Impacts of Different Factors on the Price of Beef Products - Coursework Example

Topic: Impacts of different factors on the price of Beef Products Name: Student ID: Institution: Tutor’s name: Due date: Table of Contents 1.Introduction of the issue 2 2.Alternative mechanisms of discovering prices 3 2.1.Cooperatives and marketing Boards 3 2.2.Auctions 4 2.3.Administered prices 5 2.4.Government Intervention 7 3.Conclusion 8 4.References 9 1. Introduction of the issue There have been declines in real agricultural producer prices at alarming rate. Similar incidents have been observed in pricing of beef and other agricultural food products (Bopape, 2002). Thus it has been necessary to determine the factors that affect pricing of agricultural products such as beef products. There are a number of alternative mechanisms of price discovery that affect the price and subsequent demand for beef products and administered (Chutani, Aalami & Badshah, 2011). These include marketing boards and cooperatives, auctions, government intervention and administered prices. This paper offers empirical evidence of a firm’s empirical pricing behaviors by providing the ways in which alternative mechanisms of price discovery affect the demand for beef products. 2. Alternative mechanisms of discovering prices The main alternative mechanisms of discovering prices include marketing boards and cooperatives, auctions, administered prices and government intervention. This paper presents the ways in which these mechanisms of discovering prices affect the prices of beef product and the consequent demand for them. 2.1. Cooperatives and marketing Boards An example of a factor that can affect the changes in prices of beef products and consequent demand is cooperatives and marketing boards. This involves a process where stakeholders involved in transfer of ownership of the goods agree on the price at which the products should be exchanged. When farmers are not satisfied with the price levels, farmers may ask the cooperatives to negotiate prices with buyers (Fotheringham, Brunsdon & Charlton, 2003). For instance, in Australia, beef farmers form cooperative and marketing boards. Farmers who use cooperatives can do so voluntarily and they are allowed to market their produce through the cooperatives or other methods that ensures they are satisfied with the price at which the products are purchased (Smith, 2005). On the other hand, farmers who market their beef products through marketing boards have to market their products through the boards and have to comply with the price at which the products are sold. There are also cooperatives in most countries such as Australia that assemble process and sell products from members and operate under state-level legislations provided they adhere to certain conditions. Cooperatives can improve producer returns for raw farm products by dealing with buyers who are imperfectly competitive (Smith, 2005). This results into earning of supernormal profits by buyers that can be bargained away by co-operatives. The level of gains is dependent on the level of bargaining by the cooperatives. 2.2. Auctions Another factor that affects pricing of beef products is auctioning. This is the process where the highest bidder is allowed to have the product. During auctioning process, prices of products are determined through either ascending bid, descending bid or a sealed bid (Meen, 2001). In ascending bid, the price of the product is quoted and the person who offers the highest price gets the product. In descending bid, the highest price is quoted but reduced until the person who has the capability to pay the price is allowed to get the goods. In a sealed bid, a fixed price is quoted and the person willing to buy the product is allowed to possess the product (Minot & Goletti, 2000). Auctioning are less costly methods of determining prices of products and are common for traders who know the goods they are trading in. Beef products can be auctioned by listing them and selling them and this has an effect on prices received by growers. For instance, in Australia, sheep and lambs are sold by auction (Sun & Zhang, 2003).The Australian Wool Exchange (AWEX) is the body that is responsible for management of auctions on behalf of farmers, agent, buyers and processors. This presents a fast, simple approach for selling large quantities of stocks of varying descriptions and sizes. The limitation of the use of auction is that they are not frequent and the sale position has an impact on price. Supply and demand factors are usually indicated well in prices achieved. Beef lots are listed and sold sequentially at the point of auction, and the position on the sales catalogue has the capability to affect the prices that primary producers receive (Poitras, 2002). During the process of auctioning, beef products are charged at the prices of the highest bidder. When the prices are high, it will be difficult to buy the products and demand for them will reduce considerably. The poplar products sold by this system are sheep and lambs and it presents a simple method of selling large stocks of various descriptions and lot size. The main limitation of this method is that it results into bruising of the carcass, eating of quality meat products and this has an impact on the products when they are eventually sold (Sarris, 2006). There is also a loss in carcass weight and a consequent impact on the value of the product during selling process. In addition, farmers are not given the opportunity to bargain or exchange objective information with sellers. 2.3. Administered prices There may be cases where prices of beef products are administered by authorities such as administrators of marketing boards. When such decisions are made, farmers have little control over the prices of beef products (Austin, Hungerford & Library of Congress, 2009). When the prices are set too high, the products become more expensive and most consumers are unable to buy them. Consequently, there will be a loss of demand for them. Individual farmers are not allowed to administer prices except in the cases where there is a differentiation in commodity characteristics from alternatives (Smith, 2005). For instance, when a firm participates in collection of beef products from farmers in large scale, it may administer a particular price at which the products are purchased. When this is done, primary producers have little control over the price of products they deliver to the firm. Administered pricing system has the impact of demotivating farmers because it does not account for the needs of farmers such as fair prices for their products. Other methods of administering prices include tariffs, import quotas, price supports and stabilization schemes among others (Bopape, 2002). For instance, when quotas are placed on the amount of beef products that can be exported by a country, there will be reduced supply in the importing countries and this will result into high demand for the products which will result into high prices for the products due to scarcity of the products. This implies that producers will be restricted from selling their products to other countries irrespective of the level of demand for the products in those countries. There will also be high level of spoilage of beef products when there is low demand in producing countries and restriction on the amount to be exported. However, this does not have an impact on domestic consumers who will pay the full price for the products. Import quotas refer to the maximum allowable quantity of a particular product that should be imported by a country (Sun & Zhang, 2003). Government may administer a particular quantity of beef products that can be imported by a country irrespective of the level of demand for the product. When this is done, producers of these products will not get enough buyers for their products and they will tend to dispose them at cheap prices to attract more buyers from less capable regions. Tariffs are also a method of administering prices by charging a particular amount of money for products imported or exported (Bopape, 2002). When beef producers sell the products to outside countries, they may be charged tariffs based on the amount administered by the respective governments. When the governments charge high amounts of tariffs, it will result into more expenses for beef producers and result into reduced gains from export of the product. Thus, fewer producers will be willing to export the products and there will be reduced supply of the product to other countries. 2.4. Government Intervention There are also a number of government interventions that affect prices of beef products that have and consequential impact on the quantity demanded and supplied. In another case, the government can provide demand for the surplus outputs from producers and store the products. The prices of the commodities can be kept above the equilibrium level when the government provides additional demand for the products. The amount acquired and the related cost is based on the amount of support with respect to the equilibrium price and the slopes of the relevant demand and supply schedules (Chutani, Aalami & Badshah, 2011). However, when the government is willing to buy the products at a high price, producers will increase the prices and local consumers will find difficulties in getting the same products. This will result into low demand for the products. Governments may also come up with programs aimed at supporting or raising farm prices by restricting the amount of supply or increasing demand. Restriction of supply of beef products can be done by determining the maximum amount of beef products that can be sold (Chutani, Aalami & Badshah, 2011). When this is done, farmers are unable to produce beef above a particular amount and there will be increased demand and high price for the products due to the restrictions. They will also not be able to get the benefits of the potential of their farming activities due to the restrictions. When supports are high, there is a high possibility of development of substitute low-cost products. Another limitation is that there will be the need to take control of quality and location characteristics of individual lots of products that the market would normally do. There is also the possibility of rewarding producers for not producing such as when land is set aside for schemes. Government intervention may also be observed in terms of deficiency payments (Fotheringham, Brunsdon & Charlton, 2003). This refers to payments that are made directly to producers and it is regarded acceptable because it enables market forces to establish prices as buyers of commodities pay market-clearing prices. 3. Conclusion There are a variety of uses to which factors affecting prices of a commodity can be applied to use by businessmen and research experts. For instance, farmers can use cooperatives and marketing boards to market their products to retailers and benefit from the bargaining capability of these organizations. When these organizations bargain fairly for producers, they are able to benefit from large profits. However, farmers who use marketing boards do not have a choice of actions to do and have to comply with the requirements of the boards. Therefore, this paper shows that among the alternative methods of discovering prices discussed, there is no particular method that is considered effective in accomplishment of the needs of producers. The best method should be based on the existing rules within a country and conditions under which producers are operating. For instance, when there is efficiency in operation of cooperatives and marketing boards, it is preferable for producers to use them during marketing of their beef products. Similarly, favorable conditions in the use of other methods such as auctions, administered prices and government intervention should be determined before choosing the best method of determining prices of beef products. 4. References Austin, D. A., Hungerford, T. L., & Library of Congress. (2009). The market structure of the health insurance industry. Washington, D.C.: Congressional Research Service. Bopape, L. E. (2002). Analysis of price relationships among spatially differentiated potato markets in South Africa. Chutani, S., Aalami, J. R., & Badshah, A. (2011). Technology at the margins: How IT meets the needs of emerging markets. Hoboken, N.J: John Wiley & Sons. Fotheringham, A. S., Brunsdon, C., & Charlton, M. (2003). Geographically Weighted Regression: The Analysis of Spatially Varying Relationships. Chichester: John Wiley & Sons. Hole, P., & Odling-Smee, J. C. (1993). Ukraine. Washington, D.C: IMF. Meen, G. P. (2001). Modelling spatial housing markets: Theory, analysis and policy. Boston [u.a.: Kluwer Acad. Publ. Minot, N., & Goletti, F. (2000). Rice market liberalization and poverty in Viet Nam. Washington, DC: International food policy research institute (IFPRI. Poitras, G. (2002). 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