November 2020
It’s harvest time for cranberries on Cape Cod. The cranberry market is small as markets go, with total annual sales of roughly $1.5 billion. But if we look at it closely, we can see a clear demonstration of the boom and bust problem of the “laissez faire” economics of Adam Smith.
The cranberry market was fairly stable in the 80s, with a price per barrel well above the $35 cost per barrel to produce. Then, in the 90s, partly because cranberries were labelled as healthy, demand went up, and so did the price, peaking at roughly $64 a barrel in 1996.
In response to the increase in price, investors came into the market. In Wisconsin, where more than half of all US cranberries are produced, acreage planted jumped from 13,000 to 18,000. Canada and Maine also added significant acreage. (Massachusetts produces about 30% of the cranberry crop but does not have cheap agricultural land for expansion.)
As Adam Smith would have expected, when the new crops came into the market, the price started dropping. Then it plummeted, bottoming out in 1999 at $17.20 a barrel, about half what it costs to produce. As one analyst said,
“In agriculture, short-term profits have a way of blinding players
to the long game. When crop prices rise, farmers expand
production, creating surpluses that push prices back down again.”
As the price collapsed, cranberry growers went from fat city to serious losses. Laissez faire economics says that these losses solve the problem of oversupply by driving the weakest producers out of the market. But few producers are willing to leave the market. They’ve invested time, money and sweat into their business. They are depending on it to support them in their old age. And what else could they do?
Their position is understandable. I can’t imagine watching the price I got for my product or service dropping so precipitously. So, the producers, who generally tend to be quite vocal about smaller government, ask for government help.
In a market like cranberries, where products from various producers are relatively indistinguishable, controlling price means curtailing supply. If producers don’t leave the market, you have to limit their production.
This is usually done by setting a limit on every producer. The cranberry producers asked the government to give them dispensation from anti-trust laws; so they could form a group, and issue a “market order” to limit the number of barrels each grower could sell into the market. This is done with other agricultural crops, like oranges.
Congress didn’t agree to this, so cranberry producers asked the federal government to buy more cranberries, which it did, adding them to its school lunch program. The producers also generated new products (can you say “Craisins”?) to stimulate demand.
All of this worked. And Cranberries peaked at nearly $60 in 2008, according to the USDA. Fat City was back again. But not for long.
Years of overproduction had created a surplus in cranberry concentrate, so Ocean Spray started auctioning it off, driving the price down again. By 2016 the price of a barrel of cranberries had dropped to $18 a barrel. Again, they have asked for government help. As the Cape Cod Times reported this September:
“With prices down, the state is trying to help the growers improve farmers’ yield and efficiency by adding $7.5 million to the Cranberry station budget. Their researchers work on water conservation, off-site nutrient and pesticide movement, pollinator health and cultivating varietals that produce more fruit or fruit that meets a market need.
Then, at the end of the article, was something different. A cranberry grower who sees how impossible the roller coaster cranberry market has become, and makes a surprising suggestion.
As the Times reported:
“Harwich cranberry grower Leo Cakounes said the industry is already dead in the water. He said there is a three-year surplus of berries being held in freezers because of excess production and lower demand. He thinks the money would be better going to transition small cranberry growers to other crops.
“Consolidation is occurring…because Massachusetts doesn’t have the great tracts of land in Wisconsin and California where it’s another agribusiness.
“The cranberry industry is no longer a mom-and-pop industry,” Cakounes said.
When I wrote this a month or two ago, I agreed with Mr. Cakounes. Massachusetts should get out of the cranberry business. We don’t have the cheap land we would need to compete with Canada and Wisconsin.
Since then I have learned that the government may have come to the rescue again. Government-sponsored research has created a solar panel that gathers energy from both sides. And subsidies have mounted those panels eight feet above the ground on 19 acres in a farm in Grafton. These 8,000 panels produce enough electricity to power almost 1,200 homes.
Meanwhile, farming goes on as before, under the panels. Would this system help cranberry growers survive? We’ll soon find out. Putting panels over bogs is on the list for a test.
