Sunday, 15 October 2017

You might be an economist if... Butter price edition

You might be an economist if a headline like this one from the New Zealand Herald on Thursday, "NZ butter now so expensive Kiwis are turning to French butter for baking", makes you angry. But not because you're asking "how dare they raise the price of New Zealand butter so that French butter is cheaper?", but because you're asking "how can anyone think that this is newsworthy enough to turn into a headline?".

New Zealand butter and French butter are substitutes. When one substitute increases in price, consumers will buy less of the now-relatively-more-expensive substitute (New Zealand butter), and more of the now-relatively-less-expensive substitute (French butter). Simple, yes. Headline stuff, not even on a slow news day.

Are we New Zealand butter consumers supposed to rise up against the oppression of New Zealand butter sellers as a result of this article? You know what? The dairy companies selling New Zealand butter don't care. They're receiving a higher price for selling their butter on the world market. If New Zealand consumers want to buy French butter instead because it's cheaper, then that's fine by the dairy companies.

The article does leave one mystery open though, when it explains why New Zealand butter has increased in price:
According to ASB economist Nathan Penny, demand for butter skyrocketed worldwide after scientists debunked the link between animal fats and heart disease.
That makes sense. When consumers preferences shift towards a good (like butter), then demand increases, and the equilibrium price increase. What makes less sense is, why hasn't the increase in global demand for butter led to an increase in the price of French butter as well?


  1. Looking at it in a non-economist way. It could just be a fluff piece to make people angry that New Zealand, being a dairy country, is being forced to buy foreign dairy goods due to the excess price of dairy. For people involved and profiting from this they may not care, but the average Joe is more likely to be dumber and easier to whinge. Which could in turn reduce the viability of the substitute due to discriminating. After all, we want to be good ol NZ consumers. We want to consume our goods, not consumer foreign goods that far inferior to our proud NZ product. Food for thought.