1.The grain market industry refers to both producers of grain as well as the companies that process the raw grain into other goods, services and products. These processors include the major food companies like Kellogg's, Unilever, Proctor & Gamble, Wal-Mart and other major consumer brands. Grains include a wide range of crops, some of the major ones being wheat, rice, barley, corn and rye. These grains are processed into a wide variety of consumer product like cornflakes, oats, grits and beer as well as hundreds of other products. The cost of the raw material (grain) plays a major role in the price of the end product, however other factors and elements in the process also have a significant impact on the product price. These factors include:
- Transportation and fuel costs – these are supply chain incidentals which include the cost of getting the grain from the farm to the processing centre and ultimately to the consumer.
- Packaging cost – This is the cost to bag, brand, and label or pack the product either for wholesale or retail.
- Human resource cost- This is the cost that is incurred during the processing or manufacture of the product. It includes the wages of the workers and any other overhead like health insurance, taxes and other incidentals.
Ultimately all these costs are factored into the price of the end product and passed on to the consumer. So a change in the price of the raw material may change the price of the end product but so to will a change in the cost of some of the other factors outlined above.
2. Generally speaking the price of a resource (input) is directly related to the price of the end product or service. This is especially true in the grain industry as any increase in the price of grain results in an increase in the price of the processed end products. This occurs because the increase of the price of the raw materials (grain) makes it more expensive for the processors and manufacturers to obtain the raw material (grain). The market makeup is also important in determining pricing, some factors that can influence the market makeup include:
I. Number of suppliers – The more suppliers the better because this leads to increased competition and therefore better pricing for the purchasers of the raw material, as suppliers try to compete for market share. On the flip side if there are a limited number of suppliers or in some cases only single sources of supply, then the end users are severely limited in options and the supplier is able to charge a premium.
II. Industry organization and Government regulation – The price of the raw material could also be affected by government and industry subsidies. For example U.S and European farmers receive billions of dollars a year in government subsidies this helps keep the overall price of grain stable.
III. The closest relationship would be between the raw material industry and the housing industry, as both industries are influenced by consumer as well as market supply and demand. To explain the relationship further, houses are built according to the demand for them on the market. Conversely, the production of grain is determined by the expected demand for consumption of the grain. Both housing construction and grain production are determined by one key factor, which is the availability of land.