Australia slashes wheat forecast Essay

In Australia, the commodity markets for wheat hit a formid fitting loss, as an ongoing drought reduced the predicted crop forecast by a crushing 30%. Australia being the second largest wheat exporter in the world, besides behind the United States of America, plays an important role in the distribution of food. Although, in recent years the quantity demanded has risen due to the change in take in habits in China, the growing interest in the use of macaroni wheat wheat as a bio-fuel, and rising demand for wheat in developing countries.These factors have all contributed to the shortage of wheat, and rising hurts of wheat products. For example, early(prenominal)a in Italy has risen from 0.26 per kg to 0.45 per kg, and supermarkets may and growing this price by 20% by the end of the year (2007). This rise in price of pasta has created major problems, and protests in Italy, as pasta is Italys national dish. Italians average consumption of pasta is 28kg a year, making it their stapl e food. Overall, international wheat prices have risen by a startling 350% in the past five years, and global reserves be at their lowest since the early 1980s causing geopolitical stress in terms of shortage of food.Since the price of wheat, which is a commodity, (Homogenous goods that are raw materials in critical industries)1 has risen dramatically over the past 5 years, governments across the world should (in a graphical sense) pronounce to shifting the demand tailor left. The demand (the quantity of goods and services that consumers are voluntary and able to debase at all prices, for a given quantify period, ceteris paribus)2 for wheat has been going up, but due to the supply shock (in unplanned change in supply usually occurring because of changes in weather conditions or an external change outside the control of the company or economy)3 the drought in Australia the supply (the quantity of goods and services that producers are willing and able to produce for a given time period, ceteris paribus)4 of wheat has decreased dramatically, which has caused a shortage (A deficiency in amount an insufficiency)5 of it on the global market. shimmy the demand curve left tush be done though manipulating the non-price determinants of demand for wheat. Some realistic options of doing this are the Italian government can reduce taxes to give people a higher income (buy slight pasta), the Chinese government can increase income taxes to lower peoples income (buy less meat), negative advertising of wheat and lowering the price of substitutes for wheat (buckwheat, rice, soy sauce products, or other grains). In Italy, since pasta is an inferior good (Items for which an increase in income results in a fall in the amount bought e.g. bread, linoleum and coal)6, in theory people should buy less of it if their incomes rise.In China, since eating habits are changing to eating more meat, farmers are feeding their line more wheat for them to grow. By decreasing the Chine se peoples income, they will automatically buy less meat (normal good Goods to which the world(a) law of demand tends to apply)7. Also, negative advertising of wheat will dissuade people from buying wheat, and will thus push people to buy a wheat substitute, which will be even more of an inducing if the prices of the substitutes are lower than wheat. Also, the demand for wheat used as a bio-fuel can be solved by using other substitutes, such as experimenting with different bio-fuels, like corn.Therefore, the price of wheat can and should be lowered through decreasing the demand for the commodity, as the marginal friendly benefit of feeding people, has more weight compared to the marginal social cost of the governmental costs of increasing incomes, and lowering prices of substitutes. Shifting the supply curve to the right through the use of a buffer stock lineation (A buffer stock scheme is a form of intervention to try to stabilize the price of a commodity. Stocks of the comm odity are kept and sell when the price is high to try to reduce it. When the price is low further stocks of the commodity are bought)8 will be too difficult, or unattainable as the reserves of wheat are very low. In short, at that place would be no other alternatives to fully rectify the shortage, other than rationing, which would notwithstanding keep some people hungry as there is a shortage.1 Notes Commodity Markets 29th phratry, 20082 Notes The Law of Demand September 17th, 20083 http//www.bized.co.uk/cgi-bin/glossarydb/browse.pl?glostopic=0&glosid=12134 Notes The law of Supply September 24th, 20085 http//www.answers.com/topic/shortage6 http//www.bized.co.uk/cgi-bin/glossarydb/browse.pl?glostopic=0&glosid=6237 http//www.bized.co.uk/cgi-bin/glossarydb/browse.pl?glostopic=0&glosid=6808 http//www.bized.co.uk/cgi-bin/glossarydb/browse.pl?glostopic=0&glosid=1121