Relationship Between Macro Environment And The Demand For Dairy Product

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BUSS 5001 Case Analysis 1

Introduction

This article basically discusses the relationship between macro-environment and the demand for dairy product. It will be presented by clarifying the following four questions.

Q1: Describe the relationship between the performance of the macroeconomic environment and the demand for dairy products.

To begin with, the demand for dairy products are influenced by several factors, for example, the price, price of substitutes, income and demographic effects (Heien and Wessells 1988). Excluding the population factors, the other factors could be affected by macroeconomics. According to Erten and Ocampo (2012), the commodity prices are related to the situation of the macroeconomic. Also, the income
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Take China as an example, the high economic growth, coupled with the urbanization process results in the demand of food, including dairy product grows strongly (Gandhi and Zhou 2014). Higher demands pull up the price. Gradually, when the macroeconomic is slowing down, correspondingly the demand of dairy products will decrease. Therefore, the link between the performance of the macroeconomic environment and the demand for dairy products is cyclical.

Q2: Describe the performance of key economic indicators in the Chinese macroeconomic environment over the last 3 years.

The economic growth slowed down in the past 3 years. The GDP growth decreased from 7.76% in 2013 to 6.9% in 2015. At the same time, as a big contributor to the total GDP, the proportion of the second industry decrease, while the tertiary industry replaced the first place and accounted for 50.5% (National Bureau of Statistics of China 2015), indicating that China is trying to change its economic structure. Besides, the CPI figure shows a steady decrease, while the disposal income gradually rises. In brief, the performance of the economic indicators shows that the economy of China is slowing down.

Q3: what will likely be the Chinese economic policy response (fiscal and/or monetary policy) and how do you expect this will affect the short term outlook for the Chinese economy and the demand for dairy products?

Given the recent economic performance, China may pursue a proactive fiscal policy in order to
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