Free Croissants for Everyone!

A couple of weeks ago at the bowling alley, my shirt did not cover the top of a long scar from my chest surgery.  “What’s that from?” someone from the other team asked.

“Autopsy scar,” I answered.

“Really?”

“Yes.  I’m the first living heart donor.”  I replied.

The strangest part of the story is that I think the guy believed me.  He's not alone, from the mail I get, more than a few of my readers fully believe that I’m heartless.  And after today, that number is likely to increase because I’m about to dump a lot of cold water on something we all wish was true.  Who doesn’t want to feed the hungry?

In 2016, France passed a law that made it illegal for any grocery store larger than 4000 square feet to throw away food that was reaching the end of its salable lifespan.  Instead of simply tossing this still useful and nutritious food, it would go to a charitable non-profit organization that would make sure that the food reached those in need.  Not only would this help reduce a ridiculous amount of food waste but would help clean up the environment since decomposing food releases carbon into the atmosphere.

Who could possibly be against that?  Well, me.  This seemingly kindhearted proposal costs more than it is worth.

Before going into why I think the program is misguided, I should point out that the program has two goals:  to feed the hungry and to eliminate food waste and its negative effects on the environment.  I don’t know anything about food waste, but since the French government says only 5% of the nation’s food waste comes from grocery stores, it doesn’t seem like this program will do much to solve the problem.  I will, however, comment about the program’s goal of feeding the hungry.

This is a misguided and economically unsound idea that, while it will feed some hungry people, will do so at an exaggerated price, creating relative shortages and higher prices for all consumers, which results in lower profits for both farmers and retail establishments while increasing the cost of government.  It would be far cheaper for the government simply to buy the food and give it away.  The program is inflationary, and it creates what economists call “dead weight loss”, meaning that resources could be more efficiently allocated.

That sounds unreasonably harsh, so let me explain.

First, this will lead to a higher cost for the grocery store.  No matter how simple the government program is made for the stores, it will be more expensive than simply throwing the food away.  Stores will not be able to sell remaindered produce to those who currently use the waste to feed farm animals or to make compost.  And while the people may be poor, they were buying food before the program was implemented and those sales, as small as they might have been, would have been sales that will be lost for the store.  

In addition, implementing the law requires supermarkets to establish mechanisms for the proper sorting, storage, and transport of unsold food.  While these measures contribute to the overall goal of reducing food waste, they also incur additional operational costs for businesses.

As profit from selling produce diminishes, stores will attempt to minimize their losses by buying less produce, which results in less unsold surplus.  Farmers faced with a decline in sales will produce less.  Since governments raise revenue through taxing sales, a decline in sales will reduce tax revenue even as the cost of enforcing the new program will increase government cost.  

It might be easier to visualize how this works if we consider the extra cost imposed upon the retail organizations as a sales tax.  Since the sales tax increases the cost of an item, it reduces the amount sought by consumers, moving the supply line left on the graph (right).  Since consumer demand (red line) stays constant, the intersection of the demand line with the new supply line shows that the price goes from P1 to P2 while the quantity sold drops from Q1 to Q2.  

There are two general rules about any government program:  1.  The program expands over time, and in only the seven years this program has been in place the punitive fines to stores in violation of the program have increased substantially.  2.  Anything you tax decreases while anything you subsidize increases.  Already in France, the number of people receiving the free food has increased.  Since more people are obviously in need of food assistance, there are calls to expand the program.

The bottom line for the program is simple.  The cost of “free” food has been shifted to food producers, retailers, and consumers.  The French government spends money regulating and enforcing the transfer of food, financed by taxpayers.  The availability of “free” food entices more people to use the program, and the increased number of people on the program serves to validate not only the initial need for the program but justifies the program’s expansion.

It would have been cheaper for the French people if the government had directly subsidized food programs for the poor.   This reminds me of the tariffs imposed a few years ago by the government to save jobs in manufacturing.  Ten years later, the Congressional Budget Office released data that showed that several thousand jobs that had an average payroll of $65,000 a year were saved at an overall cost of only $200,000 each.  It is a wonder the program wasn’t immediately expanded.

Now, seven years after the implementation of the French law, what has been the result?  If you search the web, all the charitable organizations love the new regulations—as do the climate activist groups.  If you do a Google search, the top dozen responding sites have names like FoodNOW.com and ZeroWasteEurope.eu and, predictably, these organizations think the new regulations are fantastic.  There are no organizations on the web representing the tired French economists who are weary of being called heartless for trying to explain macroeconomics. 

Currently, France is pressuring the European Union to adopt the law, and it is only a matter of time before California, Oregon, or one of the other liberal states that substitute ‘caring’ for ‘thinking’ adopts a similar law.