econlife - How Garlic Relates to Coronavirus by Elaine Schwartz

If you’ve traveled to China during the two weeks before boarding, a cruise ship will send you home. For a similar reason, Apple’s revenue will be less than projected and Hong Kong’s restaurant traffic is down.

But garlic?

The Coronavirus Impact on Garlic

It is likely that the two pounds of garlic you ate this year were from China. The source of as much as 80 percent of the world’s garlic supply, China provides much of our garlic. It is also possible that when you visited Gilroy, California, you smelled garlic, an aroma said “to engulf” the city. As garlic growers, China and Gilroy have had a very different reaction to the U.S. China trade war and the coronavirus.

California’s garlic farmers were delighted when a 10 percent tariff on garlic went to 25 percent because of the trade war. Now, China’s response to the coronavirus has locked down transport arteries. Agricultural workers and processors have not been at work. The result has been a continued march upward of the price of garlic. During the first two weeks in February, it ascended by 13 percent.

We’ve been eating Chinese garlic for awhile. Below is a sign in a NY gourmet supermarket during 2013:

Our Bottom Line: Externalities

An externality refers to the impact of an activity or a contract or a decision on an uninvolved third party. Good and bad, externalities can be positive and negative. A vaccine is a typical example of a positive externality while water pollution creates the negative ripple.

You can see with garlic that the Chinese are experiencing negative externalities as are consumers who are paying more. Meanwhile, Gilroy’s garlic farmers are benefiting.

My sources and more: Thanks to Tracy for alerting me to the garlic update. That took me to the LA Times for the cruise ship ban and to CNBC for its Apple news. Unexpectedly, it also relates to the trade war now and in the past. And here are the USDA stats and facts about Gilroy, California, the garlic capital of the U.S.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Fracking and India’s Guar Bean Bubble by Elaine Schwartz

Like me, you might have seen guar gum in the ingredients list of a pint of ice cream. Who knew it was crucial for fracking?

The Guar Bubble

Around Lordi, in India’s Rajasthani Desert, farmers grow the guar bean. For centuries it was a dietary staple. But then Western food processors and pharmaceutical companies realized that guar’s ability to absorb water could come in handy. (It’s the guar gum that keeps the ice cream thick.)

For fracking also, guar is a thickener. Because of guar, the water becomes stiff enough to shoot sand sideways through rock. Once the shale fractures, sand particles keep the cracks open for oil and gas to seep through.

We all know that fracking vastly increased U.S. oil and natural gas production. In addition, it spiked demand for guar and pushed prices skyward. However, with acreage increasing, substitutes emerging, and then fracking demand subsiding, after 2013 (see below) guar markets reversed:

It is rather amazing that more than 13,000 miles from the fracking fields, India’s guar bean farmers, traders and processors thrived like never before. FT called it a bean bubble. Farmers built stone houses and bought tractors. There was more money for trips, for dowries, for elaborate weddings.

Our Bottom Line; Supply and Demand

Like peanut butter and jelly, fracking and guar seeds have a complementary relationship. When the demand for peanut butter goes up, we want more jelly. So too, with fracking and guar seeds.

And as you would expect, when price popped, the supply side had the incentive to produce more and develop cheaper alternatives. Supply (and quantity supplied) increased, demand decreased and guar prices dropped. When oil prices crashed in 2014, the boom truly became a bust.

Now? Guar prices are rising again as fracking activity accelerates.

My sources and more: For all you could ever want to know about the guar bean, do go to the NY Times, here, and here, and to Quartz. Then, for the price update, Business Standard data is here and here. Perhaps most interesting though is seeing how guar’s ups and downs resemble fracking’s sand suppliers.

Ideal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.