What caused the French mustard shortage?

France24 reported earlier this month:

Pierre Grandgirard, the owner and head chef of La Régate restaurant in Brittany, headed out on his regular morning supply run in late May when he ran into an unusual problem: he couldn’t get his hands on mustard.

“I went everywhere, but they were all out,” he explained. To make matters worse, some shopkeepers told him astonishing tales of hoarding. “That a papy (French slang for grandfather) had come in and filled his shopping carrier with 10 or more pots in one go.”...

What caused this shortage? The article goes on to explain:

The French mustard crisis can largely be explained by a combination of three factors: climate change, the war in Ukraine and the extreme love the French have for the tangy condiment. 

Although France used to be a major producer of the brown-grain mustard seed known as Brassica Juncea that is the base for Dijon mustard, that cultivation has since moved to Canada, which now accounts for as much as 80 percent of the French supply. Last year’s heat wave over Alberta and Saskatchewan, which was blamed on climate change, slashed that production almost in half, leaving France’s top mustard brands – Unilever-owned Amora and Maille – scrambling for the precious seeds.

On top of that, a milder than usual winter resulted in many French mustard fields falling victim to insects, and thus producing much smaller harvests. 

The war in Ukraine has also affected the global mustard market. But the way it has affected the French is rather surprising, and is chiefly due to the mustard consumption habits of other European countries.

Although both Russia and Ukraine are big mustard-seed producers, they mainly cultivate the much milder, yellow mustard seed – a variety that is typically shunned by the French, but hugely popular in eastern and central European countries.

Since the war has halted much of the Ukrainian and Russian exports, yellow mustard-seed fans have had to turn to other types of mustards, including the much-loved French Dijon mustard, thereby upping demand.

But the main reason why France has become such a victim of the mustard shortage, according to Luc Vandermaesen, the president of the Mustard of Burgundy industry group, is because the French are simply enormous mustard consumers.

“Every French person consumes an average of 1 kilogram of mustard per year,” he told French daily Le Figaro in an interview earlier this summer. “Sales are much weaker in our neighbouring countries, and so their stocks last longer. That’s why you can find products abroad that were produced in France a long time ago.”

Ok, let's go through those explanations one-by-one, using the diagram below. The market started in equilibrium, where the supply curve S0 meets the demand curve D0. The equilibrium price of mustard was P0, and the equilibrium quantity of mustard was Q0. There is no shortage of mustard at this equilibrium, because the quantity of mustard demanded is exactly equal to the quantity of mustard supplied (both are equal to Q0). The first explanation for the shortage is climate change, which will have reduced the supply of mustard to S1. The market would move up to a new equilibrium, where the supply curve S1 meets the demand curve D0. The price will increase to P1, and the quantity will decrease to Q1. Does that cause a shortage? No, because the quantity of mustard demanded is still exactly equal to the quantity of mustard supplied (both are now equal to Q1). The second explanation is an increase in demand for French Dijon mustard. This arises because the price of a substitute (yellow mustard) increased, and Dijon mustard was now relatively cheaper. That will have increased to demand curve to D2. The market would move to a new equilibrium, where the supply curve S1 (because of the first explanation) meets the demand curve D2. The price will increase even more, to P2, and the quantity will increase to Q2. Does that cause a shortage? Again, no, because the quantity of mustard demanded is still exactly equal to the quantity of mustard supplied (both are now equal to Q2). What about the third argument? That isn't going to cause any change in the market, unless the French suddenly became even greater mustard consumers than before. The article doesn't say that, so the French people's love for mustard is already captured in the original demand curve.

The France24 article is missing a key point here. You get a shortage when the price is below the equilibrium price. If the market adjusts, there will be no shortage (because quantity demanded will be equal to quantity supplied). The shortage arises because the market price doesn't adjust (or doesn't adjust enough). This is illustrated in the diagram below. Say that we still have the decrease in supply (from S0 to S1) and the increase in demand (from D0 to D2), but that the market price stays at the original equilibrium price P0. Now, with the lower supply, sellers will only supply QS mustard at the price of P0. And, with the greater demand, consumers will demand QD mustard at the price of P0. The difference between QS and QD is the shortage (more mustard is demanded than there is mustard available).

So, while the changes in supply and demand created the conditions for the shortage of French mustard to form, it is actually the failure of the price to adjust that is the real cause of the shortage. If the price had adjusted (and increased), there would be no shortage at all. What stopped the price from adjusting? The article doesn't give any indication (because presumably, they never thought that price was the problem). However, it is likely that the sellers were simply reluctant to increase prices due to not wanting to make their customers angry. However, it's not clear that was really much of a solution. If that was the sellers' reasoning, then they simply chose to have customers who got angry about missing out on mustard (due to the shortage), rather than customers who got angry about higher prices.

[HT: Marginal Revolution]