The visible hand in economics

Fruit, viruses, and prices

Posted on: October 15, 2008

In the food price index numbers there has been a big deal made about recent increases in the fruit and vegetable category.

The common explanation is that an especially cold winter reduced supply, which has feed into higher prices now.

This explanation seems believable, especially given that a shock during the season does not just influence the supply of product instantaneously, but should influence it further later on. However, it also didn’t weigh up with my observations that:

  1. People around me have been eating a lot more fruit,
  2. The supply of fruit at the supermarket has actually appeared relatively strong.

This is not consistent with the “supply” story we have been told. Although my observations are probably wrong (insofar as they do not match with what has actually happened), I feel that I can paint a story around them. Lets go:

The virus story

One other observation I have made is that people have been a lot sicker this winter than they were last winter.

Now, if fruit helps to fight off viruses and there is a negative shock to the fruit supply at some point at the start of winter, then the normal “anti-virus” boost provided by fruit consumption in society will be weakened.  This factor could then have made it easier for people to get viruses, which in turn made it easier for them to be passed on etc.

The increase in viruses makes people think about there health, it makes people want to do things that make them feel better.  This includes (at least for me) eating fruit.

As a result, even once the supply disruption is over, the fact that this disruption lead to an increase in the amount of people catching viruses leads to an increase in demand for fruit – another factor that will drive up its price.

This explanation is consistent with all the observations I have made – and the assumptions about peoples behaviour are consistent with the things I have actually done.

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