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Study on the Fluctuation of Tomato Prices

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 4036 words Published: 30th Nov 2020

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Executive Summary

Tomatoes are the most consumed and seasonal vegetable in the United States. Florida, California, and North Carolina are the major producers of tomatoes in the United States. The market price of tomatoes is reliant on several factors such as weather, location, and consumers’ age as well as preferences. In addition, the market price of tomatoes influences the consumption of this vegetable. Due to its seasonality, prices increase when the product is out of season and decreases when the product is on season. The study proves that price fluctuation of tomatoes prices does not affect its consumption significantly. Besides retail price, the median household income affects an individual’s consumption of certain foods. In the case of tomatoes, the study shows that consumption of tomatoes in the United States is slightly affected by fluctuations in the median income.

Table of Contents

Executive Summary

Table of Figures

Chapter One: Introduction

Chapter Two: Literature Review

2.0 Introduction

2.1 Impact of Retail Price on Product Consumption

2.2 Impact of Household Income on Product Consumption

Chapter 3: Methodology

Introduction

Research Philosophy

Research Design

Data Collection

Data Analysis

Reliability and Validity

Limitations of the Study

Chapter 4: Results and Discussion

4.1 Retail Price and Tomato Consumption

4.2 Median Household Income and Tomato Consumption

Chapter 5: Conclusion

References

Table of Figures

Figure 1: Substitution Effect of Normal Goods

Figure 2: Substitution Effect of Inferior Goods

Figure 3: Price-Demand Relationship of Giffen Goods

Figure 4: Income- Consumption curve

Figure 5: Income-consumption curve of Inferior Goods

Figure 6: Price behavior of tomatoes--a seasonal vegetable

Figure 7: Fresh Tomato Prices in the US--2000 till 2016

Figure 8: Consumption of tomatoes in the US (in pounds)

Figure 9: Median Household Income of United States

Chapter One: Introduction

Consumers choose consumption foods based on their household’s preferences, personal context, and available resources. The economic theory affirms that households purchase market goods such as fruits and vegetables based on their preferences and to maximize utility (Adeoye et al. 2016). In addition, the purchase of market goods is subject to the rule that the total cost of those goods is equal to or less than an individual’s source of income. All nutritional guidelines emphasize the consumption of at least three servings and two servings of vegetables daily. However, a significant share of the population does not satisfy the nutrition recommendations (Adeoye et al. 2016). An informed understanding of the factors that influence fruit and vegetable consumption is of paramount importance to improving the populations’ diet.

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Throughout history, tomatoes have been linked to Mexico prior to their arrival in Europe. Tomatoes constitute the basic basket of most individuals globally. The vegetable contains nutritional value but many people fail to recognize its value due to the presence of lipids, proteins, and sugars in a diet (Jung, Vansickle, & Seale, 2005). Tomatoes contain vitamin C, vitamin A, and minerals such as potassium. In addition, they have antioxidants whose main compound protects the human boy against cardiovascular diseases and cancer.

Tomatoes are the most consumed vegetable in the United States. The Food and Agriculture Organization (FAO) affirmed that approximately the production of 35 billion pounds of tomatoes with 2.7 billion pounds being fresh tomatoes (Guan, Biswas & Wu, 2017). According to FAO, China is the leading producer of tomatoes followed by the U.S., India, European Union, and Turkey. In addition, Mexico, Netherlands, and Spain account for the largest exporters of tomatoes globally. Florida and California are the leading producers of tomatoes in the United States. The peak season of tomatoes in Florida runs from April-May while the production period runs from November to January (Guan, Biswas & Wu, 2017). On the contrary, the production of tomatoes in California occurs all year round except in the winter season.

Tomatoes are a seasonal fruit which leads to fluctuation of prices when they are in and out of season. They are processed into puree, paste, ketchup, and juices whose shelf life can be prolonged through pre-boiling, sun drying, and can processing (Adeoye et al. 2016). The fluctuation in prices affects customers’ consumption preferences, patterns, and purchasing behaviors. A high supply of tomatoes during their season lures customers into purchasing more but a decline in supply which is coupled by a spike in retail prices causes customers to turn to other alternatives (Adeoye et al. 2016). Both in theory and real life, consumers’ tastes and preferences influence their decision-making process on which products to purchase. Also, income, product’s availability, and process influence the purchasing and consumption patterns of consumers.

Population-based surveys of individual consumption patterns depict that those with low incomes are less likely to consume fruits and vegetables. This is coupled with a consequent increase in high energy and fatty foods. Jung, Vansickle and Seale (2005) affirms that low income individuals and low income households have a similar consumption pattern regardless of other factors in play such as the availability of food at home and social influences. Research indicates that households with a lower median income purchase fewer vegetables and fruits as compared with high income households. Lower income households are characterized by regular constraints on food costs (Jung, Vansickle, & Seale, 2005). As a result, they choose to purchase high energy foods to maximize on the calories acquired per dollar. Being a vegetable and a seasonal fruit, the consumption patterns of tomatoes are affected significantly by median household incomes and retail prices. The study seeks to analyze how the relationship between consumption patterns of tomatoes and median household income as well as retail price.

Significance of the Study

The study seeks to assess how the consumption of tomatoes is affected by retail prices and also household income. Demand is further influenced by the household income, with a majority of the households demonstrating a varying spending based on their monthly income and the market prices (Andreyeva, Long & Brownell, 2010). However, there is limited research on the association between consumption retail process and household income. Hence, the study the objective of the study is to narrow down the current research to tomatoes consumption and how the tomato market responds to market retail prices and also household incomes.

Research Question

  1. How is the consumption of Tomatoes affected by the retail price and median household income?

Chapter Two: Literature Review

2.0 Introduction

The literature review section provides a synthesis of various resources. In this study, the analysis of various literature sources will establish the relationship between retail prices, median household income, and food consumption including the use of graphs.

2.1 Impact of Retail Price on Product Consumption

A shift in the budget constraint curve due to price or income influences consumer choices. A nation’s inflation rate influences a product’s price which, in turn, influences consumers purchasing behavior. Carroll, Bernard and Pesek Jr (2013) reveals that inflation rates are not accompanied with an increase in income levels. Therefore, consumers strain to even cover basic needs such as housing and food. The normal response to an increase in the price of a product results into two outcomes. First, customers purchase and consume less of that product. Subsequently, the consumption of a substitute product increases (Carroll, Bernard and Pesek Jr (2013). The latter is referred to as the substitution impact while the former is referred to as the income effect.

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The substitution effect occurs when an increase in the price of commodity A leads to a subsequent increase in the consumption of commodity B which is a substitute good. For instance, an increase in the price of beef would push consumers to consume more chicken and less beef. Literature suggests that substitution effect will always kick in when there is an increase in the price of a product but constant levels of consumers’ income.

Figure 1: Substitution Effect of Normal Goods

However, the substitution effect is not similar across all goods. Inferior goods and Giffen goods present a different change in the substitution effect. De Pablo Valenciano et al. (2017) defines inferior goods as those whose demand decreases when consumers’ income increases. For instance, a consumer might be used to using public transport when they have a low income. An increase in the consumers’ income would probe the consumer to purchase a car which will lead to a decrease in the demand of public transportation. From Figure 2, it is essential to note that there is a total shift of the budget constraint unlike the case of normal goods.

Figure 2: Substitution Effect of Inferior Goods

Besides inferior goods, Giffen goods also portray a different substitution effect. Robert Giffen, the economist behind the inception of Giffen goods. He observed that low income, non-luxury products such as potatoes lack close substitutes. It is proper to note that potatoes lack a close substitute (De Pablo Valenciano et al. 2017). In the event of a price increase of giffen goods, consumers are less likely to purchase less of the product as they lack close substitutes. The demand curve of giffen goods is upward slopping since an increase in price does not affect demand. The concept of giffen goods is that consumers are willing to purchase the product even when there’s a significant increase in price. In the case of giffen goods, the income effect outweighs the substitution impact.

Figure 3: Price-Demand Relationship of Giffen Goods

2.2 Impact of Household Income on Product Consumption

Besides retail price, income is an additional major factor that influences the patterns of food consumption in the modern world. The purchasing behavior of people from the middle and low class is primarily determined by utility. On the contrary, people from the upper class are moved my design, style, and other special features while purchasing a product (French, Wall & Mitchell, 2010). Household income refers to the total income of all members in a particular household. Median household income is the amount of income that divides the income distribution of a household into two groups; half below the amount and half above the amount. The income-consumption curve depicts two goods that maximize consumers’ satisfaction levels at different amounts of income ((French, Wall & Mitchell, 2010). The income curve is formed by joining the points where the budget line corresponds to every income level as shown in figure 4.

Figure 4: Income- Consumption curve

Figure 4 shows a combination of two goods (paperbacks and hardcovers). At an income level of $1,000, an individual can afford 1 hardcover and 2 paperbacks. The move from point A to B is as a result of an increase in the income level. Therefore, at a higher income level, one will purchase 2 hardcovers and 4 paperbacks.  

Unlike normal goods, the income-consumption curve of inferior goods bends back on itself. Figure 5 shows that an increase in the income level causes an increase in the consumption of good X2 and a decrease in X1 which is the inferior good.  

Figure 5: Income-consumption curve of Inferior Goods

Chapter 3: Methodology

Introduction

The objective of this section is to describe the methods taken by the research in gathering and analysis of the data. As such, the section describes the research philosophy, design, collection, analysis, reliability, and validity and also the limitations encountered during the study.

Research Philosophy

The researcher takes a positivist approach to the study question and topic. This philosophical stance to understand a set phenomenon based on pre-established research questions or hypotheses. This data can then be applied in the development of theory and allows the theory to be tested and also measured against current evidence-based knowledge (Saunders, 2009). 

Research Design

The design adopted in this paper is archival research and lies on secondary data derived from various credible sources that includes journals, reports, market publications and also books. Hence, this allows for the study to be exploratory, explanatory or descriptive (Saunders, 2009). In this case, the study is descriptive and seeks to provide an improved knowledge of how consumption of tomatoes is affected by median house hold income and also retail prices. The study will therefore synthesis secondary data from various sources and identify common themes and patterns on the relationship between consumer behaviour, household income and also tomato retail prices.

Data Collection

The data was collected from secondary materials hence an open targeting approach was applied. The search strategy mainly focused on websites, reports and publications that track and report on public spending. The objective as stated above was investigate how consumer behaviour is affected by median house hold income and retail prices with a  focus on tomato consumption. In this study a variety of keywords were used in different combinations including: “tomatoes, consumption, retail price, median household income, behaviour and spending.” The relevance of each of the reports or data was based on the authority of the publisher with a preference for articles that were published by governments or reputable organizations and less on general websites. Hence, strict evaluate of each article was undertaken to ensure accuracy of the findings. Where the source was not trusted, verifiable and had a reputation of positive reporting the article was excluded.

Data Analysis

The Method of analysis applied to this study content analysis which involves categorization of behaviour data which the objective of summarizing and tabulating the data (Saunders et al. 2009). In this case, the object was to determine how consumer behaviour is affected by retail prices and also household income. Therefore, the investigation looks at consumer behaviour and how it is affected by market retail price and household income which are independent market factors.

Reliability and Validity

Reliability and validity are concepts that describe the quality of research. The reliability describes the consistency of measure or how well same results can be realised even when the study design changes (Heale & Twycross, 2015). As such, since this research relies on secondary data from carefully vetted sources, the results will be consistent no matter the design. Second, the validity which describes the accuracy of the findings (Heale & Twycross, 2015). Once again this study findings are based on a careful selection of resources and also a keen synthesis of the data. Hence, the strength of each source affects the validity of the results hence careful evaluation of each included article.

Limitations of the Study

A few limitations were experienced in this study but did not affect the reliability and validity of the findings. First, there is limited empirical data on how consumers tomato purchases is affected by retail prices and household income in Tennessee and in the United States in general. However, Tomatoes are grouped together with other household groceries hence this study is unique in that it explores just one element in the grocery list.

Chapter 4: Results and Discussion

4.1 Retail Price and Tomato Consumption

Bellingham et al. (2018) analyzes the factors that affect tomato prices in Tennessee. The study limits the factors to consumer characteristics, weather, and location. However, the results of the study indicate that the three major factors that influence the retail price of tomatoes include household income, customers’ age, and seasonality. Bellingham et al. (2018) affirm that an increase in demand during the seasonality of tomatoes influences farmers to implement techniques that extend the season. In addition, areas with higher income households and older population have a demand for fresh produce at higher prices. As a result, farmers get to decide which market to sell in and how to set their prices for the fresh produce.

Adeoye et al. (2016) state that tomatoes are the most consumed vegetables in American households despite being a seasonal product. The supply of tomatoes is low at the beginning of the harvesting season, which leads to an increase in price due to scarcity. In contrast, the prices decrease when tomatoes reach maturity on the farms. Subsequently, prices increase gradually as the season of tomatoes comes to an end. Figure 6 depict the behavior of price in the case of tomatoes—a seasonal vegetable.

Figure 6: Price behavior of tomatoes--a seasonal vegetable

The Food and Agriculture Organization ascertains that the price and production level of tomatoes fluctuates annually due to seasonality and changes in acreage as depicted in figure 7. Florida, California, and North Carolina are the main producers of tomatoes in the United States. Figure 7 shows an increase in the market price of tomatoes until 2006 which was then followed by a huge variation.

Figure 7: Fresh Tomato Prices in the US--2000 till 2016

Source: USDA-NASS

However, the variations in the price of tomatoes in the United States does not significantly impact the consumption of tomatoes. Adeoye et al. (2016) conducted a study to assess consumers’ purchasing behavior in the United States. 48% of the respondents purchase tomatoes twice per week in the off-season (high prices) while 55% in the peak season (low prices) (Adeoye et al. 2016). Figure 8 shows that the consumption of tomatoes since 2006 to 2016 was ranging at approximately a similar level despite a variation in price, as shown in figure 7.  

4.2 Median Household Income and Tomato Consumption

As depicted in figure 9, the median household income of the population of the United States has been on a constant rise from 2000 to 2006. However, the curve from 2006 to 2016 shows a variation of the median household income. A rise in the median household income leads to an increase in the purchases made by a household and vice versa. However, in the case of tomato consumption—a seasonal vegetable, it is proper to affirm the fluctuations in the median household income as shown in figure 7, slightly impacted the consumption of tomatoes. Adeoye et al. (2016) state that there is always an impact on the consumption of seasonal fruits and vegetables based on price and income. However, the significance of the impact is based on the type of food. Staple foods, vegetables, and fruits exhibit a slight change in demand based on the retail price and market variation. In contrast, non-essential fruits and vegetables exhibit a more significant impact on consumption as a result of price and income changes as compared to staple foods.

Chapter 5: Conclusion

The study finds that the impact of the retail price and median household income is not significant in the consumption of tomatoes in the United States. Tomatoes are among the most consumed vegetables in the U.S. Also, unlike beef, pork, and chicken, which are close substitutes, tomatoes lack a close substitute. Therefore, an increase in the market price and income is less likely to cause a significant rise in the consumption of tomatoes. The study also finds that variations in the median income do not cause a noticeable change in the purchasing behavior of tomatoes. Being a seasonal but staple vegetable in the United States, all households including low-income households, are less likely to stop purchasing tomatoes due to a hike in the market price. 

References

  • Adeoye, I. B., Adegbite, O. O., Fashogbon, A. E., & Layade, A. A. (2016). Consumer purchasing behavior for tomatoes. International Journal of Vegetable Science22(3), 259-265.
  • Andreyeva, T., Long, M. W., & Brownell, K. D. (2010). The impact of food prices on consumption: a systematic review of research on the price elasticity of demand for food. American journal of public health100(2), 216-222.
  • Bellingham, S. (2018). Factors Influencing Tomato Prices at Tennessee Farmers' Markets.
  • Carroll, K. A., Bernard, J. C., & Pesek Jr, J. D. (2013). Consumer preferences for tomatoes: the influence of local, organic, and state program promotions by purchasing venue. Journal of Agricultural and Resource Economics, 379-396.
  • de Pablo Valenciano, J., Manso, J. R. P., Battistuzzi, M. Á. G., García, J. M., & Toril, J. U. (2017). Explicative Factors Driving the Tomato Consumption in the Mediterranean Basin: A Panel Data Approach. Consumer Behavior: Practice Oriented Perspectives, 111.
  • French, S. A., Wall, M., & Mitchell, N. R. (2010). Household income differences in food sources and food items purchased. International Journal of Behavioral Nutrition and Physical Activity7(1), 77.
  • Guan, Z., Biswas, T., & Wu, F. (2017). The US Tomato Industry: An Overview of Production and Trade. The UF/IFAS Extension Publication FE1027.
  • Heale, R., & Twycross, A. (2015). Validity and reliability in quantitative studies. Evidence-based nursing18(3), 66-67
  • Jung, J., Vansickle, J., & Seale, J. (2005, February). Demand analysis of the US fresh tomato market. In Southern Association of Agricultural Economics Association Annual Meeting, Little Rock, AR.\
  • Saunders, M., Lewis, P., & Thornhill, A. (2007). Research Methods for Business Students, (6th ed.) London: Pearson.

 

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