Economics of the Christmas Tree Shortage

I once had a management professor tell me that economics isn’t a real science, after I told him I had a degree in economics. I was a little taken aback, because my first thought was “what makes management more of a science than economics?” I am always perplexed when somebody suggests economics isn’t a science. It isn’t a “natural” science, but it is a “social” science. And moreover, it is probably one of the most empirical of the social sciences. Supply and demand affects how much money people have in their pockets, and this couldn’t be clearer than with the Christmas tree shortage this year.

The United States Department of Agriculture (USDA) reports that Christmas tree production has decreased by 30% in the last decade.  Drought conditions in several Christmas tree farming regions seems to be further exacerbating the declining supply. Now many local newspapers and finance news outlets are reporting on Christmas tree shortages in portions of the United States.

I went to the website to find some statistics about Christmas tree sales and prices. I graphed the results below for your benefit. The blue line represents the average price paid for a Christmas tree, and it corresponds with the left scale of the graph. The orange line represents the number (in millions) of Christmas trees sold, and its scale is on the far right.

As you can see, the data may appear to be exhibiting a pattern. It looks as though in most years when the number of trees sold declines, the price goes up. If there is a fixed number of trees that is delivered to market each year, then it will make sense in scarce years prices will be higher, and in surplus years the price will be less.

I added some dotted trailing lines as a shear guess as to what the pattern may continue to look like. From the large number of media reports that there is a Christmas tree shortage, we can reasonably guess that supply for 2015 will be less than 2014. Average price is harder to predict, but I read a number of news stories that even small 3 foot trees in New York were selling for as high as $50. I made a guess that the average tree price would be $45 for 2015, which is a huge leap historically.

The National Christmas Tree Association provided the following comment with the data:

Many factors can influence total trees purchased, including trees available for harvest, harvest conditions, weather conditions, number of consumers traveling for the holidays, number of retail outlets offering trees for sale and even the number of days between Thanksgiving and Christmas.

There also appears to be another factor affecting the Christmas tree shortage, and that would be geography. Too often people forget, economics is regional. While you could haul a Christmas tree cross-country, why would you if the quality will deteriorate? Most tree sales are relatively local, with inventory probably not traveling from more than one state away. It appears to be California and the Carolinas this year that are being hit particularly hard by the shortage, because there have been drought conditions in their Christmas tree farming areas.

While the Christmas tree shortage doesn’t prove economics is a science, I believe economics helps us understand it. I am not going to comment whether management is a science, but economics is certainly no less scientific than management, as far as I’m concerned.