest paper let me know he has another working paper directly addressing a different aspect of local foods issues.

Migration, Agriculture, and Local Food

I recently listened to an episode of a Radiolab podcast entitled There and Back Again. The episode is about the history of science related to the migratory patterns of birds and other animals. It seems our forebearers had some far-fetched answers to the question “where do the animals go in the winter?” Some folks apparently thought birds transformed into other species or even flew to the moon to escape winter. The episode also delves into the modern day science of tracking animal migratory patterns using sensors and satellites. It’s amazing how many thousands of miles animals, birds, fish, and insects travel on an annual basis; there are even some birds that fly annually from the north to south pole.

All this got me thinking about our modern-day discussions about food and agriculture. A popular notion today is that we should eat what is local and eat what is in season, and there is a notion that eating in this manner is more natural, perhaps closer to the “good old days” when our ancestors weren’t plagued by the modern conveniences of hyper processed food.

It is interesting to contrast this local, seasonal view of what is presumably natural for humans, with what is actually quite natural for birds and many other animals who expend great effort to avoid eating seasonally. In our modern world, we have figured out how to specialize food production in areas with comparative advantages (e.g., veggies in California, citrus in Florida, cherries in Michigan, corn and soy in Indiana) and then move the food to the people by boat, rail, and truck. That is, we’ve learned to migrate food to people rather than the old “natural” way of migrating people to the food. Indeed, before humans discovered agriculture, we spent our time following our food while it migrated across the landscape. For example, some native American tribes seasonally followed the bison across the Great Plains. Eating locally and seasonally is decidedly not natural.

Now, I’ve argued that whether something is “natural” has no moral bearing per se, but this episode helps draw out some of the apparent contradictions in our beliefs about naturalness and historical reality. By the way, I’m looking forward to reading Alan Levinovitz’s forthcoming book entitled Natural: How Faith in Nature’s Goodness Leads to Harmful Fads, Unjust Laws, and Flawed Science.

Food Environment or Food Preferences?

“The public health literature has documented that lower income neighborhoods suffer from lower availability of healthy groceries and that lower-income households tend to eat less healthfully. In some circles, this relationship has been taken as causal, with significant policy attention devoted to improving access to healthy groceries in low-income neighborhoods.”

That's from a new paper by Hunt Allcott, Rebecca Diamond, Jean-Pierre Dubé.  This is one of the most rigorous investigations I've seen of the causal impacts of the "food environment" (in this case, the presence of grocery stores and movements of people into "healthier" neighborhoods) on dietary choice. 

What did they find?  From the conclusions:

“Entry of a new supermarket has a tightly estimated zero effect on healthy grocery purchases, and we can conclude that differential local access to supermarkets explains [no more] than about five percent of the difference in healthy eating between high- and low-income households. The data clearly show why this is the case: Americans travel a long way for shopping, so even households who live in “food deserts” with no supermarkets get most of their groceries from supermarkets. Entry of a new supermarket nearby therefore mostly diverts purchases from other supermarkets. This analysis reframes the discussion of food deserts in two ways. First, the entire notion of a “food desert” is misleading if it is based on a market definition that understates consumers’ willingness-to-travel. Second, any benefits of “combating food deserts” derive less from healthy eating and more from reducing travel costs.”

and

“we find that moving to an area where other people eat more or less healthfully does not affect households’ own healthy eating patterns, at least over the several year time horizon that the data allow. ”

The authors end by concluding that policy efforts to alter local food supplies are likely to be ineffective.  Their data strongly supports this conclusion.  They recommend, instead, to use public policy to improve health education.  I'm surprised they make this recommendation because their study provides no indication that more education would be a cost-effective intervention.  If anything, what their study shows is that economic development (turning low-income households into high-income households) is the most effective way to improve the healthiness of dietary choice.  

Hat tip to Alex Tabarrock at the Marginal Revolution blog who is highly skeptical of the food desert concept.