Foresight on Food Politics

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Thursday March 22, 2018

CNBC reported in early August that with average retail egg prices at a market low of just $1.33 per dozen, consumers are—surprise!—"balking" at paying the higher cost of cage-free eggs. CNBC's grim news arrived just as the country's powerhouse animal-rights group, Humane Society of the United States, was continuing to publicly flog compliant retailers to "voluntarily" commit to the society's vision of a cage-free future by imposing the demand on their egg growers.

CNBC highlights one grower in California—ground-zero for the cage-free movement, where citizens backed a ballot initiative in 2008 to legally require that eggs in that state eventually be raised without benefit of the traditional cages. The CNBC-featured grower complains that with costs of $1 to $2 more per dozen than growers of conventional eggs, he is now being forced to sell eggs at below his cost to produce and to cut his flock.

"Despite promises by retailers and restaurants to convert to cage-free," sums up CNBC's Jane Wells, "some of them are starting to change their minds. And that's no yolk."

Here's the not-so-funny lesson for the food chain: The market stubbornly prevails. Food producers and retailers who rush to try to turn political virtue-signalling into a marketable product trait may get stuck paying the costs. That's especially a risk when outside interests like HSUS push through legislation and regulation without regard for either true consumer demand or food-production realities.

The latest evidence of that reality: University of Connecticut ag economics professor John Bovay, in a study scheduled for publication in the journal Agricultural Economics looked at the impact on consumer demand when tomato producers, under pressure from the U.S. Food and Drug Administration, adopted similar "voluntary" food-safety standards in the face of food-poisoning outbreaks in 2007.

Florida's tomato-grower organization wrote the requirements into a federal marketing order that applied to essentially all tomatoes grown in Florida, while the California grower cooperative whose members produce the vast majority of fresh California tomatoes likewise required it of the cooperative's members.

Bovay used USDA terminal market price data and the shipping-quantity data to track consumer demand for tomatoes from five different production regions before and after the standards were imposed: Florida and California, and Mexico, Canada and the rest of the United States.

His analysis shows no evidence that demand for fresh tomatoes improved in response to the collective food-safety practices. Adopting standardized, collective, food-safety practices was relatively unimportant in determining demand for fresh tomatoes, he says, even as FDA and consumer groups were demanding farmers produce them.

The pattern is similar to the outcome of mandatory country-of-origin labeling (COOL) of seafood, meat and other perishable commodities in 2002's Farm Bill, he says. Although COOL was shown to have an effect on demand for shrimp, according to one study, other work showed it made no significant impact on demand for U.S.-raised meat.

The implication for produce growers and handlers who adopt supplier standards is as grim as it is for the CNBC egg grower: They are likely to incur additional costs—$10,400 per regulated farm in the tomato growers' case—without improving either the perceived quality or demand for their products. "When the costs of complying...are passed through to consumers," Bovay notes, "some substitution to products unaffected by the rule (and with lower relative prices) is likely to occur."

If benefits to society do come out of those standards, whether in the form of reduced food-borne illness in the tomato growers' case or in the form of questionable improvements to animal welfare in the case of cage-free eggs, farmers, handlers and retailers are likely to subsidize those benefits, not get paid for them.

The effect should make perfect theoretical sense, writes Swedish organic advocate and sustainability consultant Gunnar Rundgren. The unregulated market offers no guarantees. And he believes that free market is not at all efficient in translating a consumer's true willingness to pay for indirect benefits of a product into an increase in income for the farmer who agrees to make changes in production to accomodate. In the particular case of "fair-trade" items, he says the balance of power still remains tilted against the farmer.

"Buyers...dictate most of the conditions. Their view of what is fair and just is what is codified; as are their definitions of quality rules. There are no codes of practices for the supermarkets to follow, they can and sometimes do mark up fair trade products as much as they want. The consumers who buy the products are also not subject to any commitments—they can buy or not buy on a whim. The producers," he writes, "are mainly objects in the marketing..., in much the same way as the fake Grandma is on a biscuit-maker’s packaging."

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The farm and ranch families represented by Nebraska Farm Bureau are proud sponsors of the Farmer Goes to Market program. We take great pride in supporting Nebraska's agricultural foundation. A key part of that effort is to make sure we produce safe and affordable food. This newsletter is an important part of our effort to connect the two most important parts of the food chain -- the farmer and the grocer -- with the goal of increasing consumer awareness and information about how their food is raised in Nebraska.

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