Although the price of quinoa in 2017 had fallen to 2013 levels, the Peruvian and Bolivian governments are somewhat concerned that the price of quinoa could dramatically rise in the near future. As...

I. Background overview of the quinoa market in Peru and Bolivia.
Quinoa is one of the most popular heathy food loaded with protein, minerals and fibre on one hand and both gluten and cholesterol free on the other. According to Food and Agricultural FAO, Quinoa can significantly contribute in eradicating the hunger, malnutrition and poverty.
According to Food and Agriculture organization, Bolivia and Peru are the two leading producers of Quinoa contributing 80% of total world production. 2013 was identified as the year of quinoa boom where the price was heavily inflated and the producers were highly benefited. As the Western national recognized the nutritional value of quinoa, the increased production has severe ill effects to Bolivian economy. Quinoa production has made significant contribution to Bolivian economy as its GDP has increased by three times in 2014 compare to 2006 and reached to $34.18 billion in 2014. But overreliance on the crop has sever disastrous consequences. A surge in quinoa price and higher profit have led the Bolivian farmers to focus more on mon cropping while abandoning other agricultural commodities. In order to boost quinoa production, farmers have significantly increased the use of chemical fertilizers, putting huge stress on arable land and enhances the risk of soil erosion. Now Bolivia government is trying to reverse the trend and encourage the non-quinoa production through offering greater subsidies to non-quinoa producers. Over dependence on only one commodity can provide substantial gain only in the short run but not in the long run. As the profitability from Quinoa production has substantially increased, other Andean nations like will also inclined to increase their production. An overall increase in global supply will cause the price to fall resulting a decline in the profit of Bolivian producers. Despite the fact that Bolivia still enjoys the dominant position in the quinoa production, there is an urgent need to open up other markets into Asia and idle east and reduce its reliance on United States. Bolivia, a shadow economy, needs to implement the suitable policies to fix the deeper problems in the economy and find out the ways how to achieve sustainable economic growth without relying on a single miracle crop. (BAJPAI, 2015)
Peru is another largest quinoa producer in the world followed by Bolivia. Poverty is a huge economic problem in Peru where half of the children are suffering from malnutrition. It has been estimated that 45% of the population of Peru have limited access to nutritious food, education and health care benefits. Due to persistence of extreme poverty and consumption of inferior poor-quality food, people in Peru are suffering from several health issues that include obesity, diabetes and arteriosclerosis. (Ayala Macedo, 2006)
Massive increase in quinoa production to meet the growing international demand has substantial environmental impact. The transformation of quinoa sector from local food to international commodity is associated with significant social and economic cost. In order to take the advantage from surge in global price, the quinoa growers in both Peru and Bolivia tends to increase the quinoa production dramatically for better returns that put serious pressure of soil fertility. (Philpott, 2013)
II. Analyse the events that led to the rise and fall of quinoa price. You are expected to produce relevant diagrams to help in your explanations, which reflects these changes and outcomes.
Quinoa has been consumed throughout Andes for long. As the consumption of this new superfood has increased sharply in US and Europe, the price of the grain has been tripled.
Increase in the global demand is one of the key factors that drives the prices up. (responsAbilty, 2017)
As per the fundamental law of demand when demand outpaced the supply of any product, the price of that product rises. Quinoa was the perfect case for this point. The global demand significantly outweighed the supply resulted quinoa price skyrocketed. According to Peru’s ministry of agriculture, the price of quinoa has increased by 500% between the period of 2005 and 2014. (Livingstone, 2018)
We can show the impact of increased world demand with the help of demand supply diagram:
Price
SS
SS’
P’
P
DD’
DD
Q’
Q
Figure: 1
Quantity of quinoa production
Since the demand for quinoa has outpaced the supply, as illustrated in the above figure I, the price of quinoa has increased from P to P’ and the equilibrium quantity has increased from Q to Q’.
During the last four years, the price of quinoa has fallen sharply. This is because of dramatic increase in the production of quinoa. Bolivia and Peru, world’s two biggest producers, only get one third of the price of what they received in 2013. While in 2013, markets were paying approximately 1900 bolivianos per quintal, now the market is only paying 600 Bolivianos per quintal. Several factors are accounted for drop in prices of quinoa. An enormous increase in world production is identified as one of the key factors for price fall. (Logan, 2017)
II. Critically discuss the 2013 impact on the economic welfare of both local consumers and producers. (Hint: what is economic welfare?).
The higher price of quinoa has vast implications to both the producers and the consumers. Higher prices lead to higher profits for the producers, thus it is beneficial for the growers. Higher price of quinoa will cause the producers surplus to rise. High price increases the competition in the market on one hand, and threatening the long-term viability of the business on the other. In order to reap greater profit, the quinoa growers tend to adopt unsustainable agricultural practices affecting the long-term viability of the business.
The economists like Marc Bellemare and Seth Gitter have published solid evidence in their working paper that price hike has provided huge welfare gain to the Peruvian communities. They have divided the households in three broad categories: one who grows and eat quinoa, one who does not grow but consumes quinoa and one who neither grows nor consumes this grain. But all three categories have shown a clear evidence of welfare gain during the period of quinoa boom. But definitely the welfare gain for the quinoa growers are greater than other two groups. The key findings of the paper is that the increased price of quinoa is associated with the welfare gain of the average household – general equilibrium effects has extended even to the non-producers. (Gitter, 2016)
Quinoa is culturally and nutritionally very important to the people of Puno, the region where 80% of the quinoa has been grown in Peru. People in Puno consume slightly more quinoa than the average household of Peru but they...