Price Mechanism for Vegetables in Japan (Part 2)

When the vegetables yield amount decreases, as we found in previous articles, the vegetables price goes up “drastically”. In the other hand, when farmers have a good harvest, it is also strange that vegetables become “inexpensive” “immediately”, isn’t it? We have found out some reasons, there is nothing like “the desirable retail price” for vegetable in the market (differently from cars or electric appliances), then only “demand and supply” is the key factor to decide the price there.
Moreover, a farmer who is an actual producer is NOT present there, and the retail stores have buying power. So, we understand that vegetables are bought “quite inexpensively” in case buyers think “It seems to remain even a little.” in the vegetable markers. It is also a fact that the rest which deducted the various costs from the price traded in is returned to farmers. Then it is no wonder farmers have difficulty to run their business, and we consumers are also in trouble finally, too.

The bigger price risk because the supply is not elastic for price, neither.


< The relation between the supply quantity and the price>

We will take another look into the relation between the supply and the price this time.
Low-elastic supply for price can be seen for vegetables these days, and as a result, the supply curve becomes also steeper.We can imagine vegetables price is more volatile than before. You will see how the price behaves when demand changes in two scenarios, one is a supply curve with the usual inclination and another is a steeper supply curve.You can find identical price fluctuation on Supply curve B with less demand change.
We can see rigid supply for price and that is because the Price discovery function is entrusted to the vegetable market which was off producer’s hands and that is also because immediate supply adjustment won’t work even if it would be “inexpensive” as a result.It is difficult for each farmer to predict the demand and supply in the future shipment. The former “stable supply of vegetables policy” also may act there.

Therefore the rapid supply increase by every farmer’s planting the vegetable which was highly popular last year sometimes causes sudden price drop next year.As such, it can be said that the sensitive price fluctuation is partly due to the supply stiffness for price.

Price Maker for vegetables

The goods price such as cars or electiric appliances is being controlled with the request price to a market by the manufacturer. But retail stores (esp. mass sales store like supermarkets) have the buying power to control vegetables prices, then farmers become Price Taker eventually.
They shift to Over-the-Counter trade (offline negotiation) rahter than auction style to deal vegetables in Vegetable market, where there is still pressure from retail stores to lower price.We will see why in another contents, though.

Two different aprroaches for price setting
  • Strategic Price setting based on marketing

They fix optimal price strategically at the first step , then start to plan for cost cut to retain adequate margin(profit).They need to find out customers’ Willingness to Pay properly to fix the the optimal price.

  • Competitive Price setting for others

They set the price not to be beaten by market competitors anyway , rather than internal cost,customers’ demand etc.
It may work for the producers to increase market share anyhow, however we wonder Price Takers are able to make adequate profit stably.It might be sometime possible to be allocated the return less than incurred cost.
We think it really necessary for famers to manage cost of sales and operating expenses and research customers’ Willingness to Pay to set desirable retail prices by themselves.Ohterwise,they keep facing difficulty to run their business itself with stable profit.

At the same time, it is indispensable to build more transparent vegetable market, it is beneficial for both farmers and consumers.
To do so, we suggest farmers be Price Maker at the 1st step .

How should a farmer calculate the request price?

It is still possible to calculate the sales cost, operating expenses and the distriubtion cost, etc… Then, how product value can be reflected onto price?
It is actually said that there are three main functions for food.
a)nutritious function
to maintain health,to growth and develop our body
b)taste-like function
to stimulate our senses such as taste,smell,appearance and texture etc.
c)living body control function
to control circulatory system,neurotic system,cell differentiation regulartory,immunity system,endocrine regulation and external secretion regulation

“The nutritional quality can be price factors for product value”

Actually , there are new type of vegetables which enrich specific neutrient sold at higher price these days. There are more new vegetables coming to the stores to meet the consumers’s health-consciouness, where producers set the price for them by themselves with differentiating from ones traded in vegetable market.
At the same time, we wonder “Traded price in vegetable market really reflects ONLY demand-supply.” but “Doesn’t it consider the nutritional value at all?”.So,we investigated this and you will find the conclusion in the next contents.

Previou contents :    Price Mechanism for Vegetables in Japan (Part 1)

Next contenrs      :   Price Mechanism for Vegetables in Japan (Part 3)

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