1. Market Forces AS 90649 AS 90651

2. Contents

5. Market manipulations Political Intervention • Trade barriers • A country will not accept another country’s primary products because they wish to maintain their own production without competition. • Trade barriers may be imposed for biosecurity reasons.

6. Market manipulations Quotas • The maximum quantity of primary product which will be accepted by an importing country. To protect home producers. • E.g. the EC (European Community) will only accept a specified quantity of butter and meat each year from NZ. These have to be negotiated at regular intervals.

7. Market manipulations • Incentive grants and subsidies • Tax concessions e.g. tax concessions in the crop establishment period • International Commodity agreements e.g. GATT and CER

8. Producer Boards / Grower Organisations • Producer organisations can affect the demand for a product in several ways. E.g. • Reduction of competition • Establishment of new markets • Deregulation • Marketing co-ops – benefits of amalgamation e.g. the dairy boards • Research and development

9. Comparing political and grower intervention • Political constraints: • Political intervention occurs through legislation in parliament and is carried out by government departments • The major difference between political and grower intervention is that growers usually have to fit into the political constraints (limits)

11. Consumer Preference • The products the consumer want (prefer) have changed over the last 20 years. • Consumers now prefer healthy, easy to use, fresh produce. Eating out has become more common rather than the preserve of the wealthy. • Each year the number and range of products avaliable for consumers increases, e.g. a major supermarket chain in the USA is offered 250 new products each week. If any of these new products are to be sold in their supermarkets, slower moving products must be removed from their shelves.

12. With so many new products on offer for consumers, primary producers must be aware of, and be able to sell what is wanted when it is wanted. • Because markets change so rapidly producers (farmers etc) can not assume that what is being sold successfully this year will be demanded next year. • Manipulating consumer preference / demand is one way that marketeers can determine what produce will be bought.

13. Consumer perference for a product can be changed by: • Telling the consumers about the product (advertising) • Telling them how to use it (in-store promotions, cooking programmes) • Repackaging the basic product • Changing the basic product • Using the product in different ways (woollen oil booms) • Making a new product altogether by processing the basic product (value added products such as HashBorwns)

14. Technological changes have allowed products to altered to change • The apperance of the product (grading machines) • How the product is used (kiwifruit juice) • How the product is presented (chilled meat) • Altering products by breeding for specfic characteristics is another method that can be used to satisfy consumer demand. • Farmers can breed for resistance by culling susceptible stock. This allows them to sell the animals as organic when chemicals are not required to combat parasites.

15. Exercises • Potatoes are sold fresh or processed. Name at least 5 ways that potatoes are processed. • For the product the you are studying, identify at least 3 value added products. • Explain why these products are worth more money than the basic product. • Identify how your product is sold i.e. how is the product advertised? • Describe the overall trend in consumer preference for your product over the last 5 years, 10 years and 20 years? Explain why there is that trend.

17. Exchange Rates • New Zealand is the furthermost country from the rest of the world ( i.e. the Northern Hemisphere) • And is quite small • This means that as a country, our economy depends on the needs and wants of other countries

18. A High New Zealand Dollar • When the New Zealand dollar is valued highly against the US dollar then: • Imports are cheaper into the country. This is because we can get more for our money. • Exporters don’t get as much money as the people who buy their products can not buy as much, so they don’t.

19. What this means for farmers • Fertiliser, tractors and other machinery imported into the country cost less so they could buy more • They don’t make as much money as their products (wool etc) aren’t worth as much • Overall farmers prefer to have a low NZ dollar

20. A Low New Zealand Dollar • When the New Zealand dollar is valued low against the US dollar then: • Imports are more expensive to get into the country. This is because we get less for our money. • Exporters earn more as the people who buy their products can buy more, so they do.

21. What this all means • Yesterday the $1NZ was worth $0.615US • A few months ago $1NZ was worth $0.71US • This is good for farmers as their products earn more money Worksheets

22. Notes… AS 90651 Market Forces What you need to be able to do… • Evaluate interactions between market forces operating on a primary product and its market. (standard) • Evaluate and compare the effects of market manipulation on supply through: • Political intervention • Grower Organisations