Before The Storm: The Rising Demand and Cost for Bottled Water
With Hurricane Milton approaching Tampa, Florida, I became particularly interested in understanding how people prepare for natural disasters, especially when it comes to stocking up on essentials like bottled water. Living in a region prone to hurricanes, I’ve noticed that not everyone takes the same steps to prepare. This raised questions about the number of individuals who proactively gather supplies versus those who wait until the storm hits. My curiosity led me to explore the economics behind the supply and demand of bottled water during such events, focusing on how communities respond, how markets adjust, and what role government intervention plays in ensuring equitable access.
Given that producers base their production on past consumption trends, the supply of bottled water is generally stabilized. That being said, demand surges during a natural disaster as locals and relief agencies rush to get supplies they need. When clean drinking water is a necessity rather than a luxury, the demand curve for bottled water becomes extremely inelastic. Since the situation is urgent, consumers are willing to pay significantly higher prices.
In a University of Virginia study, Jay Shimshack and associates looked at how people used bottled water prior to, during, and following hurricanes. The researchers discovered that while bottled water was advised to be stocked up, sales only slightly increased as hurricanes approached, by roughly 5 to 15 percent. Sales in the impacted communities increased by up to 135 percent following the landfall of hurricanes, indicating that many people were not adequately prepared for the calamity. The results of the study show that public reactions to outreach initiatives frequently deviate from policy recommendations, placing additional burden on supply chains after a disaster (Shimshack, Beatty, & Volpe, 2024).
Natural disasters affect the supply side by obstructing routes of distribution and lowering the amount of goods available. The supply curve shifts left due to damaged infrastructure and restricted access to affected areas, resulting in a decrease in the amount of bottled water available. The confluence of heightened demand and diminished supply results in a surge in prices. The research also showed a slight 2 percent price increase following landfall of storms, indicating that although there was little price gouging, prices nevertheless increased to account for the shortage of bottled water in the impacted areas.
Although price increases can effectively distribute bottled water by informing suppliers to increase production or reallocate resources, this approach frequently falls short in addressing issues of equity. Low-income households suffer from the market’s reliance on price to ration scarce goods because they are less able to absorb the price increases. Lower-income, less-educated, and minority consumers are less likely to be adequately prepared for disasters, which means they will likely sustain greater damage, as the study noted. These communities are particularly susceptible to the disparities in access that result from sharp price increases for necessities such as water in reaction to supply constraints.
Governments often intervene to address market failures and ensure fair access to essential goods during natural disasters. One commonly used approach is the implementation of price controls, such as setting price caps on bottled water, to prevent excessive price hikes in times of crisis. These caps are designed to protect consumers by keeping water prices affordable, ensuring that even those with limited financial means can obtain necessary supplies. However, while price caps may curb price gouging, they can also lead to unintended consequences. For example, suppliers may be discouraged from increasing production or distribution due to reduced profit margins, potentially resulting in shortages or the emergence of black markets where water is sold at inflated prices outside formal channels.
In some cases, governments may subsidize the cost of production or transportation to maintain the supply of bottled water. Alternatively, governments may take direct control of water distribution through relief agencies, bypassing the market to ensure that all citizens have access to essential resources. The study emphasized the importance of improving risk communication to encourage better preparation, which could reduce the burden on both markets and governments after disasters.
Alternatively, in extreme cases where market forces alone cannot guarantee equitable access, governments may take a more direct approach by assuming control of water distribution through relief agencies. This method bypasses the traditional supply chain and ensures that water is distributed based on need, rather than ability to pay. By coordinating with organizations like FEMA or the Red Cross, government-led efforts can reach vulnerable populations that might otherwise be excluded in a purely market-driven system.
The University of Virginia study further emphasizes that beyond these interventions, improving communication and preparedness is essential. A more proactive approach to disaster readiness could reduce the strain on markets and governmental resources. If individuals and communities are better informed and more likely to stock up on essential supplies in advance, the demand spikes and supply shortages could be mitigated. Shimshack’s findings highlight that while market interventions and emergency measures are crucial, a well-prepared public is just as important in minimizing the disruptions caused by natural disasters.
The supply and demand of bottled water during a natural disaster illustrates the tension between market efficiency and equitable access. While price mechanisms can allocate resources effectively, they often do so at the expense of vulnerable populations. Government intervention, whether through price controls, subsidies, or direct distribution, is necessary to address these inequities. The University of Virginia study underscores the need for better preparedness and targeted communication to minimize the disruptions and inequities caused by natural disasters.
Shimshack, J., Beatty, T., & Volpe, R. (2024). New research examines bottled water sales during hurricane season. University of Virginia. Retrieved from https://news.virginia.edu/content/new-research-examines-bottled-water-sales-during-hurricane-season
Revised by OpenAI. (2024). ChatGPT (October 2024 Version) [Large language model]. https://openai.com/chatgpt
