It Costs Peanuts!

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Let’s talk about the value of peanut butter, the drought of 2011 that made prices sky rocket, and why Plumpy Nut has been endorsed by UNICEF as vital in the fight against child hunger.

On the go? Why not listen to podcast episode where I discuss the article (click this link for the episode). You can listen on most platforms!

Peanut Butter or Cheese?

Peanut butter was not invented by George Washington Carver, although he published a popular work in 1916 which included ways of producing peanut butter. Its origins can be traced back further to Suriname in the 1780s as a dish likened to peanut cheese.

Go back even further and the Aztecs and Incas ground peanuts into a paste. Roasting them like Marcellus Gilmore or boil them like JH Kellogg (yes that Kellogg). In the late 18th and early 19th century peanut butter was miracle medical marvel that contained a lot of calories and protein without the need for chewing.

Factory Scale Production

Modern day production is at a large scale. Much of the processing is automated. If you want to set up your own peanut butter production the essential process is simple – select the peanuts, roast them, cool them, peel them, grind them, grind them som more, mix with other ingredients (or not), cool them, sterilise and then fill your containers.

Factory production of peanut butter(courtesy of History.com)

Scale is important here, and how much you will produce, but the process is fairly simple. But, if you invest so much in your plant and your margin is dependent on the variable cost of the raw material, the peanuts, what do you need to know about how variable those can be?

The Peanut Drought of 2011

An article out of Cambridge University Press discusses the impact of severe droughts on peanut butter prices. The article looked at the impact of this drought on the price of peanut butter, and given its popularity, the article essentially presented the cost to the consumer of climate change-inducing droughts, that are somewhat generalisable.

“With the popularity of peanut butter, any price increase will have consequences for vast numbers of U.S. consumers, especially for lower income households.”

Peanut crops contribute more than $4 billion annually to the U.S. economy. Almost half of peanut crops in the US are used to produce peanut butter. The equivalent of about 4 pounds of peanut butter (approaching half a kilo) per person is produced in the US every year. Peanuts depend on certain growing conditions, and in the United States, those conditions might not last as the climate gets warmer. It’s an annual, which means it has one growing season to thrive.

In the summer of 2011, the peanut growing regions of America (the most severe in Texas and Oklahoma and Georgia also partly affected) suffered a severe drought. Even with extra irrigation, peanut farmers were short 10 to 12 inches of water. According to the U.S. Department of Agriculture, 2011 peanut stocks were down from the previous year. In January 2012, peanut stocks were down 580,000 pounds compared with January 2011.

They found that that retail peanut butter prices moved up as farm peanut prices went up. The consumer price index for 1 pound of peanut buttr increased from under $2 in January 2011 to $2.50 in December (climate.gov). The extra water cost and lower yield combined to increase the price of peanuts by more than doubl the previous year (NPR). In 2011 US consumers spent an extra $1 billion on peanut butter, and a further $628 million in the fourst years after, before prices stabilised again.

“Coupled with below-average planted acres, both the extreme severity and extensive reach of the drought reduced domestic peanut supplies. These factors drastically fueled an increase in farm price of peanuts.”

There are more direct economic costs of extreme weather events on top of the cost to the consumer, including insurance, emergency aid or Government subsidy for failed crops. It also leads to hesitancy for farmers to plant more peanuts in the future if they think the crop is too risky and will not yield a return (ref ).

Peanut droughts in 2011 experienced across the US (Image courtesy of NY Times)

Is this new? Well, no there was a peanut butter crisis in 1980. By October 1980, the output from production in the US dropped by over 20%, resulting in losses for farmers across America in the hundreds of millions of dollars. The peanut butter producing lobby (yes, there is one), asked the then President and former peanut farmer Jimmy Carter to increase panut imports, which he refused to do.

Some commentators at the time say this had a major damaging impact on his re-election campaign that year. Carter’s peanut business was in serious debt when he left office, after he put the business in a blind trust to avoid conflicts of interest. I wonder what the outcry would have been if he did increase imports.

Environmental Costs

There are other interesting aspects about the wider value and impact of peanut butter. For example, when you look at the label on your jar of peanut butter have a look at whether it contains Palm oil – Without it, the peanut oils naturally separate – If it doesn’t have palm oil, the label probaly says to stir well before use!

Labels to build confidence in sustainability (Image courtesy of rspo.org)

I’m sure you will know about diry palm oil, which is unsustainable and has caused deforestation and the destruction of animal habitats, often notably those of the orangutatan in south east asia. So, the wider impact of peanut butters include some of the other ingredients. If the label says it is sustanably sourced palm oil, supposedly this means that can you be sure the palm oil is from a sustainable source. which could have a positive impact on the forests, preserving biodiversity and the communities that farm them.

Going back to peanut production, if peanut plants cannot be adapted to suit the changing climate conditions, peanut butter will become an expensive luxury again as it was in the early 20th century. Changing farming practices such as conservation tillage which can reduce soil erosion, could naturally improve peanut yields.

Peanut Butter Eradicating Child Hunger?

The food stuff is also an important constituent of a UNICEF endorsed product called Plumpy Nut. It’s used to treat severe acute malnutrition in young children (a major cause of death in children under five globally). In times of famine, drought, or conflict it is low cost and the food can be provided at their home.

Peanut butter is a key ingredient in the emergency food packet (Image courtesy of wikipedia)

Here is a link to the UNICEF website where you can donate to purchase on behalf of a child. £40 will provide 6 weeks worth of food. Please do that if you can.

Summary – The Good, the bad, the troubling

At a time of record global consumption of peanut butter, the impact of previous peanut droughts in the US shows that if major global peanut producing nations struggle to produce, peanut butter will start to become too expensive.

Peanut butter is an essential nutritional food for low income households, the industry employs a lot of people along the value chain, and it has the potential to bring massive societal and environmental benefits. But it does come at a cost, as climate change makes us more susceptible to extreme weather events there will be more need for resilient crop varieties.

But how quickly will these be adapted, and will a peanut butter shortage be indicative of other shortages due to climate change?