Fred Kuchler

Economics of Food Labeling

Federal intervention in food labeling is often proposed with the aim of achieving a social goal such as improving human health and safety, mitigating environmental hazards, averting international trade disputes, or supporting domestic agricultural and food manufacturing industries. Economic theory suggests, however, that mandatory food-labeling requirements are best suited to alleviating problems of asymmetric information and are rarely effective in redressing environmental or other spillovers associated with food production and consumption. Theory also suggests that the appropriate role for government in labeling depends on the type of information involved and the level and distribution of the costs and benefits of providing that information. This report traces the economic theory behind food labeling and presents three case studies in which the government has intervened in labeling and two examples in which government intervention has been proposed.

Evaluating forecasting models of farmland prices

Abstract A set of rigorous diagnostic tools is used to evaluate the forecasting performance of five farmland value models. The models are two variations of the present-value model (PV1 and PV2), an ARIMA, a vector autoregression (VAR), and an error-correcting model (ECM). One- and three-period-ahead out-of-sample forecasts are evaluated in terms of forecast accuracy (root mean-squared error) and the ability to predict turning points (Henriksson-Merton test). By the Henriksson-Merton test, the error-correcting model generates superior forecasts at both forecasting horizons. The vector autoregressive model performs poorly by root mean-squared error criterion, as does ARIMA in predicting turning points in the three-period-ahead forecast.

The Economic Benefits of Nutrition Labeling: A Case Study for Fresh Meat and Poultry Products

New rules issued by the U.S. Department of Agriculture requiring provision of nutrition information on raw meat and poultry products may encourage consumers to make healthier food choices. Reduced intake of fat and cholesterol may prevent future cases of stroke, heart disease, and cancer. The benefits of these rules are estimated to be

Do health benefits explain the price premiums for organic foods

62 to

Pesticide regulatory decisions: Production efficiency, equity, and interdependence

125 million annually.

An error correcting model of farmland prices

This paper examines whether the dollar value of health benefits that consumers derive from organic food could account for the price premiums they pay. Price and sales data from realized transactions are inadequate to reveal consumer preferences for health benefits. Our exploratory alternative method estimates the value of health benefits to a hypothetical consumer who assesses risks as risk assessors do and values a unit reduction in all fatal risks equally, regardless of the source of any risk. Under these assumptions, our estimates of the value of health benefits derived from substituting an organic diet for a conventionally produced diet approach zero. For a common organic product, apple juice, we estimated the cost of reducing risks by buying the organic characteristic. The cost of averting each adverse health outcome is 27 to 461 times as large as the value of benefits. If the characteristics of our hypothetical consumer match those of the typical consumer, two inferences follow from our estimates of benefits and costs. First, the typical consumer is unlikely to purchase organic food for health reasons. Second, consumers who choose organic food could differ from typical consumers in several dimensions: perceptions of the level of risk from dietary intake of pesticides, perceptions of the nature of adverse health outcomes from pesticides, or in the importance attached to other attributes of organic food. Our analysis is exploratory partially because there are several behavioral assumptions implicit in the values we calculate. Also, we focus on risks that can be quantitatively estimated, measuring the probability of an adverse health outcome with readily accessible data. Currently, only cancer risks can be measured in terms of probabilities from readily accessible data.

Offsetting behavior in reducing high cholesterol: Substitution of medication for diet and lifestyle changes

EPA examines the benefits and risks of an agricultural pesticides use when deciding whether or not to cancel its registration, but often neglects two effects which could change the decision: (1) the distributional effects on farmers using and not using the pesticide, and (2) the interdependence among regulatory decisions. This article examines the economic implications of banning several corn and soybean pesticides, highlighting these two concerns. Generally, banning one pesticide could have little effect, but banning all pesticides for a pest problem could have substantial effects. However, some pesticide users could suffer significant losses even though the aggregate effects are small.

The changing role of consumers and suppliers in a food safety event: the 2006 foodborne illness outbreak linked to spinach

Granger has demonstrated that if two variables are integrated of order one and are conitegrated, they can be modelled as having been generated by an error correction mechanism. Cointegration and error correction systems allow long-run components of variables to obey equilibrium constraints while short-run components are allowed to have flexible dynamic specification. Using data from five Corn Belt States in the US, we show that farmland prices and cash rents are each integrated of order one and are model is estimated. The error correction term is found to be significant in both equations, indicating Granger causality running in both directions. Historical simulation of the model is performed. The price equation peroformed better although both equations simulate reasonably well.

Improving Health Through Nutrition Research: An Overview of the U.S. Nutrition Research System

Abstract Being diagnosed with a diet-related health condition like high blood cholesterol might compel an individual to choose a healthier diet, thereby reducing disease risks. Adding the option of medication, like statins, makes the direction of diet-quality choices theoretically ambiguous. This study estimates how dietary quality correlates with high cholesterol diagnoses and medicine use. Results indicate that individuals diagnosed with high cholesterol consume less cholesterol, fat, and saturated fat, and smoke less. However, using cholesterol-lowering drugs is correlated with increased fat and saturated fat intake, and larger waist size, after accounting for the endogeneity of choosing to use medicine. Findings highlight the inelasticity of diet choices.

Labeling Biotech Foods

ABSTRACT This article provides a means for testing whether buyers or sellers are responsible for a drop in sales following a market shock. We show that suppliers’ responses dominated the market reaction to the 2006 US Food and Drug Administration warning to avoid fresh spinach contaminated with potentially deadly bacteria Escherichia coli O157:H7. A modified Durbin-Wu-Hausman test for temporary price endogeneity is developed and used in a leafy green vegetable demand model. Test results indicate the price of bagged spinach was exogenous before the announcement but endogenous for approximately 12 weeks afterward. We show these results are consistent with the notion that suppliers temporarily limited the availability of spinach to consumers. Instead of consumers choosing the quantity purchased given exogenous prices, it was suppliers who limited the quantity marketed and consumers’ choices established the market price.