AGRICULTURAL ECONOMICS

1INTRODUCTION

2 Definition Agricultural Economics

Is the discipline that adapts the principles of economics to:

● Farming activities

● Farm Input manufacturing and distribution.

● Food processing.

● Wholesaling and retailing.

● Integration of these activities gives rise to a set of products and services that are passed
on until they reach the consumer.

3 Definition

● It helps people to decide what kind of food and how much of each should be
produced in order to supply the needs of a country.
● It also aids decisions about which crops are most profitable for the farmer to
grow.

4 Definition

● Resources available restrict the ability of the producer to supply demand,

especially the availability of land, labour and capital.
● The farmer has to decide on the best use of each resource to bring the highest
return.
● Agricultural production economics is primarily concerned with economic theory
as it relates to the producer of agricultural commodities.

5 Definition Agricultural Management

● Is the application of management principles to agricultural production.

● Combines the inputs of labour, capital, services and natural resources to yield
farm products.
● Organises the production, distribution, consumption and investment of the farm
products and resources.
6 Agricultural Economics Concerns

● Major concerns include :

o Farming goals and objectives
o Choice of output to be produced
o Allocation of resources among outputs
o Assumption of risk and uncertainty

7 Farming Goals and Objectives

● Assumption is that:
o The objective of any farm manager is that of maximizing profits
o Reality:Individual farmers have unique goals.
o One farmer might be more interested in obtaining ownership of the
largest farm in the area.
o Another might have as his/her goal that of owning the best set of farm
machinery.
o Still another might be interested in minimizing his/her debt load.

8 Farming Goals and Objectives

● The goals and objectives of a farm manager are closely intertwined with a
person’s psychological makeup, and the goals selected by a particular person
may have very little to do with profit maximization.

9 Choice of output to be produced

● Farm manager faces an array of options with regard to what to produce given
available land, labour, machinery and equipment.
● Choices to be made include:
o What to produce
o How much to produce
o How to allocate available resource to competing uses
● Other constraints

● Government may restrict number of acres of a commodity a farmer may grow.

● Farmers knowledge of certain commodities may be limited

● Limited labour and machinery and other inputs

10 Resource Allocation

● Farmer needs to decide how available resources are to be allocated among

outputs.
 ● Questions to answer include which field is to be used for the production of each
crop
● What amount of farm labor, machinery and time must be allocated to each crop
and livestock activity, consistent with the farmer’s overall objective.

11 Risk and uncertainty Assumption

Economic production models assume that the farm manager knows with certainty the

● Applicable production function

● Prices of inputs to be purchased and outputs to be sold. This assumption is

almost never met.
● Weather is a key challenge but nature presents

● other challenges such asCattle developing diseases and dyingInsects and

diseases destroying crops.

12 Risk and uncertainty Assumption

● Farmers may know the prices of they must pay for fuel, fertilizer and seed at the
time they purchase these inputs. However they are almost never aware at the
beginning of the production season the prices that will prevail when outputs are
sold.

13 Agricultural Economic Principles

● Help producers produce the goods that the consumer wants to buy, in quantities
that fit the demand and at the time the goods are required.
● Help producers allocate restricted resources among competing uses

● Help producers decide on the best use of each resource to bring the highest
return.

14 Agricultural Economic Principles

● Help producers answer the basic questions in organizing the production such as
o Which inputs to use
o What quantity of different inputs to use
o Which technology to use e.g. in controlling downy mildew what
combination of resources and technology will minimize crop losses for
the least possible cost?
● You could:Choose a resistant variety or cultivars

● Control environment to minimize incidence and spread e.g. Use of greenhouses

 ● Utilize a fungicide spray program

15 Agricultural Economic Principles

● Since resources are limited in every economy, when more of them are used to
produce certain goods and services, fewer resources are left to produce other
goods and services.

● Help producers choose the technique (technology) that results in the least cost
possible (in terms of resources used) to produce each unit of a good or service
that the society wants.

16 Agricultural Economic Principles

● Help producers organize the production process through the price mechanism.
The price of an input normally represents its relative scarcity. If the price of an
input increases in relation to the price of other inputs used in the production
process of a commodity, producers will switch to a technique that uses less of
the more expensive input in order to minimize their cost of production.

17 Agricultural Economic Principles

● Dictate that the best technique to use in the production process is the one that
results in the least cost of production.
● If fuel prices increase, then minimum tillage could be used

● If greenhouse labor prices increase, then the farmer could decide to use
automated watering technology
● The opposite occurs when the relative price of an input decreases

18 Agricultural Economic Principles

● The problem of distributing resources, commodities and proceeds from the

production process is also answered the price mechanism.
● Resources are distributed to producers who have the money to pay for them
while commodities are distributed to consumers who have the money to pay for
them.
● Proceeds are paid to producers for commodities efficiently provided while
proceeds are paid to consumers for resources provided.

19 Agricultural Economic Principles

 ● In distribution there is government intervention in order to provide for “equitable”
distribution of resources commodities and proceeds.
● The government taxes wealthy individuals and business enterprises and
redistributes to the poor in form of subsidies or in order to provide certain public
goods such as public education, national defense, law and order, agricultural
extension as well as agricultural commodity programs.

20 Importance Of Agriculture

● Provision of food for the ever-increasing population

● .Provision of jobs in the agricultural industry as for farmers, crop processors,

traders, middlemen and transporters
● .Government revenue through taxes.

● Agricultural products are a major source of domestic and international trade.

● Foreign Exchange earnings through export.

● Used to pay for essential import goods

21 Importance Of Agriculture

● Provision of market for other industries

● Serves as a large consumer market for industrial products such as plastic shoes and
boots, buckets, fertilisers, pesticides, agricultural tools and machinery, building and
construction materials, bicycles, trucks, lorries, tractors, boats and many others.

22 Importance Of Agriculture

● Provision of raw materials for the Industries. The ratio of agricultural raw
materials to non-agricultural raw materials used in industries is 4:1.

● Education and Training: Many agricultural education institutions are established

to educate and train people in the science of agriculture. This provides people
with a career