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Posts Tagged ‘farming’

The curse of the bumper harvest

A bumper harvest should be good news for farmers – but not if it drives down prices. This is the position facing many Australian farmers. After a relatively wet summer a year ago and a mild winter this year, crop yields have soared. But the prices farmers can get in wholesale markets have been so low that many have resorted to setting up their own farm shops or selling in farmers’ markets or from the backs of ‘utes’ (utility vehicles, i.e. pickup trucks) or at roadside stalls.

And the supply problem is not just one of increased domestic supply: cheap food imports, often of inferior quality, have been flooding into Australia. Increasing food exports, especially to Asia, would help Australian farmers, but here again there is competition in these markets from other countries.

The problem of increased Australian supply is even more serious for Australian farmers in areas where harvests have not been so good. Australia is a huge country and conditions, although generally favourable this year, have been poor in some areas. Here farmers face the double disaster of low output and low prices.

Australian dairy farmers too are facing problems of falling prices. Price deregulation and the monopsony power of supermarkets have driven down the price of milk and other dairy products. Since deregulation in 2000, the number of dairy farms has halved, as many smaller family farms go out of business and larger ‘industrial-scale’ farms grow.

So are there any solutions? The BBC article looks at things being done in Tasmania to help small farmers, but questions whether small farmers have much of a future more generally in Australia?

Articles
Australia’s small farmers struggling with low prices BBC News, Phil Mercer (31/10/13)
Commodity prices edge lower in October Sky News Australia (1/11/13)
Low prices spoil perfect season for Australian farmers ABC News, Eric Tlozek and Courtney Wilson (18/9/13)
Agri-businesses taking over the farm The Guardian (Australia) (6/11/13)

Data
Commodity prices Index Mundi
Agriculture in Australia Wikipedia
Farm inputs & costs Dairy Australia

Questions

  1. How does the fallacy of composition relate to the ‘problem’ of good harvests?
  2. How price elastic is the demand for specific crops likely to be? Why may individual farmers face an elasticity of demand close to infinity?
  3. Illustrate the problem for small farmers in Australia with a demand and supply diagram.
  4. Is there any way in which farmers, either individually or collectively, can make their demand less elastic?
  5. Comment on the following statement by a sugar cane farmer: “We’ve got that much money tied up (in the business) we just can’t walk away”. Under what circumstances would it make sense to ‘walk away’?
  6. How does the monopsony power of supermarkets influence the prices farmers receive?
  7. Discuss ways in which the federal government in Australia could support farmers.
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There’s no business like snow business

You can hardly have failed to miss the snow! From children sledging to cars skidding and from being snowed in from work to being snowed in at work. In the UK, it only happens once in a while and when it does, life practically comes to a standstill. Why is this not the case in countries such as Norway? Well, one way of looking at it as that they’re used to it and have tried and tested methods of dealing with it and the investment to match. As we suffer from these severe conditions only once in a while, any significant investment in improving our ability to deal with it could be considered a waste of money.

However, many businesses affected by the snowy conditions will certainly not see it this way. Transport links have been disrupted: roads closed; trains stopped; airports closed; tunnels blocked and sports fields unplayable. The worst affected city centres have been deserted and retailers have subsequently suffered. Even if shoppers had made it to the shops, they may have found many of them closed, as staff struggled to make it in to work across the country. Office workers were being advised to work from home where possible and off-duty medical staff that could make it in to work were covering for those that couldn’t. Even emergency services were said to be going out only to life threatening situations.

Small businesses are suffering from declining sales, as deliveries cannot be made. Farmers too are facing major problems. Thousands of livestock are being frozen to death and many animals are without food, as farmers simply can’t get to them, suffering from snow drifts that have been up to 4 feet deep across Scotland. These are the worst conditions that some areas in Scotland have experienced in 50 years and they’re expected to continue for some time. Cattle farmers in the UK are also facing wasting thousands of litres of milk, as lorries find they cannot access the farms. This could simply mean pouring all this milk down the drain.

Estimates suggest that this cold winter could cost the UK economy £14.5bn in total from lost business. Daily costs will be about £690 million – certainly something that we don’t need in the current climate – financial that is! The following articles look at some of the problems faced across the UK. Read them and then think about the questions below.

Hundreds stranded as Eurostar train breaks down in channel tunnel again Mail Online, Peter Allen (7/1/10)
UK snow freezes transport links and thousands of schools (including video) Guardian, Peter Walker and Steven Morris (6/1/10)
Snowed in, out of pocket. Store staff face a wage freeze Guardian, Caroline Davis and John Stevens (6/1/10)
Livestock being frozen to death in their thousands Scotsman, Frank Urquhart, Alastair Dalton and Mark Smith (7/1/10)
Heavy snow damages business for hospitality industry Big Hospitality, Becky Paskin (6/1/10)
UK’s snowy winter could cost the economy £14.5bn Metro Reporter (7/1/10)
Business leaders criticise school closures BBC News (7/1/10)
Snow puts business continuity plans to the test Computer Weekly, Warwick Ashford (7/1/10)
Freezing weather will cost Welsh economy £25m a day Western Mail, David James (7/1/10)
Snow brings chaos – and beautiful scenes Cotswold Journal (7/1/10)
Local firms count the cost as the big chill continues Belfast Telegraph (7/1/10)
Is snow actually good for the economy? BBC Magazine, Anthony Reuben (15/1/10)

Businesses affected by bad weather BBC News (8/1/10)

Questions

  1. How have businesses been affected by the snow? Is opportunity cost relevant here?
  2. How is a cost of £14.5bn calculated? (See the article from Metro Reporter.)
  3. What are the arguments (a) for and (b) against more investment in techniques and equipment to combat these type of conditions?
  4. Why are pay freezes a possibility for some staff? Illustrate and explain the likely effects of this policy.
  5. Some shops have seen record sales in this snowy weather, with their shelves completely empty. Which shops would you expect to be in these circumstances and why? (See news item, A new concept for you – Thermal elasticity of demand)
  6. Which sector of the economy do you think will be the worst affected and why? Which sector’s losses are likely to have the biggest consequences for the UK economy?
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