Environmental Economics: Bourbon barrel economics

May 26, 2015

Bourbon barrel economics

From the inbox:

Bourbon Feels the Burn of a Barrel Shortage
by: Tripp Mickle
May 12, 2015

TOPICS: Supply and Demand

SUMMARY: Distilleries are navigating a bourbon-barrel shortage, as increased demand for the drink coincided with reduction of logging of the white oak wood. Prices of barrels are up sharply. The shortage reflects a supply-chain conundrum. Upstream, barrel makers face a wave of demand because a half dozen established bourbon distilleries and 300 new, craft distilleries are increasing production amid a bourbon boom. Downstream, they face a shortage of white oak wood used in barrels because the lumber industry hasn't rebounded from the housing market's collapse.

CLASSROOM APPLICATION: Students can evaluate the effect of an increased demand for bourbon barrels and white oak in general and the decrease in the supply of white oak on the equilibrium price of bourbon barrels.

QUESTIONS:
1. (Introductory) Is the demand for bourbon barrels a derived demand?

2. (Introductory) What has caused the increasing demand for bourbon barrels? What has caused the increasing demand for white oak?

3. (Advanced) What has caused the decreased supply of white oak?

4. (Advanced) "Leroy McGinnis's Missouri-based company, McGinnis Wood Products Inc., gets about four email requests a day for barrels. He turns most down. Like many of his competitors, he has only enough capacity and wood to fill orders from longtime customers. The rest go on a waiting list, perpetuating a bourbon barrel shortage now entering its third year." Should Mr. McGinnis raise prices so as to eliminate the excess demand for his company's barrels?

Reviewed By: James Dearden, Lehigh University

Here are the quantities:

And from the article:

The logging industry last year rebounded to produce 8.6 billion board feet as the housing market recovered. But the white oak supply hasn’t caught up with demand from barrel makers. There was plenty of white oak to harvest, but not enough loggers to cut it, forestry experts say. “So many logging firms that went out of business or shrunk in size, their capacity was limited,” said Jeff Stringer, a University of Kentucky professor of hardwood silviculture and forest operations.

Posted by John Whitehead on May 26, 2015 at 08:32 AM in Forestry Resources, Teaching | Permalink

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From the inbox:

Bourbon Feels the Burn of a Barrel Shortage
by: Tripp Mickle
May 12, 2015

TOPICS: Supply and Demand

SUMMARY: Distilleries are navigating a bourbon-barrel shortage, as increased demand for the drink coincided with reduction of logging of the white oak wood. Prices of barrels are up sharply. The shortage reflects a supply-chain conundrum. Upstream, barrel makers face a wave of demand because a half dozen established bourbon distilleries and 300 new, craft distilleries are increasing production amid a bourbon boom. Downstream, they face a shortage of white oak wood used in barrels because the lumber industry hasn't rebounded from the housing market's collapse.

CLASSROOM APPLICATION: Students can evaluate the effect of an increased demand for bourbon barrels and white oak in general and the decrease in the supply of white oak on the equilibrium price of bourbon barrels.

QUESTIONS:
1. (Introductory) Is the demand for bourbon barrels a derived demand?

2. (Introductory) What has caused the increasing demand for bourbon barrels? What has caused the increasing demand for white oak?

3. (Advanced) What has caused the decreased supply of white oak?

4. (Advanced) "Leroy McGinnis's Missouri-based company, McGinnis Wood Products Inc., gets about four email requests a day for barrels. He turns most down. Like many of his competitors, he has only enough capacity and wood to fill orders from longtime customers. The rest go on a waiting list, perpetuating a bourbon barrel shortage now entering its third year." Should Mr. McGinnis raise prices so as to eliminate the excess demand for his company's barrels?

Reviewed By: James Dearden, Lehigh University

Here are the quantities:

And from the article:

The logging industry last year rebounded to produce 8.6 billion board feet as the housing market recovered. But the white oak supply hasn’t caught up with demand from barrel makers. There was plenty of white oak to harvest, but not enough loggers to cut it, forestry experts say. “So many logging firms that went out of business or shrunk in size, their capacity was limited,” said Jeff Stringer, a University of Kentucky professor of hardwood silviculture and forest operations.