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
I suspect that the life of a cow producing organic milk got better last June. For their owners, though, business surely became more complicated.
According to a new USDA rule, any milk labeled organic now has to come from a cow that spends much more time in the pasture. Their diet also has to have a pasture related minimum and, as always, no hormones, no synthetic pesticides, no genetically modified seeds. Described by the LA Times, these cows’ lives will be “au natural.”
Organic dairy farmers, though, are not as happy.
- Demand: It sounds like a roller coaster. When the 2008 recession hit, organic milk sales plunged and the industry had to cut back. Now, during the first 3 quarters of 2011, sales rose 17% compared to the same period a year ago.
- Supply: In addition to complying with the new USDA rules, farmers have faced soaring feed costs. In the U.S., ethanol production, and in China, a middle class eating more meat, helped push corn prices upward. Pricy corn became the incentive for using other grains whose prices then increased also.
With demand surging and supply more costly, price goes up. However, there is one more variable. Farmers claim that the cooperatives where they sell their milk are not paying them more. As a result, some organic farmers are switching back to conventional farming. So, in addition to the price rise, we have quantity descending and supermarket shortages.
The Economic Lesson
The history of organic farming is a classic cost/benefit story. Especially considering how antibiotics and pesticides spiked productivity and led to a cheaper and varied food supply, the costs and benefits of organic production are fascinating.
An Economic Question: What demand/supply graph might you draw to illustrate the current plight of the organic dairy farmer?
To estimate the size of the corn crop, the U.S. Department of Agriculture (USDA) hires corn counters. Calculating stalk stats and assessing cob size, they observe 15 foot sections in thousands of fields. Add to that weather predictions, yield trends, and other pertinent data and you get an estimate for how much corn will be harvested. Once you also know about stockpiles (corn in silos and other storage facilities), a picture of the supply side of the market emerges.
What happens then? In corn (futures) markets, prices respond.
According to the WSJ, inaccurate USDA forecasting has led to more corn price volatility. June 30, 2010 for example, when the USDA said stockpiles were smaller than expected, prices spiked and a rancher had to paid an extra $200,000 for his feed. When prices fell, China was observed “swooping in.”
Do you want to better understand futures markets? This is a clear explanation of how the orange crop affected prices in (Eddie Murphy’s) Trading Places wonderful climax. A more academic discussion is here.
Our bottom line? Discussed in an econlife post, according to Michael Pollan, more than one-quarter of all supermarket items are affected by the price of corn.
The Economic Lesson
The three basic economic systems are tradition, command and the market. Reflected by corn futures, in reality, most economies are mixtures.
An Economic Question: Name several economies you believe have much more of a market than government influence. Then check the Index of Economic Freedom to see if you are correct.
Having just learned that the US Department of Agriculture (USDA) has a food desert website, I am not sure how we should respond.
The USDA tells us that in a food desert most low-income households have limited access to a supermarket or grocery store. In the U.S. 13.5 million people live in food deserts. The USDA states that by knowing more about food deserts, we can facilitate private-public action to eliminate them. This map shows where we can find the food deserts in the U.S.
Describing the food desert initiative, The Economist tells us that the USDA admits that they and other experts have uncovered no causal link between dietary habits and food deserts. Furthermore, a food desert might be home to healthy food stores but no supermarkets. In a food desert located close to Seattle, Washington, residents have easy access to organic food, grains, and fruits and vegetables at a roadside farm stand, a health food shop, and a “superstore.” Finally, based on obesity studies, we should ask whether people buy nutritious food when given the opportunity to purchase inexpensive processed foods and sodas.
Although the food desert concept is flawed, it does return us to the problem of how Americans eat. With two-thirds of all adults in the U.S. overweight, medical care, productivity, transportation, and human capital suffer. Discussed in a recent Brookings Institution paper, whether looking at extra sick days, extra fuel costs, or less education, the cost of obesity affects our economy.
The Economic Lesson
An externality is the impact of a behavior or contract that is experienced by a third uninvolved party. When the impact on third parties is undesirable, as with obesity, we call the result a negative externality. A benevolent impact on an uninvolved third party is called a positive externality. A community experiences the negative externality of individual obesity.
How to diminish a negative externality? Increase its source’s cost. Might food desert information assist us here?
An Economic Question: Have you experienced a negative externality that relates to obesity? Explain.