Rising Hummus Prices? Blame a Drought Half a World Away (Feb. 2018)
The cost of hummus in Britain is rising. According to the article, the average price of supermarket hummus was 12% higher than it was a year ago.
This is in large part because of an ongoing drought in India, the largest exporter of chickpeas (the main ingredient in hummus). This caused a change in a supply determinant – the cost of factors of production – as the cost of producing chickpeas increased. This caused the supply of hummus to decrease. In other words, the supply curve shifted to the left, meaning that the equilibrium price increased and the equilibrium quantity decreased. In layman terms, the drought in India devastated chickpea crops, raising the price of chickpeas, which in turn made hummus more expensive to produce, so producers needed to sell hummus at a higher price and/or sell less hummus in order to get the same profit they were experiencing before the drought.
Another cause of the increase in price is a change in Consumers’ Taste, a demand determinant. As hummus has become more and more ubiquitous, more Britons desire to buy it on a regular basis. This means that the demand for hummus has increased, and the demand curve has shifted to the right. In addition to causing an increase in the equilibrium price of hummus, this has also caused the equilibrium quantity to increase.
Ultimately, the shift of the supply curve to the left, and of the demand curve to the right have resulted in a total increase in the equilibrium price, and total decrease in the equilibrium quantity.
In Malaysia, the price of durians has fallen. On a month-by-month and year-by-year basis, the cost of purchasing a kilogram of the fruit has dropped significantly. In the past month alone, a popular variety of durian known as Mao Shan Wang has gone from $20-28/kg to $12-20/kg, nearly a 40% drop in price. Last year, the Mao Shan Wang variety of durian may have costed more than $40/kg, despite the major growing season of durians being June to September.
There are two causes to this drastic change in price and shift in market equilibrium:
The first cause is weather. Malaysia has experienced abnormally hot weather in recent times, which is perfect for growing durians. This led to a bumper crop, or a more productive harvest. The weather that created an unexpectedly large supply of durians would be a supply-side determinant, namely Cost of Factors of Production. The good weather allowed more durians to be produced for no additional cost, shifting the supply curve to the right.
The second is a change in demand. The article notes that after Chinese New Year, the demand for durians usually drops. Although it was noted that demand was still comparatively high, this change in the demand-side determinant of Buyer’s Preferences shifted the demand curve to the left.
The overall change was a large decrease in equilibrium price with a smaller increase in quantity supplied.
Market: “Wagyu” Beef
Wagyu, or Japanese beef, is widely considered to be the most premium beef on the market, and can be found in high-end restaurants worldwide for its “melt-in-your-mouth” quality. Despite declining domestic demand in Japan, the price of Wagyu beef has boomed to record-high prices. Since 2010, the price of Wagyu beef per kilogramme has skyrocketed from 2,100¥ to almost 3,000¥, or from $25 to $35 CAD. Rising Japanese beef prices have been caused by both an increase in international demand and a steady decline in Wagyu supply.
Demand for Wagyu Beef has seen a significant increase due to both a change in consumer tastes and a rising number of buyers. More specifically, the variety of beef has become incredibly popular with renowned chefs and “foodies” in Europe and Hong Kong, who prize Wagyu Beef for its unique taste and quality. In addition, the number of Wagyu importers has skyrocketed over the past year, leading to a 40% increase in Japanese Wagyu beef exports. Buyers in the US, Hong Kong, Taiwan and Singapore currently make the up the bulk of new buyers. Both these determinants have contributed to a rightward shift in the demand curve.
Supply for the premium beef has seen a significant decrease due to rising costs of factors of production and number of sellers. Farmers raising Wagyu cattle in Japan are beginning to age and retire, and their successors often have no interest in continuing to run farms. In 2017, the number of beef farms in Japan declined almost 40%, while cattle numbers also dwindled, falling 14%. Raising Wagyu Beef is also incredibly expensive for the average farmer, costing almost four times as much to own and operate than a conventional cattle farm. Both these determinants have contributed to a leftward shift in the supply curve.
Overall, the rightward shift in the demand curve and leftward shift in the supply curve have caused the equilibrium price to increase. However, because the extent of the shifts are unknown, a shift in equilibrium quantity cannot be determined without further data.
China’s hog prices have plummeted to their lowest point in nearly four years in the second week of March 2018. They are the worlds number one producer of pork and to put things into perspective, over half of the world’s pigs now live in China. More than 50 million metric tons of pork was produced in 2012 and that’s twice the amount of the meat produced in all 27 E.U countries and five times the amount produced in the U.S. China loves pork so much that it even has government reserves for the meat.
Due to the increase in supply while demand remaining unchanged, prices for pork have plummeted.
The supply determinant is both seller expectations and number of sellers.
Live pig prices are now hovering just above 11 yuan ($1.74 USD) per kilogram in major producing areas, which is very much below the average production cost. (Plunged more than 20% from early January 2018)
As depicted by the article;
“The reason is very clear. There are a lot of pigs on the market,” said Feng Yonghui, chief researcher at trade website Soozhu.com.
The sudden drop in prices is due to big producer expanding to grow market share. Monthly government data had shown a drop in the number of the pigs that are bred, suggesting supply has not yet caught up with the demand. The government even ended up releasing some pork from its reserves (albeit not a large amount), the market was receiving signals of insufficient supply which misled the market.
An abundant supply during the Lunar New Year festivities (China’s peak pork consumption) led slaughterhouses to take advantage of the increased supply to set prices which led to growing price pressures on the market.
This ultimately led to suppliers believing that the demand on the market was more than what it was set at, causing them to over expand and over produce. This caused the market price to drop as to sell more pigs.
Market: agriculture, cauliflower
Analysis: The price of fresh produce, particularly cauliflower has doubled in New Zealand. Due to increased rainfall and humidity from a recent cyclone, many crops susceptible to excess water have begun to rot or have gone to seed, with some claiming that as much as 80% of their potential harvest has been ruined. Since the crops were the goods(not a resource), the supply determinant here is number of sellers as some of these farmers simply can’t provide the volume necessary to grocery stores(although, some sites will count environmental/climate changes a separate determinant). Another factor to consider is cost of factors of production, as some farmers may still be able to salvage a portion of their crop, but it also means that they invested resources towards producing the normal amount but have received a lowered output. As the demand for cauliflower hasn’t changed while the quantity has decreased, there is now a shortage of the good. This means that on the graph, the supply line, would decrease by shifting leftwards (equilibrium quantity decrease), and the price would increase to match the new equilibrium(equilibrium price increase).
There was a drastic fall in the price of tomatoes in Tamil Nadu, accompanied by a large increase in quantity. Over a 3 month period, the price of tomatoes dropped from Rs 20 to Rs 2, and farmers such a large excess quantity that they proceeded to discard freshly harvested tomatoes into lakes. This is due to an increase in the supply of tomatoes, while the demand for the crop remained the same. Tomatoes are a short season crop, and require much less water to grow in comparison to the other options available to Tamil farmers, such as the long term crops of sugarcanes and bananas. At the time, there was a limited amount of water dedicated to the irrigation and growth of agricultural crops. As a short term crop, tomatoes require less water and therefore less cost to grow at the time, in comparison to the farmers’ alternative, long term crops. Tomatoes are sell for a similar price to bananas in the area, and still sell for a higher price than sugarcanes per kilogram. Therefore, due to the lower cost and similar price associated with tomatoes in comparison to alternatives, the farmers expected to gain more profit from tomatoes, causing the supply to increase. This supply determinant is prices/profits of other goods that is responsible for the rightward shift in supply. As the demand is not shifted, the new market equilibrium point has an increased quantity and a lower price.
The prices of vanilla are higher than they have ever been. The wholesale price now runs at $850/kg for premium beans, which is 10% higher than last year (which was 30% higher than the year prior). Just 5 years ago, vanilla could be obtained at just $20/kg.
Consumers began to demand more natural ingredients in products like cakes, chocolate and yogurt, which led to big companies like Hershey converting to real vanilla for their chocolate. At the same time, the supply decreased due to plantations outside of Madagascar giving up on the labour-intensive crop that were priced low at the time. In March 2017, a cyclone hit Madagascar, the leading producer of vanilla in the world, which destroyed much of their crop.
The increase in demand was a result of the demand determinant: buyer’s preferences as they simply wanted more vanilla in their food products. The decrease in supply that occurred was a result of the supply determinant: cost of factors of production because the plantations stopped producing vanilla due to the low prices and labour-intensive nature of growing the crops. The natural disaster that occurred would also be categorized under the supply determinant of cost of factors of production.
Ultimately, the price at equilibrium increased while the quantity at equilibrium is ambiguous.