Dr. Brian Buhr, head of the Department of Applied Economics at the University of Minnesota, presentation for the Minnesota Agri-Growth Council Annual Meeting 2009.

1. Externality Driven Food – What Does it Mean for The Future of Agriculture? Brian Buhr, Professor and Head Applied Economics University of Minnesota

2. In the 1990’s Agriculture Became “Consumer Driven” Delivering a Particular Attribute in Demand by Consumers. “Listening to What the Consumer Wants” Example: Marinated Pork Loins Consumers Gain Direct Benefit From Attribute

3. So, What is Externality Driven Agriculture? Externality: Actions You Take That Affect Others. Traditional Agricultural Externalities: Fertilizer Run-off – Hypoxia in the Gulf Row cropping – soil erosion Antibiotics in Livestock – Potential Resistance Manure – Odor, Phosphorus, Nitrogen

4. Externalities Can Also Be Positive! Antibiotics – Reductions in Infectious Disease – herd immunity/complete suppression. Fertilizer – Increased Productivity --> Greater Wildlife Habitat, Reduced reliance on highly erodable soils. Manure – Less reliance on fossil fuels for fertilizer needs.

5. Sustainable/Organic Agriculture Is Offshoot from Externality Driven Agriculture. Key Point: Potential Reduction Of True Externality

6. ..But Is There Any Direct Benefit to Consumers?

7. 2000’s externalities are beginning to include preference and ethical externalities.

9. Business Organization

10. Methods of Production

11. Do these really directly affect consumer?

12. In Case You Think It’s Just “Factory Farms” Obesity Caused by Corn? Why Does Corn Dominate Diet? Changed Corn From Real Food? What’s Wrong With Corn? Why Avoid it? Cheap Food Is a Problem, Pay More?

13. A Great Grey Area of Real, Perceived and Ethical Externalities: Which Is It?

14. A Ignored Externality: The Economic Externality – Cost of Food Example Sow housing load = $3.1 billion (Buhr) Ban antibiotics load = $1.04 billion (Hayes et al.) COOL load = $179 million - $1.7 billion (Brester et al. and Lusk et al.) Total policy load = $5.5 billion in pork from what amounts to PERCEIVED externalities with NO REAL SCIENTIFIC EXTERNALITY!

15. Food Cost Increases Imposed By Preferences or Ethics are Very Regressive On Poor Changing Food Composition: “Value Added” Organic, etc.? 20% of Households Spend >20% of Budget on Food 50% of Households Spend >14% of Budget on Food

16. Key Implication: World Hunger and Food Prices Attributed to Two Crises: Food and Fuel Crisis (2006-2008) Global Economic Crisis (2009) “The State of Food Insecurity in the World, FAO 2009. Countries buying land/water/resource base. ftp://ftp.fao.org/docrep/fao/012/i0876e/i0876e.pdf

17. The Ethics of Efficiency: Egalitarian Food All People Have Equal Access to Safe, Nutritious Food. New Policies Driven by Small Vocal Minority and Appealing to Wealthy– Leveraging Retailers ‘Voluntary’ Food Price Increases are a Regressive Tax: 10% Increase Food Cost  3.5% tax on low income 0.8% tax on high income Hidden Tax – If you don’t support policy you pay for higher food costs anyway. Consumer Choice? E.g., WTP pST free (Buhr, JARE): 50-86% of respondents no WTP.

18. Global Average Yields Are Declining Increasing Pressures of Food Security and Costs Source: Philip Pardey, U of M

19. Ag R&D Spending Rate is Declining – We’re Increasing Costs by Preferences and Reducing Potential to Grow Adequate Supplies Source: Philip Pardey, U of M * Growth rates adjusted for productivity-based R&D over the 1976-2006 period are in parentheses.

20. A Need to Communicate Across the Left and Right Brain of Agriculture and Food

21. What Does This Mean? The new battle over food and hunger is not being waged on science/policy issues but rather ETHICS. The Agricultural Community is Not Effectively Engaging in This Discussion but Activists Are. Agricultural Community Typically Engages the Cost Efficiency and Science Arguments Which Are Often Self Serving. YOU must begin to clearly articulate the ETHICS of food production methods and if agriculture finds ethical conflicts it must articulate them and address them.

22. Get Busy, The Clock is Ticking!