Meatonomics

by David Robinson Simon

  Food for Thought

  In a classic fox-in-the-henhouse story that might be funny if it weren't so true, the animal food industry has captured the very agencies meant to regulate it. As a result, policy-making at the FDA and the USDA is heavily influenced by producers of meat, fish, eggs, and dairy, and by those who keep animal agribusiness stocked with supplies like drugs, feed crops, and crop seeds.

  Because corporations seek regulation in order to enhance their profitability rather than to benefit society, industry-dominated policy making usually hurts consumers. Among other things, government complicity in misleading or confusing practices diminishes consumers' ability to make informed decisions.

  At the FDA, industry control has resulted in such harmful results as the agency's inability to withdraw dangerous animal drugs and its refusal to require labeling of genetically engineered foods. At the USDA, regulatory capture leads to inconsistent and misleading nutrition recommendations, as when one branch of the agency tells us to eat less cheese while another tells us to eat more. Industry influence also yields watered-down labeling standards and weak enforcement in the use of regulated terms like organic.

  II

  THE HIDDEN COSTS OF MEATONOMICS

  5

  Feeding at the Subsidy Trough

  In 1991, you could walk into any McDonald's in the United States, hand the teenager behind the counter a single dollar bill, and take home a double cheeseburger or a chicken sandwich. Back then, a gallon of gas cost an average of $1.14 in the United States (today it's $3.83), and the federal hourly minimum wage was $4.25 (today it's $7.25). In fact, the purchasing power of a dollar was 70 percent higher two decades ago. In the words of the immortal Yankee Yogi Berra, “A nickel ain't worth a dime anymore.”

  But here's a surprise. Walk into a McDonald's today and hand one thin dollar to the teenaged descendant of your former cashier. Unless you no longer eat such things, you can still leave with a double cheeseburger or a chicken sandwich. In fact, animal food prices in the United States have been remarkably resistant to the forces of inflation over the past century, falling across the board (in inflation-adjusted terms) while most other consumer goods continue to rise in price.

  In the book's second half, I explore why the retail prices of meat and dairy are so low and what these low prices really mean for consumers. The common, knee-jerk reaction to lower prices is “Great! I can buy more!” But in this case, low prices are both cause and effect of a microeconomic system out of whack. In fact, by keeping the system in a perpetual state of disequilibrium, or market failure, the forces of meatonomics create problems that affect almost everyone. For the skeptical, there is a mounting pile of evidence that artificially low prices actually hurt, rather than help, consumers. This chapter introduces some of the hidden costs of meat and dairy production and explores one particularly controversial item: subsidies.

  Cheap Meat

  Meat and dairy are cheap. From 1980 to 2008, the inflation-adjusted prices of ground beef and cheddar cheese fell by 53 and 27 percent, respectively.1 During roughly the same period, the inflation-adjusted prices of fruits and vegetables rose by 46 and 41 percent, respectively.2 The result is that in contrast to their relative prices three decades ago, today a dollar buys three times the ground beef compared to vegetables that it once did.

  The main reason for the steep drop in meat and dairy prices is that producers have made animal agriculture practices vastly more efficient. Back in the day, animal farming was heavily land intensive. But the modern shift to high-density, hyper-confinement methods has greatly reduced the need for wide open spaces. Automated processes have reduced labor costs. Consolidation and increased output volumes allow producers to enjoy economies of scale. And animals are now bred to grow larger and reach slaughter weight sooner.

  The efficiency gains are noteworthy. Per-hen egg production has doubled in the last century.3 Per-cow dairy production has tripled.4 And the average weight of broiler chickens has almost tripled, while the birds' growth rate has more than doubled.5 On the surface, it looks like innovation is doing what it should, which is to reduce prices. But a closer look at the economic costs of animal foods suggests something more complicated is happening.

  Externalities: Looking Outside the Box

  If I pay a garbage service to collect my trash, my disposal costs are internalized. Appropriately, because I generated the trash, I pay the collection costs. But if I drive over to the local park at midnight and dump my trash there, I've imposed my disposal costs on others. Such “externalized costs” are those expenses related to producing or consuming a good that are not reflected in the good's price and are instead passed on to third parties. This concept is critical to understanding the economics of animal food production.

  As taxpayers, we routinely pick up the check for externalities that everyday transactions generate. Take cigarettes. Because of the costly health problems associated with smoking and exposure to second-hand smoke, the US Centers for Disease Control and Prevention estimate that each pack of cigarettes sold imposes externalized health care costs of $10.47 on Americans.6 But even with cigarette taxes as high as $5.85 per pack in some areas, governments are far from recovering all of the externalized costs. Cigarette manufacturers, of course, pay almost none of these costs. The result is that the additional price of smoking is borne by many who don't smoke, including taxpayers and those who pay health insurance premiums. In other words, even if you don't smoke, you're writing checks to cover the doctor bills of those who do.

  Calculating external costs can be controversial. To summon a well-worn cliché, the devil is in the details. Free market advocates downplay the extent and value of externalities, while those who favor market regulation find costly externalities wherever they turn. For example, imagine that the construction of an oil pipeline harms caribou herds in remote areas. Some might argue that as a non-market animal—that is, a species we don't normally use for food, clothing, or entertainment—these remote herds have no economic value and their decline generates no external costs. Others would say that the amount that animal-friendly humans are willing to pay to protect the caribou is an external cost of building the pipeline.

  In the case of animal foods, their low retail prices obscure a significant, measurable set of external costs that make the real costs to society much higher. Many of these expenses, such as taxpayer subsidies, health care costs, and environmental costs, have been extensively researched and documented. When these documented tallies are considered, the true price of a Dollar Menu double cheeseburger turns out to be a lot higher than a buck. Moreover, there is little comfort in the superficially pleasing idea that economic conditions keep prices low for consumers. Anything that seems too good to be true probably is too good to be true. In fact, low animal food prices are largely illusory because these goods' true costs are shifted to consumers in roundabout ways. Ultimately, the numbers show that the big winners from these heavy external costs are a handful of animal food industry fat cats and the few companies who provide them with supplies like feed, drugs, and equipment.

  An Upside-Down Industry

  It's common—and usually perfectly legal—for corporations to externalize as much of their costs as possible. And of course, animal agribusiness isn't the only American industry to impose billions in hidden costs on consumers and taxpayers. But this sector is far and away leading the pack in the category, offloading more costs than any other.

  Consider electricity generation. That industry is known to impose tremendous external costs on society, mainly in the form of health problems and ecological damage resulting from burning coal and oil. A 2009 study by the National Research Council summed up the quantifiable, externalized costs of US electricity generation and found they total $63 billion yearly (in 2005 dollars).7 That's a sizable figure, but even adjusting it for inflation ($75 billion), it's less than one-fifth of animal foods' measurable external costs.

  One way to estimate the total cost to consumers of animal foods is to
add external costs to retail prices, since generally, Americans who consume animal foods will incur both the retail prices and the externalized costs.8 The industry's total annual retail sales are about $251 billion.9 But that's chump change compared to the total external costs of animal food production, which are shown below to be $414 billion.10 As Chart 5.1 shows, adding external costs to retail sales yields total consumer costs of about $665 billion.11 From this perspective, each $1 in retail sales of animal foods generates about $1.70 in external costs. The true cost of a $5 carton of organic eggs is roughly $13. A $10 steak actually costs about $27.

  Here's another way to think about the ratio of prices (what we pay at the cash register) to costs (all relevant expenses—whether paid or not). Over the past century, the large gains in production efficiency that accompanied the rise of industrial agriculture helped drive the retail prices of animal foods lower. The growth rate of chickens doubled while the price per pound fell. However, as Milton Friedman famously observed, “There's no such thing as a free lunch.” In fact, the same gains in efficiency that reduce prices also increase externalized costs. Chickens develop faster in part because they're fed growth-promoting antibiotics, but those drugs cause costly antibiotic resistance when they end up in our food and our waterways, making it that much harder for us to fight off a slew of sicknesses—and leading to more time in the doctor's office. Animals packed in factories can be raised more cheaply than those raised on pasture, but separating animals from land means their waste must be collected and stored. Some of this waste ends up in our water supply and generates serious clean-up costs. Like a new car promotion that offers twelve months without payments, the price of factory farming has been deferred or ignored—but by no means eliminated.

  CHART 5.1 Total Costs to Consumers of Animal Foods (in billions of dollars)

  If your diet tends toward the omnivorous, you might feel a sense of satisfaction that the prices you pay for meat and dairy are lower than they would be if external costs were imposed at the cash register. On the other hand, if you don't eat animal foods, you might feel relief that at least you're not participating in the system. But in either case, your wallet or pocketbook is going to feel the hit. That's because, like it or not, even though we don't pay them at the cash register, we all do incur the costs of animal food production in one way or another. For example, even if you're lucky enough never to develop cancer, diabetes, or heart disease, you'll still help finance the treatment of those who do (unfortunately, many cases of these three diseases are attributable to consumption of meat, fish, eggs, and dairy).

  Regardless of your eating habits, there's no way to avoid this steep burden. Don't eat fish? It doesn't matter—you'll still sustain your share of the expenses of overfishing, algal blooms, and other problems associated with fishing and fish farming. Don't eat meat or dairy? Vegetarians and vegans experience the externalized costs of animal foods at the same rate as the rest of society. Whenever someone buys a Big Mac, herbivores and omnivores alike pick up the tab for the burger's additional, externalized costs. This shifting of costs means each of us—rich or poor, sick or healthy, omnivorous or vegetarian—pays the true costs of these goods, not their producers. Further, contrary to the oft-repeated claim that producers pass low prices on to consumers, the externalization of costs does not really save us money because we simply pay the costs in other ways.

  Of course, mass-producing just about any food generates external costs, and fruits and vegetables are no exception. Thus, growing crops for people imposes some of the same external costs on the environment that growing feed crops does, such as those arising from the use of pesticides and fertilizers. However, the external costs of growing fruits and vegetables are minuscule compared to those of producing animal foods. Plant-based foods, for example, generate virtually none of the health care costs and far less of the environmental costs that animal foods do.12 Moreover, government subsidies are heavily skewed toward animal food producers, who receive more than thirty times the financial aid that fruit and vegetable growers do.13 And like most features of meatonomics, these subsidies work in strange ways and have a number of unexpected consequences.§

  Feeding at the Trough

  US agriculture is propped up by an intricate scaffold of government subsidies that would make Rube Goldberg proud. These programs funnel cash and benefits to big farmers in a variety of ways that most nonfarmers have never heard of, including crop insurance, disaster payments, and counter-cyclical payments, to name just a few. Few laypeople understand how these complex programs work, how pervasive they are, or the unexpected places they crop up. I was surprised to learn, for example, of a massive water subsidy program for farmers a few hours from where I live in Southern California. In California's Central Valley, irrigation subsidies let farmers use roughly one-fifth of the state's water and pay only a small fraction of its value—about 2 percent of what Los Angeles residents pay for water.14

  The farm subsidy system is filled with off-the-wall incongruities, the oddest of which lie in the federal government's conflicted policy agenda. On one hand, as we've seen, the USDA recommends in its Dietary Guidelines for Americans that we consume less cholesterol and saturated fat. On the other hand, it heavily subsidizes the foods that are the main sources of these substances—meat, fish, eggs, and dairy. On one hand, the Dietary Guidelines recommend that we eat more fruits and vegetables. On the other hand, the government designates these foods as specialty crops that are largely ineligible for subsidies. The net result: nearly two-thirds of government farming support goes to the animal foods that the government suggests we limit, while less than 2 percent goes to the fruits and vegetables it recommends we eat more of.15 (The USDA, by the way, officially declined to comment on this or any other issues in this book.)

  Perhaps even more surprising than our government's muddled messaging on agricultural subsidies is the total dollar value of these subsidies. The USDA will spend $30.8 billion in 2013 supporting US farmers with loans, insurance, research, marketing assistance, cheap water, and other help.16 State and local governments will contribute another $26.5 billion, mainly in the form of irrigation subsidies.17 That's a total of about $57.3 billion in annual government subsidies to all segments of US agriculture—more than the entire annual government budget of New Zealand and twice that of the Philippines.

  The lion's share of this subsidy largesse supports the animal food industry. Because most US corn and soybean crop is used for livestock feed, and most subsidies help farmers who grow these crops, most of the subsidies to US agriculture ultimately benefit producers of meat, eggs, and dairy. What kind of numbers are we talking about? One study estimates that 63 percent of US subsidies benefit animal food producers.18 Applying this percentage to the $57.3 billion farm subsidy total, and adding $2.3 billion for fish subsidies (see chapter 9), the total of annual subsidies to US producers of animal foods is an estimated $38.4 billion.19

  Who Gets the Handouts?

  These subsidies work in surprising ways, and it's enlightening to consider whom they help and hurt. Supporters of farm subsidies argue that these programs provide a number of benefits, including assisting small farmers, boosting rural development, stabilizing commodity markets, and promoting national food security. However, subsidies typically work in ways far different from those intended.

  Let's start with some historical perspective. When the Depression hit in 1929, prices of farm goods fell like corn stalks in a gale. President Franklin Roosevelt responded with New Deal programs, including subsidies, designed to stabilize prices and boost small farmers' incomes. The system worked at first, but as large farms came to dominate the agricultural landscape, less and less of the subsidy funds wound up in the little guys' pockets.

  Today, the handouts are aimed at big farming concerns. Taxpayers paid out $161 billion in direct payment farm subsidies between 1995 and 2009, but two-thirds of US farmers didn't receive a cent. The funds mostly went to big corporate players, with one-fifth of recipients grabbing
nine-tenths of the cash.20 If the federal government sent invites to this party, those for small farmers were clearly lost in the mail. The 2013 farm bill (not yet passed as of this writing) seeks to end direct payments, the most controversial subsidy type, shifting the funds to crop insurance instead. But the cash and benefits will still favor the big guys over the little family operations. Moreover, not only do most of the subsidy benefits go to large corporations, but most of the beneficiaries are in the animal food industry.

  It may come as little surprise, but the handful of farmers who consistently harvest the most greenbacks from crop subsidies, research shows, are livestock producers. The reason: corn and soybeans are the main items on the menus for livestock, accounting for the majority of feed ingredients in factory farms (where virtually all US farm animals are raised).21 This makes factory farms the biggest consumers of these subsidized commodities, and they buy most of the corn and soybeans grown in the United States.22 Fish farms, by the way, also rely heavily on corn and soy for feed.

  The expense of feeding hungry animals is a huge part of the cost of doing business in animal agriculture. This food accounts for almost half the costs of raising hogs and nearly two-thirds the costs of producing poultry and eggs.23 But crop subsidies come to the rescue by helping producers keep their feed costs low. One study found that crop subsidies and the resulting lower feed prices allowed factory farms to decrease their operating costs by as much as 15 percent from 1997 to 2005, saving nearly $35 billion over the period.24 As these programs favor big operators over small, they not only fail their original purpose of helping small farmers, but they also go a step farther and actually help drive small farmers from the rural landscape.