by Professor Ross Kingwell – AEGIC Chief Economist
When you start citing a paper first published in 1941 and tell your colleagues why that paper still has relevance today, then don’t take umbrage if your colleagues start saying: Kingwell, you’re really showing your age!
What is this paper I’m spruiking? And why is it worth mentioning? It was penned by Merrill Bennett, an eminent agricultural economist, who served as the executive director of the Food Research Institute at Stanford University. His research paper published in 1941 contained findings that have subsequently become known as Bennett’s law (Bennett, 1941).
This law which was observed to apply across many countries is simply this: as incomes rise, people eat relatively fewer calorie-dense starchy staple foods and relatively more nutrient-dense meats, oils, sweeteners, fruits, and vegetables. So as people’s incomes rise, their diets transition away from grains and other staple products towards meat, dairy, fish, fresh produce and other non-staple food items.
Why is Bennett’s law relevant now? Well, it helps explain recent dietary trends observed in a world where the global pandemic of COVID-19 has stripped so many millions of people of gainful employment and income. The disappearance of storable food items like pasta, noodles, and flour from supermarket shelves is understandable in a world where the reliability of food supply chains is questioned. This behaviour is also understandable if you can longer go out to eat and must turn to making easily prepared home meals. But this behaviour of increased reliance on food staples is also explained by the impact or prospect of reduced incomes. This is Bennett’s law at work; or at least its application in the rare case of widespread falls in household incomes rather than the more usual case of gradual increases in household incomes.
When household incomes shrink then people’s diets transition away from discretionary non-staple food items and expensive meats and dairy products towards the calorie-dense staples of cereals such as rice, noodles, pastas and bread.
In early June McKinsey released the findings of their global survey of consumers. More than half of consumers in most countries believed their finances would continue to be impacted for another four or more months. Consumers globally were experiencing a decrease in their incomes, though the depth of income loss among countries varied. Decreases in income were being most felt in Brazil, South Africa, and India.
Of all the categories of consumer spending across the 42 countries in the survey, spending on groceries and household supplies were the only categories to show consistent growth in expenditure. Most other categories displayed reductions in expenditure.
The return to consumption of staples, forced by reductions in income is perversely favourable news for producers and suppliers of human consumption grains like rice and wheat. However, in countries where grains are grown for energy or for feeding to animals for meat production, the weakened demand for fuel and expensive grain-fed meat, in particular, does not augur well for the producers and suppliers of those grains in the short to medium term.
We live in interesting times where abrupt changes in incomes due to a global pandemic, or even gradual changes in household diets, can have large impacts on the demand for grain. An example of the latter is foreseeable in countries where red and white meats both depend on feed grains. A gradual swing away from red meat towards white meat could hugely affect the demand for feed grains due to the much higher feed conversion efficiency associated with white meat production.