Pork – a favourite food of many Brits, whether it’s as a key ingredient of a roast dinner or a full English Breakfast! But, British pig farmers may be in for a tricky ride and we might be seeing foreign pork on our plates in the months to come. This is because of the falling price of pork, which may be driving local farmers out of the market.
As we know, market prices are determined by the interaction of demand and supply and as market conditions change, this will affect the price at which pork sells at. This in turn will have an impact on the incomes of farmers and hence on farmers’ ability to survive in the market. According to forecasts from Defra, specialist pig farms are expected to see a fall in income by 46%, from £49,400 to £26,500 in 2016. A key driver of this, is the decline in the price of pork, which have fallen by an average of £10 per pig. This loss in income has led to pig farmers facing the largest declines of any type of farm, even beating the declines of dairy farmers, which have been well-documented.
If we think about the forces of demand and supply and how these have led to such declines in prices, we can turn to a few key things. Following the troubles in Russia and the Ukraine and Western sanctions being imposed on Russia, a retaliation of sorts was Russia banning European food imports. This therefore reduced demand for British pork. Adding to this decline in demand, there were further factors pushing down demand, following suggestions about the adverse impact that bacon and ham have on health. If pig farmers in the UK continue with the number of pigs they have and bearing in mind they would have invested in their pig farms before such bans and warnings were issued, then we see supply being maintained, demand falling and prices being pushed downwards.
Zoe Davies, Chief Executive of the National Pig Association said:
“This year is going to be horrendous for the British pig industry … Trading has been tough for at least 18 months now and we are starting to see people leave. We’re already seeing people calling in saying they’ve decided to give up. All we can hope is that more people leave European pig farms before ours do.”
We can also look to other factors that have been driving pig farmers out of business, including a strong pound, the glut of supply in Europe and productivity in the UK. Lily Hiscock, a commentator in this market said:
“It is estimated that the average pig producer is now in a loss-making position after 18 months of positive margins … The key factors behind the fall in markets are the exchange rate, UK productivity and retail demand … Indeed, pigmeat seems to be losing out to cheaper poultry meat in consumers’ shopping baskets … The recent fall in prices may stimulate additional demand, and a strengthening economy could help, but at present these are hopes rather than expectations.”
The future of British pig farms is hanging in the balance. If the economy grows, then demand may rise, offsetting the fall in demand being driven by other factors. We will also see how the exit of pig farmers affects prices, as each pig farmer drops out of the market, supply is being cut and prices rise. Though this is not good news for the farmers who go out of business, it may be an example of survival of the fittest. The following articles consider the market for pork.
UK pork market, Poppers, Scrap Metal BBC Radio 4, You and Yours (28/01/16)
Drop in global pork prices to bottom out – at 10-year lows agrimoney.com (29/01/16)
UK pork crisis looms as pig farmers expect income to half in 2016 Independent, Zlata Rodionova (5/02/16)
British pig farmers et for horrendous year as pork prices fall Western Morning News (17/01/16)
- What are they demand-side and supply-side factors which have pushed down the price of pork?
- Illustrate these effects using a demand and supply diagram.
- Into which market structure, would you place the pork industry?
- Using a diagram showing costs and revenues, explain why pig farmers in the UK are being forced out of the market.
- How has the strength of the pound affected pork prices in the UK?
Tea prices have soared in recent months. Explanations can be found on both the demand and supply side. But while this might be bad news for tea drinkers, the news is more mixed for tea growers. So just what are the causes and consequences of the price rises? The following linked articles look at the issues.
Tea prices hit record high as supplies tighten Financial Times (19/8/09)
No break for Britons as tea price set to soar Scotsman (19/5/09)
Tea prices hit record high (video) BBC News (21/8/09)
Price of cup of tea goes up (video) BBC news (17/8/09)
Africa Tea Prices Climb to a Record on Dry Weather Bloomberg (20/8/09)
Kenya Tea Prices Hit Record High Before Ramadan FlexNews (19/8/09)
African tea prices ‘to extend gains’ China People’s Daily Online (18/8/09)
Sri Lanka to revive all closed tea factories ColomboPage (24/8/09)
Land usage should be flexible: Tea panel The Economic Times of India (24/8/09)
For tea price data see:
Tea Monthly Price Index Mundi
- Identify the factors on the demand and supply sides that have led to the rise in tea prices. Draw a diagram to illustrate your answer.
- Under what circumstances will farmers benefit from a rise in tea prices? What is the relevance of the market price elasticity of demand to your explanation?
- If the price of tea in the shops rises, will this necessarily mean a rise in the price to tea growers and in the wages of workers on tea plantations? Explain using concepts of competition and market power.
- What will be the effect of using more land for growing tea on (a) the price of tea and (b) the incomes of tea growers?
Many primary commodity prices have fallen during the recession, but have recovered somewhat as the recession has bottomed out and hopes of a recovery have grown. So what will happen to commodity prices over the next few months and beyond, and what will determine the size of the price changes? The following linked articles look at these questions.
Commodity prices set to rise further, Roubini says Telegraph (3/8/09)
Have oil prices peaked for 2009? Hemscott (25/8/09)
What’s Ahead for Commodities BusinessWeek (23/8/09)
Gas Prices to Triple by Winter? (video) CNBC (25/8/09)
For commodity price data see:
Commodity Price Index Monthly Price Index Mundi
- What will determine the amount by which commodity prices rise (a) over the next twelve months; (b) the next three years?
- What will determine the size of any change in the Australian dollar from rising commodity prices?
- How does the holding of stocks affect (a) the size of commodity price changes; (b) the volatility of commodity price changes?
- Under what circumstances is speculation in commodity markets likely to (a) stabilise and (b) destabilise commodity prices?
- Explain why gas prices are likely to rise less than oil prices.
On 10 August the world sugar price reached a 28-year high. The price has risen by 88 per cent since the beginning of the year and 20 per cent in just the previous two weeks. The following articles explain why sugar prices have soared and examine the implications for the future.
Sugar Rallies 40% in Options Pointing to 1981 Peak Bloomberg (10/8/09)
Sugar hits 18-year high on drought threat Financial Times (10/8/09)
Sugar prices head towards the sky Financial Times (28/7/09)
Sugar price reaches 28-year high BBC News (10/8/09)
Food Companies Ask USDA to Boost Sugar-Import Quotas Bloomberg (7/8/09)
Sugar Monthly Prices Index Mundi
- Using a supply and demand diagram explain why sugar prices have risen recently. Distinguish between shifts in and movements along the demand and supply curves.
- What is the relevance of the price elasticity of demand and supply of sugar in explaining the magnitude of the price movements?
- What factors are likely to have the biggest influence over movements in the price of sugar over the coming months?
- How is speculation likely to affect (a) the volatility and (b) the level of the price of sugar over the coming weeks?
The market for rice has been in turmoil recently with shortages and rapid price rises. This crisis has led to Japan and the USA negotiating a deal to release the surplus rice held by Japan in silos. It is estimated that this deal would lead to around 1.5 million tonnes of rice being made available and this could help reduce the price of rice on global markets.
Japan’s silos key to relieving rice shortage Times Online (17/5/08)
Tokyo stockpiles rice while others go short Times Online (17/5/08)
Thai cartel idea outrages consumers Times Online (3/5/08)
Controlling crops goes against the grain Times Online (3/5/08)
||Explain why Japan is holding surplus rice in silos.
||Assess the impact of this ‘distortion’ on the global rice market.
||With reference to the last two articles linked above, assess the likely impact of the cartel proposed by the Thai prime minister on the global market for rice.