The paper "Economic Context of International Business" is a wonderful example of an assignment on macro and microeconomics. Historical volatility existing in the agricultural commodity market results from market failure in terms of both supply and demand-sides. This essay will explore the problem by identifying leading elements in the supply-side and those from the demand-side. Additionally, the essay will also discuss the mechanisms available for governments and businesses to manage price movements. Notably, countless factors influence the variation of price level of agricultural commodities at local, national, regional, and international markets. The factors affiliated with supply shocks, which are briefly discussed in this sub-section, include climate change and public policy. Climate variability From a historical perspective, this has been the most recurrent factor influencing agricultural price volatility.
Since time immemorial, agricultural production has been based on prevailing weather conditions. Supply shocks mostly occur during times of extreme weather events. Because of geographical and temporal spacing of such events, times of high volatility tend to be limited to certain products, seasons, and regions. Volatility is inherent in agricultural commodity prices because the sector is subject to the vagaries of climate (Chambers & Quiggin, 2003: 336).
In recent decades, the effect of the increased climate variability has led to catastrophes, such as floods, droughts, famines, and floods. Ideally, climate change has presented an immense global challenge, which is directly related to the prices of agricultural commodities. Public policy Public policy greatly influences the supply of agricultural products and ultimately, the price levels. New public policies at the national level can result in withholding inventory or raising export tariffs. Such decisions will result in changes in levels of commodity supply at national, regional, and international levels.
When an export tariff is raised, many exporters may abandon the business leading to increased supply in local markets. Coincidentally, such decisions will lead to decreased supply in the international markets leading to increased price levels. Increasing export tariff was implemented by many countries during the food crisis of 2007-2008 (Chambers & Quiggin, 2003: 337).
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