Friday, July 03, 2015

The Use of Knowledge in (a Big Data) Society

I recently ran across a very interesting article in Forbes titled "Big Data vs. Hayek" that made some observations about how companies were using big data in ways that might at first seem anti-hayekian. For example:

“They found the centralized algorithms were outperforming decentralized local manager knowledge consistently, and profits went up….It’s not just apartment owners either. So-called revenue management software is also widely used by airlines and hotels….It’s also notable that Uber uses an algorithm to set prices rather than letting drivers set them”

“What’s interesting about such centralized, algorithmic approach to price setting is how un-Hayekian it is. In particular, I’m thinking of Hayek’s essay “The Use of Knowledge in Society” where he makes the case for the use of decentralized markets to utilized widely dispersed information to make choices.”


I think of course, yes corporations do tend to act and behave in ways that are anti-hayekian. (see this EconTalk podcast Coase, externalities, the firm, and the state of economics):

"If capitalism and markets and prices, the Hayekian system of communicating information via price signals, if it works so well, why do firms exist? Because firms are almost by definition top down rather than bottom up. They use command and control rather than purchases within the firm, although there are exceptions to that. Some firms do use price signals for their decision-making inside the firm. But many firms do not. Their decisions are made not by prices but by fiat, by decisions on the top. "

Firms exist in general because they seem to find that the 'costs' of using the price system to allocate resources internally can tend to outweigh the 'benefits.' There is a lot more to Coase's theory of the firm, but given this basic premise it is not surprising that in many cases firms will choose to use a more centralized approach than a decentralized one, and in certain cases Big Data, the internet of things (IoT), and modern computing power and analytics can toy with those tradeoffs at the margin. So in some cases we might find big data incenting more centralization and less in others. The Forbes article actually makes this point in the conclusion:

"Instead, these marketplaces provide ratings and other informational systems that help buyers and sellers overcome information asymmetries, and are helping markets function better and even more dispersed than before..."

It could be the case that when it comes to internally facing resource allocation decisions, certain practices within firms seem to have more of a decentralizing flavor, while big data is forcing the invisible hand on the customer facing decisions by allowing firms more than ever to leverage very granular bits of data related to each customer's particular knowledge of circumstances, time, and place. The internet of things is one example. As I have mentioned before, in the agriculture sector, local knowledge can be key in big data applications (See Big Data: Causality and Local Expertise are Key in Agronomic Applications).

Dan Frieberg points out some very important things to think about when it comes to using agronomic data in a Corn and Soybean Digest article "Data Decisions: Meaningful data analysis involves agronomic common sense, local expertise." 

The following quote from the article is telling:

"big data analytics is not the crystal ball that removes local context. Rather, the power of big data analytics is handing the crystal ball to advisors that have local context"

Also, when it comes to product line offerings in terms of seed choices and hybrid seed technology, big data and analytics is forcing companies to offer more options tied to local knowledge (see What does the farmer say...about seed choices? (Channeling Hayek))

"The choice of what crops we should grow, how they should be produced in terms of management practices and technology, and ultimately the variety of foods we choose to consume is an example of what economists refer to as the knowledge problem. While it might be possible to patent a given trait or hybrid, no one company can get too firm a grasp on this knowledge problem, regardless of their market share in the seed industry today. (not to mention, no government agency would have sufficient knowledge either). Given the vast array of considerations in seed choice and management practices, there is always going to be an incentive for some supplier to cater to the unique needs of individual producers, as advances in genomics and technology drive production not farm by farm or acre by acre but inch by inch."

I agree 100% with the conclusion of the Forbes article:

"we should not get ahead of ourselves in declaring the death of decentralized knowledge and decision-making."

Related:
Farm Link and the Rise of Data Science in Agriculture
 Big Ag Meets Big Data (Part 1 & Part 2)

Thursday, June 25, 2015

Jurassic World: Mutant dinosaurs more likely related to technologies used in organic & conventional farming?


Jayson Lusk has an interesting take on Jurassic World: http://jaysonlusk.com/blog/2015/6/21/jurassic-world

"In many ways the new animal they created reminds me much more of what might happen from mutagenesis (a technique widely practice in plant breeding for many decades and is NOT regulated as biotechnology, in which seeds are exposed to radiation or chemicals to cause mutations).  The reason I say that is  mutagenesis could cause several possible (and unexpected) genetic changes, which is exactly what happened with the dinosaur.  By contrast,  transgenic (or intragenic) biotechnology typically involves moving one gene from one species (or within a species) to another, in cases where it is well understood what the particular gene does."

I have not seen the movie, but from what he describes in his full post, I am on the same page. He mentions there is some language in the movie that implies that these dinosaurs may have been developed using techniques related to plant or animal biotechnology, or extensions of practices we might be using today in modern agriculture. I would guess then it is based on some sort of embryo transfer and gene insertions related to frogs and some bit of dinosaur DNA based on the post.

But don't misinterpret the title of this post. I am not saying that embryo transfer/cloning/recombinant DNA techniques (or whatever are actually used in the movie I have not seen) are used in organic farming! But if we want to distinguish between technologies used in both organic and biotech crops, and ask among these, which are most likely to produce unexpected 'mutant' results or consequences, the evidence clearly points to organic, or conventional non-GMO methods.

In fact, in conventional and organic crop improvement programs, as Jayson mentions, chemicals and radiation are used specifically to create 'mutant' crops. But the hope is for 'superhero' type mutants not 'super villians.' The only problem is, research shows that these methods are very imprecise and impact thousands of genes in unknown and unpredictable ways compared to transgenic/gmo based approaches!

We also know that based on things like microarray analysis and other research, that even traditional plant breeding introduces greater and unpredictable genomic disruptions than transgenic techniques.

It has always been very interesting to me that despite these differences, there are no calls for labeling conventional or organic crops that use these techniques, but such a strong emphasis on the much more controlled and precise genetic changes brought about by GMOs! (interesting but not surprising for a number of reasons we could get into like rent seeking etc.) And, don't start talking about 'fat' tails or the precautionary principle etc. because fat tail  and precautionary principle arguments would equally apply to organic and conventional technologies if not be even more relevant.

If it comes down to what is more 'natural' we know that research has also shown that the kinds of genetic modifications used in modern agriculture based on specific gene insertions into plants has occurred naturally over time with positive benefits! Just like today's roundup resistant crops were produced using agrobacterium to insert the resistant genes into soybeans, and then the best hybrids containing the gene were selected by plant breeders and sold to farmers, our ancient ancestors selected sweet potatoes containing improved traits conferred by gene transfers from Agrobacterium and they didn't even need a lab to do it!

 See also:

AgWeb:MICROARRAY ANALYSIS: MORE ON BIOTECH SAFETY

For more references on plant breeding and crop improvement technologies and genomic disruptions see: Biotechnology and Genetic Disruptions

Fat Tails, the Precautionary Principle, and GMOs

Additional References:

The genome of cultivated sweet potato contains Agrobacterium
T-DNAs with expressed genes: An example of a naturally transgenic food crop
PNAS|May 5, 2015|vol. 112|no. 1

Batista R and others (2008). Microarray analyses reveal that plant mutagenesis may induce more transcriptomic changes than transgene insertion. Proceedings of the National Academy of Sciences of the United States of America 105(9): 3640–3645

Baudo MM, Lyons R, Powers S, Pastori GM, Edwards KJ, Holdsworth MJ, Shewry PR. (2006). Transgenesis has less impact on the transcriptome of wheat grain than conventional breeding. Plant Biotechnol J. 2006 Jul;4(4):369-80

Wednesday, June 17, 2015

AgriGenomics - Genomic and Biochemical Mechanisms Associated with Drought Tolerance

"As Dr. Nam-Chon Paek of Seoul National University in Korea stated, 'We all expect that drought will be the major challenge for crop production in the near future. Understanding drought-responsive signaling and the molecular and biochemical mechanisms of drought tolerance in model plants such as Arabidopsis and rice provide new insight into how to develop drought-tolerant crop plants through conventional breeding or biotechnological approaches."

From:
http://www.technologynetworks.com/mobile/news.aspx?id=179018&sid=40

Tuesday, April 21, 2015

What's the big deal about farm subsidies? Four big questions about big ag, subsidies, food, and GMOs

There are a lot of misperceptions about farm subsidies that tend to surface in the media and in political discussions coming from commentators on both the right and the left. Below are four questions with answers that address issues related to farm subsidies that I have found to be most often misunderstood.

1) Do farm subsidies encourage farmers to plant biotech or GMO seeds?

There are no specific subsidies that target biotech crops. It is true in general that many corn and soybean growers receive subsidies related to their crops, and they are largely biotech, but a grower receives the same subsidy for a conventional vs. organic vs. biotech planted acre of field corn. Where the climate permits, most growers rotate corn, wheat, and soybeans, and while wheat crops qualify for many of the same subsidies associated with corn and soy, there are no biotech/GMO wheat crops planted in the US today. What would happen if we eliminated all farm subsidies? Because of the relative production benefits and risk reduction associated with planting biotech crops, elimination of subsidies might make these crops more attractive and increase their planting. Because we are largely subsidizing risk, removal of subsidies would lead the market to more efficiently price risk, and biotech traits would play a large role.

2) If subsidies drive the production of commodities and most of these are GMO,  aren’t we indirectly subsidizing GMOs?

The overall impact of completely eliminating U.S. commodity protection and subsidies at the commodity level in terms of total acres produced and commodity prices would be minimal, as reported by researchers at UC Davis. As their projections show, from a production standpoint, the impact is very small for the major biotech crops including corn and soybeans. If anything, the supply of wheat is impacted the greatest among row crop commodities, and it is not a biotech crop. Note that during the 2012 Midwest drought the impact on production was much greater than the impact of farm subsidies.  Even with the drastic drop in crop prices that have followed as the drought eased during the last two years (prices for corn have fallen almost 50% from the peak in 2012 to current futures prices) we have continued to have record acres planted.  And during the immediate post drought period, we did not see these record commodity prices translate into high retail prices or reduced consumption of processed foods. Extreme prices did not drastically alter the behavior on either the production or consumption side of the equation. The ‘positive’ impacts on fruit and vegetable production is modest at best and given the price elasticity discussion in the sections that follow, likely would not impact consumer choices at the retail level.




So why do we plant so much corn and soybeans? As stated in Alston et al (2010):

“Farm commodities have indeed become much more abundant and cheaper over the past 50 years in the world as a whole as well as in the United States, but not because of subsidies.This abundance mainly reflects the effects of technological innovations and increases in farm productivity, which has alleviated hunger and poverty throughout the world while at the same time reducing pressure on the world’s natural resources.”

3) Do farm subsidies make unhealthy foods cheaper and contribute to obesity?


Because subsidies have such a small impact on the overall supply of commodities, and wholesale prices (as illustrated above), the consequences of removing subsidies on prices at the retail level would be too small to have any meaningful impact on consumer choices. As stated in Alston, et al (2010):

“U.S. farm subsidies have had generally modest and mixed effects on prices and quantities of farm commodities, with negligible effects on the prices paid by consumers for food and thus negligible influence on dietary patterns and obesity. This result is consistent with some previous work by economists on the issue”


The implied price elasticity for retail food calculated in Alston (2007) is .08%. So a 1% increase in the retail price of food reduces consumption by .08% If we had another drought, causing corn prices to increase 50%, and even if that translated into a retail price increase of corn based food products by 50%, we would see a reduction in consumption of about 4%. More specifically, Alston (2010) found:

“Eliminating U.S. grain subsidies alone would lead to a small decrease in annual per capita caloric consumption—simulated to be 977 calories per adult per year, which would imply a 0.16% per year reduction in average body weight assuming 3,500 calories per pound. In contrast, removing all farm subsidies, including those provided indirectly by trade barriers, would lead to an increase in annual per capita consumption in the range of 200 to 1,900 calories—equivalent to an increase in body weight of 0.03% to 0.30%.”

4) Do farm subsidies largely prop up wealthy farmers vs. helping small farmers thrive in a volatile, competitive global and corporate dominated marketplace?

It's true that many subsidies are tied to commodity production. Those that grow more commodities (i.e. larger farms) will get more money from the government. As a result larger producers take in a larger share of all subsidies (especially those related to commodities). However, subsidies account for a much smaller percentage of income for large producers, and make up a much larger percentage of total income for medium or small producers.


As the chart above (from the USDA) shows, in 2008 farms earning less than $250,000 /yr recieved a much greater percentage of their income in the form of government payments, while subsidies only accounted for 4% of income for producers with the largest incomes. The chart below indicates that this relationship seems to hold across years for the last decade.



In general, a lot of perceptions about farm subsidies are incorrect. They do not favor large farms or biotechnology, and they do not encourage the consumption of unhealthy foods or impact obesity.


Further Reading and References:

Reduced costs and risk, chemical application, and production and environmental benefits:

Journal of Agribusiness 19,1(Spring 2001):51S67 © 2001 Agricultural Economics Association of Georgia
Biotechnology in Agriculture: Implications for Farm-Level Risk Management
Shiva S. Makki, Agapi Somwaru, and Joy Harwood

Genetically Engineered Crops: Has Adoption Reduced Pesticide Use? Agricultural Outlook ERS/USDA Aug 2000

GM crops: global socio-economic and environmental impacts 1996- 2007. Brookes & Barfoot PG Economics reportOctober 2010:Vol. 330. no. 6001, pp. 189 - 190DOI: 10.1126/science.1196864

Greenhouse gas mitigation by agricultural intensification Jennifer A. Burneya,Steven J. Davisc, and David B. Lobella.PNAS  June 29, 2010   vol. 107  no. 26  12052-12057


Impact of Subsidies on Commodity Production, Food Prices, and Obesity

Farm Subsidies and Obesity in the United States
Julian M. Alston, Daniel A. Sumner, and Stephen A. Vosti
Agricultural Resource Economics Update
V. 11 no. Nov/Dec 007
U.C. Davis

Choices. 3rd Quarter 2010 | 25(3)
FARM POLICY AND OBESITY IN THE UNITED STATES
Julian M. Alston, Bradley J. Rickard, and Abigail M. Okrent
JEL Classifications: I18, Q18

USDA Sources on Subsidies by Farm Type

USDA Report- Government Payments and the Farm Sector: Who Benefits and How Much?
http://www.ers.usda.gov/Briefing/FarmPolicy/gov-pay.htm

USDA Report-Farm Income and Costs: Farms Receiving Government Payments
http://www.ers.usda.gov/Briefing/FarmIncome/govtpaybyfarmtype.htm