Why the FMD crisis will not have a lasting effect on beef prices

Consumers already suffering from higher prices for items like communication, electricity, rates and taxes cannot afford to pay more for beef

- Dr Koos Coetzee.

The recent upward and downward spike in A-grade beef prices is a good example of how markets operate in the real world. Prices do increase as result of a supply-side shock, but will then decrease again as demand-side factors react.

SOME ECONOMICS 101

In the first year of economics study, the student is soon introduced to the use of ceteris paribus (all other things being equal) as a tool to explain economic phenomena. They are taught that prices are determined by the interaction between supply and demand. An increase in the supply will result in a decrease in prices; and a rise in demand will result in higher prices. Both of these statements are true, but only under specific conditions. This is where the concept of ceteris paribus raises its ugly head.

Changes in various other factors also influence prices. For instance, if consumers’ spendable income decreases, they will not pay more for a product. In most cases, economists and other commentators forget the ‘all other factors being equal’ part of the statement. Currently, commentators address the foot-and-mouth disease (FMD) issue as if the supply side is the only factor influencing prices.

THE FMD SHOCK