Shortage of Fish Supply Due to Bad Weather and Exports in Malaysia

Based on an article in the Star newspaper dated 29th of July 2012 (http://thestar.com.my/news/story.asp?file=/2012/7/29/nation/20120729181716&sec=nation), the Minister said that the supply of fish in the local market has been reduced due to the bad weather condition and approximately 55 metric tonnes of fish are being exported monthly.  Due to this shortage of fish during the festive season, he advised the consumer to find other substitute such as chicken and other type of meat.  This will cause the demand for fish not to be that high which otherwise will cause traders to increase the price of fish due to shortage. He added that the import of frozen beef from Sudan has been allowed and he is pledging more import of beef from other countries including Australia as no quota will be imposed. A temporary blockade of exports of fish will be the last resort to overcome this shortage.  I strongly agree to the statement made by the Minister when he advised consumer to go for other substitutes and pledged to block the exports of fish as the last resort to overcome the shortage of fish supply.

Fish, which is widely consumed in Malaysia, has its prices subject to the economic forces of “Demand” and “Supply” just like all other commodities that are traded.  When demand for fish increases due to festive seasons and simultaneously the supply did not increase to satisfy the increased demand due to bad weather, the Fish Market will respond by causing fish prices to rise. The situation would be made worse if the supply is further reduced with fish being exported out to other countries.  As such, traders could take advantage by reducing the supply of fish by exporting to other countries in order to increase the price, but this is against the interest of the local consumer. The Government is ready to impose a block on export if the situation gets worse in order to safeguards the local consumer.  Conversely, when the supply of fish increases, which may be due to substitution effect of consumers from fish to chicken or other meat and demand did not increase to absorb the increased supply, the Fish Market will respond by causing fish prices to fall.

Demand is what we need and wants, which we can afford to buy and plan to buy. The amount of goods that consumer plan to buy during a specific period of time at a specific price is the quantity demanded. The relationship between the quantity demanded and the price of goods is reflected in the law of demand. The higher the price of goods, the smaller the quantity demanded for the goods when other things remain the same and vice-versa. There are two main reasons why consumer reduce the quantity demanded when the price is high. First reason is due to substitution effect, whereby consumer find other goods to replace the one with the higher price. This is exemplified in the article as suggested by the Minister, where he advised consumers to switch to chicken and other meats due to the supply shortage. The second reason is due to income effect.

Diagram 1 shows a Demand Curve which is curving down as it has an inversed relationship between the price and the quantity demanded. Whenever the price of fish is high, the quantity demanded for fish will be reduced and vice-versa.  At a price of RM3 the demand is 5 tonnes.  When the price is reduced to RM2 the demand shoots up to 10 tonnes.  It shows that the quantity demanded for fish increases as the price of fish is being reduced. But, when the price is increased from RM2 to RM3, the quantity demanded for fish will drop from 10 to 5 tonnes.

On the Supply side, the relationship between the price of goods and the quantity supplied is positive.  The amount of goods that producers plan to sell in a given time period at a particular price is called the quantity supplied. The law of supply states that the higher the price of goods, the higher is the quantity supplied because suppliers can make more profits.  Hence, the relationship between the price and quantity supplied is always positive making the supply curve to curve upwards.

Diagram 2 shows a supply curve.  When the price of fish increases, the quantity of fish supplied will also increase. From the diagram, when the price increases from RM2 to RM3, the quantity supplied of fish will increase from 5 to 10 tonnes. But when the price is lowered from RM3 to RM2, the quantity supplied will drop from 10 to 5 tonnes.

Equilibrium is a situation in which opposing forces balance each other. Market equilibrium happens when the price balances the plans of buyers and sellers.

Based on Diagram 3, E represents equilibrium where the equilibrium price is RM3 and the equilibrium quantity is 10 tonnes.  In relation to the article, when the quantity supplied of fish is 5 tonnes but the quantity demanded for fish is 15 tonnes and the price is only RM2, there will exist a shortage.  In order to overcome this, the market force will push the price up and thus meet the agreeable price between the buyer and seller. Some of the consumer might withdraw from the competition and look for other substitute of fish.

Conversely, when there is surplus of fish, the price of fish will go down as traders will offer lower prices in an effort to sell their fish in stock.  Consumers, who now finds the price to be reduced will come into the market and start to increase the quantity demanded. Consumers who had earlier went for fish substitute has now started to switch back to fish and simultaneously increase demand. But when the quantity supplied is at 15 tonnes but the quantity demanded is at 5 tonnes, the market force will push down the price from RM4 to RM3 in order to achieve equilibrium. 

Therefore, I agree with the Government that it should only use the imposition of export ban when there is a permanent and severe shortage of fish supplied in order to overcome the shortage but not to the extent of causing a surplus.