A Geek With Guns

Views from a geek gun nut

How’s That Pricing Fixing Working For You

Cuba being a communist nation has a fixed economic system. Part of a fixed economic system involved fixing prices at certain levels which are usually absurdly skewed from what the free-market value is. What happens when the price of a good is fixed so low that money is lost on that item? Simple, the price must either be raised of the quality must be lowered. Cuba has decided to go with the latter and have reinstated the mixing of peas in coffee:

Cuba is resuming mixing coffee with roasted peas in a bid to cope with rising international coffee prices, the authorities say.

The blend for domestic consumption will help cut costs, given that coffee prices had risen some 69% over the last year, the announcement said.

Coffee mixed with peas isn’t exactly something that tastes all that great:

The measures mean that the authorities will be able to continue distributing coffee with the subsidised price fixed at at 4 pesos (17 US cents) for a 115g (4oz) bag, the statement said.
Workers handles sacks of coffee imported from Brazil Imports of coffee help to meet local demand

Cubans, who tend to drink small cups of highly sweetened coffee, are used to pea-blended coffee.

“It’s much, much more bitter than pure coffee, which is smoother,” Havana resident Froilan Valido told AP news agency.

This is the inevitable end to a planned economy. It’s impossible to actually plan an economy due to the extremely large number of factors that determine the value of a consumer good. Since coffee harvests have been poor in Cuba the commodity is rarer which raises the price. Harvest amounts aren’t fixed and can be affected by everything from weather to disease. This combined with countless other factors means any economic plan is likely to fail as such events can’t be predicted with any amount of regularity.

Of course this action will lead to higher pea consumption which will make the product rarer and thus increase it’s market value. Thus this action won’t bring the price of coffee down for any meaningful amount of time because the price of peas will have to go up with increased demand. This is akin to corn subsidies in the United States which involves much of produced corn being consumed in producing ethanol fuel which drives the price of corn up. Thus a food product becomes more expensive.

Advertisements

Written by Christopher Burg

May 4, 2011 at 7:30 pm

%d bloggers like this: