What factors would lead to apples grown in Washington being sold for less in New York than in the region of their origin?

Question

What factors would lead to apples grown in Washington being sold for less in New York than in the region of their origin?

In: Economics

Answer 1

A big part of it has to do with buying in bulk. Usually, it’s not individual supermarkets purchasing produce from across the country. Instead, they buy from giant distributors who supply tons of supermarkets.

Those distributors work with big farms, buying huge amounts of their crops. (When a food distributor offers to buy like 75% of your apples, there’s going to be some serious bulk discount involved.) Supermarkets obviously pay a higher price to buy those apples from the distributor, but it’s still pretty cheap.

More importantly, large chain supermarkets are are practically penny-margin businesses. They make an average profit of 1-3% on each item, which is *tiny.* To put that in perspective, if they purchase the apples at $2/lb, they would sell them to customers for between $2.02/lb and $2.06/lb… (They stay in business due to the sheer volume of sales: those pennies add up!)

So to recap, most of the cross-country apple purchases are made by major food distributors who buy the apples in bulk for a big discount. And most of those apples go to chain supermarkets that can sell them at the lowest prices.

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BUT, while that explains the low price of WA apples in NY, it doesn’t explain the higher prices in WA. Why aren’t food distributors in the Pacific Northwest flooding Washington supermarkets with the same produce at the same prices? There are a couple of reasons:
> (1) The “locally grown” surcharge. Buying local has become incredibly popular, especially in states like NY and WA. More to the point, people are willing to pay higher prices for locally grown produce. Naturally, that means that stores are going to make a big deal about something being local and sell it at a higher price. But it also means that stores in NY *can’t* sell them at higher prices (since customers in NY are only going to want to pay higher prices for their own local foods).

> (2) This is kind of irrelevant when comparing WA and NY, but general cost of living can explain price differences in some places. There are parts of WA where *everything* is more expensive than in other parts of the country. That means food distributors and supermarkets have to pay more for everything too (rent, gas, employees, etc). Tax also plays a big role.