High Tasmanian lavender production costs a barrier to a booming
industry
By Natalie Whiting
Updated 7 Jan 2018, 10:30am
One of Tasmania’s most colourful crops could be heading into a purple patch.
The state’s lavender industry is expanding due to growing demand from tourists and the
essential oils industry, but high local production costs remain a hurdle.
Across the state, fields of the flower are being harvested, but industry players are warning
more of the purple flowers need to be grown on increased acreage to bring down costs.
Essential Oils CEO Simon Wells said demand for essential oils globally was growing, including
for lavender.
“There’s no doubt that demand for Tasmanian essential oils is growing dramatically, and
premium customers are really chasing the story of Tasmania and Brand Tasmania,” he said.
“There are certainly major essential oils companies globally looking to Tasmania as an
alternative site to actually produce significant volumes of lavender oil.”
Currently lavender is a small part of the business, but that could be about to change.
“We’re interested in the possibility of expanding on a major scale,” Mr Wells explained.
It’s not the only lavender grower with expansion plans.
The Port Arthur Lavender Farm currently harvests about 10,000 plants, and is also planning
to ramp up production.
“In the next few years we are going to progressively ramp that up to about 35,000 here on
site in Pawleena, just to try to keep up with our demand,” owner Brendan Dean said.
But he said the demand for this lavender was local, and was made into products and food
sold to tourists.
“Since opening our visitors centre at Port Arthur — that was about four years ago now — it
has steadily increased every year,” Mr Dean said.
“We’re still trying to keep up to that demand for product.”
http://www.abc.net.au/news/2018-01-07/tasmanian-lavender-industry-facing-growthchallenges/9308346

Page 8 of 11
Please read the article ‘High Tasmanian Lavender production costs a barrier to a
booming industry’ published on January 7th 2018 and answer the following
questions:
Questions
1. Assuming lavenders are sold in a perfectly competitive market, use the
supply and demand diagram to describe, ceteris paribus, major factors
contributing to the price of lavender to change in Australia. In your
discussion make sure to explain the process of moving to the new
equilibrium output and price. (7 marks)
2.
a. Using the determinants of price elasticity of demand, discuss
whether the demand for lavender to be inelastic or elastic? (4
marks)
b. Based on your discussion of elasticity, Illustrate and analyse the
effect on total revenue of the firms in the lavender market
following the price change. (4 marks)
3.
a. Identify the major costs involved in operating a lavender farming
business in the short run. Show which of these you would consider
to be variable costs, fixed costs or a mix of fixed and variable. (3
marks)
b. Assuming Lavender farm is operating in short run, Explain why they
might experience diminishing returns in their production. (4 marks)
Your assignment will also be assessed on how effectively you can communicate with
the reader; i.e. how well you have presented your arguments and ensured your
analysis is logical and consistent.
Consequently, 3 marks will be awarded for effective writing including proper
grammar, referencing and formatting. Importantly, make sure you use appropriate
diagrams in your analysis. Please check the FAQs for Assignment 2 if you have
further questions on this assignment.