Aaron Liew (SCM 020807)

Lee Kar Seong(SCM 020806)

Lee Huai Kai(SCM 021376)

Liu Zi Ran(SCM 019894)

Global food price determined by market through forces

of demand and supply where there is a group of

seller sells goods or services to buyers where there

is a potential for a transaction to occur in the

situation.

Food price increase due to changes in demand and

supply. Demand refers to the ability and willingness

to buy specific quantities of goods. Supply refers to

the ability and willingness to sell goods and services

Changes in demand occurs due to changes in consumer

taste, future price, income level, and some other

factors.

Figure above shows the changes of demand curve

which shift rightwards from D1 to D2

meanwhile the supply curve still

remain the same at S1.

When demand of food increased, affects the D shift to

rightwards from D0 to D1. New equilibrium point at

E1 when D1 intersect with S at price P1. Thus, the

equilibrium quantity increase from Q to Q1.

Therefore the equilibrium price increase to P1 and

equilibrium quantity increase to Q1.

Expectation

Populations

Taste and Trends

Festive Season

Government Policy

Consumer expectation regarding due to changes in

price.

when P expect to drop soon, C will wait and buy

during the price fell.

if P expect to raise in future, C will buy more before

the price increase.

For example, in autumn 2005, Hurricane Katrina

destroyed 113 offshore oil and gas platform. Before

this rumors, C decided to fill up their gas and oil

before the disaster happens.

The larger size of population, the higher demand for goods.

when population increase, demand for food increase.

Diagram above shows the increase of population year by year and affects the demand of food globally.

C are picky in terms of types

and style of goods.

however, the demand of goods

will slightly decrease after a

period time.

Diagram above shows that consumer starting to changes to

vegetarians.

The demand for meat getting lower and vegetable is increase.

In the nutshell, the demand for vegetable increase and the demand

curve of vegetable shift to rightwards.

Income level plays the major role for consumer to

purchase goods and services.

When income level of a consumer increase, the

demand for a normal good will increase. Cars, shirts

and so on.

As income level increases, the demand for an inferior

good will decrease. Used cars, low-grade rice.

Government plays important roles in tax and

subsidy system

When government reduce tax, the purchase power

of C increase

causes the demand for food increase

G apply subsidy on food to control the P of food

when the food P decrease, demand for food

increases.

Diagram shows the initial equilibrium of food price. E0 is the

equilibrium point when demand curve intersect with supply

curve DD=SS with initial equilibrium price P0 and quantity

Q1

When supply food decrease from Q1 to Q2 which supply

curve shift from S1 to S2. New equilibrium point at E1 when

DD intersect with SS2.The food price rise from P1 to P2.

Government Policy

Expected Future Price

Lack of Farmers

Environmental

Technology

G increase the tax in goods, causes the food price to increase

Demand of foods will decrease due to tax increase

Taxes discourage producers to produce extras because it will increase the cost of production

Tax increase, price of foods has increased, quantity of supply decreased

Supply curve shift to leftwards whereby price increase and quantity of supply decrease

when producer expected the P of future food price

increase

they will keep an amount of current supply and keep

when the food price increase, producer release the

supply in a very high price to maximize profit

For example, when G announce there will be an

increase of price in sugar, suppliers will keep the

supply of sugar and sell in high price in the future to

gain maximum profit

the number of farmers decrease causes the supply of

food will decrease too

lack of farmers will causes no one will produce food

hence, the quantities of food are lesser and causes

the price to increase

the supply curve shift to leftwards

affects the price to increase and quantity of supply

decrease

Supply change due to cost of production

when the cost of production increases, the supply

will decrease

therefore, the supply curve will shift to leftwards

whereby price increases and quantity decrease

for example, when there is an increase in the wages of

labor and capital in production of cars

it will increase the cost of production and reduce the

supply of cars

technology plays important role in production to

produce goods or services

without technology it will affects the production of

food and decreases.

when there is lack of technology, the production of

foods will decrease

hence, the supply curve will shift to leftwards

Inflation

Increase In Money Supply

There are two types of inflation :

1) Cost-Push Inflation

2) Demand-Pull Inflation

Cost-push inflation refers to general price increase due to the increase in cost of production

It occurs when the price of input rises

When the price of input rises, producer will reduce to generate output due to the cost of production are high and increased

Hence, producer will reduce the supply and the food price will increase as well

Demand-pull inflation refers to the general price

increase due to the increase in aggregate demand

(AD)

AD increase may cause by money supply

increase, investment, government spending and tax

reduction

In other words, when there is too much of money in

the market, the purchase power of household is

strong

Hence, it causes the AD curve shift rightwards and

affect the price increase

When there is increase in money supply, the interest

rate decreases

Interest rate decreases affect the investment to

increase

Causes national income to increase

When national income increases, the food price will

follow to increase according to market price

The increase of money supply will cause the AD to

increase

Income level

Low income farmers have to sell their crops through intermediaries to earn some little profit

This is because they have small scale of farm

Meanwhile, in developed countries, farmer able to produce crop in huge quantity in big scale and increase the income for farmers

Standard of living

Farmers with low income and low purchasing power make farmers hard to live and have to work hard to earn money in order to burden on rising of food price

Farmers with high income and have enough purchase power able to buy anything and allows living environment gradually well and easy

Market place

In some poor countries, there are less farmers due to low

income level and not enough money to earn by selling

small scale of crops

In developed countries, there are more farmers due to the

demand and income level higher. This is because some

certain investor invest on the agricultural industry.

As a conclusion, global food price determined by

market through forces of demand and supply where

there is a group of seller sells goods or services to

buyers where there is a potential for a transaction to

occur in the situation.

Besides that, government should be more supportive in

developing agricultural sectors which help farmers

to get better income by giving subsidy in farmers

tools, sponsor machines and so on.

Food and Agriculture Organization (October 4, 2012) FAO Food Price Index. Retrieved October 13, 2012 from http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/

(Larry West, August 31, 2008) About.com How Hurricane Katrina Threaten Offshore Drilling and the Environment. Retrieved from http://environment.about.com/b/2008/08/31/hurricane-gustav-how-hurricanes-threaten-the-us-oil-and-gas-industry.htm

Reserve Bank of Australia (Image) (March, 2011) Retrieved October 28, 2012 from http://www.rba.gov.au/publications/bulletin/2011/mar/3.html

(Steve Odland, March 15, 2012) Forbes. Why Are Food Price So High. Retrieved from 9 November 2012 http://www.forbes.com/sites/steveodland/2012/03/15/why-are-food-prices-so-high/

(Ron Nixon, October 4, 2012) Global Food Prices

on the Rise. Retrieved from

http://www.nytimes.com/2012/10/05/world/global-

food-prices-on-the-rise-united-nations-says.html

(Catholic Relief Services, n.d) Causes of the global

food crisis. Retrieved from

http://crs.org/public-policy/food-crisis-causes.cfm