Blog #3 Implications of a Rising Commodity
While browsing The Economist website, I came across a topic that I have never really considered, that is, the effects of a rising commodity price. Currently, wheat prices are up almost double what they were in June due to fires and drought in the large wheat-exporting nation of Russia. The principles of supply and demand would reason that as the supply decreases the quantity of goods decreases and the price of the goods goes up, assuming demand stays the same. And sure enough, this is exactly what has happened to the wheat commodity.
The social implications of these high wheat prices are more serious than I thought. For example, the country of Mozambique experienced a riot a month ago partially prompted by the wheat prices. The riot resulted in a least a dozen dead and more than 400 people injured. As a result, the government decided not to carry through with the proposed 30% increase to bread prices. There have also been riots in a number of African and Eastern European countries.
One reaction towards the rising wheat prices has been countries stocking up on wheat in order to have enough for the future. This panicked buying just amplifies the effects of the Russian wheat problem. Most experts believe that the current wheat prices are not that big of a deal. Certain factors, such as farmers substituting other cattle feed for wheat, have brought the demand down. And ultimately, though the prices are currently higher than average, there is still more than enough wheat to go until Russian bounces back.
http://www.economist.com/node/16996835
http://www.economist.com/node/16994407