What are the socioeconomic impacts of the Onion Crisis - Essay Example

The Socioeconomic Impact of Onion Crisis The interrelationship among different players and variables in the economy facilitates the repercussion ofthe effects of one event to each of the different sectors and actors. For instance, the current onion crisis in the United Kingdom which is due to summer's torrential rains brings various socioeconomic impacts to all economic players. The most immediate impact of the destruction of onion crops is the shortage in its supply. Having been adversely affected by the rain in June and July, farmers are unable to efficiently produce this commodity.

In turn, the shortage in supply, consistent with the law of supply and demand, bids up the price of onion to unprecedented levels. It should be noted that prices went up from 1.00 to 1.50 in a month's time. The high price of onion might must that producers are benefited to compensate the low level of produce. However, this is not the case as middlemen are the ones primarily generating hefty profits by charging a high mark-up to consumers. Recognizing the huge profit opportunity in bidding up the price without affecting consumer demand, these middlemen are blamed for the sharp increase in prices.

Farmers, on the other hand, struggle with still low income amidst the high value of their commodity. The consumer foodservice industry is also adversely affected by the onion crisis. For the past years, it can be noted that more and more people are dining out which significantly bolstered the sales trend of these industry players. With the rise in the price of onion, restaurants are expected to incur higher costs of input squeezing their mark-up if they do not opt to adjust the price of their product offerings.

The onion crisis is beneficial its substitute goods. As the supply dwindles, consumer looks for alternative commodities which they can use instead of onion. It is expected that buyers will be turning to leek which is its closest substitute. In a way, it is also expected that prices of substitute will increase especially if supply is still not adequate to cover the demand from onion. Because of these, food products using leek as an input will are also expected to become more costly to consumers.

Consumers are also directly affected by the onion crisis. Being a necessity in food preparation, buyers demand is not necessarily affected by price. Thus, consumers are forced to allocate a higher portion of their income in order to cover the rise in price of onion. Noting that consumers are subject to budget constraint, they either decrease their consumption of other commodities or cut down on savings as they squeeze their allocations. When taken collectively, the decline in household savings affects financial intermediaries like BNP Paribas by limiting the amount of fund which is deposited.

Having a lower propensity to save inhibits both savings and investment in the society.