Why Has the Price of Turkey Been Rising?

Commentary about business and finance.
Nov. 22 2011 6:12 PM

Turkeynomics

Why has the price of turkey been rising?

Turkey.
Have turkeys gotten more expensive or does it just seem like it?

Photograph by Creatas Images/Thinkstock.

In case dealing with your extended family isn’t enough of a hassle, here’s more bad news: As part of America’s general economic malaise, a Thanksgiving turkey is growing more expensive. In fact, we appear to have suffered a Lost Decade of Turkey.

Economists have long known that the public assumes inflation is higher than it really is. This is especially true when it comes to food, as we bitterly remember price hikes but forget times when pasta and milk and steak became more affordable. (Israel, for example, was shaken this summer by enormous protests over the rising price of cottage cheese.)

In the case of turkey, the gripers are justified: The birds have been getting more expensive for years. November price data aren’t complete yet, and personal income data for October aren’t available, but we can compare Septembers to get a sense of things. Back in September 2001, annual per capita disposable income was $27,147, and a whole turkey cost $1.162 per pound. (None of these numbers has been adjusted for inflation, so as to isolate turkey inflation from larger price trends.) At this price, the average American could have bought 23,000 pounds of frozen turkey if for some crazy reason she wanted to. Nominal turkey prices bounced around for the next several years while per-capita disposable income increased, meaning that by September 2006, your hypothetical glutton could afford more than 29,000 pounds of frozen turkey.

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The National Bureau of Economic Research says the most recent recession began in December 2007, but turkey-lovers were feeling the pain by September. Disposable income had risen, but not by enough to keep pace with the skyrocketing price of turkey, carving about 500 pounds off our hypothetical index. One year later, in 2008, nominal incomes were still rising despite the recession but, again, not fast enough to keep pace with the turkey. And the news has been the same for each subsequent September. Here in the fall of 2011, per-capita disposable income is up to $37,088, but frozen turkey costs $1.676 per pound, meaning you could buy scarcely more than 22,000 pounds worth of whole frozen birds.

The glimmer of good news is that your Thanksgiving turkey will be slightly cheaper than that. The retail price of a turkey is generally about 10 percent lower each November than it was the month before. At first blush, this seems paradoxical. Shouldn’t the price of turkey go up when demand for it peaks?

For some fancier turkeys, prices probably do rise with holiday demand. But David Harvey, the U.S. Department of Agriculture economist in charge of poultry, explains that when it comes to your basic holiday bird, “so many stores discount them” and “almost all the discounting is done on frozen birds.”

The fact that prices for certain goods fall during peak demand periods is actually well-known among economists who care about such things, and it applies beyond Thanksgiving. Harvey’s explanation for the price drop is the most orthodox: Retailers heavily discount key seasonal goods in order to get customers in the door, then make their profits selling sweet potatoes and cream of mushroom soup. But in a 2005 paper “Why Does the Average Price of Tuna Fall During Lent,” Aviv Nevo and Konstantinos Hatzitaskos exploited a very detailed dataset to cast some doubt on this theory. Consider beer and the 4th of July. Beer sales skyrocket for the holiday weekend primarily because people are buying beer to serve at parties. It’s not surprising that people buying beer under those circumstances select beers that are, on average, cheaper and of lower quality than the beers purchased for home consumption on normal days.

Something similar, they show, seems to happen to tuna during Lent. Each year, tuna sales skyrocket during Lent even as average prices fall. But a painstaking examination of sales at a large supermarket chain shows that this is almost entirely a “substitution effect.” In other words, some brands of tuna are more expensive than others. During Lent, the cheaper brands gain market share at the expense of the more expensive ones. It’s at least possible that the turkey price drop represents the same phenomenon. Non-November whole frozen turkey purchases are driven by idiosyncratic people who for some reason want a turkey even though whole fresh chickens are cheaper and much easier to cook. These people are perhaps less price-sensitive than the once-a-year turkey buyers who stumble into stores and pick the cheapest bird possible.

Meanwhile, the turkey market, like so much else in the American economy, seems to be diverging into haves and have-nots. The top 1 percent is increasingly feasting not on frozen factory-farmed Broad Breasted White turkeys, but on so-called “heritage turkeys,” more flavorful naturally breeding descendants of the original North American turkey varietals. Precise data on heritage sales aren’t available, but Patrick Martins of Heritage Foods USA put it this way: “In 2000, there were probably 12 restaurants serving heritage turkey, today it’s over 200.” That’s pretty substantial growth for a luxury product that costs four or five times as much as a conventional turkey.

Declining middle class purchasing power doesn’t give us much to be thankful for, but the good news is that (in contrast to, say, cheddar cheese) turkey inflation has been extremely modest over the past 12 months. If incomes start rising in the post-recession atmosphere—knock on wood—the dark days of budget-busting Thanksgiving may soon be a faint memory.

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