Wednesday, 18 March 2009

The Smell of Market Failure

Commentary 2
Nicholas Burnham
Externalities
CAFO Regulations tough enough? (591 Words)
http://ydr.inyork.com/ci_11961259
29th of April, 2009

Factory Farming in itself ensures market failure. When thousands of livestock are crammed into insufficiently sized cages to reduce the size, the cost of keeping land for farmers decreases. They externalize the cost of maintaining their land, (an externality being when a firm or individual uses a commons to reduce what they have to pay to produce). Unfortunately, negative externalities of production create market failure, as there is a change in marginal costs and an under-allocation of resources towards providing land for the livestock. The suffering livestock causes people of a certain moral persuasion to use time and resources in order to help the suffering creatures, raising the costs to other people unfairly. The waste from the animals is improperly disposed of, and people are made to suffer fouled waters downstream when the waste is simply washed away. All of the aforementioned are negative externalities. In Pennsylvania, “Half of the manure in Pennsylvania comes from the farms” says Doug Goodlander, director of nutrient and odour management for the state conservation commission. Factory Farms like those run by the Gemmills family externalize their costs whenever they can, understandably. It is then the government’s job as management of a country to solve this market failure. However, in this article, John Repetz, state Department of Environmental Protection spokesman, claims “We have regulations that are much more stringent than in the nation.” He insists that the regulations are tough enough already. However, when thought about logically, they can’t be tough enough if they don’t solve the problem. Also, health concerns give rise to doubts about whether or not Repetz’s statement is entirely true. In the Pennsylvanian state, farmers have to decide themselves whether or not they need a permit to pollute the rivers and streams. The argument against stricter regulation for factory farms is that the state already has one of the strictest systems in the country. As valid as the argument is, it doesn’t change the fact that the market is still failing. What the government should do is put its foot down and set much higher animal health standards. If animals are given a minimum living space of 10m squared, or some such other reasonable measurement to go by, the farmers will be encouraged to use traditional farming methods, meaning that waste is wider spread and acts as a fertilizer as soon as it is dropped. Without the need to wash away any waste, the water supplies would remain clean and health issues are less likely to become a problem. The moral issues are also resolved with this method, for the cows have better living conditions. H.Pylori infection was contracted when a small girl drank from the water around CAFOs, but when waste doesn’t enter the water supply, the chance of infection spreading is almost nonexistant. This solution may lower the quantity supplied for the meat markets, but since it corrects the market failure, it will adjust the price until it reaches the optimum value. No more welfare is lost when the
market is in action because it is working at the best of its ability.

Where the dotted lines cross is the point where the market is working at it's best. Really, no one loses in this situation, because the only people who have to pay in order to make it work are the same people who caused the issue by not spending in the first place. It’s the closest thing to reversing the process that can be reasonably achieved, and it is simply a matter of paying dues. How the state will choose to handle the problem is yet to be decided, but hopefully public support will help them realize that market failure is never worth it and getting rid of dead weight loss is a lot more important, especially if a side effect of making the right decision is a rise in health standards for humans and animals.
1. What is Garret Hardin most concerned about?

He worries that there is not enough of the right kind of privatization, and that commons lead to destruction. Wasting away all resources is an element of a bleak future.

2. How can "the commons" best be defined?

The Commons are resources that belong to no one, so that everyone might use them when or how they will.

3. Are individuals who overuse "the commons" acting irrationally? Explain.

Not at all, they profit from using the resources as the costs are divided amongst all who use them, yet the benefits are being reaped solely by the exploiting individuals. Privatizing resources means that people care what happens to them and will help maintain them.

4. Besides the "common pasture", what other resources does Hardin identify as "commons"?

Any area that can be or is used for something beneficial. This could also apply for resources, but it is unlikely seeing as many people claim what is in their land to be theirs also.

5. What are some of the possible solutions he suggests for the problems faced by America's National Parks?

He says that the government might allocate the right to enter parks, or privatize them.

6. How are air and water different from pastures, the oceans, and national parks in the "tragedy" presented by the common resources?



7. What are some of the possible solutions Hardin suggests for the "cesspool" tragedy represented by the pollution of our air and water?

Coercive laws or taxing devices could be used to maintain the waste produced by the commons.

8. How does the tragedy of the commons lead to market failure?

Thursday, 12 March 2009

Commentary 2 Ideas

http://news.bbc.co.uk/2/hi/business/7934677.stm

Zambia have had a boom in the sales of agriculture products thanks to a rise in popularity of a certain company, Zambeef. The rate of growth for the industry indicates a misallocation of resources; in this case a large part of the population is starving.

http://www.timesonline.co.uk/tol/life_and_style/food_and_drink/article5890545.ece

Pubs closing around the country indicates a fall in the demand for being in pubs (?) and shows the markets elasticity, as substitute venues like clubs and raves are full.

http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article5892890.ece

The recession is apparent in this instance seeing as the rise in profit is in the cheap food market.
Market failures have led to a fall in the sales of higher quality foods.

http://query.nytimes.com/gst/fullpage.html?res=940CEFDB1E31F935A35750C0A96E958260

Factory Farms are polluting air currents that travel over into the Missouri foothills.

Thursday, 15 January 2009

Daewoo Take Liberties in Madagascar


By Nicholas Burnham on the 11th of December, 2008

Daewoo Take Liberties in Madagascar

http://www.ft.com/cms/s/0/6e894c6a-b65c-11dd-89dd-0000779fd18c,dwp_uuid=a955630e-3603-11dc-ad42-0000779fd2ac.html?nclick_check=1


Daewoo predict not having to pay anything for the farming of maize and palm oil in Madagascar. The farmland the size of Belgium is under "free" cultivation by Daewoo after they agreed to sign a memorandum with the Madagascan government. Food exports are "Said to be a weapon in this world" claims Hong Jong-Wan, a manager at Daewoo, the car firm.
The 99 year leasing of 1.3m hectares to help produce more oils and foodstuffs for Korea, I suspect, will have a notable impact on the economy, even though the market for Oil is not monopolized. Such a big potential supply for such a large company, lowered production costs not included, could really mean that this valuable resource will earn Daewoo a foreseeable future, even considering the growing concerns about the world’s economy. The good thing is that the oil market is incredibly inelastic.

The demand for oil is too high for people just to not buy it if its prices are raised. It has become more of a necessity in the modern world for all the cookers and the ever expanding middle class. Human being could live without oil, but it would be a major step backwards for most countries. It was very lucky that the firm has been offered this opportunity, because it is not a common one.
On the other hand, this deal will also become profitable for the Madagascan authorities as well. Although it might seem like a bad move giving free cultivation rights to the Korean business, the Madagascans have actually thought this one through. By allowing them to harvest the maize and palm oil on their land, they are opening up nice new job opportunities for the unemployed citizens in the country. In the long run, when employment is up, so is the productivity of a nation. The economic growth for each country will be appreciated in times such as these, when the prices of oil have been rising due to dwindling supply. Also the food element that comes out of it will give the Koreans the upper hand.
Increasing the "Food security" of Korea with the large amounts of corn that will be shipped there is something the country will look forward to feeling the benefits of. Korea says it will export very little of the said corn. Supposedly the quantity demanded for corn in Korea would help achieve a higher equilibrium price if the quantity supplied were to increase.

The growing Korean population would aid in the increase of demand for basic foodstuffs. Obviously, in the case of food and of oils, the increase in supply means a fall in price and therefore to increased demand for both goods respectively. A large increase in demand for one good will lead to a notable decrease in demand for substitute products, whether the good is inferior or not. People will be more inclined to buying corn as opposed to wheat products now that corn is cheaper. Fallen price generally equals increase in demand for the product.
Interestingly, if the situation has been read well, we will see a really positive outcome come from government intervention in the economy. Both economies are profiting from the deal, and even though neither market is directly under a command economy, the help of the Madagascan government is prevalent. This exception to the general rule that involvement with the government will have negative returns makes this article exceptionally interesting. The fact that they did not implement a price floor or ceiling probably helps, since that would increase the dead weight loss and decrease the consumer and producer surpluses, which undeniably is not a good thing.
Demand for food and oil will always be high but regardless, expanding worldwide markets is important in the way of necessary goods. Keeping in mind that this plan works best with a developing country and a developed one, the world economies would benefit from more deals like these. Hopefully the full potential of this great idea will be actualized and both economies will feel the effects soon.



Thursday, 20 November 2008

India's Market Boom in Mobiles

http://blog.taragana.com/index.php/archive/massive-mobile-boom-in-india-over-10-million-new-customers-in-september-alone/

Over ten million customers in September alone have subscribed to TRAI, the indian mobile company. The firm is trying to encourage telecoms growth in the booming economy. Over 1.2 billion people live in India as potential customers, so it seems that the growth will not be over anytime soon.

-Growing markets for a good signify growing demand for new product
-Complimentary goods like telecoms services are getting better sales
-Highly inelastic market because of high demand

Daewoo Take Liberties in Madagascar

http://www.ft.com/cms/s/0/6e894c6a-b65c-11dd-89dd-0000779fd18c,dwp_uuid=a955630e-3603-11dc-ad42-0000779fd2ac.html?nclick_check=1

Daewoo predict not having to pay anything for the farming of maize and palm oil in Madagascar. The farmland the size of Belgium is under "free" cultivation by Daewoo after they agreed to sign a memorandum with the Madagascan government. Food exports are "said to be a weapon in this world" claims Hong Jong-wan, a manager at Daewoo.
The 99 year leasing of 1.3m hectares to help produce more oils for Korea, I suspect, will have a notable impact on the economy, even though the market for Oil is not monopolized. Such a big potential supply for such a large company, lowered production costs not included, could really mean that this valuable resource will earn Daewoo a foreseeable future, even considering the growing concerns about the worlds economy. The thing is, the oil market is inelastic. The demand for oil is too high for people just to not buy it if it's prices are raised. It has become more of a necessity in the modern world for all the automobiles and the ever expanding middle class. It was very lucky that the firm has been offered this opportunity.
On the other hand, this deal will also become profitable for the Madagascan authorities as well. Although it might seem like a bad move giving free cultivation rights to the Korean business, the Madagascans have actually thought this one through. By allowing them to harvest the maize and palm oil on their land, they are opening up nice new job opportunities for the unemployed citizens in the country. The economic growth for each country will be appreciated in times such as these, when the prices of oil have been rising due to dwindling supply. Also the food element that comes out of it will give the Koreans the upper hand.
Increasing the "Food security" of Korea with the large amounts of corn that will be shipped there is something the country will look forward to. Korea says it will export very little of the said corn. Supposedly the quantity demanded for corn in Korea would help achieve a higher equilibrium price if the quantity supplied were to increase.


The growing population would aid in the increase of demand for basic foodstuffs. Obviously, in the case of food and of oils, the increase in supply means a fall in price and therefore to increased demand for both goods. An increase in demand for one good will lead to a decrease in demand for substitute products. People will be more inclined to buying corn as opposed to wheat products now that corn is cheaper. Fallen price equals increase in demand.
Interestingly, if the situation has been read well, we will see a positive outcome come from government intervention in the economy. Both economies are profiting from the deal, and even though neither market is directly under a command economy, the help of the Madagascan government is prevalent. This exception to the general rule that involvement with the government will have negative returns makes this article exceptionally interesting. The fact that they did not implement a price floor or ceiling probably helps, since that would increase the dead weight loss.
Hopefully the full potential of this great idea will be actualized and both economies will feel the effects.

World Food Price Crisis

http://www.time.com/time/world/article/0,8599,1717572,00.html

This is an article concerning the rising food prices of the world. People from Mexico to Pakistan are protesting and rioting against the doubling costs of feeding themselves and their families. It is said to be because booming populations and growing middles classes are demanding ever greater amounts of food. Also making the problem worse is the encouragement to use bio-fuels, which consume great amounts of potential feed. Demand for a necessity has never been so high.