I’ve been thinking about a recent post, where I mentioned the tension between increasing food access to low income households and the increased use of sustainable farming practices. The cause of the tension between the two is food prices: low income people can’t afford to buy food that is more expensive, and increasing the consumption of sustainably produced food means food prices will rise. This topic came up again in class last night, and I think there are several important aspects to consider.
I will admit that clear thinking on this topic is difficult, but I have two insights (so far), and many more questions. One framework for examining the issue is through the basic introductory tool of economics: supply and demand. No matter what market structure exists, market prices depend on both supply and demand (although their determination varies by market structure). The impact of sustainable farming is felt through supply. Our traditional way of increasing food access is through income transfers, which is a demand side factor. Increasing food availability in stores complicates the matter a bit, so I will put on my economist’s hat and assume away that problem for now (but just for now). Actually, for tractability, I am going to disregard all of demand for the moment.
For ease of exposition, I will narrow my discussion to the market for sustainably produced food, although doing so omits many important interactions across agricultural markets. Also, note that I am not making direct comparisons to the conventional system. Even with all of these simplifications, it quickly becomes apparent how complex the problem is.
The first big question is what do we mean by sustainable food? The easiest way of looking at this is to consider the farm sector; but after doing so, yet another question pops up. What exactly do we mean by sustainable farming? Organic is the best answer, for two main reasons: (1) organic farming practices support the ecosystem as much as possible, given that food production exacts a toll on the environment, and (2) universal and enforceable organic standards exist. But if we want to relax the definition of sustainable production, how low do we go? You can quickly see the market unraveling without a clear notion of what is sustainable, and a clear method of enforcement. Incidentally, the science research shows that an integrated system (ie, one that blends conventional and organic practices) provides the best results in terms of yields and environmental benefits. Note that integrated is not defined; and while research scientists are likely to be diligent about the idea of an integrated system, food marketers would be likely to use the term as another form of greenwashing. Further, not enough on farm research has been conducted for this to be a robust result.
The second big question has to do with what happens once the farm has produced food; typically food travels through the hands of many firms and people before arriving on your dinner plate. I think we can realize large gains (ie potential price reductions) at this stage: we currently have a super efficient system for getting food from farm, to manufacturer or distributor or retailer. These firms are able to make use of bargaining power to secure low prices when buying from farmers or others, and also rely on scale economies to manufacture or process food at low per unit costs. Handling food outside of the conventional system is costly, because the firms are handling smaller quantities and are buying from a greater number of firms/farms. Search costs are high – meaning that buyers and sellers need to work to find each other. Creation of regional food hubs – essentially aggregation facilities, with the possibility of shared manufacturing facilities – could reduce both search and aggregation costs.
So, my first insight is about the farm sector: when considering environmental benefits, standardization, and enforcement, farming organically is the most obvious solution. But other aspects are important too, and include production costs (high or low? less chemical inputs but more labor), difficulties in finding on farm labor, segregation costs along the supply chain, increased requirements for farmer and skill, and uncertainty about yields in specific regions around the country. Murky indeed. The environment gains, but what about the farmer? Our standard answer is policy support of farm income; if we are going to support farmers with tax dollars, I vote for supporting farmers who use production systems with well measured environmental benefits. More thinking is required.
My second insight is that significant strides could be made on the supply side by developing regional food hubs for distribution.
The net effect of my first two insights on supply of sustainable food? Unclear right now, until we gain more clarity into the farm sector’s role.