Chobani

Negative Externalities: The Downside of Greek Yogurt

May 28, 2013 • Demand, Supply, and Markets, Environment, International Trade and Finance, Macroeconomic Measurement, Regulation, Thinking Economically • 558 Views    No Comments

Greek yogurt may not be entirely good for us.

When firms like Chobani make Greek yogurt in New York State, they use 3 or 4 ounces of milk to get an ounce of creamy yogurt. Once they have the yogurt, though, they also wind up with lots of acid whey. Last year alone, Northeast US yogurt makers produced approximately 150 million gallons of acid whey that they needed to discard.

A natural product containing protein, acid whey sounds like it would be easy just to dump it in a stream. It’s not. Acid whey destroys sea life when it decomposes. Consequently, until yogurt makers figure out a whey from which they can profit, they have to pay local farmers to take it from them. On the farm, the whey can be used with silage for cow feed or combined with manure as fertilizer.

The challenge of profiting from acid whey reminded me of chicken paws. Approximately 20 years ago, demand for chicken in the US was soaring. The paws, however, were worthless because no one wanted them. Now though, with Perdue producing more than a billion chicken feet a year, paw exports annually return $40 million in revenue. A delicacy in China, chicken paws are a perfect U.S. export because our fat juicy chickens have tasty feet.

Just like the poultry industry had the incentive to identify a profitable destination for their previously worthless byproduct, so too do yogurt makers.

Our bottom line: Economists would say Chobani and Fage are creating a negative externality with acid whey. As with all negative externalities, uninvolved bystanders are experiencing the cost of someone else’s behavior behavior.

Sources and Resources: For the entire acid whey story, I enjoyed this article from the Modern Farmer and a story from The Daily Mail. For the comparison with chicken in China, econlife discussed the issues here and we looked at NYS Greek yogurt makers here.

 

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