...SPECIAL ARTICLE Wheat Price Inflation in Recent Times: Causes, Lessons and New Perspectives Sthanu R Nair, Leena Mary Eapen In this paper we demonstrate that the high level of wheat procurement during 2008-09 and 2009-10 at a higher minimum support price was necessitated by the difficult circumstances that the government faced, characterised by a precarious buffer stock position from 2005 to 2008. Hence, blaming larger procurement and a higher msp alone for the soaring wheat prices between 2008 and 2010 is an oversimplification of the problem. The experience with wheat procurement in the recent past suggests that foodgrain procurement at a lower msp may not always be feasible. Finally, it is shown that the inability of the government to utilise the abundant wheat stocks for the benefit of the consumers during the recent phase of high foodgrain prices was due to the poor offtake of the grain allotted to the states, not to the operations of private trade via the government’s open market sales window. 1 Introduction The issue of high inflation in food prices has been at the forefront of the economic policy debate in India for quite some time now. For the government and policymakers, in terms of identifying appropriate solutions no other domestic economic problem has proved to be as challenging as food inflation. Perhaps for the first time in recent history a sense of helplessness has settled over the government administration in resolving a key economic challenge facing...
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...country which imports large quantities of wheat can try to stabilise wheat prices? Stabilising wheat prices can be done through a buffer stocks scheme. This is when the government tries to stabilise a market/producer which is producing too little or too much (in the case) wheat. They would do this by buying back a lot of the wheat if it rose above or by giving out some they own in their stock pile to bring production up to the right amount if it dropped below the amount needed by the consumer. This is shown in the diagram below. Wheat Wheat During a good harvest where a larger quantity is produced at Q2 with the price at P2, the government has to intervene by buying some of the stock to enable the producers to return to the equilibrium point of (Q,P) where both the demand and price increase meaning its more profitable for the business than at point (Q2,P2) which is the main objective for a firm. At point (Q1,P1) because of the bad harvest, the price set by the producer is higher than the equilibrium to try and maintain its profits. Unfortunately consumers won’t buy a lot at this price so the government will supply the producers out of its stockpile which in this case is imported in large quantities to stabilise the market. This will mean producers can lower prices to attract more sales from consumers and in turn increase profits. Another way in which the Government which imports large quantities of wheat can try to stabilise wheat prices is by introducing maximum pricing. This...
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...which imports large quantities of wheat can try to stabilise wheat prices within the country. (25 marks) Price stability is when prices in the economy don’t change or don’t change much over time. This means that an economy would not experience inflation or deflation. One of the ways in which the government could stabilise wheat princes is through a buffer stock intervention. This is an intervention system that aims to limit the fluctuations of the price of a commodity. Another way in which they could stabilise the price of wheat could be through imposing a price ceiling. A price ceiling is the price level in which the price of a good or service is not allowed to increase past. Wheat is unstable predominantly due to the situation regarding it in Russia. This is because Russia, a major wheat explorer, banned exports of wheat in 2010. This was due to very dry weather and fires destroying a third of the Russian crop. Due to this wheat prices significantly increased in the summer of 2010. Furthermore the wheat market is unstable due to the emerging demand from developing countries such as India and China, thus having a domino effect on other countries. Due to this it has made the Russia situation more than it should have been. Although to combat this farmers have already planted more wheat, began to use less wheat to feed livestock and substituted cheaper grains in their place. Through this the market has reacted to the subtraction of the Russian wheat crop and in reaction has increased...
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...the factors influencing the quantity imported of common wheat Contents Introduction 3 Literature revue 3 Panos Konandreas, Peter Bushnell and Richard Green (1978) 4 Won W. Koo (1984) 5 Daniela Kopp and Iain Wallace (1990) 6 Franqois Ortalo-Magne and Barry K. Goodwin (1990) 7 William W. Wilson (1994) 10 James N. Barnes and Dennis A. Shields (1998) 11 S. D. Rozelle and J. Huang (1998) 14 Samarendu Mohanty and E. Wesley F. Peterson(1999) 15 M. Uzunoz and Y. Akcay (2009) 16 L. J. S. Baiyegunhi and A. M Sikhosana (2012) 18 Methodology and results 18 Explanation of coefficients: 27 Elasticity Analysis : 30 Conclusion 32 References 33 Appendices 35 Introduction Food habits vary in finction of countries and regions. In Morocco, the wheat production have reached 3400 million metric tons in 2012 ("Index mundi," ), which makes Morocco wheat production ranked in the 24th place, excluding EU. All over the world, people consumption of wheat has increased in the majority of countries. Wheat is more and more used in every meal. Due to its importance in the Moroccan alimentation, we decided to to conduct a study related to the imported quantity of common wheat. The objective of this study is to determine the factors influencing the quantity demanded of common wheat in Morocco. In this project, we will make use...
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...As we already know from the previous questions, tThe price of wheat is strongly is determined bylinked with its supply and demand. In order to determine the increases and decreases of the wheat price, we don't necessarily pay attention to whether supply and demand are elastic or inelastic. What we know and we care about is thatThe demand forof wheat has been increasing over the last few years, and that is because population andis growing over the years, so income is growing aswell. With other words, tThe more people there are and the higher their incomemore money they get, the mostre wheat will be consumed. But why was 2008 an exceptional year for the price of wheat? Simply because, even though high income countries kept the pPopulation and incomes were growing particularly quickly inon a standard basis, the lower and middle income countries increasing their population over the years. So in 2008, and as we can find out from Figure 4and this led to a sign:ificant increase in the demand for wheat, because the demand for wheat is more responsive to increases in income in these countries. World population of the case study, world population of the low and middle income countries is on peak on 2008. [This is not correct.] [The supply of wheat?]That means more consumption of wheat, since it is vital for these countries, is leading to increased prices. Question 9 As we noticed already from question 8, tThe price of wheat in 2008 was surprisingly high, but itcomparing to the...
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...Markets A focus on Wheat When I initiated my first trade I choose to buy wheat. I was hoping that the price of wheat on November 4th was at a low for the buying as selling period. The settle price to buy wheat for March 2015 was $5.42/Bu (CME group, Chicago SRW future quotes). I wanted to be a speculator and I thought that the price of wheat would go up so I bought wheat instead of selling it. The trend in the market had been downward moving in the past months. On September first the price was about $5.8/Bu and by the beginning of October the price had dropped to $4.9/Bu (CME group, Chicago SRW future quotes). I figured that the price was about to turn around and in the month of November the price started to rise again. This is when I bought wheat because I thought it would continue to rise for at least the duration of our project. I decided on wheat specifically because I thought I had a better grasp of the wheat market and it’s trend than I did of the other commodity options. Based on the chart above and by Chris Arsenault a writer for Reuters dot com. Egypt, the worlds largest importer of wheat declared on Nov 25 that the World Food Program pledged to expand it’s aid to help out poor families to keep their children in school and out of the workforce (Chris Arsenault, Reuters2014). What this shows me is that on Tuesday Nov 25 the largest wheat importer says that they will be providing more family’s with more food and in turn the demand for wheat increased (Chris Arsenault...
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...Management) | Minimum Support Prices | A Microeconomics Project | | | | This project analyses the Minimum Support Prices (MSP) applied by Government of India. Justification for the MSP applied to wheat is also given. Finally measures to reduce the MSP expenditure are given. | Table of Contents 1 Introduction 4 1.1 What is a Minimum Support Price? 4 1.2 What is the need for MSP? 4 1.3 How Government decides MSP? 4 1.4 List of product that receive MSP 5 2 MSP Policy of Wheat 6 2.1 Introduction 6 2.2 How did MSP policy of wheat come into picture? 6 3 Justification of MSP for Wheat 8 4 MSP Pricing of Wheat – Higher or Lower 10 4.1 High MSP – Increases Inflation 10 4.2 Low MSP – Farmer’s Income Affected 10 5 Critical Analysis of MSP Policy 12 5.1 Consumer Surplus 12 5.2 Producer Surplus 12 5.3 Deadweight Loss 13 5.4 Other Effects 14 5.4 Measures to minimize MSP expenditure 16 Bibliography 18 1. Introduction 1.1 What is Minimum Support Price (MSP)? Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the competitive equilibrium price for the crops. A price floor, which is also referred to as a minimum price, sets the lowest level possible for a price. Price floors/minimum prices only have an effect if they are set above the actual market clearing price. There are many instances of governments in the real world setting price floors, such as setting...
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...General Certificate of Education Advanced Subsidiary Examination January 2012 Economics Unit 1 ECON1 Markets and Market Failure Thursday 12 January 2012 9.00 am to 10.15 am For this paper you must have: an objective test answer sheet a black ball-point pen an AQA 8-page answer book. You may use a calculator. Time allowed 1 hour 15 minutes Section A (ECON1/1) Answer all questions on your objective test answer sheet. Use a black ball-point pen. Do not use pencil. Do all rough work in this question paper, not on your objective test answer sheet. Section B (ECON1/2) Answer EITHER Context 1 OR Context 2. Use black ink or black ball-point pen. Pencil should only be used for drawing. Write the information required on the front of your answer book. The Examining Body for this paper is AQA. The Paper Reference is ECON1/2. Information The maximum mark for this paper is 75. There are 25 marks for Section A. Each question carries one mark. No deductions will be made for wrong answers. There are 50 marks for Section B. The marks for questions are shown in brackets. You will be marked on your ability to: – use good English – organise information clearly – use specialist vocabulary where appropriate. Advice You are advised to spend no more than 25 minutes on Section A and at least 50 minutes on Section B. G/T76935/Jan12/ECON1 6/6/6/6/ ECON1 2 Section A: Objective Test Answer all questions in Section...
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...Western world. Demand in India, the biggest jewellery market, was little affected until last year. Demand in China, the next biggest, has continued to rise. As jewellery demand went down, investment demand went up: for gold in the form of coins or bars, for gold exchange-traded funds (ETFs) and for the services of online companies that allow investors to buy small amounts of pure bullion, stored in underground vaults. Buyers of jewellery might be put off by a rising price; investors are more likely to see it as a sign that the price will increase further still. Annual “identifiable investment”, as the World Gold Council puts it, was 611 tonnes in 2004-07, a little more than twice the average for the four previous years. That just about offset the fall in jewellery demand. Since then, however, investment demand has accelerated and jewellery demand has collapsed. The seemingly insatiable demand of mainly Western investors, drawn to gold as a store of value rather than as an adornment, has driven the price from less than $700 an ounce in 2007 to more than $1,200 since May this year. Gold’s main drawback is that it pays neither a dividend, like a share, nor a coupon, like a bond, nor a rent, like property. But monetary policy has been keeping official...
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...International Commodity Prices to Domestic Prices in Bangladesh M. Golam Mortaza Habibour Rahman June 2008 Policy Analysis Unit (PAU) Bangladesh Bank Head Office, Dhaka, Bangladesh (www.bangladeshbank.org.bd) (www.bangladesh-bank.org) Policy Analysis Unit* (PAU) Working Paper Series: WP 0807 Transmission of International Commodity Prices to Domestic Prices in Bangladesh M. Golam Mortaza Research Economist Policy Analysis Unit Bangladesh Bank Habibour Rahman Research Economist Policy Analysis Unit Bangladesh Bank June 2008 Copyright © 2008 by Bangladesh Bank * In an attempt to upgrade the capacity for research and policy analysis at Bangladesh Bank (BB), PAU prepares and publishes Working Papers on macroeconomic issues as a part of its routine activities. These papers reflect research in progress, and as such comments are most welcome. It is expected that these papers would eventually be published in learned journals after undergoing due review process. Neither the Board of Directors nor the management of, or any agency of the Government of Bangladesh necessarily endorses any or all of the views expressed in these papers. The latter reflects views based on professional analysis carried out by the staff of Bangladesh Bank, and hence the usual caveat of research reports applies. [An electronic version of this paper is available at www.bangladeshbank.org.bd] Transmission of International Commodity Prices to Domestic Prices in Bangladesh ...
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...focus on Minimum Support Price and its impact on various parameters of agricultural economy including growth parameters, distribution aspects, and decision making in allocation of resources, environmental effects and above all MSP as an effective instrument of the price policy. The study was mainly dependent upon the data collected from secondary sources at the state level and supported with the primary data. The price policy was more effective in case of paddy and wheat as compared to cotton in the Punjab State. Since 1990s, the gap between farm harvest price and MSP in case of paddy narrowed down considerably while for wheat, the farm harvest price was even lower than the MSP for some years. It was due to the reluctance shown by the Government to purchase large volumes of paddy and wheat arriving in different markets of the state due to lower storage capacity and already piled large stocks of food grains. The growth in MSP, wholesale price and farm harvest price for paddy, wheat and cotton was higher in period II (1985-86 to 1999-2000) as compared to period I (1970-71 to 1984-85). The farmers’ response regarding the awareness of MSP was the highest for wheat followed by paddy and cotton. The increase in MSP had induced the use of new technology and increase in output. Also, the impact of MSP in increasing the adoption of technology was found to be negatively associated with farm size. There was no regional disparity observed in procurement of rice, wheat and cotton in the State...
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...|Case D | |US |UK |US |UK |US |UK |US |UK | |Wheat (bushels/man-hour) |4 |1 |4 |1 |4 |1 |4 |2 | |Cloth (yards/man-hour |1 |2 |3 |2 |2 |2 |2 |1 | | 1. For each of the above, indicate which country has comparative advantage, if any, in which commodity, and indicate if trade is possible or beneficial. Case A: US has absolute and comparative advantage in wheat, UK in cloth. Opportunity cost of wheat in US is 1/4=0.25 cloth, in UK is 2/1=2 cloth. Similarly opportunity cost of cloth in US is 4/1=4 wheat, in UK is ½=0.5 cloth. Yes trade is beneficial. Case B: US has comparative advantage in wheat, UK in cloth, yes trade is beneficial. Case C: US has comparative in wheat, UK in cloth. Opp. Cost of wheat in US =2/4=0.5, in UK is 2/1=2. Opp Cost of cloth in US is 4/2=2, in UK is ½=0.5. Case D: There is no comparative advantage in either commodity. 2. Consider case B above; now answer the following: a. What is the cost “in terms of labor content or man-hours) of producing wheat and cloth in the U.S. and U.K.? In U.S. 4 bushels wheat are produced per hour, therefore each bushel costs 1/4=0.25 man-hours. Similarly, cost of cloth =1/3rd man-hour. In U.K. cost of wheat per bushel is 1 man-hour, cost of cloth per yard is 0.5 man-hour. b. What is the dollar price of wheat and cloth in the U.S. if wage rates are $6 in the U.S.? Wheat = 0.25 manhours/bushel * $6 = $1.50 Cloth = 1/3rdmanhours/yard...
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...case deals with the Fleetwood Flour Mill for F.M. Brown and Sons. The main part of the flour we will focus on is the procurement of soft red winter wheat, most commonly used in the eastern part of the United States for pastries, pretzels, pie crusts, and crackers. The yield of the establishment’s wheat is 75%, in other words 60 pounds of what (1 bushel) yields 45 pounds of flour. Due to certain events the price of wheat rose sharply in 2007, as have other commodities, such as corn, since that year. The rise in price is due to two main reasons including the drought in Australia and ethanol production in the United States. Since then, the price for wheat has dropped almost close to its original price to $4.00 per bushel. Competitive forces make it difficult for the company to change pretzel bag prices and so to mitigate price risk, Brian Conrad, who runs the Fleetwood Mill, will try his luck dealing with wheat futures contracts through the Chicago Board of Trade. For July 2013 Brian will strategize to forward contract with some farmers and hedge the rest on the Chicago Board of Trade. This report will specifically focus on wheat price analysis and the prices Brian should expect, with this in consideration what flour price he should quote to the pretzel company, a and lastly, advantages and disadvantages of contracting with area wheat farmers and hedging using futures...
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...India wheat milling industry David McKee davidmckee59@msn.com Submitted March 15, 2012 to World Grain magazine. The owners of roller flour mills in India like to describe their country’s wheat industry in sweeping terms: an annual harvest that has reached a record level of 88 million tons; about one third of the crop each used by farmers, bought by traders or by the government; more than 1200 roller milling companies grinding from 15 to 18 million tons of wheat per year into refined flour called maida; several million tons of branded packaged stone ground whole wheat flour or “atta”; and most importantly 40 to 45 million tons of atta still ground on a job work basis in villages, towns and even in large cities by small electric or diesel driven stone mills, known as chakkis. Such broad brush strokes however conceal the enormous complexity of India’s grain value chain. Wheat production and consumption vary enormously from region to region. Differing tax regimes on wheat purchasing and wheat product sales give artificial advantages to millers in some states and put those in others at a huge disadvantage. Government procurement of wheat for the “central pool” in surplus states and movement to deficit states for heavily subsidized distribution to the poor under an array of state level welfare schemes results in massive distortion of markets and creates huge incentives for illegal behavior at all levels of the supply chain, as does a highly regulated agricultural marketing...
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...f. In question D we determine that the price for corn will ultimately rise. The demand to use corn to convert into ethanol increases the quantity demanded for corn. This results in an increase in the equilibrium price and the demand curve shifts to the right. Unless more corn is produced or demand for corn to convert to ethanol is reduce, the high cost of corn will directly impact the cost of feed. In a competitive market, feed prices will increase as corn prices increase. g. In section D, it is stated that the USDA lowered its forecast of Australia’s wheat crop. Also, weather ailments are lowering wheat production in South America. We also learn that US Farmers planted 10% more acres of winter wheat then the prior year. In this scenario, in a competitive market, the amount of wheat that sellers in Australia and South America are able to sell at any given price has decreased. The quantity supplied will decrease and the supply curve will shift to the left. There is however, no change in the demand schedule. Buyers will still demand the same amount of wheat. As a result the demand schedule will not shift. However, the supply schedule for the US Farmer will change. As indicated in section D, US Farmers have planted 10% more winter wheat. The amount of wheat that US Farmers are able to sell at any given price is going to increase. As a result, the quantity supplied will increase and the supply curve will shift to the right. Again, there is no change in the demand...
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