The Brazilian acai berry has been a food staple for low income families for years and a cultural symbol for generations. This berry is vital in Brazil, where it is farmed and, until recently had a relatively small market. However, after an Oprah interview the demand for acai has become an international affair. The rising demand has created a free market; however the once inexpensive food staple has become too expensive for the low income families. This report will analyse the current markets advantages and disadvantages, followed by two possible government intervention models. The examined interventions will be export tariff and price ceiling.
The acai berry is a unique fruit that mostly grows in the Amazon; this limited product is wanted all over the world. The current acai berry industry is popular but has caused price problems in the domestic market. The popularity of the acai berries caused the demand to increase drastically causing a shift in the market equilibrium. This in turn has caused the price to increase as new consumers are buying the berry seen in figure 1.
As it becomes a successful market in Brazil, the supply is increasing as new companies join the market. The shifts have caused the market equilibrium of both the price and quantity to increase; between 2000 and 2009 the price increased up to 6000% (task sheet figure). The market has grown drastically, the supply increasing from 104 874 tonne in 2005 to 115 947 tonne in 2009 (IBGE, 2008, 2010). This market is efficient and is generating a gross net income without any intervention from the Government. However as the acai berry is exported, the local consumers have to compete with higher prices.
As the berry is necessary in the domestic market, the demand curve is inelastic as seen in figure 2. The low income families are forced to spend more of their earnings on this good. This is shown as the price greatly increases and the quantity decreases slightly. It is also important to note that the Acai palm has strict conditions of where is can grow, and although the palm is ecologically sustainable the supply will not continually increase with the demand (Brondizio, 2011). This will cause further problems as the demand continues to grow, the low income families who need the berry as a staple food will be unable to afford acai.
Free markets are considered inequitable because of the lack of equality; if the government were to intervene they would promote equity. The Brazilian government could stabilise the economy and lower inflation and promote economic growth (Coglan, 2013, pg312).
The export tariff is something that the Brazilian government should consider as a possible solution. By imposing an export tax fewer companies will export acai; preferring the tax free domestic market. This will shift the supply curve to the right, causing the domestic cost of the berry to decrease as seen in figure 4. In the international market, the reduced supply will cause the price to increase,...