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you say “tomato” I say, “really?! where?!”

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

Unless you’re a very strict carnivore, you’ve probably noticed that the price of tomatoes in Israel has skyrocketed while the quality has plummeted.  According to an article on Ynet, stores in Israel are blaming the hot summer and low supply during the High Holidays for the expensive low quality tomatoes.  But this only tells one piece of the story.  Israeli farmers are still producing better quality tomatoes for export, but we in Israel are unable to buy such tomatoes, even if we are willing to pay more.  Why is this?  Where have all the good tomatoes gone?

The answer to this economic conundrum is what is commonly referred to as the “shipping the good apples out” theorem.  This theorem was developed by economists Armen Alchian and William R. Allen when observing a letter written to a local paper asking why no good apples were available to purchase in the region where the apples grew.  Alchian and Allen explained that when two grades of a product are increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product (thanks wikipedia!)

Okay, now in English:

Suppose that better quality tomatoes (BQ) cost ₪ 25 a kilo and lesser quality (LQ) tomatoes cost ₪ 10 a kilo.  This means that the cost of eating one kilo of better quality tomatoes costs the same as eating 2.5 kilos of lesser quality tomatoes or 1 BQ = 2.5 LQ.  

Now suppose that it costs ₪ 5 to ship a kilo of tomatoes out of Israel, no matter what the quality.  This means that outside of Israel BQ will cost ₪ 30 (25 + 5) and LQ will cost ₪ 15 (10+ 5) or 1 BQ = 2 LQ.

Since the relative price of BQ to LQ changes, the people who live out of Israel consider it more worthwhile to buy the better quality tomatoes.  This will ultimately drive up the price out of the country and make it more worthwhile for producers to ship their better tomatoes abroad.

This theorem has plenty of applications beyond produce.

1 – War – According to some historians, this theorem explains why the North’s blockade was so successful during the American Civil War.  During the Civil War, blockade runners mostly smuggled in luxuries, not necessities, leaving the South to starve.

2 – Criminal Policy – By giving harsher punishments to marijuana users, the government may actually encourage marijuana users to use harder drugs like cocaine and heroine.

3 – Other Luxuries – According to Economist Tyler Cowen, the Alchien – Allen theorem implies that Australians drink better quality California wine and Californians drink better quality Australian wine.

Getting back to tomatoes.  My personal advice in the short run is to try to buy fewer tomatoes and that the tomatoes you do buy should be cherry tomatoes.  Cherry tomatoes may cost a bit more (I bought a kilo for ₪ 15 last week) but they last much longer, so you know that while you are spending a lot of money, you will at least be able to cut down the risk of wasting tomatoes that already cost an arm and a leg.  Also keep tomatoes in mind a week from this Friday when we begin asking for rain (“ותן טל ומטר”).

 On a happier note, clementines hit the market recently. They are tasty and very cheap (₪  5 a kilo.)  Maybe I’ll have a fruit salad instead…

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