Why Are Kiwis So Cheap?

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I’ve been eating a lot of kiwis lately. At the corner deli near my home, I can buy three for $1. They are delicious. Unless the stickers are lying, they come from New Zealand. At 33 cents apiece, a New Zealand kiwi costs less than the price of mailing a letter to the East Side. (And believe me, I consider a first-class stamp one of the greatest bargains ever.) How on earth can it cost so little to grow, pick, pack, and ship a piece of fruit across the world?

To make fruit matters more complicated, I can buy one banana (also imported) and one kiwi for about the same price as one apple, which may well have been grown as near as upstate New York. I talked about banana economics here; but the kiwi made me even more curious.

So I wrote to Will Masters, an agricultural economist at Purdue and co-editor of the journal Agricultural Economics.

Most economists, as I’m sure you know, reply to such queries in verse, and Will is no exception:

Damn supply and damn demand:
Why cheap hogs and costly ham?
Bargain wheat, expensive flour,
The oldest villain’s market power.

Just one seller makes us nervous,
Like that U.S. Postal Service:
They may offer bargain prices,
But who disciplines their vices?

Middlemen have long been blamed
For every market that’s inflamed,
Yet better explanations come
From many a Hyde Park alum.

Modern views from Chicago-Booth
Give a nuanced view of truth,
Steven Levitt and John List
Made each of us a freakonomist.

We let data speak its mind
No matter what Friedman opined
And find the price of fruit and veg
To be driven by the market’s edge.

Like the tail that wags the dog,
Marginal thinking clears the fog:
Sellers, buyers, traders too,
Interact and prices ensue.

A kiwi costs 33 cents
Simply because no one prevents
Another farm or New York store
From entering and selling more.

In contrast apples may be dear,
For reasons that will soon be clear:
Picking them’s below our station,
To lower costs we need migration.

Bananas have a different story,
Seedless magic, breeder’s glory,
Cheap to harvest and to ship,
Who cares if workers get paid zip?

Each crop’s method of production,
Where it grows and how it’s trucked in,
Satisfies some needs quite cheaply
While other costs will rise more steeply.

A buyer’s choices matter too,
For nonsense stuff like posh shampoo,
Prices are not down to earth,
The more you pay the more it’s worth.

Behavior is as behavior does,
Maybe some things are “just because,”
Much of life’s a mystery,
A habit due to history.

For prices, though, it’s competition
Plus tariffs set by politicians,
That determines whether we see
Such delightfully cheap kiwi.

Bravo.

[Addendum: A few commenters, and several other e-mail correspondents, wrote to say that I should really be referring to kiwifruits and not kiwis, since the latter — especially in the headline — could easily be mistaken to describe parsimonious New Zealanders rather than their furry little fruit. But I am an American, and in America we call the furry fruit “kiwi,” just as our Australian friend Justin Wolfers calls a beet a “beetroot.” So while I appreciate your efforts to improve my language, I believe it’s best in this case to let things stand.]


Ryan Sandler

Love the poem. :)

It's worth noting, though, that kiwis do actually grow in the U.S. In California at the very least.

rda

I thought this was going to be about the frugality of New Zealanders.

Helen

This makes me think of an interesting situation I observed when studying abroad in the UK last semester. In Scotland I could buy a pint of Guinness for ?2 or 3. But when I visited Dublin (where the Guinness factory is!), I couldn't buy a pint for less than 6 Euro. Any ideas? Is this just Ireland capitalizing on tourists' purchasing of its homeland drink?

Colin

Sounds like it's about time we give the US Postal Service some competition.

Sergey

New Zealand famously got rid of all agricultural subsidies. Is this policy still going on?

Matt

That poem made me super-proud of my Purdue econ degree.

Paul Clapham

But, Colin, wouldn't attaching a kiwi-fruit to a letter be kind of messy?

Geoff Cant

I had the same first impression as rda - in New Zealand, the word Kiwi refers either to the bird, or to a New Zealander. If you're talking about the fruit, then we call them Kiwifruit.

Eric M. Jones

The Economics of Wine Production

Late that Fall, Jennifer and I went to Napa Valley to attend the wedding of her ex-boyfriend. (Jennifer had LOTS of ex-boyfriends, and I soon became one). The wedding was held at a picturesque winery that made a "boutique" red wine that was bought by wine collectors, connoisseurs and investors.

The festivities dragged on in the warm October sun. I kept trying not to stare at a Freudian Psychotherapist from San Francisco who obviously was crazier than any of his patients, when I began to wonder how it was that the grapes surrounding the winery had not been picked (they were just raisins on the vine).

So I began to snoop around and ask questions. The winery supervisor showed me around. There was a big warehouse full of hundreds of aluminum barrels with silicone corks. One sleepy guy with a mallet had the job of listening for the "ka-boom" of a cork being blown out of a barrel, and he would recover it and hammer it back into place.

The foreman told me that they actually picked no grapes. Gallo owned all the grapes on Napa rolling hills for miles in each direction and sold them the grape juice in tanker trucks. The winery then added a few wood chips and odd ingredients and fermented the grape juice into wine. The bottling was done on premises. And all the cases of wine had already been sold.

Rough calculations showed that the winery owners made a cool half-million a year off the scam...errr...business. Renting the place for wedding was just gravy. I was amazed. So ANYBODY could open a winery...and any place at all. It was only that the business was in Napa that gave it some vague authenticity.

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Mike

I had the same feeling here in the Northeast when I bought a coconut for $0.99.

Although the Postal Service has its inefficiencies and I'm not a big fan, Kiwi's would cost a lot more than $0.33 if you had them delivered to your house - rather than going to the supermarket to pick them up.

Faye

The relative high price of the apple might simply have to do with the fact that apples aren't in season right now, and kiwis are.

Vikram Hegde

Brilliant explanation. I'm a little suspicious though. Is labor really that cheap in NZ?

kip

The poem makes it sound like cheap labor is part of the equation-- is labor really so cheap in New Zealand though? I've always thought of New Zealand and Australia as being very "western", despite their location on the globe.

Mike Symons

Another possible explanation --New Zealand imports a lot of manufactured goods. It doesn't make sense to send the ship carrying washing machines or microwaves back empty, so they load it up with raw and agricultural materials so long as the producers pay slightly more than the variable cost of shipping. The rest of the return cost is paid by the consumers of the manufactured goods through increased prices in them. In effect the consumers of washing machines in New Zealand are paying the transportation cost of your kiwis.

blue92

"In Scotland I could buy a pint of Guinness for ?2 or 3. But when I visited Dublin (where the Guinness factory is!), I couldn't buy a pint for less than 6 Euro. Any ideas?"

I've never been to Dublin, but it could be tourist trap bars. Not sure if it's still going on, but Midtown (Manhattan) bars used to play the game of soaking the tourists while having a different price for return (local) customers. It's probably a pretty good strategy in many places.

Ray Ray

Doesn't it take two stamps to mail a kiwi....

Daybreak

New Zealand does not employ 'cheap' labour. We have a minimum wage that equates to around $6 US (Big Macs cost around $2 US). We got rid of our agricultural subsidies years ago, so our farmers had to develop efficient methods of production in order to compete with other heavily subsidised, heavily protected (USA, Europe, cough cough) economies. That's why our fruit, meat, and dairy is so cheap overseas, although the recent round of tariffs on dairy will still hurt us a lot. And to answer your original question $2 for three kiwifruit seems like a normal price, which leads me to believe that the USA does not have a strong Kiwifruit lobby and therefore they are not taxed at the border in the way that beef and wine are.

Mike

It looks like around five people can pick a truck full of kiwi's in a day - with the right equipment ...

http://www.pbase.com/tanetahi/kiwifruit

frankenduf

it might be the icky fuzz that keeps the price down

Andrew

Excellent response Daybreak, as another kiwi I was about to write almost exactly what you have. Glad we are so like minded.

I am not positve, but I believe NZ is the only developed country in the world with zero subsidies for any industry. amazing that you have to a tiny pair of Islands at the bottom of the world to find real free trade.