Tuesday, February 12, 2013

It's Time to Get Rid of The Big Mac Index, and The Big Mac

Hamburgers by uberculture/Flickr

In the same week that I heard about some really unappetizing food at McDonalds, The Economist  came out with its latest analysis of foreign-exchange rates according to its popular Big Mac index. This is how The Economist explains its index:

"Its secret sauce is the theory of purchasing-power parity (PPP), according to which prices and exchange rates should adjust over the long run, so that identical baskets of tradable goods cost the same across countries. Our basket contains only a Big Mac, and relies on the efforts of McDonald’s to produce identical products from the same ingredients everywhere -  underlining added - (or almost everywhere: for India we use the Maharaja Mac, which contains chicken rather than beef) " 

So by and large, the Big Mac Index is based on comparing the price of an identical product (i.e. the Big Mac) around the world, the Index can determine whether a local currency is over - or undervalued against the dollar. The Economist continues:

"... At market exchange rates, the Canadian version of the burger costs $5.39, compared with an average price of $4.37 in America. By our reckoning, then, the Canadian dollar is roughly 24% overvalued relative to its American counterpart...."

Generally, average prices of hamburgers are lower in poor countries due to their lower labor costs, and this would invalidate some of the Index' conclusions, claim critics of the Big Mac Index. But I pose there is another criticism based on the "identical product" assumption.

A few days ago, I read the following alarming article McDonald's McRib Sandwich a Franken Creation of GMOs, ToxicIngredients, Banned Ingredients on the Natural Society website. This doesn't offer pleasant reading, let alone eating:

 " (the McRib) sandwich is not only full of genetically modified ingredients, a medley of toxic fillers and preservatives, but also some ingredients that are actually banned in other nations around the world........But what’s really inside the McRib specifically that makes it such a food abomination? Containing over 70 ingredients, the McRib is full of surprises — including ‘restructured meat’ technology that includes traditionally-discarded animal parts brought together to create a rib-like substance. Here’s some of the disturbing substances found within the McDonald’s McRib sandwich...

....Out of the 70 ingredients that make up the ‘pork’ sandwich, a little-known flour-bleaching agent known as azodicarbonamide lies among them. At first glance, this strange ingredient sounds concerning enough to look into. After a little research, you will find that azodicarbonamide is actually used in the production of foamed plastics. Foamed plastics like yoga mats and more.
What’s more? In Australia and Europe, the use of azodicarbonamide as a food additive is banned. In Singapore specifically, use of this substance in food can result in a $450,000 fine and 15 years in jail."

The article continues: "... it’s not actually a rib. Instead, it’s a combination of unwanted animal scraps processed down in major facilities and ‘restructured’ into the form of a rib. Then, 70 additives, chemicals, fillers, and GMO ingredients later, you have a ‘meat’ product that tastes like ribs."

Although above quotes are about the McRib, there are similar critical views about the Big Mac, as analyzed in Anatomy of a BigMac  which shows that one of the following is the case: either Big Macs around the world contain the same ingredients as in the US and then this appears to be in breach of certain laws - Europe, for example, does not allow hormone treated (U.S.) beef;  or Big Macs do not contain the same ingredients in different countries and then the Big Mac index offers a distorted view of the relative values of the currencies (for example, beef is generally cheaper in the U.S. than in Europe, and who knows what kind of ingredients they use in other parts of the world. Case in point is the Maharaja Mac which uses chicken rather than beef (!). It's then not surprising that according to the Big Mac index, the Indian Rupee is undervalued by 61% (an Indian Maharaja Mac costs $1.67 vs. $4.37 in the U.S.)

Source The Economist
I'd say it's time for The Economist to develop a more accurate and in any case healthier index than the Big Mac index.

No comments:

Post a Comment