DRAMATIC RISES IN PRICE OF CHICKEN

       According to Star Online news about “Chicken prices shoot up ”dated on 8 May 2011, written by Ng Cheng Yee and Qishin Tariq , they reported that the price on chicken has increased. The price of chicken has gone up to as high as RM8.50 per kilo at some wet markets. The rising prices of chicken’s feed has caused this situation happened.

          Chicken meat is an essential food will give carbohydrate sources for Malaysian.  Due to this matter, the price of food will increase such as chicken rice, chicken satay, fried chicken and so on. Apart from that, consumer will demand more on the fish, pork duck and beef which are the substitute of chicken meat. Low income consumer will most probably reduce the consumption of chicken meat due to its price. However, chicken supplier will be happy to supply more chicken in order to earn more profit.  Surplus may exist because quantity supplied will exceed quantity demanded. In my opinion, the increase of price on chicken will definitely affect the demand and supply chain in Malaysian food market.

Essentially, when the price of chicken increase, the quantity demanded of chicken in Malaysia will decrease. In other words, a higher price will induce a reduction in quantity demanded for chicken. It has a negative relationship between price and quantity demanded. The buying behaviour will change because the consumers are not willing and not able to buy more chicken at the market price. This will cause the consumer to consume less chicken meat. Thus, there will be a movement along the demand curve and we assume that others determinants remain unchanged (ceteris paribus). A rising price of chicken will cause the demand curve move up because the price is increasing.

        We assume that the initial price is P1 and the initial quantity demanded is Q1. When the price of chicken increases, the demand curve will move upward from P1 to P2 and the quantity demanded for chicken will decrease from Q1 to Q2. The law of demand proved that when a price of good increases the quantity for the food will decrease. This is a movement along the curve.

On the other hand, the consumer will change their buying behaviour due to the income effect and substitution effect which that influence to law of demand. Consumers cannot afford to consume chicken as previously because of price increase and will therefore reduce consumption.  They will consume more chicken when the price reduces or when their income increases. Furthermore, the consumer would find a replacement to substitute chicken with other meats, such as fish, beef, pork or duck which is more affordable. When the price of the chicken increase, the quantity demanded of the substitute meats will increase. It has the positive relationship. Hence, the consumers would consume other meats because of this economic reason. Thus, the demand curve for chicken will decrease and there is a shift of demand curve. While, at the actual price, the quantity demanded of other meats will increase. This because of the substitute effect has mentioned earlier.

In contrast if the price of the chicken is expected to increase in the future so, the quantity supplied for the chicken will increase. Therefore, the supply curve will move upward. This is because the price of chicken has a positive relationship with the quantity supplied. The movement along the supply curve will exist. The producer is willing to supply more chicken if they can at least cover their marginal cost of production. This is why the supply curve is upward sloping from left to right.

At the initial price of P1 and Qd1, the S1 supply curve of chicken shifted leftward from S1 to S2. This shows that the supply is decreasing. The quantity will also decrease from Qs1 to Qs2. This is a shift of supply curve due to other determinants which is the increasing price of chicken feed.

In conclusion, price is an important factor which will inevitably affect the supply and demand of chicken. Any substantial increase in the price of chicken will result in consumers reducing consumption or consume substitute meats which are more affordable. The price increase is largely due to increase of price of chicken feed which directly increases the cost of the producers. Also, a shortage of supply exist due to disease which will indirectly cause price increase if the demand of chicken maintains. Nevertheless, price increase can be corrected when producers shift to cheaper chicken feed products in order to maintain efficiency or government intervention to bring down the price as chicken is a controlled item in Malaysia.

article excerpt : http://thestar.com.my/news/story.asp?file=/2011/5/8/nation/8642408&sec=nation       
written by : Alicia Ooi Lei Har