February 28, 2009

Uganda's food scramble

According to reporter Sylvia Juuko, rising prices of food in Uganda are causing consumers to eithr cut their habits of eating lunch out entirely, or significantly reduce them. She's entirely right in her analysis, giving decent logical reasons for consumer's radical change in eating habits in response to a dry season for growing foods eaten regurlarly in their diets. However, Sylvia's article could benefit from a whole plenty of information contained behind the scenes.

Sylvia begins her article by telling readers about how the dry season in Uganda led to a rise in the price of food. Mostly covering all of her bases, she resons that this rise in the cost of food caused restaraunts, specfically popular spots for lunch out during a typical work day, to either increase the cost of their meals or decrease the amount of food they serve to customers. In response, she says, business men and women have radically economized on eating out- packing lunches or going to the supermarket down the street. Basically, Sylvia does a great job of telling readers about how supply and demand interacted in the market for lunch out, but she doesn't give any premises or reasons to justify her logic. Deeper economic analysis, or a look at an economic model would've provided her with just the reasons she needed to support her arguments.

In the article, Sylvia justifies her reasoning with quotes from Ugandan business men and women who were forced to economize on eating lunch out during a busy day at work, and those restaraunt and grocery story owners who feel like they've gotten a raw deal from both the rising costs of food and a huge drop off in business. These words of course, logically perfectly justify what happened; obviously if someone testifies to it, that must be great evidence for it happening, right? But, little does the writer know, the words from Ugandans actually points us in the direction of microeconomics at work. In effect, Sylvia has failed to tell us why Ugandans responded the way they did to the market.

The dry season would've indeed caused the price for food to restaruant owers to increase. Food distrubuters, to make up for their losses from the season must increase the price they charge for food to restaruants. In response to being charged more for food, restaruants, to make up for the lost profit, carry that price over to their customers. None of this should seem terribly surprising, and worked in exactly the way Sylvia described, mostly. Models tell economists that the dry season caused supply to decrease, shifting the supply curves in the market for prep food and restaruant food upwards. What this says that Sylvia doesn't tell us is that resturaunt owers must also have decreased the amount of food they prepare- the increase in costs of production reflects this. Things get interesting when we examine more closely the radical response consumers held to an increase in the price of eating out. Sylvia gives quotes from extremely disenchanted Ugandan consumers. They complain that they've had to economize enormously on eating out. Some decided to bring lunches to work and stop eating out entirely. Others went to the supermarket to find cheaper prices. Some consumers traded eating out on some days and bringing lunch on others. What does all of this tell us about consumer's preferences? Their demand for lunch out must've been extremely elastic, with an elasticity far below -1, maybe even far enough to halt consumption completely. Those consumers that did halt completely probably had perfectly elastic curves. An easy accsess to cheaper substitutes also caused them to find cheaper food. The increase in cost of eating out was just perfecltly too much for businessmen and women, with their heavy schedules, high dollar value for time and the existence of cheap super markets down the street. What Sylvia didn't capture in her analysis was this detail- income and substitution effects working in the same, negative direction to have a huge impact on consumption. Consumers ate out less and made their own food more. Plus, their budgets just couldn't handle a price change of that degree; consumption of luch out decreased even more. The author's analysis could've been enriched with this look behind the scenes.

Lastly, what Slyvia didn't focus on was the postive impact that had to have occured on supermarkets and other marginal food sellers from the increase in price. Since consumers substituted so much of their own food for food ate out, supermarkets and cheap fast food would had to have experienced an increase in profits, even with the higher cost of prep food. In the end, its the marginal foodsellers who truely get the good deal.

Although Sylvia's logic was sound and her examples supported it well, we can see that so much more happened behind the scenes in Uganda. Radical changes in individual preferences and higher food prices all worked to explain the events she describes.

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