Reference no: EM1389328

Article Analysis

Instructions:

Read the article titled " Christmas egg shortage expected after bird flu outbreak" (by Jared Lynch, Source: The Age, Date: Dec 3, 2013) and provide the analysis for the following statements in 3 different sections.

1. What are the possible reasons for the price rise mentioned in the news article? Use demand and supply models to illustrate what has happened in the egg market. Make sure that you clearly state any underlying assumptions in your analysis.

2. Draw the demand and supply curves of the egg market in Victoria, explaining whether demand for eggs is elastic or inelastic. Discuss the determinants of the ‘price elasticity of demand' for eggs as they apply to consumers, and illustrate the effect of price rise on the total revenue of a farm that has not been affected by the bird flu.

3. Considering the egg market in Victoria, assume that the state government has decided to intervene and introduce a ceiling on prices. Illustrate the likely impact of such government intervention on the market. Conclude your analysis with a comment on the benefits and drawbacks of the government's maximum pricing policy.

The Age

Christmas egg shortage expected after bird flu outbreak

December 3, 2013

Jared Lynch

Australia is facing an egg shortage ahead of the peak holiday season after an outbreak of bird flu shut down two poultry farms.

About 450,000 chickens have been destroyed at a free range and caged egg farm in Young, NSW, creating a national shortfall, which will cause prices to rise and take six to 12 months to abate.

The virus is not the highly pathogenic H5N1 strain, which has killed humans, nor is it closely related, the NSW Department of Primary Industries said. But it has significantly dented supply and put pressure on prices.

Melbourne-based Farm Pride Foods, which is one of Australia's biggest egg processors, has had to cancel orders, with its sales plunging between 8 and 9 per cent compared with the same time last year.

NSW Farmers Association Egg Committee chair Bede Burke said demand for eggs normally doubled in the week before Christmas ‘‘but this year the eggs won't be there''.

‘‘The comfort level for eggs in NSW is about 1.4 million dozen to fill the cool rooms at the end of the week. We are well under that now, down about 15 per cent,'' Mr Burke said.

‘‘What it means is ... retailers might not have 600 gram free range packs, or 800 gram caged eggs. They might still have eggs but not exactly in that same category. So consumers might have to switch from the normal egg they buy to another brand or category to get through that period.''

Mr Burke said the shortage had already created a lift in farm gate prices, which have risen 10 cents a dozen. He said that would filter through to retailers.

The outbreak was detected in late October at the Langfield Pastoral Company, about 27 kilometres north-east of Young in south-west NSW.

Mr Burke said the farm was a ‘‘world class facility'' and an outbreak of an exotic disease is something all farmers feared, particularly as more birds become free to roam.

It is understood the virus originated at the property's free range farm and soon spread to its neighbouring caged farm.

Farm Pride sales and marketing manager Ian Savenake said Langfield supplied between 3 and 4 per cent of the national market.

He said the stock in Farm Pride's cool room in Melbourne had dwindled significantly.

‘‘I probably have a day's worth of fridge at the moment tops, whereas this time last year we had five days' worth of stock so it's going to be a tighter Christmas,'' Mr Savenake said.

‘‘There's quite a lift in demand with just people baking and entertaining. But we are cutting orders at the moment. We just can't supply everyone's order in full.''

The DPI has quarantined both farms, which will remain shut for several weeks.

Mr Savenake said it would take some time for the farms to repopulate their stock, because they couldn't replace the 450,000 chickens all at once.

‘‘Normally you stagger 50,000 every month, so I'm guessing at least six to 12 months, depending on how quickly they can buy the day old chicks.''

In a statement the DPI said the NSW Food Authority confirmed that there no food safety issues and poultry and eggs remained safe to eat.
NSW chief veterinary officer Ian Roth said it appeared the virus had been confined to the two properties.

‘‘There is no indication that the virus has spread beyond the two properties, and the DPI is working with the owners to recommence operations,'' Dr Roth said.

A Woolworths spokeswoman said: "Customers in NSW and Victoria may notice some gaps in egg supply in stores. We have been working with our suppliers to maintain supply and minimise any impact on customers".