2.3.1 What do prices do?
Prices are signals are sent between two (or more) participants in the food system.  The
participants in the food system include input producers and suppliers, farmers, marketing
agents (rural assemblers, transporters, millers, packagers, wholesalers, and retailers), and
consumers.  Prices, in the purest sense, indicate value that has been added to a particular
commodity.  This value added can be changes in the form (e.g., production or milling),
place (e.g., transportation), or time (e.g., storage) of a commodity.  Price signals can be
complex to understand as they carry information about cost of production, transportation,
storage, perceptions, desires, and distortions.  For the purpose of early warning
monitoring and analysis, prices primarily perform the following functions:
Prices express value of commodities
The determination of the price is made
through the interaction between producers (the supply side) and consumers (the
demand side).
Prices inform us of the level of the supply of commodities in a market
As the
amount of a commodity decreases in a market, the price of that commodity tends
to increase (if it is allowed to fluctuate without intervention).  A large increase in
a price can be a signal that indicates that there is a decline in the amount of food
for sale in that market.
Prices inform us about perceptions about how people involved in trading these
commodities perceive future supply and demand
Although prices do contain
information about the volume traded, cost of production, storage, and transport of
commodities, expectations by market participants can also influence the level of
prices (up if there is a perceived future shortfall and down if there is a perceived
Prices act as either an incentive or disincentive for trade
Prices, and more
specifically relative prices, provide encouragement (or not) for people to enter
into the market for trade.
Prices act as incentive or disincentives for production
It is important to monitor
prices at planting time to assess whether prevailing prices will act as incentives or
disincentives to producers.
Prices are influenced by many factors, including supply and demand for specific
commodities, the structure of the food system, government policy, and the macroeconomic
environment.  The classic relationship between supply and demand for agricultural products
is generally observed for most staple commodities. When there is an increase in supply of a
commodity (and the amount of that good that is demanded remains the same or decreases),
the price tends to decrease.  When there is an increase in the amount of the demand for a
commodity (and the amount supply remains the same or decreases), the price tends to

New Page 1

Home : About Us : Network : Services : Support : FAQ : Control Panel : Order Online : Sitemap : Contact : Terms Of Service


Our web partners:  Jsp Web Hosting  Unlimited Web Hosting  Cheapest Web Hosting  Java Web Hosting  Web Templates  Best Web Templates  Web Design Templates  Interland Web Hosting  Cheap Web Hosting  Filemaker Web Hosting  Tomcat Web Hosting  Quality Web Hosting  Best Web Hosting  Mac Web Hosting


Virtualwebstudio. Business web hosting division of Vision Web Hosting Inc. All rights reserved

Cheap Web Hosting Package