The World Food Crisis, a Matter of Supply and Demand ?

Introduction

World food crisis is a controversial topic in these recent years; everyone is trying to tackle this problem. In short term, the people who live in the less developed countries will be affected, however, in long term, once the problem of food shortage getting to be more serious, it will affect the whole world not just for human being but also the whole food chain. For the world food crisis, it can be discussed by different perspectives, but for the report, it is using the economic perspectives to describe how the food crisis occurs based on the economic concept of demand and supply.

Assumption

In the economic world, it can occur lots of possibilities as there are different concepts which can turn out lots of result even just based on one problem. In the elasticity concept of economy, it can divided into 5 type of elasticity, which are elastic, inelastic, unitary elasticity, perfectly elastic and perfectly inelastic that the presentation of the curve will in different ways and bring out various results. For food, it is a necessity, even if the price getting higher, people still need to use their income to pay for the food, only the quantity they bought may decrease a bit. In this condition, it can classify the food demand and supply into the elastic one as a result in the whole report, all the curve will be in elastic. In addition, food can also classify as an inelastic, but there are lots of kind food production which some can be in elastic and some can be in inelastic. For our group’s perspective, we think it is more suitable to classify the demand and supply in elastic.

Shortage

The reason of food crisis is based on the shortage of food, it can be explained by the economic concept “Shortage and Surplus”. For shortage, it is a disparity between the amount demanded for a product or service and the amount supplied in a market. It can always name as “excess demand “. The shortage are related to the price, when the price of an item is set below the equilibrium price, shortage will occur which the quantity supplied is smaller than the quantity demand. In the case, the food crisis can be presented by 3 ways which are the only movement of demand, the only movement of supply and the movement of both demand and supply. It will be mentioned in the following with reason provided.

1. Only movement in demand

 The food demand increases

 Demand curve shift rightwards

 Price increase, quantity decrease

Cause of increasing of food demand

- global population growth

population is expected to triple by the end of the century, exacerbating problems of access to food. World population growth, which peaked at two percent per year around 1970, dropped below 1.2 percent per year last year. But because the world population has nearly doubled since 1970, we are still adding 80 million people each year. This means that there will be 219,000 additional mouths to feed at the dinner table, each day, according to recent statistics. Due to the straightly increasing population, food as the necessity, the demand of food will increase relatively.

- increase of grain and oilseed crops diverted for biofuel production

Energy shortage has been one of the most important problems that challenge the world, but as the development of technology, nowadays, people can use biofuel production instead of fuels. And these biofuel productions are made of grain and oilseed, additional, biofuel production is much more environmental than the common fuel like gas and oil. It is a kind of green fuel and could play an important role in the future as more and more people pay attention to the pollution problem. All these reasons will cause the increasing of food demand like grain and oilseed

- people eat more

It is quite easy to understand. Because food is necessity, people cannot live without it. That means the demand of food will only be more, it can’t be less because the population is still increasing and as the development of technology, people’s lifetime become longer and older, it will also lead to the increasing of demand.

2. Only movement in supply

 Food supply decreases

 Supply curve shifts leftwards

 Price increases, quantity decreases

Cause of decreasing of food supply

Agricultural production itself has inherent vulnerability, despite the advanced technology and application of agricultural production greenhouses, greenhouses, irrigation, mechanization, etc., but fundamentally speaking, it is closely related to agricultural land, water resources, climate change and natural disasters

- Natural disaster

With the increase in global warming, extreme weather, climate impacts on agriculture increase, world agriculture is facing a severe test of natural disaster. Severe droughts and floods occurred in recent years, resulting in a number of countries in food production, exacerbating the contradictions of the world food supply.

- Increase in fuel price

FAO statistics show that, by the impact of the oil crisis, rising food prices and energy prices showed synchronicity. Also, The increase in oil prices led transportation costs. No matter car, plane or ship, they all need to use fuel. Besides, Oil prices boosting the cost of increased use of agricultural machinery. These tow costs will lead to the increasing of food cost. And the grid soaring agricultural production makes a significant increase in the cost of food production, severely dampened the enthusiasm of farmers, which also cause the decreasing of food supply.

- export bans by government

Since the beginning of 2007, international cereal export prices rose sharply. Meanwhile oil prices and shipping are greatly increasing, which makes the world a sharp rise in prices of basic foodstuffs. To control the impact of rising cereal prices on domestic food consumption, whether grain importing country or the government of the exporting country has adopted a series of policies and measures, like export bans by government.