Monday, 5 March 2018

The price of cauliflower hits $10

From today's New Zealand Herald:
Hankering for cauliflower in your meat and two vege?
Well be prepared to shell out for it as some are $10 a head.
Cauliflower was photographed priced at $9.99 yesterday at New World, Wellington.
A Herald photographer this morning found a cauliflower for $9 at Farro Fresh and an out of stock sign for the vegetable at a Ponsonby Countdown.
My ECONS101 class won't cover supply and demand for a few weeks yet (perhaps that seems odd, but it's a consequence of adopting the CORE textbook), but that simple model does an excellent job of explaining what is going on. From the article:
Annette Laird, of Foodstuffs NZ, which owns the New World, Pak'n'Save and Four Square brands, said recent wet weather had affected the quality and reduced supply of cauliflower.
"It's been raining a lot. Cauliflower don't like the rain..."
Consider the market for cauliflower, shown in the diagram below. Initially the market is at equilibrium, with the price of cauliflower at P0 and the quantity traded at Q0. Then, adverse weather hits and farmers are unable to supply as much cauliflower (regardless of the price). This shifts the supply curve up and to the left (a decrease in the supply of cauliflower from S0 to S1). The equilibrium (where the demand curve meets the supply curve) shifts along the demand curve up to the left. The equilibrium price increases from P0 to P1, while the equilibrium quantity of cauliflower traded decreases from Q0 to Q1.

Which shows why you're paying $10 for cauliflower this week. But don't blame the farmers. It is important to note that, in a market like this, the sellers have no direct control over the price. Woodhaven managing director John Clarke is quoted in the article:
"We are purely price takers, what the wholesale market pays is what we get and they are paying more for what we don't have much of."
The supermarkets of course have more control over the retail price than farmers do over the wholesale price, but remember that supermarkets are paying the (higher) wholesale price for cauliflower, and they will be passing that onto the consumer.

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