But it takes at least two to explain how it all happens:
From: the Microeconomics course at MRUniversity.com
Have you ever wondered how we have access to fresh roses each Valentine's Day in chilly cities where roses couldn't possibly grow?
In a new video (I, Rose) from MRUniversity’s Microeconomics course, we’ll take you around the world for a glimpse at the rose growers and distributors who bring us affordable roses every February.
The second video in this section (A Price is a Signal Wrapped up in an Incentive) shows the invisible hand at work as we discuss how the flower industry responded to the 1970s oil crisis.
We'll also address questions such as:
- How does the price of oil affect the price of candy bars?
- What is the "great economic problem" and which is better at solving it -- central planning or the price system?
- Is speculation actually useful to the market process?
- What are prediction markets? Can they be useful in predicting elections? What about predicting the popularity of Hollywood films?
Tomorrow is Valentine's Day. It is estimated by the National Retail Federation that we will spend approximately $2.1 billion on flowers this year. Last year, 36% of flowers bought were on Valentine's Day. (Chandran, 2015) As pointed out in the video, how are cities with colder climates able to grow flowers for such a holiday? A majority of flower production has been outsourced to countries such as the Netherlands, Kenya, Ethiopia, Ecuador and Columbia. Columbia supplies 78% of American cut flowers, followed by Ecuador at 15%. (Kim, 2015) A growing trend however is a movement to produce flowers in the United States. California has become the leading domestic supplier at 76%. Vice president of marketing for the Society of American Florists, Jennifer Sparks, has been told by florists that consumers are not asking for flowers grown in specific areas.(Kim, 2015)
ReplyDeleteFrom an economical perspective it makes sense to outsource the supply of our flowers. We outsource our clothing, call centers, and parts manufacturing so why not flowers? The video talked about a key driver to outsourcing was caused by higher oil prices during the 1970's. Now that the United States has become more self sufficient in regards to oil production, thus making the price per barrel of oil cheaper, do we think that a new flower industry will flourish?
References
Chandran, N. (2015, February 12). Valentine's Day: Behind the flower trade. CNBC . Retrieved from http://www.cnbc.com/id/102422917
Kim, S. (2015, February 13). Valentine's Day 2015: Source Locally Versus Columbia-Grown. ABC News. Retrieved from http://abcnews.go.com/Business/valentines-day-2015-source-locally-versus-colombia-grown/story?id=28932494
Outsourcing offers several benefits, but is not without controversy. Notably, outsourcing allows companies to reduce cost. In fact many companies have been able to stave off disaster by outsourcing. Outsourcing allows companies to focus on core competences or shift there focus to for example R & D while production concerns are shifted to others. However, some complain that outsourcing builds the knowledge base of host countries while depleting source nations of valuable economic resources. While there are considerable benefits from lower prices due to lower cost of goods, when workers are displaced lower prices may not be enough to satisfy critics. President Obama has recently pushed for American companies to "insource" verses "outsource" by refusing tax breaks to companies that outsources. Additionally, rising labor cost in countries like China are causing companies to reconsider outsourcing.
ReplyDeleteReference:
Dave Jamieson Become a fan dave.jamieson@huffingtonpost.com
Jaimieson, D. )(2015, January 25) Obama Economic Plan To Discourage Outsourcing, Reward 'Insourcing'
Retrieved from http://www.huffingtonpost.com/2012/01/25/obama-economic-plan-insourcing_n_1231666.html
As I go to vendors to talk about my daughter’s wedding, having made galas for not-for-profits for many years, I know only too well how prices seems to “adjust” for weddings vs. other types of parties. I have found that prices increase an average of 30% on almost all items.
ReplyDeleteThe question is, if we already know that we are being overcharged because we are having a wedding, what is the most effective way to have what has become the traditional wedding party and get the most for our money?
First, all inclusive venues are the best value if they include everything including the wedding cake. Some venues have table ornaments they use for other parties that will accommodate a wedding as well.
But how do we avoid the increase in price on flowers, bouquet, boutonnieres, Dj’s and photographers? We price them first, as if we are just making a family party and get the “normal” price. Then we purchase for the wedding at the non-inflated price. Some people might call this cheating, lying. But, consumers are under no obligation to tell a vendor why they are buying their products. A purchase is a purchase.
“In a study by British consumer research group Which? wedding vendors were found to routinely charge more for their services when told they were needed for a wedding, versus a "family party." (HuffPost, 2013)
Southerland, Susan. “Wedding Costs: Research Finds Vendors Charge Less If You Don't Call Your Big Day A 'Wedding'.” HuffingtonPost.com. June 17, 2013. http://www.huffingtonpost.com/2013/06/17/wedding-costs_n_3455315.html
I’ve never actually given where roses come from a thought. The florist right? Past there you got me! These videos were great and really helped me connect the economic concepts of understanding markets and industry changes. The concept of the invisible hand that was mentioned in your text and in the second video only further assisted my understanding of supply, demand, and movement among the demand curve. While weather is an uncontrollable factor; the price, distribution, service qualities are controllable factors. (Froeb, 2014) But as illustrated by the video, a surge in oil prices is uncontrollable, but you can however try to predict industry changes using supply and demand. Or as the video says it, “a price is a signal wrapped up in an incentive.” On the subject of buying more candy and teddy bears, could the increased consumption of these items actually hurt the rose industry? It is new/increased competition. Is it best for everyone that people are buying fewer roses? I do have to note that the commentary about the fruit in coming together in the super market blew my mind. It truly is one of the best examples to show worldwide coordination and mutual gain!
ReplyDeleteWorks Cited
Froeb, e. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning.
Valentine day roses are a nice topic and a great example of globalization, and the desire to satisfy every little whim of consumers in the developed countries – and keep some of us out of the dog house. Another commodity that is fast moving and travels around the world is produce. Similar to roses, they are perishable but not necessarily as “seasonable” as they were just a few years ago. But like the February’s rose sale, there is a price to pay for fresh produce in the off season. Let’s look at strawberries – another February favorite. Strawberries price swing more on an annual bases than any other fruit or vegetable, as low as $4.50 a pound in December and early January (out of California), to over $13.50 a pound in June (www.state.gov.nz). After Florida crops are depleted and before California starts to harvest their spring season, the US relies on South American countries and even New Zealand to fill in the gap in May and June.
ReplyDeletehttp://www.stats.govt.nz/tools_and_services/newsletters/price-index-news/jan-14-fruit-and-vege.aspx
Roses date back to before 2000 BC, - over 35 million-years ago. The red rose is the ultimate symbol of love and passion this flowers speaks without words, in every language, and is universally understood. Its peek holiday is in February –the 14th -Valentines Day in the US. “An estimated number of roses produced for Valentine's Day in 2014 was 257 million and according to the National Retail Federation Americans nearly $2.1 billion was spent on Roses in 2014 (www.aboutflowers.com).
ReplyDeleteGrowing roses “ requires a substantial investment in both time and capital. Rose plants need to be maintained year round, every day, several times a day. These plants require the highest amount of fertilizer and pesticide used“ (Woods & Anderson). Maintaining greenhouses are extremely expensive as well as, the cost of producing the roses.
Outsourcing this product makes economic sense - farming roses has become an international business that is part of an extensive network. Both land and labor costs are much lower outside of the US - and so the profits are more. This industry consists of: horticultural, agricultural, shoppers, retailers, auctioneers, and international and domestic lawyers. Many moving parts are required in delivering roses from the international farmers to your local town, while the cost remains constant. “ Adam Smith believed in the invisible hand - the guide of global productions ex: roses travel from a to b in a matter of days. The cycle is intensive and there are many moving parts, one hiccup in the system could distort the entire crop while on its travels. The invisible hand produces a - flawlessly system that allows for lower and consistent prices and brings together an entire network.
Roses travel thousands of miles, with one single message to the receiver.
Reference:
http://www.proflowers.com/blog/history-and-meaning-behind-red-rose
http://www.aboutflowers.com/flower-holidays-occasions-a-parties/flowers-for-valentines/valentines-day-statistics.html
Single Stem Roses -- An Economic Analysis Agricultural Economics Staff Paper # 369 ,May 1997 , Timothy Woods and Robert G. Anderson University of Kentucky Department of Agricultural Economics 400 Charles E. Barnhart Bldg. Lexington, KY 40546-0276
Sinhttp://www.investorwords.com/2633/invisible_hand.html#ixzz3Tokk5wHE
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ReplyDeleteThe two videos referenced bring clarity to the issue of markets and pricing. This situation demonstrates perfectly the idea that the price of one product, that seemingly has no correlation to another, in fact can, and does, when we look at the bigger picture.
ReplyDeleteThere are two ways the use of oil was reduced in this situation, by using substitutes and by finding an alternative. The first reaction was to purchase substitutes because the price of roses increased, these were items such as chocolate and teddy bears. The latter reaction was to look for alternatives. The higher price of oil caused the industry to look for cheaper ways to grow roses, outside, as opposed to greenhouses. This enabled countries, such as Kenya and Ecuador, to produce roses and ship them. This also economized the use of oil by using it to produce jet fuel, where it has a higher value.
This is also a great example of market equilibrium. While the price of roses increased at first and demand decreased, when alternatives were found, the price decreased and demand increased again. In the long-run, supply and demand curves will move toward equilibrium.
Froeb, L., McCann, B., Shor, M., & Ward, M. (2014). Managerial economics: A problem solving approach (3rd ed.). Australia: South-Western Cengage Learning.