Wednesday, 23 July 2014

Typhoon Matmo & Vegetable Prices

Typhoon Matmo made landfall earlier this morning; I had to wait until lunchtime for it to pass and take the dogs out to the park. There is no significant damage, just leaves all over the ground and a few broken branches. There is however, an editorial in the Taipei Times complaining about the spike in vegetable prices over the last couple of days before the typhoon hit.
"Consumers obviously bear the brunt of the price increases, but farmers are not benefiting from it — it is the traders and wholesalers who are profiting, and the government seems unable to do anything about this."
The implicit premise is that income from vegetable sales should be split equally between traders and farmers or that farmers, rather than traders, should receive most of it - hence the squeal of frustration with the government.
"It is common in Taiwan for the prices of agricultural products to spike before a typhoon hits. Yet this is an unusual phenomenon in terms of supply and demand, as prices should either go down or at least remain unchanged when supply and demand rise simultaneously. In this case, while many consumers are eager to purchase more vegetables — fearing a price hike if the storm damages crops — farmers are also racing to harvest their produce before the typhoon hits. That means that although demand for agricultural products surges, so does their supply, hence prices should drop or remain unchanged."
The writer vaguely points to supply and demand, but doesn't really think about it. What is missing from this view is what happens to vegetable supply immediately after a typhoon. How are the farmers to produce more vegetables from waterlogged fields? Obviously there must be a temporary drop in supply following a typhoon to allow vegetable farms time to recover and start producing regularly again. In other words a fall in supply. Vegetable prices are set by traders in response not just to the immediate ratio of supply to demand, but also to the expected ratio in the short-term future. The reason there is a spike in the price of vegetables before the typhoon makes landfall is not that there is a brief increase in supply, but that there will be a comparatively larger drop in supply after the typhoon has made landfall.

This, after all, is the reason many consumers try to stock up on vegetables before the typhoon hits - they know there will be a drop in supply (or more accurately, there will be a drop in supply of local vegetables - foreign imports will still be available, which is what I will be buying (and in the case of broccoli, have been buying for the last few weeks long before the typhoon formed)).

Of course the other point to be made is this: if traders kept vegetable prices stable or even lowered them, then a surge in demand would result in shortages because each consumer would buy more vegetables when stocking up than they would if the prices were substantially lower. In the world in which the managing editor of the Taipei Times were tinpot dictator of Taiwan, many people would now have to go without vegetables until the local farms recover. As things stand, I should have no problem buying as many vegetables as I want at the market tommorow so long as I am prepared to pay a higher price. Alternatively (and this is what I will be doing), I can just go to the supermarket and buy foreign imports at prices cheaper than the post-typhoon prices for local vegetables.

So whilst prancing about pretending to support local farmers against wicked, "price-gouging" traders, what the managing editor of the Taipei Times is actually saying by implication is that he is in favour of food shortages.

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