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Aspirational Pecans

Apr 20, 2011 • Businesses, Demand, Supply, and Markets, Developing Economies, Households, Innovation, International Trade and Finance, Macroeconomic Measurement • 118 Views    No Comments

Our story starts with the walnut. Loved in China, and always cheaper than pecans, during 2007, suddenly, the walnut became relatively expensive. Following the law of demand, Chinese consumers bought fewer walnuts and more pecans.

And that was when they decided they not only liked pecans better but also that they were better for you. Chinese nut eaters believe that pecans nurture the brain. And beyond that, across Asia, pecans have become an aspirational nut, associated with middle class living. 

Meanwhile, in the US, pecan ice cream eaters, pecan pie eaters, and Stuckey’s “gourmet” pecan buyers–even Christmas fruitcake lovers (27% pecans) are experiencing price increases or, with Stuckey’s, smaller cans. Correspondingly, the entire supply chain–from the farmer to the seller of tree shaking harvesting machines, to the sheller–is adjusting to a transformed market.

The result? The price of “junior mammoth halves,” which the Chinese prefer, soared from $3.35 in 2008 to $6.95 in 2010.

The Economic Lesson

Developing nations are affecting world prices. With the growth of a middle class, eating patterns change. More meat, oil, cars, and now, pecans are shifting demand and supply curves.

Professor Timothy Taylor’s Teaching Company explanation of the race between supply and demand conveys an ideal explanation of why world commodity prices fluctuate.

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