Picking up from a piece in The Economist there are lessons to be learnt in managing supply and demand for perishable products. In one New York bakery it costs US$2.60 to make a croissants that sells for US$3.60. If it makes 100 but only sells 70 it loses US$15 (cost = US$260 and sales = US$245). Furthermore, the bakery loses money as it refuses to sell leftover croissants. However they have a couple of solutions to this problem:
- Don’t just sell croissants but other food that has a much higher profit margin – fancy salads and sandwiches.
- Use the information on sales to cut waste e.g. demand and supply
- No sweet items on Monday or Tuesday as people are feeling the effects of enough sugar during the weekend.
- With bad weather there are fewer customers therefore demand decreases
- Note the school holidays as there is less demand
- Supply more after fasting (Yom Kippur) by the Jewish customers
- Fine tune supply after checking sales after each hour
“Also offer sugar treats at the end of the day and make them expensive. They add colour to the shelves and make them look full which attracts foot traffic at the end of the working day.”
Source: The Economist 29th August 2015
US Fed chairman Ben Bernanke has indicated that the US Fed is not responsible for increases in world food prices. Critics have argued that by driving down US interest rates with quantitative easing the Fed is pushing capital flows into commodities and emerging markets. He said that there are two reasons for higher foods prices in emerging markets:
1. There has been a growth in wealth in these countries and
2. A failure to tackle inflation.
To address the latter they have been reluctant to use a contractionary monetary policy (higher interest rates) and they can also adjust their exchange rate which some countries have been reluctant to do. Surging food prices have helped fuel protests that toppled Tunisia’s president in January. Food inflation has also been among the root causes of protests in Egypt and Jordan, raising speculation other nations in the region would hoard grain stocks to reassure their populations.
The United Nations Food and Agriculture Organization (UN FAO) measures food prices from an index made up of a basket of key commodities such as wheat, milk, oil and sugar, and is widely watched by economists and politicians around the world as the first indicator of whether prices will end up higher on shop shelves. The index hit averaged 230.7 points in January, up from 223.1 points in December and 206 in November. The index highlights how food prices, which throughout most of the last two decades have been stable, have taken off in alarming fashion in the last three years. In 2000 the index stood at 90 and did not break through 100 until 2004.