Posted by Jason | Posted in Economics | Posted on 17-06-2010
Apparently, grocery shoppers may actually see some prices going down. Wow, that would be a change.
Jeff Dolan’s tomatoes in San Joaquin Valley are ripening and ready to pick this week. But that puts him in a pickle.
In California, harvest time is arriving just as tomato growers in other parts of the U.S. are reeling from a sudden supply glut that is pushing the price for fresh tomatoes sharply lower. Florida farmers who fetched more than $30 a few months ago for a 25-pound box of round, fresh field-grown tomatoes, also known as slicer tomatoes, are now getting $5 or less.
The abundant crop is rooted in last winter’s cold weather in Florida, which delayed the development of tomato plants. The overdue harvest hit the market in May just as DiMare Co., where Mr. Dolan oversees California field operations, was picking tomatoes near Palm Springs
Well, you win some and you lose some. The farmers had a bad growing season, and now all the tomatoes have come on the market at once. That’s how business goes. Well, unless the government steps in.
The U.S. Agriculture Department estimates that wholesale tomato prices fell to 25 cents a pound in June, down 78% since March. The current price is “the lowest number that I can remember seeing,” says Gary Lucier, an agricultural economist and tomato expert at the USDA.
Worried about the impact of the plunge on farmers, the USDA is buying $6 million of tomatoes and distributing them to food banks. Agriculture Secretary Tom Vilsack said the purchase is designed to give Florida farmers “some relief.”
Would someone tell Tom Vilsack that consumers need some relief after the Fed has inflated prices sky high over the past decade. Here we go with the market prices reflecting what is really going on, and what does the government do? It steps in and starts handing out cash. Instead of letting consumer demand rise with the lower prices, the government steps in as a huge consumer and drives the prices up. While I’m sure it buys them big agriculture’s vote and donations, it does not help “The People”.
January’s freeze in Florida destroyed about two-thirds of the tomato crop in one major growing region, according to the USDA, citing industry estimates. As supplies withered, prices spiked, and some of the increase was passed on to consumers. In the first quarter, U.S. average retail tomato prices rose 24% to $2 a pound.
via the WSJ Tomatoes Go From Shortage to Glut – WSJ.com.
So where was the government when the prices spiked? Did they step in to help the consumer? Of course not, nor should they have. This idea that farmers need “relief” is silly economics. If the price of tomatoes drop, more tomatoes will be bought. Yes, farmers will make less per tomato, but they can make up the difference with volume. It’s no different than the local store running a sale on some product that has been sitting on their shelves. The local store realizes that the price is too high, and at the current price the demand isn’t there. So, what do they do? They run a sale. While they don’t make the same amount per item, they make it up on volume and getting the products off the shelf where they are making no money.
The farmers know this is coming, and they should plan for it. And I don’t mean by lobbying local politicians for “relief”. No on gives relief to the local Kmart when they stock too much of an item nobody seems to want. Farmers can run sales as well. They will survive. Some may go out of business, just like every other industry. Then guess what happens? There is less tomatoes produced next time and prices go up. Then when the price go up, farmers will be incentivized to move back into growing more tomatoes. The free market works, and it doesn’t require the government plundering everyone every time some crop doesn’t come in the way farmers would like at the price they’d like.