The Milk Market in Australia - Example

Name: Tutor: Subject: Date: Table of Contents Article Summary 3 Introduction 3 Analysis 4 Supply 4 Elasticity of Supply 5 Demand for Milk 6 Elasticity of demand 7 Recommendation 9 Conclusion 10 Work Cited 11 Article Summary The article by Jane Stanley posted on the internet, titled “Milk is now cheaper than water. Dairy farmers deserve better” was posted Tuesday, 17th December, 2013. The article analyses difficulties facing the dairy farming industry in South West Victoria. Furthermore, the article exposes the main cause of poor milk prices in Australia despite booming domestic and international demand for dairy products. This report will also provide a recommendation on the way forward and strategies of improving the deteriorating trend in the dairy business. The sector is essential not only to the farmers but also to the community. Introduction Dairy farmers in part of Australia are facing hard time meeting their farm expenses. Their main source of income is deteriorating because the milk prices are so low. In fact, 21% of the farms are running at an absolute loss. Farmers are currently facing a huge crises leaving them with no option other than doing away with the dairy business. Many of them are selling their farms, and switching their business lines. As various issues emerge as a result of poor milk prices, economist believes that the country will soon face milk shortages. This report will analyze the effect of poor prices in the dairy farming, the situation of demand and supply. The report will also discuss the market actions, demand and supply curves and the elasticity of supply and demand. Finally, a summary of all the issue discusses and recommendation will be provided at the end of this report. Analysis Supply In economics, supply refers to the amount of goods that sellers are willing to supply at a given price all other factors remaining constant. According to Browne, supply is an economic concept that is used to describe the amount of goods that are available to the consumers at the agreed price. In Australia, the prices of milk have dropped at a higher rate because the regulation dictates the prices of the milk sold by the farmers. Farmers are not able to sell their farm products directly to the consumers because of regulations that are regulating the industry. This has affected the amount of supply of milk in the market because the farmers are changing the business. The market supply of milk is so sensitive, and any slight change in price or any other factor can interfere with the amount supply. Price is the key element that affects the supply curve and can move to either side depending on whether the price has reduced or increased. The diagram shown reflects the nature of supply in the market. When the prices are high, the supply will increase. However, when the prices drop the supply curve will move to the left indicating the reduction of the milk in the market (Hanslow and Kevin, 121). When the prices of milk fall, the supply curve will shift to the left because suppliers of milk will get discouraged. Most farmers will not be willing to continue with the business they will be running at a loss. In addition, when the price fall, there will be various changes in the market. Some of the changes expected to include shortages of milk in the market especially in the short run. The prices are also likely to increase after some time because the demand will be higher than the supply. Elasticity of Supply In the diagram shown below, the price elasticity of supply of milk in Australia is high at low levels of demand. For example, D1 and D2 the elasticity of milk is high as compared to that of D4 and D5. This is because, at peak season, the supply of the milk reaches the maximum, and it is impossible to increase the amount of milk in short term period. Besides, the farming produces their products seasonally. This means that it is hard to increase the amount of output despite the increase in demand especially in the short run. However, the amount delivered can be increased in the long run because farmers will have time to increase the number of cows in their farms. Other factors that are likely to increase the amount of milk supply in the future include the availability of inputs such as dairy feeds, infrastructure and the cooling machines (Ashton, 80). Demand for Milk The milk in the long run will likely to increase because of the population increase. This means that people will continue to consume more liters of milk in the future as compared to the current consumption. It is, therefore, essential for the government to intervene and provide incentives to dairy farmers so that they can they can get motivated and produce more milk. Without incentives, there will be a shortage of milk in parts of Australia. Furthermore, the government can also subsidize farm inputs so that the farmers can afford them. Research indicates that many farmers are running at a loss because the inputs are very expensive. The incomes received by dairy farmers are not sufficient to cover the expenses. The diagram below reflects the movement of the demand curve due to various factors such as an increase in population, the reduction in prices and Also improvement infrastructure. Infrastructure is a factor it determines whether the consumers will access the dairy farm products at the appropriate time. Furthermore, milk is perishable products, and it requires to be sold in the shortest period (Clark at al, 13). This diagram reflects the future of Australia market because the prices for is deteriorating at a higher rate. Many people now prefer other business apart from dairy farming business. At the same time, the population is increasing. This means that in the future in the demand for milk will be higher than the supply. Elasticity of demand The demand for milk in Australia is among the products that are having inelastic demand in the market. The consumers are willing to absorb changes in prices to continue buying them In the above diagram, the demand for milk is experiencing inelastic demand because milk is essential in life. It is not possible to increase the amount of milk that an individual buys because they are perishable. A consumer can only buy the amount he or she consumes a day regardless of the price. If the price changes, the amount of milk purchased will remain the same or change slightly. This is because milk is an essential product in human life. In the figure above, it shows a small change in the quantity demanded regardless of the amount change in the price. It is possible to reduce the price of the milk and experience a small increase in the amount of milk purchased. It is also true that the consumers will continue buying the same amount of milk despite price increases. It is, therefore, vital for government not to regulate the prices of milk. Such products require market forces to determine the price to be used (Jane, 2013). Recommendation In order to prevent future shortages of milk in Australia, it is essential for the government to provide incentives to the farmers. Research indicates that farmers have huge problems with buying the inputs for their dairy business. It is, therefore, essential for the government to subsidize foods dairy farms feeds so that it can be affordable to dairy farmers. The government should not control the business. There are various regulations in Australia that guide the dairy farming business. This regulation tends to favor middlemen or the companies that are processed milk instead benefiting dairy farmers. There should be freedom so that farmers can look for a market for their products. Secondly, the government of Australia should allow market forces to determine the prices of milk, and not to regulate the prices. In addition, the government should protect the dairy farmers from exploitation from foreign companies. This can be done through application of high tariffs, using of quotas and providing subsidies to local dairy farmers. Other factors that need to be considered by the government as a way of supporting farmers are by vaccinating all the cattle freely. Farmers are spending a high amount in vaccines and treatments of their cows. Finally, the government should assist farmers in building cooling machines that can be used by farmers to preserve milk that are not sold immediately. This will help to reduce the amount of milk that is disposed. Such measures will be vital for preventing future shortage of milk in the country. Conclusion In conclusion, the milk market in Australia is facing uncertainty because many farmers are quitting the business due to low operating prices in the market. Economist feels that, in the future, the country will be facing a milk shortage because the suppliers are reducing with time. Demand on the other side is increasing because of population growth. It is a fact that the demand for milk is increasing because of population. Besides, there are various factors that are affecting the milk market in Australia. The farmer is experiencing high losses, and many of them are costing the business. Work Cited Ashton, A. Advances in Agriculture Research and Application: ScholarlyEditions 2013 Edition, Ppg 79-81 Clark, Dave, Bill Malcolm, and Joe Jacobs. "Dairying in the Antipodes: recent past, near prospects." Animal Production Science (2013). Ho, C. K. M., et al. "Performance, return and risk of different dairy systems in Australia and New Zealand." Animal Production Science (2013) Ppg 133-136 Hanslow, Kevin, et al. "Economic impacts of climate change on the Australian dairy Sector." Australian Journal of Agricultural and Resource Economics (2013). P 121. Browne, Natalie, et al. "The relative profitability of dairy, sheep, beef and grain farm enterprises in southeast Australia under selected rainfall and price scenarios." Agricultural Systems (2013). Jane, S. Milk is now cheaper than water. Dairy farmers deserve better. Retrieve on 29th December, 2013 from: http://www.theguardian.com/commentisfree/2013/dec/17/milk-is-now-cheaper-than-water-dairy-farmers-deserve-better Read More