Food+crisis+fears+rise+with+commodities+-+Sean


 * Title of Article:** Food crisis fears rise with commodities
 * Source:** []
 * Date of Article:** February 18th, 2011


 * Summary:** In many countries throughout the world, steep rises in the price of daily commodities have led to a rise in fears of food crisis. A big factor contributing to the rise in daily commodities such as wheat, rice and sugar is the frequency of natutal disasters in recent years. For example, the worst drought in 60 years that hit Shandong Province, China's grain heartland, has raised the specter of shortages for the world's largest wheat producer. China is not the only country to be hit with droughts. Russia is still recovering from "a drought that slashed wheat prices by nearly 40% and spurred Moscow to ban wheat exports last summer." Rising food prices have led to an increase of 44 million people facing poverty, pushing the number of chronically hungry toward 1 billion. In the past year, global food prices rose 29% due to weather shocks and the rising demand from emerging economies such as Brazil, India and China.

__Supply__: Quantities of goods and services that sellers are willing to offer at various prices at a given time and place. __Demand__: The desire of purchasers, consumers, clients, or employers, etc., for a particular commodity, service, or other item. __Inflation__: Demand for goods is rising faster than companies can produce. __Consumer__: A person or organization that uses a commodity or service. __Market__: A market is any one of a variety of different systems, institutions, procedures, social relations and infrastructures where by persons trade, and  goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. __Commodity__: A commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market. __Economy__: The study of how to allocate limited resources amongst unlimited wants. __Positive statement__: A statement that can be proven by statistics or some sort of data/evidence. __Normative statement__: A statement that is based on opinion or value judgement because it cannot be proven by statistics. __Macroeconomics__: The study of economics of a nation as a whole. __Price band__: A range within which a price is able to move. This will result from intervention in a market that sets minimum and maximum prices.
 * Vocabulary:**


 * Graph:**

As seen from the article, producers of agricultural commodities such as wheat, sugar, or coffee are very much at the mercy of the weather. If there is poor weather, such that the supply of the crops falls, this will drive the price up, but this will only be for the benefit of the farmers who have the crops. When this happens, I think that governments may attempt to intervene to protect prices from extreme fluctuations by operating a buffer stock scheme.
 * Conclusion and Evaluation:**

As seen from Graph A, the government sets a price band with a highest possible price and a lowest possible price. It then intervenes in the market whenever the free market forces the price of wheat either above the top price or below the bottom price.

As seen from Graph B, whenever there is poor weather, the supply will fall considerably from S1 to S2, then this would push the price above the acceptabe top price set. At the top acceptable price, there would be a shortage of Q1 to Q2. This will lead to the government intervening to prevent the price from going above the price band. The government intervenes by selling wheat from the stored stocks that it had built up beforehand. This amount of wheat sold from the stored stocks will be the quantity sold from Q1 to Q2 to replace the shortage.

From my points explained and argued above, I believe that a buffer stock scheme would be the best solution to the fears that people have of the rise of commodities. However, there are some problems associated with this method as well. It is only plausible to use this method when dealing with a good that is non-perishable. Also, this method of storage is relatively expensive for the government as they have to find storages with the right temperature, moisture, atmosphere, etc.