Food Policy and the Environmental Credit Crunch

From Soup to Nuts

Julie Hudson, Paul Donovan

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415644013
• eBook ISBN: 9781136161889
• Edition: 1
• Topic: Business
• Subtopic: Consumer Behaviour
• Index: Business

The changing economic environment for the consumer that is emerging from the wreckage of the financial credit crunch plays directly into the importance of food spending. This is certainly true from the perspective of food prices in the short run, but also from the perspective of sustainability and reducing the impact of the environmental credit crunch. The economic changes we experience now have a bearing on our ability to manage the environmental credit crunch that looms.

Food Policy and the Environmental Credit Crunch: From Soup to Nuts elaborates on the issues addressed in the authors' first book, From Red to Green?, and asks whether the financial credit crunch could ameliorate or exacerbate the emergent environmental credit crunch. The conclusion drawn here is that a significant and positive difference could be made by changing some of the ways in which we procure, prepare, and consume our food.

Written by an economist and an investment professional, this book addresses the economic and environmental implications of how we treat food. The book examines each aspect of the 'food chain', from agriculture, to production and processing, retail, preparation, consumption and waste.

1 Overview

The great food crunch

If there is a real scarcity of an article of prime necessity to life, the result will be more widespread and will act injuriously, for the consumer will pinch and deny himself in other ways to be able to obtain what is necessary to his existence.

(Worthington C. Ford, 1882)

The importance of food

Even the most casual reader of the works of Charles Dickens cannot have failed to notice the importance of food in almost every novel. The Dickensian pauper wages a daily battle against a calorific deficit and often loses the war, ending up in an early grave. The Bumbles and Squeerses of Dickens’ world keep their charges on the brink of starvation, in the name of the profit that enables them to feast in private. Character and culture shine through the manner in which Dickens’ cast of characters nibble, guzzle and bolt their food in wedges, or most infamously ask for ‘more’. The ideas of food insecurity, inequity, financial power games, and the culture of food consumption and what it says about people and society pervade Dickens’ work.

If there is a difference between the life and times as observed by Dickens and the present day, it is that modern markets mean these ideas of food insecurity and inequality must be viewed from a more global perspective. Modern media means that we can view these issues from a more global perspective. Global trade means that something like a pineapple is hardly regarded as exotic. Two centuries ago the pineapple was so exotic as to be immortalised in stone on gateposts. Food has also become steadily more commercialised, distributed by large global companies with fingers in many pies. The trends of globalisation and corporatisation have resulted in significant changes, both good and bad, to the economics and culture of food provisioning and food consumption. Perhaps one of the most significant changes is that the food in the consumer’s supermarket trolley is no longer entirely food.

Food is not food

In the developed world, most of what we eat is not food. This is not a critique of the nutritional content of a modern fast food diet, nor yet a comment on chemicals and adulteration. It simply means that the economic content of food is not food at all as usually understood.

From childhood onwards we tend to have a romanticised notion of a ‘food food-chain’ that takes us from agriculture to the food on our plate – the farmer taking grain to the miller, who makes the flour for the baker, who makes the bread that we buy. This image of a simplistic supply chain is reinforced by everything from nursery rhymes, to advertising campaigns by food producers and retailers, to media reports that imply a direct link between agricultural commodity prices and the food that we buy.

Supermarkets put pictures of farmers on their packaging, to foster the belief that what we are buying is food. Bread producers show us waving fields of wheat in the television advertisements, as if wheat was in some way important to the price we pay for the bread we consume. Wine producers show us pictures of grapes being gathered to promote the agricultural tie. It is all about as relevant to reality as was Marie Antoinette’s farm of Petit Hameau. Simple ‘nursery rhyme’ supply chains do still exist in a number of less developed economies. In the developed world this simplified and shortened supply chain disappeared around 1850 and had been in decline for centuries before that. As consumers we delude ourselves into thinking that some pastoral idyll still exists to produce the food that we eat – indeed, we delude ourselves into thinking that a pastoral idyll existed at all. Humanity has been manipulating, adjusting and interfering with the production and consumption of food for ten millennia or so.

Food is economically complex. This economic complexity creates environmental complexity, and the combination of the economic and environmental complexity of food is what forms the foundation of this book.

What can economics tell us about food?

What can economics tell us about food and agriculture? In the twenty-first century, an understanding of links in every dimension – geographic, political, social and environmental – is what matters for the economist at the cutting-edge. Similarly, while the field of agricultural economics once confined its focus to farm management and commodity markets, today it deals far more in food, of course, but also the trade that supplies the food, the resources available for food processing, and links between agriculture and the economy, and, of course, the environment.¹ Economists, it seems, have to know everything about everything. Fortunately, economists have absolutely no problem with claiming to know everything about everything.

To understand the environmental and economic complexity of food we need to understand four basic ingredients. First, there is the complexity of food – the fact that food has come to be removed from agriculture. Second, there is the challenge of what we term the environmental credit crunch, and how that might hit across the food food-chain (from agricultural production to waste). Third, there is the financial credit crunch, which is the most significant economic event for at least a generation, and what that means for consumer behaviour. Finally, there is the problem of irrationality amongst consumers, and how that affects our economic and ultimately our environmental reactions to food.

The complexity of food

All economic activity has environmental consequences. Any assessment of the environmental impact of food cannot, and must not, stop at the farm gate. We need to focus on the economic and environmental consequences of what happens to get the agricultural commodity to the farm gate. We also need to focus on the economic and environmental processes that happen after the farm gate, as they turn an agricultural commodity into a food form that we can recognise, purchase, occasionally cook and sometimes consume. Each stage of the economic process has an environmental consequence, and the full environmental cost of that process may or may not be reflected in the economic price of the food that we ultimately purchase.

These processes also create feedback loops. The way consumers react adversely to increases in food pricing may put pressure on farmers, encouraging them to raise the yield on their fields. Should the farmer respond by applying more fertiliser, this would have environmental implications. It also has economic implications, in that a new cost variable has to be added to the already complex supply chain.

Milk is not milk — the importance of life after the farm

Before 1866, all milk in the UK came from local cows. Even in cities, milk came from ‘town cows’ housed in urban dairies – because how else would fresh milk be delivered to city dwellers, when transporting anything from rural districts by horse-drawn cart took so much time? In 1866 there was a cattle ‘plague’ which killed off most urban bovines. That, combined with the rise of the railways, led to milk being whisked around the country by train – the eponymous ‘milk train’, the first train of the day, now caught by economists on their way to work, was born.

What we can see here is the transition of milk from being essentially a local, dairy-based product to one that is more complex. From 1866, milk (at least in major metropolitan areas) had to take into account not just the dairy’s costs, and the costs of feeding the cow, but also the costs of coal (used to power steam trains), the costs of packaging (galvanised steel churns, for the most part), and the associated labour costs. These costs were economic, clearly, but they were also environmental. What is a steam train if not the embodiment of an economic and environmental cost packaged together? A steam train must be one of the world’s most visible manifestations of a carbon footprint, and coal is very definitely a constrained environmental resource. By adding in stages of distribution, we are increasing the economic and environmental consequences of food consumption until eventually we wind up at today’s point, where milk (economically speaking) is not milk at all.

When we purchase milk in a developed economy today less than half the money that we hand over at the checkout (or nowadays insert into the automatic checkout’s coin slot) finds its way into the hands of a dairy farmer. Most of what we are paying for is what happens to the milk after it leaves the farm gate. What we are paying for is the labour involved in transporting, pasteurising, quality-checking, packaging, marketing and selling that milk. Part of what we are paying for is the supermarket checkout operator’s wages (or the wages of the workers manufacturing and maintaining the automatic checkout), the wages of the builder who built the supermarket, the salary of the marketing executive who launched the latest promotional campaign for the supermarket, and even a very small amount of money to the economist who advises everyone on the economic climate. The dairy farmer is almost incidental to the whole process.

Food is 20 per cent food

When a shopper spends money on a basket of food items in a developed economy, on average only around a fifth to a quarter of what is spent actually finds its way to a farmer. Just under four-fifths of what we spend our food money on is nothing to do with food (in the form of agricultural commodities) at all. Purchasing fast food has even less agricultural content. Spending three pounds on a hamburger meal from a fast-food outlet will mean only a tiny amount on agricultural food. Perhaps fifty or sixty pence of the three pounds spent by the consumer ever finds its way to a farmer. Persuading shoppers to buy bread by showing pictures of fields of wheat, advertising milk chocolate with pictures of milk, or putting pictures of pastoral scenes on the side of lorries distributing fast food components to hamburger chains is pure fantasy in terms of the (economic) content of these products.

One of the best ways of demonstrating this is to reflect on a somewhat extreme form of food consumption. Consider a can of cola, or any carbonated drink. A quick glance at the ingredients list will reveal that (secret formula or no) it is basically a combination of carbonated water, sweeteners, food colorants and flavourings. And yet, a can of cola purchased in a restaurant at a ski resort is worth its weight in, if not gold, then at least tin (a can of cola retails for around six euros in a French ski resort, which works out as being around 24,000 dollars per tonne). This cannot be because processed carbonated water, coloured, is valued as much as tin. The reason cola costs so much in a mountain restaurant is because the carbonated water, coloured brown, is subsequently packaged, branded, marketed, transported, chilled and sold to the thirsty skier through the whole mechanism of intermediaries, wholesalers and retailers. The price at the end of the purchase is not of the agricultural components of cola – it is mainly the price required to cover the economic costs of all of those different intermediate stages.

How China's food consumption rises 3 per cent and 30 per cent at the same time

China is now the world’s largest food retailer (that is to say, the value of the Chinese food retail industry is greater than the value of food retail in any other country). This is not just a function of China’s population size; it is a function of its economic development and urbanisation. Urbanisation means that populations are moving further and further away from the sources of agriculture, and so food must be purchased through the intermediation services of a food retailer. Chinese food spending (the value of food retail) has been rising by between 20 and 30 per cent per year in the recent past. However, Chinese calorie consumption is going up by only 2–3 per cent each year. The difference between these two numbers is largely the fact that consumers in China are increasingly likely to buy their food from a more elaborate supply chain, with more labour costs, more packaging and more advertising.

The difference between buying rice loose by the sack from a farmer and buying it in a brightly coloured, branded cardboard box in a supermarket is not that great in nutritional terms. In economic terms, these two purchases are a lifestyle apart. Again, every cardboard box made, every advertising hoarding created, every supermarket constructed has an economic and an environmental consequence. If we are to understand the environmental implications of how humanity gets its calories, we have to understand all parts of this complex process.

Writing on the development of the British diet in the 1850s, the economist John Burnett commented ‘Man’s most basic need was at last becoming the nation’s biggest business’.² This is why the economic and environmental consequences of the food that we eat are so important. The fact that the price we pay for food, or for ubiquitous beverages such as milk and cola, has so many components demonstrates what a very complex supply chain we face. To focus either an economic or an environmental analysis of food on the farming industry is to miss out 80 per cent of what matters, because agriculture is only 20 per cent of food.

The challenge of the environmental credit crunch

A crunch in economic credit, environmental credit or financial credit terms occurs when what was previously plentiful is no longer plentiful (or, in extremis, is no longer available). A food crunch arises when there is not enough food to go round for today’s consumption. The basic problem of a food crunch is the same as any other crunch (i.e. shortage). The consequences of a food crunch are more significant, however. Periodically, drought or other disasters in developing countries provide a stark reminder of why and how. At the extreme, a food crunch saturates the media with images of starving people struggling to stay alive. Experience suggests that the food crunch that follows from drought, warfare, or other extreme events, is not equally shared. It hits poor countries, and poor people, the hardest. In less extreme forms, a food crunch of the future could leave many human beings in a permanent state of under-nourishment. Insufficient nutrition brings many ills in its wake, for individuals and society alike.

The geopolitical risks associated with food make one of the conclusions in our book From Red to Green?³ surprising. As food is one of life’s necessities, one might think that humanity would be especially careful to avoid wasting food and the resources that produce food. Not so. Critical though food is to human survival, the issue of wasted resources is one of the most important challenges that must be addressed. As we shall see, there may be perfectly good reasons why controlling food waste is less easy than it looks.

Putting this another way, the question is whether it is possible to use existing food supplies better, or whether there are good reasons why this has not been tried. It is a question worth asking, for, if the food waste problem can be solved, it may offer the potential to kill at least two birds with one stone. Needing lower levels of food provisioning in volume terms could only be helpful in the context of food security. Further, the environmental credit crunch, which we define below, might be significantly offset. Is the reduction of waste in the food sector the low-hanging fruit it seems to be at first sight?

Food supply can be described as inordinately wasteful. First, raw materials that go into food provisioning, such as water and agrochemicals, are used wastefully. Second, the typical developed-economy diet, with its emphasis on meat, is structured in a way that is wasteful of water, energy and land; from an environmental perspective, meat is an extremely inefficient way of providing calories for the human diet. Third, a shocking proportion of food is often thrown away uneaten because of an inadequate storage and transport infrastructure (often a problem in developing countries) or because of the ‘pile it high, sell it cheap’ marketing practices that can be typical in some developed economies. Fourth, in developed countries in particular, but increasingly in developing countries too, eating habits are wasteful through the over-consumption of unnecessary calories. This problem wastes not only food, but other resources (such as healthcare, and human productivity and wellbeing) too. Large swathes of the human population are eating as if there is no tomorrow, without reflecting on the irony that, if they continue to do so, there may be a rather uncomfortable tomorrow for their descendants.

What is an environmental credit crunch?

Eating as if there is no tomorrow is unsustainable in the face of an environmental credit crunch. To understand what this means in practical terms it is time to define in further detail what credit is. Credit is the ability to use tomorrow’s standard of living to raise today’s standard of living. In financial terms, this is well understood. If a ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of illustrations
• Acknowledgements
• Dedication
• 1 Overview: the great food crunch
• 2 Raw material inputs: mineral
• 3 Raw material inputs: vegetable
• 4 Raw material inputs: animal
• 5 Food processing
• 6 Transport
• 7 Food wholesaling and retailing
• 8 Eating food
• 9 Human health and food
• 10 Food waste
• 11 Conclusion
• Bibliography
• Index