Economics for your Classroom fromEd Dolan’s Econ Blog

Nuts, Cows, and Bees:Why the Price of Almonds

is SoaringNovember 12, 2013

Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishing.

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?

Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/

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

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

Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/

Almond Milk is popular around the world. This stylish bottle

comes from Italy

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

Nov. 12, 2013 Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/

Expect almond prices to remain high at least until a solution is found to the vexing problem of dying bees

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