Transcript Ed Dolan, Almond Prices, November 12, 2013

Economics for your Classroom from
Ed Dolan’s Econ Blog
Nuts, Cows, and Bees:
Why the Price of Almonds
is Soaring
November 12, 2013
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Almonds are Good, and Good for You
 Almonds are delicious!
 They are healthful!
 High in healthy monosaturated fats
 High in protein
 Good source of vitamins and
minerals
 The many uses of almonds
 Savory snacks
 Candies and pastries
 And now, almond milk
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
But Almond Prices are Soaring. Why?
 This chart shows the prices of three kinds of almonds grown in California
 Depending on the variety, prices are two to three times higher than five years ago
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Cows’ Milk is Out, Almond Milk is In
 Changing consumer tastes are one factor
affecting almond prices
 Americans are drinking a third less cow’s milk
than they did in the 1970s
 At first soy milk was the preferred nondairy
replacement
 Now almond milk, which has fewer calories
and, to many a better taste, is gaining fast
 Consumer tastes are also changing in China,
where demand for almond milk and other
almond products has recently been growing by
30 percent per year
Almond Milk is popular around
the world. This stylish bottle
comes from Italy
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Question: How Does a Change in Consumer Preference Affect Price?
How does the growing consumer preference
for almond milk affect the price of
almonds?
 Does the demand curve shift? If so, show
the new demand curve
 Does the supply curve shift? If so, show
the new supply curve
 Show the new equilibrium price
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Answer: How Changes in Consumer Behavior Affect Price
 Increased preference for almond products
means that consumers are willing to buy
more at any given price
 That change is shown by a shift of the
demand curve to the right, from D0 to D1
 Consumer preferences have no effect on
costs of production, so the supply curve does
not shift
 In response to the increase in demand,
producers move up and to the right along the
supply curve
 The market reaches a new equilibrium at the
price P1
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Who Produces Almonds?
 California is by far the
biggest producer of
almonds, accounting for
about 80 percent of the
global crop
 For many years, output grew
steadily, but the 2013
harvest, although still
expected to be the third
largest in history, will show a
small decrease in output for
the second year in a row
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
The Essential Roll of Bees
 Bees are essential to pollination of
California’s almond crop
 More than 1.5 million hives are
needed each year
 Recently, the mysterious colony
collapse disorder has greatly
increased bee losses
 In response, beekeepers have
doubled or trebled the price the
demand for their pollination services
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Question: How do Pollination Costs Affect the Price?
Other things being equal, how does an
increase in pollination costs affect the
price? (Begin from P1 in your answer
to the previous question.)
 Does the demand curve shift? If so,
show the new demand curve as D2
 Does the supply curve shift? If so,
show the new supply curve as S2
 Show the new equilibrium price as P2
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
Answer: How Higher Pollination Costs Affect the Price
 Other things being equal, an increase
in pollination costs will mean that a
higher price will be needed to
persuade growers to supply any given
quantity of almonds
 The supply curve to shift upward from
S0 to S2 as shown here.
 Other things being equal, pollination
costs will not affect the demand curve
 The market moves along the demand
curve as shown until the price rises
from P1 to a new equilibrium at P2
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
The Bottom Line
Expect almond prices to remain high at
least until a solution is found to the vexing
problem of dying bees
Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/
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