Last year, we had a peanut shortage. As a result, Skippy raised its prices and Smucker’s removed its reduced-fat creamy peanut butter spread from supermarket shelves.
But now, supply has responded. Predicting a record year, the USDA says the peanut crop will exceed its recent 2008 high of 5.2 billion pounds. The reason? Farmers who had switched to more profitable commodities like cotton returned to peanuts when their prices went up.
As one LA Times blogger said, “Our national nightmare is over.”
And economists will be smiling because the peanut butter story is a perfect example of how incentives affect supply curves.
Sources and Resources: For lots of detail, I recommend this WSJ article and this one from the Chattanooga Free Press while for a smile, here is the LA Times blog. Also, you might enjoy this 1884 patent application for “peanut paste.” Finally, at econlife, here is some background from a past post on the peanut crop.
Farmers decided to plant fewer peanuts when cotton prices soared. The result? Now peanut prices are skyrocketing. Here is the story.
Perhaps it all began with higher cotton prices. Responding, peanut farmers switched some acreage to cotton. Combine that decision with an unusually dry growing season in Georgia, the leading peanut producer, and too many scorched nuts and what do you get? A peanut shortage.
What will happen because of the peanut shortage? Peanut butter will cost us 40% more. And, to be sure they have enough of their basic peanut butter products, Smucker, the world’s largest peanut buyer, has temporarily stopped producing its reduced-fat creamy spread.
The NY Times said we had an acreage war between food and clothing. And here, a past econlife post discusses cotton prices.
The Economic Lesson
The peanuts story is a classic economics tale. On a supply and demand graph, the supply curve shifts upward and to the left when producers switch to a more attractive alternative. The result is less supply and a higher price.
An Economic Question: Now that peanuts are so pricey, what might you predict is the next supply curve move?