Impediment and Imperfection of Sorghum Market

Impediment and imperfection of sorghum market

Background

Sorghum or milo has variety of uses for human including as a kind cereal grain food to consumption, fodder to livestock and raw material in ethanol production. Due to the variety limitation, more than half production cannot accepted in diet and have to be used as livestock fodder in most developed countries. That is said, food consumption is only a small part and most found in low income countries. Sorghum can survive in harsh environment such as drought semi-arid area, high attitude area because its tolerance of salty or alkaline soil and extreme range of temperature and grows distribution gradually in 66 countries. (Globalgrainevents.com, 2017)

The most large product country is the U.S., from 2013-2014, it contributes to 16% in global production value, following by Mexico (12%), Nigeria (11%), India (9%) and Argentina (7%) (Globalgrainevents.com, 2017). By contrast, the biggest consumption markets is China while Chinese sorghum plant square and production ability cannot meet its demand in food consumption and spirit (Baijiu) production. Since 2013, China largely imported sorghum for feeding use and become the largest export destination for sorghum. According to previous research, by MY 2014/2015, 90% of the U.S. sorghum was exports to China (Wang, 2016).

However, in economic terms, an inefficient market is a market in which securities prices are random and not influenced by past events (Malkiel, 1973). The stock holder cannot access to all available information to predict future trend that makes technique analysis unworthy. From the graph 1, it can be found price in last 5 years was unstable. Experienced several fluctuation, the price of sorghum per metric ton currently is approximately half than in 5 years ago.

[pic 1]

Graph 1. Sorghum Monthly Price from 2012 to 2017- US Dollars per Metric Ton (Indexmundi.com, 2017)

Impediment and imperfection

Time

The long-term decline and short-term fluctuations in the actual price of sorghum are caused by many reasons. The steady decline in prices is mostly structural, which reflects the fundamental impact of market-driven supply and demand. Productivity enhancing and the emerging producers have led to a rapid increase in global sorghum supply, which is faster than demand. Another temporal factor is seasonal basis, risk averse competitive grower prefer produce and sell during the marketing time which cause sorghum price present seasonal fluctuation. If missing the best marketing time, storage cost will be additional on the total price and decrease profit. However, in some undeveloped area (some African countries and Asian region), the difficulty of information acquirement would hinder the local sorghum and global circulation which makes overstocking of product. Based on nutriology and brewing technique, some of the overstocking sorghum are not suitable to use in diet and Baijiu production and the price will definitely deviated from its actual price.

Space

Spatial imperfection is common in all kind agricultural productions, transport cost existing when global trade continue. In that case, arbitrageur looks for price differences between geographically separate markets which in other hand will cause adverse circumstance of the considerable low quality producers. For instance, Australian sorghum replaced American sorghum in Japanese sorghum market since the last 20 years due to the its considerable low cost in transportation making the American sorghum price looks do not worth its quality (Ishida, 2015).

Form

The large wedge between the retail price and price paid to the agricultural producer affected by more value adding. In India, a state regulated law called Agricultural Produce Marketing Committees Acts, require farmers to sell their produce to licensed agents in APMC yards (Staff, 2011). This inefficiency of the acquisition of agricultural products has increased the additional expenditure on agricultural products.

Policy interventions

The first policy to decrease the inefficient market is the subsidy of sorghum producers especially the undeveloped counties. Farmers in developing countries must respond to competition from highly subsidized and highly mechanized producers in industrialized countries, which makes their production cost higher and lost competitiveness in global markets. One obvious example is Chinese sorghum subsidy in 2016 meanwhile the subsidy of corn has decreased, that makes sorghum plant area has great increase and the price decrease to normal level.