Global food prices rise due to extreme weather

Global food prices rise due to extreme weather

According to BBC NEWS, Business, return on 9 August 2012 last updated at 11.50 GMT report about “Global food prices rise in July due to extreme weather”. (http://www.bbc.co.uk/news/business-19193390)

In July, the global food prices rise due to the wild swing in weather environments. In economics view, the quantity demanded for the good and service will naturally decrease. Between 2007 to 2008 there are a food crisis which hurt the world’s poorest, the rise has fanned fresh fears of a repeating of that.  Changing of the monthly price for a basket of food commodities, including oilseeds, cereals, sugar, meat and dairy, the food price index is measured by the FAO.

The extreme weather like droughts and floods are the primary factor that cause the food price to soar. The extreme weather may affect the quality of soil which was the main criteria to grow and harvest a good crop. Many crop have to take a longer period to mature while some of the crop were damaged. This had caused the farmer unable to harvest the crop on time and supply the original amount like before. Consequently, when the quantity supply for crop decrease and the market will face shortage problem. In order to move the quantity demanded curve back to equilibrium, the price of goods have to increase to a higher price.

Besides that, goods like rice and corn are highly demanded by the people as it is necessities. The government needs to import those goods like oilseeds, cereals, sugar, meat and dairy from other country in order to make sure that the quantity supply is enough for the people. As a result of the import good from other country, the price of goods will increased due to the extra import tax that need to pay by the supplier and the consumers.

More and foremost, in my opinion that the price of the item will increase is due to the expected future price, because the shortage of the good and the wild swings in weather environment. Hence, the shortage problem will turn more serious, which will cause the price of goods to rise as well.

Demand is human needs or wants, and willingness to pay for a specific goods in a certain price level. Human's demand can be goods or services that produced by the firms or household. For example, a person needs a car as transportation, by the time when the persons own a car, he will demand for a better condition car and this is no longer human needs but human desire or wants.

Reason that will affect the price to increase and decrease the quantity demanded is the income effect. Income effect is when a price of a good or service increase, but other things are still remaining the same, such as personal salary or income. For instance, when the price of goods increase but the salary or wages of the consumers remain the same, consumers could not afford to purchase the good or service as many as before, hence the consumer purchasing power contracts.

Firms supply goods and services to consumers or retailers in order to earn profit. Firms will usually use the lower cost and maximize the selling price in order to maximize their profit. For the supplier, they has the resources and the technology to produce goods and services, it helps to determine the possibility of the product to produce and also reflects of the decision about which of the technologically feasible items to produce. It is not necessary that the producer produce the same quantity as the quantity that had been sold. Sometimes, the quantity supplied is greater than quantity demanded, at the end there are much more product left than product sold.

What is the state of nature? State of nature is includes all of the nature power that could influence the production, for example the weather, land, and also natural disaster. Good weather can increase the supply of the product. On the other hand the bad weather will decrease the supply of the product. As what mentioned in the article, global food prices sharply rebounded in July due to wild swing in weather environments, it will decrease the supply of the product. Since this unexpected natural phenomena happened, the supplier have to deal with the limitation of the resources in order to make they have enough product to supply to the market. In business talk, there are no company is willing to invest on a business which will generates zero-profit. Supplier have to fix and sell the product in a higher price to make sure that it could cover the cost of production and maximize their profit, and identify that it is a profitable company. Although if the company set in a high price, people will also purchase from it as it is a necessities for everyone.

            According to the graph, the vertical axis represents the price, and the horizontal axis represents the quantity. There is a shortage between the supply and demand. The red point that shown in the graph is the equilibrium, which is opposing forces balance each other. It gets the equilibrium point from the supply decrease and demand increase on the demand curve and supply curve. As for the equilibrium price is the price at which the quantity demanded equals the quantity supplied, while for the equilibrium quantity is the quantity purchase or sold at the equilibrium price.