The Price of Milk – domestic, world markets and Fonterra
Milk seems like such a nice friendly product, but in New Zealand the rising cost of the essential good is getting everyone annoyed. In the past 5 years the price of dairy products in New Zealand has risen by 50%. Most assume that because of New Zealand’s comparative advantage (good weather, soils, grass growth and livestock) farmers produce milk in such great quantities that it should therefore also be cheap for consumers at the local shop. Our understanding of international trade is that it alters the domestic market, might suggest that firms who export on the global market are focused and motivated by world prices.
The NZ milk market
Fonterra is a virtual monopsony in New Zealand. This is like a monopoly except that the cooperative it is the sole buyer of raw milk products in New Zealand. It then sells 95% of its production of refined milk products to consumers around the world. The company supplies around 40% of global dairy product exports, and is by far New Zealand’s biggest company.
The world market for milk
Milk is a commodity that is traded on the international market and is traded according to the forces of world supply and world demand. These forces and the equlibrium of this market determines the world price of milk. Over the past five years more consumer globally in countries such as China, Indonesia and India have entered the middle income group and have begun to consume dairy products and feed their babies milk formula. In theory this will have likely caused a gradual shift of market demand to the left, we can also assume that as technology becomes more efficient global production has increased slowly at each price level.
The diagram above shows the link between the domestic and world markets. NZ producers milk at a low price due to the it’s comparative advantages. This means that suppliers see an attractively higher price available on the international markets. Assuming free markets NZ farmers will sell their milk products in global markets at higher prices. They therefore also charge New Zealand milk consumers the same high world price as there is no incentive to offer the quantity of milk to NZ consumers at a lower price. The main loser in the trade situation is the NZ family who has to pay more for milk. As you can also see when the world demand increases, the world price rises also forcing the NZ price to rise to NZ consumers to reduce consumption of milk. (shifting left along the demand curve)
Articles from Fonterra explain the upwards price forces currently working in the global milk market…
“Looking forward global food prices are expected to remain strong. This is not just an issue for dairy or just an issue for New Zealand. There has been a fundamental change in supply and demand for food internationally which has pushed prices to their current levels.
“While these prices are good for food exports and the New Zealand economy, New Zealanders are feeling the effects of this in their shopping trolley.
Should Fonterra morally sell milk to NZ consumers at lower prices?
Economically there is no incentive for them, but morally maybe there is and this is why the NZ government has stepped in and ordered and euquiry to how milk prices are determined. Fonterra voluntarily froze milk prices recently which seems like an odd policy from a company. Maybe firms are also motivated by factors other the profit, see comments from the above Fonterra press release here…
”We recognise milk is an important part of the diet in New Zealand and we want to ensure that future generations of New Zealanders grow up enjoying it every day. It would be great to see retailers getting in behind this commitment for the benefit of New Zealand consumers.
Fonterra Brands New Zealand Managing Director Peter McClure said: “Global price increases will continue to impact the price that dairy manufacturers like ourselves pay, however, we want milk to remain an every day part of the Kiwi diet so we’ve made a commitment to absorb any extra costs for the rest of the year.“
Morally maybe the company should offer milk at lower prices, milk is known to be a positive externality for children and adults. The company also used New Zealand’s natural resources to produce the milk. It is also a cooperative so the owners of the company are the farmers who sell the milk to the Fonterra factories. They also want to maintain profitability even if only 5% of the companies production is sold domestically.
To me this is an interesting case study. Firms who trade internationally face an interesting dilemma on the impact on domestic customers but generally this is considered an acceptable downside of trade. Fonterra in NZ after much public and political pressure have gone down a different track.
Infographics for Development – UN against Corruption
I stumbled across a nice series of UN videos this week about corruption. The UN is good for making videos and resources, but not always so good for sharing and publising their work. Anyway here is a nice resource that would be a good conversation starter for your students, or a blog post for your students to comment on.
Exciting times – small fish, big pond.
This blog has been a little bit quiet lately as my career has been undergoing a little makeover. In the last couple of months I have jumped from one school in Singapore to another, and I have felt like a little fish jumping into a very big pond.
I have shifted from being a classroom teacher of Economics to becoming a full-time Digital Literacy Coach (Technology Integrator) at United World College of South East Asia. The change has been both positive and challenging; and also represents what might be a unique part of my career. I joined the college at an exciting time to help lead the implementation of the technology initiative entitled iLearn which is putting laptops in the hands of over 2000 students at our two Singapore campuses. My role is to support teachers to make the best use of digital tools to support teaching and learning.
Overtime this blog might contain a little less Economics, but I will still share ideas and resources that I have been working on, plus some interesting Economics material from Singapore and New Zealand.
An Academic Screen Saver
I came across this great idea at a recent workshop conducted by Kathleen Ferenz, from Apple. Some of the best ideas are in hindsight the most obvious and this is a good example. This is perfect if you are working in an immersive 1:1 laptop environment, or if you have lots of black empty screens in your computer labs.
Within Systems Preferences on the MacBooks students can create Screen Savers from any collection of images. Usually these are photographs, but what if these were images from a particular class or lists of a visual vocabulary list? I quickly made a Geography screen saver by doing the following.
- From within either Keynote or PowerPoint, I can save the presentation as a collection of pictures, using either the export or save functions. This creates a folder of images, one for each slide. This folder can be saved in your pictures folder.
- Then I went into Systems Preferences and clicked in the + button at the bottom to add a folder of pictures. Here I navigated the folder I had created in Step 1.
- Then you can change the settings on how the pictures are arranged.
- Done
Applications:
- Classes could make the slides in Keynote and share collectively through a Picasa Gallery, or sharing functions in iPhoto.
- Students could easily create different folders of screen saver images for classes,
- Teachers could use this as a starter when students are entering your room up on your projector
Idle afternoon ideas for the Economics teacher on holiday
Most teachers never struggle to find things to do during the holidays. But if your are stuck for ideas, stuck in a plane or just stuck inside, here are some things I have read, watched and listened to over the last few months.
Watch: The Inside Job
This is a nice documentary movie about the Global Financial Crisis and meltdown that occurred during late 2008. Narrated by Matt Damon it is perhaps the most comprehensive overview of the issues and contained rafts of excellent interviews. It was pretty balanced and even a little humorous at times. If you are having a quite day you could add on the film Wall Street: – Money Never Sleeps as a nice prologue.
Listen: More or less: Tim Harford “The Undercover Economist”
Podcast Subscription – BBC Radio 4 (22 episodes)
Tim Harford is a excellent journalist who presents a weekly 30min show about Economics and Statistics on BBC Radio 4. The format is very easy to follow, intuitive and very educational. Each week the show goes into some depth about a recent economic issues and tries to dispel the statistical myths sometimes portrayed by the media or politicians. The format is canny and other the presenters are always humourous. Occasionally it can get a bit intellectually challenging, but the examples are excellent. Many of the topics covered would be perfect resources to use in the classroom. Some of the good podcast episodes are linked below.
- How useful is GDP? 22 Apr 2011 – link
- Youth Unemployment: 08 Apr 2011 – link
- Big numbers and VAT taxes 07 Jan 11 – link
I would envisage using the podcasts as a homework activity and perhaps asking students to put the ideas into words and using the skill of summarising. This is also a good example of how students could podcast themselves from within the classroom and make a class radio station which analysed economic events. This could provide a nice foundation for thier internal assessment work.
Read: Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich
This is perhaps the easiest read I have had in a while and is a insightful look into the life of the wealthy in the US. It is written by a senior editor from the Wall Street Journal – Robert Frank, so therefore covers the economic impacts of the wealth boom by explaining income disparities and clever use of statistics.
The full review is below
Editorial Review – Library Journal vol. 132 iss. 11 p. 78 (c) 06/15/2007Wall Street Journal senior special writer Frank got the idea for this book when he stumbled across the statistic that the number of U.S. millionaire households has doubled since 1995. His research took a scenic turn when he made it his full-time focus to study the lifestyles of the rich and richer. These well-heeled folks make their homes in Richistan, a metaphorical land of nine million souls, inhabited by the nouveaux riches (a term Frank implies without using) who have made—not inherited—their fortunes. Their politics and lifestyles vary by their socioeconomic stratum within Richistan. Upper Richistan is where things begin to get interesting: on these lavish estates, each household is worth more than $100 million and spends an average of $182,000 on wristwatches each year. And we haven’t even visited the hamlet of Billionaireville yet. Overall, the author argues, the concentrated wealth of Richistan is great for the economy—and for the veritable army of workers hired to manage the complicated lives of some very conspicuous consumers. Cruising around in private jets and yachts, Richistanis size up one another’s assets and invite one another to their charity balls. Frank’s private tour of the very real inhabitants of the comical, magical land of Richistan will be popular in public library business collections. [See Prepub Alert, LJ 12/06.]—Carol J. Elsen, Univ. of Wisconsin, Whitewater
I offered to do a presentation a few months ago… about presentation skills. A little bit ironic I know, so I had to do a bit of research otherwise my presentation would have been a little boring. Anyway this is the presentation I made and showed to the Grade 12 TOK students, I will somehow share my verbal notes. The TOK students have to present an opinion piece for 10 minutes as part of their final assessment and after enduring a few last year, I decided to help.
Most of my inspiration is from Jesse Desjardins and I had a good look at his presentations and work on SlideShare. If you haven’t seen his work it is worth a look and gets you thinking. @jessedee on twitter. The majority of my pictures are from the Boston Big Picture website, which is still the best place to find current event images on the internet in my humble opinion. COLORlovers was my inspiration for the colour palette. I found out that you can save a colour palatte as an image, then choose to insert palette into the colour picker within either PowerPoint or KeyNote. This maintains the consistency throughout a presentation.
(sorry… some of the fonts are not working within slideshare eg. Winston Churchill Speech)
Development Economics – Resources
I enjoy teaching Development Economics as I used to be a Geography teacher and Development is taught across both the Geography and Economics IB syllabi. In the current curriculum, Development Economics is seen as the poor brother, for a variety of reasons, to the other topics of Microeconomics, Macroeconomics and International Trade. With the introduction of the new curriculum, the Development Economics section of the course will gain more importance and will be assessed as a compulsory data response element of Paper 2 for both SL and HL students. This means that teachers will likely reshuffle their units and will be looking for some new resources to revitalise the topic. Fortunately there is a plethora of excellent resources available which I highly recommend.
New Syllabus for Development Economics
Links to Geography
If you are new to teaching Development Economics, or need some inspiration, I would find the Geography teacher at your school and start a conversation about resources they use. The IB Geography teachers also have a new curriculum and the Development section from their syllabus is shown below. As you can see, there are some nice cross overs especially in the last section “Reducing Disparities” where students are asked to evaluate the effectiveness of strategies, such as trade, debt relief and aid.
Within the OCC there is a Geography Wiki with resources relating to the subtopic below. Have a look at some of the resources that have been suggested. IB Geography Wiki – Disparities, Wealth and Development
Case Studies for Development
Geographers tend to take a case study approach to teaching, and I think Economics teachers should try make extensive use of the same pedagogy to give students the examples and context required to understand the complex development issues. Here are some of my ideas for suitable case studies:
Haiti – rebuilding a nation from an earthquake
This would be an excellent case study for students to apply some of the ideas on how to help developing countries and the problems associated with the topic. I used this the year after the earthquake but you could adapt for more recent natural disasters such as the floods in Pakistan.
- Here is the blog post that I wrote and used with my students Day Zero in Haiti
- Handout for group projects and presentation – Development Project – Haiti Day Zero
- Rubric for assessment of presentations – Rubric for Development Project – Haiti
- New York Times – Haiti News
- Boston Big Picture – Images from Haiti, one year on.
Ethiopia and the Coffee Trade
Ethiopia is an interesting case study of a nation which is overdependent on a narrow range of exports including coffee. Therefore the country illustrates the importance of International Trade, but also the problems that these less developed countries face and fits nicely into the new curriculum.
The Asian Tigers – The Role of Foreign Direct Investment and International Trade
Four countries in South East Asia, Singapore, Taiwan, Hong Kong, South Korea have been nicknamed the Asian Tigers for thier process of rapid economic growth in the last forty years. For many economists that are the example of why trade orientation policies are so important for development. In recent years the four countries have shown the impact of being too open to international FDI and the rapid decline in international demand for exports. The following articles are useful in teaching these ideas to your students and provide excellent context for evaluation and a discussion of market orientated policies.
- Nice Evaluation article – Losing Traction – Asian Tigers – Time Magazine
- A video series by the Discovery Channel is a good introduction to Singapore Economic Development, some of the videos are available here in 10 min sections. Lion City, Asian Tiger – History of Singapore
- Article from National Geographic – The Singapore Solution
Democratic Republic of Congo – foreign investment and selling resources
This is a topic I have stumbled across a few times. Recently China has been invested vast amounts of Foreign Capital into parts of Africa including the Democratic Republic of Congo.
- This is good introduction article I have read about the topic – Time Magazine – Africa, Business and Development – Time
- Reading guide to assist your students critical reading of the topic – Three level reading guide – China in Africa
Other resources for Development
Statistics – explaining the disparities between countries
Gapminder and Hans Rosling’s resources have to be the holy grail for teachers to explain development statistics. There are a variety of different tools available but I always go back to simple flash animation as an introduction with my students.
- Gapminder Worksheet to explain the differences between the developed and less developed parts of the world
- Basic Instruction – GapMinder – instructions on how to use
- Favourite poster – Development Indicators – Chosen 50- great to use as a game with students. Each students makes a paper hat with the country name and then the students get themselves into order according to the indicators. A good way for students to visualise the link between HIV infection and life expectancy and other correlations.
Millenium Development Goals
There is a lot of widely published material about these goals and the progress acheived. These goals have a greater emphasis in the new curriculum.
- This report is perhaps the most comprehensive. I have captured many of the graphs and added them into my class powerpoints for the students to analyse. – Millenium Development Goals – UN Report 2011
