Chicken prices 2012

Chicken is the world’s primary source of animal protein and a healthy alternative to red meat.  It’s the most common type of poultry in the world and rank as most popular meat in every country including US and Australia. By the way in the year of 2011 Australia, chicken is a favorite protein for Australian, who eat on average 43 kilograms a year, and that is double than what they are consume 30 years ago. Besides, the result had shown that chicken meat consumption per capita now ahead of that beef and is predicted to increase further over coming years.

Referring to the article news about Australia ( http://www.abc.net.au/news/2012-07-27/chicken-prices-may-double-from-next-week/4160324) it stated that Australian landscape is dominated by seven large producers and basically it stated Australian consumer about need to pay a lot more for the chicken price with a least the prices will double up in after few weeks. The reason of chicken price producers are bumping up their prices in Australia is because of the cost of feed grain soars as the drought in the United States. Australian said that grain prices have increased significantly over last three months was because the heavy drought impacts on the US corn crop. Besides, one of the producers mentioned the price of chicken could rise for as long as nine months because they are going to have higher grain costs at least 9-10 months and expected the grain price will push the chicken meat production cost up by 5%, however, a 5% is the officially forecast, the Australia’s largest meat producer stated its price may need to rise by 40%.

Grain is the cost to produce chicken. Usually chicken eat grains to survive but when the price of grains increase, chicken meat will affected from it. It means the price of grains increasing means the cost of production increasing, obviously it’s a burden for producers; therefore, producers will decrease the supply for chicken. When the supply of chicken meat decreasing at the same time demand of it remains constants, there will be quantity demand more than quantity supply; hence, shortage happens in the market eventually price of chicken meat rapid growth.

There are many causes can lead to shortage of chicken in the market not only because of the cost of production increase but also festival seasons. During festival seasons such as Chinese New Year, Mid-Autumn festival, Christmas and so on, many people will tend to buy chicken meat to celebrate as chicken is the most common meat around the world. Hence, chicken meat will be in high demand not because of the price itself, but festivals even though the price of chicken meat is high but it won’t really affect the demand for chicken meat.

Assume that consumers are not willing to pay at the high price of chicken meat; they will switch off white meat, the chicken, to red meat since they are both substituted goods. Imagine if there is an oversupply of Australian red meat in the market, consumers will tend to go over to the red meat and that will take up the slack and the demand for chicken will drop off because of this, so the price of chicken should drop back normal after while. It’s a good way to solve the shortage in the market.

Once again, it is because the price of chicken meat increasing, some people could afford the high price; therefore, people will switch to substitute goods. Quantity demand for chicken will starts decreasing due to consumers swing to substitute goods such as red meat. Based on the graph above, it shows the substitute goods between chicken meat and red meat. When chicken meat increases the price from P1 to P2, quantity demand obviously drop from Q1 to Q2. After that, consumer switch to red meat, demand for red meat will increasing and the demand curve will shift to the right. It proves that both of them are substitute goods and will affect by the demand and supply in the market.

In this situation, government needs to take action to solve the problems. In order to maintain the price level of the chicken meat in market, price ceiling is the way the protect consumers. Price ceiling is set below the market price, once price ceiling sets by government, sellers cannot sell over the price level.

Based on the graph above, if government impose price ceiling in the market, it will below the initial market price. Therefore, quantity demand for chicken meat will increase from Q* to Qd, because it is cheaper than the price before, so everyone might be able to buy chicken meat in that level of price, however, quantity supply for chicken will decrease from Q* to Qs because either they cannot earn much profit as last time or cost of production is higher. When quantity demand is more than quantity supply, shortage will happens in this situation. Although price ceiling can protect consumers, there is still shortage happens in the market; it shows that doesn’t really help to solve the problem by using price ceiling. 

Let’s say if government apply price ceiling, they can protect consumers but there would be unfair to producers also because they might need to sell the price which will be lower than the cost of production, they got no profit to earn and cannot cover the cost of production as well. At the same time they have no power to control the price itself, so they decrease their output. Therefore, government impose price ceiling is not the best way to overcome the situation. In my opinion, government can give subsidies to producers of chicken meat to cover up to lost, therefore, it can encourage producers to produce more chicken meat in order to overcome the shortage situation.