Identical forces move prices of oil and oranges

Bob Tippee
Editor

The price of oranges is about to triple in the US, and nobody's complaining.

After all, complaining can't change anything. Freezing weather in California and other citrus-growing areas has damaged winter crops. Shortage looms.

According to a marketer of Californian citrus products quoted in the Houston Chronicle, an orange that recently cost 50¢ soon may cost $1.49.

There will be no howls about "price-gouging," however. Congress will summon no citrus growers to accusatory hearings. Newspapers will not write stories about some past conversion of orange-producing land to other use and call it price manipulation.

Americans reserve their vicious suspicion for oil.

They threw a fit when gasoline prices jumped after the twin Gulf Coast hurricanes of summer 2005 idled 30% of US refining capacity.

Seldom is petroleum shortage as visible as it was when refineries were under water, producing platforms were listing, drilling units were adrift, and marine pipelines were dislocated.

Seldom is the reason for prices of crude oil, gas, and petroleum products to rise as evident as it was then. Yet Americans thought they were being gypped.

The oil price spurt of late 2005 and early 2006 was as much a product of cataclysmic weather as the leap of orange prices will be. Yet Americans will continue to believe that some cabal of oil company executives "gouged" them on gasoline prices. And they'll have nothing but well-justified sympathy for citrus growers.

The profits oil companies reported after the gasoline-price jump supposedly explain American pique. Why? Margins rise for any commodity in short supply, lifting profits of producers able to sustain output.

Margins will rise for crops not destroyed by the recent US freeze, as will profits for growers in warmer areas. That's no scandal. It's an incentive to keep oranges moving to market. Similarly, oil margins elevated after the hurricanes attracted foreign products to the US and kept a treacherous supply disruption from becoming disaster.

The orange-oil analogy can be carried too far. But prices of the commodities rise and fall for identical reasons: supply and demand. It's way past time for Americans to understand that.

This feature will appear online next on Feb. 2.

(Online Jan. 19, 2007; author's e-mail: bobt@ogjonline.com)

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