maine-blueberries

The Great Blueberry Bailout

March 30, 2016 Posted by Nathan Strout - No Comments

What comes to mind when you think about Maine? Well, a lot of things actually, but the answer I’m looking for is blueberries.

The tiny, indigo-colored berries are the state’s official fruit, a key part of the state’s official dessert, and a delicious addition to this delicious Maine-themed meal. The people of Maine clearly think blueberries are a big deal—and they’re not wrong. Blueberries are a major industry, raking in hundreds of millions of dollars. In a state that subsidizes so many failing industries, it’s nice to know that there’s at least one industry that can stand on its own.

Or at least you would think so. Despite the vast amount of money flooding into the state for its blueberries, the blueberry industry is asking the federal government for a massive, multi-million dollar bailout. Maine blueberry farmers, and Maine’s entire congressional delegation, have asked the Department of Agriculture (USDA) to purchase approximately 30 million pounds of surplus blueberries. Without the bailout, farmers say, blueberry prices will drop to new lows–devastating smaller farmers. In a joint letter to the USDA, Maine’s congressional delegation wrote, “The situation is not sustainable for Maine growers, and the purchase of 30 million pounds of Maine wild blueberries would help stabilize falling prices and farm income.”

What blueberry farmers have on their hands here is the eternal economic problem of supply and demand. If supply outstrips demand, prices fall, and if demand outstrips supply, prices rise. It’s economics 101. According to the farmers’ narrative, they’ve had a bumper crop this year, meaning that they have way more blueberries than they know what to do with.

If they sell them at similar prices as last year, then they won’t be able to sell them all and they’ll go to waste. In order to clear the market and sell all of their blueberries, they need to drop their prices drastically so that more people will be enticed to purchase them. This is great news for consumers like me, who will be able to buy buckets of blueberries for a fraction of their traditional cost. Farmers, on the other hand, will see heavily reduced profits as they’re practically giving away their crop.

To avoid losing profits, the farmers have asked the government to step in and buy their surplus blueberries. A massive purchase of 30 million pounds would lower the supply for consumers, artificially bringing prices back up to traditional levels. So that’s it–problem solved! I may not be able to gorge myself on dirt-cheap blueberries all summer, but the farmers won’t see massive losses in profit.

The problem is, this isn’t the first time the feds have been asked to bail out the blueberry industry. In 2014, they asked them to buy 18 million pounds of blueberries. In 2012, it was $16 million worth of blueberries. Even going all the way back to 2002, the USDA bought 10 million pounds of blueberries in order to “stabilize prices.” So why exactly does an industry bringing in millions of dollars annually constantly need a federal bailout?

According to those asking for a bailout, the blueberry crop, like most crops, fluctuates unpredictably due to variable growing conditions, like the weather. That means that some years farmers produce far more than they expect, drowning the market with a flood of delicious berries. If this was a one-off event, that explanation would hold up, however, blueberry production has grown sharply over the past 30 years. As you can see in the chart below, this ongoing oversupply of blueberries isn’t the result of a few bumper crops, but of a continuous increase in the amount of blueberries being produced in Maine and in Canada.

Wild-Blueberry-Five-Year-Average-Chart

Blueberry production in North America and around the globe has exploded in the last few decades, and it appears that the supply might finally be greater than demand. As this presentation by Rémy Lambert, Ph.D of the Université Laval and George K. Criner, Ph.D of the University of Maine notes, “the demand for blueberries seems to be inelastic,” and yet production has grown at alarming rates. While supply and demand have grown for blueberries, the recent bailouts suggest that production has grown significantly faster than demand. As that same presentation notes, “exponential growth in supply means market can become unstable.”

Which brings us back to the blueberry bailout. Maine’s congressional delegation and the USDA are responding to this year’s oversupply of blueberries as an anomaly, the result of uncontrollable variables. Therefore, they’re responding with a short term response–purchasing the surplus berries and allowing production to normalize in the next growing season. The problem is that the amount of blueberries grown this year is not an anomaly–it’s the result of ramped up production over decades that has grown exponentially. So what the feds see as a temporary solution to a temporary problem is actually sending the wrong market signals to blueberry producers.

The market has it’s own way of telling farmers whether they should produce more or less–prices. When prices are low, farmers know that demand is low and therefore produce less. When prices are high, farmers know that demand is higher than the supply, and know that they should make more. It’s not a perfect system, but it’s the best way for farmers to gauge supply and demand.

When the feds buy millions of dollars worth of blueberries, they’re artificially driving up the price. When farmers see those artificially high prices, they respond as they would to normal high prices by increasing production to what they believe is an under-supplied market. Instead of fixing the problem, the bailout actually exacerbates it, causing the supply to grow while demand remains stagnant.

Instead of bailing out blueberry producers, the government should let the market correct itself. While low prices can be damaging, especially to smaller farmers, they send important signals to the market to slow down production. Without these signals, production will continue to grow and the feds will have to be prepared for yet another blueberry bailout next year.