Goal 1: Enhance Economic Opportunities
for Agricultural Producers.
Key Outcome
ERS research and analytical activities are designed to
provide policy makers and other decisions makers with
an enhanced understanding of economic issues affecting
the U.S. food and agriculture sector's competitiveness,
including factors related to performance, structure, risk
and uncertainty, marketing and market and nonmarket trade
barriers.
Key Accomplishments
Market Analysis and Outlook
ERS continues to work closely with the World Agricultural
Outlook Board (WAOB) and other USDA agencies to provide
short- and long-term projections of U.S. and world agricultural
production, consumption, and trade. Several initiatives
have increased the transparency and accessibility of the
data and analysis. One initiative that increased transparency
was the documentation of business rules and models used
in the forecasting process. The documentation is illustrated
the report, Forecasting the Counter-Cyclical Payment Rate
for U.S. Corn: An Application of the Futures Price Forecasting
Model, and an associated data product that covers three
major field crops: corn, soybeans, and wheat. Another
initiative documented key aspects of wheat market analysis.
Global Markets for High Value Foods
Understanding the myriad factors that affect the choice
of locations to produce and sell food products sheds light
on the competitiveness of U.S. agriculture in global markets.
Two new reports—New Directions in Global Food Markets
and Market Access for High-Value Foods—show how
food trade patterns are strongly influenced by the changing
nature of competition in the global food industry. Key
factors include shifting consumer preferences, the growth
in multinational food retailers, and changes in global
supply chains. Consumer-driven changes are increasingly
pushing food suppliers to meet consumer demand and preferences
at a local level, even as the food industry becomes more
global. In 2004, a new briefing room on the ERS website
was initiated to provide an overview of high-value food
markets, including data on trade and foreign investment.
China in 21st Century Agricultural Markets
China is one of the top 10 markets for U.S. agricultural
exports and the world’s largest producer and consumer
of a range of commodities. ERS maintains an active research
program that investigates how policy and economic developments
in China affect global agricultural markets. The report,
China’s New Farm Subsidies, considers the implications
of a shift in China’s policy in 2004 when it began
to subsidize rather than tax agriculture, reflecting a
new view of agriculture as a sector that needs a helping
hand. China introduced direct subsidies to farmers, began
to phase out its centuries-old agricultural tax, subsidized
seed and machinery purchases, and increased spending on
rural infrastructure. The subsidies are targeted at grain
producers, but they do not provide strong incentives to
increase grain production. Other ERS publications present
research and analysis on China’s growing food imports,
rural food consumption, and macroeconomy.
WTO and Regional Trade Agreement Negotiations
Developing countries are playing a critical role in
global trade negotiations, and two ERS publications in
2005 cover WTO activities targeted at developing countries.
Agricultural Trade Preferences and the Developing Countries
provides results of a study on nonreciprocal trade preference
programs that originated in the 1970s as an effort by
high-income developed countries to provide tariff concessions
to low-income countries. The study focuses on the United
States and European Union and finds that the programs
offer significant benefits for some countries, mostly
the higher income developing countries. The Forces Shaping
World Cotton Consumption After the Multifiber Arrangement
analyzes how the phaseout of the Multifiber Arrangement
(MFA) and other factors, including economic expansion
in Asia, are affecting global textile and cotton markets.
In the long run, income growth and technical change have
more of an effect on world cotton consumption than the
elimination of the MFA. In addition to published reports,
ERS continues to provide economic analysis of specific
issues related to both the WTO and several regional trade
agreements directly to agricultural trade negotiators
at the Foreign Agricultural Service and the Office of
the U.S. Trade Representative.
Assessment of Agricultural Policy
ERS assesses the effects of farm policy on the food and
agricultural sector. A long-term perspective on forces
that have shaped agricultural and rural life as well as
a review of some key developments in farm policy are juxtaposed
in a report, “The 20th Century Transformation of
U.S. Agriculture and Farm Policy.” The report also
considers the extent to which farm policy design has (or
has not) kept pace with the continuing transformation
of American agriculture.
ERS has also completed research on more recent changes
to farm programs in the 1996 and 2002 Farm Act. The report,
Economic Analysis of Base Acre and Payment Yield Designations
Under the 2002 U.S. Farm Act, presents the results of
a study on how farmland owners responded to the opportunity
to update commodity program base acres and program yields
that are used for calculating selected program benefits.
Results suggest that landowners selected the options that
resulted in the greatest expected flow of program payments,
as opposed to aligning base acres to current or recent
plantings. Another report, Decoupled Payments in a Changing
Policy Setting, provides new findings that build on research
published in 2003 on the Production Flexibility Contracts
program from 1996 to 2002. The study draws on farm household
data from the Agricultural Resource Management Survey
(ARMS) and considers the effects of decoupled payments
on recipient households, assessing land, labor, risk management,
and capital market conditions that can lead to links between
decoupled payments and production choices.
Marketing of Organic Foods
Organic farming has become one of the fastest growing
segments of U.S. agriculture during the 1990’s and
2000’s. U.S. producers are turning to organic farming
systems as a potential way to lower input costs, decrease
reliance on nonrenewable resources, capture high-value
markets and premium prices, and boost farm income. In
the ERS report, Price Premiums Hold on as U.S. Organic
Produce Market Expands, analysts explain that relative
changes in supply and demand will help determine whether
price premiums and higher profitability will continue
for organic farmers and businesses. Fresh produce has
long been an important component of the organic food sector
and a significant contributor to the organic industry’s
growth over the last decade. In a second report on the
competitiveness of the organic food industry, ERS compares
the U.S. and the European Union’s (EU) government
policies on the organic industry and the growth of the
organic markets in the two regions. The EU actively promotes
sector growth via conversion subsidies and direct payments
to farmers, while the U.S. largely takes a free-market
approach, with policies that focus on facilitating market
development. The retail market for organic products in
Europe (almost $13 billion) is somewhat larger than in
the United States ($10.3 billion), but the U.S. market
is growing at a faster rate.
Impact of the Livestock Mandatory Reporting Act
In 1999, Congress passed the Livestock Mandatory Reporting
Act (LMR), which led to a major redesign of the livestock
price reporting system. With the legislation expiring
in fall 2005, stakeholders can benefit from an investigation
of developments leading up to the Act and an assessment
of the Act’s impact on cattle markets after its
implementation. The ERS report, Did the Mandatory Requirement
Aid the Market?, found that, by early 2002, the program
was capturing more than 90 percent of commercial cattle
slaughter compared with less than 60 percent in the last
days of the voluntary system. Many producers initially
expressed disappointment with LMR, indicating in a survey
that the program was not as beneficial as expected because
the data did not show that contract prices were higher.
But producers now appear to be using the cash market more:
After 2002, cattle sales shifted away from formula pricing
and contracts and toward negotiated, cash market transactions.
While that shift may have been driven by other market
developments—such as low inventories and strong
demand—that raised all cattle prices, it also may
have been affected by expanded and more transparent price
reporting under LMR.
Strengthening Access to ARMS
Agricultural Resource Management Survey (ARMS) data,
USDA’s annual, national survey of farms, is the
primary source of information about the financial condition,
production practices, use of resources, and economic well-being
of America’s farmers and farm households. ARMS provides
a powerful data source to provide direct answers to key
questions from USDA policy officials, Congress, and other
decisionmakers within and outside the Federal Government
about the different impacts of alternative policies and
programs across the farm sector and among farm families.
ERS and the National Agricultural Statistics Service
(NASS) continued expanding access to ARMS through outreach
activities to researchers across U.S. universities and
staff at USDA agencies. An increased sample starting in
2004 allows ARMS survey information about farm production,
business, and households to include detailed data for
15 top farming States. In 2004, ERS and NASS greatly improved
access to summarized ARMS data through a dynamic, technologically
advanced, and easy to use web-based delivery tool. This
tool has a public side and a side for registered users,
each returning tailor-made tables and graphs. Users can
select among survey data sets to build custom reports,
refine queries with specific samples/populations, and
group summary statistics for comparisons. Advanced statistical
analysis is available to registered users for additional
statistical analysis and economic modeling. This part
of the tool includes the fullest detail and range of variables,
enhanced flexibility, a regression (and soon multivariate
analysis) tool, and the ability to create classifications.
Analysis of ARMS data is no longer physically limited
to USDA facilities.
Food Dynamics
In September 2005, ERS published Food Dynamics, which
provides timely, critical information on recent food market
gainers and losers and identifies major food products
with large swings in sales volume, prices, or quantities.
In addition, the report compares and contrasts actual
consumer purchases before and after the new Dietary Guidelines
for Americans was released in January 2005.
Diverse Labor Force Attracts New Food Processing Plants
As the manufacturing sector’s share of total U.S.
employment continues its historic decline, rural areas
face increasingly stiff competition—from both urban
and rural areas—in attracting new manufacturing
plants. Thus, rural county economic planners have a keen
interest in the traits of counties that have successfully
attracted new manufacturing plant investment. Preliminary
ERS research shows that the diversity of the labor force,
whether measured by income, educational attainment, or
occupation, was associated with a higher likelihood of
a county’s being chosen as a site for new food processing
plants. This finding was true for all counties—urban,
suburban, or rural. While true for all counties, the typically
more diverse urban and suburban labor forces favor nonrural
counties.
Pork Quality and the Role of Market Organization
Changes in the organization of the U.S. pork industry,
most notably marketing contracts between packers and producers,
have influenced pork quality. A number of developments
have brought quality concerns to the forefront. These
developments include health concerns and corresponding
preferences for lean pork, growing incidence of undesirable
quality attributes (e.g., pale, soft, and exudative (PSE)
meat, a result of breeding for leanness), heightened concerns
over food safety and related regulatory programs, and
expansion into global markets. ERS found that organizational
arrangements can facilitate industry efforts to address
pork quality needs by reducing measuring costs, controlling
quality attributes that are difficult to measure, facilitating
adaptations to changing quality standards, and reducing
transaction costs associated with relationship-specific
investments in branding programs.
Agricultural Biotechnology Patent Database
In summer 2004, ERS released a database of agricultural
biotechnology intellectual property to its website, which
provides an unprecedented compilation of information to
inform research on agricultural research and development
(R&D) and intellectual property. For over 11,000 utility
patents issued between 1976 and 2000, the database includes
detailed patent ownership histories that allow users to
compare R&D across sectors (U.S. and non-U.S., private,
nonprofit, and public) and to track patent ownership through
an extremely active period of industry mergers and acquisitions
in the 1990s. Patents are also categorized into over 60
technology classes and subclasses. The private sector
now accounts for a greater share of investment in agricultural
R&D than does the public sector, especially in the
area of biotechnology. Patenting in agricultural biotechnology
has outpaced the overall upward trend in U.S. patents.
Commercial firms account for the largest number of U.S.
agricultural biotechnology patents. Database ownership
information shows that concentration in ownership of agricultural
biotechnology patents has increased since 1995, a result
that is clear only after accounting for industry mergers
and acquisitions. By 2002, fully 95 percent of patents
originally held by seed or small agbiotech firms had been
acquired by large chemical or multinational corporations.
Private firms, universities, and the Federal Government
hold different portfolios of patents by technological
class, reflecting differences in motivations for patenting.
Future work will analyze proprietary knowledge flows in
agricultural biotechnology and the use of alternative
forms of intellectual property, over time, for the protection
of different types of crop varieties.
Economic Aspects of Genetic Resource Management
A study on use of the National Plant Germplasm System
(NPGS) found strong demand for public plant genetic resources
(PGR), which are a critical input in the research and
development (R&D) process, particularly among developing
countries. Use rates are high. Heavy use of the NPGS by
public breeders, basic researchers, and developing countries
suggests limited prospects for commercial returns from
many users of the systems materials. Thus, funds may be
inadequate for benefit-sharing provisions of the new international
treaty to govern the exchange of PGR. Increased demand
for public PGR is likely. Results of the study were published
in an ERS report, Crop Genetic Resource: An Economic Appraisal.
The report includes an appraisal of general economic aspects
of PGR management and use, including valuation, the role
of diversity, and the international exchange of these
resources.
Expanded ARMS Database Aids Enhanced Farm Income Forecasts
USDA doubled the survey sample size of the Agricultural
Resource Management Survey (ARMS), which now allows farm
and household income estimates to be generated for 15
agricultural States, from 18,000 to 36,000 between 2002
and 2003. The average farm’s net household income
in 2004 is expected to be $70,675, a 3-percent rise over
that of 2003. The largest increase will be for commercial
farms, with farm rather than off-farm income contributing
the largest portion of the anticipated increase. Net value
added and net farm income in 2004 are expected to reach
record levels, with $118.9 billion in net value added
and $73.7 billion in net farm income, both large increases
(17 percent and 24.5 percent, respectively) over 2003
levels.
ARMS data are used to forecast farm income growth. An
initial forecast of U.S. farm sector income and balance
sheet in calendar year 2004 was released in February and
presented at the USDA Agricultural Outlook Forum. The
effects of the existing farm legislation were analyzed
and forecast by program. Updated income and balance sheet
forecasts were released in August and November, reflecting
production, prices, and quantities for crops, livestock,
and livestock products from the World Board and ERS.
USDA provided forecasts and additional disaggregated
value-added and farm income accounts to the National Income
Staff, Bureau of Economic Analysis (BEA), for review and
incorporation into their Gross National Product and National
Income Accounts and into their estimates of Personal Income
and Outlays and Corporate Profits. USDA also provided
estimates to the Council of Economic Advisors, plus additional
annualized quarterly estimates of components of the value-added
and farm income accounts for the 2004 calendar year.
USDA produced and released the complete set of State
financial accounts for 2003d. USDA provided estimates
of State income accounts to BEA’s Regional Economic
Measurement Division to use in developing regional economic
indicators to determine the dissemination of Federal Revenue
Sharing funds.
Agricultural Contracting and the Scale of Production
Changes in U.S. farm structure can have wide-ranging
impacts on the distribution of benefits from government
programs and on the sector’s responses to demand
and supply shocks and to policy initiatives. While several
major, long-term, and familiar trends have characterized
structural change in farming since the 1930’s, the
last two decades have witnessed an important evolution
in the nature of such change. ERS work on this topic details
recent changes in farm structure, explains what’s
new, and ties the shifts to farm organization, commodity
choices, and business practices. The growth of contracting
has important implications for the structure of the farm
sector. An ERS study presents evidence that contracting
is positively associated with the scale of production—that
is, contract production tends to be at a larger scale
than is independent production, and larger scale producers
are more likely to contract than are smaller scale producers.
This relationship is most striking in the cattle and hog
sectors, where contract producers operate at a much larger
scale than do independent producers even when considering
only large scale commercial operations. The study also
presents six possible explanations for the observed correlation
between scale and contracting and uses information from
five annual national surveys as evidence for or against
the proposed mechanisms.
Goal 2: Support Increased Economic Opportunities and
Improved Quality of Life in Rural America.
Key Outcome
ERS research and analytical activities are designed to
provide an enhanced understanding by policy makers, regulators,
program managers, and organizations shaping public debate
of economic issues affecting rural development, including
factors related to farm finances and investments in rural
people, businesses and communities, and of economic issues
relating to the performance of all sizes of American farms.
Key Accomplishments
Changing Population of Rural America: Policy Implications
for a New Century
Using 2000 Census data, ERS is at the forefront of demographic
and economic rural analysis. ERS research helps to frame
rural development policy at the national and regional
levels by explaining the changing nature of economic opportunity
in rural America and its implications for the well being
of rural people and their communities. ERS research in
this area is designed to provide Federal, State, and local
policymakers with sound empirical analysis to develop
strategies to enhance the social and economic opportunities
of rural Americans. This work focuses on the determinants
and consequences of four critical themes in contemporary
rural America: changing population composition, industrial
restructuring, changing land use patterns, and rural diversity
of needs. An April 2005 Amber Waves article highlights
the policy implications from the report, noting that the
diversity within rural America dictates that strategies
tailored to particular types of rural economies may be
more effective than a broader “one size fits all”
rural policy.
New Patterns of Hispanic Settlement in Rural America
ERS analysis shows that, since 1980, the nonmetro U.S.
Hispanic population has doubled and is now the most rapidly
growing demographic group in rural and small-town America.
By 2000, half of all nonmetro Hispanics lived outside
traditional settlement areas of the Southwest. Many Hispanics
in counties with rapid Hispanic growth are recent U.S.
arrivals with relatively low education levels, weak English
proficiency, and undocumented status. This recent settlement
has increased the visibility of Hispanics in many regions
of rural America, where population has long been dominated
by non-Hispanic Whites. Yet within smaller geographic
areas, the level of residential separation between these
groups increased—the two groups became less evenly
distributed—during the 1990s, especially in rapidly
growing counties. Hispanic settlement patterns warrant
attention by policymakers because the patterns affect
the well-being of both Hispanics and rural communities.
The Impact of Recreation and Tourism on Rural Economies
Many rural communities use recreation and tourism as
a means to offset the decline in traditional employment
opportunities and to stimulate local development. While
it is generally agreed that recreation and tourism contribute
to population and employment growth, the low-skill and
part-time jobs associated with the industry raise questions
about its contribution to local economic and community
well-being. This study estimated the local economic and
community impacts of recreation and tourism development
in rural America. Economic impacts include local poverty,
per capita income, employment growth, earnings per job
and per employee, unemployment rates, and employment/population
ratios. Community impacts include local government taxes
and spending on public services, crime rates, educational
attainment, and the diversity of private goods and services
available in the community. Study findings are consistent
with claims that tourism and recreational development
contribute to rural well-being by increasing local employment,
income, and wage levels and by improving social conditions,
such as poverty, education, and health. But recreation
and tourism development is not without drawbacks, such
as higher housing costs. Local conditions also vary significantly,
depending on the type of recreation area.
Low-Skill Employment and the Changing Economy of Rural
America
Rising job skill requirements are widely considered an
important indicator of local economic development and
improved labor force outcomes. Rural jobs have generally
followed the national pattern of rising skills, but this
rise often lags the changes in urban areas. A recent ERS
study analyzed trends in rural low-skill employment in
the 1990s and identified the industrial and occupational
components of this change. Research findings show that,
although low-skill jobs are disproportionately found in
rural areas, the rate of decline in the share of low-skill
jobs was swifter in rural areas in the 1990s than in urban
areas. Upgrading skills within the current mix of industries—rather
than growth of new industries—was a key factor in
the declining share of rural low-skill jobs. Women and
African-Americans were most likely to see declines in
the likelihood of low-skill employment; Hispanics actually
experienced a small increase. For all major groups of
workers, declining low-skill employment was generally
associated with higher earnings. The findings suggest
that investment in education and training, rather than
industrial targeting, will be a more effective approach
to raising skill levels in the rural economy.
Trade and Rural Areas. American farmers produce raw farm
products well in excess of domestic demand. Because processing
these excess products could yield additional income and
jobs, rural planners have viewed the food export market
as a potential base for rural development. Despite its
logical appeal, demonstrating the strength of this potential
development effect for rural areas has been difficult.
An ERS study of the growth in U.S. meat exports in the
last two decades suggests reasons for this difficulty.
The researchers show that, while the U.S. had long had
an apparent comparative advantage in meat production,
the growth in meat exports resulted from a combination
of changes that affected the cost of production and the
demand for meat, as well as changes resulting from public
policy. Most, if not all, of these changes were outside
the control of rural development policymakers.
Goal 3: Enhance Protection and Safety of the Nation's
Agricultural and Food Supply.
Key Outcome
ERS research and analytical activities are designed to
provide policy makers and other decisions makers with
an enhanced understanding of economic issues related to
improving the efficiency, efficacy, and the equity of
public policies and programs designed to protect consumers
from unsafe food.
Key Accomplishments
Program of Research on the Economics of Invasive Species
Management (PREISM)
PREISM funded, through a peer-reviewed, competitive process,
12 multi-year agreements at a cost of $1.4 million in
fiscal year (FY) 2003 and $1.2 million in FY 2004. FY
2003 and 2004 recipients of PREISM funding participated
in several workshops to share their research findings
with staff from ERS, USDA’s Animal and Plant Health
Inspection Service (APHIS), and other Federal agencies
that manage invasive species. The priority research areas
of PREISM, identified by ERS, in consultation with APHIS
and other USDA agencies and offices with programs related
to invasive species, cover: (1) the economics of trade
and invasive species, (2) bioeconomic risk assessments,
(3) implications of alternative approaches to invasive
pest exclusion, surveillance, and management, and (4)
decision tools for invasive species management. Research
stemming from this effort resulted in critical analysis
of the economic and policy implications of soybean rust
and the almost immediate release of website information
on these matters very soon after the detection of soybean
rust in the U.S.
Food Safety Innovation in the United States: Evidence
from the Meat Industry
A goal of food safety regulation is to increase food
safety by establishing incentives for firms to invest
in efficient food safety innovations. ERS researchers
led an investigation into food safety incentives in the
U.S. meat industry, with the objective of identifying
the types of incentives that have stimulated food safety
investments in the sector. The study built on results
from an ERS survey of U.S. meat and poultry slaughter
and processing plants and two case studies of innovation
in the U.S. beef industry. Findings from this work, which
were released in 2004, highlight a number of successful
mechanisms for stimulating investment in food safety.
Findings published in 2005 focus on the effect that improved
information about pathogen control is having on private
and public food safety strategies.
Food Safety and Trade: Regulations, Risks, and Reconciliation
Differences in food safety regulations and standards
among importing and exporting countries can cause friction
and even disputes that impede international food trade.
In 2004, ERS released a report examining the conceptual
relationships between food safety and international trade
and analyzing empirical examples from the meat and poultry,
produce, food and animal feed crop, and seafood sectors.
ERS researchers found that countries are narrowing regulatory
differences by learning from each others’ successes
in managing food safety, collaborating to adopt common
or international standards set by a third party, or reaching
compromises on conflicting standards. Private food safety
initiatives, such as voluntary quality assurance schemes,
are also contributing to the resolution of differences
across borders. Findings in 2005 focus on the mixed influence
of globalizations of the food supply on the level and
distribution of pathogen contamination and foodborne illness.
Societal Costs of Foodborne Illness
ERS has become well known for pioneering estimates of
the societal costs of foodborne illnesses from Salmonella
and other foodborne pathogens. In 2005, ERS researchers
completed an update of the cost of foodborne illness from
Escherichia coli O157 (O157 STEC) using the Centers for
Disease Control and Prevention (CDC) estimate of annual
cases and newly available data from the Foodborne Diseases
Active Surveillance Network (FoodNet) of CDC’s Emerging
Infections Program. ERS estimates that the annual cost
of illness from E. coli O157 was $406 million in 2003,
including $370 million for premature deaths, $31 million
for medical care, and $5 million in lost productivity.
The Foodborne Illness Cost Calculator
ERS has an important role in estimating and disseminating
information about the economic costs of foodborne illness.
The Foodborne Illness Cost Calculator details the assumptions
behind the ERS cost estimates for a number of foodborne
pathogens and describes how ERS analysts estimate medical
costs, productivity losses, and costs of premature death
for each pathogen. Users can choose among a variety of
alternative assumptions, including assumptions used by
the Food and Drug Administration and the Environmental
Protection Agency in their foodborne illness cost estimates,
to create their own cost estimates for each pathogen.
The Calculator for Salmonella was put on the web in April
2003 and E. coli in 2005.
Valuation Methods for Reducing Foodborne Risks
This project applies state-of-the-art valuation methodologies
to measure the benefits of improving food safety. Two
surveys were administered to panels of consumers through
the internet. Results were used to test different approaches
to estimate consumer willingness to pay for foods with
lower risk of illness from foodborne pathogens. A contingent
valuation survey in summer 2004 presented respondents
with information on duration and severity of foodborne
illness and asked respondents how much they are willing
to pay for a food with lower risk of foodborne illness.
The survey results show that willingness to pay to reduce
the risk of foodborne illness increases with the duration
and severity of the symptoms of the potential illness
and with the magnitude of risk reduction. It also suggests
that willingness to pay depends on the type of food presenting
the risk, with higher estimated willingness to pay to
reduce a risk of illness associated with chicken than
with ground beef or packaged deli meat. A summer 2005
survey provided respondents with information about the
likelihood of foodborne illnesses and asked them about
their food consumption and food safety practices. Analysts
linked food choices with the information provided using
grocery store receipts submitted by respondents.
Performance Standards for Food Safety
A central issue for the U.S. food safety system is the
appropriate role for performance versus process standards
in enhancing food safety. Performance standards require
that a product meet a certain level of safety, but they
do not specify the production method. Economists typically
argue that performance standards are preferable to process
standards because they encourage efficiency and innovation
and, as a result, should play a larger role in the Nation’s
food safety system. The objective of this research area
was to investigate the economic theory behind economists’
endorsement of performance standards, the practical issues
that may complicate the application of performance standards
for food safety, and the costs and benefits of alternative
approaches to designing food safety standards. Results
indicate that recent advances in testing technology provide
greater specificity, shorter time to result, greater ease
of use, and lower costs than in the past. These newer
methods make it easier for regulators to specify performance
standards because monitoring is more accurate and less
costly.
Geo-Spatial Economic Analysis (GSEA)
ERS-GSEA contributed to a number of Homeland Security
exercises, including the June 2005 Pinnacle exercise,
by estimating potential economic damages of security threats
and comparing alternative mitigation responses. The ERS-GSEA
team has enhanced its ability to analyze security threat
scenarios based on the Agency’s commodity market
expertise and through collaborations with other USDA agencies
and selected Department of Homeland Security and Food
and Drug Administration efforts. An economic assessment
of alternative animal disease control strategies is also
underway between the Animal and Plant Health Inspection
Service, Lawrence Livermore National Laboratory, and ERS.
The project compares the economic consequences of alternative
control strategies for foot and mouth disease and uses
those results to shape the features needed in a decision
support system that could be used during disease outbreaks.
This project uses APHIS data, along with epidemiological
spread model results, to examine the economic consequences
derived from ERS economic models using the GSEA-Geospatial
Information System (GIS) platform. Given the flexibility
of the epidemiological, economic and GIS models, the same
approach is being used to examine the economic consequences
of other significant animal diseases.
Goal 4: Improve the Nation's Nutrition and Health.
Key Outcome
ERS research and analytical activities are designed to
enhance understanding by policy makers, regulators, program
managers, and organizations shaping public debate of economic
issues relating to the nutrition and health of the U.S.
population, including factors related to food choices,
consumption patterns at and away from home, food prices,
food assistance programs, nutrition education and food
industry structure.
Key Accomplishments
Effects of Food Assistance and Nutrition Programs on
Nutrition and Health
Over the past 30 years, a number of studies have tried
to quantify various outcomes of USDA’s food assistance
programs. However, there has been no overall assessment
of the effects of the programs on the diet and health
outcomes of participants. In response, ERS funded the
Nutrition and Health Outcomes Study, which reviewed and
synthesized research from over 300 publications on the
impact of USDA’s food assistance programs on participants’
diet and health. The resulting report provides the most
comprehensive assessment of published research on the
topic. The outcome measures reviewed include household
nutrient availability, individual dietary intake (including
comparisons to reference standards, such as Recommended
Dietary Allowances and the Dietary Guidelines for Americans),
medical biomarkers of nutrition status, food expenditures,
food security, birth outcomes, breastfeeding behaviors,
immunization rates, use and cost of health care services,
and selected nonhealth outcomes, such as academic achievement
and school performance (children) and social isolation
(elderly).
The outcomes study concludes that findings on the impact
of food assistance program participation on nutrition
and health status must be interpreted with caution. Many
studies share one or more of three key limitations—inadequate
research design, the relative age of the research, and
changing standards used to assess dietary intake. Despite
these limitations, the review found some consistent impacts
of selected food assistance programs across a number of
independent studies. For example, research has consistently
shown that the Food Stamp Program increases household
food expenditures, which may in turn lead to greater availability
of certain nutrients at the household level. The literature
also strongly suggests that participation in the Special
Supplemental Nutrition Program for Women, Infants, and
Children (WIC) raises mean birthweight, and lowers birth-related
health care costs. These effects for WIC are likely to
be greatest among Blacks and the lowest income women,
groups who have the highest incidence of low birthweight.
Nutrition and Health Characteristics of Low-Income Populations
This study examines the nutritional and health status
of four population subgroups—participants in the
Food Stamp Program, participants in the Special Supplemental
Nutrition Program for Women, Infants, and Children (WIC),
school-age children, and older Americans. The study uses
data from the Third National Health and Nutrition Examination
Survey (NHANES-III). NHANES is the primary source of information
for monitoring the Nation’s nutritional and health
status. The study was designed to establish a baseline
from which to monitor the nutritional and health characteristics
of the population group of interest over time and to generate
questions and hypotheses for future research. A broad
array of measures is used to describe the nutrition and
health characteristics of the groups, including dietary
intake, body weight, selected nutritional biochemistries,
bone density, health-related behaviors, measures of health
status, and access to health care.
Children’s Consumption of WIC-Approved Foods
USDA is considering redesigning the food packages provided
by the Special Supplemental Nutrition Program for Women,
Infants, and Children (WIC), and ERS has completed several
studies to help inform decisions on possible changes to
the packages. One ERS study examines how WIC participation
affects children’s consumption of WIC-approved foods.
The study found that WIC participation increases consumption
of at least some types of WIC-approved foods. Although
WIC-participating children consumed significantly more
calories from WIC-approved foods than did eligible nonparticipants,
the difference in total calories consumed was not significant.
The results suggest that WIC foods replace non-WIC foods
in the diets of children participating in WIC rather than
add to their food consumption.
Prices Dominate Interstate Variations in WIC Food Costs
Because food costs account for about 75 percent of total
expenditures in the Special Supplemental Nutrition Program
for Women, Infants, and Children (WIC), enacting policies
to contain food costs allows States to reduce program
expenditures. Understanding what drives WIC food costs
helps States implement effective cost-reducing polices.
The monthly cost per participant of providing WIC foods
varies markedly cross the United States. A 17-State study
by ERS found that variations in food prices between States
affect WIC food costs more than do variations in WIC caseload
composition and that identical policies can affect costs
differently across States.
Evaluation of the USDA Elderly Nutrition Demonstrations
Policymakers have long been concerned that low-income
elderly individuals who are eligible for food stamp benefits
participate in the program at a lower rate than other
eligible groups. In response to these concerns, USDA funded
the Elderly Nutrition Demonstrations—six projects
aimed at testing ways to increase participation among
eligible elderly individuals. ERS recently funded an evaluation
to assess each demonstration’s ability to increase
participation among the eligible elderly and identify
associated costs. Results of the evaluation suggest that
elderly participation can be increased through a variety
of options; however, the costs can be substantial.
Food Stamp Program Entry and Exit
During the 1990’s, the Food Stamp Program (FSP)
caseload experienced periods of both substantial growth
and decline. These increases and decreases in caseload
coincided with significant changes in the national economy
as well as major changes in FSP policies. Understanding
whether caseload trends are driven by changes in entry
or exit is important both for judging the success of existing
policies and for developing effective policies. A recent
ERS report examined patterns of FSP entry and exit and
how those patterns contributed to the caseload trends
of the 1990’s. The report also examined trends in
the length of time participants received food stamps and
explored how these participation periods varied among
different population groups.
Household Food Security in the United States, 2003
Food security is the foundation for a healthy, well-nourished
population. Food security for a household means that all
household members have access at all times to enough food
for an active, healthy life. The annual report, Household
Food Security in the United States, contributes to the
effective operation of USDA’s domestic food assistance
programs as well as that of private food assistance programs
and other government initiatives aimed at reducing food
insecurity. The 2003 report, based on data from the December
2003 food security survey, provided the most recent statistics,
at the time of publishing, on the food security of U.S.
households, how much they spent for food, and the extent
to which food-insecure households participated in Federal
and community food assistance programs. Results show that
89 percent of American households were food secure throughout
the entire year in 2003. The remaining 11.2 percent of
households were food insecure at least some time during
that year, not statistically different from the 11.1 percent
observed in 2002. The prevalence of food insecurity with
hunger was unchanged at 3.5 percent.
Understanding the Nation’s Food Assistance Programs
Several important studies were completed that provide
policymakers, program agencies, and others with information
to improve USDA’s food assistance programs. For
example, USDA is considering redesigning the food packages
provided by the Special Supplemental Nutrition Program
for Women, Infants, and Children (WIC), and ERS has completed
several studies to help inform decisions on possible changes.
The monthly cost per participant of providing WIC foods
varies markedly across the United States. A study of this
interstate cost variation found that food prices within
States affect WIC food package costs more than do variations
in WIC caseload composition. Cost-containment practices
by State WIC agencies also contribute to interstate variation
in WIC food package costs.
Another study examined how WIC participation affects
children’s consumption of WIC-approved foods. The
study concluded that WIC participation increases consumption
of at least some types of WIC-approved foods. Policymakers
have long been concerned that the low-income elderly eligible
for food stamp benefits participate in the program at
a lower rate than do other eligible groups. One study
evaluated the Elderly Nutrition Pilot Demonstrations operating
in six States to identify successful strategies for raising
program participation and to identify associated costs.
A preliminary analysis of the impact of these demonstrations
was completed.
Interest in understanding and improving the nutritional
effects of food assistance programs on Indian reservations
is widespread. American Indians are more likely than other
Americans to be poor, unemployed, food insecure, hungry,
obese, and diabetic. Indians living on or near reservations
are poorer than Indians living elsewhere and are, therefore,
less likely to be able to meet their nutritional needs
without Federal assistance. To improve the usefulness
and cost-effectiveness of research on food assistance
programs, one study reviewed existing data sources and
prior research on six USDA programs that provide food
assistance to American Indians living on or near reservations.
ERS also continued to publish successive issues of The
Food Assistance Landscape, a semi-annual periodical that
highlights information and research on USDA’s food
assistance efforts.
Taxing Snack Foods
This report investigates consumers’ likely response
to a tax on snack foods that addresses public health issues
generated by rising U.S. obesity rates. Findings suggest
that the impacts on dietary quality from the tax are small
and negligible at the lower tax rates. If taxes were earmarked
for funding information programs, as several proponents
suggest, taxes would generate a revenue stream the public
health community could use for nutrition education.
The Economics of Fruit and Vegetable Choices
The newly released USDA MyPyramid and the 2005 Dietary
Guidelines encourage Americans to raise their consumption
of fruits and vegetables. USDA food supply data indicate
that Americans eat 1.4 servings of fruit daily, less than
half the 4 servings or 2 cups recommended in the 2005
Dietary Guidelines for adults eating 2,000 calories per
day. Marketers and nutritionists alike have puzzled over
the reasons for Americans’ fruit and vegetable shortfalls.
Are fruits and vegetables too expensive? Are they incompatible
with personal and household tastes or the modern trend
to eat out more? Do nutrition benefits matter to knowledgeable
consumers? To shed light on the persistent difficulty
in increasing U.S. produce consumption, ERS published
Understanding Economic and Behavioral Influences on Fruit
and Vegetable Choices. In this report, ERS researchers
examined how economic, social, and behavioral factors
influence consumers’ fruit and vegetable choices.
Economics and Obesity
The growth in overweight and obesity in the U.S. has
genetic, physiologic, psychological, sociologic, and economic
underpinnings. The basic economics involves shifts in
relative prices: The technological changes driving modern
economic growth have raised household incomes, reduced
the price of food, and increased the price of physical
activity. The resulting increase in energy consumption
and flattening of energy expenditure has tilted the weight
equation in favor of a steady weight gain across all segments
of U.S. society. This report, The Price is Right: Economics
and the Rise in Obesity, examines the shifts in relative
prices that have helped fuel the rise in overweight and
obesity. These shifts do not necessarily indicate market
failure or an obvious role for government intervention.
Obesity and Public Policy
Action to combat obesity and overweight could come in
many forms because many variables influence diet and lifestyle
choices. The wide range of factors contributing to food
choices is compounded by the incredible variety of foods
and consumption opportunities available today: We make
choices among thousands of food products, about whether
to eat at home or in a variety of restaurants, and about
lifestyles, such as diet quality and exercise. As a result
of nearly unlimited choice, public policy that targets
specific foods or lifestyle choices could have surprising
unintended consequences. In this report, Obesity Policy
and the Law of Unintended Consequences, ERS researchers
have examined some of the potential intended and unintended
consequences of three widely discussed obesity policies—nutrition
labels in restaurants, taxes on snack foods, and restrictions
on food advertising to children. The research focuses
on the likely effect of each program on producer and consumer
incentives and on health outcomes. In every case, the
unintended effects could dampen the policy’s success
in reducing overweight and obesity.
Supermarket Cost Characteristics
Whether the poor pay more for food than other income
groups matters to their nutrition and health; therefore,
the operating costs of the stores at which they shop matter.
The ERS report, Supermarket Characteristics and Operating
Costs in Low-Income Areas examined a range of questions
related to these issues. Stores serving low-income shoppers
differ in important ways from stores that receive less
of their revenues from food stamp redemptions. Stores
with more revenues from food stamps are generally smaller
and older and offer relatively fewer convenience services
for shoppers. They also offer a different mix of products,
with a relatively high portion of sales coming from meat
and private-label products. Metro stores with high food
stamp redemption rates lag behind other stores in adopting
progressive supply chain and human resource practices.
Finally, stores with the highest food stamp redemption
rates have lower sales margins relative to other stores
but have significantly lower payroll costs as a share
of sales. Overall, operating costs of stores with high
food stamp redemption rates are not significantly different
from those of stores with moderate redemption rates. If
the poor do pay more, factors other than operating costs
are likely to be the reason.
ERS Per Capita Food Consumption (Availability) Data
ERS maintains the U.S. per capita food consumption data
system. This system is an important statistical indicator
that tracks food and nutrient availability from 1909.
The data facilitate policymaking and regulatory decisions
about farm assistance programs, nutrition education, public
health programs, and regulation of vitamin and mineral
fortification and food labeling. In February 2005, ERS
released an updated, redesigned per capita food consumption
data system. This system includes per capita food availability
data for all commodities through 2003. Users can either
download standard spreadsheets or use the newly expanded
custom database to develop tables or charts for specific
food groups, commodities, and years. In addition, for
the first time, spreadsheets are now available on per
capita servings (also known as per capita food intake
data or loss-adjusted food supply data). The spreadsheets
can then be compared with serving recommendations for
the U.S. population.
Other Preferences Compete With Healthful Eating Intensions
Health-oriented government agencies have had limited
success at encouraging Americans to eat a healthful diet.
One reason may be that other preferences compete with
the desire to eat healthfully. The study explored the
effect of consumer preferences on the demand for food
away from home, including frequency of eating out and
choice of outlet type. Preferences for convenience and
ambience are found to influence behavior. Furthermore,
omitting these variables from econometric models can bias
the estimated effect of preferences for a healthful diet.
Goal 5: Protect and Enhance the Nation's Agricultural
Resource Base and Environment.
Key Outcome
ERS research and analytical activities are designed to
provide an enhanced understanding by policy makers, regulators,
program managers, and those shaping the public debate
of economic issues relating to development of Federal
farm, natural resource, and rural policies and programs
to protect and maintain the environment while improving
agricultural competitiveness and economic growth.
Key Accomplishments
Integrating USDA Surveys To Evaluate Conservation Programs
This ambitious project involved a joint ERS, National
Agricultural Statistics Service (NASS), and Natural Resources
Conservation Service (NRCS) effort to integrate two major
surveys that are based on different sampling frames. With
this integration complete, USDA now has a greatly improved
capacity to analyze the implications of its conservation
programs, improve the cost-effectiveness of the its surveys,
and reduce respondent burden. For the Conservation Effects
Assessment Project (CEAP), a Natural Resources Institute
-based conservation practice survey was designed to assist
NRCS’s evaluation of the environmental benefits
of conservation programs funded through the 2002 Farm
Act. The Agricultural Resource Management Survey (ARMS)
is a multiphased, field- farm-based survey used to support
the ERS and NASS environmental and economic statistics
programs. ERS researchers have contributed their expertise
to developing a joint ARMS/CEAP questionnaire, which was
used in a 2004 pilot survey of wheat farms. The current
plan calls for expanding the ARMS/CEAP integration process
to the whole sample.
Conservation Policy on Working Lands
The Farm Security and Rural Investment Act of 2002 redresses
the past imbalance in USDA’s conservation programs
toward land retirement by providing a major increase in
funds to promote stewardship on working lands. An ERS
research project identified issues in the design of working
land policies and the potential economic and environmental
impacts of alternative designs. It also considered how
the findings apply to implementing the Environmental Quality
Incentives Program (EQIP), the prominent working land
program to date, and the Conservation Security Program
(CSP), the first-ever entitlement agri-environmental program.
These two programs pursue similar environmental goals,
but they differ in terms of eligibility, payment base,
and incentive structure.
Initial research on “benchmarks” of the agri-environmental
payment program was published in the report, Instrument
Choice and Budget-Constrained Targeting. The research
shows that, when budgets are constrained, benchmarks can
be an important tool for achieving cost-effective environmental
gains. Benchmarks based on pre-program levels of nutrient
runoff are not optimal, even if payment rates are optimally
differentiated among heterogeneous producers. ERS published
another report, Flexible Conservation Measures on Working
Land, which reviews the design and implementation of working
land payment programs (WLPPs). The analysis illustrates
environmental and economic impacts of alternative WLPP
designs. Environmental cost-effectiveness of WLPPs can
be improved through the use of benefit-cost targeting
and competitive bidding on financial assistance.
The Conservation Reserve Program’s (CRP) Economic
Impacts
ERS produced a report that presents the findings of a
study that examines the economic impact of the CRP on
rural communities. The study shows that high CRP enrollment
does not significantly affect rural population trends
and its dampening effect on employment trends is relatively
small and short lived. Even when farm operators enroll
their entire farms in CRP, the local economic effects
are muted. Nonetheless, whole- and partial-farm enrollment
is associated with different beginning-farmer trends,
whole-farm enrollments are negatively related, and partial-farm
enrollments are positively related to changes in the number
of beginning farmers. The research also indicates that
the CRP’s effects on wildlife and water quality
lead to a rise in spending on outdoor recreation of as
much as $300 million per year. The study found no statistically
significant evidence that CRP participation encourages
absentee ownership or that high levels of CRP participation
affect local government services or tax burdens in a systematic
way. The level of permissible CRP rental payments can
influence the type of land enrolled in the CRP and the
program’s environmental benefits, but based on ERS’s
simulations, such impacts are small.
Flexible Conservation Measures on Working Land
Agricultural production can damage the environmental.
Although past conservation efforts—particularly
land retirement—have helped, agri-environmental
problems remain. Because most agricultural land (850 million
acres) remains in production and many agri-environmental
problems are the result of small contributions from many
widely dispersed improving environmental performance on
“working lands” is an important next step.
Once a working land payment program has been designed—before
any producers are enrolled or any contracts are signed—most
of what can be done to ensure that program objectives
are achieved is locked in place. If funding is limited,
program goals are likely to be reached only if program
decisionmakers can anticipate the effect of enrolling
a given producer. Producers will apply for participation
when the benefits they receive outweigh their costs, which
will depend on program details. Program decisionmakers
may apply enrollment screening criteria to determine which
applicants are enrolled. Participation patterns then determine
the environmental and economic outcomes of the program.
The trick is to (1) develop a request for proposals that
is attractive to producers who can contribute to reaching
program goals and (2) develop enrollment screening criteria
that use information provided by the applicants to select
those best suited for the job.
Managing Manure to Improve Air and Water Quality
U.S. environmental laws tend to focus on a single environmental
medium (e.g., Clean Water Act, Clean Air Act, and Endangered
Species Act). When a single pollution source simultaneously
can affect more than one environmental medium, a single-medium
approach to pollution control can confound policymakers
concerned with economic efficiency. An uncoordinated set
of policies that independently address different pollution
issues can result in unnecessary and unanticipated economic
and environmental costs. To address these concerns, ERS
assessed the economic and environmental tradeoffs between
water and air quality policies. The study found that air
and water quality regulations would be more cost effective
if implemented simultaneously, which would allow farmers
to select the most appropriate mix of practices to satisfy
environmental quality goals while maximizing net returns.
With uncoordinated environmental policies, farmers may
have to make costly changes to practices more than once
before both environmental goals can be met. To meet a
water quality goal, farmers tend to use practices that
increase ammonia emissions to the air. To meet an air
quality goal, farmers tend to use practices that increase
nitrogen losses from fields to ground and surface waters.
Meeting both air and water quality goals would likely
cost more than meeting either air or water goals. Depending
on how air quality regulations are applied, this could
have two impacts on concentrated animal feeding operations
and water quality. Anticipating the different forms and
pathways that nitrogen takes can keep air quality and
water quality policies from working at cross purposes.
Then, true solutions—like diet manipulation (to
reduce the amount of nitrogen excreted by animals) or
industrial uses of manure—might become clearer.
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