Paper, plastic, neither, both? Assessing a grocery-bag fee in Minneapolis

Target bags
REUTERS/Brendan McDermid
An increase in the price of grocery bags will probably encourage people to use fewer of them.

A recent article in City Pages reported that Minneapolis City Council Member Cam Gordon is “redoubling his efforts on an old, thorny issue: getting Minneapolis to use fewer plastic and paper bags.” Specifically, Gordon proposes a 5-cent fee on plastic and paper grocery bags to encourage Minneapolis shoppers to bring their own bags or at least use fewer store-provided bags.

The piece went on to state that some critics believe “shoppers would clear out of Minneapolis and get their groceries in the suburbs, where they could double-bag everything without losing a dime.” Would urban shoppers really head to the suburbs for their comestibles?

When I first read this story, I thought that it would make a great problem for my introductory Economics course. The effects of the fee on the market for grocery bags depend on the size of the fee and the price elasticity of demand for grocery bags. Whoa! What does that mean?  Let me explain these concepts so we can have a better discussion about the pros and cons of a Minneapolis grocery bag fee.

Externalities, bag fees, and the elasticity of demand

Externalities are activities that impose costs on or generate benefits for people not directly involved in those activities. That is, externalities are the side effects of producing and consuming goods.

Shoppers using single-use grocery bags can generate negative externalities through, for example, increased pollution and more paper in local waste streams. Producers do not factor these costs into their sales prices and thus offer their product at lower price than they otherwise would, and so grocers purchase more bags (and therefore supply more for their customers) than they would if the bags cost more.

One way to deal with this externality is to impose a compensatory tax on the market for single-use bags. This has two beneficial effects. First, the fee raises the price of a bag and thus reduces the number of them consumers will use, thereby reducing the negative side effects (like pollution). Second, the revenue collected can provide funds for garbage systems and for general clean up, again, to deal with the grocery bags.

An increase in the price of grocery bags will probably encourage people to use fewer of them. However, there are two ways this could happen. One way, envisioned by bag-fee proponents, is that customers will reduce their use of paper and plastic bags, perhaps by more efficiently packing their groceries or bringing their own grocery bags. The second way is to purchase fewer items in grocery stores where the fee is collected and more items where there is no fee.

How big will the second effect be? This depends on how sensitive a shopper’s spending is to the price of a grocery bag. That’s what economists call the price elasticity of demand. Thus, how many shoppers will flee Minneapolis for the suburbs will depend on how large the fee is and how sensitive they are to an increase in the price of a grocery bag.

Effects of bag fees

Empirical research on the price elasticity of demand for grocery bags indicates that shoppers are quite sensitive to a bag fee with reductions in bag usage between 60 and 90 percent in Ireland, Denmark, and South Africa. My hunch is that despite easy access to suburban grocers a Minneapolis bag fee would mostly reduce bag usage through the substitution of reusable bags for plastic and paper bags.

However, this ignores the fact that grocery bags have other uses. Rebecca L. Taylor, an economist at the University of Sydney, analyzed the effects of bag fees and bans in California from 2007 to 2015. Focusing on plastic bags, she found that these policies did reduce the number of plastic bags distributed by grocery stores. But, she also noted that “banning of plastic carryout bags leads to significant increases in the sale of trash bags, and in particular small and medium trash bags. When converted into pounds of plastic, 28.5% of the plastic reduction from DCB policies is lost due to consumption shifting towards unregulated plastic bags.” In other words, consumers are accustomed to using cheap, single-use bags for garbage and dog poop, and so if they don’t get them with their groceries, consumers will simply buy a box of plastic bags.

Thus, a bag fee will probably reduce the use of plastic and paper bags in the stores by shifting consumers towards reusable grocery bags, but then increase sales of plastic trash bags. There simply isn’t an easy fix to this 21st century problem. We need to shift away from cheap, one-time use bags — but how?  What is the best mix of fees and other policies?

I didn’t put this problem on my students’ final exam. However, the Minneapolis City Council will need to study up and consider carefully all the effects of a bag fee before passing Councilman Gordon’s proposal.

Susan E. Riley contributed to this article.

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Comments (15)

  1. Submitted by David Lundeen on 05/16/2019 - 11:01 am.

    Paper and plastic bags should be banned from grocery stores. If we can’t do simple things to reduce our impact on climate change, and unnecessary resource destruction, how can we do the hard things?

  2. Submitted by Gerald Abrahamson on 05/16/2019 - 11:38 am.

    The purpose of a grocery bag is to enable the customer to carry his/her groceries from the store to the residence (house/condo/apt/wherever) at a reasonable (low) cost. Currently, the cost of bags is buried in the price paid for groceries. If no more bags, then the price of groceries must fall (or the store makes extra profit because they cut that cost without lowering prices). Ever shop at Costco/Sam’s Club? No bags whatsoever. And lower prices–but there IS a “membership fee” for each group. So, the question is NOT “can it be done”. The question is “Which model will work for the general grocery store?” Higher prices WITHOUT a membership fee? Or lower prices PLUS a membership fee?

  3. Submitted by Ray Schoch on 05/16/2019 - 02:44 pm.

    I paid $40 for 4 reusable plastic-weave-fabric bags when I moved here nearly a decade ago. For a couple weeks, I had trouble remembering to take them with me into the store, which was annoying, but by now, it’s a habit ingrained by hundreds of repetitions, and I use them for every shopping trip, whether to Cub, Target, or whatever. They continue to serve me well, have occasionally been used for purposes other than bringing food home from the grocery store, and appear to be usable for another decade. Given the high initial cost, they’re probably not cost-effective, but I’m not adding to the Hennepin County landfill, or littering a streamside landscape, so overall, they seem worth it to me.

    • Submitted by John Evans on 05/18/2019 - 05:24 pm.

      Ten bucks per bag? I’m glad they serve you well! But seriously, we can do it much more cheaply.

      Ikea charges something like $1.50 for a real workhorse of a blue shopping bag (like about an 80 lb capacity). Trader Joe’s and Whole Foods and some other stores sell low-priced, durable shopping bags, but their branding is obtrusive enough to be a little (or a lot) off-putting.

      Next time I travel to a large city, I’ll try to remember to look for interesting, low-priced durable shopping bags in Chinatown. You can keep them in the car. A net bag may even fit in your pocket.

      • Submitted by richard owens on 05/21/2019 - 05:08 pm.

        Mayo Clinic, Doctors without borders, TPT, PBS, all of these will give you a nice tote bag for a donation teaser.

        I forgot mine in the car a few times, but now I’m habitual to take my own bags into the store. I even have multiple bags for different kinds of shopping.

        If I can do it anyone can.

  4. Submitted by lisa miller on 05/16/2019 - 04:17 pm.

    California has done it and is doing just fine. Get over it. Sorry, but the effects on the environment outweigh people’s whining about price/effects and inconvenience. Wasn’t that long ago, we all had paper bags and aluminum cans. Unless of course you would like all those trashed plastic items in a landfill in your neighborhood.

  5. Submitted by Paul Yochim on 05/16/2019 - 07:03 pm.

    The grocery bag fee paid to the city is not going to discourage use of grocery bags, just like cigarette and alcohol taxes do nothing to discourage use. It’s to generate hidden revenues for the city. And it won’t save the planet, either.

    • Submitted by David Lundeen on 05/17/2019 - 11:49 am.

      If the true cost of plastic was factored into the fee, there would be a significant impact. It’s a lot of money that municipalities and cities spend on clean up on single use plastics. A reasonable fee would be $5 per bag.

    • Submitted by John Evans on 05/18/2019 - 05:06 pm.

      Yes, cigarette and alcohol taxes do reduce consumption, and they do so by measurable amounts.

  6. Submitted by Daniel Burbank on 05/16/2019 - 10:17 pm.

    Great article! Nothing is all that simple. In our Minneapolis household, with a dog, we use a lot of plastic bags saved from newspaper delivery and buying stuff from, e.g., (suburban) Home Depot, for dog poop pickup and disposal. The plastic vegetable bags from Cub are too thin to be reusable for any function. As the primary grocery shopper in our household, I try to use our collection of cloth grocery bags, not so much out of a sense of responsibility for the environment, but primarily because they are much stronger than the flimsy paper or plastic bags available at the store. Maybe a city effort to reduce plastic bag waste should be more of a carrot than a stick, maytbe subsidizing the reuse of cloth bake.

  7. Submitted by Elsa Mack on 05/17/2019 - 09:17 am.

    The co-ops in Minneapolis have been charging 5 cents a bag for a while now (and also giving a 10 cent discount if you bring your own bag). It might be helpful to ask them how this has affected their business and how many bags their customers use.

    My guess is not much, partly because of the kind of customers that co-ops have, but also because I can’t imagine driving out to the suburbs just to avoid paying 5 cents a bag.

    Personally I keep a small tote bag in my purse so I always have a bag on me, and then I have some bigger canvas bags for grocery runs. It’s not that difficult and I prefer it.

  8. Submitted by Connie Sullivan on 05/17/2019 - 09:23 am.

    About five years ago I saw a movie about a guy in California who became a single dad. One scene, not important to the plot, showed him unloading some six or seven cloth bags filled with groceries from the back of his car. There was no emphasis at all on that cloth-bag action; he just did it as we watched.

    It stuck with me. A man. Using a motley collection of different cloth bags for his supermarket trip. As a matter of course, not an eye batted.

    We can do that. I do it now: Lund’s/Byerley’s makes a great bag, and I have cloth bags from some charities and businesses, too (World Wildlife Fund; the New Yorker, etc.). So I am using cloth bags when I shop at Target or the Home Depot or Michael’s and wherever.

    This is not hard!

    I love Professor Johnston’s explanations of he economics of such a decision. But just as I learned not to use black plastic bags for leaves and yard waste when Minneapolis outlawed their use and made us go to compostable paper, and just as I learned to buy those fairly expensive little organics-composting plastic bags that biodegrade, I can learn to avoid all use of the bad plastics. Not hard, once you see what the ocean’s whales and dolphins and other creatures are ingesting and choking on: our plastics.

  9. Submitted by Dimitri Drekonja on 05/17/2019 - 09:34 am.

    So someone seriously made the argument that Minneapolis dwellers will add on an 30-60 minutes to a busy day to drive to and from a suburban grocery store to avoid a few cents in bag fees?

    Hmm, walk to neighborhood grocery store with the dog and a few reusable bags and enjoy the evening, or sit in the car 15-30 min each way to save pennies that I’m burning in gas. Tough choice. My time is worth something.

  10. Submitted by Jon Ruff on 05/17/2019 - 11:54 am.

    I find it hard to believe that anybody would “go to another city” to avoid a bag fee.Bags, plastic or paper, to carry groceries are such a small part of our waste stream that I find it frustrating to pursue. Much more important is the apparent failure of our recycling system, the increasing amount of plastic waste; aluminized plastic packaging, pop container neck collectors, straws, etc.

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