In 2009, according to World Bank, the global food prices had growing sharply since 2005, and it seemed to be continually rising. Therefore, in some poor countries such as Bangladesh, India, Pakistan and sub-Saharan Africa, people cannot afford the high food prices. World Bank has also reported that there are 36 countries where do not meet the demand of the standard of the food security, and 21 are in Africa. In India, government announced that the food prices already increased by 21% over a year; meanwhile lentils and sugar prices had increased by 30%.
i. Consider the rising food prices factors, and discuss these under demand side factors and supply side factors
The increased demand for food crops for bio-fuels
The bio-fuels and food both belong to necessity, so the demand is price inelastic. And the supply curve is price elastic as it takes long time to supply food crops. Because the increasing demand for food crops for bio-fuels, both demand curve for food crops and bio-fuels shift to the right from D1 to D2. As a result, the quantity demanded exceeds quantity supplied. So, the price of food crops increases from P1 to P2 in order to decrease the quantity demanded, which changes the market equilibrium from point A and C to the point B.
b. The increased consumption of meat in China and India
Meat is the necessity of normal good, so the demand price is inelastic. Also, it takes long time to product grain for feeding livestock, so the supply price in elastic. Owing to the increased consumption of meat, the demand of meat remarkably increases. Therefore, there is a rightward shift in the demand curve for meat (from D1 to D2). And there are enormous quantities of grain are needed to feed livestock (from Q1 to Q2), so the grain price increases from P1 to P2. And the market equilibrium moves upward from point A to point B.
c. Prevalence of adverse weather conditions in parts of the world.
Because the agricultural productions take time to supply, so the elasticity of supply is price elastic. Some bad weather conditions could affect the output of agriculture, such as prolonged drought, unpredictable frosts and unexpected deluge. Because of the poor grain harvest, the supply curve shifts to the left, and this is shown by S1 to S2. When the grain harvest quantity supplied decreases (from Q1 to Q2), the price of cereals noticeably rises from P1 to P2.As a consequence, there is a upward sloping for the market equilibrium for food crops from point A to point B.
iii. Whether price controls might help contain the rising global food prices and a better allocation of...