The Mystery of Matcha Shortages

Never having seen one, I am told that matcha has a green tea base whose taste is hidden (or augmented) by white chocolate, banana bread, or some other sugary concoction. Last year, WSJ explained how influencers, creating a lifestyle persona for each flavor, propelled the drink’s sales. According to WSJ, a cookies-and-cream matcha was “a Lower East Side Dimes Square boy” while strawberry shortcake became “an East London Girl who listens to Katseye.”

Now though, they have a mystery.

Matcha Shortages

Matcha drinkers could be wondering why there is a shortage.

Tracking matcha to its origin takes us to Japan where a vast number of resellers buy it from a small number of producers. The problem takes us even farther back to a dwindling population of tea farmers. But then, we also have matcha’s skyrocketing popularity and shortage rumors. As a result, some buyers are hoarding. They’ve been observed flitting among tea shops, amassing as much as a 50 tin stash. Others have become the online “vigilantes” trying to encourage parsimonious tea habits. And a third cohort switched to cheaper Japanese tea.

Our Bottom Line: Matcha Economics

As economists, we can explain the matcha shortages.

It is all about supply, demand, elasticity, and our behavior. On the supply side, the immediate unavailability of extra land, labor, and capital creates inelasticity. When supply is inelastic, it cannot respond to the higher prices that, with matcha, resulted from a demand curve that shifted to the right. Then, exacerbating the emergency, a behavioral economist would cite the panic buying that further elevates the shortages.

Below I’ve drawn a relatively vertical supply curve that displays its (short term) inelasticity. Even when price climbs, the quantity supplied changes minimally. As for demand, the determinant of increased utility moved it to the right. Consequently, a long tail below equilibrium is willing and able to buy matcha at a lower price that the market is not providing:

Thinking of the future, there are two bright spots. Matcha supply could become more elastic if more tea farmers enter the market. However, while waiting for that to happen, as with most trendy drinks, matcha demand could plunge as quickly as it soared.

My sources and more: Our matcha facts initially came from WSJ, here and here. From there Food & Wine had more detail. Meanwhile, in the past, econlife looked at chips shortages.