April 24, 2008

Got Rice?

Many top retailers, notably Sam's Club, announced yesterday that they will be limiting the amount of rice individual shoppers can buy and said that this was due to "supply and demand trends."

And Costco (we now have one in Colorado Springs off Powers) announced that it might be following in similar fashion.

Customers might be clearing out shelves of rice but is there really a shortage? The answer is: No.

The truth is that Sam's Club has not limited the purchase of rice.

I can buy a maximum of 4 bags of rice at Sam's Club at a time and then go right back into the store and purchase another 4 bags from a different cashier because there's nothing preventing me (or you) from doing this.

But the question is, "Why should I do this?" I don't have a reason so that's why I'm not hoarding rice.

Retail experts see little evidence of "panic" hoarding by the public and Richard Galanti, Costco's CFO, said yesterday "We don't think there is a shortage, it is just increased shopping by customers who think there is."

Mr. Galanti is correct and that's exactly what this is.

The media is trying to scare us into thinking there's a shortage of rice and this is causing people who normally don't buy rice to buy it anyways because of our innate human survival instinct.

If we take a quick look at some statistics, here in the U.S. 8.3 million tons will be produced this year alone and Americans consume only 10-15% of what people in Asian countries eat. This means there's plenty of rice for domestic consumption.

So here's the bottom line and Tim Harford would agree:

1. Don't change your diet or shopping habits just because everyone else is buying rice out of fear. Buy rice because you like rice and you want to eat it.

2. If there truly were a shortage in rice, then the price of rice at the grocery store would increase and in this case, the increase in price would reduce the quantity demanded. This is true unlike the price of gasoline because rice is not an inelastic good and there are many substitutes for rice.

3. If you can't find rice at Sam's or Costco, then go to an Asian Supermarket.

4. If you buy rice, make sure you also buy a rice cooker (a complementary good) as well unless you plan on selling your rice to your neighbors at a higher price than you purchased it for.

1 comment:

EdwinHLee said...

So, I went to Costco this weekend...they were out of rice but there's a shipment arriving on Wednesday!