Thursday, March 28, 2019

econlife - What Avocados, Salmon, and Butter Have in Common by Elaine Schwartz


During the past seven years, the price of Italian olive oil has doubled. Almost at the same time, we saw salmon cost us 60% more. Butter too is more expensive. As the world’s largest butter exporter, New Zealand has seen demand rise by 50%. Meanwhile, world butter consumption increased by 13% from 2013 to 2018.

You can see the common denominator.

Fat.

Fat used to be bad. Now, not necessarily.

What We Eat

Between 1970 and 2014, we ate more of most food groups. While the numbers in the following graphic are based on availability, the FDA (Food and Drug Administration) concluded that they reflected consumption:




Looking closely at the food groups reveals that some of our tastes have also changed. Mango and broccoli demand have surged while we seem to prefer less of more traditional fruits like oranges, grapefruits, peaches and plums. The constant? The apples, melons, and bananas that we keep buying.

The most significant difference though is more fat. Accelerating the trend is the new conventional wisdom and perhaps research that certain fats are good for us. The result is more demand for olive oil, salmon, almonds, and yes, avocados.

We seem to have moved from butter to margarine and now back to butter again:




Price

An economist at the OECD tells us that worldwide preference for fattier food has gone up faster than anyone expected. The result is classic supply and demand. Prices increased because supply could not keep up:




Our Bottom Line: Regulatory Policy

Meanwhile the FDA has had to respond to our new eating habits. During the next several years we will have more realistic calorie and nutrient labels. Rather than making us feel good with the calories for one serving, food labels will indicate the “supersize” portions we really consume. By eliminating the line with total calories from fat, they will help us distinguish between good and bad fat. Also, the FDA has been reconsidering what “healthy” means.

Starting with the largest food companies, in 2020 and 2021, the new labels will be required.

My sources and more: WSJ had the good overview for the resurgence of fat. Quartz had more on butter. Completing the picture, Vox looked at how our diets have changed. Then, Popular Science had the last step with the regulatory response.

Our featured image is from Pixabay.


Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Tuesday, March 19, 2019

econlife - The Value of the Brands We Love the Most by Elaine Schwartz


Below we have a branding “horse race” that starts in 2000 and ends in 2018.

Coca-Cola leads the pack when the “race” begins. But then Apple becomes a threat as it starts to move upward in 2011. It quickly passes Disney, McDonald’s, and starts to threaten the leader. Meanwhile, Marlboro slips out of the top 15 while Amazon enters in 2014, keeps climbing, and soon pushes Microsoft aside. (Amazon’s ascent is amazing.)

Do take a look. The numbers represent the value of the brand in millions.:




But what are we really talking about? Let’s see what it means to have a global brand.

Global Brands

A brand is a personality that distinguishes a good or a service from all others. It can relate to a taste, a texture, a technology. It can shape what a consumer experiences. When a brand is doing its job, it adds to the value of the good or service. And of course, brands help firms compete.

The question though is how a brand can get a dollar value. Some say you can calculate the cost of creating the brand. Others suggest pricing the brand as though you were selling it. A third possibility is the income generated because of the brand.

You can see that none of the brand valuation methods is precise. Perhaps for that reason, one leading group said Apple’s brand was equal to $214 billion in 2018. Also saying Apple was the #1 brand, Forbes arrived at $182 billion.

For us though the key is the impact. Businesses need to know the value of their brand. Employees and stockholders care about the profit from a well-managed brand. Investors want brands to create value. Consumers use brands to judge what they buy.

Demand

As economists, we could also say a successful brand shifts our demand curve to the right. The utility it creates can give us more satisfaction and more pleasure. It can make us believe that the good or service is more useful, healthier, or stylish. The brand increases our demand.

In addition, when brands promote loyalty, our demand becomes inelastic. Defined as a relatively minor response to a price change, inelasticity means that purchases slip only slightly even when price substantially goes up. With the brands we love, we are happy to pay more. For that reason, a similar or identical generic product is usually cheaper.

Below, a somewhat inelastic (more vertical) demand curve shifts to the right because of the extra utility from a compelling brand:




Our Bottom Line: Standardization

Like weights and measures, brand valuation has been standardized. Composed of 120 member nations and 43 others that participate, the International Organization for Standardization (ISO) has published the variables firms can use to calculate their brand’s monetary value. The group that did our YouTube GIF, Interbrand, relates the ISO metric to its ranking.

My sources and more: You might enjoy (as did I) going to Interbrand’s report to see the ranking of the top 100 brands. To take the next step, the Forbes list is a possibility. Finally, getting more technical, I suggest this paper, Interbrand’s explanation for its metric, and this ISO report.



Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Thursday, March 14, 2019

econlife - A Sad Soybean Saga by Elaine Schwartz


Imagine a play about soybeans.

The stars are the United States and China while Brazil and Argentina play the supporting roles. In the first act we have a ship racing to China. Loaded with U.S. soybeans, after a one-month voyage, the Peak Pegasus is close to beating China’s 25% retaliatory tariffs that start the next day at noon. The world is watching.

This was the location of the Peak Pegasus on July 6, 2018, the day before the deadline:




Sadly, they pulled into port at 5:30 on July 7, 2018.

Next, Act 2…


The Soybean Trade Saga

The leading producers of soybeans are the U.S., then Brazil, with Argentina a distant third. China is the big buyer.

Pigs, chickens, and cows are massive soybean consumers. Much more than the people who enjoy tofu and soy milk, a huge population of animals eats soybean meal. That takes us to China where increasing affluence has led to more meat consumption and therefore, more animals. To feed their livestock, China was buying 60% of all U.S. soybean exports.

After the U.S. tariffs hit their exports, China looked elsewhere. During our second act, U.S soybean prices descend to 10-year lows. The reason? A massive decrease in U.S. soybean exports to China:




We should note that during December, 2018, China resumed some soybean purchases. According to Trade Talks, the buying interest solely came from SOEs (state-owned enterprises) which then received a payback from the Chinese government for the tariff. Offsetting that increase, China’s soybean needs have somewhat diminished because of African swine fever hitting its hogs and a new hog feed formula with less soy protein (not a good idea).

Meanwhile Brazil has seen its soybean exports to China soar by 22% (January to September, 2018 compared to 1017). Summarizing a headline from CNBC,  Act 2 could be called “Gloom in Iowa, Boom in Brazil.”

Now we await Act 3.

Our Bottom Line: Tariff Distortions

We used to have a global market in which soybean farmers in Brazil, Argentina and the U,S. kept an eye on each other. Brazil harvested from February to May; Argentina, between April and June. Because Americans start planting in the spring, they could react to what the South Americans had produced. For example, after the 2018 Argentine drought, American farmers planted more. But then China’s tariffs complicated their plans.

For now, many farmers have some of their soybeans in storage. They are hoping for higher prices.

My sources and more: This Trade Talks podcast from the Peterson Institute had the overview. The perfect complement, Reuters then took me to the Peak Pegasus. In addition, this 2018 FAS report from the U.S. Congressional Research Service had all you could ever want to know about crop production and CNBC had the most recent soybean update. Reading all, as a suburbanite from New Jersey, I got a good picture of the plight facing our farmers.


Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

Tuesday, March 5, 2019

econlife - The Less Obvious Way To Conserve Wildlife by Elaine Schwartz


Last November it again became okay to bring elephant trophies from Zimbabwe and Zambia into the U.S. In March, the U.S. Fish and Wildlife Service extended the decision to other African countries and animals.

Did the U.S. increase the incentive to endanger threatened species?

Not necessarily.

Wildlife Conservation Incentives

To support wildlife conservation, Africa has experimented with different programs,

The CAMPFIRE Program

Zimbabwe figured that local communities had to support wildlife conservation. But the opposite was true because elephants and other animals threatened their crops, their livestock, and their safety. So almost 30 years ago they created CAMPFIRE through which local communities got the use-rights to wildlife. It led to partnerships with hunting groups, much-needed village revenue, and the incentive to increase wildlife populations. With new incentives, in CAMPFIRE areas, the elephant population doubled.

The U.S. Ban

When the Obama administration banned elephant trophies (heads, tusks, other body parts) from Zimbabwe, they reported a 30% decline in safari hunting. But there were reports of a 5-fold increase in poaching activity. With less revenue, the villagers cared less about wildlife preservation. Also, the funding for anti-poaching enforcement dropped.

Our Bottom Line: The Tragedy of the Commons

Whether it’s air pollution, an overgrazed pasture, or poached elephant ivory, we tend to abuse shared resources. People ignore what they destroy because they privately benefit from their behavior. The result is a tragedy of the commons.

CAMPFIRE is an attempt to solve the tragedy of the commons. So too are the community conservancies in Namibia and Mozambique’s privately funded Coutadas. The common thread is the benefit that villagers receive from hunting revenue and shared meat. By shifting wildlife from a public resource to one with private benefit, African countries have created the incentive to conserve.

They’ve also shown how sometimes a market can beat a ban.

My sources and more: I always look forward to Monday for the new Econtalk podcast. Yesterday’s discussion, a good listen, focused on wildlife conservation. It led me to the tension between market-based wildlife hunting and the Zimbabwe ban.

Please note that President Trump’s position on the trophy ban has become unclear.


Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.