The Shopping Cart Economist

Wow - I haven’t been back here in awhile, and I am sorry for it. I miss blogging over here, but with hubby still deployed, writing has been on a back burner. However, this topic swelled up in my mind and I wanted to tackle it because I am fascinated by what I’m assuming is the thought process behind Pepsi Throwback - made with real sugar!

In my quest to limit how much soda I drink, I’ve stopped keeping it in the house. This isn’t to say I’ve stopped buying it, but I make it a little more painful to do by buying it one bottle at a time and paying the higher cost for it in a convenience store or a restaurant.

Yesterday, I stopped at 7-11 to buy a bottle and saw they had a coupon for “Pepsi Throwback” - made with real sugar. The coupon was for a free bottle of Pepsi Throwback or Mountain Dew Throwback when you buy any two other Pepsi products.

I bought the three bottles, got in the car, opened one, took a big sip, and almost spit it out! For the life of me, I don’t recall Pepsi tasting that way. In fact, it was so much less sweet than a regular Pepsi that I thought for a moment I was drinking diet soda. The calorie count however was still the same.

Either they weren’t using enough sugar, or my taste buds have been deadened to real sugar by its high fructose corn syrup counter part.

So, putting my shopping cart econ hat on here, I got to thinking about this today. Here’s my theory on why this product is on the shelf.

Pepsi got its patent in June of 1903. So it’s not like this is some 100-year anniversary party they’ve decided to have. And Pepsi, like Coke, has been using high fructose corn syrup since the 1980s as a cheap sweetener to flavor its beverages.

The reason for the sudden interest in the old Pepsi formula (complete with the old Pepsi Wave logo)?

My unadvised answer is that Pepsi has some really good long-range planning executives on the team, as well as a CEO that sees healthy food marketing as the future of Pepsico. This is no more than a market test to move Pepsi back into the sugar-based soda market.

I think Pepsi is being shrewd and is going to recreate itself in the space of being a natural foods advocate, aligning itself with moms, nutritionists, school cafeterias, cardiologists, and a dozen-plus other lobby groups that see soda as the bane of the US existence.

I also think they see several tides on the horizon including:

* A beverage tax levied against beverages containing high fructose corn syrup - if they are made with sugar, they could avoid such a tax.

* Consumer choice - aligning themselves with consumers who are demanding products to be in a more natural state will increase market share.

* Sourcing - By switching over now, they can lock up sugar contracts at prices that make sense, and ensure their competitors don’t have access to the supplies they would need in order to compete with Pepsi.

Sugar is also seen as more sustainable than corn, which is a mono-culture crop. Switching to sugar in then a proactive business choice versus a reactive business response, which is the position they’ll be putting Coke into if this test is successful.

Pepsi is on the Dow Jones Sustainability Index as being one of the top companies on the Dow Jones committed to sustainable business practices. Changing ingredients from high fructose corn syrup to sugar would be seen as a huge step towards sustainability. Sugar, be it from beets or cane, is going to come out the better choice in the case for environmental stewardship. From a cost perspective, it will likely be beet-sugar that gets used, which will be a boon to the beet-sugar producers out there.

So, is this really just a case of nostalgia for better days gone by? Or is this really very shrewd marketing and long range planning in the works? In this economy and recession, those of us of a certain age who can recall hot, lazy summers riding our bikes, personal childhood freedoms pre-Jaycee Dugard being abducted, and seeing Star Wars at the drive-in theater 14 times, will also recall with fondness, the Pepsi Wave logo and what was inside the bottle before the chemical cocktail we have today. If there was ever a time to recapture those consumers, it’s going to be right now. Maneuvering the generation behind me who grew up with blue cans instead of glass bottles might be a bit harder, but if Pepsi can swing it, this just might give them enough edge to win the cola wars once and for all.

Although I am a sucker for the Red Can - chemicals and all - with a move like this, I’m putting my money on Pepsi!

Silly title, I know, but I’d like to convey that the size of the package does not correlate to the overall economic value of what’s inside the package.

Case in point, the watermelon. It’s my family’s favorite summertime fruit. It’s low in calories, has basically no fat, and it seems to do a great job keeping me hydrated. Here’s the problem though.

For years, I’ve resisted the personal-sized watermelons marketed by Dulcinea. $3.00 for a personal watermelon seemed excessive for a 3.5 pound melon when a large seedless watermelon could be had on sale for .39-.49c per pound on average - and sometimes even less!

So I bought my .39c per pound watermelon. The average large melon seems to range between 12-15 pounds, so for .39c per pound, the average cost of a large seedless watermelon is about $5.25. That’s nearly 10 more pounds than one of the personal Dulcinea watermelons. Great deal, right? Well, maybe not so great.

The next part of this is my unscientific, unproven (yet quasi-tested) musings about why that thinking might just be wrong.

When you have a 13-pound watermelon for $5.25, the average large variety watermelon is about 60% usable. The rest is rind weight you’re paying for. That means the usable portion is about 7.8 pounds. That brings the usable portion of watermelon up to .68c per pound. The Dulcinea is about 95% usable, meaning that for a 3.5# personal melon, your rind waste is about .12 of a pound. That’s roughly .88c per pound for usable melon.

Now that we’ve taken the rind out of the equation, the price difference between the two melon types on a pound per pound basis is only about .20c difference.

Let’s take this a few steps further. You now have 7.8 pounds of watermelon. Cut watermelon doesn’t last well much past a week. So unless your family can crank through it before it goes bad, it will wind up in the trash. Plus, in my experience, the larger the watermelon, the greater the tendency to have a mushy, stringy center that you wind up having to cut away and toss. The usable fruit that you toss in this process will increase the overall cost per pound.

If you’ve ever cut up a large watermelon, you’ll know how much trash the rind can generate. If you are cutting up that 13# watermelon, you’re left with about 5.2 pounds of waste. Unless you’re composting (and rinds take quite a while to break down), then you’re filling up your trash can faster after you buy a large melon and cut it up. Watermelons are over 90% water. The larger a melon is, the more resource-intensive it is to grow.

So for those interested in the real cost of food, who think about food miles and where their food is coming from, this is where the smaller melons make up the difference in the price per usable pound. A semitruck typically can lug forty-four thousand pounds of food. The larger the melons, the less of each unit will be on the truck. A large-melon truckload will likely generate more overall waste due to the rind weight.

The smaller melons will hit more people’s tables. They were less water intensive to grow, and they theoretically generate less waste. When you add in these other factors, which most people quite honestly don’t, the smaller melon truly does become the better deal with regards to the total economic value of what you’re buying.

A watermelon makes for a great example to illustrate this point. But it also holds true for things like cereal and bags of chips and caseload goods from big-box warehouse stores. The bigger packages aren’t always the better deal. Sales in your local grocery stores more often than not have better deals on a price per ounce/unit basis. What these bigger pack sizes do is provide convenience, but ultimately, as in the case with the melon, you might wind up paying more for the hidden costs and the loss associated with the waste than had you just bought the smaller, usable pack size in the first place. The perception of spending less to get more could actually cost you more in the long run.

I am the world’s worst blogger. Sorry, I know it. I should get back in here more often, but with what’s going on in the world health environment it was a really motivator to get in here and blog today.

First, let’s talk about flu. It’s important to note that flu is passed by coming into contact with a sick individual through the mouth, eyes, or nose transmission. (That means cover when you sneeze please!). In this case, the flu is suspected to have been caused by animal to human transmission (hence the “swine” in Swine Flu).

It’s then even more important to stress that you will not contract this flu by simply eating pork. (And no, I am not going to get into all the religious implications about some religions and their thoughts around eating pork).

But this does have an implications for your wallet. It means that you’re going to find pork on sale through unadvertised specials. It’s the product of pandemic hysteria around H1N1 “swine” flu. So even though you won’t get swine flu eating pork, it doesn’t matter, the perception is already out there and stores are going to have to contend with it in order to move inventory.

Industries that are affected from bad press tend to mark down their products as a way to combat negative publicity. We saw this a few years ago with all the hype around Avian flu. Poultry prices fell. And we saw it recently with peanuts, where Skippy and Jif slashed prices and put out high-value coupons to both move the inventory and to let customers know they weren’t going to get salmonella from eating jarred peanut butter.

So if you haven’t already seen cheap pork in your supermarket (cheap being $1.49 or less per pound) you will. And it will be a good time to fill your freezer.

I do feel sympathy for the pork industry overall because animals, like people, get sick. It is what it is. This flu has nothing to do with quality or safety of the meat itself (although I would imagine that cleaner, safer facilities could have positive impact on limiting transmission). The media has done a good job trying to convey that eating pork won’t make you sick, and many countries and even the World Health Organization (WHO) feel that the pig is being maligned unfairly. And rightly so. It’s not the animal’s fault - it’s just how illness works.

That said, I am going to plug the US Pork Industry and those who work in it. This is a good wake-up call to get a better sense of where your food is coming from and ask questions about its origins. We do have many responsible pork producers in the US. And the USDA does a decent job overseeing them. In an already tough economy, it’s not a time to let this industry fall because of what’s going on with this flu.

However, I have to say, I am going to be skipping the imported varieties. So as an example, Safeway has imported pork baby back ribs on sale for .99c a pound starting tomorrow. Sounds like a good deal, right? They normally retail for $3.99-$4.99 per pound when they are produced in the US. However, these imports come from China. All I can say is “bleck". Seeing as how I am pretty much on a boycott of any foods directly imported from China, I’m going to have to pass on these, swineflu or no swineflu. And of course if I’m going to buy pork, I’m going to buy as locally as possible.

As a bit of humor, I’m reminded of an episode of The Simpsons where Lisa decided to become a vegetarian:

Homer: Are you saying you’re never going to eat any animal again? What about bacon?
Lisa: No.
Homer: Ham?
Lisa: No.
Homer: Pork chops?
Lisa: Dad, those all come from the same animal.
Homer: Heh heh heh. Ooh, yeah, right, Lisa. A wonderful, MAAAGical animal.

Ultimately, if your family likes pork, it’s going to be a good time to buy it, stock up, and save money. You won’t catch the flu!

For those that haven’t been followed this blog, I’m not a real economist. I just play one on the internet However, I do read a wide variety of publications and I see common threads between them, but the problem is, no one has woven them together to see a pattern.

I would have done my grocery price predictions for 2009 last month, but really, I’ve needed some time to mash together a handful of independent conversations to come up with what I think food prices are going to do. So before I make my predictions, let me string these problems together and paint a picture for you.

Problem #1 - Water shortages in California will diminish crop yield and livestock outputs. It takes lots of water to grow produce and raise livestock. California farmers are facing a water shortage that’s in its third year according to the California Department of Water Resources. That means that if water’s not as easily available as it once was, California, as the nation’s largest agriculture state, is going to have a rough growing season and therefore, smaller quantities available for market.

Problem #2 - Cost of agriculture inputs (fertilizer, land, feed, etc.) cost more than the current commodity prices are going to yield growers. If a farmer is upside down in their farm assets and it costs more to grow or raise the products than will be fetched at the market, odds are high that farmers will hold back this year and take less risk. Strike two for less outputs into the market.

Problem #3 - Farmer’s access to credit is shot. Most farmers leverage debt to finance the season, and pay the debt back at the end of the season. Especially with the cost of inputs being out of whack, many farmers are struggling to finance this season which means they’ll be farming less than in previous years. Again, the finished goods into the market are going to be diminished.

Problem #4 - The average age of a farmer in the US is over 60-years old. We’re not doing a good job as a country raising up new farmers behind the old ones and the cost of entry into the industry is nearly cost-prohibitive. With farmers beginning to retire and no one to fill their place, we’ll see more farm land being resold and converted for other use besides agriculture.

Problem #5 - There’s a train wreck coming in our food supply. We’ve seen it most recently with the Peanut Corporation of America. The government’s immediate response will be reform. While that is certainly a good and welcome thing, knowing our government, anything they come up with will be a knee-jerk reaction that will cause compliant manufacturers who do take care hassle and headaches getting their goods to the grocery stores. That will increase the costs on the store shelf.

So, what does it all mean? Right now, we’ve seen a decrease in some goods because the commodity prices have fallen. But looking towards the end of the year, if this perfect storm comes to fruition, then we’re going to see food prices even higher than we saw them in 2008. The problems outlined above both decrease the amount of goods in the system, and increase the cost of the goods that do make it to market. That means overall prices will jump through the roof.

At this point, I’m going to hang off from looking at individual commodity prices because I want to watch this a little longer. But if I had to offer a bit of advice now, I’d say stock up on the things your family eats before the prices jump back up; plan for your own garden (or container produce); and hunker down for the storm.

Mr. President, I’d like to take a moment to welcome you to your first day on the job. You’ve had the position for less than 12 hours, and already, you’ve delivered several speeches that spoke of your goals for the nation, and the world around us.

In all honesty, though I did not vote you into your new position, even I can appreciate the magnitude of the mess you are walking into today. The economy is in a shambles. The stock market fell even as you celebrated. Once strong retailers like Circuit City, which laid off 34,000 people this week (as you prepared for your new job), are now defunct and on their way to becoming a case study in a business textbook. As the wife of a soldier facing a deployment this spring, I can hope that you’ll take care with our military and guide them out of the Middle East safely.

But as you enjoy what has been an impressive first day, and as you prepare for the overwhelming challenges of the coming months, I hope you’ll keep your eye turned to the parts of government that might be easy to overlook in the face of multiple, mounting crises.

The famed chef Alice Waters implored your wife to consider an organic vegetable garden at the White House. While Ms. Waters dedication to healthy eating is to be commended, tilling up the White House lawn to plant a garden would be a token gesture. I would ask that you look at the broader issues surrounding food and agriculture policy for the country.

In this term, government agencies like USDA and the FDA need your attention. Our US farmers are struggling terribly right now. The change in the economy is threatening our food production. The average age of a US farmer is between 60-65. A younger generation needs to be encouraged to farm and be rewarded for the thankless task of feeding this nation. Economic policies should be reflective of individual efforts by non-farming Americans to grow food for themselves, their families, and their community.

Reuters News Service reported last month that one in 10 Americans is participating in the food stamp program. More than half of the nation’s children require food assistance through child nutrition programs. In my state of Oregon, we have some of the country’s highest levels of hunger. The Oregon Center for Public Policy’s 2003 survey found that one in five with hunger insecurity will consider suicide as an alternative to going without food. One could presume that statistic is not an anomaly to my state alone.

As a nation, we cannot expect to go forward from today and continue to be a consumer society. We’ve learned the hard way that our need for material goods has been our Achilles heel. We’ve lost our manufacturing capabilities in most market sectors. Food production is still the one thing we do well. In your speech today, you reflected that we will help the world’s poor to farm and clean their water.

Sir, please understand that while 10% of our country requiring government aid for food pales in comparison to the need in third-world countries, we’re walking down a path with our food policies and lack of support for our food agencies that could have devastating results. Our own struggles with water are on the horizon. California farmers are already preparing for a less productive harvest this year due to anticipated water shortages. Our challenge won’t just lie in teaching our neighbor in another country to farm his land, but if we cannot continue to produce and export our agriculture products, our neighbor will surely starve, and many Americans will starve beside him.

President Obama, while financial crises, mortgage meltdowns and a war on two fronts will be top of mind for you tomorrow, please remember that a “back to basics” mindset will be what pulls this country up out of the mire. A child cannot learn and become the next great inventor, businessman, or leader if he sits in his chair at school hungry. Back to basics in 2009 should include funding and building agricultural infrastructure and developing food policies that will sustain my children and the global neighborhood for years to come.

I wish you good luck today as you start your new position. I hope that when 2012 rolls around, you’ll have delivered the hope and change you promised. Your daughters, my sons, and the world will depend on it!