Chapter 03

These are simple demand and supply stories. The reports below relate to the expected increase in various food prices resulting from a fall in supply which is due to adverse weather conditions. In these cases the cause of the problem is the floods in Lincolnshire and Yorkshire in early July 2007. The economics of this is simply: bad weather causes crop failure and this is reflected in a leftward shift of the supply curve for the affected crops. With an unchanged demand curve, this leads to a higher market price (and smaller quantity supplied and demanded).
The Times, Wednesday, July 4, 2007
www.timesonline.co.uk/tol/news/weather/article2022996.ece
Financial Times, Monday, July 9, 2007
www.ft.com/cms/s/aca86dfc-2df3-11dc-821c-0000779fd2ac.html
The Times, Tuesday, July 10, 2007
www.timesonline.co.uk/tol/life_and_style/food_and_drink/article2051113.ece
The Times, Tuesday, July 31, 2007
business.timesonline.co.uk/tol/business/money/consumer_affairs/article2170369.ece
The Times, Saturday, July 28 2007
business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article2155339.ece
Financial Times, Thursday, July 26, 2007
www.ft.com/cms/s/867f0c36-3b26-11dc-8f9e-0000779fd2ac.html
Financial Times, Thursday, July 26, 2007
www.ft.com/cms/s/0/2401d98e-3b27-11dc-8f9e-0000779fd2ac.html
The following story relates to the effects of the Australian drought on grape harvests and the prediction that this will cut wine supply and raise wine prices.
Financial Times, Friday, July 27, 2007
www.ft.com/cms/s/0/80fc4928-3bd9-11dc-8002-0000779fd2ac.html

The next story has the same economics behind it but rather the "supply shock" is caused by a strike.
The Times, Tuesday, July 10, 2007
business.timesonline.co.uk/tol/business/article2051127.ece (scroll to the bottom of the page)

The following story links directly to Case Study 1 on pages 57 and 58 of Chapter 3. The case study points out how growing demand from China had increased world steel prices, but hinted at the end that China's own production was increasing as well so that China might add more to supply than it does to demand. The following report takes the story forward with an examination of the growth in China's own production and exports of steel.
Financial Times, Wednesday, May 23, 2007
search.ft.com/ftArticle?queryText=Fatigue+fears+over+China%27s+exports&y=7&aje=true&x=12&id=070523000693

Another metal prices story that links to basic demand and supply forces in Chapter 3 and to Case study 2 in Chapter 7 is the following about the price of tin.
Financial Times, Wednesday, August 1, 2007
www.ft.com/cms/s/0/4455b6de-3fc7-11dc-b034-0000779fd2ac.html

Also mainly linked to Chapter 10, (but also to the case study on steel in Chapter 3 pages 57-8), are recent stories about metal prices. Here the story is that the weakening of world output has led to a fall in metal prices:
Financial Times, 24 November 2007
search.ft.com/ftArticle?queryText=Where+next+for+commodities+after+price+blip&y=7&aje=false&x=26&id=071124000247&ct=0
Financial Times, 23 November 2007
search.ft.com/ftArticle?queryText=Zinc+and+copper+prices+start+to+buckle+as+base+metal+demand+falls&y=2&aje=false&x=7&id=071123000124&ct=0

The following story relates to the EU Common Agricultural Policy which forms part of Case Study 3 on Page 60-61 (and is covered in material from Ed 10 on the website). The report is a result of some new policies proposed by the EU Commission designed to deal with the "wine lake" in the EU, which is associated with over production.
Financial Times, Thursday, July 5, 2007
www.ft.com/cms/s/7fac5414-2a90-11dc-9208-000b5df10621.html www.ft.com/cms/s/b2dfdeec-2a8f-11dc-9208-000b5df10621.html

The following story gives some recent information on the evolution of the EU Common Agricultural Policy (this is particularly relevant to case study 3 on pages 60-61):
Financial Times, 21 November 2007
www.ft.com/cms/s/0/2aa8cd10-97d4-11dc-9e08-0000779fd2ac.html
For the US see
Financial Times, 5 February 2008
www.ft.com/cms/s/0/3db7829e-d38d-11dc-b861-0000779fd2ac.html?nclick_check=1

The following stories have links with Chapters 3 and 10 as this is essentially a story about demand and supply, however, there are also links to the story of OPEC and the high price of oil (Case Study 1 in Chapter 8 on page 173-6), to the principle of substitution in Chapter 6 as this is about finding a substitute for high priced oil. They are also related to the issue of long term growth and global warming Chapter 26 page 603-4 as biofuels may not reduce carbon emissions but they are a renewable resource.
The background to the surge in interest in biofuels is two important trends: First, the high price of oil and the problems that burning fossil fuels cause for the environment; second the fact that oil is an exhaustible resource which will eventually run out and so we need to find energy sources which are renewable in the long term. The current round of reports generally relate to the fact that high oil prices have created an incentive to seek substitutes and one possible substitute is ethanol which can be extracted from various crops, including corn and wheat. The greater demand for these crops has then lead to their prices rising and this has both raised the cost of the food products that use these as inputs directly and it has raised the prices of animal feeds which has put upward pressure on meat prices. Higher food prices have had particular effects on poor people in countries such as Mexico and China.
Financial Times, Friday, February 23, 2007
www.ft.com/cms/s/997406be-c29c-11db-9e1c-000b5df10621.html
The Times, Friday, March 2, 2007
business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1459141.ece
Financial Times, Tuesday, March 27, 2007
search.ft.com/ftArticle?queryText=Changing+landscape%3A+why+worries+surround+rural+America%27s+biofuels+surge&y=3&aje=true&x=6&id=070327000564
Financial Times, Tuesday, May 1, 2007
search.ft.com/ftArticle?queryText=Tyson+says+rising+corn+costs+to+hit+meat+prices&y=5&aje=true&x=16&id=070501000505
The Times, Tuesday, June 12, 2007
www.timesonline.co.uk/tol/news/world/asia/china/article1917927.ece
Financial Times, Friday, June 29, 2007
www.ft.com/cms/s/52365a5a-25dd-11dc-b338-000b5df10621.html

The following three stories can also be linked with the "biofuels" stories which are relevant to Chapter 10 and they also have links to the "principle of substitution" which is discussed in Chapter 6 and relates to how high prices of an input lead to greater demand for substitute inputs and thus have spillovers into other markets. These reports have additional elements which include: a drought in Australia leading to higher world wheat prices, and bad weather in the UK increasing demand for cakes as comfort food. Higher wheat prices have knock on effects in products (other than biofuels) that use wheat and other grains as inputs.
Financial Times, Tuesday, July 10, 2007
www.ft.com/cms/s/d70a1570-2e7d-11dc-821c-0000779fd2ac.html
The Times, Tuesday, July 10, 2007
business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article2051166.ece
CNN Money, Tuesday, July 31, 2007-08-22
money.cnn.com/2007/07/31/news/economy/wheat_prices/index.htm?postversion=2007073114

The following story gives a broader international context to the biofuels stories.
Financial Times, Wednesday, August15, 2007
www.ft.com/cms/s/0/9d17df58-4ac7-11dc-95b5-0000779fd2ac.html

A new twist on the biofuels story comes with an article about a new plant which may be planted widely to provide renewable source of biodiesel.
The Times, Saturday, July 28, 2007
www.timesonline.co.uk/tol/news/world/article2155351.ece

The following two stories relate to the increase in wheat prices
search.ft.com/ftArticle?queryText=French+will+need+more+dough+for+their+baguettes&y=2&aje=true&x=3&id=070827000343&ct=0
www.ft.com/cms/s/0/1f026a06-6580-11dc-bf89-0000779fd2ac.html

There has been a flood of articles about higher grain and other food prices since November 2007. Here are just some:
Financial Times, 1 December 2007
search.ft.com/ftArticle?queryText=World+food+price+rises+set+to+hit+consumers&y=3&aje=true&x=13&id=071217000167&ct=0
Financial Times, 27 November 2007
search.ft.com/ftArticle?queryText=Soyabeans+to+stoke+food+price+inflation&y=7&aje=false&x=3&id=071129000173&ct=0
Financial Times, 30 January 2008
www.ft.com/cms/s/0/1f373678-ced5-11dc-877a-000077b07658.html
Financial Times, 6 February 2008
www.ft.com/cms/s/0/ff4d003a-d457-11dc-a8c6-0000779fd2ac.html
Financial Times, 18 January 2008
search.ft.com/ftArticle?queryText=Soaring+soyabean+price+stirs+anger+among+poor&y=10&aje=true&x=10&id=080118000292&ct=0
The Times, 18 December 2007
business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3065334.ece

The following stories are updates on our earlier reports of rising food prices.
The Economist, Friday, May 23, 2008
www.economist.com/agenda/displaystory.cfm?story_id=11435966
The Economist, Thursday, April 17, 2008
www.economist.com/world/international/displaystory.cfm?story_id=11049284
The Economist, Thursday, May 22, 2008
www.economist.com/world/europe/displaystory.cfm?story_id=11413126

The next link is an update on the impact on food prices of the development of biofuels (this also links to chapter 10):
The Guardian, Friday, July 4, 2008
www.guardian.co.uk/environment/2008/jul/03/biofuels.renewableenergy

A story in the Guardian on the same topic:
The Guardian, Friday, July 4, 2008
www.guardian.co.uk/environment/2008/jul/03/biofuels.renewableenergy
Also:
Financial Times, Tuesday, July 8, 2008
www.ft.com/cms/s/0/0de2839c-4c88-11dd-96bb-000077b07658.html

The implications of high food prices, such as the possible need to revive efforts to produce more GM crops are analyzed in this story from the Financial Times:
Financial Times, Friday, July 11, 2008
www.ft.com/cms/s/0/f8b45556-4e97-11dd-ba7c-000077b07658.html

An analysis of the food price problem, which links it to the need to reform of agricultural policies:
Financial Times, Wednesday, April 30, 2008
www.ft.com/cms/s/0/80763a28-164d-11dd-880a-0000779fd2ac.html

A link between trade and food prices is the response of some governments to restrict food exports in order to try to hold down domestic prices, but for many this makes things worse. See:
Financial Times, Monday, April 14, 2008
www.ft.com/cms/s/0/64c69186-0952-11dd-81bf-0000779fd2ac.html

The following provides a downloadable update on the drivers of steel prices:
EEF, Friday, June 6, 2008
www.eef.org.uk/uksteel/steel/representing/presentations/1/Steel_price_increases_explained.htm

This story from the Financial Times discusses changes in the market for iron ore and its recent high price:
Financial Times, Tuesday, March 18, 2008
www.ft.com/cms/s/0/f7119906-f524-11dc-a21b-000077b07658.html

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Oxford University Press, Online Resource Centre, Chapter 03.

Chapter 03