Friday 15 July 2022

Queensland weather and New Zealand vegetable prices

With both of my first-year economics classes due to start next week, it is timely to have some economics news that provides a simple application of the supply and demand model that is covered in both classes. As the New Zealand Herald reported yesterday:

Extremely wet weather across the Tasman means some fruit and veggies will be off the menu for customers here because importers are unable to get their hands on some types of produce.

Queensland fruit and vegetable growers are warning there would be reduced quality and increased prices over the next fortnight as weather events decimate crops.

ABC rural news reports Cross Family Farms, one of Australia's largest fruit and vegetable growers, was recording major losses after widespread rain across the state...

Back here, the head of United Fresh, Jerry Prendergast, said the knock-on effects of that meant some foods are off the menu for this season.

"It really has knocked product, like beans, courgettes, the melons out of Queensland, we normally expect to get strawberries at this time of year out of there too and it's been almost impossible," he said. 

Consider the market for beans, as shown in the diagram below. The market was initially in equilibrium, where demand D0 and supply S0 intersect, leading to an equilibrium price of P0 and an equilibrium quantity of beans traded of Q0. The bad weather in Queensland reduces the supply of beans to S1 (a decrease in supply is a shift of the supply curve up and to the left). The market now moves to a new equilibrium, where the demand curve D0 intersects the new supply curve S1. This leads to a higher price (P1) and a lower quantity of beans traded (Q1).

There will be flow-on consequences for the price of other vegetables too. From the article:

Prendergast said anyone with a hankering for beans should try Brussels sprouts instead, as there was plenty of them around.

If consumers switch to Brussels sprouts, then we can expect the price of Brussels sprouts to increase as well. This is shown in the diagram below. Before the increase in the price of beans, the Brussels sprouts market is operating in equilibrium, where demand D0 and supply S0 intersect, leading to an equilibrium price of P0 and an equilibrium quantity of Brussels sprouts traded of Q0. When beans become less available and more expensive, some consumers switch to buying Brussels sprouts instead, because beans and Brussels sprouts are substitutes. This increases the demand for Brussels sprouts to D1 (an increase in demand is a shift of the demand curve up and to the right). The market now moves to a new equilibrium, where the new demand curve D1 intersects the supply curve S0. This leads to a higher price (P1), and a higher quantity of Brussels sprouts traded (Q1).

So, even if only certain vegetables (beans) are directly affected by the bad weather in Queensland, it is likely to lead to higher vegetable prices across the range (including Brussels sprouts).

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