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THE great potato famine is upon us. Forget about your potato cakes, crisps and hot chips, there is a shortage in our favourite vegetable. NSW is being hit the hardest, with heavy rain and cold winter months damaging our crops. Farmers say it’s the worst potato shortage in Australia’s history, and told Fairfax Media every state was impacted. “We probably just broke even,” potato farmer Anthony Failla said about the latest season.
Potatoes are up to $9 a kilogram in major supermarkets and farmers are struggling just to put the vegetable on the shelves. It’s been a long food shortage too, with potatoes also in short supply last October. The potato industry was baked due to floods wiping out crops and wet grounds making it near impossible to plant more.
There was a great potato famine in Ireland in 1845, and about a million people died. Don’t worry, that won’t happen here, but we will be very deprived of the starchy veggie. Thorpdale potato grower Des Jennings told news.com.au potatoes were selling for $2000 a tonne and the growers who have potatoes are laughing”. These are prices growers have never seen before. By comparison, a crop Mr Jennings had in the middle of last year sold for $400 a tonne. People are getting seriously desperate to get their hands on potatoes and it’s uncertain when we’ll have our usual supply back. Mr Jennings said he’d need a crystal ball to predict when they’d be replenished but he thinks the famine might be broken early this year, which is good news. Potatoes Victoria chairman Frank Rovers said farmers couldn’t plant crops in July and August because it was so wet. “You end up with a window where nothing’s been planted for a period of time,” he told Fairfax Media. “Certainly there was a bit of a spike in price because the opportunity to plan wasn’t there but other growers compensated so there wasn’t a (major) shortage.” In 2010, there were 1.1 millions tonnes of potatoes in Australia and Victoria and Tasmania are the biggest potato production states. We eat 63kg of potatoes a year and we eat hot chips more than any other form of potato.
and demand diagram to describe, ceteris paribus, a major factor contributing to the rise in the price of potatoes in Australia. In your discussion make sure to explain the process of moving to the new equilibrium output and price. How would this impact other markets in the industry? (7 marks)
price of potatoes on two other markets affected by the potato market change and where the equilibrium outcomes are different. In your discussion specify your assumptions and explain the equilibrating process in the related market(s) in terms of the new equilibrium output and price and how they differ. (8 marks)
Your assignment will also be assessed on how effectively you can communicate with the reader; i.e. how well you have presented your arguments and ensured your analysis is logical and consistent.
Consequently, 3 marks will be awarded for effective writing including proper grammar, referencing and formatting. Importantly, make sure you use appropriate diagrams in your analysis. Please check the FAQs for Assignment 2 if you have further questions on this assignment.
Total marks: 25 marks
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Australian Potato Industry
The Australia potato industry is a highly competitive market, with over 1000 growers involved in the production of potatoes. Potatoes are cultivated in all Australian states with a majority of production in Southern Australia, Tasmania and Victoria (HIA 2016).
Purely Competitive Characteristics
The Australian potato industry is purely competitive as the buyers and sellers do not hold any influence on the price and lack any market power. Price for potatoes is set in the market, and the sellers/ growers change their production output to match the price in the short-term. In the long-term, sellers/growers adjust the variables through scaling up production in terms of increased cultivated land and yield. The conditions prevailing in the industry ensure that the market is highly fragmented. The potato output is homogenous, excluding the varieties supplied, and it is considered as a substitute for each other. Due to limited restrictions, the entry and exit from the potato market are easier.
Potatoes Supply and Demand
It is widely consumed across 87% of households who buy on an average of 1.5kg during a single shopping trip. It is estimated that an average Australian consumes around 20kg of fresh potatoes in a year. Out the total potato produced in Australia, around 57% are sent for processing, 2% towards exports and 41% for fresh supply to consumers. The total potato production in Australia between 2004 and 2016 is given in Appendix 1. As the demand and supply of fresh potatoes vary over the time period.
Based on the law of demand, if all the other factors remain constant and the price of potatoes reduces then its consumption has to decreases (Parkin & Bade 2015, p. 91). However, despite the increase in potato prices, there is a growing demand evident from the graph. Based on the law of supply, if the price of potato increases, then the quantity supplied has to increase (Parkin & Bade 2015, p. 98). However, despite the increase in prices, the quantity of potato supplied in the market is highly fluctuating. This shows that there are other external variables which highly influence the supply and demand of potatoes. The main reason for price increases is the unexpected climatic variations which hinder the potato crop cultivation resulting in the destruction of crops. As the supply of fresh potatoes declines, the consistent demand causes the prices to increase.Source: (HIA 2016), (AusVeg 2012) and (Asian Seed 2016)
It is observed from the above graph that when the potato market is in equilibrium, the price of potatoes tends to stay stable. It is evident that the potato market was in equilibrium in 2007 and 2015 when the quantity demanded by consumers and the quantity supplied by growers was almost equal. It can be seen that when the supply of potatoes declined in 2016, the market equilibrium has changed, and the price and quantity would change in the future. The supply curve has shifted to the left, indicating a shortage of potatoes.
The implications of this change in other markets in the industry are that the exports of fresh potatoes have declined, whereas the imports of fresh and processed potatoes are increasing to meet the increasing demand of consumers.