Economics Ia

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Name:  Paul Maillis

Commentary Number: 1

Due Date: April 20th, 2012

Source: WallStreetJournal, “Norway: Embarrassed By Butter Shortage”, (December 19th, 2011), http://blogs.wsj.com/source/2011/12/19/norway-embarrassed-by-butter-shortage/. Accessed on 20th March, 2012

Word Count: 743

Section: 1, Microeconomics

The Norwegian Butter Crisis was caused by excess demand and a lack of supply in the Norwegian butter market. Figure 1: Demand & Supply Curves for Butter
Figure 1: Demand & Supply Curves for Butter

Because of trend for more butter in cooking, and Christmas season Because of trend for more butter in cooking, and Christmas season

Supply curve during shortage
Supply curve during shortage

Because of bad season for dairy and overconsumption
Because of bad season for dairy and overconsumption

Supply curve before shortage
Supply curve before shortage

Price of Butter (€)
Price of Butter (€)

Demand curve during shortage
Demand curve during shortage

Demand before shortage
Demand before shortage

Quantity of Butter (Tons)
Quantity of Butter (Tons)

Figure 1 indicates there was a sudden demand increase for butter due to the Christmas season, which universally signifies an increase in butter consumption. In Norway, butter is a staple food which is used heavily in native cuisine. To add to the demand boom during the Christmas month (December), a popular Norwegian Chef had been emphasizing the movement to make proper food with real butter. Norway’s largest dairy co-operative Tine, blames a combination of bad weather and higher demand arising from the popularity of the low-carbohydrate diet craze. This “low carb” diet fad caused people to eat fewer carbohydrates and more trans-fat foods, which include butter. This changed people’s preferences, which leads to an upward shift in the demand curve, as indicated by Figure 1. Demand for butter rose by 30% that year and prices of over $100 per pound of butter. However, the problem was not so much excess demand for butter, but more about its shortage in the market.

As shown in Figure 1, the supply of butter was affected negatively and dramatically. The graph shows a shift in the supply curve upward and to the left, indicating a decrease in the quantity of butter supplied. The dairy farmers (who raise cows for milk, the main ingredient in butter) blamed Norway's largest dairy co-operative Tine, for not informing them early enough about higher demand quotas, and for sending product overseas even as a domestic shortage loomed. Tine had a monopoly on the domestic market and deliberately sheltered it from foreign competition as a matter of public policy. Additionally, the Norwegian government imposed high taxes on butter imported to Norway, thus countries like Denmark had been unwilling to supply the country with the butter it needed. Coupling the failure of Norway’s market structure that allowed such a shortage to occur, Norwegian cows were not producing enough milk to domestically supply the market. Compared with the previous year, Norway’s cows produced 20 million fewer litres of milk that year. The wet summer resulted in poor-quality and low quantities of animal feed, which adversely affected milk production. Milk is the most important and substantial raw material required for the production of butter, and without it, there was no way the market could cope with the high demand. So, a combination of natural determinants, monopolies and taxes led to this crisis.

Figure 2: The Shortage and Black Market for Butter
Figure 2: The Shortage and Black Market for Butter

Supply curve for butter1
Supply curve for butter1

Supply curve for butter
Supply curve for butter
Black Market Price for Butter
Black Market Price for Butter

Pe1
Pe1
Top Price
Top Price

Butter Shortage
Butter Shortage

Pe
Pe
Price of...
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