May 05 2008

“Living” evidence of a determinant of demand at work in the deserts of Northern India

FT.com / Asia-Pacific / India – Camel demand soars in India

In a principles of economics course such as AP or IB Econ, we learn about the determinants of demand. I teach my students the acronym “TOEISS”, which stands for consumer tastes, other related goods’ prices, expectations, income, size of the market and special circumstances. A change in any of these determinants will shift the demand curve for a particular product.

“Other related goods” refers to the effect that a change in price for a substitute or a complement of one good will have on the demand for that good. An example might be the effect of an increase in the price of pork on demand for beef. Clearly, these two goods are substitutes in consumption, and if pork becomes pricey, consumers will demand more beef.

In an era of soaring gasoline prices, many consumers have made the switch from large, inefficient, gas-guzzling trucks and SUVs to smaller, more efficient hybrids and compact cars, a reasonable substitute for the average commuter. For some drivers, however, a hybrid just won’t meet their everyday needs.

In northern India, where farmers rely on tractors to till their arid fields, rising gas prices have made expensive tractors, dependent as they are on large inputs of fuel, less attractive to farmers. As gas prices have risen, demand patterns have shifted among farmers in the northern state of Rajasthan:

As the cost of running gas-guzzling tractors soars, even-toed ungulates are making a comeback, raising hopes that a fall in the population of the desert state’s signature animal can be reversed.

It’s excellent for the camel population if the price of oil continues to go up because demand for camels will also go up,” says Ilse Köhler-Rollefson of the League for Pastoral Peoples and Endogenous Livestock Development. “Two years ago, a camel cost little more than a goat, which is nothing. The price has since trebled…

”Market prices for these “ships of the desert”, which crashed with the growing affordability of motorised transport, are rising again as oil prices soar.

A sturdy male with a life expectancy of 60-80 years now fetches up to Rs40,000 ($973), compared to Rs5,000-Rs10,000 three years ago, according to Hanuwant Singh of the Lokhit Pashu-Palak Sansthan, a non-profit welfare organisation for livestock keepers. Entry-level tractors cost around $4,000.

Camels, the ultimate “alternative energy vehicle”. In fact, the only fuel these vehicles need is the occasional bite of grass and a weekly sip of water; talk about fuel economy!

While it may seem funny to those of us so used to the motor vehicle, animals represent a viable substitute for farm machinery in the developing world, and it is likely that as fuel costs continue to soar, more poor farmers will switch back to traditional means of tilling their soil. Water buffalo, cattle, camels, these are all substitutes for the gas powered tractor. Demand for these “alternative vehicles” will rise as fuel costs climb.

Discussion Questions:

  1. What is causing the demand for camels to increase in India?
  2. What will happen to demand for camels if the price of oil begins to fall again in the future? Explain.
  3. Do you think the camel is a viable “alternative energy vehicle”? What are the pros and cons of using a camel for farming compared to using a tractor for farming?

6 responses so far

6 Responses to ““Living” evidence of a determinant of demand at work in the deserts of Northern India”

  1. Bjorn Kvaaleon 29 Sep 2008 at 2:36 am

    As the price of oil increases, the quantity demanded for oil will decrease. (Law of Demand) The demand for camels is rising in India because the price of tractors is too high. As the price of oil increases, the price for tractors also increases because it is a complement (O in TOEISS). The farmers have a relatively small nominal income, so as the price for trucks go up, the farmer's real income will go down (income effect). Therefore, the farmers in India are looking towards substitutes, such as camels to farm their land. As the demand for camels is increasing, the price of the camels is also increasing. The camels are nearly expenditure-free after being bought. As the world is looking for the enemies of global warming, the Indian farmers have found a good alternative solution other than the gas-guzzling trucks. Camels are both cheap and "fuel-efficient."

  2. Mr. Don 07 Oct 2008 at 12:04 pm

    TIMER is the acronym that my students seem to like. I haven't discussed 'special circumstances' as a determinant, but I suppose that would just make it 'TIMERS'

    Tastes

    Income

    Market Size

    Expectations

    Related Goods

  3. Steve Latteron 07 Oct 2008 at 5:33 pm

    Our class uses TRIBE for the determinants of demand & TRENT for the determinants of Supply:

    Demand Shifters:

    Tastes

    Related Goods Impact (Complements & Substitutes)

    Income

    Buyers, number of

    Expectations

    Supply Shifters:

    Technology

    Resource Costs

    Expectations

    Number of sellers

    Taxes & Subsidies

  4. Waldemar Heinon 25 Oct 2009 at 2:19 pm

    I'll recommend this blog.

  5. Muwcieconomics's Blogon 21 Oct 2010 at 12:19 pm

    […] automobiles to alternative forms of transportation. A few days ago I blogged about the switch from tractors to camels in India, one illustration of the relationship between the price of one good and demand for its substitutes. […]

  6. […] “Living” evidence of a determinant of demand at work in the deserts of Northern India Watch the video lecture, then follow the link to one or more of the blog posts above, read and answer the discussion questions at the end of each post. […]

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