Posted: August 29, 2013
With cotton prices falling, reports indicating larger profit margins for apparel manufacturers are surfacing. In the discussion, reporters do not seem to even ask if the companies that cover our rears will lower the price of a pair of jeans. The fact that they will keep the profits comes as a given.
So, why does the idea that falling corn prices will lower the price of food have so much traction?
In relating food prices to the use of corn for ethanol, consumers are expected to assume that food manufacturers would pass these savings along. Simply, why is different corporate behavior expected from the apparel industry than from the grocery? Given that both operate with the goal of turning a profit for shareholders, this makes little sense.
Common sense underlies the public understanding of the economics of cotton. It should underlie the public understanding of economics of corn.