Where have all the other mangoes gone?

Mangonomics Under the spell of economic laws A MURALITHARAN

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An economic explanation to why the best Indian stuff gets sold in the US and not India



The thing you miss the most about India living in the US is the mango season — which is, of course, now coming to an end.

One sorely misses the myriad flavours, smells and taste of the endless varieties back home. Just the thought of sinking my teeth into a juicy ripe fruit makes the mouth water!

Unfortunately, what passes off as mangoes in the regular grocery stores here are offerings from South America. These so-called mangoes, usually of Mexican or Peruvian origin, are flavourless and tasteless; they are simply big, nothing more.

True, you also have the ‘Indian’ grocery stores where you’ll most certainly find boxes of that king of mangoes — the Alphonso. But you won’t see any other variety. Anybody wanting to learn about India from what India exports will instantly conclude that India only produces one mango variety.

When I ask store owners here why they only keep the Alphonso, their stock response is: Alphonso is the king of mangoes, they only sell the best Indian mangoes, and anyway only the best things from all the countries in the world get sent to the US!

This logic strikes a chord because it matches what I used to hear growing up in India — we send our ‘best’ products abroad and sell only the export rejects or factory ‘seconds’ in the streets of Janpath.

The third law

Much as one wouldn’t like this state of affairs, it is quite often the case that the best products from any place are shipped out elsewhere.

A simple economic explanation for this was put forth by Armen Alchian and William R Allen in their classic 1967 textbook University Economics. It is sometimes referred to as the third law of demand.

To understand it, assume there are only two kinds of mangoes — high-quality (like our Alphonso) and low-quality (name your least favourite Indian mango variety). For the sake of simplicity, let’s take the latter to cost ₹30 per kg and the former ₹300 in India. Simply put, one kg of high-quality mangoes is equivalent to 10 kg of low-quality mangoes.

Now, suppose it costs ₹60 to send a kg of mangoes regardless of their quality to the US. In the event, a kg of high-quality mangoes will cost ₹360 in the US, while being ₹90 for low-quality mangoes. Thus, in the US, a kg of high-quality mangoes works out the equivalent of only four kg of low-quality mangoes.

Relatively speaking then — when denominated in low-cost mangoes — high-quality mangoes are cheaper in the US than they are in India. It is natural, therefore, to expect American consumers to demand high-quality mangoes, since their cost in terms of low-cost mangoes is lower than what it is for consumers in India.

Keeping the above logic in mind, mango sellers will want to ship high-quality mangoes to the US. From this, it follows that the probability of finding high-quality mangoes is much higher in the US than in India. And once Alphonso has been branded the best mango, you’ll get to see only it and no other Indian variety in the US!

Some caveats

Observe that the above arguments rest on the fact that if we add the same fixed costs (which needn’t just be transport charges) to both high-quality and low-quality goods, the high-quality goods become relatively cheaper.

Herein lies the first caveat — the fixed cost amounts needs to be more or less identical for our arguments to hold. It is quite possible that the handling costs for low-quality mangoes may be significantly lower compared to that of high-quality ones. What matters is that the fixed costs are not substantially different between high-quality and low-quality mangoes.

Second, it is assumed that the entire fixed costs can be transferred to consumers. In our example, the price of both types of mangoes goes up by ₹60, although this strict requirement is not really germane to our arguments.

And third, we are talking of only mangoes being shipped out of India. The fact that those “mangoes” from South America can be substitutes for Alphonso or even our so-called low-quality mangoes (₹30 per kg, ex-India) isn’t entering the calculations at all.

The travel dimension

An interesting aspect of the third law of demand is that it holds even if the consumer has to travel instead of the good getting shipped.

For that, we could consider an IPL match being played at the Barabati stadium in Cuttack. Suppose a resident of Cuttack and someone from the steel city of Rourkela — where I did my entire schooling – are planning to watch this game. It is reasonable to take the cost of travelling from Rourkela to Cuttack and back at ₹1,000. Also, we can assume the price of cheap Barabati venue ticket at ₹500 and a premium one at ₹1,500.

In this case, the total cost of the cheap ticket for our guy from Rourkela works out to ₹1,500, while being ₹2,500 for the premium viewing. Effectively, one premium ticket for him is worth 1.67 cheap tickets (2,500/1,500). But for the local Cuttack guy, one premium ticket can buy three cheap tickets (1500/500). The relative cheapness of the premium ticket for the Rourkelaite makes it more likely for him to go for it than his Cuttack counterpart.

In other words, the third law of demand operates both ways — whether it is the good or the consumer that is travelling.

The first two laws

Well, what about the first two laws of demand? The first law we all probably know, at least through experience. It states that ceteris paribus or keeping everything else constant, the lower the price of a good, the higher is the quantity demanded and vice versa.

That ‘keeping everything else constant’ part — meaning income, tastes, prices of other goods, etc. — of the statement is, of course, crucial. This law may simply not hold when we relax it. For instance, when your income increases hugely, you will buy more of most goods at all prices.

The second less-known law of demand states that a good is more responsive to changes in price in the long run than in the short run. Essentially, in the long run more substitutes can be found. It allows the quantities purchased to adjust more easily to prices.

Thus, if the price of petrol increases by 50 per cent, you may not be able to find a flat close to your place of work overnight. But in the long run, you’ll move closer to your workplace, which will then enable you to consume much lower quantity of petrol.

As the economist Eugene Silberberg put it, a simple explanation underlies most economic phenomena: “It is no conspiracy — just the laws of supply and demand.”

The writer teaches microeconomics and game theory at Louisiana State University

Published on July 24, 2014
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