Commodity Description and Prices (Term Paper Sample)

COMMODITY REPORT
Name:
Report for Mango fruit
Teacher:
Table of Contents TOC \o "1-3" \h \z \u COMMODITY DESCRIPTION PAGEREF _Toc33332978 \h 3COMMODITY PRICES PAGEREF _Toc33332979 \h 4REASONS FOR AND EFFECTS OF PRICE CHANGES PAGEREF _Toc33332980 \h 7Shifts in demand and supply curve effect on prices PAGEREF _Toc33332981 \h 7GOVERNMENT INTERVENTION PAGEREF _Toc33332982 \h 9EVALUATION PAGEREF _Toc33332983 \h 11REFERENCES PAGEREF _Toc33332984 \h 11APPENDICES PAGEREF _Toc33332985 \h 11
COMMODITY DESCRIPTION
Mango is an agricultural commodity classified under fruits and vegetables. Its scientific name is Mangifera indica and it has five major types including Apple (shown in the figure below), tommy, Kent, Keit, Ngowe, and Vandyke (Evans, 2008). These types have been a modification from the traditional local mango fruits in the attempt to ensuring increased productivity as well as improve appearance for better market prices. They originated from southern Asia in the 1880s.
It is a commodity products fruit in most developing and developed economies. For instance, in US mango fruit rank first in terms of production among the tropical fruits as shown in figure below (Galán Saúco, 2018).
It has been estimated that annual growth in fruits is about 3.3% which led to a production of about 800 million tonnes in the year 2018. The increase has majorly been attributed to the technological advances in production methods as well as the increased awareness of health benefits relating to fruit consumption (Evans et.al, 2017).
Mango is a horticultural fruit that is seasonal in nature with at most 2 seasons per year. It is produced mainly by small scale farmers with most sales being made in it fresh form. There are different channels that are applicable including to the local fresh market, to other cities, processing, and exportation. Most sales at the farm level are at an average farm gate price of $0.3 dollars (Evans et.al, 2017). The fruit is first grown where it takes about 3 years before it can produce. After production and the fruits are ready to harvest they turn yellow in colour for most varieties. Harvesting is done using sticks, bags, or by hand to reduce injuries as well as increase its shelf life. They are placed on pallets to ensure all the sap is dried and then they are packed in crates or in boxes ready for the market. At the market level, they are sorted by size with different prices for different sizes. Each piece goes for around $0.45 to $1 dollar (Evans et.al, 2017).
The fruits have a variety of uses and is mainly consumed after meals. Some of its uses include; being used as a raw material in the processing plant for pulp, concentrate and ready to drink juices. Some processors also make dried mangoes. It is also used as a consumable fruit as it is rich in vitamin A and B12, it is important for digestion, boosts immunity, clears the skin, and aids in weight loss. Thus it is an important nutritional fruit for its vast health benefits (Galán Saúco, 2015).
COMMODITY PRICES
There has been a vast change in the market prices of mango fruits which has majorly been attributed to the changes in demand, and income changes. In the recent past there has been high volatility in the prices of the commodity due to natural hazards, diseases, and unfavourable weather which has affected the level of supply. At the whole sale level where sale is majorly in kilograms, the average price has been about $2 dollars as shown in the figure below (Galán Saúco, 2018).
From the figure above, it is clear that mango prices have been volatile with major sharp hikes at times of market scarcity mainly created by short supplies from the farm level. Farmers have shown that diseases as well as lack of appropriate storage to cause most of the fruits to be lost. Consequently, leading to low supply and high prices.
The prices for the study were considered for the period 2014-2018 as shown in the figure above. In the year 2014, the prices were at $1.86 dollar per kilo gram and by the end of the period under consideration the price was at $1.62 dollar per kilo gram. This shows an overall decline despite having increase in production. This would mean that as the production output increases, the prices were falling. For instance in the year 2014 the production was at 816,000 kilo grams compared to 1,042,000 kilo grams in 2018 as shown in the table below (Galán Saúco, 2018). This is indicative of how the law of demand works as when the quantity increase, prices of a commodity falls.
Year

Production quantity in kilograms

Average price per kilogram

Total value

2014

816,000

1.86

1,517,760

2015

930,000

2.48

2,306,400

2016

974,000

1.5

1,461,000

2017

1,019,000

1.49

1,518,310

2018

1,042,000

1.62

1,688,040

(FAO stat, http://www.fao.org/faostat/en/#data/QC, 2018)
Major Price changes were evident in the last quarter of year 2015 and the first quarter of year 2016. The last quarter of 2014 also experience a sharp hike. Looking at the production level, it has been increasing over the years. However, a survey by McManus, et.al (2017) revealed that the fruit market was heavily hit in year 2014 major by the brexit. In the year 2015-2016, major price hikes were due to high post-harvest losses that had occurred as a result of unfavourable weather conditions.
It is also evident that at the end of year 2016 and in year 2018, the prices were stabilising which was expected to continue as from 2018 onwards. This has majorly been as a result of high technological innovation which had led to reduced post-harvest losses (Cavallo, et.al, 2015). In addition, there has been major attempts for mango value addition, which has made more fruits varieties and forms available.
The highest price was at $2.83 dollars achieved in the last quarter of 2015 while the lowest price was $1 dollar achieved in the second quarter of year 2016 as shown in the figure 3 above. Between the first and the second quarter of year 2016, as shown above, the prices changed drastically from $2.73 dollars per kilo gram to $1 dollar per kilogram. This was major attributed to the high increase in production quantities which lead to oversupply in the market since most producer have no adequate storage facilities which could help them preserve for low season. For agricultural commodities have a lag between production and sale, they are all produced at one point in time causing market flooding. Consequently, leading to drastic reduction in market prices (Cavallo et.al, 2017).
As shown in table 1 above, in terms of value, the lowest value was achieved in year 2016 although there was high production supply. This was majorly due to the low market prices achieved. Following the low of demand, as the prices decrease, the supply is expect to be high which would increase demand.
REASONS FOR AND EFFECTS OF PRICE CHANGES
Shifts in demand and supply curve effect on prices
According to Clausing (2001) there is always a possibility of a shift as well as a movement in the supply curve due to changes in a wide range of factors including income, consumer taste and preferences, change in substitute prices, and the own commodity price in case of a shift.
For instance in the year 2014, as shown on the figure 3 above, there was increase in production as a result of investments and technologies which lead to an increase in supply. As shown in figure 4 below as of year 2015, production increased even much more causing the supply to move much more up along the curve. For the same period, demand was stagnating and so as set by the forces of demand and supply, the prices were falling. This will be a movement of quality demand from point A to pint D as shown by demand curve 1 where the price will decrease from $6 dollars to $4 dollars and achievement of the equilibrium at point C (McManus et.al, 2017). As time went by to year 2016, people were become more aware of the importance of fruits and the wide range of benefits mangoes offers. For this reasons consumers tastes and preferences influenced by health concerns increased demand for mangoes which led to a complete shift in the demand curve as shown by demand curve 2 in the figure below.
The supply curve would be showing market response to the commodity produced. In this case when production was as depicted by curve 1, the equilibrium would be $5 dollars and the equilibrium quantity 4000 pounds. Therefore, when prices are low like at point E, the supply is reduced. When consumer’s tastes and preferences changed and the demand curve shifted to curve 2, the supply of mangoes increased favouring the rise in production as shown in table 1 above. The equilibrium quantity raised to 5000 pounds at a price of $6 dollars (McManus et.al, 2017). However, I a market analysis, when a demand curve shifts, the supply curve is also expected to shift. Like in the case of mangoes, when the demand shifted due to changes in tastes and preferences, the supply curve shifted due to changes in production technologies and innovation. This is as depicted by figure 5 below.
As of year 2018, production was st...