Question

Brazil nut price rises – a case study of demand and supply

Food prices often rise or fall with good or bad harvests or because of a change in demand. A recent example is the price of brazil nuts, which by May this year had risen over 60% on European markets.

Part of the reason for the price rise has been on the demand side. Consumption of brazil nuts has increased as more people switch to healthier diets. This includes the purchase of the nuts themselves and as part of healthier snack foods. With supply being relatively inelastic, any rise in demand tends to have a relatively large effect on price.

A more acute reason is on the supply side. There has been a very poor harvest of brazil nuts. The nuts are grown largely in the Amazon basin which has been hit by drought linked to the El Niño effect. This, however, is only a temporary effect and future harvests should increase again as rainfall returns to normal. However, in the longer term, rainfall patterns may change with the effects of global warming.

The price rise in the UK has also be aggravated by the depreciation of the pound since the Brexit vote, which has fallen some 13% against the dollar since June 2016. A rise in the dollar price of brazil nuts has thus led to an even bigger rise in their sterling price.

Requirements:

1) Explain the specific supply conditions that have affected the price of brazil nuts in 2017.

2) Why did prices rise ahead of the change in supply?

3) How has the size of the price rise been affected by the price elasticity of demand for brazil nuts?

4) What determines the price elasticity of demand for brazil nuts? Explain in detail

Answer 1

Sol :-

1):- The ideas of inelastic supply and their effects on the overall prices of goods that are offered available to be purchased.

For the situation, the nature of the demand has changed. Nuts were an occasional product the demand for which was constrained.

In any case, changes in tastes and inclinations of the customers changing to an eating regimen which is progressively sound has caused the demand for the product to go up.

Additionally, on account of the way that these nuts are unique and are not mass created have prompted the abrupt ascent in prices for the equivalent.

This is because of sharp increase in demand for Brazilian nuts.Increase in purchaser demand is because of rising popularity of Brazilian nuts because of its status as a healthy food.Its known to be useful for the skin and can be made piece of solid eating regimen.

2):- Further, because of change in currency rates, the expense of importing has additionally increased creation the cost further go up separately.

The El-Nino which is a repeating storm has likewise adversely affected the supply, in this way expanding the overall prices of the product.

Food prices has risen practically half from 2000.

This is because of an assortment of reasons:

• Increase in transportation cost because of ascend in oil prices.This will inturn drive up the expense for worldwide food advertise.

• Climate change:- Various climate occasions repulverizing harvests the world over and changing the climate as we probably am aware it upsetting the food markets.

• Inflation :- Global food value inflation is driving the expense of food prices over all the nations.

• Growing demand :- Due to the development of worldwide economies more assortment of food is being expended expanding the demand and in this manner prices.

3):- Speculation is one of the key reasons why prices of a product are set to rise. In the coming months on account of issues related with downpours, speculations can shoot up prices of the nuts.

Further as explained,exchange rates assume a significant job in the cost levels and since the dollar estimation of the goods has increased it implies that imports are progressively costly even without a change in overall supply of the product separately.

4) :- The demand side and supply symptoms of brazil nuts. As the demand is high because of change in tastes and inclination there is an increase in cost yet this increase in prices and increased demand isn't counterbalanced by an equivalent increase in supply as it is inelastic.

This entire procedure prompts inflation in the event of brazil nuts. The above entry additionally shows the impact of depriciation of the nation's currency which has increased the local cost of the brazil nuts.