James Roane, Jr., a reader of Cafe Hayek and listener to EconTalk writes:
I just bought a 4 oz package of Dole peaches. When I looked at the package I noticed the following:
Grown in Greece
Packed in Thailand
Sold in the U.S.
Oh, and the price, $.79 in a convenience store-not even a mass merchandiser like Wal-Mart, which would probably sell it for $.59.
How is it possible for peaches, a commodity product, unlike say a car or pc, to be shipped around the world to be packed, so that it can be shipped around the world again to be sold? Everybody in the chain has to make some money off of the transaction and even if the packers in Thailand make the equivalent of nothing, why aren’t they packed in Greece? Last I heard unemployment was a problem there, right? Seems like the transportation cost alone would make this incredibly expensive. If fuel is this cheap, why are we paying $4.00 per gallon for gas? This is blowing my mind.
Good questions. Take a shot in the comments and I’ll weigh in later.
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All that is known is shelf price at convenience store, ie, $.79/4oz. This is $6965/metric ton. To learn what went into that price all of the component transportation, manufacturing and agricultural costs need to be discovered. Then this final cost of peaches needs to be viewed in light of the prices of substitution goods readily available, ie, canned pears, dried plumbs etc.
Just because it cost the producer $1 to bring the peaches to the shelf, that does not mean they can sell for $1.
They need to compete with the best substitute presently available to shopper.
My point is the peaches might well be selling at a loss. This loss could have been incurred at any one or more of several points in the cost chain. Many prices are reflective of losses to producers. It is a mistake to view this problem as how can the peaches arrive at a profit…economics is profits AND losses. Prices need to be seen as competitively arrived at versus substitutes, not an accummulation of incrimental gains.
Greece or the EU may subsidise exports. Peach pits may be animal feed. Packaging may be cheap in Thailand. Shipping through the Suez Canal may be cheap. US tarriffs may be cheaper for Thai goods. If the loss(es) is/are born by taxpayers and the profits earned by Socialist political donors it would fit the Obama-Pelosi model. See Freddie and Fannie.
Can someone with more econ knowledge than myself explain how much of a role would PPP play in something like this?
Russ never did weigh in …
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