Milk Crisis
COMMENTARY: Brussels and Berlin Move to Ease Milk Crisis
The article in consideration deals with the decrease of the price of milk in Belgium, Germany and France. The prices have decreased due to the overproduction of milk.
Overproduction caused the prices to drop radically, and it poses the threat of driving the farmers out of business, as they are forced to sell the milk at a price which is lower than the cost of production. They organized many across the European Union. They want the governments to lower the quotas on milk. A quota is imposed by the government; it is a limit to the physical product that can be produced. The milk quota is currently increasing by 1% a year and will likely be completely abolished by 2015. Imposing lower quotas will increase the price and therefore decrease the demand. The effect of lowering the quotas is illustrated by the diagram below.
The pink shaded region represents the total revenue of the farmers with the current quota (TR1) and the orange shaded region represents the possible total revenue if the quota were decreased (TR2). The total revenue is the total receipt of a business. It can be calculated by multiplying the price with the quantity. (Since I don’t have the price and quantity numbers, I used the lengths of the sides of the TR box in cm to calculate the TR)
The immediate increase in revenue with a decreased quota is very low. However, a lower quota would cause the prices to rebound in a long term, so the farmers would no longer be in danger of going out of business.
However, the agricultural commissioner refused to lower the quota on milk. Instead, she suggested that the farmers will be given a higher subsidy, and that they will also be paid two months earlier. A subsidy is an amount of money given to a business by the government to decrease the cost of production. This will, however, further increase the overproduction of milk. The diagram below illustrates the effect of subsidizing the farmers.
The
The article in consideration deals with the decrease of the price of milk in Belgium, Germany and France. The prices have decreased due to the overproduction of milk.
Overproduction caused the prices to drop radically, and it poses the threat of driving the farmers out of business, as they are forced to sell the milk at a price which is lower than the cost of production. They organized many across the European Union. They want the governments to lower the quotas on milk. A quota is imposed by the government; it is a limit to the physical product that can be produced. The milk quota is currently increasing by 1% a year and will likely be completely abolished by 2015. Imposing lower quotas will increase the price and therefore decrease the demand. The effect of lowering the quotas is illustrated by the diagram below.
The pink shaded region represents the total revenue of the farmers with the current quota (TR1) and the orange shaded region represents the possible total revenue if the quota were decreased (TR2). The total revenue is the total receipt of a business. It can be calculated by multiplying the price with the quantity. (Since I don’t have the price and quantity numbers, I used the lengths of the sides of the TR box in cm to calculate the TR)
The immediate increase in revenue with a decreased quota is very low. However, a lower quota would cause the prices to rebound in a long term, so the farmers would no longer be in danger of going out of business.
However, the agricultural commissioner refused to lower the quota on milk. Instead, she suggested that the farmers will be given a higher subsidy, and that they will also be paid two months earlier. A subsidy is an amount of money given to a business by the government to decrease the cost of production. This will, however, further increase the overproduction of milk. The diagram below illustrates the effect of subsidizing the farmers.
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