Pumpkin Shortage - Economics of a Bad Harvest
"Diversify your business a little bit so that in the event that something falls apart, whether temporarily or permanently, it doesn't completely kill your business." |
What happens when you have a bad harvest?In a great farmer area, the importance of a good harvest is key to the local economy. During bad years the farmer suffers, but so does the economic flow (for more information, see post on Economic Leakage in Rexburg). Not only can a bad crop affect the revenues of the farm, but possibly more so for the businesses that are being supplied with the crop (such as McDonalds, Five Guys, and In-N-Out Burger being reliant on the success of the potato harvest for their fries). It's a domino effect.
This year, it's not potatoes, but pumpkins, that may cause some supply and demand issues. NBC Reported last week: "There should be enough pumpkins for Halloween this year, but that might not be the case for the canned pumpkin used in pies come Thanksgiving, according to crop experts in Illinois, the country's top pumpkin-producing state. ... Large canned-pumpkin manufacturer Libby says yields could be off by as much as a third this year in Illinois, where about 90 percent of the pumpkins grown in the U.S. come from within a 90-mile radius of Peoria." Supply and demand may save the farmers by raising their prices because of the demand for good pumpkins, but based on this report, the big question is: who else will this affect? Any product that uses pumpkins, which are very popular during this time of year ranging from pie to ice cream to drinks to bread and so on, is in danger for this 2015 fall season. Last year, during the week of Thanksgiving alone, Costco sold over 1 million pumpkin pies! Per year they make 4.7 million pumpkin pies! That is a lot of pie ... and a lot of pumpkin that needs negotiated. If Costco was unable to get the pumpkin supply (chances are low seeing that they are a huge distributor) they would be looking at a $6 million issue during the week of Thanksgiving alone, and close to a $30 million issue over the year of the bad harvest. There are external factors that can affect your business that you are not going to be able to stop. So instead of ignoring the threat, or unsuccessfully trying to keep it from happening, a suggestion is to hedge your bet. Diversify your business a little bit so that in the event that something falls apart, whether temporarily or permanently, it doesn't completely kill your business. Give yourself a little bit of padding for tough times, possibly even investing in something that does well if your product fails (or an alternative if your crop supplier has a bad year). |
Recent NewsCheck out this awesome YouTube vlog for some tips and info on the economics of supply and demand!
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