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Public policy and the supply of food
Food Policy 24 (1999) 311–324 www.elsevier.com/locate/foodpol
Public policy and the supply of food Keith Collins* Chief Economist, US Department of Agriculture, Room 112-A, Whitten Building, 1400 Independence Avenue SW, Washington, DC 20250-3810, USA Received 14 October 1998; received in revised form 11 January 1999; accepted 14 January 1999
Abstract Current policies and programs affecting the supply of food are examined and options assessed for changes that would help generate a food supply consistent with the US population eating according to the Dietary Guidelines for Americans. Potential policy and program changes are identified in three categories: eliminating existing domestic farm and trade program limitations on the US food supply; creating incentives or disincentives, such as taxes or subsidies, to produce foods consistent with the Dietary Guidelines; and influencing consumers directly to choose foods consistent with the Dietary Guidelines. Despite the trend toward liberalization, there remain a few changes in farm and trade policy that would increase consumption of under-consumed foods. Taxes and subsidies are difficult to apply without creating unintended adverse consequences, although removal of production input constraints may be effective. Strategies to influence consumer behavior have advantages over policies designed to affect supplies of foods. Rather than large program interventions, changes in consumer tastes and preferences would drive market forces to efficiently produce the needed food supply. 1999 Elsevier Science Ltd. All rights reserved. Keywords: Dietary Guidelines; Farm programs; Food supply; Food demand; Nutrition education
This paper examines public policy options that would help generate a food supply more consistent with recommendations contained in the Dietary Guidelines for Americans. Improving diets would mean increasing intake of nutrients such as calcium, fiber and iron and decreasing others, such as fats, saturated fats, cholesterol and sodium. How can farmers and other food suppliers be influenced to provide more of the under-consumed foods and less of the over-consumed foods? This paper examines policies and programs that affect the food supply, including farm pro* Tel.: ⫹ 1-202-720-4164. 0306-9192/99/$ - see front matter 1999 Elsevier Science Ltd. All rights reserved. PII: S 0 3 0 6 - 9 1 9 2 ( 9 9 ) 0 0 0 2 7 - 5
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duction, international trade, marketing, food safety and inspection, research, and public information and education programs.
Implications of the Dietary Guidelines for adjustments in US agriculture Several studies have compared current US food consumption patterns with patterns implied by adherence to the Dietary Guidelines (e.g., McNamara et al., 1997; O’Brien, 1995; Young and Kantor, 1999). There are many combinations of specific foods that can yield healthier diets, making estimates of the needed change in consumption of a specific food very imprecise. Nevertheless, the studies are in close agreement on the direction of change in consumption for major food groups and in rough agreement on the magnitude of change. For example, food consumption that follows the Dietary Guidelines would mean sharp reductions in consumption of caloric sweeteners, added fats and oils and starchy vegetables, such as potatoes. Consumption of low-fat milk, dark-green and deep-yellow vegetables and fruit would have to increase sharply. Modest increases would be required for the meat, poultry, fish, egg and nut group. Comparing the current food supply with the food supply that would be consistent with the Dietary Guidelines indicates a “gap” or volume surplus or deficit for each of the different food groups. Eliminating the gaps would improve the diet and health of Americans and provide individual and societal benefits related to the reduction of a range of diseases. The consumption gaps do not exist because of a failure on the part of farmers or farm policy to produce in a significant way the foods that the public wants. American agriculture is a vast, versatile factory that is generally free to and will produce, within resource limits, what the public demands. Nevertheless, a food supply consistent with the Dietary Guidelines would require substantial resource adjustment well beyond what has been experienced, except over very long periods of adjustment. Major shifts in the mix of commodities produced would require capital investment and disinvestment and would affect industries supplying production inputs to farmers as well as food shippers, processors, wholesalers and retailers. The adjustment burden on agriculture depends on the factors that would lead Americans to improve their diets. Potential effects can be illustrated by considering two policies to increase the consumption of milk: a demand-side policy and a supplyside policy. Suppose a nutritional information campaign caused the public to want to consume more low-fat milk. Increased consumption of low-fat milk would reduce the amount of fluid milk available to be processed into manufactured dairy products and lead manufacturers to bid up the farm price of milk. As a result, farmers would wind up producing more milk at a higher price, raising their gross income—a happy outcome for dairy farmers. Now suppose that public policy focused on developing far more productive cows through improved genetics, management or feeds. For the public to increase low-fat milk consumption without a change in tastes and preferences, the farm price of milk would have to decline to induce the demand increase. Because the elasticity of demand for milk with respect to price changes is quite low, farmers would now be
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selling more milk but their gross revenue would be much lower—a dramatically different outcome than the demand expansion scenario. When consumers want more, all farmers win, and complaints to policy officials are few. But when supply rises and prices drop, some farmers will fail to adapt, a situation that public policy officials may feel a need to address. The example illustrates the general point that because the elasticity of demand for farm products with respect to retail prices is low, inducing material changes in consumption may require significant policy intervention. Providing a food supply consistent with the Dietary Guidelines would likely entail substantial adjustments for production agriculture, affecting the lives and well-being of many producers and those in allied industries. The effects would depend on the policy change, the magnitude of consumption changes and any programs in place to facilitate the production shifts.
Use of policies and programs to affect the food supply There is a long history of US Department of Agriculture (USDA) production and marketing programs that affect the variety, quantity and quality of US-produced food. Perhaps the most visible has been farm programs, whose purpose has been to assure adequate supplies, maintain reasonable prices and assure farmers a fair return (USDA, 1996a). Other key objectives have been to support the economic base of rural communities and protect natural resources and the environment. For much of this century, government programs provided direct payments to producers, supported prices, controlled supply, and expanded demand for farm products. Supplies were limited by restricting the amount of land a producer could plant to certain crops and through government acquisition of commodities when prices were low. Demand was boosted by government purchases and donations to domestic food assistance programs and by donation and assisted sales to foreign countries. These programs resulted in a maze of regulations directly controlling how much land and what crops farmers could plant and directing financial incentives to certain commodities. The favored commodities—those receiving price and income support—have been wheat, rice, corn, sorghum, barley, oats, cotton, tobacco, sugar, peanuts and milk. The Federal Agricultural Improvement and Reform Act of 1996 (FAIR Act) redesigned farm programs to eliminate production controls and make income support payments independent of what crop is produced. Production is now largely determined by market prices. Income support payments are still made to the “historically preferred” crops, such as wheat, feed grains, and cotton, but the payments are essentially predetermined through the year 2002, when the FAIR Act expires. Exceptions remain: a program of minimum prices exists for milk according to use, and price support programs remain for sugar, peanuts and tobacco. To encourage production consistent with the Dietary Guidelines through farm programs would be inconsistent with the trend of the past decade which has been away from controlling production and supporting market prices and toward giving farmers the freedom to produce based on consumers’ purchasing patterns.
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Beyond the farm, a variety of USDA programs affect the supply and consumption of food. Import controls limit imports of many products either through quotas or tariffs; trade promotion and subsidy programs support exports, which reduce the supply available to the domestic market; research affects production practices, costs, uses and the quality of commodities; marketing and labeling and other programs provide education and information; quality assurance programs affect product characteristics; food assistance programs affect demand; and food safety programs affect food consumption risks, affecting demand and ultimately supply. Going from the current mix of policies and programs to one that moves the food supply toward the Dietary Guidelines could entail three broad categories of policy and program changes: (1) removing impediments to supplying levels of foods consistent with the Dietary Guidelines, (2) providing new production incentives or disincentives and (3) expanding demand for foods consistent with the Dietary Guidelines.
Eliminating limitations on supplying food consistent with the Dietary Guidelines Domestic farm policy While US farm policy has become more market oriented, several provisions remain that reduce the availability of certain foods. For example, one statute limits production of fruits and vegetables. To receive payments under the FAIR Act, farmers had to enter into 7-year contracts, covering 1996–2002. About 215 million acres of wheat, rice, corn, sorghum, barley, oats and cotton are under contract, twothirds of the US acreage planted to crops each year. With a few exceptions, when a producer plants fruits and vegetables on contract acres, the producer loses contract payments on each acre planted to fruits and vegetables. This disincentive to plant fruits and vegetables reflects concerns that after enactment of the FAIR Act grain and cotton producers would shift land into fruit and vegetable production and greatly lower prices in these thin markets. One study conducted during the FAIR Act debate estimated a 10 percent increase in production of sweet corn, onions, cabbage, snap beans, cucumbers, beets and tomatoes in the Northeast would reduce prices of these crops by 23 percent (National Food and Agricultural Policy Project, 1995). The effects of eliminating this restriction are highly uncertain, and no estimates are available. Eliminating this restriction has merit for economic efficiency and diet and health reasons. However, as long as payments continue, fruit and vegetable producers can claim the restriction is needed to prevent payments from indirectly subsidizing fruit and vegetable production on grain and cotton farms. While fallacious, politicians have generally agreed. The Federal government operates statutory price support programs for peanuts and sugar. A movement toward the Dietary Guidelines may result in lower peanut consumption, while sugar would have to see a drop in consumption on the order of 60 percent. However, elimination of the price support programs would increase supplies of each commodity. For peanuts, a marketing quota system and import controls
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restrict the quantities of peanuts sold domestically. Tree nuts and peanuts accounted for only 4 percent of total dietary fat in the US food supply in 1994 (Young and Kantor, 1999), so the effect on diets of eliminating the peanut program would not be great, but the effect would be in the wrong direction. Sugar prices are supported by restricting sugar imports, which account for about 17 percent of US sugar consumption. Without the restriction, more lower-priced foreign sugar would be imported, reducing US prices. There is no public support to make the peanut and sugar programs more restrictive; the trend has been to liberalize farm programs and reduce the government’s role in supporting prices, which would increase rather than reduce use of sugar and peanuts (US General Accounting Office, 1993a, b). Another group of programs are marketing orders which (other than for milk) are largely producer governed and financed programs that may regulate commodity quantity and quality, such as grade, maturity and size; container and packing standards; and the conduct of research and market development programs. The trend has been to reduce the market controlling effect of orders. Since 1981, 12 orders have been terminated or suspended, leaving 36 active orders for fruits, vegetables, nuts and specialty crops. Very few orders use quantity control provisions; some form of marketing control is in effect only for Far West spearmint, Oregon hazelnuts, California raisins, and tart cherries from certain states. The quality, container, and packing provisions are meant to reduce transaction costs, improve marketing efficiencies and differentiate products. Today’s large-scale retail and wholesale buyers often impose requirements more stringent than those of orders. While order provisions may either encourage or discourage consumption of affected commodities, economic studies generally do not indicate that consumers on the whole have been hurt by orders (Neff and Plato, 1995). For milk, 31 Federal milk marketing orders establish minimum prices for milk depending on its use. The orders cover 70 percent of the nation’s farm-level milk sales. The price of milk used in the manufacture of hard products, such as cheese or butter, is essentially market determined. But under Federal orders, the minimum price processors must pay for milk to be used for beverage purposes averages US$2.58 per 100 pounds (US$0.22 per gallon) above the price of milk used to make hard products. The minimum price of milk used for soft products, such as ice cream or cottage cheese, averages US$0.30 per 100 pounds (US$0.03 per gallon) above the price of milk used for hard products. The purpose of the program is to enhance farmers’ incomes and to ensure that there are adequate supplies of milk for beverage use. A movement toward the Dietary Guidelines would require a substantial increase in fluid milk consumption. Elimination of milk orders would reduce the price of milk for fluid use and raise cheese, butter and powdered milk prices. For example, in the mid-Atlantic states, the price of milk for fluid use would fall by an estimated 30 cents per gallon (Siebert et al., 1997). However, more variability in farm prices and milk supplies, lower farm income and only a modest increase in fluid milk consumption is expected. There is little political likelihood of eliminating orders. The FAIR Act mandated USDA reform orders by April 4, 1999, and USDA has proposed narrowing the price differential for milk used for beverage purposes. The
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final rule is not expected until early 1999, but if the same as the proposal, the US average price of a gallon of milk would be only about US$0.03 lower and consumption would rise only 0.1 percent. In recent years, milk pricing at the farm has begun to move toward “component” pricing, paying producers based on the market value of milk’s components. Thus, should consumers demand less milk fat, the pricing system would help send the appropriate signal to producers to reduce the fat content of milk. During 1998, milk fat prices were at a record high, and the market did not appear to indicate a preference for lower-fat milk products. Another farm program is Federal crop insurance which provides insurance against low yields and, for a few crops, low revenues. Most major crops are covered, with a Treasury cost of US$1.5–2 billion per year. However, some fruits and vegetables are not covered. Domestic production of fruits and vegetables might be greater if more crop insurance were available and policies were more remunerative. Most fruit and vegetable producers take minimal policies covering 50 percent of production and 60 percent of market value. There is much dissatisfaction with the current crop insurance program in the farm community. Given financial difficulties in agriculture during 1998 and large disaster assistance legislated by Congress, crop insurance may undergo a thorough review and some reform may occur. This may open a possibility for improving crop insurance for fruits and vegetables. International trade policy The main objective of US agricultural trade policy has been to expand overseas markets for US products by reducing global trade barriers. The policy has been export-oriented, not import-oriented. Dietary and nutritional goals have not been explicit objectives of agricultural trade policy, although by affecting trade barriers trade policy has had consequences for food prices and consumption. As a world leader in pushing for freer and more open markets for its agricultural products, the United States has also reduced barriers to trade and opened markets to greater imports. The last 10 years have seen the negotiation and implementation of three major trade agreements with far-reaching implications for US agriculture: the US–Canada Free Trade Agreement in 1989, the North American Free Trade Agreement (NAFTA) in 1994, and the Uruguay Round Agreement in 1995. These agreements have resulted in a substantial reduction in import barriers and have contributed to growth in both exports and imports. Imports are contributing an increasingly larger share of US consumption for many foods. This growth is especially pronounced for fresh fruits and vegetables. Imports made up 21 percent of all fresh produce consumption in 1996, up from 17 percent in 1990. The new rules and guidelines of the Sanitary and Phytosanitary agreements of the NAFTA and the Uruguay Round, while mainly negotiated to create a more transparent and science-based system to improve market access for US exports, have also created access opportunities for imports. Some recent examples include the opening of the US market to Mexican avocados and Brazilian papayas.
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Barriers to imports include tariffs, tariff-rate quotas (TRQs), sanitary and phytosanitary requirements, and various import quality requirements. As a result of successive rounds of multilateral trade negotiations, US barriers to agricultural imports are among the lowest in the world. Only a few other countries, such as Argentina, Australia, and New Zealand, have lower average tariffs. Nevertheless, some selective high barriers remain. Some of the most stringent US barriers to food imports are the TRQs established under the Uruguay Round for beef/veal, dairy products, sugar and sugar products, and peanuts and peanut butter. These barriers are a function of long-standing domestic support programs, with price and income support objectives. For these products, imports are limited by the TRQs, and domestic prices remain above comparable world prices. Tariffs on most fruits and vegetables are low, at less than 10 percent. However, some fruits and vegetable imports continue to face tariffs of 20 percent or higher— some melons, orange juice, cucumbers, asparagus, broccoli, and various frozen and processed products. Such barriers can act to limit imports and maintain higher prices. Imports of most fruits and vegetables are highly seasonal, and in some cases the seasonal tariff works to shield domestic producers from import competition (e.g., California asparagus producers harvesting early in the year), but generally tariffs are so low that even a seasonal increase is not a deterrent to imports (e.g., tomatoes, eggplant, cucumbers). Some horticultural imports, including tomatoes, potatoes, and grapes, are subject to minimum quality requirements when domestic marketing orders are in place. Proponents of these standards note that these requirements help ensure high quality, which encourages greater consumption. Opponents, including some foreign suppliers, claim the requirements work to keep out lower-priced imports and are used to maintain US producer prices, which discourages use. With imported fruits and vegetables increasing and recent high-profile food safety cases (raspberries from Guatemala and strawberries from Mexico), there is a perception that imports are less safe than domestically grown food. There is no clear evidence that health risks due to pesticide residues or pathogen contamination are greater with imported produce. Although there is no evidence that consumers are reducing their intake of fruits or vegetables because of food safety concerns, recent Administration efforts to strengthen inspection of imports and monitoring of foreign production practices for fruits and vegetables can serve to reinforce consumer confidence in the food supply, whether from imports or domestic consumption. Exports account for a significant share of production for many US farm commodities. Numerous export promotion programs—direct export subsidies, market promotion, credit guarantees, food aid—are designed to expand demand and improve farm income. While these programs may at times encourage production of commodities for export at the expense of other commodities, or reduce the available domestic supply of specific foods, the effect is not always clear. For example, the rapid growth of broiler exports, from 5 percent of US production in 1990 to 17 percent in 1997, partly aided by the use of government programs, may have raised poultry prices at the same time US consumers are being encouraged to eat more low-fat, lean meat.
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However, much of the export increase was leg quarters not preferred by US consumers. The export increase may be leading producers to offer more white meat at a lower price to US consumers. A cornerstone of US trade policy has been reducing trade barriers both at home and abroad. The Uruguay Round and NAFTA were important first steps in liberalizing agricultural trade. Continued reductions in trade barriers should be pursued and are highly likely. Trade barrier reductions probably mean more for US exports than imports because, with a few exceptions, US tariffs and other barriers are already low.
Creating incentives or disincentives to produce foods consistent with the Dietary Guidelines Output incentives One set of incentive-based policies is a system of taxes on over-consumed foods and subsidies on under-consumed foods. At the farm level, these instruments would affect supply; at the retail level, they would affect demand. The basis for such proposals is that prices—adjusted by taxes or subsidies—are important determinants of supply and demand. Taxes and subsidies could be applied anywhere from farm to retail; administrative considerations, such as cost-effectiveness, would dictate where to intervene. The historical rationale for production subsidies has been income support for farmers. Basing subsidies on the Dietary Guidelines would require a change in the distribution of payments among producers and commodities. Subsidizing a particular food would likely increase production, but taxpayer costs and trends in farm policy which have moved away from production subsidies and market intervention are strong factors working against new subsidies. The primary rationale for taxes is to generate revenue but they may be an appropriate remedy for externalities, such as costs imposed on society by poor health arising from poor diets. Such potential health benefits have led to proposals for specific food taxes—so-called “fat taxes,” “twinkie taxes,” “Mctaxes,” etc. Enactment faces serious hurdles since all foods are not inherently a health problem; it is the mix or the quantity of foods consumed that creates the problem. Taxes do not distinguish among those who are eating foods in the right proportion, those who are overweight and those not, children and adults, etc. Consequently, food taxes would be too high for some and enough for others, and there is no assurance consumers would substitute more healthy foods. Food taxes are also regressive, accounting for a larger share of household income for the poor compared with the rich, and many persons, even those who eat according to the Dietary Guidelines, may pay more for food. Input incentives Input incentives are a step away from direct subsidies and function by reducing economic barriers to production. For example, research to reduce production costs
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of under-consumed foods or steps to increase the supply of constraining inputs (e.g., labor, irrigation water, effective pesticides) would increase food supply. Similarly, if production of the desired food has adverse environmental effects, assistance to find alternative production technologies (e.g., new pesticides such as a methyl bromide replacement, conservation assistance, or sustainable production practices) would spur supply. One production barrier often raised by producers of perishable crops with critical harvesting windows, such as fruit and vegetable growers, is the difficulty in finding sufficient and affordable labor for harvesting. Congress debated reforms in the H-2A Temporary Foreign Worker Program during 1998 that would make it easier for growers to bring in legal foreign workers if domestic workers cannot be found. This type of legislation may encourage production of fruits and vegetables but would be controversial and was not adopted. Finally, programs such as USDA’s farm loan programs could provide start-up and operational assistance for producers of underconsumed foods and targeted producers, such as organic or small enterprises growing vegetables. However, the scope of incentive programs should be limited by what is needed for broader public benefits and not simply replace private sector spending.
Expanding demand for foods consistent with the Dietary Guidelines A number of demand-side policies—those focusing on the consumer—are likely to be more effective in the long run than supply-side policies. Policies aimed at influencing consumers to choose foods consistent with the Dietary Guidelines generally fall into three categories: public information, product improvement, and product delivery. This last category is partly a supply issue but is listed here because the emphasis is on improving consumer access to food. Public information The Dietary Guidelines are the fundamental element of education programs. The private education effort on eating choices is a big industry, as witnessed by the proliferation of ads, books and news stories on how to lose weight and how to eat well. Some of this commercial advice diverges from the official Dietary Guidelines, but its popularity indicates that there is a demand for information on food choices. The Dietary Guidelines state “The Food Guide Pyramid and the Nutrition Facts label serve as educational tools to put the Dietary Guidelines into practice” (USDA, 1995). Policy actions regarding education and information depend on whether Americans are using these tools to make food choices. About 60 percent of Americans are familiar with the USDA Food Guide Pyramid (USDA, 1997). Other surveys indicate a very high proportion of Americans always or sometimes read the food label for information on nutrition and ingredients when buying a food product for the first time (Food Marketing Institute, 1997). Such results establish that the majority of Americans are familiar with the Pyramid and are aware of and read nutritional labels at least some of the time. However, in 1996 only 17 percent of Americans had a “good” diet as measured by the Healthy Eating Index (USDA, 1998).
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The rationale for guidelines and information requirements is that diet-related health problems are costly to society. Seven diet-related health conditions were estimated to cost society US$250 billion in 1995 in medical costs and lost productivity (Frazao, 1995). It is hoped that, if properly informed, Americans will change their eating behavior and avoid some of these costs. Also in 1995, USDA spent US$327 million on nutrition education (USDA, 1996b). Research has shown a strong link between nutrition knowledge and diet quality (Lin et al., 1996; Bowman et al., 1998; Variyam et al., 1998). In a cost–benefit framework, it appears that additional spending on nutrition education has large potential benefits. But more information is needed. For example, what types of education are most effective in improving diet and how do changes in the diet reduce the costs of diet-related illness? Mandatory nutritional labeling is a major component of consumer information and education. One approach to improving response to labeling may be a simpler “go” or “stop” signal than current nutritional labeling. It is unlikely USDA could use a USDA seal of endorsement on selected foods or a negative seal on some foods, e.g., high-fat and high-sugar items. However, more can be done on simplifying label information, such as encouraging developments like the American Heart Association’s heart-check mark, and requiring nutritional information on foods not now labeled, such as single-ingredient raw meat labeling, which is occurring only at a level close to USDA’s standard for significant participation by retailers. With Americans now spending 45 percent of the food dollar away from home, nutrition labeling could be expanded more broadly to restaurant meals, such as identifying the nutrients in the restaurant’s dominant food choices. An existing policy is government-sanctioned producer check-off programs that sponsor generic advertising. US producers contribute nearly US$700 million per year to these programs. For example, the fluid milk processors have promoted milk consumption with their celebrity milk moustache campaign. Preliminary USDA analysis for fiscal year 1997 indicates US$52 million was spent on fluid milk advertising, raising consumption by 5 percent. Dairy promotion expenditures are also estimated to have increased cheese consumption by 1 percent. Ideally, producer groups could educate the public as to how their foods can fit into a diet consistent with the guidelines, and many have. USDA could do more to bring nutritional research results and information to the producers who run the check-off programs to help identify educational opportunities for their funds. USDA might even consider cost sharing for generic nutrition education programs. Product improvement Consumers expect more out of their foods than just nutrition. Safety is a concern, and publicity from foodborne illness can shift consumers away from foods they should be eating. Increased import inspections, pesticide residue monitoring, application of Hazard Analysis Critical Control Point (HACCP) systems and the Administration’s recent efforts to develop guidelines for best production and processing practices for fruits and vegetables are ways to improve food safety and build consumer confidence, particularly for fruits and vegetables.
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Consumers also want improved quality in terms of longer shelf life, easier preparation, better taste and improved nutritional characteristics such as lower fat content. Biotechnology has been one approach to extending shelf life. Research by USDA’s Agricultural Research Service (ARS) has found a gene to prolong freshness and flavor of more than dozen fresh fruits and vegetables (USDA/ARS Website). Precut vegetable and salad mixes are popular retail products that respond to consumer preference for easy-to-prepare foods. Biotechnology also offers immense potential to improve nutrient content and produce foods that have the desirable properties of over-consumed foods but without the unwanted nutrients. Public funds have supported such research, and various forms of licensing agreements have facilitated the commercialization of research results. USDA’s development of the fat substitute Oatrim is an example. Biotechnology will also develop new varieties of the underconsumed foods that are cheaper to produce and adaptable over wider geographic areas. Demand for lower fat and more consistent quality has been met by the pork industry through genetics improvement which is producing leaner hogs. The beef industry is trying to develop lower-fat and easier-to-prepare products, through genetics and product processing, such as precooked roasts. In the meat area, in addition to support of basic research USDA can help with grading and marketing systems that ensure consumer preferences are transmitted down the marketing chain, and processed products are being offered that are lower in fat than conventional formulations. Product delivery Convenient access to foods can affect what is eaten. For example, USDA and State governments have pursued policies to develop farmers’ markets, which numbered around 2700 in 1998, up nearly 50 percent since 1994 (USDA/Agricultural Marketing Service Website). One policy goal is to improve farmers’ incomes through direct farm-to-consumer marketing. Another goal is to encourage consumption of fresh fruits and vegetables, which are the core commodities of such markets. The WIC Farmers’ Market Nutrition Program allows program participants to use coupons at farmers’ markets and food stamps may be used there for the same purpose. Policies that make access to under-consumed foods more convenient, such as farmers’ markets, are relatively low cost and have generated interest in locally produced, farmfresh foods. The public sector role is to help overcome the transactions costs which prevent organization and development of such outlets, which range from such varied barriers as finding a location to preserving farmland in metro areas.
Conclusion Changes implied by eating consistent with the Dietary Guidelines imply significant changes in US farm production, farm input and food processing and retailing sectors. Addressing farm income, rural economic growth and trade competitiveness are likely to remain the dominant objectives of domestic farm and international trade policy,
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yet the trend toward a more liberalized trade and domestic policy environment is consistent with improving the flexibility of the food system to respond to the choices of consumers. Food purchase decisions are complex, depending on income, price, demographics, tastes and preferences, perishability, convenience, etc. To generate more than a minor difference in diet, Federal efforts have to take place on a number of fronts to deal with the complexity of the factors behind consumer choice. Three main categories of potential policy and program changes that would help move US food use toward the dietary guideline are: (i) eliminating existing program limitations on supplying the quantity of foods consistent with the Dietary Guidelines, (ii) creating incentives or disincentives to produce foods consistent with the Dietary Guidelines, and (iii) influencing consumers directly to choose foods consistent with the Dietary Guidelines. Within the first category of potential change, the best prospects are eliminating Federal farm program impediments to production response, such as the current limitation on increasing fruits and vegetables production by farmers who receive government income support payments; reducing artificially high fluid milk prices under milk marketing orders and reducing tariffs on imported foods through continued trade liberalization. Within the second category, the least likely prospects for policy change are food taxes and subsidies levied anywhere along the producer-to-consumer chain. Taxes and subsidies are blunt instruments, unable to be precisely levied to conform with the diet changes any one consumer might need to undertake. The best prospects for policy change in the area of incentives appear to be actions that would foster production of desired foods that result from lack of adequate production inputs, such as helping assure sufficient harvest-time labor, efficacious chemicals, and research on profitable sustainable production practices. While it would appear policy may be only modestly effective in inducing a supply response in agriculture, the US food and agricultural system over time is extremely flexible and responsive to changes in demand. Consumers will get what they want. Within the third category, the best prospects for policy change fall in the areas of product information, product improvement and product delivery. With regard to product information, simplified additional label information would help. More spending on nutritional education may have large benefits. Education in schools, through the medical profession in health care settings, in food stores at point of purchase, and with use of producer check-off programs, are examples. With regard to product improvement, more and continued research to improve taste, convenience, and nutrient quality is needed. Biotechnology offers enormous potential to improve the nutritional content of diets, even without consumers changing food choices. USDA needs to regulate seed development to ensure safety without unduly slowing approval of new varieties. USDA research needs to focus on areas of broad public benefit such as collection and protection of genetic material. USDA also needs to help develop marketing systems that improve the transmission of consumer desires through the system. Beef is an example; only a fraction of ranchers know the quality of meat their animals ultimately produce. Unfortunately, consumers often reject the lower-fat cattle or parts of the carcass because they do not know
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how to prepare them or preparation takes too long, but here, too, development of more convenient processed products could overcome this barrier. With regard to product delivery, one approach is to link consumers with producers of high-quality, under-consumed foods. For example, programs such as farmers’ markets which have fresh fruits and vegetables as their core commodities appear to be increasing urban access to high-quality locally grown food. From an economic policy perspective, strategies to influence consumer behavior have advantages over policies designed to affect supplies of foods. Policies and programs that change consumers’ tastes and preferences in favor of currently underconsumed foods increase demand at all prices. These policies—whether education, information, research, or new infrastructure to facilitate production and delivery— may be thought of as investments with up-front costs that yield returns in terms of healthy eating over many years. Another advantage is that consumer approaches rely on market forces to induce the desired quantities of production. This is economically efficient and avoids the risk of the government influencing resource use inappropriately, i.e., picking winners that consumers ultimately decide are losers. Supply policies, except for those that remove barriers, are usually dependent on recurring payments to induce supply and lower prices to encourage consumption of desired foods. Remove the artificial incentives and the supply will likely dwindle. Supply restrictions are also costly and unwelcome by producers of the over-consumed foods. Although consumers have not always adopted eating patterns consistent with the Dietary Guidelines, consumers do change their habits based on nutrition information.
Acknowledgements The author thanks Carol Goodloe, Jim Schaub and Larry Selathe for helpful comments.
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background for 1995 farm legislation. USDA, Economic Research Service. Agricultural Economic Report No. 707, May. O’Brien, P., 1995. Dietary shifts and implications for US agriculture. American Journal of Clinical Nutrition 61 (supplement), 1390S–1396S. Siebert, J., Stephenson, M., Anderson, D., 1997. Milk marketing without federal orders. Choices, third quarter, 37–41. USDA, 1995. Nutrition and your health: dietary guidelines for Americans. Home and Garden Bulletin No. 232, 4th ed. USDA, 1996a. Agriculture Fact Book 1996. Office of Communications. USDA, 1996b. The state of nutrition education in USDA: a report to the secretary. Center for Nutrition Policy and Promotion, October. USDA, 1997. Are all food pyramids created equal? Nutrition Insights, Insight 2, Department of Agriculture, Center for Nutrition Policy and Promotion, April. USDA, 1998. The dietary quality of Americans. Nutrition Insights, Insight 7, Center for Nutrition Policy and Promotion, August. USDA/Agricultural Marketing Service Website. www.ams.usda.gov/farmersmarkets/facts.htm. USDA/ARS Website. www.ars.usda.gov. US General Accounting Office, 1993a. Peanut program: changes are needed to make the program responsive to market forces. GAO/RCED-93-18, February. US General Accounting Office, 1993b. Sugar program: changing domestic and international conditions require program changes. GAO/RCED-93-84, April. Variyam, J., Blaylock, J., Smallwood, D., Basiotis, P., 1998. USDA’s healthy eating index and nutrition information. USDA, Economic Research Service. Technical Bulletin No. 1866, April. Young, C.E., Kantor, L.S., 1999. What healthier eating could mean for commercial agriculture. USDA, Economic Research Service, Agricultural Economic Report, in press.
Public policy and the supply of food Keith Collins* Chief Economist, US Department of Agriculture, Room 112-A, Whitten Building, 1400 Independence Avenue SW, Washington, DC 20250-3810, USA Received 14 October 1998; received in revised form 11 January 1999; accepted 14 January 1999
Abstract Current policies and programs affecting the supply of food are examined and options assessed for changes that would help generate a food supply consistent with the US population eating according to the Dietary Guidelines for Americans. Potential policy and program changes are identified in three categories: eliminating existing domestic farm and trade program limitations on the US food supply; creating incentives or disincentives, such as taxes or subsidies, to produce foods consistent with the Dietary Guidelines; and influencing consumers directly to choose foods consistent with the Dietary Guidelines. Despite the trend toward liberalization, there remain a few changes in farm and trade policy that would increase consumption of under-consumed foods. Taxes and subsidies are difficult to apply without creating unintended adverse consequences, although removal of production input constraints may be effective. Strategies to influence consumer behavior have advantages over policies designed to affect supplies of foods. Rather than large program interventions, changes in consumer tastes and preferences would drive market forces to efficiently produce the needed food supply. 1999 Elsevier Science Ltd. All rights reserved. Keywords: Dietary Guidelines; Farm programs; Food supply; Food demand; Nutrition education
This paper examines public policy options that would help generate a food supply more consistent with recommendations contained in the Dietary Guidelines for Americans. Improving diets would mean increasing intake of nutrients such as calcium, fiber and iron and decreasing others, such as fats, saturated fats, cholesterol and sodium. How can farmers and other food suppliers be influenced to provide more of the under-consumed foods and less of the over-consumed foods? This paper examines policies and programs that affect the food supply, including farm pro* Tel.: ⫹ 1-202-720-4164. 0306-9192/99/$ - see front matter 1999 Elsevier Science Ltd. All rights reserved. PII: S 0 3 0 6 - 9 1 9 2 ( 9 9 ) 0 0 0 2 7 - 5
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duction, international trade, marketing, food safety and inspection, research, and public information and education programs.
Implications of the Dietary Guidelines for adjustments in US agriculture Several studies have compared current US food consumption patterns with patterns implied by adherence to the Dietary Guidelines (e.g., McNamara et al., 1997; O’Brien, 1995; Young and Kantor, 1999). There are many combinations of specific foods that can yield healthier diets, making estimates of the needed change in consumption of a specific food very imprecise. Nevertheless, the studies are in close agreement on the direction of change in consumption for major food groups and in rough agreement on the magnitude of change. For example, food consumption that follows the Dietary Guidelines would mean sharp reductions in consumption of caloric sweeteners, added fats and oils and starchy vegetables, such as potatoes. Consumption of low-fat milk, dark-green and deep-yellow vegetables and fruit would have to increase sharply. Modest increases would be required for the meat, poultry, fish, egg and nut group. Comparing the current food supply with the food supply that would be consistent with the Dietary Guidelines indicates a “gap” or volume surplus or deficit for each of the different food groups. Eliminating the gaps would improve the diet and health of Americans and provide individual and societal benefits related to the reduction of a range of diseases. The consumption gaps do not exist because of a failure on the part of farmers or farm policy to produce in a significant way the foods that the public wants. American agriculture is a vast, versatile factory that is generally free to and will produce, within resource limits, what the public demands. Nevertheless, a food supply consistent with the Dietary Guidelines would require substantial resource adjustment well beyond what has been experienced, except over very long periods of adjustment. Major shifts in the mix of commodities produced would require capital investment and disinvestment and would affect industries supplying production inputs to farmers as well as food shippers, processors, wholesalers and retailers. The adjustment burden on agriculture depends on the factors that would lead Americans to improve their diets. Potential effects can be illustrated by considering two policies to increase the consumption of milk: a demand-side policy and a supplyside policy. Suppose a nutritional information campaign caused the public to want to consume more low-fat milk. Increased consumption of low-fat milk would reduce the amount of fluid milk available to be processed into manufactured dairy products and lead manufacturers to bid up the farm price of milk. As a result, farmers would wind up producing more milk at a higher price, raising their gross income—a happy outcome for dairy farmers. Now suppose that public policy focused on developing far more productive cows through improved genetics, management or feeds. For the public to increase low-fat milk consumption without a change in tastes and preferences, the farm price of milk would have to decline to induce the demand increase. Because the elasticity of demand for milk with respect to price changes is quite low, farmers would now be
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selling more milk but their gross revenue would be much lower—a dramatically different outcome than the demand expansion scenario. When consumers want more, all farmers win, and complaints to policy officials are few. But when supply rises and prices drop, some farmers will fail to adapt, a situation that public policy officials may feel a need to address. The example illustrates the general point that because the elasticity of demand for farm products with respect to retail prices is low, inducing material changes in consumption may require significant policy intervention. Providing a food supply consistent with the Dietary Guidelines would likely entail substantial adjustments for production agriculture, affecting the lives and well-being of many producers and those in allied industries. The effects would depend on the policy change, the magnitude of consumption changes and any programs in place to facilitate the production shifts.
Use of policies and programs to affect the food supply There is a long history of US Department of Agriculture (USDA) production and marketing programs that affect the variety, quantity and quality of US-produced food. Perhaps the most visible has been farm programs, whose purpose has been to assure adequate supplies, maintain reasonable prices and assure farmers a fair return (USDA, 1996a). Other key objectives have been to support the economic base of rural communities and protect natural resources and the environment. For much of this century, government programs provided direct payments to producers, supported prices, controlled supply, and expanded demand for farm products. Supplies were limited by restricting the amount of land a producer could plant to certain crops and through government acquisition of commodities when prices were low. Demand was boosted by government purchases and donations to domestic food assistance programs and by donation and assisted sales to foreign countries. These programs resulted in a maze of regulations directly controlling how much land and what crops farmers could plant and directing financial incentives to certain commodities. The favored commodities—those receiving price and income support—have been wheat, rice, corn, sorghum, barley, oats, cotton, tobacco, sugar, peanuts and milk. The Federal Agricultural Improvement and Reform Act of 1996 (FAIR Act) redesigned farm programs to eliminate production controls and make income support payments independent of what crop is produced. Production is now largely determined by market prices. Income support payments are still made to the “historically preferred” crops, such as wheat, feed grains, and cotton, but the payments are essentially predetermined through the year 2002, when the FAIR Act expires. Exceptions remain: a program of minimum prices exists for milk according to use, and price support programs remain for sugar, peanuts and tobacco. To encourage production consistent with the Dietary Guidelines through farm programs would be inconsistent with the trend of the past decade which has been away from controlling production and supporting market prices and toward giving farmers the freedom to produce based on consumers’ purchasing patterns.
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Beyond the farm, a variety of USDA programs affect the supply and consumption of food. Import controls limit imports of many products either through quotas or tariffs; trade promotion and subsidy programs support exports, which reduce the supply available to the domestic market; research affects production practices, costs, uses and the quality of commodities; marketing and labeling and other programs provide education and information; quality assurance programs affect product characteristics; food assistance programs affect demand; and food safety programs affect food consumption risks, affecting demand and ultimately supply. Going from the current mix of policies and programs to one that moves the food supply toward the Dietary Guidelines could entail three broad categories of policy and program changes: (1) removing impediments to supplying levels of foods consistent with the Dietary Guidelines, (2) providing new production incentives or disincentives and (3) expanding demand for foods consistent with the Dietary Guidelines.
Eliminating limitations on supplying food consistent with the Dietary Guidelines Domestic farm policy While US farm policy has become more market oriented, several provisions remain that reduce the availability of certain foods. For example, one statute limits production of fruits and vegetables. To receive payments under the FAIR Act, farmers had to enter into 7-year contracts, covering 1996–2002. About 215 million acres of wheat, rice, corn, sorghum, barley, oats and cotton are under contract, twothirds of the US acreage planted to crops each year. With a few exceptions, when a producer plants fruits and vegetables on contract acres, the producer loses contract payments on each acre planted to fruits and vegetables. This disincentive to plant fruits and vegetables reflects concerns that after enactment of the FAIR Act grain and cotton producers would shift land into fruit and vegetable production and greatly lower prices in these thin markets. One study conducted during the FAIR Act debate estimated a 10 percent increase in production of sweet corn, onions, cabbage, snap beans, cucumbers, beets and tomatoes in the Northeast would reduce prices of these crops by 23 percent (National Food and Agricultural Policy Project, 1995). The effects of eliminating this restriction are highly uncertain, and no estimates are available. Eliminating this restriction has merit for economic efficiency and diet and health reasons. However, as long as payments continue, fruit and vegetable producers can claim the restriction is needed to prevent payments from indirectly subsidizing fruit and vegetable production on grain and cotton farms. While fallacious, politicians have generally agreed. The Federal government operates statutory price support programs for peanuts and sugar. A movement toward the Dietary Guidelines may result in lower peanut consumption, while sugar would have to see a drop in consumption on the order of 60 percent. However, elimination of the price support programs would increase supplies of each commodity. For peanuts, a marketing quota system and import controls
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restrict the quantities of peanuts sold domestically. Tree nuts and peanuts accounted for only 4 percent of total dietary fat in the US food supply in 1994 (Young and Kantor, 1999), so the effect on diets of eliminating the peanut program would not be great, but the effect would be in the wrong direction. Sugar prices are supported by restricting sugar imports, which account for about 17 percent of US sugar consumption. Without the restriction, more lower-priced foreign sugar would be imported, reducing US prices. There is no public support to make the peanut and sugar programs more restrictive; the trend has been to liberalize farm programs and reduce the government’s role in supporting prices, which would increase rather than reduce use of sugar and peanuts (US General Accounting Office, 1993a, b). Another group of programs are marketing orders which (other than for milk) are largely producer governed and financed programs that may regulate commodity quantity and quality, such as grade, maturity and size; container and packing standards; and the conduct of research and market development programs. The trend has been to reduce the market controlling effect of orders. Since 1981, 12 orders have been terminated or suspended, leaving 36 active orders for fruits, vegetables, nuts and specialty crops. Very few orders use quantity control provisions; some form of marketing control is in effect only for Far West spearmint, Oregon hazelnuts, California raisins, and tart cherries from certain states. The quality, container, and packing provisions are meant to reduce transaction costs, improve marketing efficiencies and differentiate products. Today’s large-scale retail and wholesale buyers often impose requirements more stringent than those of orders. While order provisions may either encourage or discourage consumption of affected commodities, economic studies generally do not indicate that consumers on the whole have been hurt by orders (Neff and Plato, 1995). For milk, 31 Federal milk marketing orders establish minimum prices for milk depending on its use. The orders cover 70 percent of the nation’s farm-level milk sales. The price of milk used in the manufacture of hard products, such as cheese or butter, is essentially market determined. But under Federal orders, the minimum price processors must pay for milk to be used for beverage purposes averages US$2.58 per 100 pounds (US$0.22 per gallon) above the price of milk used to make hard products. The minimum price of milk used for soft products, such as ice cream or cottage cheese, averages US$0.30 per 100 pounds (US$0.03 per gallon) above the price of milk used for hard products. The purpose of the program is to enhance farmers’ incomes and to ensure that there are adequate supplies of milk for beverage use. A movement toward the Dietary Guidelines would require a substantial increase in fluid milk consumption. Elimination of milk orders would reduce the price of milk for fluid use and raise cheese, butter and powdered milk prices. For example, in the mid-Atlantic states, the price of milk for fluid use would fall by an estimated 30 cents per gallon (Siebert et al., 1997). However, more variability in farm prices and milk supplies, lower farm income and only a modest increase in fluid milk consumption is expected. There is little political likelihood of eliminating orders. The FAIR Act mandated USDA reform orders by April 4, 1999, and USDA has proposed narrowing the price differential for milk used for beverage purposes. The
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final rule is not expected until early 1999, but if the same as the proposal, the US average price of a gallon of milk would be only about US$0.03 lower and consumption would rise only 0.1 percent. In recent years, milk pricing at the farm has begun to move toward “component” pricing, paying producers based on the market value of milk’s components. Thus, should consumers demand less milk fat, the pricing system would help send the appropriate signal to producers to reduce the fat content of milk. During 1998, milk fat prices were at a record high, and the market did not appear to indicate a preference for lower-fat milk products. Another farm program is Federal crop insurance which provides insurance against low yields and, for a few crops, low revenues. Most major crops are covered, with a Treasury cost of US$1.5–2 billion per year. However, some fruits and vegetables are not covered. Domestic production of fruits and vegetables might be greater if more crop insurance were available and policies were more remunerative. Most fruit and vegetable producers take minimal policies covering 50 percent of production and 60 percent of market value. There is much dissatisfaction with the current crop insurance program in the farm community. Given financial difficulties in agriculture during 1998 and large disaster assistance legislated by Congress, crop insurance may undergo a thorough review and some reform may occur. This may open a possibility for improving crop insurance for fruits and vegetables. International trade policy The main objective of US agricultural trade policy has been to expand overseas markets for US products by reducing global trade barriers. The policy has been export-oriented, not import-oriented. Dietary and nutritional goals have not been explicit objectives of agricultural trade policy, although by affecting trade barriers trade policy has had consequences for food prices and consumption. As a world leader in pushing for freer and more open markets for its agricultural products, the United States has also reduced barriers to trade and opened markets to greater imports. The last 10 years have seen the negotiation and implementation of three major trade agreements with far-reaching implications for US agriculture: the US–Canada Free Trade Agreement in 1989, the North American Free Trade Agreement (NAFTA) in 1994, and the Uruguay Round Agreement in 1995. These agreements have resulted in a substantial reduction in import barriers and have contributed to growth in both exports and imports. Imports are contributing an increasingly larger share of US consumption for many foods. This growth is especially pronounced for fresh fruits and vegetables. Imports made up 21 percent of all fresh produce consumption in 1996, up from 17 percent in 1990. The new rules and guidelines of the Sanitary and Phytosanitary agreements of the NAFTA and the Uruguay Round, while mainly negotiated to create a more transparent and science-based system to improve market access for US exports, have also created access opportunities for imports. Some recent examples include the opening of the US market to Mexican avocados and Brazilian papayas.
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Barriers to imports include tariffs, tariff-rate quotas (TRQs), sanitary and phytosanitary requirements, and various import quality requirements. As a result of successive rounds of multilateral trade negotiations, US barriers to agricultural imports are among the lowest in the world. Only a few other countries, such as Argentina, Australia, and New Zealand, have lower average tariffs. Nevertheless, some selective high barriers remain. Some of the most stringent US barriers to food imports are the TRQs established under the Uruguay Round for beef/veal, dairy products, sugar and sugar products, and peanuts and peanut butter. These barriers are a function of long-standing domestic support programs, with price and income support objectives. For these products, imports are limited by the TRQs, and domestic prices remain above comparable world prices. Tariffs on most fruits and vegetables are low, at less than 10 percent. However, some fruits and vegetable imports continue to face tariffs of 20 percent or higher— some melons, orange juice, cucumbers, asparagus, broccoli, and various frozen and processed products. Such barriers can act to limit imports and maintain higher prices. Imports of most fruits and vegetables are highly seasonal, and in some cases the seasonal tariff works to shield domestic producers from import competition (e.g., California asparagus producers harvesting early in the year), but generally tariffs are so low that even a seasonal increase is not a deterrent to imports (e.g., tomatoes, eggplant, cucumbers). Some horticultural imports, including tomatoes, potatoes, and grapes, are subject to minimum quality requirements when domestic marketing orders are in place. Proponents of these standards note that these requirements help ensure high quality, which encourages greater consumption. Opponents, including some foreign suppliers, claim the requirements work to keep out lower-priced imports and are used to maintain US producer prices, which discourages use. With imported fruits and vegetables increasing and recent high-profile food safety cases (raspberries from Guatemala and strawberries from Mexico), there is a perception that imports are less safe than domestically grown food. There is no clear evidence that health risks due to pesticide residues or pathogen contamination are greater with imported produce. Although there is no evidence that consumers are reducing their intake of fruits or vegetables because of food safety concerns, recent Administration efforts to strengthen inspection of imports and monitoring of foreign production practices for fruits and vegetables can serve to reinforce consumer confidence in the food supply, whether from imports or domestic consumption. Exports account for a significant share of production for many US farm commodities. Numerous export promotion programs—direct export subsidies, market promotion, credit guarantees, food aid—are designed to expand demand and improve farm income. While these programs may at times encourage production of commodities for export at the expense of other commodities, or reduce the available domestic supply of specific foods, the effect is not always clear. For example, the rapid growth of broiler exports, from 5 percent of US production in 1990 to 17 percent in 1997, partly aided by the use of government programs, may have raised poultry prices at the same time US consumers are being encouraged to eat more low-fat, lean meat.
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However, much of the export increase was leg quarters not preferred by US consumers. The export increase may be leading producers to offer more white meat at a lower price to US consumers. A cornerstone of US trade policy has been reducing trade barriers both at home and abroad. The Uruguay Round and NAFTA were important first steps in liberalizing agricultural trade. Continued reductions in trade barriers should be pursued and are highly likely. Trade barrier reductions probably mean more for US exports than imports because, with a few exceptions, US tariffs and other barriers are already low.
Creating incentives or disincentives to produce foods consistent with the Dietary Guidelines Output incentives One set of incentive-based policies is a system of taxes on over-consumed foods and subsidies on under-consumed foods. At the farm level, these instruments would affect supply; at the retail level, they would affect demand. The basis for such proposals is that prices—adjusted by taxes or subsidies—are important determinants of supply and demand. Taxes and subsidies could be applied anywhere from farm to retail; administrative considerations, such as cost-effectiveness, would dictate where to intervene. The historical rationale for production subsidies has been income support for farmers. Basing subsidies on the Dietary Guidelines would require a change in the distribution of payments among producers and commodities. Subsidizing a particular food would likely increase production, but taxpayer costs and trends in farm policy which have moved away from production subsidies and market intervention are strong factors working against new subsidies. The primary rationale for taxes is to generate revenue but they may be an appropriate remedy for externalities, such as costs imposed on society by poor health arising from poor diets. Such potential health benefits have led to proposals for specific food taxes—so-called “fat taxes,” “twinkie taxes,” “Mctaxes,” etc. Enactment faces serious hurdles since all foods are not inherently a health problem; it is the mix or the quantity of foods consumed that creates the problem. Taxes do not distinguish among those who are eating foods in the right proportion, those who are overweight and those not, children and adults, etc. Consequently, food taxes would be too high for some and enough for others, and there is no assurance consumers would substitute more healthy foods. Food taxes are also regressive, accounting for a larger share of household income for the poor compared with the rich, and many persons, even those who eat according to the Dietary Guidelines, may pay more for food. Input incentives Input incentives are a step away from direct subsidies and function by reducing economic barriers to production. For example, research to reduce production costs
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of under-consumed foods or steps to increase the supply of constraining inputs (e.g., labor, irrigation water, effective pesticides) would increase food supply. Similarly, if production of the desired food has adverse environmental effects, assistance to find alternative production technologies (e.g., new pesticides such as a methyl bromide replacement, conservation assistance, or sustainable production practices) would spur supply. One production barrier often raised by producers of perishable crops with critical harvesting windows, such as fruit and vegetable growers, is the difficulty in finding sufficient and affordable labor for harvesting. Congress debated reforms in the H-2A Temporary Foreign Worker Program during 1998 that would make it easier for growers to bring in legal foreign workers if domestic workers cannot be found. This type of legislation may encourage production of fruits and vegetables but would be controversial and was not adopted. Finally, programs such as USDA’s farm loan programs could provide start-up and operational assistance for producers of underconsumed foods and targeted producers, such as organic or small enterprises growing vegetables. However, the scope of incentive programs should be limited by what is needed for broader public benefits and not simply replace private sector spending.
Expanding demand for foods consistent with the Dietary Guidelines A number of demand-side policies—those focusing on the consumer—are likely to be more effective in the long run than supply-side policies. Policies aimed at influencing consumers to choose foods consistent with the Dietary Guidelines generally fall into three categories: public information, product improvement, and product delivery. This last category is partly a supply issue but is listed here because the emphasis is on improving consumer access to food. Public information The Dietary Guidelines are the fundamental element of education programs. The private education effort on eating choices is a big industry, as witnessed by the proliferation of ads, books and news stories on how to lose weight and how to eat well. Some of this commercial advice diverges from the official Dietary Guidelines, but its popularity indicates that there is a demand for information on food choices. The Dietary Guidelines state “The Food Guide Pyramid and the Nutrition Facts label serve as educational tools to put the Dietary Guidelines into practice” (USDA, 1995). Policy actions regarding education and information depend on whether Americans are using these tools to make food choices. About 60 percent of Americans are familiar with the USDA Food Guide Pyramid (USDA, 1997). Other surveys indicate a very high proportion of Americans always or sometimes read the food label for information on nutrition and ingredients when buying a food product for the first time (Food Marketing Institute, 1997). Such results establish that the majority of Americans are familiar with the Pyramid and are aware of and read nutritional labels at least some of the time. However, in 1996 only 17 percent of Americans had a “good” diet as measured by the Healthy Eating Index (USDA, 1998).
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The rationale for guidelines and information requirements is that diet-related health problems are costly to society. Seven diet-related health conditions were estimated to cost society US$250 billion in 1995 in medical costs and lost productivity (Frazao, 1995). It is hoped that, if properly informed, Americans will change their eating behavior and avoid some of these costs. Also in 1995, USDA spent US$327 million on nutrition education (USDA, 1996b). Research has shown a strong link between nutrition knowledge and diet quality (Lin et al., 1996; Bowman et al., 1998; Variyam et al., 1998). In a cost–benefit framework, it appears that additional spending on nutrition education has large potential benefits. But more information is needed. For example, what types of education are most effective in improving diet and how do changes in the diet reduce the costs of diet-related illness? Mandatory nutritional labeling is a major component of consumer information and education. One approach to improving response to labeling may be a simpler “go” or “stop” signal than current nutritional labeling. It is unlikely USDA could use a USDA seal of endorsement on selected foods or a negative seal on some foods, e.g., high-fat and high-sugar items. However, more can be done on simplifying label information, such as encouraging developments like the American Heart Association’s heart-check mark, and requiring nutritional information on foods not now labeled, such as single-ingredient raw meat labeling, which is occurring only at a level close to USDA’s standard for significant participation by retailers. With Americans now spending 45 percent of the food dollar away from home, nutrition labeling could be expanded more broadly to restaurant meals, such as identifying the nutrients in the restaurant’s dominant food choices. An existing policy is government-sanctioned producer check-off programs that sponsor generic advertising. US producers contribute nearly US$700 million per year to these programs. For example, the fluid milk processors have promoted milk consumption with their celebrity milk moustache campaign. Preliminary USDA analysis for fiscal year 1997 indicates US$52 million was spent on fluid milk advertising, raising consumption by 5 percent. Dairy promotion expenditures are also estimated to have increased cheese consumption by 1 percent. Ideally, producer groups could educate the public as to how their foods can fit into a diet consistent with the guidelines, and many have. USDA could do more to bring nutritional research results and information to the producers who run the check-off programs to help identify educational opportunities for their funds. USDA might even consider cost sharing for generic nutrition education programs. Product improvement Consumers expect more out of their foods than just nutrition. Safety is a concern, and publicity from foodborne illness can shift consumers away from foods they should be eating. Increased import inspections, pesticide residue monitoring, application of Hazard Analysis Critical Control Point (HACCP) systems and the Administration’s recent efforts to develop guidelines for best production and processing practices for fruits and vegetables are ways to improve food safety and build consumer confidence, particularly for fruits and vegetables.
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Consumers also want improved quality in terms of longer shelf life, easier preparation, better taste and improved nutritional characteristics such as lower fat content. Biotechnology has been one approach to extending shelf life. Research by USDA’s Agricultural Research Service (ARS) has found a gene to prolong freshness and flavor of more than dozen fresh fruits and vegetables (USDA/ARS Website). Precut vegetable and salad mixes are popular retail products that respond to consumer preference for easy-to-prepare foods. Biotechnology also offers immense potential to improve nutrient content and produce foods that have the desirable properties of over-consumed foods but without the unwanted nutrients. Public funds have supported such research, and various forms of licensing agreements have facilitated the commercialization of research results. USDA’s development of the fat substitute Oatrim is an example. Biotechnology will also develop new varieties of the underconsumed foods that are cheaper to produce and adaptable over wider geographic areas. Demand for lower fat and more consistent quality has been met by the pork industry through genetics improvement which is producing leaner hogs. The beef industry is trying to develop lower-fat and easier-to-prepare products, through genetics and product processing, such as precooked roasts. In the meat area, in addition to support of basic research USDA can help with grading and marketing systems that ensure consumer preferences are transmitted down the marketing chain, and processed products are being offered that are lower in fat than conventional formulations. Product delivery Convenient access to foods can affect what is eaten. For example, USDA and State governments have pursued policies to develop farmers’ markets, which numbered around 2700 in 1998, up nearly 50 percent since 1994 (USDA/Agricultural Marketing Service Website). One policy goal is to improve farmers’ incomes through direct farm-to-consumer marketing. Another goal is to encourage consumption of fresh fruits and vegetables, which are the core commodities of such markets. The WIC Farmers’ Market Nutrition Program allows program participants to use coupons at farmers’ markets and food stamps may be used there for the same purpose. Policies that make access to under-consumed foods more convenient, such as farmers’ markets, are relatively low cost and have generated interest in locally produced, farmfresh foods. The public sector role is to help overcome the transactions costs which prevent organization and development of such outlets, which range from such varied barriers as finding a location to preserving farmland in metro areas.
Conclusion Changes implied by eating consistent with the Dietary Guidelines imply significant changes in US farm production, farm input and food processing and retailing sectors. Addressing farm income, rural economic growth and trade competitiveness are likely to remain the dominant objectives of domestic farm and international trade policy,
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yet the trend toward a more liberalized trade and domestic policy environment is consistent with improving the flexibility of the food system to respond to the choices of consumers. Food purchase decisions are complex, depending on income, price, demographics, tastes and preferences, perishability, convenience, etc. To generate more than a minor difference in diet, Federal efforts have to take place on a number of fronts to deal with the complexity of the factors behind consumer choice. Three main categories of potential policy and program changes that would help move US food use toward the dietary guideline are: (i) eliminating existing program limitations on supplying the quantity of foods consistent with the Dietary Guidelines, (ii) creating incentives or disincentives to produce foods consistent with the Dietary Guidelines, and (iii) influencing consumers directly to choose foods consistent with the Dietary Guidelines. Within the first category of potential change, the best prospects are eliminating Federal farm program impediments to production response, such as the current limitation on increasing fruits and vegetables production by farmers who receive government income support payments; reducing artificially high fluid milk prices under milk marketing orders and reducing tariffs on imported foods through continued trade liberalization. Within the second category, the least likely prospects for policy change are food taxes and subsidies levied anywhere along the producer-to-consumer chain. Taxes and subsidies are blunt instruments, unable to be precisely levied to conform with the diet changes any one consumer might need to undertake. The best prospects for policy change in the area of incentives appear to be actions that would foster production of desired foods that result from lack of adequate production inputs, such as helping assure sufficient harvest-time labor, efficacious chemicals, and research on profitable sustainable production practices. While it would appear policy may be only modestly effective in inducing a supply response in agriculture, the US food and agricultural system over time is extremely flexible and responsive to changes in demand. Consumers will get what they want. Within the third category, the best prospects for policy change fall in the areas of product information, product improvement and product delivery. With regard to product information, simplified additional label information would help. More spending on nutritional education may have large benefits. Education in schools, through the medical profession in health care settings, in food stores at point of purchase, and with use of producer check-off programs, are examples. With regard to product improvement, more and continued research to improve taste, convenience, and nutrient quality is needed. Biotechnology offers enormous potential to improve the nutritional content of diets, even without consumers changing food choices. USDA needs to regulate seed development to ensure safety without unduly slowing approval of new varieties. USDA research needs to focus on areas of broad public benefit such as collection and protection of genetic material. USDA also needs to help develop marketing systems that improve the transmission of consumer desires through the system. Beef is an example; only a fraction of ranchers know the quality of meat their animals ultimately produce. Unfortunately, consumers often reject the lower-fat cattle or parts of the carcass because they do not know
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how to prepare them or preparation takes too long, but here, too, development of more convenient processed products could overcome this barrier. With regard to product delivery, one approach is to link consumers with producers of high-quality, under-consumed foods. For example, programs such as farmers’ markets which have fresh fruits and vegetables as their core commodities appear to be increasing urban access to high-quality locally grown food. From an economic policy perspective, strategies to influence consumer behavior have advantages over policies designed to affect supplies of foods. Policies and programs that change consumers’ tastes and preferences in favor of currently underconsumed foods increase demand at all prices. These policies—whether education, information, research, or new infrastructure to facilitate production and delivery— may be thought of as investments with up-front costs that yield returns in terms of healthy eating over many years. Another advantage is that consumer approaches rely on market forces to induce the desired quantities of production. This is economically efficient and avoids the risk of the government influencing resource use inappropriately, i.e., picking winners that consumers ultimately decide are losers. Supply policies, except for those that remove barriers, are usually dependent on recurring payments to induce supply and lower prices to encourage consumption of desired foods. Remove the artificial incentives and the supply will likely dwindle. Supply restrictions are also costly and unwelcome by producers of the over-consumed foods. Although consumers have not always adopted eating patterns consistent with the Dietary Guidelines, consumers do change their habits based on nutrition information.
Acknowledgements The author thanks Carol Goodloe, Jim Schaub and Larry Selathe for helpful comments.
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