How Will Peanut Price Hike Impact Related Items?

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General equilibrium ain’t just peanuts. With the tremendous shortfall in the peanut harvest (a decline of 17%) due to the unusually dry weather in peanut-growing states, people are expecting a rise in the price of this main input of peanut butter to cause supply to shift leftward. Jif peanut butter expects to raise its price by 30% starting in November.

I doubt that its sales will go down much—I think the demand for peanut butter is fairly inelastic. But what about related markets? If everyone likes peanut butter and mayonnaise sandwiches as much as I do—if peanut butter and mayonnaise are complements—then we’ll see a leftward shift in demand for mayonnaise, and its price will decline. Have I held too much of the ceteris paribus, or not enough? Where should one stop?

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  1. AaronS says:

    Professor,

    This is one of those posts where some innocuous comment peanut butter and mayo sandwiches completely overshadows the point you were trying to make–ha!

    I have to tell you that I’ve never heard of such. I have heard (and often eaten) peanut butter and banana sandwiches…and, the delightful delicacy for a select group of southerners–a mayonnaise and banana sandwich. But just as some would find these revolting, I just can’t get my mind around peanut butter and mayonnaise together.

    However, there is some bread, peanut butter, and mayonnaise just down the hall in the kitchen. I think I will give it at least one try.

    Thanks, Professor. Always enjoy hearing from you–especially on this one.

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  2. Jen S. says:

    Might this mean we’ll get a lower percentage of peanuts in our mixed nuts? (Probably not; peanuts are probably still cheaper than the rest.)

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  3. xtophr says:

    Couple of guesses:

    Peanut butter jar sizes will be reduced by 30%

    Peanut butter co-ingredients (corn syrup, hydrogenated seed oils) will be boosted

    Supermarkets will eat most of the increase and promote peanut butter as a loss leader

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  4. Xian says:

    I would try it…if I ate peanut butter, but I disagree that this is an inelastic product, with more other ‘nut butters’ recently appearing on the market as a healthy alternative to the neural-toxic mold found on all peanuts. This could shift peanut butter fans whom are trying for an inexpensive or equally priced, healthy alternative to the others and then peanuts might loose their rein as the king of nuts and farmers might start switching to the others for a more reliable crop that would provide a steadier income.

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  5. Pedro Ivo says:

    Dont’t you think mayonese prices are as inelastic as the peanut butter one? Isn’t Mayonese a substitute, instead of a complemmentary, for most people?

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  6. James says:

    My question, though, is whether the price of a jar of peanut butter is actually significant to most people – that is, they want peanut butter, and so pick a jar from the store shelf without even looking at the price.

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    • Enter your name... says:

      The price is certainly significant to the majority of Americans, who are trying to maintain their families on annual incomes of $50,000 or less, and for whom peanut butter sandwiches are a simple (kids can make their own lunches) and relatively inexpensive meal.

      But for those at the top 10% of the income scale, they might not notice or care.

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  7. J S says:

    Peanuts get one of the largest crop subsidies of any other farm product. Because the peanut gets used in a lot of secondary industries (peanut oil, livestock feed, etc) at greater quantities than sandwiches and candies.
    So the pricing will move around a bit but Jiff may be just overstating the issue to raise retail prices and margins. Growing up farming (mid-west) you learned the ‘bad weather’ years allowed the farmers to do a little better at the expense of the retailers. Consumers buy what they want or switch to equivalents (like baloney sandwiches).

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  8. Mr. Erik says:

    Hello, the following comments will be made by NIST Econ students who just started Microeconomics.

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    • Kartik says:

      I believe that peanut butter and mayonnaise are supplementary goods. Hence the increase in prices of peanut butter will result in a reduced demand of peanut butter hence increasing the demand of mayonnaise.

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