In 2002, a meeting is hold in a state-owned farm with one million mu of arable land—B farm after the harvest: Production department section Li said: This year we planted 0.6 million Mu (a unit of area, 1 Mu=0.0667 hectares) wheat, and got 280 kilograms’ wheat per Mu. But after this year's harvest, a new difficulty arises that price of wheat is decreasing now. Usually, the farm will keep 10 million kilograms as seeds and 18 million kilograms for living, and sell the rest to the market. If the firm doesn't sell and keeps the wheat in a long term, the weight of the wheat will decline for the moisture loss from 14% to 13%, which means the farm will loss 1.4 million kilograms. The manager of the supply and marketing, Mr. Liu said: Last year, the price of wheat is 0.96 yuan per kilogram, but now is only 0.80 yuan per kilogram. This causes a big loss to our farm this year. Therefore, we can't sell now! The manager of grain, Mr. Lin said: We have to sell. We predict that the low wheat price will last for a long period, even decreases less than 0.80 yuan per kilogram. At present, all the warehouses are full, and also, we lack of cash for purchases new grain. So, I think we should grasp every opportunity to sell it as soon as possible, otherwise the consequence is unimaginable. Deputy director Wang of policy research immediately said: Perhaps Mr. Lin is too pessimistic. The low price of wheat is not due to too much wheat now, but due to the insufficient storage capacity in China, and the wheat import agreement signed a few years ago is still valid. This situation will be better next year. According to forecast of related personnel, after next march, wheat prices are expected to pick up. If sell at that time, we can get 20 million yuan more. Mr. Huang said: If we sell wheat at that time, it is uncertain that the price will increase or decrease. What’s more, keeping the wheat in warehouse means that 100 million cash is in no use. Not to mention how much profit such the cash can bring if we invest it. If we deposit it in the bank, the interest can bring us at least 5.6 million yuan. At last, according to the data provided by the bank, loans of our farm have been increased to 32 million yuan, if not timely sell wheat to pay the loan, we should pay additional interest about 1.6 million yuan after 6 months, this is quite expensive. The manager of grain, Mr. Lin said: The problem is difficult, because it is unwilling to sell the wheat in cheap price, but the wheat occupied the field if we don't sell, while next autumn crops have come down. Besides, according to our experience, keeping the wheat for 1 year more, materials, mechanical and workers cost an average of not less than 0.01 yuan per kilogram. If we sell the wheat after half year, only storage cost will increase more than 0.7 million yuan. The manager of the supply and marketing, Mr. Liu said: According to our calculations, the capital utilization rate of our farm cash has reached 20%. But we don't have money now, so that the necessary technical renovation cannot be conducted. If we sell half of wheat at the end of September, and use 5% of its sales in the next three months, we can get a profit of 0.56 million yuan. The debate lasts for a long time and finally all look at the head of a farm and say: it is your turn! Considering such a moment, Zhang stood up, marched to the farm. When he is back from grain production and dry section after a short walk, an idea gradually comes out. Last year the price of wheat is RMB 0.96 per kg, but the farm only sells 84.5 million kg. This year the price is low, but all wheat can be sold. Questions: 1 What is the focus of the debate in this case? 2 Can we use demand price elasticity theory and the knowledge of economy profit to help managers to make the right decisions?
In 2002, a meeting is hold in a state-owned farm with one million mu of arable land—B farm after the harvest:
Production department section Li said:
This year we planted 0.6 million Mu (a unit of area, 1 Mu=0.0667 hectares) wheat, and got 280 kilograms’ wheat per Mu. But after this year's harvest, a new difficulty arises that
The manager of the supply and marketing, Mr. Liu said:
Last year, the price of wheat is 0.96 yuan per kilogram, but now is only 0.80 yuan per kilogram. This causes a big loss to our farm this year. Therefore, we can't sell now! The manager of grain, Mr. Lin said:
We have to sell. We predict that the low wheat price will last for a long period, even decreases less than 0.80 yuan per kilogram. At present, all the warehouses are full, and also, we lack of cash for purchases new grain. So, I think we should grasp every opportunity to sell it as soon as possible, otherwise the consequence is unimaginable.
Deputy director Wang of policy research immediately said:
Perhaps Mr. Lin is too pessimistic. The low price of wheat is not due to too much wheat now, but due to the insufficient storage capacity in China, and the wheat import agreement signed a few years ago is still valid. This situation will be better next year. According to
Mr. Huang said:
If we sell wheat at that time, it is uncertain that the price will increase or decrease. What’s more, keeping the wheat in warehouse means that 100 million cash is in no use. Not to mention how much profit such the cash can bring if we invest it. If we deposit it in the bank, the interest can bring us at least 5.6 million yuan. At last, according to the data provided by the bank, loans of our farm have been increased to 32 million yuan, if not timely sell wheat to pay the loan, we should pay additional interest about 1.6 million yuan after 6 months, this is quite expensive.
The manager of grain, Mr. Lin said:
The problem is difficult, because it is unwilling to sell the wheat in cheap price, but the wheat occupied the field if we don't sell, while next autumn crops have come down. Besides, according to our experience, keeping the wheat for 1 year more, materials, mechanical and workers cost an average of not less than 0.01 yuan per kilogram. If we sell the wheat after half year, only storage cost will increase more than 0.7 million yuan.
The manager of the supply and marketing, Mr. Liu said:
According to our calculations, the capital utilization rate of our farm cash has reached 20%. But we don't have money now, so that the necessary technical renovation cannot be conducted. If we sell half of wheat at the end of September, and use 5% of its sales in the next three months, we can get a profit of 0.56 million yuan.
The debate lasts for a long time and finally all look at the head of a farm and say: it is your turn!
Considering such a moment, Zhang stood up, marched to the farm. When he is back from grain production and dry section after a short walk, an idea gradually comes out. Last year the price of wheat is RMB 0.96 per kg, but the farm only sells 84.5 million kg. This year the price is low, but all wheat can be sold.
Questions:
1 What is the focus of the debate in this case?
2 Can we use demand price elasticity theory and the knowledge of economy profit to help managers to make the right decisions?
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