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October 2012 Archives

veggies.jpgLet's do some word association: Farmers Market.

What comes to mind? Probably words like fresh, local, community.

How about competition... collusion... even price? Didn't think so! So it is with the economists and other academics who have studied the modern farmers market phenomenon in the US. The more romantic, "civic agriculture" aspects of farmers markets dominate our conversation about them, as well as the research literature. Consequently, there's been surprisingly little effort put into understanding how the "markets" in "farmers markets" actually work.

To an economist, one critical aspect of how markets work, of course, is competition. And one way to assess the state of competition is: what happens to prices when more vendors are competing to sell a product? In my recently published Masters thesis, an original Food Industry Center dataset allowed us to look at precisely this dynamic across five different metro areas. The data also let us look at the interesting question of whether farmers market prices seem to have much to do with prices at nearby supermarkets.

I'll share the outcome in a minute... but why do we care? After all, aren't farmers market shoppers supposed to be folks with plenty of money, who really just come for fresh food, open air, a sense of community, and supporting local agriculture? Do prices and competition even matter?

Here's my argument, in a nutshell. Farmers markets are exploding - even right through the recession, they opened at record pace. More and more Americans are shopping there, of all types, and the old stereotype is fading (the paper traces this development, at some length, through the literature). In addition, the US government has explicit policy goals to encourage more markets in lower-income neighborhoods, and to expand the use of WIC and food stamps in farmers markets. So while price is certainly not the only thing that matters at the farmers market, it does matter - more all the time.

A Look into the Produce Industry

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IMG_20121015_093754.jpgIn late September The Food Industry Center hosted its first Food Industry Leaders in the Classroom event of the school year. Bud Floyd and Barb Hochman of the Produce Marketing Association (PMA) presented to a group of students and faculty about opportunities in the produce industry and the role of the PMA Foundation. The PMA is the largest association for produce worldwide with over 2000 company members in 47 countries. They are vertically integrated with members from 'farm to fork'; seed companies to processors to distributors to retailers. They also have floral members as the supply chain for flowers matches closely to that of produce in that time is valuable with on average just 20 days from the time it is pick to the time it is consumed.

Bud Floyd talked about his career at CH Robinson and his support of the PMA Foundation. When looking ahead in the future, he spoke about how the produce industry fits into a healthy, sustainable, and consumer focused future. Working in the industry allows you have a positive impact on the world by having a career at the heart of health and wellness. He talked about the need for good talent to come into agribusiness as a whole, but especially the produce industry as world population increases and diets change. With an expected 9 billion people on the planet in 2050, agribusiness and the produce business only see growth in a dynamic and diverse industry.

Produce businesses and individuals who recognized the need to attract, develop, and retain talent to the global produce industry started the PMA Foundation. They are focused on cultivating relationships with University's to showcase the produce industry as a career choice. Both Bud and Barb talked of the many benefits including the opportunity to travel around the world when working in the field. They also are working to get people and keep them. Bud mentioned the relatively high cost of training an individual because the diversity of the industry, so retaining employees is essential for cost savings. Students interested in the produce industry are encouraged to work with PMA Foundation members.

The NYC Soda Ban

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On September 13 the New York City Board of Health approved of Mayor Bloomberg's proposal to ban the sale of most beverages over 16 ounces that have more than 25 calories per 8 ounce serving. Last winter we talked briefly about the possible effects of a soda tax, but today we are taking the opportunity to discuss the possible effects of an outright ban on large sodas. Just as some economists believe that taxing soda will result in positive public health outcomes, and some believe they won't, economists differ in their opinions on what the public health outcomes of the NYC soda ban will really be and why.

Leaving aside the emotional and political appeals of the freedom to choose or the role of government in our lives, the goal of the soda ban is to make New Yorkers healthier and fight obesity. The foundation of the ban rests on idea that, on average, soda accounts for a large portion of the sugar and calories in an individuals diet. Bloomberg believes that portion sizes drive consumption, so cutting the size of a soda will decrease the amount of soda the average person drinks. He is not alone. Economics journalist James Surowiecki wrote recently in The New Yorker that while the soda ban is easy to get around (one can buy two 16 ounce sodas), the proposal makes use of the default bias or status quo bias. He states that as humans "we look to outside instruct us." A concept in behavioral economics is that we are not always the best advocates of ourselves, and at these times one can be 'nudged' to make a better decision, such as an automatic opt in on retirement savings. These types of measures, such as making the default option of soda smaller are sometimes referred to as soft paternalism and are designed to change our perception of what is the norm.

Other economists, such as Freakonomics Blog contributor Daniel Hamermesh, point out that a decrease in soda consumption may not be from changes in behavioral norms, but can be explained through the "standard neoclassical considerations of money and time costs in demand." Anyone who has purchased soda at the movies or convenience store can see that soda exhibits economies of scale - the bigger the soda, the less you pay per ounce. Not only will two 16 ounce sodas cost more than one 32 ounce soda, Hamermesh points out that there is also the time cost of getting up or making an additional stop to order the second soda.

However, not all economists believe the ban on large sugary drinks will work to fight obesity or decrease soda consumption. Prominent Cornell University researchers Brian Wansink and David Just write in US News and World Report that they fear that Bloomberg's plan could be "a huge setback for fighting obesity." Their argument is years of food economics research shows that people will buy what they want, regardless of the default choice. Additionally, it is New York's poor that purchase soft drinks, not the wealthy. They state that a family of 3 may share a large soda to save money, and thus making them buy multiple smaller sodas is a regressive policy. If it fails, which they believe it will, it will be a huge setback for new and better ideas on how to fight obesity as people will continually refer to 'what happened in NYC'. The two researchers close by saying there are better ways to lower consumption of calories from soda. Promotions of healthier alternatives, which consumers love, could benefit both the public health and business.

What do you think? Will a ban on large sodas fight obesity in New York City, and Why?

Happy 100 Years Applied Economics!

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IMG_20120927_153902.jpgOn September 21, 2012 the Applied Economics program at the University of Minnesota celebrated its 100th year anniversary. The program originated as the agricultural economics department, but the name gradually evolved to reflect the many different types of research the faculty and centers were engaged in. The Centennial event focused on the idea of bringing economics to life and the role the department has, both historically and now, on things such as the establishment of cooperatives, SNAP participation, farm financial management, and more.

Dr. Brian Buhr, chair of the applied economics department spoke passionately about department's commitment to promote through education and engagement. He talked about the role of education in a democracy and how the department fits into the Land Grant Institution. Additionally, he spoke of the desire [of the department] to be practical and relevant by using economics to improve decisions and policy. Dr. F Abel Ponce de Leon, Senior Associate Dean for Research and Graduate Programs in CFANS, spoke of the role applied economics will play in the next 100 years as the world meets the demands of a growing planet. The centennial event had 16 different breakout sessions, focusing on the 4 different areas of focus in the department, including environmental and resource economics, food systems, growth development and trade, as well as public sector economics.

Four alumni presented on their work including Kent Horsager's work in the University of Minnesota Alumni Association, Vic Adamowicz's work at the University of Alberta on valuing the environment, and Mike Martin, Chancellor at Colorado State University, spoke about Minnesota's Land Grant Mission and Vision. Additionally Fahima Aziz, the 2012 outstanding alumni award winner talked about her work as a professor since graduating with a Ph.D. in Applied Economics. Dr. Aziz focused her presentation on the vision and goals of the Asian University for Women in Bangladesh, where she is currently Vice Chancellor.

Additionally, faculty presented on topics ranging from improving quality of education in developing country, to demographics in the new economy to trade agriculture and the environment. These presentations talked about the opportunity and need for interdisciplinary research in the economics field. Each of the centers within the department presented on their history as well as the variety of research being done by students and faculty associated with the Center. These centers include The Food Industry Center, The Center for Farm Financial Management, Center for International Food and Agricultural Policy, International Science and Technology Practice and Policy Center, as well as the Minnesota Council on Economic Education.

Congratulations on 100 years of successful and meaningful research Applied Economics, and good luck on the next 100!

The Thrifty Food Plan with Parke Wilde

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IMG_20120725_175039.jpgFor Hunger Awareness Month (September) Phoenix Mayor Greg Stanton lived off of a typical food stamp benefit of $29 a week, or about $4.16 a day in an effort to experience what life is like on a Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps, budget. Stanton reported that by the end of the week he had lost 4 pounds, and had even skipped meals to get by. In an attempt to understand, we talked to Parke Wilde, a professor in the Friedman School of Nutrition Science and Policy at Tufts University and author of US Food Policy Blog about SNAP, and having a healthy and adequate diet while on supplemental nutrition assistance.

For those who don't know, SNAP benefits are based on what is called the Thrifty Food Plan (TFP). The Thrifty Food Plan is designed as an optimization problem to minimize cost subject to specific nutrient requirements. The cost of the thrifty food plan varies by age, gender and number of people in the household. Wilde pointed out that for most, SNAP benefits are meant to be a supplement to people's incomes, not their entire food budget. Therefore, when Stanton lived off of $29 a week, the average payout for SNAP participants, realistically he should have been living off of about $41.70, TFP's weekly cost level for males age 19-50.

While the TFP is a budget designed to purchase in adequate diet as well as a nutrition education tool, SNAP does not dictate what someone eats. Wilde pointed out that when trying to answer the question if SNAP benefits are adequate to purchase a healthy and livable diet, it depends on one's expectations. The more constraints such as time, taste or diversity of food the more expensive the diet will be. SNAP benefits and the TFP do not factor in the time-cost of preparing food so participants, based on their time constraints, have to make the necessary trade offs between different recipes or prepared food. Depending on their tastes, they must also make the trade-offs between what foods to buy.

When asked about how to promote healthy eating, especially among SNAP participants, Wilde said he thought a couple different programs had potential. One of these programs being currently piloted is the healthy incentive pilot, a program that adds 30% of the cost of fresh fruit and vegetable purchases back to a participants SNAP card. While it is yet to be piloted, he also thought there may be potential in a variation of eligible foods program. For example, what would happen if soda were excluded? In this scenario it would be important to look at participation and nutrition outcomes in addition to the impact on buying soda.

For more information on the Thrifty Food Plan and to learn about the tradeoffs between nutrition quality and costs of food, see Joseph Llobrera, Flannery Campbell, and Wilde's Thrifty Food Plan Calculator.

About this Archive

This page is an archive of entries from October 2012 listed from newest to oldest.

August 2012 is the previous archive.

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