What's the product? Locavore edition

I've wondered how much locavore, or GMO-free, or other strong expressed ethical-preference consumers' demand is real as compared to notional. Do people really want the product they're buying to satisfy all the constraints, or do they just want the warm glow that comes from thinking that it might and that they're good people for affiliating with that kind of product?

We can think about what the two different worlds would look like and reason from there. Suppose there really were very strong effective demand for locavore products. A restaurant, or boutique grocer, catering to locavores would do a lot to demonstrate to their customers that their products meet the constraints. They'd make verifiable claims about their supply chains. If a product couldn't be sourced locally, there'd be explanations about how that product weren't local and why - like that bananas just don't grow here. And if a store or restaurant were found to have cheated, customers just wouldn't trust it any more and it would go under.

In a world where people cared about the feeling more than about the practice, stores would make unverifiable claims about supply chains. It would be ambiguous which products really were sourced locally and which had to come from elsewhere because of cost or other factors. And deception wouldn't be punished so long as the image could be maintained - customers would look for rationales for whatever had happened, and just continue eating there.

Via Thomas Lumley, here's a rather extensive story on scam-versions of buy-local in America. Most claims turn out to be wrong. Shops and restaurants that want to provide locavore alternatives find that customers are simply not willing to pay prices that are multiples of the prices that would otherwise obtain, so they fudge things. And when they're caught, and there's media coverage:

INSIDE EDITION CORRESPONDENT Lisa Guerrero wore a fitted black blazer and stilettos when she busted with her camera crew into Get Hooked, a casual seafood restaurant in Hudson that on occasion hosts micro-championship little people wrestling.

Taking co-owner John Hill by surprise, she confronted him about his “Delicious Lobster Sensation,” part of a Feb. 8 segment about the frequent fraudulence of lobster dishes.

Although the restaurant has its own fishing boats, and Hill likes to say, “Our refrigerator is the Gulf of Mexico,” its lobster roll-like sandwich is made with a commercial product that contains cheaper fish such as whiting and pollock.

After the show aired, I followed up to see how the revelation had affected the restaurant.

“We’re selling more lobster rolls now than ever, and we’re serving the same product,” co-owner Michelle Bittaker said. “What the show forgot to tell you is that the sandwich is $9.95, with french fries and coleslaw. Nobody in America could serve a real Maine lobster roll for $9.95.”

They also offer a real Maine lobster roll on their specials board, she said, 6 ounces for what she calls a more realistic $24.95.

I don't like fraud, and there's a lot of fraud in the story. But I wonder how many of the customers would really prefer knowing. Here, at least, I'd expect the Consumer Guarantees Act could have something to say. There, if customers really wanted to know, they'd make sure to buy from restaurants and shops certified externally as meeting some verified supply chain regime.

I also take it as cautionary tale about NZ agricultural imports into the US.

New Zealand has a great product story to tell: Canterbury lambs have happy lives, and even Peter Singer said it's ok to eat them so long as they're net happier existing than not and so long as their being eaten is what allows them to exist. But as for any real willingness to pay real substantial price premiums for things that are guaranteed GMO-free, or organic, or whatever else... if the restaurant next door has something with a similar label that costs half as much, well, good luck.

Rebecca Krassnoski of Nature Delivered has sold her naturally raised pork to restaurants like The Refinery and Pearl in the Grove. Here’s a little bit of her math:

Her cost to raise a pig to slaughter weight is $240 to $300, plus $50 to slaughter it and $50 to transport it. So, let’s say her total cost is $400. That whole pig, minus entrails and hair, will weigh 192 pounds. If she sells it at $3 per pound, that’s a sale price of $576.

“I make $200 if everything goes well,” she said. “That’s on a perfect day. On average, I’m lucky if I make $100 on a pig and maybe I raise 100 pigs in a year.”

Ten thousand dollars a year is not a living, she said, but “nobody wants to pay $6 per pound for pork.” Most restaurants can’t, or won’t, pay her what she needs to live.

“I can’t think of a time when my chops have been served at a restaurant on a daily basis,” she said. “I think a lot of times farmers with a good story are used as a billboard.”

Americans balk at paying $6 per pound for local natural pork. In NZ terms, that's about $20/kg plus GST.

There'll always be small niches where there are customers willing to pay a premium and who care about the authenticity of claims made. My sister's market in Winnipeg serves some of them, and she has rightly earned their trust. And I think it's great when NZ growers find ways of tapping into those kinds of North American markets.

But setting NZ policy in the expectation that there are $20 notes sitting on American sidewalks waiting to be scooped up if New Zealand could better capitalise on clean green stuff... I'm a sceptic.

Animal welfare and testing

Glenn Boyle and VMC argue that the harms that would have been inflicted on animals as part of the legal highs testing regime would have outweighed any benefits. [see comments to my linked post]

It's rather hard to tell whether that's correct. It seems unlikely to be right if we take as fixed the requirement that drugs be proven safe via animal testing before sale, as the consumer surplus over the entire market would likely dominate, but if the legislation did not require such stringent safety-proofs, then it likely wouldn't.

More broadly, I wonder whether the animal testing regime in place is right. Currently, anyone undertaking animal testing must use an ethical review board and must demonstrate, to the board's satisfaction, that the costs to the animals are dominated by the benefits of the research, and that the lowest-harm way of undertaking the research was chosen. But where some research applications, like legal highs, get folks' backs up, we wind up with a politicised regime with patchwork bans on testing.

An alternative framework would have the review board only assess whether the harms likely to be experienced by the animals were trivial, moderate, serious, or "wish I'd never been born" bad. Run that against a fee matrix that charges based on the severity of harm and the animal's sentience, so an earthworm would basically be free to abuse but fees for primate testing would be close to jury awards for compensatory damages for somebody torturing children. Then, use the collected funds to run retirement homes for former lab animals.

Advantages: no politicisation of which benefits get to count;
Disadvantages: We might miss out on those medical advances that cannot be achieved without primate testing. And, there's no guarantee that some politician wouldn't use animal testing as an excuse to ban things he didn't like regardless of the regime.

Utilitarianism gets messy when animals start counting. Here's Tyler Cowen on policing nature and on vegetarianism [book chapter here].

Previously:

• Barn pork and free-range
• Animal welfare and Crafar Farms
• Utility-enhancing constraints and dairy - as update, I really think that the MAF budget for animal welfare inspections should be countercyclical to milk prices. Dumb things start happening when milk prices drop.
• Partial and General food equilibria: vegetarianism, marginal lands and pastoral agriculture
• Testing bans - how far back should we go?

Legal highs

NZ had something beautiful in its framework for sale of psychoactive substances that hadn't already otherwise been banned. Show that they're safe, and you can sell them.

Ross Bell shows how it went wrong from there.

The number of retail outlets for "legal highs" was slashed, from as many as 4000 to fewer than 170. The number of products fell from around 200 to fewer than 50. There was evidence that related hospital admissions fell, along with reports to the National Poisons Centre.

The purge also magnified attention on the remaining outlets, largely unwelcome in their communities. They became a focus for the media. Some looked disreputable when journalists visited. In addition, personal stories of chaos and woe received widespread coverage. That these problems had developed in the unregulated market or were caused by products already removed were of little consequence.

On top of this, an already under-resourced regulatory authority was sluggish to respond. The interim regime was left carrying more weight, and for longer, than had been anticipated. Imports could not be checked for purity as required, and obtaining and delivering certificates of analysis proved a challenge for all concerned. It became difficult to say exactly what was in some products – the very opposite of what had been intended.

Despite these problems, perhaps the real damage was done before the act was even passed. The early, relatively benign synthetic cannabinoids had beenbanned for years. When the act passed, only so-called third-generation cannabimimetics were still legal. Their harms were poorly understood.

In May, amid the media panic, the government rushed through an amendment ending the interim licensing period and removing all the drugs from sale. The act remains in place. Indeed, it's in good shape. The long-awaited regulations for manufacturing, importing and research and product approvals were signed off in July and are in force. Those for wholesaling and retailing are on track for the second half of 2015.

But one part of the amendment has thrown a bomb into the works. It banned the use of animal testing results, in New Zealand or elsewhere, to show that a product met the "no more than a low risk of harm" standard. But a senior Ministry of Health official said recently that "at this point in time, it is not possible to have a product approved without animal testing".

As I understand things, there are still a few potential ways through. If something has been proven safe overseas in human trials, that might be good enough.

But it remains profoundly disappointing that New Zealand's liberal ACT Party, under John Banks, helped to kill substantive real drug law reform through its advocacy for a ban on animal testing. John Banks cares a lot about beagles and that's lovely. But he, and ACT, did very real harm here.

Testing bans

How far back should any ban on animal-tested products go?

Labour this week promised that, in the unlikely event of its election, it will ban the importation of overseas cosmetics that had been tested on animals. Suppose you agree with the intention of the policy: to reduce and eventually eliminate the testing of cosmetics on animals. Deciding which cosmetics to ban remains tricky.

At minimum, you would want to ban the importing of any products whose development involved animal testing where that testing happened after the ban went into force. We can only really ever affect behaviour in the future, not behaviour in the past, so banning future products that had been tested on animals would be the obvious start.

Suppose you went further back and decided to ban anything that involved testing since Wednesday, when Labour's policy was announced. Perhaps some manufacturers would have heard that this policy could eventuate in New Zealand and might decide to change their development process as consequence. You'd want to have been clear that the ban would apply from today-developed products onwards, but you can still make the case for it.

Going farther back, you start conferring rents on manufacturers who had chosen to veer away from animal testing and to impose losses on those who hadn't. It's possible that these rents could fuel further product development from the no-testing companies, and maybe it's desirable to confer those rents even if it doesn't. But the farther back you go, the more losses you impose on NZ consumers for no plausible gain for today's animals. If it turned out that Chanel #5 involved some kind of animal cruelty when developed in 1920, what possible benefit would come of a ban?

I don't know what the right answer here would be from the perspective of someone against hurting animals, but it seems unlikely that any ban should extend backwards in time all that far. I am curious how Labour would seek to apply this though. Their PDF says any products or ingredients that have been tested on animals would be banned. But it doesn't say anything about whether that applies only to current testing, or to past testing.

Partial and General food equilibria

I'm omnivorous, mostly because I enjoy the taste of meat. I can rationalize it ethically by looking at Cowen's argument that it's ok, so long as the eaten animal had enjoyed positive lifetime utility and wouldn't have existed but for my willingness to subsidise its existence in exchange for later being able to eat it. But I know that that argument also rationalizes baby farming to produce slaves for me*. And there are other problems in bringing animals under a utilitarian framework. And so I try not to think about it too much. Because animals are tasty. And a vegetarian diet would be a big hassle. And I am indeed made happier by thinking about lambs playing in paddocks who wouldn't get to exist but for my eating them. So I follow Cowen's rule and aim for animals I can imagine enjoyed positive lifetime utility.

Vegetarians sometimes argue** that we have to abandon meat-eating because meat is an inefficient way of generating calories: if we all scaled up to Western diets, there wouldn't be enough land to grow food for everybody unless we switched over to vegetarian diets.

That argument is wrong on two fronts.

First, some land does most efficiently generate calories by producing grass to be eaten by animals. Like New Zealand high country sheep farming. There's not enough water in the country to irrigate that land to make it suitable for cropping. But it'll support low-density pastoral agriculture. Further, some grain crops wind up being of low value for human consumption but still suitable as supplement for animals. So the optimum is unlikely to involve everyone switching to vegetarianism if the objective is maximizing total available calories for human consumption (though if the developed world's bigger problem is obesity, I'm not entirely sure why we ought to take this as maximand anyway).

Second, it's entirely a partial equilibrium story. What happens as folks in the third world get richer and start moving from inferior goods like lentils and rice to superior goods like beef and lamb? The price of the latter get bid up. And what happens when relative prices change? People change their consumption bundles. And so I find the Washington Post reporting that Americans are eating less meat as meat prices increase.

Why is this happening? The Daily Livestock Report blames rising meat prices in the United States. As countries like China and India get richer, they’re eating more meat, which is helping to drive up U.S. exports and making beef, pork, and chicken more expensive here at home. Ethanol also plays a role: Nowadays, American farmers divert bushels and bushels of corn to make fuel, which drives up feed prices and, again, makes meat pricier.

There's no need for a moral imperative to reduce meat-eating. Get rid of subsidies in the agricultural sector, make sure effluent externalities are properly priced or regulated, then let relative price adjustments take care of the rest. The optimal amount of meat will be eaten, so long as we keep waving our hands about the moral questions.

* You can maybe square this by saying people get massive disutility from being slaves while animals don't know that they're slaves. But humanity has a long history of slavery, and most slaves, as best I'm aware, didn't commit suicide. So by revealed preference, lifetime utility was likely still positive. And then we're stuck again.

**This was somewhat sparked by an argument on Google Plus linked here (thanks Ryan!) which I cannot figure out how to link.

Utility enhancing constraints and dairy

In his grad public choice class, Gordon Tullock liked to tell a story from his early career as a State Department official in China, where he was stationed prior to being overrun by the Communists (as best I understand the story).

He said it was common practice for labourers to pull barges up canals using ropes. Another worker would watch over them with a lash, making sure everyone was pulling hard. When he inquired into the practice, he found that the team was paid based on how quickly they would get the barge up the river. None of them, while pulling, could monitor the others to ensure nobody was shirking. And they all knew they'd be tempted to shirk absent a monitor. And so they found it beneficial to assign someone with a whip to watch over the team. The team chose one of their own to stand over them all with a whip, to make sure everyone did his share.

Bernard Hickey today points to more evidence of animal neglect and cruelty in New Zealand's dairy industry. If you go and read the horror stories, be sure to go for the unicorn chaser afterwards.

The Ministry of Agriculture and Fisheries has almost no staff assigned to check into animal welfare complaints. Fonterra, the large dairy cooperative that purchases the vast majority of milk produced in New Zealand, will not get involved in animal welfare cases except where a farmer has been convicted and has not fixed the problem that led to conviction. Of course, since there are almost no animal welfare inspectors, probability of conviction is slim.

Hickey worries that these stories could tarnish New Zealand's dairy image and hurt our position as the largest exporter of the world's traded milk. It's possible. I don't know the probability, but it's possible. Fonterra is residual claimant if New Zealand's dairy industry takes a big hit on this kind of issue. Sometimes, it's worthwhile for a cooperative to designate a whipmaster, and Fonterra seems well placed to take on the job if its shareholders/members want it.

If Fonterra doesn't want to act as whipmaster itself, is there anything that would stop Fonterra from voluntarily paying a levy to the government to fund the hiring of more MAF officers whose sole role would be ensuring animal welfare on Fonterra cooperative farms, then slapping some "animal friendly" stickers on all brands of Fonterra milk? Fonterra's annual turnover is $19.5 billion, with payout to shareholder members of about $9 billion. Would a million or two to equip a team of vets be all that costly in the grand scheme of things? What risk of PR disaster would be sufficient to make the expenditure worthwhile? If there's no impediment to this kind of thing, and Fonterra chooses not to do it, it suggests that Fonterra does not weigh terribly heavily the risks of brand deterioration due to some of its farmer members' rather terrible practices and sees little potential for selling premium "Don't be Evil" product.

Let's hope that Bernard Hickey is successful in making Fonterra deem these kinds of investments worthwhile.

Previous post: animal welfare.

Update: Bernard Hickey's links are broken; try here here here.

Animal welfare

Back while I was in grad school, Tyler Cowen presented a paper on animal welfare to the Buchanan House brown bag seminar in which he concluded (if I recall correctly) that, so long as animals are happier having been born than not, vegetarians are reducing animal welfare by inducing fewer of them to be born; he also argued that while there may be some cause to want more animals to move from the meat sector to the pet or zoo sectors, animals cannot readily bargain with owners to effect the transfer. Extensive discussion followed on whether animals' welfare ought to count per se or whether it only should count because people care about animals. I threw in that the reason that we ought to care about animal mistreatment isn't so much the violation of the animal's rights but rather that the kind of person who enjoys torturing animals probably also enjoys beating his children; Buchanan jumped in to agree.

The updated version of the paper uses a thinner reason for caring about animal welfare: it counts only inasmuch as people care about animals. In the thinner formulation, vegans may do good, but vegetarians do harm by inducing a shift in animals from the meat sector, where they're happier, to the dairy sector, where they're less happy.

Under either standard, what's gone on at Crafar Farms is repugnant. I grew up on a mixed farm with beef cattle. Calves would be born on February nights at 30 or 40 degrees below zero, and Dad would be out there, every night that a cow seemed likely to be dropping a calf, to make sure things went well. And if a calf was having problems in learning to drink, he or I would be out there a few times a day teaching the calf how to get on with it.

Baby calves are a joy. Here's a nice unicorn chaser for folks who hit the link through to Crafar Farms. I cannot understand how the farmers at Crafar could allow this to happen. I cannot understand how any human could stand by to watch this happen. But I suspect that they're very close kin, in terms of utility functions, to the Kahui whanau, who either murdered their twin boys or stood by and let it happen. Smithian sympathy fails: they couldn't step into the mind of the other and imagine the suffering they were causing, and I consequently can't step into theirs.

There's a dark side out there.

Welfare and animal welfare: NZ pork edition

The Kiwi econ blogosphere, namely Paul, Matt and Brad, has been abuzz with discussion of pigs. As background, some animal rights activists broke into a pig barn in the middle of the night, frightened the animals, took a video of the frightened animals, and aired it on the news. The video ignited discussion of the desirability of farrowing crates as compared to free-range options among those who've never been in a pig barn. [Update: Of course, I'm here referring to the popular outrage expressed in the press; the econ discussion subsequent to the popular outrage has been rather good, as noted below.]

Brad Taylor points out that domestic pig farmers are making the best of some bad press by using the video in a bootleggers-and-baptists move: they argue that they're forced to use crates despite their better wishes because of the existence of foreign competition; if only tariffs protected them, they could change their methods. Paul Walker argues that the foreign competition angle is a red herring so long as barn raised pork is the cheaper production method; even with an import ban, producers would have a strong incentive to choose the cheaper option. Matt Nolan suggests that separate markets in free-range and barn raised pork solves most issues insofar as we only count animals' utility as it enters into human utility functions; if animals have intrinsic rights then a Pigovean tax (he calls it an externality tax, but Pigovean seems uniquely appropriate) on animal suffering solves things in the absence of Coasean bargaining.

A few years back, Tyler Cowen wrote an interesting piece on animal welfare. Relevant points:

• If animals can be shifted among sectors of varying welfare, then a tax on meat-eating is of ambiguous consequence: there's no apriori reason to expect more to shift to the higher welfare sector than to the lower.
• If regulation specifies a minimum standard of animal welfare such that we'd all view those animals as being happier having lived and been eaten than never having lived at all, vegetarianism is strictly harmful: fewer animals get to be born (and later eaten) when the demand curve is closer to the origin than it could be if vegetarians did their part in helping to defray these animals' costs of existence.

  "Some animal advocates argue for both mandatory care standards and for taxes or restrictions on meat consumption. But in fact, if we are at a care standard where animal lives are worth living, mandatory care standards should be combined with subsidies to animal breeding, not taxes on animal breeding."

• If regulation specifies a minimum standard of animal welfare much higher than the animal enjoying epsilon utility, there's a tradeoff between number of animals and happiness of animals (imagine Parfit's repugnant conclusion, but with the conclusion as starting point and working backwards).

I'd follow up on Matt's argument by suggesting that the two-sector model (people who care about animal welfare buy free-range; others buy barn-raised) isn't sufficient to induce efficiency where folks who care about animal welfare care not only about the animals they themselves eat (or abstain from eating if vegetarian) but also have Pareto-relevant preferences concerning the animals eaten by others. In that case, they'd be willing to pay some money to subsidize barn-pork consumers to switch to free-range. Presumably a charitable organization could achieve that end. However, if there are some people who now don't eat meat because they can't afford the free-range variety and are unwilling to eat barn-raised for ethical reasons, and if vegetarians with Pareto-relevant preferences concerning animal welfare would prefer that nobody eat meat but that any meat eaten be free-range, then the charity doesn't unambiguously solve the problem for them: the negative effects on the extensive margin, as they see it, may outweigh the positive effects on the intensive margin. Unclear that there are enough vegetarians with Pareto-relevant preferences (ie willing to put their money where there mouths aren't) for the latter bit to be a major issue, in which case the charitable organization would be sufficient, but fun to ponder.