Again we connect to China with an apple but this time it’s the fruit.
As incomes rise, so too has fresh fruit consumption in China. In addition to buying pork and owning dogs, consuming pecans and carrying Coach purses, an increasingly affluent Chinese worker is eating apples. Or, as one new urban worker said, “Chinese people are eating more and more fruit…as our lives get better.”
Producing more than half of the world’s apples, China supplies the US with close to two-thirds of the concentrate that we use for apple juice. The apples are grown in China, the concentrate is made there and then it is shipped to the US and bottled as apple juice.
That takes us to our demand and supply curves. More demand for apples from the Chinese consumer shifts the apple demand curve to the right and price jumps. Then, on the supply side, when the cost of production for apple concentrate rises, so too does apple juice. Sounds a little like oil?
At Econlife, we looked at why the Chinese were eating more pecans and pork and how they own more dogs and Coach handbags. Now we can add apples and see again that the Chinese consumer affects many of us in the US.
Sources and Resources: To see who grows what, it is actually really interesting to look at this USDA report on worldwide production of apples, grapes and pears. As this WSJ article and marketplace.org report also indicate, the numbers for Chinese apple production are massive compared to everyone else’s. And finally, as always, Professor Timothy Taylor’s explanation of why world commodity prices fluctuate is excellent in his Teaching Company lecture on the race between supply and demand.
Past EconLife posts on the Chinese Consumer:
Posted by: adminEcon
Tags: apple concentrate, apple juice, beer, Chinese consumers, Chinese exports, Coach, demand, dogs, fresh apples, pecans, pork, supply, US imports, USDA
With soaring demand from China and less supply in the U.S., you have some very happy pecan farmers.
However, they have one big problem. Theft.
Armed with ladders, pecan snatchers are shaking the trees in Georgia’s pecan groves, catching the nuts and then selling them to small roadside vendors. Farmers have hired guards to protect thousands of acres of their property.
Demand is up in China because pecans have become an aspirational nut. Consumed by the more affluent, they are associated with more wealth and good health. Meanwhile, in the southern U.S., dry weather has lowered the pecan crop yield. You know the result. Pecan prices are way up, from $7 to $11 a pound since 2009.
Faced with a similar price spike, hog producers in Minnesota and Iowa have had 150 pound pigs disappear from their farms.
The Economic Lesson
So high a price has meant pecan and pig poaching was worth the risk. We could say that the cost of a felony became relatively smaller as the benefit of the crime increased.
An Economic Question: Referring to determinants of demand and supply, draw and explain graphs that illustrate the higher price for pecans.
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.