Agricultural Marketing, Trade & Prices

Topic: Producers Surplus

By: Prof. Vikesh Rami

Introduction
Defining producer surplus:
Producer surplus is a measure of producer welfare. It is measured as the
difference between what producers are willing and able to supply a good for and
the price they actually receive. The level of producer surplus is shown by the area
above the supply curve and below the market price and is illustrated in this
diagram.

Marketing Margins: In the marketing of agricultural commodities, the difference

between the price paid by consumer and the price received by the producer for an
equivalent quantity of farm produce is often known as price spread. Sometimes,
this is termed as marketing margin.
The total margins include:
1) The cost of marketing functions and
2) Profits of the various market functionaries involved in moving the
produce from production to ultimate consumer.
• Marketing margin varies from channel to channel, market to market, time and
commodity to commodity.
MARKETABLE SURLPUS:
It is residual left with the producer farmer after meeting his requirements
for family consumption, farm needs for seeds and feed for cattle, payment
to laborer in kind, payment to landlord as rent and social and religious
payments in kind. This may be expressed as-

MS = P - C

Where, MS= Marketable surplus

P= total production
C= total requirements

Marketed surplus: It is that quantity of the produce which the

producer-farmer actually sells in the market, irrespective of his
requirements for family consumption, farm needs other payments.
Cont…
Relationship:
1) Marketable surplus < Marketed surplus
i.e. forced sale OR Distressed sale
When the farmer retains a smaller quantity of the produce than his
actual requirements for family and from needs.

2) Marketable surplus > Marketed surplus

When farmers retains some of the surplus produce. Large farmers
generally sell less than the marketable surplus because of their better
retention capacity and in the hope that they would get a higher price in
the later period.

3) Marketable surplus = Marketed surplus

When farm neither retains more nor less than his requirement. This
holds true for perishable commodities.
Factors Affecting Marketable Surplus
1) Size of holding: there is a positive relationship between the size or
holding and marketable surplus.

2) Production: the higher the production on a farm, the larger will be

the surplus & vice-versa.

3) Price do the commodity: the price of a commodity and the

marketable surplus have a positive as depending upon whether one
considers the short and long run or the micro and macro levels.

4) Size of family: the larger the no. of members in a family, the

smaller the surplus on a farm.

5) Requirement of seed and feed: the higher the requirement for

these uses, the smaller the marketable surplus of a crop.
THANK YOU