The Direct Economic Effects of a Policy to Provide Government-Subsidized Price Discounts for the Purchase of Fruits and Vegetables by Food Stamp Recipients
Research Center: Department of Nutrition at the University of California, Davis
Investigator: Jetter, Karen M.
Institution: University of California, Davis
Karen M. Jetter
University of California Agricultural Issues Center
One Shields Avenue
Davis, CA 95616
The purpose of this study is to evaluate the direct benefits and costs to consumers and producers from changes in prices, consumption, and production of a policy to offer government price discounts on fresh fruits and vegetables to food stamp recipients. Increased consumption of fruits and vegetables has been linked to a decrease in dietary-related chronic diseases, such as heart disease, diabetes, and some cancers. Low socioeconomic status (SES) is strongly associated with higher rates of obesity and high rates of the leading causes of illness and death. Diet may play an important mediating role in explaining socioeconomic disparities in health status. Consequently, developing cost-effective policies that lead to higher consumption of fruits and vegetables may have a significant impact on the incidence of chronic disease among persistent food stamp recipients.
Targeted assistance has been shown to be more efficient at bringing about dietary changes than more general assistance programs. Therefore, a targeted food assistance program, such as price discounts on fruits and vegetables may provide substantial benefits to low-income consumers. Providing a price discount of 25 percent also directly benefits food stamp consumers through lowering the prices that they pay for fruits and vegetables. However, a price discount may cause equilibrium market prices to rise for fruits and vegetables, benefiting growers but making other consumers worse off.
The analysis uses a model of the U.S. fruit and vegetable industry to determine changes in market prices and quantities in response to a shock to the system, such as a price discount for one group of consumers. The model lays out a series of demand and supply equations in log-differential form. The demand side of the model contains equations for four different consumer groupings: fruit and vegetable home consumption by food stamp recipients, away from home consumption by food stamp recipients, consumption by other low-income consumers who are below 130 percent of the poverty level but not on food stamps, and all other higher income consumers. Consumption by food stamp recipients is done separately for food consumed at home as it is assumed that consumers would most likely use food stamps to purchase food from grocery stores for home consumption.
The supply side of the model contains equations for net U.S. trade (U.S. imports minus U.S. exports), market quantity supplied from the agricultural marketing sector (processors and handlers), and production supplied to the marketing sector from growers in California and the rest of the United States (RUS). The result is a model that links supply and demand in the final market to supply and demand in the marketing sector and ultimately to growers’ production decisions. The solution to the system of equations is the percentage change in retail and grower prices, final quantity demanded by each consumer group in the study, imports and exports, and production by growers in each region. The percentage changes in prices were used to estimate the changes in economic surplus for growers in California and the RUS, marketing sector, consumers, and the taxpayer cost of the program. The model was estimated for 38 commodities. The commodities included in the study were those for which a complete data set was available.
Current consumption of all fruits and vegetables is 18.1 cups for food stamp recipients, 16.2 cups for people living below 1.3 of the poverty ratio but who are not receiving food stamps, and 18.5 cups for people living above 1.3 of the poverty ratio. While the consumption of fruits and vegetables is similar between food stamp and higher income consumers, both groups are falling below the 24.5 minimum recommended servings for adults in the 2005 Dietary Guidelines for Americans.
Current consumption of fruits and vegetables for the 38 commodities examined in this study is 13.71 cups for food stamp consumers, 13.35 cups for other low-income consumers, and 15.25 cups for higher income consumers. The price discount will increase home consumption of fruits and vegetables by food stamp recipients by 8.15 percent to 9.46 cups but will decrease away-from-home consumption by 0.034 percent due to higher market prices. The net result is an increase in total consumption of fruits and vegetables by 5.19 percent. Because other low-income consumers and higher income consumers are affected by higher market prices, their consumption falls slightly by about 0.038 percent. The price discount increases consumer surplus for food stamp recipients but lowers it for the other two groups.
The 5.19-percent increase in fruit and vegetable consumption by food stamp recipients will increase Food Stamp Program costs by $681 million. Producer surplus increases for California growers by $23 million, for growers in the RUS by $26 million, and for suppliers of marketing inputs by $13 million. These benefits notably exclude the benefits of increased health status, which is the subject of future research.
Direct inquiries about this study to the Project Contact listed above.