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?


Mike B

I seriously doubt we'll see any change in the demand for mayonnaise because a peanut butter and mayonnaise sandwich sounds absolutely revolting.

J S

My six year old wanted to have one of those just last week. I thought it was a fluke. ..

Alex

Ceteris Paribus, I think you'd be surprised how few people actually mix mayoinnaise with peanut butter.... Sounds awful. Talking economics: we might see fewer squirrels about.

164

The market will work things out just fine. People like me have stockpiled peanut butter when Kroger and Albertsons had sales of namebrand jars for 99 cents. Those should last us through the year when a new crop come in. Expect fewer advertized specials at the grocery store and everything should be fine. Our stocks of coffee are getting low though!

Eric M Jones

Now fresh strawberries dipped in melted peanut brittle...OMG!

jonathan

We may see more demand for cheaper jelly because pb&j is the sandwich normal humans eat. Since there are many jellies, preserves, etc. on the market, it would be relatively easy to pay for a significant part of higher pb prices by lowering the &j cost.

Don

My father would eat peanut butter and mayo sandwiches, but he could never convince me to try one. He did, however, teach me of peanut butter and pickle sandwiches, which I may like even more than PB&J. There's something about that salty-sweet combination (think chocolate covered pretzel before you turn your nose up at it). Good crunch, too.

Speed

America's two most important food groups are mayonaise and bacon -- peanut butter goes great with each alone and both together when served between slices of toast.

Daniel Hamermesh said, "I think the demand for peanut butter is fairly inelastic." Since the short run supply of peanuts is finite and limited by the failed crop, does that mean that peanuts will disappear from M&Ms, Butterfingers, baseball games and mixed nuts?

How much is "fairly inelastic?"

BL1Y

I suspect you won't see much of a change in people's peanut butter consumption habits, be it with mayo or jelly.

What you may see is that people are spending less in completely unrelated areas. Maybe buying fewer iTunes because they have less discretionary funds leftover after paying more for food.

AaronS

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.

Jen S.

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.)

xtophr

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

Xian

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.

Pedro Ivo

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?

roundabout robin

There is no substitute for the feelings towards which the supplement and the complement appeal.

James

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.

J S

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).

Mr. Erik

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

Kartik

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.