The Short- and Long-Term Costs of a Severe Drought on Retail Peanut Butter Prices and Consumers

Xiao Dong,Gregory M Astill

doi:10.1017/aae.2021.6

Abstract

AbstractThis article investigates the short- and long-term costs of an extreme weather event on retail food prices and consumer expenditures. We utilize the 2011 severe peanut drought as a quasi-natural experiment and find that retail peanut butter prices increased 21.3% as a result of the drought-driven shock in farm peanut production and prices. Moreover, we identify long-term costs due to positive asymmetric price transmission as retail peanut butter prices returned to pre-shock levels much more slowly and remained on average 6.2% higher for 4 years after farm peanut prices returned to pre-shock levels. For consumers, the drought increased peanut butter costs, and the persistence of higher prices in peanut butter led to long-term consumer costs. Peanut butter expenditure on average increased by 4.8% post-shock, with lower-income households increasing expenditures even more. A simple calculation estimates that higher peanut butter prices inflicted a cost of $1.08 billion during the shock, and sticky post-shock peanut butter prices imposed a cost of $628 million to U.S. consumers.

Highlights

IntroductionClimate change and rising global temperatures have increased the frequency of extreme weather disasters (e.g., heat waves, floods, and droughts) and will continue to do so in the future (IPCC, 2014)
Climate change and rising global temperatures have increased the frequency of extreme weather disasters and will continue to do so in the future (IPCC, 2014)
Drought and poor agricultural management led to the U.S Dust Bowl, resulting in drastic reductions in the value of agricultural land, production, and population decline (Hornbeck, 2012)

Summary

Introduction

Climate change and rising global temperatures have increased the frequency of extreme weather disasters (e.g., heat waves, floods, and droughts) and will continue to do so in the future (IPCC, 2014). Starting in the summer months of 2011, a severe drought linked to climate change (Mann et al, 2017) hit the major peanut-growing areas of the U.S (Scott, 2012). Coupled with below-average planted acres, both the extreme severity and extensive reach of the drought reduced domestic peanut supplies.. Coupled with below-average planted acres, both the extreme severity and extensive reach of the drought reduced domestic peanut supplies.2 These factors drastically fueled an increase in farm price of peanuts as reported by the Economic Research Service in the U.S Department of

Methods

Results

Conclusion