Unit 10 Exam style paper 1 page 141

Question 1)

a) The needs being satisfied by D&F Ltd are supply in bulk of fruits and coffee for retailers which then will sell that for mass consumers.

b) Falling price of coffee.

Reason 1: excess supply because of a decrease in demand since it´s not a healthy beverage

Reason 2: excess supply because of a an increase in the world supply since it might have been a record harvest because of better weather conditions than usual.

c) Reason 1: their customers are demanding more fruit which is a key component of a healthy diet which is a growing trend even promoted by the government with specific policies.

Reason 2: since globally the demand is increasing specially from developing countries with higher incomes, now the supermarkets will be facing more competition when they purchase to the farmers. Therefore increasing demand speculating in further increases in prices is a sensible decision for them.

d) Option 1: specializing themselves in the production of the most demanded fruit or the most expensive one, finding new niches in this big market. So that its revenue will increase together with its marketshare.

Option 2: adding value by packaging with extra information about the better processes of D&F compared with competitors in terms of environment care, biochemicals used, how fresh are their fruits. So that they could increase their prices, because now they are selling a higher quality diferenciated product focusing on that segment. At the same time they could keep on selling to the mass market segment the fruit which may be is not aestetichaly the best like before.

e) D&F Ltd specializing in the production of more fruit and no coffee:

Advantages:

-Since they will be focusing in this market only, now their accuracy in terms of decisions on which fruits to grow, which techniques to improve (when harvesting, managing pests, irrigating plants, managing weeds,etc.) will decrease more the costs of production and will improve the yield of their fruits.

-The trend of healthier diets for higher income households both in the developed and developing countries could easily continue and even increase, therefore the long term price should be increasing.

-Another trend that could continue is that the harvest of these fruits is seasonal and labour intensive, plus the fact that the world population is growing together with more capital intensive production in extensive agriculture and manufacturing industry, then the labour cost for D&F will keep in the long run not increasing.

Disadvantages:

-They will face more risk because usually the changes in prices in both markets depend on different factors (changes in income, in trend, in technology, in climate), so taking world prices for both markets usually spread the risk. Usually the bad years of coffee will alternate with the fruits ones.

-Another fact is that coffee consumption is connected with wants, cultural and social reasons plus its addictive consumption, therefore is highly probable that its demand will increase in the long run. So sales will never shrink in the long run.

-Something else wich make coffee production more interesting than fruit is that its storage cost is lower and is cheaper to keep it safe and fresh without selling it. Therefore is easier to wait to sell always that you face lower prices than expected.

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