Demand and Supply of Certain Resources of Australian Market

Discuss about the Report for Demand and Supply of Certain Resources of Australian Market.

Introduction

This essay discusses the change in the demand and supply of beef in the Australian market due to the drastic reduction in the production. Beef export is considered one of the major industries which contribute to the economic growth of Australia. The selected article for this essay describes the various features which caused the reduction in beef production in the country in the year 2015 and which directly affect the beef export business of Australia. According to the latest forecasts from Meat and Livestock Australia (MLA), it has been assumed that there would be reasonable fall in the production as well as the export of beef in the current and upcoming year (Parkinson, 2016). The figure below shows a reduction in the production of beef from 2014 from 2.76 million tons to 2.5 million tons in 2015 (USMEF, 2015).                

Australia has assumed the position of a major exporter of beef, wheat, ore, iron and machinery. Australia is one of the most successful and efficient producers in livestock and considered a leader in the export of red meat. The following features cause betterment in the production output measures of Australia (Australia.gov.au 2016).

• Real GD of $1.62 trillion in the year 2015
• GDP growth rate of 3.1% in March, 2016
• Per capita GDP is $64,500 in the year 2015
• Inflation rate recorded at 1.7% for the year 2015
• Unemployment rate is 6% in the year 2015

Discussion

Australia is developed country and the majority of the GDP comes from the service sector which provides the employment of 75% of the labour force while agricultural sector is providing employment to only 3.6 % of the labour force (Australia.gov.au 2016). Hence, it can be concluded from the above analysis that service sector has a major contribution to the total GDP.

On the basis of the referred articles, it can be considered that the lower production of beef in Australia leads to reduction in the export and results in direct impact on the demand and supply of beef. It has been reported that there is a drop in the export of beef in the year 2015- 2016. Farmers are more concerned about the rebuilding of the herds in place of selling them for beef production (Parkinson, 2016). It is expected that the beef production will reduce by 9% in 2015-2016 and then 7% in the year 2016-2017. As per forecasts by MLA, it is assumed that the production of beef will increase in the year 2018.  Japan, Korea, United States of America and China are the major consumers of the exported beef.  According to the review report, it is expected that a sizable drop would be seen in the export rate of beef with United States and Japan in the next five years (USMEF, 2015).

Factors that affect the demand of Australian beef export and impact on market are expressed below

• The major consumption demand of Australian beef comes from the United States which accounts for one third of the total export (USMEF, 2015).
• One-fourth of the demand is captured by Korea and Japan and rest is captured by China.
• Any sudden reduction in the production of the beef will lead a sizable fall in the export to the foreign markets results lesser export and will cause 8% fall in the market share (Parkinson, 2016).
• The major difficult task is to hold the Chinese market due to the easy accessibility of the beef at a cheaper rate from South America and Brazil (Parkinson, 2016).

Reason for the shortfall in beef production in Australia is the change in the interest of the farmers from selling the beef to rebuilding of their herds. This directly causes the shifting of the supply curve in the demand and supply diagram while keeping the constant market value of beef which results in lower supply of beef. This can be easily explained using the figure given below (Mankiw, 2014).                

In this figure, it can be seen that at initial equilibrium point E, the beef demand and supply both are adequate and equal. The, reduction in the production of beef by Australian farmers leads the shortage of beef supply and hence the supply curve shifts to left from S to S₁. However, the price does not increase overnight and hence, temporarily the equilibrium quantity is reduced to Q₂. However, excess demand needs to be created equivalent to Q₃-Q₂ which lead the price to P₂ and final equilibrium point G (Krugman & Wells, 2013). Hence, shortage in supply of beef is responsible for the excess demand and also rise in the current price. It results in formation of  a new equilibrium point G where demand and new supply curve intersect. In case of long- run reduction in the beef production, there would be drastic reduction in the market shares in beef export (Nicholson & Snyder, 2011) Hence, it is imperative the government should intervene in the interest of the industry and the role that this industry has for the national economic growth.

Conclusion

This essay concludes the effect of lower production of beef in Australia on demand and supply which eventually leads to fall in the beef exports. This is primarily caused due to excess demand creation in order to reach the equilibrium as has been discussed using the demand and supply diagram,.  Additionally, a sizable drop in the market shares of Australian beef supply would occur due to ease in availability of the lower cost beef from the different low cost competitors like South America and India. Hence, it can be concluded from the above analysis that price is not only the factor to change the demand and supply of a resource in a particular country.

References

Cook, R (2015), Australia Beef Production, Consumption, Exports (1960 - 2015), Beef 2 Live Website, Available online from http://beef2live.com/story-australia-beef-production-consumption-exports-1960-2015-0-106913 (Accessed on August 10, 2016)

Krugman, P & Wells, G 2013, Microeconomics,  3^rd edn Worth Publishers, London

Mankiw, G 2014, Microeconomics, 6^th edn, Worth Publishers, London

Nicholson, W & Snyder, C 2011. Fundamentals of Microeconomics, 11^th edn, Cengage Learning, New York

Parkinson, E 2016, Beef production will soften after strongest period in 30 years, Australian Financial Review, Available online from http://www.afr.com/news/special-reports/beef-production-will-soften-after-strongest-period-in-30-years-20160321-gnnq3l (Accessed on August 10, 2016)

USMEF 2015, Slowdown in Australia’s Beef Production and Exports Finally Materializing, Beef Issue Quarterly, Available online from http://www.beefissuesquarterly.com/beefissuesquarterly.aspx?id=5190