Factors that led to an increase in the price of meat

Topic: Using demand and supply analysis, examine the factors that led to the increase in the prices of meat.

Introduction

This paper aims to make use of the demand and supply concept in microeconomics to explan the phenomenon of the increate in the price of meat. Firstly, the background about the recent increase of meat price is reported. Secondly, the demand factors affect the change of meat price will be discussed. Thirdly, the supply factors related to the meat price change will follow. Finally, the issue will be wrapped up in conclusion.

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Background

According to the Financial Times (Farchy and Meyer 2010a), the worldwide prices of meats have hit a 20-year high. In fact, compared to the last year, the average meat price index by the UN food and agriculture organization has increased by 16 per cent, which include the record high of lamb prices in the last 37 years and beef prices hit a two-year high (Figure 1).

Figure 1: Global Meat Price

According to the lecture notes, pricing of a product is affected by people’s demand for the product and the supply or product by the manufacturer. The next two sections will attempt to give a full account of the price change in meat using the demand and supply analysis.

Demand Analysis

According to the lecture notes, demand of product can be affected by:

Taste of customers

When people in the emerging countries (e.g. China and Brazil) earn higher disposable income, they could afford to eat more meat in their meals. That has been demonstrated in Figure 2 on the prediction of meat consumption in the next 40 years.

Figure 2: Global Meat Consumption.

Also, the demand of meat is also affected by festivals in different place such as more turkey and other meat for Thanksgiving and Christmas in the western countries (Knight 2010), chicken, lamb and beef during Ramadan in muslim countries (Farchy, Saleh and Allam 2010).

Number and price of substitute goods

In terms of functions to the human, meat provides protein to the body. Meat can be substituted by corps such as soyabeans. However, the price of soya bean also increase due to the unexpected drought in some countries in the past years (Farrell and Meye 2010b). In other words, people may find it less attractive to buy meat substitute goods for meat.

Number and price of complementary goods

It appears that the number complementary goods such as vegetables and sauce for cooking meat would not deviate although the vegetable price may have increased together with meat. Some customers may be more resistant in cooking meat If they think the overall cooking cost is not justifiable.

Income

As mentioned in point number 1, people usually intend to consume more meat in their meal when they have higher disposable income. More and more people from the emerging countries gain higher salary. It will increase the demand of mean consumption and push the price up.

Distribution of income

Under globalization, more people could earn more. Having said that, the wealth gap between the rich and the poor is also getting wider and wider. Overall, compared to the past, people’s income has increase and evenly distributed. That also increases people affordability in buying mean. Subsequently, the demand in meat would also increase.

Expectations

Overall, it is expected that the demand of meat will increase due to the increase of population, increased average income in emerging market and more frequent usage of meat for festivals and celebration (Farrell and Meye 2010b, Farchy, Saleh and Allam 2010, Knight 2010).

Supply Analysis

According to the lecture notes, demand of product can be affected by:

Cost of production

The main cost of meat production is staple food and corps for poultries such as corn, barley and wheat. Over the past years, the feeding cost in terms of price of corps has been increase due to the currency change, shortage of production (e.g., shortage of corn supply from the US (Blas 2008, Farrell and Meye 2010b)) due to natural disasters such as drought and flood. The increased population and shortage of food supply in some developed (e.g. Australia) and emerging countries (e.g. Argintina) have forced some countries to control the export amount in some countries (Meyer and Farchy 2010, Smith 2010).

Profitability of alternative products

Crops with high protein could be alternative products. However, they could not substitute meat totally in some cultures. Also the supply of crops dropping due to natural disasters and increased population.

Profitability of goods in joint supply

The supply of goods in joint supply (e.g., crops and vegetable) is decreasing. Their profitability varies due to the fluctuation in foreign exchange and harvesting quantity (Smith 2010).

Nature and other random shocks

Definitely natural disaster, the fluctuation in the commodity market for meat due to people’s concern about the change in the UK currency, supply and demand of meat and staple food would affect the supply (Farrell and Meye 2010b and Smith 2010)

Number of suppliers

Although the technology may have contributed significantly in improving the growth and productivity of poultry industry, due to industrialization, globalization and climate change (e.g., dissertation), hard have been curtailed (Farchy and Meye 2010). In other words, there will be fewer people working on cultivating poultries to stabilize the meat supply.

Expectations of producers

Because of the recurrent natural disasters, new diseases for animals and expected worldwide increased in food demand, it is expected that cost of meat production will increase whereas the supply of meat will drop.

Conclusion

In conclusion, the recent price increase in meat price does not happen suddenly, but can be traced and explain by the demand and supply of meat.

In terms of demand, the increased population and their increase disposable income, increased usage of meat for meal and festivals push meat price to a record high together with the dropping supply of meat due to instability of meat production due to natural disasters, reduced number of herds and increased cost of feeding cost.