Economics

📋 MAIN DETAILS:
Answer the following questions. Some questions require research, and some questions
require drawing graphs. You can draw the required graphs by hand and submit photos of
them separately, or include them in your document with the rest of your answers.

1 Be sure that all your graphs are clearly drawn and accurately labeled. 
Assuming that the market for quinoa is perfectly competitive, draw a side-by-side graph
showing the market and the individual farmer in long-run equilibrium before quinoa became
popular outside of Bolivia and Peru.
On the same graph, show what happened in the market and for the individual farmer once
quinoa became more widely known and preferred.
Finally, show on the same graph how the market will adjust in the long run.
Clearly indicate changes to the market price, profit for the individual farmer, and the quantity
that maximizes profit.

2 Compare and contrast what your model from #1 predicts and what actually happened to
farmers in Bolivia and Peru according to the article from The Economist.
That is, what happened to the market price after quinoa became more widely preferred, and
how did this affect the individual farmers in Bolivia and Peru?
Then what happened (or was predicted to happen) as the market adjusted?
Do these results match what is shown in your graph?

3 What do you think farmers in Bolivia and Peru can do to maintain long-run positive profits
in the market for quinoa?
Be specific and realistic, considering their available resources and technology.
Cite sources used if any.
Now read "Big agribusiness wants to make quinoa more mainstream Links to an external
site." from The Economist and answer the following questions.
4 Based on this article, is the market for quinoa perfectly competitive? Explain.
If it is not perfectly competitive, which market structure is most appropriate for the market for
quinoa?
5 Is the market for quinoa currently in a long run equilibrium? Explain.
If it is not in a long run equilibrium, what changes are happening in the market to move it
towards a long run equilibrium?
6 Based on this article as well as the “Against The Grain” article above, evaluate how
changes in the market for quinoa have affected the original Andean farmers.
In what ways have the farmers benefited from the changes?
In what ways have they been harmed?
Overall, do you think the changes are positive or negative?30 minutes for graphs

https://www.economist.com/finance-and-economics/2016/05/21/against-the-grain

May 21st 2016

IS THE global fad for quinoa a bane or boon to the peasants of the Andes?

For centuries they were more or less the only people to grow or eat the stuff. Dieticians in the rich world
have known how nutritious it is for a long time: in 1993 a study by NASA, America’s space agency,
stated: “While no single food can supply all the essential life-sustaining nutrients, quinoa comes as close
as any other in the plant or animal kingdom.” But it took adulation from the likes of Oprah Winfrey (who
in 2008 included it in her 21-day “cleanse” diet) to give the grain global appeal. Now, wherever yuppies
can be found, it can be too, usually lurking near Puy lentils or goji berries in a salad. The UN even
branded 2013 the International Year of Quinoa.

As demand galloped ahead, supply could not keep pace. So between 2000 and its peak in 2014, the
average price of quinoa exports from Peru and Bolivia more than tripled, to $6-7 a kilogram. That
panicked the Guardian, a British newspaper, among other hand-wringers: in 2013 it ran the headline
“Can vegans stomach the unpalatable truth about quinoa?” It accused heedless Western hipsters of
pricing poor Andeans out of their staple food. Given that 16% of Bolivians and 7.5% of Peruvians are
undernourished, according to the UN, that is a serious charge.

Happily, the food fadsters are not guilty. Although average quinoa consumption in Peru fell as quinoa
prices rose, it did so steadily, and much less abruptly, than the movement in the price. This suggests that
the switch was as much to do with changing preferences as prices. Young Peruvians are keener to
indulge in food fads of their own—for more Western food—than to gorge on their grandparents’ staple.

Not so keen on quinoa

In any case, only a tiny portion of Peruvian household spending is devoted to quinoa. In
countries like Bangladesh, Malawi and Vietnam, sharp increases in the price of staple foods can
plunge the poor into even deeper poverty, as they often spend more than a third of their income
on them. But a study by Andrew Stevens at the University of California found that quinoa
accounted for a mere 0.5% of household spending, on average.

For farmers, meanwhile, higher prices meant higher incomes. Peruvian and
Bolivian quinoa-growers need all the money they can get. Before the boom,
many were barely scraping by. Another study, published in March, found that
the total household spending of the typical quinoa-growing family (including
consumption of their own crop) was only 40% of that of the typical quinoa-
consuming family.

Surging prices helped lift quinoa farmers’ household expenditure by 46% between 2004 and
2013 (compared with an increase of around 30% for non-producing households). Better still,
even households that did not produce quinoa enjoyed a boost to their consumption. It seems that
by spending their newfound income, flush quinoa producers benefited the local economy more
broadly. For every 25% increase in the price, household consumption increased by 1.75%.

Although concerns for the poorest Peruvians were misplaced in 2013, there may be cause to
worry now. The high prices of 2013-14 prompted many more people to start growing quinoa,
from entrepreneurial Bolivian taxi drivers to large agribusinesses. European farmers got in on the
act, too. Quinoa is now grown in around 50 countries, according to James Livingstone-Wallace,
founder of Quinola, a quinoa supplier.

That means a lot more supply: the combined volume of quinoa exports from Peru and Bolivia to
the European Union rose by 227% between 2012 and 2015. Prices, naturally, have plummeted—
by 40% between September 2014 and August 2015 alone. Following that drop, wages in the two
regions that had traditionally produced the most quinoa fell by 5%, and total food consumption
by 10%, according to a new report from the International Trade Centre, a development agency.

The same study suggests that many Andean farmers are hoarding quinoa, in the hope that prices
will rise again. But European farmers are doing the same, according to Freek Jan Koekoek, a
consultant. In other words, there is a real chance that prices could fall further, as farmers despair
and sell their stocks.

If that happens, the marginal producers likely to be pushed out of business by the glut are the
original ones: poor Andean farmers. They grow quinoa because little else thrives on their steep,
barren plots. Their new competitors, tilling better soil with modern farming equipment, manage
yields that are up to eight times higher. An ox takes six days to plough land a tractor can handle
in two hours, explains Mr Livingstone-Wallace. “With their current methods, it’s unlikely they’ll
be able to compete on price,” he says.
The “Fairtrade” price of quinoa (which is meant to correspond to the minimum required to give
farmers a decent standard of living) is around $2.60 a kilo; the current market rate is less than $2,
suggesting that Andean growers are already struggling. The idea that the Andes might cease to
be the world’s main source of quinoa is not far-fetched. The potato, after all, originated there, but
now 15 other countries, including Bangladesh and Belarus, produce more potatoes than Peru
does.

Yet Peru still produces around 4,000 varieties of potato, which foodies are trying to brand and
market to Western consumers. The main hope of Andean producers is to carve out a niche in the
market with their authentic, organic, “heirloom” quinoa, appealing to the same consumers who
were warned away back in 2013.

This article appeared in the Finance & economics section of the print edition under the headline
"Against the grain"

Big agribusiness wants to make quinoa more mainstream

Traders hope that reliable domestic supply will entice foodmakers to use more of the crop as an
ingredient in processed snacks

mid growing appetite in the West for healthy food, the un declared 2013 the International Year of
Quinoa. Exports boomed out of Bolivia and Peru, the two largest producers. Prices tripled to $4,800 per
tonne; organically grown stuff fetched $6,800. Poor Andean farmers who are the grain’s traditional
custodians benefited. Protein-rich profits also lured Big Agribusiness. Intensive farms sprang up in South
America’s fertile coastal plains. By 2015 supply topped 228,000 tonnes—and outstripped demand.
Prices collapsed. Sales to America, the largest importer, have been flat. Traders’ margins have fallen by
almost half, to 6% or so. Four out of Peru’s five leading exporters have gone bust.

This has led some to talk of “peak quinoa”. Not everyone, though. Distributors in America and Europe
think the slowdown is temporary. To help this come true, they are promoting production at home.

To be more adventurous in their use of quinoa foodmakers need a more dependable supply, says
Shrene White, general manager of Ardent Mills, America’s biggest flour-maker. Its adoption as an
ingredient in higher-margin processed food has been hampered by volatile prices and inconsistent
produce. A truckload imported by Andean Naturals, which is based in California and buys from
thousands of Bolivian farms, can contain half a dozen different quinoa varieties. These behave
differently when processed, and so are hard to convert reliably into flour or snacks.

To remedy this, last year Ardent Mills launched a unit that works with breeders and food scientists to
sponsor American growers, starting in its native Colorado and the Pacific north-west. It is eyeing
California. Andean Naturals is testing a 32-hectare site in the state. It wants, optimistically, to convert
5% of California’s 223,000 hectares of rice fields to quinoa by 2025. France and Spain already have 3,000
hectares each. Early results look encouraging. Food producers are launching more quinoa snacks, says
Ms White. Kellogg’s, the inventor of cornflakes, adds quinoa from Andean Naturals to frozen meals and
cereal bars. A Nevadan subsidiary of Kameda Seika, Japan’s largest maker of rice biscuits, sprinkles it on
its crackers. The Honest Kitchen, a startup in San Diego, uses it to enrich dog food.

Sergio Núñez de Arco, Andean Naturals’ boss, expects the market for processed quinoa (outside its
Andean home) to grow from $900m today to $2.2bn by 2025. South American exporters want a bite.
Since its first shipment to China in December, Sindan Organic, a Bolivian firm, has dispatched 700 tonnes
to the country—5% of its sales. Its boss gushes about the potential of China’s 1.4bn mouths. Health-
conscious Chinese urbanites may take to the trendy grain, he believes—especially if it comes in readily
munchable form.

This article appeared in the Business section of the print edition under the headline "Seed bump"

https://www.economist.com/business/2019/05/25/big-agribusiness-wants-to-make-quinoa-more-
mainstream