Economics Essay

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ECONOMICS
Term 1 Assignment

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1173 Words

a) The main economic features and trends in the world market for wheat during the period 2005- 2010.

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Figure 1: wheat prices 2002-2010

In the past five years, the world has witnessed a high level of unrest in terms of changing food prices. This has partly been due to changing prices of one of the top 3 produced crops in the world, wheat(Smith, 2010). In the past 5 years, the highest supply of wheat was available in 2005. Wheat prices remained relatively stagnant in the period 2005-2006, the low point being late 2005. In the 2007-2008 period, there was a sharp inflation of 77%(The Economist, Apr 17th 2008) in wheat prices and other environmentally affected foods (see figure 2). Wheat price was at its highest in late 2008, and supply was at a minimum. The price recovered, however, as production was high and stocks were secured for 2008.

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Figure 2: Rice, Maize, and Wheat Prices 2007-2008

In 2010, the world is yet again being faced with an inflation in wheat prices. This time it has been due to a supply-side failure. As a result of the high prices, the purchase of wheat on the spot market has gone up. Wheat prices this year have nearly doubled in September, since the low point of $4.26 a bushel in June (The Economist, Sep 9th 2010). Prices now are over 40% below the record highs in 2007, however, and supplies are strong. It is predicted that the world wheat production this year will be 646million tonnes, the third highest on record.

b) The factors which have led to the demand for wheat during the period 2005-10

Wheat, besides being used to feed livestock, is also used to in the production of many other goods. These include for example biofuels, flour based foods, cornflakes, and foods which are related to livestock, such as meat, eggs and milk (Smith,2010). The chart below shows the consumption of wheat based goods in the period 2006-2008 by members of the Organisation for Economic Co-operation and Development (OECD), non-members, and the by the population total. It also includes predicted values of consumption for the year 2018. We can see that the highest demand for wheat is for food use, then feed use. A relatively smaller amount of demand can be seen for wheat in the form biofuels.

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Figure 3: Consumption of wheat related goods 2006-2008, 2018

The trend of higher demand for wheat during the period 2006-2008 was a result of change in consumption patterns towards more meat-based meals. This is believed to be due to higher incomes and a rise in the standards of living, particularly in developed countries. Figure 4 displays China as an example. Meat consumption in China more than doubled in a 27 year period leading to 2007, and so the pressure on resources increased as higher amounts wheat and water were needed for the production process to take place.

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Figure 4: Change of Consumption patterns in China

Another cause of a steady rising demand for wheat has been the increased need for biofuels (figure 5). Bio-ethanol is a renewable substitute for petrol, and also provides a way to reduce emissions of greenhouse gases which contribute to climate change. In the period from 2005 to 2007, the production of biofuels almost doubled (figure 5). The demand for bio-ethanol continued to increase in the EU in 2009(Hunt, Aug 28th 2009). These increases in figures are probably due to higher levels of environmental activism due to visible results of climate change.

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Figure 5: Demand for Biofuels 2005-2017

In 2010, there has been an increase in demand for wheat. This time there is no relation to changing consumer tastes, but is rather to do with securing supply as a fear of a chronic wheat price inflation. Poorer countries, such as Egypt, Haiti, Cote d’Ivore, Uzbekistan and Bolivia have reacted to the rising wheat prices by buying more on the spot market. Egypt is
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