An International Comparison of the Effects of Government Agricultural Support on Food Budget Shares

Journal of Agricultural and Applied Economics, Aug 2008 by Miller, J Corey, Coble, Keith H

This study evaluates econometrically the effect of government support to agriculture on a measure of the affordability of food in 10 Organization for Economic Cooperation and Development (OECD) countries. The panel model we construct specifically utilizes two values calculated by the OECD: Producer Support Estimates as a percentage of gross farm receipts and the Consumer Nominal Protection Coefficient. These two variables represent transfers from taxpayers to agricultural producers through government programs and transfers from consumers to government through protectionist measures, respectively. By using dummy variables, we find implications for groups of countries on the basis of their relative levels of support and protection.

Key Words: agricultural policy, obesity

JEL Classifications: I18, Q18

In the early 21st century, the rising incidence of obesity throughout the developed world provides an illustration of an issue involving the intersection of health, agriculture, and economics. The increase in overweight and obesity in the United States is well-documented and well known. According to the Centers for Disease Control and Prevention, the percentage of obese adults in the United States increased from 14.6% in 1971 to 32.1% in 2004 (NCHS).

Although the proportion of obese adults in the U.S. population might be the highest of any nation, several developed and developing nations have also experienced similar increases in obesity. According to the Organization for Economic Cooperation and Development (OECD), when measured between 1999 and 2005, the populations of obese adults in Australia, Canada, Greece, Mexico, New Zealand, and the United Kingdom all exceeded 20%. Only the U.S. obese adult population exceeded 30%.

Numerous articles published over the last 10 years both in economics and health-and nutrition-related disciplines have attempted to determine the source of this rise in obesity. Such studies have found the fall in laborintensive employment and the increase in food consumption among the factors leading to the rise in obesity in the United States (Cutler, Glaeser, and Shapiro; Lakdawalla and Philipson; Philipson and Posner). Primarily since the 2002 U.S. farm bill, the popular press has frequently depicted U.S. agricultural commodity programs as an important contributor to rising obesity (Meerman; Pollan). Such reports allege these support programs increase the availability of the most fattening foods at relatively low prices because the mix of crops receiving most of the support represents the building blocks of such foods. However, far fewer research articles in academia have empirically investigated any presupposed relationship between obesity and U.S. agricultural policy.

This paper builds on the work of Miller and Coble, who investigate a relationship between direct government payments to producers in the United States over a 35- to 40-year period. By constructing autoregressive (AR(I)) and seemingly unrelated regression (SUR) models, they determine that direct government payments to U.S. producers are not a significant factor affecting the affordability of food. Thei results hold for food in the aggregate, as well as across different food groups. Significant explanatory variables in their models include consumer incomes and advances in technology.

The model in this paper uses data from the OECD and the Food and Agriculture Organization (FAO) of the United Nations to evaluate the effects of the OECD measure of government support to agriculture, known as a producer support estimate (PSE), and the Consumer Nominal Protection Coefficient (CNPC), a complementary measure of the effects on consumers of government policies. These effects are measured for 10 OECD nations, including the United States. Other factors examined by the model include an index of agricultural productivity and the value added to each nation's economy from agriculture as a percentage of gross domestic product.

Literature Review

As noted above, many articles published in only a few years attempt to explain the sources and causes of rising obesity, as well as the extent of the problem. The United States is perhaps the most dramatic example of how this problem has increased. However, our study takes a broader look at the issue by examining OECD member countries, which is relevant because, as Bleich et al., p. 5, note, the majority of the world's obese live in the developed world. In fact, the authors find that their analysis of the OECD health database "suggests a worldwide time-related phenomenon" in the rise of obesity. Indeed, the World Health Organization (WHO) has coined the term "globesity" to describe the pervasiveness of the problem throughout the world.

Economists can examine relationships between food and overweight and obesity through the cost of food and the cost of physical activity. For our study, the effect of food prices is the most pertinent, and a considerable body of recent literature documents these results. The widely cited paper by Lakdawalla and Philipson, for example, indicates as much as 40% of the increase in the body mass index (BMI) in the United States can be explained by declines in real food prices. Mendez and Popkin observe how food choices are influenced by prices in both developing and developed countries. The study from the previous paragraph by Bleich et al. finds a correlation between lower relative food prices and increased caloric supply; moreover, increased caloric supply accounts for over 80% of adult obesity in the developed countries they examine. Senauer and Gemma note the fall in the relative price of food because of technological advances and the attempts of economists to explain the rise in obesity because of lower costs for food and higher costs for physical activity. Gelbach, Klick, and Stratmann found a statistically significant relationship between increases in the price of healthy foods and increases in BMI, although they did not find this relationship to be economically significant. Particularly relevant to this study, Loureiro and Nayga find that agricultural policies that increase consumer support estimates in OECD countries can potentially reduce obesity through higher food prices. Huffman et al. find that an increase in the price of food "reduces tendencies for obesity," which in their results leads to a reduction in mortality because of obesity. Huffman et al., pp. 21, 23, 25, also note that countries with higher real food prices tend to have fewer deaths associated with obesity. Significantly, they state, "high income countries that have pursued cheap food policies have increased the likelihood of higher obesity-related mortality rates than other high income countries."