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Economics Today, Article Review Example

Pages: 2

Words: 569

Article Review

An online article on the Environmental News Network website reports that global food prices have been rising and the trend may continue in the future due to population growth and climate change. The article reports that global food prices rose 2.7 percent in 2012 which is the highest level since 1974. This is the reversal of the trend as real prices of food commodities declined between 1960 and 1999 at an average annual rate of 0.6 percent (Wenzlau, 2013).

The price declines between 1960 and 1999 occurred due to improved productivity in the agricultural sector which resulted in supply more than keeping up pace with the global demand. While the global population increased by 3.8 billion between 1961 and 2010, farmers cultivated an additional 434 million hectares during the same period which helped keep up pace with the rise in demand and keep food prices under control (Wenzlau, 2013).

But food prices volatility has increased since 2006 and the current and future trend may be that of demand outpacing the supply. The factors that have contributed towards this food volatility include weather shocks, climate change, demand for biofuels, rising energy and fertilizer prices, poor harvests, export restrictions, rising global food demand, and low food stocks. One of the significant contributors towards food prices volatility has been biofuels production which increased by 500 percent between 2000 and 2011 and may continue to do so as a result of adoption of biofuel mandates in the U.S. and E.U. (Wenzlau, 2013).

This article has been an effective learning exercise because it particularly addresses the factors that cause change in demand and change in supply. Thus, we have mostly encountered non-price factors in this article which do not result in movement along the demand and supply curve but instead move the entire demand and supply curves to either direction (right/left).

The article starts by mentioning the fact that climate change and population growth will result in both higher and more volatile food prices in the near future. If true, population growth will move the entire demand curve to the right which means food prices at each quantity level will increase. Similarly, climate change will adversely affect supply and move the entire supply curve to the left, resulting in price increase once again. Thus, both population growth and climate change will move the demand and supply curves to right and left, respectively, resulting in price increases.

The article mentions that average real prices of food commodities have declined between 1960 and 1999. During this period, the population grew which should have moved the demand curve to the right and result in rising prices but the supply also grew and moved the entire supply curve to the right. But since the supply grew at a greater pace than the population, it was not only able to offset the price increase that would have resulted from population growth but also succeeded in keeping real food prices low though the trend may be reversing now.

The chapter mentions numerous factors that have been contributing towards increasing price volatility and rise and some of these move supply curves while others move demand curves. Some of the factors that move supply curve are weather shocks, climate change, export restrictions, and low food stocks while the factors that move demand curve are demand for biofuels and rising global food demand.

Reference

Wenzlau, S. (2013, APril 12). Global Food Prices Continue to Rise. Retrieved April 17, 2013, from http://www.enn.com/health/article/45849

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