Environmental Economics

A frequency table of USDA ERS employee outcomes

An ERS updata (USDA expects ‘significant delays’ in economic research reports):

Mass attrition at the Economic Research Service as a result of USDA’s decision to move the agency out of Washington will lead to “significant delays” in vital research reports, according to an internal document provided to POLITICO.

The memo, which was drafted by department management for planning purposes, outlines how widely the agency’s work will be paralyzed as a result of the relocation.

ERS conducts research into areas such as climate change, nutrition, export data and the farm economy. Farmers also heavily rely on its outlook reports to make planting decisions. Crop markets can swing on the results of the numbers. ...

USDA identified 38 specific reports that may be delayed because staff members have departed. They include research on topics such as consolidation in the dairy industry, food security among veterans, and international agricultural market access. Some reports will be delayed and perhaps even discontinued, such as price spreads, which calculates what percentage of food dollars goes to farmers. ...

Separately, the union for the agency’s employees estimates that only 19 out of 280 employees chose to move, representing just 7 percent of total staff. USDA has set a deadline of Sept. 30 for the relocation. Current employees have until Sept. 30 to change their status and those "numbers are changing daily," the spokesperson said. ...

Since the move was announced in August of last year, 88 employees left the agency and 50 staffers chose to retire, according to the union.

Forty-four employees were granted special accommodations allowing them to temporarily keep working in Washington, such as via telework or an extension to their report date in the new office space. A reported 79 employees will stay in D.C. that make up the operations deemed "core" by USDA.

The union’s survey doesn't account for new hires that have reported for work at the new location. An Agriculture Department spokesperson said that 10 new employees at ERS and three at the National Institute of Food and Agriculture, which sends grant money to agricultural research institutions, have started work in the Kansas City area. Four new ERS staffers and one NIFA employee will begin next week.

The USDA is actively recruiting for more than 100 positions at both agencies, the spokesperson added.

Agriculture Secretary Sonny Perdue has defended the move as a means to cut costs, improve recruitment and retention of staff, and bring USDA closer to farming communities. USDA has said that locating ERS and NIFA in the Kansas City region would save about $20 million per year over 15 years.

But several employees and former officials have suggested that USDA ordered the relocation to stifle research that contradicts the Trump administration's agenda.

Whatever the purpose of the move, can we agree that it is stifling research and will do so for a very long time? Here is the frequency distribution, as promised:

Outcome	Number	Percentage
Move to KC	19	6.8
Quit the ERS	88	31.4
Retire from ERS	50	17.9
Work for ERS in DC	79	28.2
Temporarily work for ERS in DC	44	15.7
Total	280

 

"Economists flee Agriculture Dept. after feeling punished under Trump"

The beatings will continue until morale improves (update):

Economists in the Agriculture Department's research branch say the Trump administration is retaliating against them for publishing reports that shed negative light on White House policies, spurring an exodus that included six of them quitting the department on a single day in late April.

The Economic Research Service — a source of closely read reports on farm income and other topics that can shape federal policy, planting decisions and commodity markets — has run afoul of Agriculture Secretary Sonny Perdue with its findings on how farmers have been financially harmed by President Donald Trump's trade feuds, the Republican tax code rewrite and other sensitive issues, according to current and former agency employees.

The reports highlight the continued decline under Trump’s watch in farm income, which has dropped about 50 percent since 2013. Rural voters were a crucial source of support for Trump in 2016, and analysts say even a small retreat in 2020 could jeopardize the president’s standing in several battleground states.

“The administration didn’t appreciate some of our findings, so this is retaliation to harm the agency and send a message,” said one current ERS employee, who asked not to be named to avoid retribution.

For example, two ERS researchers presented a paper at an economic conference in early 2018 that indicated the GOP tax overhaul would largely benefit the wealthiest farmers — generating negative press coverage that staff members said irked senior officials at USDA.

Then, in August, Perdue stunned members of the roughly 300-member research service by announcing plans to bring ERS under the control of USDA’s chief economist, who reports more directly to the secretary. Equally significant, he said the USDA would move the agency out of Washington to a location closer to the U.S. heartland. ...

The move to uproot the agency has led to a brain-drain of experienced researchers. So far in fiscal 2019, non-retirement departures from the agency have more than doubled on an annualized basis compared to the previous three-year average, according to data collected by employees.

Six of the economists — made up of specialists in the agricultural economy, farm taxation and food programs with more than 50 years of combined experience at ERS — left the agency at the end of April, out of frustration with the relocation process or in some cases suspicion about Perdue’s efforts to reshape USDA’s research wing, according to coworkers. More are planning to leave in the coming months. ...

Perdue and Trump made clear in their budget request in March that they wanted to reduce the scope of the ERS, eliminating “low priority research” into such politically sensitive areas as food stamps and environmental issues.

The White House blueprint called for slashing ERS staff levels by more than 50 percent, cutting the total number of positions from about 329 to 160.

The budget is unlikely to be approved by Congress, but members of the service say they’ve already seen the effects of Trump’s and Perdue’s preferences.

“Things like conservation, rural development, food assistance, have just been de-emphasized” in favor of the administration’s preferred topics, said one economist who left ERS because of the relocation plan. ...

Lawmakers have complained that USDA has yet to provide a full cost-benefit analysis of its plan to move the office closer to the heartland. Republicans have increasingly supported the relocation plan, while House Democrats have filed legislation to block the move.

Perdue’s office has promised to release further data justifying the move when he announces a final site recommendation this month.

Within the service, skeptical employees view the secretary’s rationale for the move and the months-long site selection process carried out by accounting firm Ernst & Young as a smokescreen.

“The message we’ve been getting is, ‘The cost-benefit analysis doesn’t matter. Being close to stakeholders doesn’t matter. The only thing that matters for you is the fact that the secretary wants you to move, thinks it’s in your best interest, and that’s what we’re doing,’” said another senior ERS economist who declined to use his name for fear of retaliation.

Brian Stacy, a former ERS economist who left in February, said he thinks the move is a way for the administration to force out staff members and reduce the size of the ERS without congressional approval. ...

ERS employees are planning to vote on unionization on Thursday. ...

Read all of it here: https://www.politico.com/story/2019/05/07/agriculture-economists-leave-trump-1307146?cid=apn

Quote of the Day: Political science is NOT sound science

From Politico:

“In USDA, we want good scientific discovery,” [USDA Secretary Sonny] Perdue said, when asked about the mandated research-disclosure language. “We want peer-based evidence there. We know that research, some has been found in the past to not have been adequately peer-reviewed in a way that created wrong information, and we’re very serious when we say we’re fact-based, data-driven decision makers. That relies on sound, replicatable science rather than opinion. What I see unfortunately happening many times is that we tried to make policy decisions based on political science rather than on sound science.”

 

Daily Demand and Supply: Where's the Beef? (and cheese and soybeans)

Following the political dominoes of international trade policy can be mind-boggling, but the basic economic principles can be simple.  A tariff placed on U.S. products by another country (like meat, cheese, and soy beans) will reduce the amount (supply) of U.S. meat, cheese, and soy beans sold in other countries, and increase the amount of meat, cheese, and soy beans available for the U.S. market.  In the U.S. market, this represents an increase in supply which will increase the amount meat, cheese, and soy sold in the U.S. and decrease the price of each good. 

How big can this effect be? 

Here are soybean futures prices in the U.S. for the last three months (from NASDAQ):

And here's a VOX story about the current supply glut of meat and cheese in the U.S. (only partially caused by tariffs, and partially caused by other interesting agricultural policies), which will eventually cause meat and cheese prices to fall in the U.S.

There’s a lot of uncertainty these days. So here’s a comforting thought: The United States of America will not run out of cheese or meat anytime soon.

US dairy producers now have a 1.39 billion-pound surplus of cheese, according to data from the US Department of Agriculture. As the Washington Post has noted, that’s the largest domestic reserve of cheddar, Swiss, American, and other cheese varieties on record.

It means there’s enough excess cheese to arm each American citizen with a hefty 4.6 pounds of the crumbly, melty, salty good stuff. Why is this happening? Simply put: US dairy producers have been overproducing milk. Thanks to selective breeding, American cows are more productive than ever. And when demand for milk and dairy goes down in the summer, dairy producers store their excess milk as cheese, which has a longer shelf life in cold storage.

A similar glut exists for the meat industry. According to new data from the USDA, American meat producers now have 2.5 billion pounds of chicken, turkey, pork, and beef in cold storage, which is also a record, according to the Wall Street Journal. And producers are running out of warehouse space to store it all.

The meat stockpile is in part, the Journal reports, because of newly implemented Chinese and Mexican tariffs on American pork. These were set in retaliation for tariffs the Trump administration placed on Mexican and Chinese steel, among other goods. With slowing exports — and increased beef and poultry production partially due to falling prices of grain — American meat producers have more product in the freezer. Though that might be good news for American consumers, as meat prices are likely to drop a bit at the grocery store. (As Vox’s Tara Golshan reports, the escalating trade conflicts will likely impact the dairy industry as well.)

The upshot:  The increase in domestic supply caused by increased tariffs on U.S. products sold oversees will benefit U.S. consumers (through lower prices) and harm U.S. producers (through lower prices).

    

At What Cost? Legislators come up with solutions to Harmful Algal Blooms. Environmental Economists come up with cheaper solutions.

The Legislature of the State of Ohio is currently considering legislation to reduce Phosphorous loadings into Lake Erie by 40%.  This is a good thing, as reducing Phosphorous going into Lake Erie will reduce the incidence and impact of Harmful Algal Blooms in the Western Lake Erie Basin.  

The proposed legislation establishes a Clean Lake 2020 plan that includes:

A significant new Clean Lake Capital Fund that may appropriate up to $100 million per year for five years for both Lake Erie algae reduction, and agricultural best practices.  Funding may include establishing facilities to improve manure application processes, projects to reduce open lake disposal of dredged materials, funds to local governments for water quality-based green infrastructure, water management projects to help reduce nutrient and sediment runoff impacting the lake and other strategies.

A new Soil and Water Support Fund, with some of the funding provided directly to soil and water conservation districts to assist farmers in soil testing, nutrient management plans, installing edge of field drainage devices, encouraging inserting of nutrients (subsurface placement), and agreed to conservation methods that may include riparian buffers, filter strips and cover crops.

To the casual observer, this all looks good.  The proposed bill has widespread support among agricultural groups, and local and state authorities. As one of the bill's sponsors notes:

“These are not brand new ideas, just a greater sense of urgency to implement them,” Arndt said.  “There appears to be widespread agreement with state officials, environmental and agriculture groups, tourism advocates and business leaders that many of these strategies will make a big difference.”

And he is right, these strategies could make a big difference. 

But as economists we are trained to ask, 'At what cost?' 

Scorecard is in and it looks like conservation is losing

The Congressional Budget Office has prepared its first estimates of direct expenditures and revenues from H.R. 2, the Agriculture and Nutrition Act of 2018; AKA the Farm Bill.  It looks like the conservation title (Title II) might take some hits.  The Conservation Reserve Program is proposed to be scaled back, and the Conservation Stewardship Program is proposed to be repealed. On the positive side, some of the cutbacks look like they have been rolled into EQIP (the Environmental Quality Incentives Program).  But the net is negative (figures in $million).  

5 out of 7 continents isn't bad, right?

We're working on PhD recruitment this week (if you applied to OSU AEDE and were accepted, join us, we're FUN!).  I put together a Google map with our PhD placements since 2007.  A bit scary that I might be influencing thinking for this many people and this wide an area.   

 

I thought we had already discovered all of the lands there were to discover

It looks like there is more cropland available for food production worldwide than we previously thought.  A lot more…at lease according to the US Geological Survey:

There’s more agricultural land in the world than previously thought, and India rather than the U.S. or China is now believed to have the biggest acreage of any country, according to new study aimed at improving food and water security.

Global cropland totals 1.87 billion hectares (4.62 billion acres), 15 percent to 20 percent higher than earlier estimates, according to a map released Tuesday by the U.S. Geological Survey. The increase is due to the assessment of areas previously mapped inaccurately, or left unmapped, the USGS said in a statement.

India has the largest cropland of any country at 179.8 million hectares, compared with 167.8 million in the U.S. and 165.2 million in China. Russia ranks fourth, while South Asia and Europe are labeled “agricultural capitals of the world,” as cropland accounts for more than 80 percent of some countries in those regions. In comparison, only about a fifth of land in U.S. and China is dedicated to growing food.

Why do we care how much land is available and in production? As the agricultural community deals with population growth, globalization, integration of markets, aberrant weather events and climate change, knowing where and how much farmland is in and available for production, and where that land is, can have important economic, social and political ramification. 

“It is invaluable to know the precise location of croplands and their dynamics to lead to informed and productive farm management,” USGS research geographer Prasad Thenkabail said in the statement.

Is Climate Change Fair?

Just got around to reading the Hsiang et al piece in Science on the inequitable economics impacts of climate change.  Here's the abstract:

Estimates of climate change damage are central to the design of climate policies. Here, we develop a flexible architecture for computing damages that integrates climate science, econometric analyses, and process models. We use this approach to construct spatially explicit, probabilistic, and empirically derived estimates of economic damage in the United States from climate change. The combined value of market and nonmarket damage across analyzed sectors—agriculture, crime, coastal storms, energy, human mortality, and labor—increases quadratically in global mean temperature, costing roughly 1.2% of gross domestic product per +1°C on average. Importantly, risk is distributed unequally across locations, generating a large transfer of value northward and westward that increases economic inequality. By the late 21st century, the poorest third of counties are projected to experience damages between 2 and 20% of county income (90% chance) under business-as-usual emissions (Representative Concentration Pathway 8.5).

Here's a pretty picture (with a really long caption) that sums things up:

Caption: County-level median values for average 2080 to 2099 RCP8.5 impacts. Impacts are changes relative to counterfactual “no additional climate change” trajectories. Color indicates magnitude of impact in median projection; outline color indicates level of agreement across projections (thin white outline, inner 66% of projections disagree in sign; no outline, ≥83% of projections agree in sign; black outline, ≥95% agree in sign; thick white outline, state borders; maps without outlines shown in fig. S2). Negative damages indicate economic gains. (A) Percent change in yields, area-weighted average for maize, wheat, soybeans, and cotton. (B) Change in all-cause mortality rates, across all age groups. (C) Change in electricity demand. (D) Change in labor supply of full-time-equivalent workers for low-risk jobs where workers are minimally exposed to outdoor temperature. (E) Same as (D), except for high-risk jobs where workers are heavily exposed to outdoor temperatures. (F) Change in damages from coastal storms. (G) Change in property-crime rates. (H) Change in violent-crime rates. (I) Median total direct economic damage across all sectors [(A) to (H)].

Env-Econ Summary: We're all screwed, just some of us are screwed more than others.   

Daily Demand and Supply: Immigration Policy and Food Prices (A non-political post with a policy conclusion)

Potential Econ 101 Exam Question:  

Suppose the supply of lower-wage workers suddenly decreases.  a) What is the effect on wages and employment in sectors dependent on lower-wage workers?  b) What is the effect in output markets dependent on employment of input markets that employ lower-wage workers?

In your answer please use basic supply and demand analysis, graphs, and provide an example as illustration. If possible, provide a mainstream news story to support your analysis.

Suggested Answer:

a) If the supply of lower-wage workers decreases (shifts to the left) the the total number of workers employed in lower-wage jobs will decrease and the wages for those lower-wage workers still working will increase (see graph below):

Example:  If a new immigration policy results in the deportation of large numbers of lower-wage workers, the total number of workers employed in lower-wage sectors will decrease and the wages of those workers working in lower-wage jobs will increase.  For arguments sake, let's call the workers legal and illegal, and suppose that illegal workers are willing to work for lower wages.  This means lower-wage workers fall at the lower tail of the worker supply curve (they will be in the southwest corner of the graph).  If mass deportation of illegal workers occurs, and wages do not rise, then total employment in these sectors will fall by the amount of the deportation.  But because lower-wage demanding illegal workers have displaced higher-wage demanding legal workers, employers in these sectors will begin to offer higher wages and draw some of the higher-wage legal workers into these sectors.  The end result is higher wages in these sectors, fewer total workers employed in these sectors, but more legal workers working in these sectors (at higher wages) than before.  A WIN for legal workers.

b) But we need to recognize that higher wages in these sectors represent an increase in input prices for output markets reliant on these inputs. An increase in inout prices shows up as a decrease in supply in the output market and higher output prices and lower output quantities (see graph):

Example (cont'd):  The decrease in the supply of workers due to a new deportation immigration policy will result in an increase in prices for outputs that rely on lower-wage workers for production.  For example, the prices of most domestically produced fruits and vegetables are likely to increase as a result of the decrease in availability of lower-wage workers and the higher wages for the legal workers.  That a LOSE for domestic fruit and vegetable consumers.

In addition, the higher prices of domestic fruits and vegetables will increase the pressure to import fruits and vegetables from countries that can produce fruits and vegetables with lower-wage workers AND the higher wages for legal workers will increase the incentives for domestic producers to lower costs in other ways, likely through technological improvements that reduce the demand for higher-wage legal workers.

Mainstream news story to support my analysis (From the Washington Post):

President-elect Donald Trump has promised a major crackdown on illegal immigration, triggering immense alarm among the country's 11 million undocumented people. But Trump’s deportation promises, if fulfilled, would ripple far beyond the lives of illegal immigrants. Deportations would affect vast swaths of the economy — with a particularly dramatic impact on agriculture.

As a result, Americans could see the cost of some fruits and vegetables soar.

Undocumented workers account for 67 percent of people harvesting fruit, according to the Agriculture Department. They make up 61 percent of all employees on vegetable farms, and as many as half of all workers picking crops.

Agricultural economists across the political spectrum say that there’s no way that workforce could be raptured up without reverberations throughout the food system — think farm bankruptcies, labor shortages and an eventual contraction of the broader economy. And even if you’re far from the agriculture industry, you could see $4 milk, low-quality oranges, and extortionately priced raspberries.

The logic behind these dire predictions is pretty straightforward. If Trump were to begin deporting farmworkers or requiring that farms verify their work status, farmers would have three ways to fill in the labor gaps. They could hire legally authorized workers, who are vastly more expensive; switch away from crops that require human laborers to harvest them; or cut production, allowing fields to fallow and fruit to go unharvested.

Whichever way you slice it, farmers pay more to produce less — which could squeeze the budgets of the very Americans who supported Trump’s immigration message. To many of them, mass deportation sounded attractive in the abstract. But practically speaking, the economy is so complex — and so interdependent — that Trump could not possibly deport the country’s 11 million undocumented people without also impacting middle-Americans’ wallets.

In fact, to keep costs under control, Americans may end up being forced to buy more groceries from abroad, undermining Trump's effort to boost American industry.