Reference no: EM13370926

Bumper crop means cheap mangoes

NATHAN DYER, The West Australian November 1, 2011

Perth consumers are set for a mango boom with a bumper Ord Valley crop driving down prices for the tropical fruit.

Kununurra packing shed operator Quentin Parker said a favourable growing season meant Kimberley mango farms were flush with fruit.

"I've got one customer who did 4000 trays last year and he'll do 27,000 this year," he said.

Mr Parker said his packing shed was sending about two semi- trailers of mangoes to Perth each day and had packed 80,000 trays with about 40,000 more to go.

He estimated the Ord Valley would produce more than 200,000 trays this year.

Tony Tonich, fruit sales manager for Perth market agent AllStates, said the bumper Ord crop and strong supplies from the Northern Territory were good news for consumers.

"At the moment there's a huge volume of mangoes on the market," Mr Tonich said.

"So the consumer in the shop should be getting a reasonable price. They're advertising this week at around two for $5, which is a very good price."

Mr Tonich said mangoes were trading between $18 a tray for second-grade fruit and up to $35 a tray for top quality fruit.

But he said prices were unlikely to go much lower because farmers would stop making money.
"If they're not getting $18 a tray and over, they'll just stop picking."

He said people should enjoy the fruit while the price was low.

Ord Valley picking finishes in about three weeks. The harvest in Carnarvon begins next month.

Please answer the following questions using appropriate diagrams. Be sure to explain your answers thoroughly:

1. Assuming that mangoes operate in a perfectly competitive market, use a well-labeled demand and supply model to explain how market equilibrium price and output of mangoes is being determined. Then using the same model, explain and illustrate what factors has caused the price of mangoes to fall in price.

2a. Do you think the demand for mangoes is price elastic or price inelastic? Explain your answer based on the determinants of price elasticity of demand.

2b. Based on the elasticity established in your answer above, discuss the likely impact of a price fall on mangoes producers' total revenue.

3. Assume the government is concerned about prices falling too low for farmers and decides to introduce a price support scheme. With the aid of appropriate diagram show the effect of a price support scheme on demand and output in the mango market. In your answer discuss the potential problems associated with such a scheme.