Is agricultural price instability a problem for Less Developed Countries?
Problem of agricultural price instability for LDCs:
a. Several Less Developed Countries have a comparative advantage into the production of agricultural commodities and goods. They rely onto exports of narrow base of key products to earn foreign currency.
b. Agricultural products endure price instability because of frequent unforeseen conditions. A good harvest increases supply when flood or drought decreases supply.
c. The diagram opposite demonstrates that low price elasticity of demand implies a given change in supply have an important impact on price resulting in important price volatility.
d. A similar diagram can be used to demonstrate the effect onto price of a raise in competition and capacity.
e. The prices of coffee and coca have fallen to thirty-year lows due to bumper crops and new producers for example Vietnam for coffee.
f. The organization of Coffee Producing Countries coffee cartel tried to raise prices by members holding back twenty percent of exports. Non members as like Vietnams imply raised their exports and the scheme and prices collapsed.