Case Study in Microeconomics

Case Study 1 Farmers’ Group Raps NFA Head on Rice Import Move “Each Filipino eats two cavans of rice or 100 kilos a year. With 60 million mouths to feed, a year’s harvest is still 80 million cavans more than the actual needs.” Effect of the Importation on the Local Consumption of Rice The statement above says it clearly; out of the country’s harvest alone, there would be surplus of 80 million cavans in the supply of rice. An importation will result into additional surplus to the already excessive harvest of the country. This surplus in rice would make consumption grow since consumers would be attracted to buy more rice due to lower price of rice. Demand curve would then shift to the right to be in equilibrium.

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Effect of the Importation on Palay Production Having too much supply results into many unsold supply if the price remain in the same level, so to be able to dispose these unsold supplies, producer were forced to sell their products at a lower price. Consumer would buy what is only necessary when the price is high, but they will be willing to buy additional when they realizes that the price is lower. This fall in the price of palay might bring loses to the farmers, and since farming is like business where in cash is also in use to be able to continuously support the cropping rotation in a year, chances is for the next cropping season numbers of farmers who would be willing to plant rice will fall. So with the importation, without considering the already tremendous surplus in rice supply by the country’s production alone, the supply curve would shift to the right to meet the equilibrium.

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How does NFA intend to raise the price of palay to its targeted support price level? Looking into a deeper picture of the scenario, NFA’s plan might be really intended to support the farmers. Because if consumer were not informed well enough that there will be surplus and not shortage, then the announcement of possible shortage would mean panic buying in the part of consumers and hoarding in the part of producer, that would result to a shift to the left in both the demand and supply curve. In that case, it is really possible for NFA to sell the import and make a lot of money for the NFA. Panic buying makes the consumer buy goods despite of high price, for the fear that there might be shortage especially if the good is a basic commodity. On the other hand hoarding in part of some producer limits the number of supply, they hide their supply to the warehouses with the intention of showing this off when price is at its peak.

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Is the position to import rice compatible with the intention to support palay prices?

It is not compatible to import or to add up more supplies when there is already surplus in the supply of rice in the country. It is a possibility that many might be attracted to buy when commodities were in low prices but since rice is food and it doesn’t take very long for someone to be full when eating rice, the consumption of rice might rise but will not rise to the extreme, not when the population remains constant. Surplus in supplies lead into falling prices, since unsold supplies will remain unsold if the demand was already satisfied, so to stretch the demand price must fall. If NFA really wants to help the farmers, they should have been the one to buy the production of our local farmers. And assured them of buying their crops at a reasonable price, in that way the government will lead into a good motivational system that benefit both the farmers and the country.