18/11/2012 § Leave a comment
Click away for information on Japan’s rice and China/India biotech.
This here is the Japanese Rice Spending one from September:
Using diagrams, as appropriate, describe the methods used by the Japanese government to protect Japanese rice farmers.
- This uses concepts from chapter 4 (government intervention) and chapter 5 (price floors/ceilings).
- The government provided subsidies to support the rice farmers’ incomes.
- Okay, so the demographic changes in Japan are causing a decreasing demand of rice in general. Aging and declining – we’re losing people…?
- Okay. Because of this, rice is stockpiling – Japan has a lot of rice that isn’t being used and is being hoarded. Having the rice available there keeps the price up. Not sure how that works, though.
- The whole ordeal is threatening to put local Japanese rice farmers out of business. They lose money, won’t have enough to feed themselves and their families, and Japan’s rice-farming workforce dies out or heads under the poverty line. To avoid this and to take care of its people, the Japanese government reduces some of the farmers’ load by providing them with a subsidy that will take care of their income – because if they’re not selling anymore rice, how else are they going to get money?
- Also, the government is rewarding – well, increasing the pay – of farmers who switch from farming rice paddies to farming crops for other uses, like animal feed. This will reduce the production of rice so that none of the future productions will go to waste.
- There is a price floor that tries to keep the rice at a certain level. Japan must stockpile rice as a part of the buffer scheme stock (for its oil and agriculture goods).
Explain the reasons for the decline in demand for rice.
- Demographic change: population is aging and declining
- With the population aging, most of Japan won’t be eating as much rice – no families, just old people who don’t need to eat as much as younger people
- When we say “old people,” we mean a LOT of old people because the baby boom generation from a few decades ago are now taking over Japan
- Okay, we’ll touch upon this again that people are not having sex and not making babies and aren’t helping to increase the population of Japan – this totally decreases the demand for rice because with babies comes a family and with a family comes a larger demand for food and food equals rice!
With a declining population, there just isn’t as much need for any good but because rice is a staple food in Japan, there is then a decrease in the demand for rice with not as many people
Analyse the advantages and disadvantages of these subsidies for (a) consumers, (b) Japanese rice farmers and (c) overseas farmers.
Adding subsidies will end up becoming a disadvantage for both the consumers and producers. For the producers, the subsidy will drop the price of rice and, following the law of supply, producers (in this case, Japanese farmers) will lower their supply while consumers will increase their demand (following the law of demand). This causes a shortage of rice and may cause consumers to stop purchasing rice. Eventually, the demand for rice will drop because there isn’t enough supply to satisfy the demand. This subsidy will prove to be a disadvantage for the Japanese rice farmers (suppliers) because of the shortage. Overseas farmers might find this as an advantage because while the subsidies are hurting the local Japanese rice farmers and the local rice, they aren’t affecting the rice from overseas. Despite the government-placed tax, there’s still a supply of overseas rice that are available to the consumers in Japan and it because an option for them to purchase instead of local rice.
Evaluate one other strategy that the Japanese government could use to protect the income levels of their rice farmer.
If the government’s price floor doesn’t work, the governments’ tariffs (on bread, for example, because it is a substitute good to rice) will cause a loss in income – it is money that could have gone to something more useful. The Japanese government can consider maintaining its market size in the first place because the decreasing market size is what causes the decrease in profit when there is less quantity demanded. Governments should give farmers a natural market incentive, in which the farmers that remain in the farming market (though agriculture is a difficult employment), they will be convinced to stay for the profit. The abandoned land will be sold cheaper to the farmers that remain, making the cost of production cheaper, therefore increasing the profit.
And this is the China and India biotech one from September/October:
1. China and India produce how much of the active ingredients in drugs produced worldwide?
- China and India produce more than 80% of the active ingredients in drugs sold worldwide.
2. Non-communicable diseases cause 66% (two-thirds) of all deaths worldwide.
3. Cipla, an Indian drug firm, can produce a cocktail of medicines to treat AIDS for how much more cheaply than a branded pharmaceutical company? How many people benefit from this patent loophole?
- The price has fallen from $1 per day to 20c per day; now more than six million people can receive treatment – they all benefit, compared to 2000+ in 2001.
4. Cipla is now building a new biotech factory with a Chinese partner. What is the cost savings for these cheaper biotech drugs for a patient (or health provider)?
- Chinese partner: BioMab. Cost savings for cheaper drugs –> $165,000,000 (165mil.)
5. How do patents work in ensuring investor return (profit for taking a risk)?
- Patents generally provide inventors rights to 20 years of exclusive sales. No one else can sell that … thing. That good/service. All profits go to them and no one else has the right to use it lest they get sued/thrown into jail/face legal consequences.
6. How important and how much does Roche earn from its drugs to treat non-communicable diseases like cancer and diabetes?
- Roche [Holding Ltd.] earns $19 billion annually by selling Rituxan, Avastin, and Herceptin (all cancer and diabetes drugs). These cancer and diabetes drugs are important to the company’s (Roche’s) survival because with these goods, they can earn half of its annual sales.
7. Explain your position if you were a Mexican government official thinking about importing “counterfeit” (patent violated) biotech drugs from India and/or China.
- You would want to buy the counterfeit drugs because they’re so much cheaper and won’t require $120 million a year from your budget. But then you have to decide if they’re going to spend more on counterfeit drugs or build more schools, roads, etc. The plus side of this situation is that Mexico would be able to purchase cheaper drugs to distribute amongst its people. On the downside, the rest of the world that is part of the pharmaceutical market – parts of the world that produce non-counterfeit, real, and expensive drugs – will be angered as they are impacted negatively because of these new counterfeit drugs. Mexico use of these drugs will definitely anger the rest of the market that produces the real drugs.
8. Explain Roche’s and/or the US (or Switzerland’s) position regarding patent violations.
- Roche, regarding the patent violations, is at a disadvantage because the new biotech drugs that India and China have been making are the acts of freeloaders. Roche and other heavy-making, real, expensive drug companies find this situation unfair for their profits and their production because they put a lot more time, effort, and resources in making their drugs. Consider how much Roche’s profit decreases because their production costs have significantly risen – the decrease in profit guarantees that they can’t cover their production costs as much as they used to. At the same time, their entire market has shifted as people with a smaller income have decided to move to use the cheaper, more easily attainable drugs from China and India.
9. Do you agree that “deaths from cancer, diabetes and other noncommunicable diseases as [are] less of an emergency and, in some cases, the inevitable consequence of better and longer living”?
- Yes, I do, to both questions, jefe. Noncommunicable diseases are indeed less of an emergency than injuries from fatal accidents or actual life-threatening conditions but should still be treated appropriately – cures must still be found for noncommunicable diseases. I also agree with the latter statement that noncommunicable diseases are the “inevitable consequence” of better and longer living.
10. Evaluate the choices: what should the UN or any inter-governmental body decide when it comes to biotech drug patent violations? Is it good, on the whole, for people to have greater access to cheaper drugs or for innovators to be rewarded for their risk-taking and huge investments (human, capital, land, entrepreneurship)?
- The positive thing about having cheaper drugs is that the people who have a smaller income now have a better chance of buying the drugs to treat their respective diseases and increase their life span – which is an obligation all citizens hold. The cheaper drugs, despite who makes them, means that the market has expanded for those drug producers, but more importantly, that more people are both willing and able to buy the drugs. The negative thing about having the cheaper drugs is that the drug makers will lose incentive because their profits are already high (low production cost = larger profit). This defies the purpose of scientific advancement, wherein scientists constantly improve the medicine and technology they already have. If scientists don’t continue to improve medicine, drugs, and scientific knowledge/information/technology, then where could we possibly stand in the next twenty years?
NEXT STEP: How to write a commentary and Data Response
A. What are the economic concepts applicable to the extract (article)?
- Taxes are price controls installed by the government to maintain control and to ensure that the producers are not being played (or are still receiving profit – in order for the production flow of that particular product to remain high or at the point that its at) and that the consumers are still supplying the market with money. Patents are like legal IDs or claims that companies can use to make sure that their inventions remain THEIR inventions and legally cannot be used without their permission. This gives their product a reputable and distinguished reputation; sort of like a brand. The patents help to ensure their identity and to highlight their company amongst all the others. An externality is the consequences a third party undergoes because of a transaction between a supplier and a buyer – externalities (of production and of consumption) can either be positive or negative. Positive externalities are beneficial to both the third party and to society. An example – education. Negative externalities are obviously the opposite – they are negatively consequential to the third party and to society. An example – smoking. Market failure in the most simplest of terms is when the allocations are not being distributed properly or fairly.
B. Which diagrams could you use to explain those concepts? (2 diagrams if possible)
- Supply and demand diagrams; things that show what happens to supply if patents are enforced. These diagrams can show what happens when taxes are employed onto the drugs, or the effect of the decrease in demand for the original pharmaceutical companies after the new companies start hitting the markets.
C. Analyze the stakeholders (who would win/lose).
- The large, cheaper biotech companies in India and China would first be winning, as they seem to be doing right now, but then after a while, they will lose because of the patents that protect the original companies. The large pharmaceutical companies would be doing this opposite – they’d be losing, as they are doing so now, but their patents will kick in and kick OUT the counterfeit companies. The Mexican citizens will win from the initial supply of cheaper drugs but once the larger pharmaceutical companies’ patents kick in, the lower-income Mexican citizens will once again have to refrain from buying any drugs at all. The Mexican government loses and is affected negatively because people will get desperate and may start crimes, stealing the drugs, just to give it to their family or someone ill.
D. Evaluate your options (possible solutions). What are the benefits/costs?
- The best option would be the one that would convince scientists to continue innovating despite the cheaper prices. If they can pull off new innovations in drugs and medicine (that people need) at a cheaper price, a long term project like that would benefit society. Society would benefit because scientists would continue to innovate science and medicine for the future of the people (and the government). Right now, there will be many deaths of people who can’t afford the medicine, then the short run will decrease that amount because the medicine gets cheaper, but the long run, after the patents work their magic, the death rate will start to rise again because the medicine is getting expensive again. Patents are what will get the large companies through this situation and what might ensure that scientific research and medicinal advancement stays intact in the long run.