Microeconomics: IB Economics

A basic tale of D&S, or for the more advanced student, a perspective on how rising costs affect prices. Either way, the shortage of staff in the dairy sector is driving up prices.

I'll skip over consideration of the factors that might have seen a decline in the number of agricultural workers in the UK.

South Africa is piloting a programme to encourage dairy farmers to reduce their carbon footprint, reducing their nitrogen input, and getting carbon credits in return. These credits can subsequently be traded to offset other firms carbon emissions. 

It's an innovative idea and one that may encourage greater sustainability in agriculture. 

A story that simply won't go away - the shortage of lorry drivers, with leading dairy group Arla Foods complaining of a lack of drivers, especially at weekends. 

It's a classic example both of the costs of Brexit and derived demand, in that the demand for lorry drivers is derived from the demand for the products that they deliver. 

Big merger in the dairy sector, with Dairy Crest being taken over by Canadian firm, Saputo. Given that the latter is a diary processor it seems that it is a horizontal merger - and there seem to be lot of happy faces. "Say cheese!"

Basics, basics. Why did milk prices reach an all-time wholesale price record in December? This Guardian article looks at the juxtaposition of factors that have caused this: higher input prices, including fuel and fertiliser, and labour shortages. 

 I love reading something contrary. This Guardian piece looks at the current price of milk and argues that for the sake of Britain's farmers, and sustainability, it needs to rise to match the rising cost of fuel, fertiliser and animal feed. 

Factor in the monopsony power of supermarket buyers and you might start to appreciate why many farmers have got into debt, with some starting to leave the industry. And if that happens then higher prices are going to come about anyhow. 

Just a great headline for the scatalogically-minded of you: the methane from the cows' farts of the world's13 dairy firms are equivalent to the UK's greenhouse gas emissions. Unlucky for some! But not the cows, I suspect.  

In addition, the Institute for Agriculture and Trade Policy argues that the growth of the sector has driven down prices to the extent that they are no below the cost of production. As a result, it wants a cap on production to protect "both the climate and farmers". 

And at that point, you have to ask whether, despite the best of intentions such a move is going to make economic sense. Think in terms of opportunity cost, government failure and distributional issue. I doubt whether such an intervention would have the desired effect on either problem. 

And yet more market failure - this time in the dairy sector, where the newly formed Global Academy of Agriculture and Food Security estimates that the equivalent of one pint in every six is thrown away - half of that even before dairy products reach the store.

This again highlights the level of waste in the food industry, and the fact that for too long we've been careless in our use of food, and chosen to ignore the fundamental economic problem, of scarcity and choice, to the probably detriment of future generations.