Recently by Sadie Dietrich

The Economic Impact of Food Waste

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IMG_20121218_171933.jpgIt is no secret that food waste is a serious issue. When talking about ending hunger and feeding an increasing population, environmental experts such as Jon Foley of the University of Minnesota Institute on the Environment often state that part of our strategy in feeding the world must include reducing food waste. The reason is the Environmental Protection Agency estimates that more than 34 million tons of food waste was generated in the United States in 2010, with only 3% diverted from landfills. Food waste is the single largest material in municipal solid waste. Worldwide, the United Nations Food and Agricultural Organization estimates that approximately one third of food produced for human consumption is lost or wasted every year.

With all the attention on how much food is wasted around the world, at The Food Industry Center we were curious about the economic impact of this food waste. Fortunately for us, Jean Buzby and Jeffrey Hyman of the USDA Economic Research Service published an estimate of the Total and Per Capita Value of Food Loss in the United States in the July 2012 issue of Food Policy. The authors focus on the retail value of food loss in the United States to estimate the economic impact.

Using Loss-Adjusteed Food Availability (LAFA) data published by the USDA ERS and Nielsen Homescan Data for retail food prices, Buzby and Hyman estimate the consumer and retail food loss value for more than 200 individual foods and categories of food. Their results are staggering. They estimate in 2008 "the total value of food loss at the retail and consumer levels in the United States was $165.6 billion." They find 41% of the value is losses in meat, poultry and fish, 17% of the value is in vegetables, and 14% of the value is in dairy products. Per capita, this represents the value of food waste to be $390 a year, almost 10% of average food expenditures. For an average household of 2.4 people, this represents 654 pounds of food not eaten at a retail value of $2.56 a day. These numbers offer a compelling case for consumers to reduce their personal food waste.

In addition to the retail cost, the authors also highlight the production costs of food waste. They state that in 2008 it cost an estimated $1.3 billion to landfill food waste, and the production of the wasted food took an estimated 300 million barrels of oil amongother costs. For this reason, the authors believe that looking for market based approaches that promote reducing food waste, while reducing the cost of production, will be the most successful approach to combat the environmental, economic, and societal implications of food waste.

Let us know what you think! What are some of your ideas to reduce food waste in the United States?



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The Value of Corporate Social Responsibility

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In response to a demand for sustainable and ethically produced goods, companies of all sizes around the world are integrating corporate social responsibility (CSR) into their business structure as a form of self-regulation. This is especially prevalent for Western companies working in third world countries where only following loose regulations may be perceived as not doing enough. While the debate on the value of CSR for a company rages on, Monika Hartman argues in Corporate Social Responsibility in the Food Sector, published in the March 2011 issue of the European Review of Agricultural Economics, the food sectors impact and dependence on the economy, the environment, and society will make CSR reporting especially relevant.

Hartman highlights that while the ethical argument for CSR is not contested, the economic argument is. The standard neoclassical view of the firm sees CSR as a moral hazard to shareholders, as the firm's only social responsibility is to maximize profits within the laws and regulations of the operation. Critics of this view have begun the search for the economic argument for firms to engage in CSR. Hartman summarizes the breadth of research on the impact of the CSR on financial performance, consumers, employees, and supply chain partners. The evidence is four mathematical meta-analyses that indicate a positive relationship of CSR and financial performance. She states that research has found "doing good does not have to be at the expense of doing well" and thus the question "has been moving from whether to when" firms benefit from CSR.

The impact CSR has on financial performance is generally reported through risk management, enhanced performance ,and brand differentiation. Food companies looking to reduce waste are not only decreasing the cost of operation, they are decreasing their environmental impact. Additionally, Hartman explains that CSR is gaining ground with employees. There is limited evidence that employees who value CSR will accept lower wages if they believe they are working in a socially responsible company. There is also support for the idea that employees stay longer and are more motivated, ultimately decreasing cost of production.

There is mixed evidence about CSRs when looking at how the consumer views the firm. On one hand, Hartman cites research that has found consumers weigh negative CSR information more heavily than they do positive, so only exceptional behavior is valued and rewarded. On the other hand, having a positive reputation helps mitigate negative press. Consumers who believe a company is socially responsible are less likely to abandon the company during a negative incidence. Additionally, Hartman states food companies are operating in highly competitive markets, and research has shown that CSR can provide a vehicle for differentiation.

Whether food companies choose to take a proactive approach to CSR or not, they may be finding pressure to engage in CSR from their supply chain. Nestle, PepsiCo, Coca-Cola, Walmart, and Unilever are all food companies who are supply chain members of the Carbon Disclosure Project. These are large food companies who have made commitments to sustainably sourcing of their products and who are encouraging supply chain partners to participate in the CDP.

Hartman closes by saying that while engaging in CSR can be valuable for a company, the larger the company the more resources there are to commit to it. Small food companies, however, receiving pressure and requests from different customers will incur a relatively high burden. Thus standards are needed in the industry to promote adoptive management, but not push out small-scale suppliers. As food is central to our lives, it is becoming more important for food companies of all sizes "to engage in a more proactive strategy with respect to CSR."



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Hurricane Sandy and the Food Supply Chain

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When Hurricane Sandy pounded the Eastern seaboard leaving millions without power, the food supply chains, from farm to fork, were inevitably affected. Crops and livestock across the Caribbean and United States were adversely affected, with some producers warning of short-term shortages and the Farm Services Agency of the USDA issuing $15.5 million in disaster funds for counties affected by Sandy. Plants and processors struggled to keep running and product moving as power outages, flooding, and damage across the region made food distribution difficult. Grocery stores flooded, resulting in the disposal of contaminated foods. Other retailers lost power, having to shut stores after suffering multi-day power outages. The problems were exacerbated by the shortage of fuel available around the NYC area.

Despite these challenges, we did not see reports of food shortages. Large cities such as New York City generally only have 2-3 days of food on hand. For this reason, the movement of food was a critical part of the Sandy recovery. New York City's Office of Emergency Management kept food supply companies at the decision making table. If needed, trucks carrying food into the city were allowed to caravan with police escorts along bridges and roads closed to the general public.

While the storm is not projected to have long term impacts on the food supply chain, the initial impact brought various groups together to work towards maintaining a steady food supply in the short-term. Anheuser-Busch switched a beer line in a Georgia plant to cans of potable water that was distributed to those in need of water. Damaged restaurants are slower at reopening, consequently decreasing food demand through the supply chain. Particularly for things like fresh fish which forces fisherman to adjust their supply. Additionally, the USDA issued waivers for SNAP participants to temporarily purchase hot foods with their benefits as well as reimburse participants who lost food in the storm.

The lack of a food shortage in New York City and the response on behalf of millions of people and companies after hurricane Sandy is a testament to the hard work and emphasis that local, state, and national emergency programs have placed on getting basic needs such as food and water to people. For more about Sandy relief efforts visit the Red Cross.



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The Food Industry Center goes to Dairy Academy

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IMG_20121129_175056.jpgOn November 2nd, The Food Industry Center co-hosted a Dairy Academy Tour for University of Minnesota students with the Midwest Dairy Association. The Dairy Academy is an educational program for retailers, wholesalers, and other students of the dairy industry, sponsored and organized by the Midwest Dairy Association (MDA).

The goal of Dairy Academy is to foster knowledge of the dairy industry from farm to fork,and help individuals understand the dairy supply chain. Our Tour schedule worked backwards, from fork to retail. We started at a local retail grocery store. Not only did the grocers give us insight into the layout of the store (i.e. the produce is to the right of the door because produce has high margins) we also learned specifically about how products in the dairy aisle are stocked and organized. Our discussion gravitated toward the current popular trends in yogurt products. Where there used to be just a few kinds of yogurt, the section is rapidly expanding to specialty varieties such as greek or kefir.

Our second stop was a visit to the First District Association cheese plant in Litchfield, MN. Our group toured the Association's new processing facility where we learned how the milk is inspected and taken in upon arrival, then subsequently processed into cheese. FDA is in the process of expanding, but currently receives over 4 million pounds of milk each day. Clint Fall, CEO of First District, who was a Food Industry Leader in the Classroom speaker last spring, explained that the byproduct of cheese making is whey. He noted that while cheese is still the big money maker for their cooperative, whey plays a critical role in improving the bottom line of plants.

During lunch, we sat down with local dairy producers to learn about their farms and their work with MDA. One farmer had invested in a methane digester to generate energy from waste. University of Minnesota dairy extension specialist Jim Paulson provided a discussion on sustainability and the challenges dairy producers face in the near future in demonstrating sustainable agricultural practices to consumers. TFIC researcher Dr. Marin Bozic and TFIC Director Dr. Mike Boland offered an analysis of the complicated structure of milk pricing.

The day ended with a tour of a local dairy farm. Our gracious hosts showed us around their 800 cow milking facility, explaining how sick cows are cared for and how the rest of the herd is moved through the milking parlor. The farmers were very proud of their facility and very eager to show us their family operation. At the farm, as well as the grocery store and the processing plant, our hosts explained why they enjoyed a career in the dairy industry and the opportunities and challenges they faced in the future.

The Midwest Dairy Association is a Sponsoring Member of The Food Industry Center. MDA represents more than 9500 dairy farms across 10 Midwest states. They are funded through the dairy check off program and receive $0.10 of every 100 pounds of milk sold by the dairy farmers. They work to increase consumer confidence as well as improve sales and understanding of dairy products. A very special thanks to Midwest Dairy Association and the local businesses that hosted us throughout the day!



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The Organic Thanksgiving Premium

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America just celebrated Thanksgiving! While a time for family and food, Thanksgiving also marks the start of the holiday spending season and a boost to the US economy. Thanksgiving itself is the most traveled holiday of the year, where AAA expected 43.6 million Americans to travel 50 miles or more for the weekend with 3.1 million of those traveling by air to their holiday destination. Even with the slow economy, the National Retail Federation projected 147 million shoppers to turn out for Black Friday.

Fortunately, for consumers, the price of a Thanksgiving dinner didn't increase much in the last year. Despite drought across much of America's farmland, the annual American Farm Bureau Federation's informal price survey of 155 volunteer shoppers across 35 states expected the cost of Thanksgiving for a family of 10 to be $49.48 compared to last years $49.20. Shoppers looked for the cheapest prices without using promotions or coupons. The following table highlights the price differences from last year.

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While not a formal comparison, at The Food Industry Center we were curious about the price premium on an organic Thanksgiving meal compared to a conventional Thanksgiving. I went to a local organic and natural food store and a conventional grocery store in St. Paul to record comparable prices of the items in the Farm Bureau survey. I followed the same method, looking for the cheapest priced product without the use of coupons and chose grocery stores as close to each other as possible.

The prices from the conventional grocer were quite close to the estimates from the American Farm Bureau Federation. If we assume the relish tray and the miscellaneous ingredients to be the same price as the Farm Bureau estimates, the conventional grocery price was $51.94, just over the AFBF estimates. Under the same assumptions the organic Thanksgiving dinner had a premium, coming in at $99.31, almost 2 times the price of the conventional grocer. For the most part on items such as peas, pumpkin pie, and dairy products, the prices were very similar. The organic premiums came from only a few items. The organic rolls and cranberries were both two times more expensive than the conventional ones. The organic turkey is where the price of an organic Thanksgiving really hits at a whopping $63.84 ($3.99/lb) for a 16 lb turkey compared to the price of $1.49/lb for a conventional turkey.

We hope everyone had a great Turkey Day, and wish safe travels for your trip home!



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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 cues...to 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.

The Economics of Pink Slime

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Pink slime, or lean finely textured beef (LFTB) grabbed the spotlight in March after prominent blogger, Bettina Siegel, launched an online petition to get it banned from public school lunches. ABC News did a report shortly thereafter, and the backlash against the product has been quick. BPI, LFTB's primary producer, has temporarily shut down 3 of its 4 plants and AFA Foods has declared bankruptcy. The media has been quick to cover the nutritionists', activists', and industry leaders' point-of-views, but what can the economist add to the conversation?

Monday afternoon, I sat down with economists Dr. Brian Buhr, an expert in livestock markets and Dr. Michael Boland, director of The Food Industry Center to discuss the economic issues around LFTB. The story they told was one of waste and margins. Dr. Boland hypothesized that part of the need for LFTB comes from a USDA grading system that rewards intramuscular fat levels (commonly called marbling) because it improves a flavor profile of fresh beef cuts desired by consumers. A beef carcass with high amounts of marbling requires additional lean trimmings when making leaner ground beef for hamburger patties. Dr. Buhr added, the market hole that LFTB filled was created when case ready boneless meat cuts were packaged at the processing plant rather than at the retail butcher. Consumers wanted boneless meat, but the lean trimmings next to the fat and bone were too difficult to recover by hand. This is when Eldon Roth developed a way to spin the fat away from the meat and quick-freeze the remaining meat, creating LFTB. Additionally, Buhr and Boland noted the U.S. meat industry must compete with leaner foreign imports and that LFTB contributed to gains in meat yields because it reduced waste. Russell Cross, an animal science researcher at Texas A&M, estimates that 13 pounds of beef per animal is lean trimmings. He also estimated we'd need to raise at least 1.5 million more cattle every year to make up the loss if lean trimmings were discarded. In a time where 27% of food in America gets thrown out, Buhr pointed out the ethical ramifications of increasing already high food waste.

As economists, their analyses quickly steered towards pricing. When asked what the backlash would do to the market, Buhr pointed out the alternatives are more expensive. With a short supply of cattle and record high meat prices already, cutting out the use of lean trimmings will result in even higher prices. He added that an important element missing in the conversation is the regressive nature of increasing prices; making a lean complete protein harder to access for the poor than the rich. When asked if the effects on the meat market would be lasting, both economists were hesitant to answer. Boland noted how BPI and other producers are hoping that labeling retail products 'made with lean trimmings' will improves sales and calm consumer fears. He predicted that with meat demand as high as it is, the industry will find a new way to utilize lean trimmings because they can't afford not to. They both agreed the long-term backlash depends on what consumers are upset about. Are consumers upset about the ammonium hydroxide or the trimmings? Buhr commented that the use of ammonium hydroxide in food is regarded safe by the FDA. Both added they were surprised how quickly the backlash initiated a downhill slide for these companies, especially considering it did not stem from a food safety issue. Buhr closed by saying the issue illustrates the meat industry's need for better communication with its consumers and a proactive approach to thinking about what the next 'pink slime' is to get ahead of the conversation.

Join us on Thursday as we continue the discussion of livestock markets and the economics of using antibiotics as growth promoters in livestock feed.



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