Monday, January 4, 2010

What goes into chicken

Los Angeles Times editorial "What goes into chicken" (January 4th, 2010) succumbs to a knee-jerk anti-market reaction in analyzing the practice of injecting salt water and other broth-like substances into chicken going to market. The Times's scorn is evident:

According to Kenneth McMillin, a professor of meat science at Louisiana State University, plumping of some kind or another has been around a long time, but has gained popularity in the last three or four years. When growers bred chickens for higher meat production -- more muscle, less fat -- they also brought a dry, less tasty bird into the market. Overcooked, it could be nearly inedible. Besides, chicken that's nearly a fifth water is much cheaper to produce. That's how we've ended up buying chicken with enhanced breasts (and everything else).

The selling of processed chicken to supermarkets is a competitive industry. We do not expect a deliberate lowering of quality. Any customer-harming "tricks" that the LA Times alludes to are to quickly be competed out of practice, both within the chicken-producing industry, which provides substitutes, as well as the meat and food-product industry, broader substitute goods.

Indeed, Corrections conjectures that we can, using only data on change in supply and change in price, help interpret what has happened in the chicken market.  We first display the four possibilities of price and quantity movement in the market (click to enlarge). It is important to note that all quantities and prices are in real chicken terms.  Therefore, the could be read as "1 lb. of real chicken", e.g. the total real chicken an individual buys for a real price, which could be read as "dollars to buy 1 lb. of real chicken".  This will be addressed below.

This, in turn, gives us four possible graphs (really eight, as the diagram explains).  We draw four without loss of generality when taken concurrently with the subsequent table (click to enlarge).

We interpret each of these four possibilities economically using partial identification of linear demand curves in the table below (click to enlarge).  Note that a delta followed by a letter should be read "percent change in."  So, for example, delta Q would be "percent change in quantity demanded."

The last table may be somewhat opaque for non-economists, and the interpretations of Corrections for the above table's four possible outcomes is displayed in the table below (click to enlarge):

Corrections conjectures that rather than casting acrimonious aspersions on business, the Los Angeles Times would do better by at least giving a cursory glance at the facts.  Corrections recognizes that arguments based on  time series alone are flawed.  A more careful analysis would include the prices and quantities of substitutes, as well as GDP (income) growth.  Nonetheless, a time-series alone can also inform:

According to the Consumer Price Index, since November 1999 to November 2009, unadjusted, processed poultry prices have increased by 18%.  Inflation has been about 30% over the same time period.  This means real poultry prices have declined.  Similar numbers can be obtained for 2007, (12% and 29%, respectively).  Furthermore, from the USDA Food Availability Data shows nominal per capita chicken consumption to have grown by 31% from 1997 to 2007, the most recent data.

It is left to understand these numbers in real terms.  We are interested in the change in plumping, not in the fact that plumping occurs.  Assuming that plumping is around 18% (as the article suggests),  and that the majority of this plumping has been enacted only recently, then we conclude that we have observed real prices decreasing and real quantity demanded increasing.  More explicitly, real chicken per chicken has fallen by up to 22% (ie: plumping has increased by as much as 18%), but the number of chickens bought has increased by more than that (by 31%), and price has decreased.  If plumping has increased by even less than 18% over the period 1997-2007 (which seems quite likely), we conclude that per capita chicken consumption has increased, while real prices have decreased.

From the above table (decrease in real price, increase in real quantity) we can conclude that we see an ambiguous quality change, while making chicken cheaper to make.  Noting, beyond the above table, that real prices have not fallen a great deal, while quantity has risen significantly, we could conclude that plumping has likely caused an increase in demand for real chicken, while certainly making chicken cheaper to make (prices move a small amount downward, while quantity moves more dramatically).  The claim of the L.A. Times that quality has been reduced remains without evidence at best, and contradicted by cursory analysis at worst.  The claim that chicken is cheaper to make is confirmed.

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