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Chris Barrett on why food prices remain stubbornly high - Research Matters S2E5

• Cornell University • Season 2 • Episode 5

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In this episode of Research Matters, economist Chris Barrett, the Stephen B. and Janice G. Ashley Professor of Applied Economics and Management in the Dyson School of Applied Economics and Management of the Cornell SC Johnson College of Business and a professor in the Cornell Brooks School of Public Policy, digs into why food prices remain so stubbornly high — from climate shocks and geopolitical conflict to supply chain bottlenecks and fragile global markets that amplify volatility. The conversation connects the dots between global economic forces and what we see at the grocery store, while exploring smarter policies that can stabilize markets and protect the most vulnerable. Watch here.

Chris Barrett:

The rate at which we've been growing demand for animal source foods, the rate at which we've been growing that demand has compelled incredibly rapid expansion of antibiotic use, which is just we're we're playing Russian roulette right now. This is just sort of crazy.

Laura Reiley:

Hi, I'm Laura Reiley, and this is Research Matters, a show about Cornell researchers who are tackling some of the world's toughest problems and finding solutions that make a real difference in our everyday lives. Today we're joined by Christopher Barrett, the Stephen B. and Janice G. Ashley Professor of Applied Economics and Management in the Cornell SC Johnson College of Business. He's an expert in applied economics with a special focus on food and agricultural economics. Today we will address something on everyone's minds: why food prices have risen so much in the past 20 years. Welcome, Chris.

Chris Barrett:

Thanks so much for having me, Laura.

Laura Reiley:

So all right, this is the big question. What's going on? How did we get here and why are we also abundantly aware of this kind of hockey stick, like, you know, or is it a hockey stick, like, rise in food prices?

Chris Barrett:

Yeah, it absolutely is. We're all very aware when we go to the grocery store or a restaurant, that prices are just higher than they were even just a couple of years ago. What many people don't appreciate is how much they've increased over an extended period of time. The low price globally for food commodities. So not the grocery store price, but the the price that's paid at wholesale level. The all time low was December 1999. For 25 years, food prices have been rising steadily, slowly at first. And then with these big spikes like the one we saw in 2021 2022 as we came out of the Covid pandemic lockdowns and supply chains struggle to adjust. And then Russia invaded Ukraine and disrupted a bunch of primary supplies into global markets. A little bit of a perfect storm creates these spikes, but the underlying problem is that food demand has been increasing significantly. Populations grow. Every added belly needs more food. Plus incomes grow. As people's incomes grow, they spend more on food, not so much on the feedstock that comes from farms, much more on post farm gate processing and preparation. But still we spend more.

Laura Reiley:

And I have a question. Let me just interrupt right there, because I think I've always had this idea. I know the Secretary of Agriculture was like led us to believe it's our inalienable right as Americans to cheap food. You know, that was like this thing that we believed and for, for years we had kind of the lowest percentage of our annual income spent on food of any developed country. Is that still the case or has that changed?

Chris Barrett:

Yeah, that's still the case. I mean, the global food market is very well integrated. So the high prices we face are also faced by others in other countries. We still spend on average, Americans spend only about 10 or 12 cents out of every dollar they make on food. It's dwarfed by what we spend on housing, for example. We spend roughly three times as much on housing, and we spend almost double on transport. So food is important, but it's no longer the dominant thing of our lives. That's not true for really poor people elsewhere in the world, where food is the main thing their family spend their income on.

Laura Reiley:

I think the average person thinks of it as a single problem. You know, it seems like it's an interconnected web of problems. Could you just kind of break down what are the big categories that contribute to this?

Chris Barrett:

Yeah, so that there is one root problem, but it manifests in lots of different ways. So I like to refer to this as the the food poly crisis. And by that I mean there are a bunch of different serious problems we face that all originate from the struggles of the food system. And the best indicator is high food prices. That's that's the signal. So it's sort of like, when your temperature rises, you have an infection, your body is struggling. There are lots of ways it manifests. But one of the cleanest, quickest ways to diagnose you have an underlying problem is that you have a fever, your temperature spikes and food prices are sort of like that in the global food system. That is the sign that something is wrong structurally. And what's wrong is we haven't been able to increase food production at the same pace as we increase food consumption.

Laura Reiley:

So demand is outstripping supply. But why? But we we've been told that we that we could feed the world five times over, yada yada, I mean it, it seems like. Is the food in the wrong place? Are we growing the wrong things? Is it consolidation of, you know, is it that Unilever owns everything or JBS owns? You know, what like what what are the things that contribute to the system being broken?

Chris Barrett:

Yeah, they're they're really three big things. The first is that we've been dramatically reducing how much we spend on research and development. And so in the United States, we've we are spending about 30% less on agricultural R&D, adjusted for inflation, as we did 20 years ago. And that's true across the high income world, by the way. China and Brazil and India have been increasing their ag R&D. But we haven't been.

Laura Reiley:

So there's a difference between ag R&D and food, like Frito-Lay R&D or like the craveability of Nacho Cheese Doritos or something. So you're saying that's the ag research that is is gumming up our productivity.

Chris Barrett:

That is the single biggest thing that is causing the slowdown in growth in food supply. And the reason is really simple that if you don't produce more of the feedstocks, because very few of us eat the commodities right as they come off the farm, if you don't produce enough of the agricultural feedstock, that simply makes it more expensive for the downstream processors. So that's one big problem is a slowdown in R&D.

Laura Reiley:

Is that just the five? Is it just like wheat, corn, soy, cotton, rice, or is it like what it's

Chris Barrett:

It's even worse on the healthiest products, the nutrient rich products.

Laura Reiley:

So, specialty crops?

Chris Barrett:

Specialty crops as we tend to unfortunately refer them

Laura Reiley:

And why do we call it that? It's such a bizarre.

Chris Barrett:

Yeah.

Laura Reiley:

The things we eat.

Chris Barrett:

In sensible language — fruits and vegetables and nuts. So those have gotten very little in the way of R&D, and that has been increasing more slowly than has R&D in the staple commodities in soy, in corn and rice, even livestock. So lack of R&D or in particular, reduction in R&D is perhaps the single biggest problem. But the second problem is just the natural boundaries we face in nature. There's only so much land. There's only so much water.

Laura Reiley:

Is the land allocated incorrectly?

Chris Barrett:

That's a great question that's subject to a lot of scholarly debate right now. We spend... The two biggest crops in the United States are corn and soy, and people would probably be shocked to realize how little of that corn and soy actually goes onto your dinner plate. Less than 10% of either US corn production or US soy production is going into the foods we are eating in the United States The vast majority is feed for livestock. So quite inefficiently it's being processed into milk and meat. There's a lot that's going into biofuels, including for soy now. And then a fair amount is exported again, mainly for feed overseas China above all.

Laura Reiley:

Yeah, not not soy this year evidently.

Chris Barrett:

Well, the soy is still getting sold. It's just not going at the same level. And it's not going to China right now. We'll see what happens next year. But the, the the natural limits we face that you've got to become more efficient in using land and using water pose some very natural boundaries. It just gets harder to generate an extra ton of output for every dollar you're putting in as a producer, as you're moving on to less fertile land, as water is less reliably available. And then the third big challenge is climate change. Climate change is robbing us of roughly a third of the natural productivity growth we get from that R&D. I mean, keep in mind, agrifood systems are evolutionary. Pests and pathogens are constantly evolving to literally try to eat our lunch. They are trying to overcome the various methods farmers used to control them. And the ones that can are the ones that survive and reproduce. So we're constantly having to improve the genetic material in crops and livestock so that they can resist changing pests and pathogens. And we have to constantly shift to deal with changes in the underlying soils and climate.

Laura Reiley:

Are we seeing ...

Chris Barrett:

And together this is causing real headwinds in agricultural production.

Laura Reiley:

Are we seeing crop migration such that places that used to be really kind of the salad bowls or the, the kind of the go tos for, for either, you know, animal feed or human food, is it all going to end up in like Manitoba at some point or like what's our...

Chris Barrett:

Manitoba might be a little bit of an overshoot, but you're absolutely right. If you track the centroid of production of virtually any crop in the United States, whether it's wheat or corn or beef cattle, it's been consistently moving to the West and typically from the northwest if they're they're relatively warm crops like rice, and to the southwest if they're relatively temperate crops like wheat that we see seeing climate change and water scarcity just are moving the geography of crop production. And we see that all over the world. It's not just in the United States.

Laura Reiley:

So is this something that technology can be thrown at and fix, or is this just inevitable creep northward or, you know, in different directions? Or like the, you know, you think of California, Central Valley or Yuma Valley or these places that have historically been where a lot of stuff gets grown. Are we just — are they going to be not viable?

Chris Barrett:

They'll be viable, but they're going to be viable for different crops or different varieties of crops. And that's the key part. It's the answer to your question is really both. Some of this geographic spread is inevitable. That's just a consequence of climate change as well as as population change. You want to move production a little closer to your ultimate market, but a lot of this is going to be —

Laura Reiley:

So you're saying just in terms of transportation costs?

Chris Barrett:

Yeah, exactly. Transportation costs are really big for food. You know, we want to transport diamonds or we want to transport high computing chips. The the cost for transport per dollar value of the product is really low. But you want to transport soybeans or milk. It's really expensive per dollar or the final consumer value. So the more you reduce transport costs the better for especially for consumer food prices. But part of that hits the farmer too, because the farmer loses some the more the transport wedges between farmer and consumer.

Laura Reiley:

Sure, more middlemen...

Chris Barrett:

Exactly.

Laura Reiley:

Well, so know that this has been a kind of a mantra for a lot of, people in the food industry, and it has prompted a lot of growth in controlled environment agriculture, indoor vertical had this like meteoric sexy rise. And then it kind of tanked, you know, kind of the whole idea of like get have a farm on top of the Whole Foods so that it basically transportation costs are, you know, nothing. Like, why is that not been more successful?

Chris Barrett:

It is successful in some instances. I think the key is, as with all new industries, a lot of this is is washing out the bad ideas or the relatively poor performers and those with good ideas who are figuring out how to do this efficiently and profitably, they're doing pretty well. And the prospects for controlled environment agriculture, I think, at ten year horizon, are actually quite bright. The key here is energy costs. Transport costs are the advantage of vertical farming. The downside is, is energy costs. So keep in mind how does farming work? You get free solar power. Plants are just big solar arrays, right? Photosynthesis is is converting solar energy into chemical energy —

Laura Reiley:

Free, free, free right?

Chris Barrett:

And it's free. And it's really hard for a firm to top that price for their energy. But as the costs of especially solar, but also wind has come down dramatically, suddenly, it's not inconceivable that you can profitably generate high quality, high value products. You're never going to grow wheat and corn in factories inside cities. That's just not going to be viable. But growing high quality fruits and vegetables absolutely viable — already viable in some places. A Cornell alum, one of my former undergraduate advisees, he and his brother started a small company in India doing exactly this. They were making money within three years. They've got franchises in multiple cities across Asia now. But the key is a focus on really high quality planting material, very energy efficient production and high value products. So you're not trying to grow wheat, you're growing blueberries. You're growing really high quality kale for upscale markets and restaurants.

Laura Reiley:

All right. So I want to talk a teeny bit about kind of policy, you know, regulatory frame, the legislation, you know, or even consolidation. So we saw in the Biden administration when he got dinged for high food prices, he blamed consolidation. You know, the big the meat companies, the big four, big the big four, big five.

Chris Barrett:

Yeah.

Laura Reiley:

And now we're seeing that in the Trump administration too. So how much, you know, like if you go to the freezer aisle, you see 40 different flavors of ice cream, kinds of brands of ice cream. And then you step back and you realize, like, most of them are owned by Unilever. Right? So like so how how does consolidation in the food in the food industry, like is there price fixing? Is there anything nefarious going on? Or is the like how does that contribute to food prices?

Chris Barrett:

Oh, it definitely contributes both to higher food prices for you and me when we go to the grocery store and to lower prices for producers who are selling to those middlemen because they just don't have many other prospective buyers for their eggs, for their wheat, for their cattle. But this is almost surely not the main driver of why we've seen steadily increasing food prices. For one thing, consolidation, especially in the animal agriculture side, in eggs and poultry and cattle, has been significant for a couple of decades now. That's not something that's not new. Depending upon whose numbers you like, it's perhaps gotten a little bit worse, but that can't possibly account for the 25% increase in inflation adjusted grocery prices we've seen over the last 20 years. That's just there's no way of reconciling those numbers. The underlying problems originate in this fundamental supply growth, demand growth imbalance. Food demand is just growing faster than supply is. And if we don't do something about that, which requires using soils and water, much more productively than we do right now, and more climate resistant cultivars, ones that can handle a heat wave or handle submergence, in the case of rice, for longer periods, then we're not going to keep pace. And that that fever, as I was referring to earlier, will continue to rage. We'll continue to see high food prices and people suffer from that.

Laura Reiley:

So we've seen a lot of growth, or a lot of promise in technology and, and some pushback. So we've seen, you know, the rise of plant based meat and cultivated meat and, kind of fermentation technologies. And there's a lot of things that that have been promised as kind of the next big thing that are going to obviate the need to eat animals or to, you know, have animal, dairy or whatever are we barking up the wrong tree there, or is that something that eventually will, will, you know, pay off?

Chris Barrett:

So I think often that debate is miscast. It's not that alternative proteins are going to replace animal agriculture. I think that's a wildly naive vision of the food system. We don't need it to. And frankly, most of us wouldn't want it to. There are an awful lot of people whose livelihoods depend fundamentally on producing and processing livestock. That's great. We need to manage the environmental side effects of livestock production a little better than we do now. There's progress there. The question is, how are we going to absorb the future food demand growth that's coming, given we're butting right up against the planetary boundaries posed by water and and and to a lesser degree, land, but also chemicals. And one of the great threats related to livestock agriculture is antimicrobial resistance. We use antibiotics on not just cattle and poultry, but aquaculture. You know, those farmed salmon people so like in the grocery store, there's a ton of antibiotics going into those ponds, and it's much less well-controlled than antibiotics used in our medical system for treating human health concerns.

Laura Reiley:

So are you saying it should be as a, as a, kind of a prophylaxis or some kind of, automatic strategy in some of these contexts, we should rethink that or, should humans use less antibiotics, like, what's the fix?

Chris Barrett:

So I'm, I'm not an MD, so I won't pontificate on on using antibiotics in humans. But the rate at which we've been growing demand for animal source foods, especially aquaculture, the fastest subsector in agri food systems, the rate at which we've been growing, that demand has compelled incredibly rapid expansion of antibiotic use, which is just — we're we're playing Russian roulette right now. This is just sort of crazy. So part of this solution of alternative proteins is being able to absorb much of that growth in a much cleaner system that doesn't require antibiotics. We've got to get the costs down. There's lots of really interesting, potentially quite important research going on about better growth media and better scaffolding and all that sort of technical stuff. But the key here is, is how are we going to absorb all the demand for animal-sourced foods going forward without expanding the present footprint of our animal agriculture system? Maintain it. We need it. It does a lot of good in many ways, including helping regulate some environments. I work in a lot of rangelands around the world where, where cattle and goats and camels are really important to the ecological regulation, but the systems we use right now, the most intensive ones, especially heavy reliance on antibiotics, just run some risks, and we need to manage methane emissions much better from cattle because that's contributing significantly to to global warming. But those are fixable. Again, that's where research comes in.

Laura Reiley:

I mean, Europe has products now that are legal that that minimize methane emissions.

Chris Barrett:

Exactly.

Laura Reiley:

Why have we not gotten there? What's the hold up on some of those kinds of feed amendments for cattle.

Chris Barrett:

Yeah mainly it's cost. So we are getting there. So keep in mind that most European livestock producers are dramatically smaller scale than we were.

Laura Reiley:

Absolutely.

Chris Barrett:

So relative to an American dairy that is running 1,500 cattle, you know, you've got Dutch and Belgian dairies that are running 50 cattle. So if they if they incur an extra $5 a year in cost for, for feed supplements, they can absorb that, especially with the subsidies they get from the EU. Apply that same per cow extra cost to a US producer without a U.S. subsidy that's anywhere equivalent to that. You're just going to have farmers going out of business, which then becomes self-defeating. So the key here is continued progress on bringing down the unit costs of those supplements that reduce methane emissions. And we're making progress there. It's just we have to be patient. I think a lot of the problems with alternative proteins and controlled environment agriculture and and methane emission reducing feed supplements for for livestock is is impatience. It's sort of a venture capital culture of we're going to put money in today and we expect a high return within 48 months or 24 months.

Laura Reiley:

So but that's cost, right? I mean, yeah, I guess another question then is, is our farm subsidy system, wrongheaded? I mean, is it are we subsidizing the wrong things? Should we be, putting more towards, you know, either prevent or crop insurance or all these kinds of things for controlled environment ag or, you know, alternative protein sources or like, are there are our thoughts antiquated on subsidy?

Chris Barrett:

Yes. Just the politics are hard. So roughly speaking —

Laura Reiley:

Big lobby, right?

Chris Barrett:

Yeah. Roughly speaking, the Farm Bill, leave out the nutrition part, leave out SNAP, has has three big components to it. Crop insurance is the biggest one and the US subsidizes crop insurance. Like 60—65% of the premium is paid by the government for farmers. And it doesn't cover all crops. It mainly covers the big commercial crops, meaning row crops, and then you've got direct payments to farmers and you've got conservation programs. So essentially, land set aside. Pay farmers not to cultivate lands largely to protect wetlands and groundwater. That's a very strange way of allocating funding. And this is, again, as we've cut R&D by about 30%. So the challenge here is how do we reallocate towards R&D and allocate towards conservation programs that that really work. There's a bit of a mixed bag in how our our current conservation programs work. And how do we promote more cultivation that is sustainable and generates healthy food. We get relatively little subsidy for specialty crop producers. Fruits and vegetables, and nut producers get a trivial share of of what the federal government spends in the U.S. This isn't radically different from Europe, either. This is a high-income country problem, where we have these big subsidies that have been largely locked in, trapped on current producers using old technologies because they have influence.

Laura Reiley:

So it's about legislators, you know, having...

Chris Barrett:

Yeah.

Laura Reiley:

Being strongly urged to continue these practices.

Chris Barrett:

Exactly. And the great fear frankly, is that China follows in our path. China now has the largest farm subsidies of any country on Earth, which surprises lots of people because China is still a middle-income country. It's not rich by any standard. China also has by far the largest R&D budget.

Laura Reiley:

Aren't they investing a huge amount in, in, in —

Chris Barrett:

They are investing in everything. But how... How long can they sustain both R&D expenditures and farm subsidies? We used to do both. As we started to hit budget issues, legislatures caved in to provide the short-term payouts farmers insisted on, and they've kept cutting R&D, which winds up hurting us in the medium to long term. It hurts those farmers, especially those who can't adapt to climate change fast enough, but especially hurts consumers because it means that food prices keep inching up over time as supply growth can't keep pace with demand growth. China is going to face that same sort of fiscal challenge in the coming decade. I was just in China last month, and it's interesting how much they are paying attention to what do we do to support farmers.

Laura Reiley:

Well, they also don't have enough land to be food self-sufficient. So that's a huge thing for China. And Xi has been talking about that for several years, and we should all pay attention.

Chris Barrett:

And that's why they invest so heavily in R&D, because they recognize how vulnerable they are in the present global environment. If people just turn off the exports to them voluntarily, then that's a national security issue for the Chinese. So they are very concerned about R&D, but at some point they do have to maintain a fiscally sustainable budget. And will they really be able to —

Laura Reiley:

They haven't done it in real estate. So yeah, we'll we'll see what happens.

Chris Barrett:

But can they roll back the subsidies and maintain the R&D? Because if they don't, that's only going to aggravate this underlying structural problem of we are seeing a slowdown in the rate of, of what we economists call total factor productivity growth, roughly output per unit input. So are we getting more bang for our buck out of the natural resources we use. And that's been slowing steadily as R&D investments have have declined.

Laura Reiley:

All right. I want to... We've already gone — I could go on and on on this stuff. It's so fascinating to me. But I want to bring it back to consumers. So, you know, we've got a billion people malnourished, a billion people obese, maybe a little bit less because the GLP-1s, you know, that may be inching down. Yeah, right. But what should consumers be doing to eat healthfully but also kind of minimize the the cost? Or how can they be more thoughtful about the decisions that they make?

Chris Barrett:

It's a real challenge because we make so many food choices every day. It's just cognitive overload to try to think through every single choice. Let's see, they just asked me, do I want potato salad with that? Or macaroni salad with that, or green salad with that or something else? And I have to think through every one of those choices. Green salad. Do you put dressing on it? If so, what's in the dressing? Just the the number of component questions is so large it's relatively unlikely any of us, even the most well-informed consumer, is ever going to really process that information well. So the the crucial thing here is for us to work through regulatory mechanisms to get food prices, which we know we all respond to. You look at a menu and you're going to choose between two things that look equally attractive to you. You're going to choose the lower cost one more often than not. So get the costs aligned with the healthfulness. And that's again part of why it's so important to invest in specialty crops research. The relative cost of fruits and vegetables and nuts has gone up faster than the cost of all the ingredients you and I consume that aren't particularly healthy for us, and a lot of —

Laura Reiley:

Speak for yourself. I am a paragon of virtue.

Chris Barrett:

I'm I can tell, and I'm very impressed.

Laura Reiley:

No, I'm not. I'm totally not.

Chris Barrett:

But until we give the food manufacturers and the restaurants a profitable means of putting really healthy food in front of us, we're going to always struggle to try to convince consumers to be more virtuous than they're capable of. I mean, all of us are just going to struggle with that. So the trick is to help, help the, the middlemen between farmers.

Laura Reiley:

Help us help ourselves.

Chris Barrett:

Well, help them to do good while they do well. And a lot of that is just how do we set up the, the R&D so that they can get lower cost, healthy ingredients? How do we set up the regulatory guardrails so that they can't they can't ultra process things. They can't add in lots of stuff that is just likely bad for us, even though it might make the food taste a little better or look a little more appealing. It's really a matter of of getting the carrots and sticks in place for all those intermediaries, so that the cheaper diet is the healthier diet. And until we do that, we'll continue to battle the health epidemic that results from our dietary choices.

Laura Reiley:

All right. One final question. Do you have a book recommendation for folks who want to read a little bit more about, food pricing and the food system writ large?

Chris Barrett:

If you're interested in just the underlying economics of the entire food system writ large, there's a wonderful undergraduate textbook, which sounds intimidating, but it's very well written —

Laura Reiley:

This may be a hard sell, but like, okay, .

Chris Barrett:

But there is a great book by Will Masters, who's at Tufts University and Amelia Finaret who's at Allegheny College called Food Economics. And it will walk you through everything from labeling to Farm Bill programs to crop insurance to how people respond to prices. Talk about the affordability of diets. It's, it's really a terrific book that walks you through it all.

Laura Reiley:

It sounds fantastic. Yeah. All right. Well, Chris, thank you so much for coming in today. This has been wonderful. You've been listening to Research Matters from Cornell University. If you like this episode, subscribe wherever you get your podcasts and share it with a friend who loves facts as much as you do. Thanks for listening. And remember, when research meets purpose, we move closer to a healthier, fairer world.