According to the article taken from online website ‘The Wall
Street Journal’ [http://online.wsj.com/article/SB10000872396390444900304577579453305747984.html] written by Liam Pleven, which talks about affect of bad weather
on crops, because of bad weather market increases food prices.
Due to the massive amount of Droughts and excessive rainfall the
production of crops has decreased drastically. The supply has lowered due to
the lack of production and consumer demand is ever increasing. To keep
equilibrium the price of the products has been increased but due to the
circumstances the price is increasing and all consumer desire crops as it is a
basic need, more over to overcome this shortage the countries would need to
import crops from other countries which would again increase the price even
more as it would contain the added taxes and the transportation costs imposed
by the country of its origin.
This
increase in prices brings forth the damage drawn by the dryness of the hot
Midwest weather to the once expected to be bumper crops of corn and soybean
which are a very important livestock feed and would result in the increase in
prices for meat and dairy as when livestock feed has an increased priced the
cost to produce the final product would increase and the price of dairy and
meat would have added price of the livestock feed.
The global food price is increased by 6%
since 2009.
This
graph shows an effect of increase in global food price. As a result of bad
weather, the supply of products has decreased, which is shown by shift of
supply curve to the left to S1. As there is no change in demand,
equilibrium price increases by 6% and quantity supplied decreases. From
other side, as the food products are considered as necessity goods and
customers will keep on buying it, the rise of price will give quite high befits
to the company.
According
to the graph, the increase in price increases quantity demanded for the
necessity goods. Therefore, price doesn’t affect producers as they gain lots of
profits; but it affects export market.Meanwhile
there is a healthy supply of wheat and rice which eases the situation and oil
prices are also lower than their 2008 peak which means that fuel costs which
are transferred into the food prices can be lowered. Thus, due to the worsening
of the drought, which would affect the corn and soybean growing regions, the
market is looking ahead and is highly aware of the problems all over the world.
Countries that rely on soybean and corn would be affected by the
drought in the United States, for example China that is a big importer of
soybean, which it uses to feed pigs, which are a major source of meat protein
in China. Mexico is a large corn importer and would also be affected by the
United States drought.
Overall,
the increase in price has good and bad sides. Firstly, it affect customers
budget as they need to eat and they will be buying products. Lastly, it is a
really good benefit for producers, but it is affects supply as the weather
spoils crops.
by Christina
by Christina
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