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What is the true cost of food?

So, Liz and I believe pretty strongly that returning to local food production is a pretty important part of returning our world to a  state of health. To that end we’ve been reforming our habits and lifestyle over the last couple years. You can see more about our efforts over at her blog.

We also recently started working on reforming our financial habits, inspired largely by Mr. Money Mustache. I talked about the value of local food in a comment on a post over there recently, and got a response from another reader that I thought deserved a more well structured reply than what would have been convenient to write there. So, I’ll write my response here. He made a number of good points that I’d like to look at one by one.

…local food often takes even more gas and involves more pollution that centrally grown, corporate organized food.

First, I don’t want to discuss this in terms of “pollution”. That is only one aspect of the total cost of producing a food item. For the sake of this point, let’s substitute “energy” for any of those other possible measures of cost, since energy inputs are usually derived from some non-renewable source, and that will encompass the majority of the financial cost of the item and imply most of the pollution cost of it as well. The truth of his statement will depend a lot upon how you define “local”. I failed in my comment to specify “local sustainably produced” food which is a pretty big oversight. It’s true that beef produced at a CAFO consumes about the same amount of energy almost no matter where it is consumed. Accounting for all the inputs required for the feeding and cleaning up after of those poor animals, by the time that steak is a steak, the energy used by making it is enough that the energy used by transporting it around the world is insignificant assuming you amortize that fuel out per unit of food (more on that later). If you are comparing two pieces of grass-fed, pasture raised beef that becomes a more complex question. Those pieces of meat, if produced properly on a sustainable grazing operation, will have consumed essentially no cost-bearing energy during their production because all of their energy input comes from the sun via the grass. As a result, the amount of energy required by their transport becomes a much larger part of the equation. How much more? I don’t know exactly, but I would wager it’s enough to make the grass-fed beef I get from a ranch less than 20 miles from my house pretty hard to beat. A similar calculus applies to produce.

Further, one of the worse things you can do for the good of humanity is ignore the market clearing prices of goods. As Steven Landsburg points out (http://www.thebigquestions.com/2010/08/23/loco-vores/), no unit of information better encapsulates the benefits and costs to society of a good than price. Just because something is local does not mean it is better for the environment.

I don’t know what market clearing prices have to do with the good of humanity. I don’t think my grasp of economics is strong enough to analyze that statement. For now, I’ll just leave you with a bewildered look and beg anyone who has it for more information to back that assertion.

The link he points to is interesting, I suggest you read it. The article at that site is attempting to point out the folly of another author’s attempt to account for all the energy required to grow a tomato by extending his “crabbed accounting” to account for all of the incalculable social costs that may be implied by producing that tomato. For the TL;DR crowd, the author’s thesis is that the price of an item is a near-perfect approximation for the social cost of acquiring that object and that any sort of further analysis is silly.

That assertion just felt so utterly wrong to me on an instinctive level, that I actually physically recoiled when I read it. I was so overwhelmed with reasons why that was wrong I had to take a minute to step back and really boil it down. My head was spinning. What I came to is this: The price of something has almost no inherent link to the cost of that item, particularly if you decide to leave the relatively simple world of economics and start examining the cost of something in social terms. The price is simply what the current seller hopes someone will be willing to pay for it. Usually, the financial cost of producing the item is a substantial part of it, but that can be skewed greatly. Even in the simplest terms, price as a function of social cost will only be taking into account the costs that the seller cares about.

This is where we start venturing into the system of cost transference that I mentioned in my original comment. Our current industrial agricultural system, as I understand it, is built upon a foundation of cost transference. For discussions sake, let’s use the classic example of the tomato. Let’s say that your favorite farmer decides that it costs them $1 to get a beautiful tomato from their local biodynamic farm onto your plate. Seeing as how that  farmer needs to make a bit for themselves, they decide to price it at $1.10. A ten percent markup seems fairly reasonable. So, how does industrial agriculture undercut that price? Well, it reduces production costs of course! How? Well, first it uses all variety of chemical fertilizers, pesticides, and herbicides to ensure they get as many market-ready tomatoes as possible during a growing season. Even though all those chemicals cost money, this reduces their loss rate to the point that each tomato only costs $.80. Where did that $.20 go? Did it just disappear? Well, no, that portion of cost is transferred to future generations in the form of environmental or health problems caused by the production and application of all those chemicals. Another $.10 can get shaved off by transferring some of the cost to taxpayers via government subsidies and tax breaks on transportation. Another $.20 can be shaved off by making sure the operation is in a place where they can pay nothing or next to nothing for labor to harvest, wash, and package those tomatoes. This is simply transferring cost to people the seller don’t care about. So now, this $1 tomato only cost the big agribusiness$.50 to produce. Now they have wiggle room to get twenty, fifty, even 100% profit if they want and still appear to “cost less” to the consumer than the local option. Big “organic” operations can reap similar rewards by adhering only to letter of the regulations rather than the spirit of the movement and get down a $.70 tomato, which they can price at $1.20, and be “close enough” to the local equivalent that many consumers simply won’t care. They’re perfectly happy to have their tomato at the grocery store right now, rather than wait until they are available at the farmer’s market.

In the end though, we have the local $1.10 tomato, and the $.60 (assuming agribusiness decides to go for the healthy 20% markup) agribusiness tomato. With the local tomato we have a happy farmer and a happy consumer. With the agribusiness tomato we have a very happy consumer who just got a killer deal, an agribusiness organization with enough margin to start really pushing out competition, incalculable environmental damage, higher (or at least misplaced) taxes, and a group of impoverished and exploited people. Sooo… tell me again how price accurately reflects the social cost of goods? Of course my numbers here are just made up to illustrate a point, perhaps the agribusiness model isn’t able to undercut sustainable production practices by this amount. Maybe it’s less, maybe it’s more, but it is the mechanism which allows for food to appear as inexpensive as it does. I also assume that this is a zero-sum game, which it is not. That $.20 saved by the chemicals, or the $.20 saved by slave labor? You bet those transferred costs will have a much larger number assigned to them by the people who have to deal with the consequences of them.

 But if you truly care about humanity, you shouldn’t be spending your time and energy on only buying bananas that were harvested using a “fair” wage, since such efforts generally mean that you’re wasting valuable money on a company that knows you’ll pay more than you need to for goods and services (i.e. they’ll capture more profit from you than really benefits the worker).

This is absolutely true. It is why I don’t buy bananas. Bananas don’t grow in Oregon, and I don’t know of any organization which deals directly enough with the growers that I believe that enough of the premium they charge actually makes it all the way to the producers that it makes a real difference in their lives. With the information available to me though, I’ve found ways to get coffee, chocolate, and coconut products from sellers who I believe are making responsible decisions and are genuinely using a business relationship to improve the lives of everyone involved. Could I be wrong? Absolutely. Not having personal access to the production facilities, I have to rely on the imperfect information that I have available to me. But I would rather hope that the information I have found is accurate and that I can continue to enjoy these foreign luxuries with a clear conscious, and because of their high cost, continue treating them as the luxuries they are. I think that is the most profound distortion caused by this transference of cost. Americans, and indeed virtually all members of industrialized societies, have begun to view items that by all rights should be luxuries as virtually staple food items. If I find out that the information I’m basing my decisions on is wrong, I’ll change my behavior appropriately to ensure that my food choices are driven by ethics first.

I’ll go one further and say that buying locally is kind of a form of geographical racism. You’re saying that you’d rather pay a local farmer at local standards of living wages rather than the poor guy in Ecuador starving, happy to have a banana harvesting job at the market clearing price. Why are the people that happen to be within an arbitrary distance of you more deserving than those located further away?

I almost don’t know where to go with this. I feel like we’re starting to edge into Godwin’s Law territory. Racism? Really? You’re playing the racism card? Ok… Since you mentioned it though, yes, I would rather pay a local farmer at local standards of living wages than pay someone who I have no direct contact with some indeterminable fraction of the price I pay for an item. I recognize that I simply don’t know what the conditions the people that produced the food I have available to me live in, and I have no idea how much of my money reaches them. What I do know though that the trend for corporate agribusinesses (and indeed virtually every large enterprise that could be characterized as “extractive”) is towards exploitation. All of my research on the matter has led me to the belief that fair trade practices in international agribusiness are the exception, not the rule. With that in mind I choose to err on the side of caution and choose locally produced products for the bulk of my diet, and only indulge in foreign luxuries when I have evidence to support a reasonable belief that I am not funding servitude. I know what my money funds, because I’ve been to the farms. I’ve met the people that work there. I’ve gotten hugs from the woman who raises my poultry. In a more economical vein, the health of the economy most near me will have the most direct influence on my quality of life. By spending locally, I help ensure that the economy here stays healthy. More than enough of my money is spread around world via things that are not food. I can’t choose to buy a locally produced laptop, they simply aren’t made here. I can, however, choose hazelnuts over almonds (or peanuts, or macadamias, or whatever other tree nut you like) and ensure that my dollars spend more time close to home.

So, this is too long already, so I’ll not go into the myriad other issues encompassed in local food. Quality, safety, and resiliency are three more among dozens that deserve essays of their own. There is one more issue I’d like to address though. My hope behind my original comment was that I could point out to MMM himself that the amount of money we pay for food does not accurately reflect the cost of that food in a broader sense and hopefully prod him towards examining the question of the real cost of food. I’d wager if he turned his mind towards it he could come up with some interesting insights. He did respond, somewhat indirectly with:

…when I go to the farmer’s market, I see farmers who drove in 30 miles from the country in a F-350 Dualie just to sell a few hundred pounds of peaches at 2 bucks a pound. At 10MPG for 300 pounds, these peaches are burning more fuel than the large organic peach farm in California that loaded several hundred tons of them into a railcar that took them to Colorado, even after accounting for the tractor trailer (20+ ton capacity, 5MPG) to make the local delivery.

This statement is, again, only looking at the transport costs, which as I’m sure you can guess by now I believe loses sight of the bigger picture. That aside, I’d like to see the numbers on this to see what the MPG per peach really is comparatively, so we can start seeing at what distance the returns of railcar efficiencies diminish to the point that the 30 mile F-350 trip actually beats the train on a per-peach basis. Is it 500 miles? 1000 miles? 2000? I don’t know, it would be interesting to discover. It would be even more interesting with the large international cargo ships. Particularly if you started to modify for emissions since those ships burn disgusting bunker fuel for the majority of their travels. However, I believe the fuel-per-unit-of-food metric is an intellectually dishonest way to approach the local food question. From an economics standpoint it makes perfect sense as a way to amortize cost, but by measuring cost this way you risk missing the point of the local food movement entirely. What the local food movement is pushing for ultimately, is not cheaper food per unit, but more efficient food from an entire global system perspective. What if that traincar didn’t have to be loaded with peaches at all? What if those hundreds (maybe thousands? I have no idea what kind of MPG a train gets) of gallons of fuel weren’t burned for the sake of food at all. If everyone ate from the sources immediately around them, the total energy requirements to meet our nutritional needs would be decreased dramatically. In the end, what we really need to be worried about is the actual gross amount of fuel being consumed, not the fuel per peach. Sure, this is counter to homogeneity that corporations crave and the idea of “regional foods” is almost completely foreign to most Americans, but it’s something that was just a fact of life for virtually all humanity until about 100 years ago. It didn’t become common for food travel more than tens of miles until the 1950′s.

There is going to come a time where this party that has been sponsored by cheap energy will come to an end. So far, we’ve found no viable way to extend it at the scale that it’s rocking along at now. There’s going to come a time where the food system as we know it is going to collapse because the oil that feeds it is going to become expensive enough that the cost transference trickery it enables isn’t going to work anymore, and the price of food will rise dramatically. If we don’t have a robust local food system in place when that happens, we are going to have a real crisis on our hands. I’m doing my part to make sure that system is in place. Maybe it’s foolish from an economic standpoint, I don’t know enough about the true cost of food to know if my local food really is a good deal or not when it’s priced higher than long travelling competition. I do know though that the price the farmer is asking hasn’t been tweaked by tricks of cost transference, and so from an ethical and global systems perspective, it seems like the best choice to me.

Posted in Life.