Friday, January 8, 2010

Floridians Shiver, and Pray for the Strawberries

New York Times article "In Cold Snap, Floridians Shiver, and Pray for the Strawberries" (January 6th, 2010)focuses on the individual firm and their individual attempts to save their strawberries while ignoring the fact that it appears in the industry's interest to not save their strawberries. Corrections has discussed this problem as a war-on-drugs previously. A downward shock to supply could actually help strawberry industry profits.

The good news is that the current freeze, so far, has not been nearly as damaging as the bitter cold snaps of 1835, 1962 or 1989, each of which destroyed dozens of businesses and altered breakfast menus nationwide. The bad news is that its unusual length has already begun to test the patience of nearly everyone who touches a strawberry or wants to.

Prices for the red wonders of winter — with Florida names like Radiance — have increased by $2 a pound since Christmas, and supplies will be limited for weeks, even if temperatures rise.

It appears that (short run) demand is inelastic. The mean own-price elasticity for strawberries reported by the United States Department of Agriculture's Economic Research Service is -0.92826. That is, a one percent increase in price would give a 0.92 percent decrease in quantity demanded. Conversely, a one percent decrease in quantity would give a 1.08 percent increase in price. This, in turn, gives a 0.08 percent increase in total revenue.

The manner in which strawberries are likely to increase industry profits is displayed graphically below (click to enlarge).  

1 comment:

  1. Oh dear, sounds as though I'm gonna hafta smash open my piggy bank if I crave anything strawberry in the next few weeks. Thanks for the head's up.