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On Rising Food Prices and Low Inflation

Last week, NPR had a fine, short piece on the disconnect between consumer’s very real observations of rising food prices and economist’s less than comforting assertions about low inflation.

Economists track inflation through the Consumer Price Index which looks at a basket of goods that tend to have stable prices to screen out volatility. At 2.1 percent it is currently well below the historic average of 3.2 percent. This is the rate for things like TVs, phones and refrigerators. What it doesn’t look at is two of the categories that consumers are the most sensitive to: food and fuel.

Marilyn Geewax does a fine job explaining why food costs are up well above the 2.1 percent rate of inflation, namely the impact of three years of drought on cattle stocks and the PED virus that has been worrying the nation’s pork supply.

I think, however that a finer point needs to be put on the matter. Inflation is a very specific term for economists and it is a form of rising prices, but it is not synonymous with rising prices and that is something that is not very well understood. In fact, I know people with degrees in economics that can’t seem to keep the difference between inflation and rising costs straight. What economists are looking at when they look at inflation is signs of ‘too much money chasing too few goods’. It’s a money supply problem. Too much money in circulation, interest rates too low, employment levels too high, factors like that. What it isn’t is a measure of increased costs and stresses in supply chains. Three years of drought reducing winnowing cattle stocks. Natural gas shipments displacing grain shipments in Canada. The PED virus cutting pork stocks. Those are all reasons that food and fuel costs can go up, but they don’t constitute inflation.

Go back to the two posts we did on the price of oats coming from Canada. I looked at the impact of a tough winter and Canadian oat farmer Ron Rein explained the impact of rail policy in Canada. It was stresses in the supply chain that were causing oat prices to rise, not inflation. Cold comfort, but worth understanding the difference. If only so that you don’t throw your cereal bowl at the radio when they announce that inflation is still low. You wouldn’t want to waste that milk. It’s getting expensive.

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The Road to Fairtrade (and points elsewhere) is Paved with Good Intentions

If you aren’t addressing the underlying economics and shaping the market through policy, you are swimming upstream at best. Some might say pissing in the wind.

According to Mr Sylla’s calculations, for each dollar paid by an American consumer for a fair-trade product, only three cents more are transferred to the country it came from than for the unlabelled alternative.

SPECIAL MAY DAY EDITION | Volume One: Fast Food

 photo ScreenShot2014-05-01at24014PM_zps75fdbc29.png
Daniel X. O’Neil

The Minimum Wage Worker Strikes Back
Sarah Kendzior | Medium.com

At 24, Patrick is a fast food veteran. Over the past eight years, he has worked at seven different franchises. He started out at America’s Incredible Pizza Company at the NASCAR Speedpark in St. Louis, Missouri, the city where he grew up and still lives. He thought a fast food job would keep him on his feet while he figured out his life. He did not know it would become his life. Now he is captive to the hustle, always moving and going nowhere.

“You pick up something easy to get stable,” he says. “And on your quest to get stable, you end up getting stuck. You either fall or you stay where you are. Or you fall staying where you are.”

How One Protest Turned Into a Fast-Food-Worker Movement
Kristina Bravo | TakePart | 4 April 2014

“So we started talking to workers at fast-food places and asking them if they wanted to organize for higher pay,” New York Communities for Change’s Jonathan Westin said in an emailed statement. “There was not a worker we talked to who wouldn’t sign onto the campaign.”

The movement became known as Fast Food Forward. It held its first citywide protest in 2012, and the movement has since spread across the country. The federal minimum wage still stagnates at $7.25 per hour, a rate that hasn’t budged since 2009. But a lot of progress has been made on the state level. As of Jan. 1, 2014, twenty-one states exceed the federal minimum wage; others are expected to follow suit. Here’s a look back at the American fast-food workers’ fight for livable pay.

Fast-Food CEOs Make 1,200 Times As Much As One of Their Workers—and They Want to Keep It That Way
Zoë Carpenter | The Nation | 24 April 2014

David Novak is the chief executive of Yum! Brands, the parent company that runs Pizza Hut, Taco Bell and KFC. Last year, while Yum! Brands and other restaurant companies lobbied against raising the minimum wage, Novak made at least $22 million—more than 1,000 times what the average fast-food worker makes in a year. In return for paying him so much, Yum! got a tax break.

The National Restaurant Association, which represents Yum! and other restaurant companies, is expected to launch a lobbying blitz in Washington next week against a minimum wage increase. For years the restaurant industry has fought to keep the wage floor low, all while rewarding its CEOs with increasingly large pay packages. As a result, the food industry is now the most unequal sector in the American economy. Thanks to a tax loophole that encourages companies to raise “performance pay” for executives, taxpayers are effectively subsidizing the imbalance.

While inequality between low-level workers and CEOs manifests in all areas of the economy, a new report from Demos concludes that the gap within the food industry is exceptional. Between 2009 and 2012 the CEO-to-worker pay ratio in food services and accommodation was about twice as large as most other sectors. In 2012, fast-food CEOs earned 1,200 times as much as the average employee.

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Daniel X. O’Neil
Fast Food Pulls a Fast One
Michael Winship | BillMoyers.com | 29 April 2014

Maybe you’ve even read about the wage theft lawsuits that have been filed against McDonald’s and Taco Bell, or the recent settlements in New York State against McDonald’s, Pizza Hut and Domino’s Pizza that have led to payments to employees of more than $2 million.

But, much in the way that Thomas Piketty’s book Capital in the Twenty-First Century lays out the hard data backing up everything we’ve believed about the reality of vast income inequality in America, a trio of new reports confirms with solid statistics what we’ve suspected about the fast-food industry — that those in charge are gobbling up the profits voraciously while their workers are forced into public assistance. What’s more, our tax dollars are subsidizing both the fast-food poor who need the help and the fast-food rich who don’t.

First, a recent data brief from the National Employment Law Project (NELP) notes, “Lower-wage industries accounted for 22 percent of job losses during the recession, but 44 percent of employment growth over the past four years. Today, lower-wage industries employ 1.85 million more workers than at the start of the recession.” In other words, as The New York Times more succinctly put it, “The poor economy has replaced good jobs with bad ones.”

Subway leads fast food industry in underpaying workers
Annalyn Kurtz | CNN Money | 1 May 2014

McDonald’s gets a lot of bad press for its low pay. But there’s an even bigger offender when it comes to fast food companies underpaying their employees: Subway.

Individual Subway franchisees have been found in violation of pay and hour rules in more than 1,100 investigations spanning from 2000 to 2013, according to a CNNMoney analysis of data collected by the Department of Labor’s Wage and Hour Division.

Hamburgled: Nine Out Of Ten Fast Food Workers Have Experienced Wage Theft
Alan Pyke | Think Progress | 2 April 2014

A new poll finds that 89 percent of fast food workers nationwide say they experience wage theft. That means that nine out of every ten fast food workers doesn’t get the pay they earned, according Hart Research Associates’ findings. The most common violation, workers report, is off-the-clock work. About a quarter of those surveyed had worked over 40 hours in a week on some occasions, and half of that group said they didn’t get overtime pay for those hours.

The poll coincides with testimonials from two former McDonald’s managers who say these sorts of illegal labor practices were routine in their stores for years.

Pushing Back Against the “Hungry China Is Going to Starve The World”

china-rice-1024x710
Chart via Thomson Reuters

Zhang Hongzhou a research fellow at Nanyang Technological University in Singapore pushes back against the “A Hungry China is Going to Starve World and Despoil the Planet” narrative.

However the key to whether the global grain market can meet China’s huge demand is the global food producing capacity. China is feeding over 20 per cent of the world population with only eight per cent of the world’s arable land, and six per cent of the world’s water resources. This means the rest of the world, with over 92 per cent of global arable land and 94 per cent of the world water resources, only produced food for less than 80 per cent of the population. In other words, there is huge potential to increase global food production.

As long as China enters the international food market in a gradual and transparent manner, giving the global agricultural sectors sufficient time to respond, China’s food import will not lead to food price spikes. While moderate increase in global food prices is expected, this will not threaten global food security either; instead, it will be conducive to the revitalisation of global agriculture and poverty alleviation.

In doing so, he touches on the land grab claim that I highlighted the other day in a piece in Slate.

Another major evidence to support the China threat theory is its alleged land grabbing in foreign countries, particularly Africa. Indeed, in 2006, China introduced the “agriculture going-out” strategy and since then China has built production bases for cereal, soybeans, rubber and other agricultural products in Russia, Southeast Asia, Central Asia, South America and other areas.

However, the scale of China’s land acquisition in Africa is marginal. On the contrary, agricultural aid and assistance has been the main approach of China’s “agriculture going-out” in Africa. What is more, till now, agricultural produce from China’s overseas agricultural investment is mainly sold on the international market instead of being shipped back to China. This not only makes economic sense but also helps harness the potential of global food production.

Read the whole thing at Yale Global.

The Global Politics of Food Prices

Joshua Keating at Slate has an excellent piece on the role food prices have political stability and the drivers in the rise in food prices since 2000. That trend is result of the intersection of having maxed out on the amount of food we can produce and the growing global middle class demand. The both for greater net calories and more meat and dairy. Keating shares a number of interesting facts and insights.

Thailand’s program of supporting farmers by buying rice above cost and stockpiling it seems to be on the verge of disaster.

Exporting countries like the US stand to gain. And speaking of the US exports, Keating noted that Iowa produces more grain than all of Canada.

Here are the two most interesting bits.

“Sixty-five percent of the world’s food-insecure people live in seven countries: India, China, the Democratic Republic of Congo (DRC), Bangladesh, Indonesia, Pakistan, and Ethiopia, of which all but China have experienced civil conflict in the past decade, with DRC, Ethiopia, India, and Pakistan currently embroiled in civil conflicts.” And China, it should be pointed out, hasn’t been all that quiet. With about 180,000 protests per year, the government now spends about $125 billion annually on riot control.

. . . China has also been at the forefront of the trend of buying large tracts of land in developing countries to meet demand for grain back home, a practice denounced by critics as “land grabs.” State-connected Chinese firms have purchased a swath of farmland the size of Luxembourg in Argentina as well as about 5 percent of Ukraine’s territory.

Purchases on this scale bring up obvious concerns over sovereignty. Anger over the purchase of half of Madagascar’s arable land by the South Korean conglomerate Daewoo was a major precipitating factor in the overthrow of Madagascar’s government in 2009.

Making agriculture work in Africa is going to be the lynch pin to a future that works.

Rising Prices, Food Fraud and Regulatory Redundancy

A few things caught my eye looking over this piece from CNBC on food fraud and rising prices.
Number one:

The Department of Agriculture predicts food prices will rise between 2.5 and 3.5 percent this year. And while the consumer price index was up 0.1 percent in February, the food index rose more sharply, at 0.4 percent.

I don’t know about you, but I’ve definitely noticed sticker shock at the check out aisle. Little wonder. According the the USDA ERS, while the CPI rose 1.1% in 2013 it rose 1.4% for food. That 1.4% broke out into .9% for groceries (the same rate as 2012) and 2.2% for restaurant spending. But it’s since the beginning of the year that I’ve noticed the pinch and the numbers bear that out, especially for the kinds of foods I buy. Last year theose items went up faster than the rest of the CPI basket. Since the beginning of this year that trend has accelerated, especially since February and the forecast is for more of the same as we recover from the drought in California and the economic recovery returns inflation to normal historical levels.

Relative to 2012, prices rose considerably for poultry, eggs, fish, and fresh vegetables; however, prices fell for nonalcoholic beverages, sugar and sweets, fats and oils, and other meats. For the remaining food categories, prices were mostly unchanged. From February to December 2013, average supermarket prices fell by 0.2 percent.

Looking ahead to 2014, ERS forecasts that food price inflation will return to a range closer to the historical norm. The food-at-home CPI has already increased more in the first two months of 2014 than it did in all of 2013, but given its current trajectory, it is on track for normal annual inflation. Since 1990, grocery store prices have risen by an average of 2.8 percent per year. Inflationary pressures are expected to be moderate, given the outlook for commodity prices, animal inventories, and ongoing export trends. Retailer margins, having contracted since the drought, may expand in 2014 if input prices rise, which should contribute to inflation. The food, food-at-home, and food-away-from-home CPIs are expected to increase 2.5 to 3.5 percent over 2013 levels.

. . . Eggs continued their recent surge, increasing 0.7 percent from January to February. The CPI for eggs is now 5.7 percent above the February 2013 level. ERS has revised the forecast for egg prices upward to 3.0 to 4.0 percent in anticipation of increased exports as well as strong domestic demand (due in part to high meat prices) in 2014.

Painful reading for someone who leans heavily on eggs and vegetables.

foodcpi
Look at that spike in February. Ouch !!!

Number two:

I knew about fraud in the olive oil and honey markets, (check out this groovy, animated slideshow the New York Times put together on olive oil fraud) but this jumped out at me:

Up to 59 percent of tuna is mislabeled, according to a study by advocacy group, Oceana. Customs and Border Protection chemist Matt Birck said escolar is often mislabeled as tuna and could cause digestive issues.

59% !!! That’s a lot of fake tuna. I had to wonder if a lot of non-tuna tuna was winding up in the pet food market, but it turns out that fish fraud in the fish counter and restaurant trade is widespread.

Meanwhile in the TMI departemnt, I love escolar and have never had a problem with it, but apparently lots of people do.

Number three:

But a Government Accountability Office review found problems in the overlap between the agencies charged with stopping food fraud. For example, while the FDA regulates eggs in the shell, the USDA regulates them once they are in products.

At first I thought that had to be backwards, wouldn’t the USDA inspect eggs and the FDA egg products? But it turns out to be correct. But that all the more underscores the crossed wires of having US Customs, the FDA and the USDA involved in regulatory overlap in vouchsafing the food supply.

The FDA inspects shelled eggs, while the USDA is responsible for egg products, including liquid, frozen and dehydrated eggs. The FDA regulates the feed chickens eat, but the laying facility falls under USDA jurisdiction.

If it sounds confusing, that’s because it is. This year’s investigation into the Salmonella outbreak in Iowa eggs was complicated by the fact that the USDA was responsible for the pile of manure next to the laying facility, but the FDA was accountable for the danger of the eggs themselves.

Let’s construct a primitive infographic on the topic, shall we.

[Chicken feed – FDA] –> [Egg laying operation – USDA] –> [Eggs – FDA] –> [Egg products – USDA]

Wow.

It seems like that’s the kind of project that could make for a great bipartisan project in Congress, or a non-cabinet level tsar position in the executive branch. That seems like a better place to start than trying to place more burdens on a dysfunctional system.

Sources:
Rising prices aid $15B food fraud problem
Jennifer Schlesinger, Sheila Dharmarajan | CNBC | 13 April 2014

Food Price Outlook, 2013-14
Economic Resarch Service | USDA

Consumer Price Index for All Urban Consumers: Food and Beverages
FRED | St. Louis FED

Olive Oil Fraud Rampant, Trade Agency Finds
Alan Farnum | ABC News | 25 September 2013

Extra Virgin Suicide
Nicholas Blechman | The New York Times

Honey Laundering
Tom Philpott | Mother Jones | 7 November 2011

The Ex-Lax Fish
Mother Jones | November 2009

Accountability lost in murky fish supply chain
pecial Investigation | Boston Globe | 2011

Who Inspects What? A Food Safety Scramble
Gretchen Goetz | Food Safety News | 16 December 2010