The price of vegetables goes up “sharply” and “rapidly” due to bad weather or natural disasters these days. We sometimes hear “It was also 1.3 times of last year.”. But don’t you think the price moves “too steeply” and “too immediately “? Even when the crop yield decreases, we can see usual varieties of vegetables with reasonable stock at a supermarket. It is one of the main reasons for that price behavior. Supermarkets purchase varieties of vegetables for us customers at any time. As a result, vegetables are comodities “traded at a higher price” in “lack of a little production”.
The bigger price risk because the demand is not elastic for price.
This is mainly due to purchasing behavior by mass retailers !
Let’s take a high level look into how price of the vegetables is decided.
It is said that the price of the goods is basically discovered by the following two curves, demand and supply.
(refer chart 1)
Further it’s said that the demand curve of vegetables has become rigid for price.
(refer chart 2 (from demand curve A to the one B))
This means that the demand quantity doesn’t change so much in either case vegetables become expensive or inexpensive.
It is possible for most of you to think the recent price of vegetables often becomes more expensive by natural hazard such as typhoon,cold summer compared with the past. This decline of the demand elasticity is one of the reasons.
Chart 3 illustrates the price flactuation to the change on the supply curve. You will find how two curves move, one is the demand curve A with the higher elasticity and another is the curve B with lower resilience. There happens an identical price change with less supply change on curve B. In other words, when the supply decreases by a typhoon, the price will change bigger compared with the past.
It can be said that purchasing behavior by the mass sales stores which stick to display the usual varieties and quantity has brought more sensitive price to a change in supply. “We need the varieties and the quantity at a store to meet the consumer requirements” a mass sales store says.
But,do you really want to buy expensive vegetables due to poor crop though we have more substitutional vegetables today?
A sensitive price due to stiff demand also makes farmers business unstable. It is often reported that there are farmers who dispose crops at a good harvest to reduce the supply to the market, too.
Though the crops at a good harvest is better taste and higher nutrious, don’t you think it is a wasteful thing?
Next contents : Price Mechanism for Vegetables in Japan (Part 2)