HL ECONOMICS COMMENTARY NUMBER:

TITLE OF EXTRACT:
SOURCE OF EXTRACT: Daily Nation
DATE OF EXTRACT: January 19, 2010
WORD COUNT: 729 words
DATE COMMENTARY WAS WRITTEN: March 7, 2010
SECTION(S) OF SYLLABUS WHICH COMMENTARY RELATES: 1, 2
CANDIDATE NAME: Rishad Kabar
CANDIDATE NUMBER:







1
Kenyas Maize Stocks To Keep On Yawning
Rishad Kabar Economics HL Commentary 1 (Final)
2


Joseph Bono, 19th January 2010, Kenyas Maize Stocks To Keep On Yawning, The Daily Nation
The article reports how Kenya is likely to endure shortage of maize as its traditional import
sources have run low.
Maize is one of Kenyas principal domestic commodities which is grown as a food source
(Microsoft Encarta Encyclopedia, 2009)
1
, however, the shortage in supply, or the willingness
and ability of producers to produce a quantity of a good or service at a given price in a given
time (Blink.J. & Dorton.I., 2008)
2
highlights the concept of scarcity, which is defined as:
To put it simply, we do not have the resources to locally produce enough maize to cater for
our demand, or the quantity of a good or service that consumers are willing and able to
purchase at a given price in a given time. (Blink.J. & Dorton.I., 2008)
4
, hence the need to import
from foreign sources as the country waits for its next harvest.
The Kenyan market expectation is that this fall in supply will be characterized by a rise in
prices of the commodity, which could have a significant effect on the market.
A possible effect is that there will be an increase in demand by consumers as they stock up
their shelves early on in anticipation of the price increase.
This is illustrated by the diagram below, showing how the increase in demand for maize from
D to D
1
results in an increase in price of maize from P
e
to P
1
. This increase in demand results in
shortage of maize which explains the supply gap Between Q
1
and Q
e
.




1

MAXON, ROBERT M. "KENYA." MICROSOFT ENCARTA 2009 [DVD]. REDMOND, WA: MICROSOFT CORPORATION, 2008.
2,4

Blink, J. & Dorton, I. (2007). DEMAND AND SUPPLY. Economics Course Companion. Great Clarendon Street, Oxford OX2 6DP:
Oxford University Press 2007.


3

Google Definition: Scarcity, Website definition: http://investors.saic.com/glossary.cfm?GlossaryKeyword=eso



the basic economic problem which arises from people having unlimited wants while there are
limited resources, therefore economic decisions must be made to allocate resources efficiently.

3

Rishad Kabar Economics HL Commentary 1 (Final)
3


Diagram of increase in demand due to consumer expectation














Another possible effect is the decrease in supply as producers hoard supplies in order to
take advantage of the anticipated price gain. This is illustrated in the diagram below that
shows how when the supply of maize decreases from S to S
1
, the Price of maize increases
from P
1
to P
2
, and the supply gap increases from Q
1
to Q
2
resulting in increased shortages.

Diagram of decrease in supply due to producer hoarding of maize stock










P
e

P
1

Q
e

S
D
D
1

Q
1

Price of Maize
(Kshs)
Quantity demanded
and Supplied
of Maize
0
Price Increase
Shortage
0 Quantity demanded
and Supplied of Maize
Shortage
Price of
Maize
(Kshs)
Price Increase
S
1

S
D
P
2

P
1

Q
2
Q
1

Rishad Kabar Economics HL Commentary 1 (Final)
4


The increase in prices of maize could affect Kenyans in a number of ways, as the national
dish, Ugali, is prepared with maize flour, highlighting its importance to Kenyans.

Consequences of this are that consumers will possibly have to forgo certain foods which are
complimentary to maize (are sold alongside it), e.g. meat, and consume cheaper alternatives
such as vegetables thus highlighting the concept of opportunity cost. This is simply:
the next best alternative foregone when an economic decision is made
2
(Blink.J. & Dorton.I., 2008)
5

Another effect is that producers will not be able to cash-in on the high demand and high
prices . This is due to the fact that maize is a seasonal crop whose amount supplied is
determined by natural factors such as rainfall, means that the Supply is likely to be Price
Inelastic, meaning that:
A change in the price of the product leads to a proportionally smaller change in the quantity
supplied of it (Blink.J. & Dorton.I., 2008)
6
.
This is illustrated in the diagram below, where a rise in price from P
e
to P
1
leads to a smaller in
proportion rise in quantity supplied, Q
e
to Q
1

Diagram of Supply of Maize in Kenya


















5

BLINK, J. & DORTON, I. (2007). WHAT IS ECONOMICS? ECONOMICS COURSE COMPANION. GREAT CLARENDON STREET, OXFORD OX2 6DP: OXFORD UNIVERSITY PRESS 2007
6

BLINK, J. & DORTON, I. (2007). ELASTICITIES ECONOMICS COURSE COMPANION. GREAT CLARENDON STREET, OXFORD OX2 6DP: OXFORD UNIVERSITY PRESS 2007

P
e

P
1

Q
e
Q
1

S
Increase in Supply
Price
Increase
Price of Maize
(Kshs)
Quantity
demanded
and Supplied
of Maize
Rishad Kabar Economics HL Commentary 1 (Final)
5


In the short run, it is therefore expected that the inelastic supply of maize coupled with the
shortages faced will not be able to meet rising international consumption thus demand for
maize will cause a drastic rise in prices, in accordance with the law of demand that states: as
the price of a product falls, the quantity demanded of the product will usually increase, ceteris
paribus
3
(Blink.J. & Dorton.I., 2008)
7
, and vice-versa.
However in truth, price increase of maize in the international market would be limited as
most countries are at a comfortable stock position. This is due to the fact that they operate a
buffer stock scheme, which is done through the storage of excess maize from a bumper
harvest in order to release it in times where there are shortages
This would not be the case for Kenya, as the article states that:
The NCPB holding 2.5 million tonnes of maize and millers and other traders holding 1.5 million
tonnes based on National Cereals and Produce Board (NCPB) Statistics. However, the stocks
currently available in the country can only last one and a half months.
When we project what will happen in the long run, a solution that would benefit both
consumers and producers would be to increase the quantity held in the emergency reserve
during the next bumper harvest, which the article predicts will be around November, and
thus enable us to better stabilize the price increase to minimal levels in order to protect
consumers, or even lower them to their benefit.
This coupled with the rising world consumption means that the future looks good for
farmers as they will see an increase in their revenues as long as they can meet the demand.


7

BLINK, J. & DORTON, I. (2007). DEMAND AND SUPPLY. ECONOMICS COURSE COMPANION. GREAT CLARENDON STREET, OXFORD OX2 6DP: OXFORD UNIVERSITY PRESS 2007