School code

HK017

Name of school

Yew Chung International School

Candidate name

Scarlett Sun

Candidate number

Scarlett Sun

Teacher

Ms. Lornie

Title of the article

Milk prices: Glimmer of hope for

dairy farmers in 2016

Source of Article

http://www.bbc.com/news/uk-northernireland-35160031

Date the article was published

28 December 2015

Date the commentary was written

28 December 2015

Word count (750 words maximum)

743

Section of the syllabus the article Section 1: Microeconomics

relates to (please tick the one that is
most relevant)

When I first met William Irvine in July, he was feeling the effects
of a prolonged slump in the milk price.

He and his son David have 140 cattle at a farm near Market hill in County Armagh.
The farm supports two families - David was back home, married and helping to run
the place.
When we met again in early December, William told me that things had not
improved.
We spoke at the Winter Fair, an event that acts as a showcase for the dairy industry
and an opportunity for farmers to compare notes. But William explained that in the
intervening five months the situation had not improved.
"It's really been more of the same. The price is still low, well below production costs,
so life has got no simpler," he said.

Bumping

Farmers have received their subsidy payments from Europe, but William said the
money was still not there for the kind of continual investment that is needed to
maintain the business. It is a story that is being replicated on dairy farms across
Northern Ireland. While the milk price has stabilized and raised slightly since the
summer, it is still only bumping along the bottom. Latest figures from the
Department of Agriculture put it at just over 20p a liter, well below what it is costing
farmers to produce. At this time of the year, it is even more expensive to make,
because cattle are housed and are relying on feed instead of grass.
Traditionally, dairy farmers were prepared to put up with the peaks and troughs of
the industry. But now the lows are longer and deeper and prices are not reaching
the previous highs. It has sparked a rethink over the industry model.

Difference

Ulster Farmers' Union president Ian Marshall, himself a former dairy farmer,
believes a mix of margin protection and fixed-price contracts may be the way forward
after an "horrendous period".
Margin protection allows farmers to insure a percentage of their production at a
certain price. When the price falls below that level the insurance policy will cover the
difference. It is a measure used in the United States.
Fixed-price contracts see processors guaranteeing farmers a set price for their milk,
something that is increasingly being done here. Mike Johnston, of Dairy UK
Northern Ireland, also favors the margin protection model. He told me the industry
was seeing prices now that it had not experienced for many years. He said farmers,
though resilient, needed to know when the upturn would come.

Overproduction

Industry commentators are not being too specific about that. There is a lot of talk
about an improvement around the middle of next year. Milk is a global commodity.
Factors outside the control of Northern Ireland's farmers have driven down the
price.
A depressed Chinese economy, global overproduction and a Russian ban on EU food
imports have all contributed to the slump. When the improvement comes, it will
again be due to things that happen elsewhere. And the indications are that those
changes may be starting to happen. The United States has eased off production, and
in the milk-producing powerhouse of New Zealand they are culling lots of dairy
cattle, which will cut supply. But there is still a glut in the system. Our farmers have

little alternative but to try and hold on until it was worked its way out and the
market rebalances.

Source form BBC news

http://www.bbc.com/news/uk-northern-ireland-35160031

Economics IA Microeconomic

Scarlett Sun Qing 12B

The topic of the news article is Milk prices: Glimmer of hope for dairy farmers
in 2016. It is about the price of milk was really low even (below production
costs) and life for farmers were getting tougher although. Europe has also
provided subsidies to them. Milk is a global commodity. Farmers in other
countries had also driven down the price of dairy products with mass
production. Milk seems more expensive to make due to the feed and house
provided for cattle. There was surplus for over-production of milk due to a
depressed Chinese economy and EU food was banned in Russia. Mr. Ian
Marshall (Ulster Farmers' Union president, also a former diary farmer)
believed that a mix of margin protection and fixed-price contracts might be
the way forward after a "horrendous period".
According to the quote A depressed Chinese economy, global overproduction
and a Russian ban on EU food imports have all contributed to the slump. It
might reduce the exports of milk to China and Russia (both are large
population countries). Resulting in the supply greater than the demand of
milk because of less exporting countries.
Nowadays, many people dont really treat milk as daily necessities, due to
more choices are available (substitute goods such as coffee) For example,
adults who work in the office tend to have a cup of coffee in hands, it
represents their social image and becomes part of their habits. So children are
the only ones who consume milk. The market becomes minimized. As fewer
people are drinking milk, the market cannot absorb the leftover milk products.
It will lead to a decrease in quantity demanded which increases the average
costs of production.

The concept of Price elasticity of supply

exists in the quote it is even more
expensive to make. Price elasticity of
supply (PES) is a measure of the
responsiveness of the quantity supplied
when there is a change in price. It can
be calculated along the supply curve.
The equation for price elasticity of
supply
is
percentage changequantity supplied
. Supply is the quantity of a good
percentage change price
that firms are willing and able to produce at different price levels over time,
also named ceteris paribus. (Milk has an elastic supply because it is a basic
necessity and has few substitute or alternative.)
PES=

The second concept is the production costs. Other than the price of the
good, these factors affect the quantity firms are willing and able to supply at
each price level. A change in one of these factors may cause a change in
supply. According to cattle are housed and are relying on feed instead of
grass, it involves land (feed, because there would be no feed without land)
and capital (housing for cattle). Production costs varies with the how much a
firm is going to produce. Raw materials (feed of the cow and the land)
included in production costs.
The concept of over-allocation of
resource exists in the quote A
depressed Chinese economy, global
overproduction and a Russian ban on
EU food
imports have all contributed to the
slump.
When milk is being over produced, it
means
that
too many resources are being
allocated to the production of milk,
which results more leftover quantity of
milk
being
produced. It means the supply is
greater
than the demand, which forces the
price to
drop with excess supply and results in
surplus. A surplus is when the quantity demanded of
a product is smaller than the quantity supplied.
In conclusion, the market of milk is unlikely to gain profit in the short term. It
is because the selling price cannot cover the cost of production, which leads to

a loss. Loss is defined as negative economic profit. In the long term, the
market of milk is likely to get smaller and smaller. As mentioned in the article,
live for farmers are getting tougher. It means more farmers will quit the
market to get a better job in Urban Centre for better life or shift to plant
another crops with good returns. To prevent this from happening, the
government may provide subsidy to maintain local basic necessity. Also, the
Government may pass a law, set a price floor (setting a minimum price on the
milk so that the price charged by the sellers cant be lower than the legal
minimum price). (When one farmer charges less to maintain the consumers,
the other farmer will charge even less. It means that the cut-throat
competition will make the price of milk lower and lower. If someone who
cannot stand for this may surrender and leave the market.

Year 12 Economics 2015 2016 IA1

NAME: Scarlet SUN
Class 12
Criterion A: Diagrams: 1/3
Diagram not referred to; relevance of diagram 2 is unclear.
Criterion B: Terminology 1 /2
Some identification of relevant terms, but some are confused and
inaccurate
Criterion C: Application 2/2
Relevant theory is applied, but, in places, not accurately
Criterion D: Analysis 1/3
Attempts to analyse but weak understanding of article content shown.
Many relevant
parts are ignored.
Criterion E: Evaluation
1/4
Very little evaluation presented; no reasoned judgments were made.

6/14