Australia slashes wheat forecast Essay

In Australia, the commodity markets for drinking straw move out a designid open loss, as an ongoing drought reduced the predicted crop forecast by a crushing 30%. Australia being the second largest stubble exporter in the world, only behind the United States of America, plays an distinguished role in the distribution of food. Although, in recent years the cadence demanded has risen overdue to the reassign in eating habits in China, the growing interest in the use of durum wheat as a bio-fuel, and rise demand for wheat in developing countries.These factors have all contributed to the famine of wheat, and rising legal injurys of wheat products. For example, pasta in Italy has risen from 0.26 per kg to 0.45 per kg, and supermarkets may further attach 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 th eir staple food. Overall, international wheat prices have risen by a startling 350% in the past five years, and global reserves are 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, government activitys across the world should (in a lifelike sense) try to shift the demand rationalise left. The demand (the quantity of goods and services that consumers are willing and able to buy at all prices, for a given time 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 decrease dramatically, which has caused a shortage (A deficiency in amount an insufficiency)5 of it on the global market.Shifting the demand curve left can 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 community a higher income (buy less pasta), the Chinese government can increase income taxes to lower populates income (buy less meat), negative advertising of wheat and expectant the price of substitutes for wheat (buckwheat, rice, soy 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 alimentation their livestock more wheat for them to grow. By change magn itude the Chinese peoples income, they will automatically buy less meat (normal good Goods to which the general 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 incentive 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(prenominal) 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 affectionate benefit of feeding people, has more weight compared to the marginal social costs 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 scheme (A buffer stock scheme is a form of intervention to try to stabilize the price of a com modity. Stocks of the commodity are kept and sold 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 impossible as the reserves of wheat are very low. In short, thither would be no other alternatives to fully rectify the shortage, other than rationing, which would still keep some people hungry as there is a shortage.1 Notes Commodity Markets 29th September, 20082 Notes The Law of select 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