[Previous entry: "Emirates pushes for greater access in Canada"]
04/08/2010: "Strawberries, Goats and Sheep ... trouble in food supply?"
Agricultural markets are the closest thing we have to perfectly competitive markets. There are three articles attached that illustrate the concepts we talk about when analyzing firms that operate under conditions of perfect competition. Recall that the characteristics of perfect competition include a homogeneous product, many sellers all of whom are price takers and a lack of barriers to entry.
The first story, from ABC News, deals with the strawberry crop in Florida. Due to the unusually cold weather in January of 2010 the strawberry crop ripened all at once. Normally the crop ripens and goes to market over a 6 to 8 week period. With so many strawberries ripening at the same time, the price of strawberries fell from one dollar per pound ($2.20 per kilogram) to $.25 per pound and because of this, farmers destroyed their crops instead of picking them. People interviewed by ABC news believe the strawberry farmers were just being selfish and that their actions were absolutely senseless. Farmers also wouldn't allow people to come onto their land to pick strawberries, preferring instead to dig them up and throw them away. There is no indication in the article that strawberry farmers are going to plant a different crop for next year.
A second article from the Kansas City Star talks about the shortage of goat meat. Due to a change in demographics there has been an increase in demand for goat meat. The demand is so great that the United States imports 750,000 goats annually. The article indicates that slaughtered goats bring two dollars a pound (454 grams) which is twice as much as cows bring in, and that while cows eat grass, goats will eat almost anything. A representative of the United States Department of agriculture indicates that raising goats is labour intensive and fencing is a problem. There are two lines in the article that are of particular interest. One line says that "we are in the grip of a goat shortage", and further on in the article there is a line that reads "the concern is if prices get too high we price goat meat out of the market."
The third article, from the Globe and Mail, deals with lamb prices in Canada. The article indicates that because the Orthodox and Western Christian Easters fall on the same Sunday in 2010, the demand for lamb and braided bread has gone up. And while there is a shortage of lamb there doesn't appear to be a shortage of bread. Lamb prices are up 22% over last year. Lamb producers in Alberta have been trying to convince people to take up the craft of raising sheep and hope that promise of higher prices will be an incentive.
The University of Maryland has a primer on the economics of raising sheep and goats … just in case.
For more information than you ever wanted on growing strawberries in Canada, see the 2005 publication from Agriculture and Agri-Food Canada
To review these articles, see the "Sources" section below.
Relevant Learning Objectives
Chapter 3
LO#5 About the forces that drive market priced equilibrium and how equilibrium price is affected by changes in demand and supply
Chapter 9
LO#3 To determine whether competitive firms are making profits or losses in the short run
LO#4 The role played by profits entry and exit in a competitive industries long-run equilibrium
Sources
Strawberry fields asunder: Farmers Destroy Crops, Steve Osunsami, Claudia Acosta, Mary McGuirt and Jessica Hopper, ABC News, March 27, 2010. Accessed Apr. 4, 2010
No kidding: Goats are in short supply as demand for meat rises, Rick Montgomery, The Kansas City Star, Sunday March 14, 2010. Accessed Apr. 4, 2010
Easter 'double whammy' drives up lamb prices, Les Perreaux, Globe and Mail, Thursday April 1, 2010. Accessed Apr. 4, 2010
Questions
1. Thinking about the short run and long-run profit maximizing level of output for perfectly competitive firms why would it make sense for strawberry farmers not to pick their crops? Why didn't farmers dig up their strawberries crops and plant something else like oranges for example?
2. Using what you know about the difference between variable and fixed costs why wouldn't strawberry farmers buy insurance to protect against people hurting themselves on their farms? Why wouldn't they allow people to pick strawberries for free?
3. The article indicates that raising goats is labour intensive. Considering that labour in Canada and the United States is very expensive does it seem reasonable that a large number of goats are imported? If the demand for goats is rising why don't we see an increase in the production of goats domestically?
4. Is the statement 'we are in the grip of a goat shortage' consistent with our idea of market equilibrium?
5. In the article about goats when the author talks about prices getting too high and goat meat being priced out of the market is he referring to a decrease in demand or decreasing quantity demanded?
6. The demand for both lamb and braided bread has increased as a result of the coincidental Easters. Why would this cause a shortage of lamb but not a shortage of braided bread?
7. Even though the demand for lamb and the price of lamb is increasing there are no new entrants into the sheep farming industry. Using what you know about long-run responses to profits why do you think no one wants to raise sheep.
Michael S. Leonard
Kwantlen Polytechnic University
Surrey, BC
