Dung in Demand

Peru Guards Its Guano as Demand Soars Again

May 30, 2008

The demand for guano (an organic fertilizer composed of seabird excrement) is in strong demand today. This bird manure found in abundance all along the Peruvian coast, has caused great commotion (and has even caused wars in the past) as prices for synthetic fertilizers rise. Countries like Israel, the U.S.A, and France have increased their demand for the fertilizer due to its chemical-free characteristics, resulting in an increase of market demand, which is the sum of individual demand schedules in a particular market. This brings us to the concept of supply and demand and the price mechanism that it causes. An increase in demand for a certain good is followed shortly by a rise in the prices of that good, so that only few buyers with enough money can afford to buy it. In fact the guano itself has doubled in price in the last year to about $600 per ton.



If we were to look at a demand curve, we would notice an outward shift of the demand curve because now countries are willing to pay more for an amount that would have been cheaper a few years ago. In this case the reason for the demand change would probably be tastes and preferences because of its distinct chemical-free properties. Another reason for this change in demand would be expectations of future prices, because the birds are predicted to become extinct in 2030, so the future price is estimated to increase dramatically. This means that only richer countries who can afford such luxuries are willing to pay more for each ton of Guano, however if the price of Guano were to go up even further, fewer and fewer countries will remain buying it, assuming that the demand curve does not shift even further. Just like the Law of Demand states, ceteris paribus, as the price of a certain good rises, the quantity demanded for that good will decrease, thus showing an inverse relationship between the two factors.



The Peruvians realized how highly valued this item had become by the high prices that were put on them. Because of this prized possession, many laborers travel to the islands annually to collect the guano. Unfortunately this land resource is slowly becoming scarcer as the country’s supply is slowly being used up. Mr. Ropón states, “there might be 10 years of supplies left, or perhaps 20, and then it will be completely exhausted,” which is due mainly to an estimated decline in the population of the seabirds. In fact it is probably also due to this scarcity that the price has increased. If a resource is scarce, it means it is desirable but limited, and since we live in a world with limited resources but unlimited wants and needs, a high price must be put on scarce resources. Guano is an excellent example of a scarce resource which is highly demanded and due to its scarcity has increased its price (if the price of scarce objects were low, anyone could afford them and they would have no real value). In the article, the supply of guano is compared to that of oil since they both have alternative materials being sought for as they face possible depletion in the near future.