Agricultural Economics - Studying Economics
Agricultural economics is an applied field of economics concerned with the application of economic theory in optimizing the production and distribution of food. Agricultural Economics and Rural Development: Marriage or Divorce?: Society and perhaps elsewhere as to the relationship between it and. KAZUSHI OHKAWA*. The Relationship between Agriculture and the Economy: Issues for National Level Policy. 1. INTRODUCTION. Economic policy or a.
Agriculture sector requires less capital for its development thus it minimizes growth problem of foreign capital. Helpful to Reduce Inequality: In a country which is predominantly agricultural and overpopulated, there is greater inequality of income between the rural and urban areas of the country. To reduce this inequality of income, it is necessary to accord higher priority to agriculture. The prosperity of agriculture would raise the income of the majority of the rural population and thus the disparity in income may be reduced to a certain extent.
Based on Democratic Notions: If the agricultural sector does not grow at a faster rate, it may result in the growing discontentment amongst the masses which is never healthy for the smooth running of democratic governments.
For economic development, it is necessary to minimize political as well as social tensions. In case the majority of the people have to be kindled with the hopes of prosperity, this can be attained with the help of agricultural progress.
Thus development of agriculture sector is also relevant on political and social grounds. The development of agricultural sector would tend to increase the purchasing power of agriculturists which will help the growth of the non-agricultural sector of the country. It will provide a market for increased production. In underdeveloped countries, it is well known that the majority of people depend upon agriculture and it is they who must be able to afford to consume the goods produced.
Therefore, it will be helpful in stimulating the growth of the non- agricultural sector. Similarly improvement in the productivity of cash crops may pave the way for the promotion of exchange economy which may help the growth of non-agricultural sector.
Purchase of industrial products such as pesticides, farm machinery etc. Helpful in Phasing out Economic Depression: During depression, industrial production can be stopped or reduced but agricultural production continues as it produces basic necessities of life. Thus it continues to create effective demand even during adverse conditions of the economy.
Source of Foreign Exchange for the Country: Most of the developing countries of the world are exporters of primary products. These products contribute 60 to 70 per cent of their total export earning. Thus, the capacity to import capital goods and machinery for industrial development depends crucially on the export earning of the agriculture sector.
If exports of agricultural goods fail to increase at a sufficiently high rate, these countries are forced to incur heavy deficit in the balance of payments resulting in a serious foreign exchange problem. However, primary goods face declining prices in international market and the prospects of increasing export earnings through them are limited. Due to this, large developing countries like India having potentialities of industrial development are trying to diversify their production structure and promote the exports of manufactured goods even though this requires the adoption of protective measures in the initial period of planning.
Contribution to Capital Formation: Underdeveloped and developing countries need huge amount of capital for its economic development. In the initial stages of economic development, it is agriculture that constitutes a significant source of capital formation. Agriculture sector provides funds for capital formation in many ways as: This method is adopted by Russia and China, iv labour in disguised unemployment, largely confined to agriculture, is viewed as a source of investible surplus, v transfer of labour and capital from farm to non-farm activities etc.
Employment Opportunities for Rural People: Agriculture provides employment opportunities for rural people on a large scale in underdeveloped and developing countries. It is an important source of livelihood. Generally, landless workers and marginal farmers are engaged in non-agricultural jobs like handicrafts, furniture, textiles, leather, metal work, processing industries, and in other service sectors.
These rural units fulfill merely local demands. In India about It is time that rural economy depends on agriculture and allied occupations in an underdeveloped country.
The rising agricultural surplus caused by increasing agricultural production and productivity tends to improve social welfare, particularly in rural areas. The problem Instability of prices The instability of farm prices results from several factors. One is the relative slowness with which farmers are able to respond to changes in the demand for their product.
Farmers generally must produce on the basis of expectations, and if their expectations turn out to be wrong, the resulting surplus or shortage cannot be corrected until the beginning of the next production cycle. Once a crop is planted, very little can be done to increase or decrease production in response to market prices. As long as prices cover current operating costs, such as the cost of harvesting, it pays farmers to carry through their production plans even if prices fall to a very low level.
It is not unusual for the prices of particular farm products to vary by a third or a half from year to year. That extreme variability results from the relatively low responsiveness of demand to changes in price—i.
Instability of income The instability of farm prices is accompanied by instability of farm income. While gross income from agriculture generally does not vary as much as do individual farm prices, net income may vary more than prices. In modern agriculture, costs tend to be relatively stable; the farmer is unable to compensate for a drop in prices by reducing his payments for machinery, fertilizer, or labour.
The incomes of farm workers are generally below those of other workers. There are two major reasons for that inequity. One is that in most economies the need for farm labour is declining, and each year large numbers of farm people, especially young ones, must leave their homes to seek jobs elsewhere.
The difference in returns to labour is required to bring about that transfer of workers out of farming; if the transfer did not occur, farm incomes would be even more depressed. The second major reason for the income differences is that farm people generally have less education than do nonfarm people and are able to earn less at nonfarm jobs.
The difference in education is of long standing and is found in all countries, developed and undeveloped; it also exists whether the national education system is highly decentralized, as in the United States, or highly centralized, as in France. Government intervention Governments have employed various measures to maintain farm prices and incomes above what the market would otherwise have yielded.
They have included tariffs or import levies, import quotas, export subsidies, direct payments to farmers, and limitations on production. Tariffs and import quotas can be effective only if a country normally imports some of its supply. Export subsidies result in higher prices to domestic consumers than to foreign purchasers; their use requires control over imports to prevent foreign supplies from entering the domestic market and bringing prices down. Direct payments to farmers have been used to maintain prices to consumers at reasonable levels, while assuring farmers a return above world-market levels.
Limitations on production, intended to reduce supply and thus increase prices, have been used in Brazil for coffee and in the United States for major crops. Accomplishments The effects of price and income policies are difficult to assess.
The policies have unquestionably worked to raise agricultural production in the countries where they have been applied, but their usefulness as a means of enhancing the economic well-being of farm people is debatable.
agricultural economics | Definition, Scope, & Facts | pdl-inc.info
The governments of the industrial countries have been able to raise the returns from agriculture above the levels that would have prevailed in the absence of such intervention. In addition to maintaining prices, they provide subsidies for agricultural inputs such as tractor fuel and chemical fertilizers; they also gave assistance in consolidating small farms into larger ones and in improving farm buildings. The level of income and the economic well-being of farm people in general are determined by many factors, including not only the prices they receive for their output but also the rate at which the economy in general is growing, the ease with which people can move from farm to nonfarm jobs, the prices they must pay for their productive inputs, and their level of education.
With respect to average income per person, as distinguished from total income, the prices received and paid are probably less important than the other factors mentioned. That becomes obvious when one compares farm incomes in developed countries with those in less-developed ones; the differences in real income have to do mainly with the levels of economic development and not with farm prices or subsidies.
Government efforts to increase farm prices are likely to be offset, in the long run, by an increase in the number of persons engaged in farming, and that tends to keep the returns to farm labour from rising much faster than they would in the absence of such policies.
There are two other reasons for believing that the income effects of higher farm prices or subsidies are relatively insignificant in the long run compared with other factors affecting incomes of farm workers.
One is that an increase in farm prices induces farmers to use more fertilizer, machinery, fuel and oil, and other items.factor-factor relationship ! FACTORS OF PRODUCTIONS ! Avinash jangid! agricultural digest
If a significant part of any increase in gross income is used for such things, the absolute increase in net farm income is much smaller than the increase in gross farm income. The second reason is that a given increase in government-supported farm prices generally occurs only once. After the increase in returns has been realized, the higher farm prices contribute nothing further to incomes.
In contrast, general economic growth along with the continued reduction of the farm labour force has cumulative effects on the return to farm labour.
Agricultural economics - Wikipedia
If the returns to farm labour were to grow at an average annual rate of about 3 percent, for example, farm prices would have to increase at least 3 percent annually assuming other prices did not change to have the same effect on returns to farm resources. Costs The costs of the agricultural price and income policies of industrial countries are substantial; they include not only direct governmental outlays but also the increased costs to consumers in those countries, as well as the losses to developing countries of potential export markets.
The organization of farming Ownership Except in the few countries with communist governments, most farmland is privately owned. That does not mean, however, that the land is owned by those who farm it. In most countries a major aspiration of farm people has been to achieve the ownership of the land they work. After World War IIfor example, Japan and Taiwan underwent land reforms that were intended to broaden ownership, and similar reforms have been advocated in other countries.
On a cooperative farm the land is owned jointly by the members of the group who farm it. The cooperative generally also owns all the major means of production, and the members supply all or most of the labour. While there are examples of cooperative farms in many countries, they loom large only in Israel, where the kibbutzim control about one-tenth of all agricultural land.
In a collective farm, at least as organized in the former Soviet republics, the land was owned by the state but was permanently leased to the kolkhoz collective farm.
Role of Agriculture in the Economic Development of a Country
The kolkhoz owned its own equipment and livestock and was required to meet certain commitments to the state in the form of deliveries of farm products. In theory, the members of the kolkhoz were to elect the officers of the farm and establish the procedures by which the net product was to be divided among the members for services performed. In practice, however, their autonomy was severely limited by the economic plans. In most cases these plans were incredibly detailed, specifying the crops to be grown, the times of plowing, planting, and harvesting, the quantities of fertilizer and manures to be used, and the kinds of livestock to be maintained.
On state farms the land and all other means of production are owned by the state. The workers are paid in wages, and management decisions are made by individuals directly responsible to the state.
Kinds of farm operation If a family farm is defined as one for which the farm operator and family members supply at least half of the labour, the majority of farms in the world are family farms. Family farming is carried on under a wide range of conditions, from the small farms of Asia to the highly mechanized farms of Canada, the United States, and the United Kingdom.
The family farm may be owned by the farmer or rented. The most rapidly expanding type of tenure in the United States is that in which the farmer owns part of the land and rents the remainder; almost one-third of all farmland in the United States consists of part-owner farms. This arrangement enables the farmer to increase the size of the farm through renting and to invest capital in machinery and livestock. Family farms may be large in terms of total assets or sales.
The relative importance of family farms among the largest farms in the United States has increased over the past few decades. One of the more striking changes in industrial countries has been the increased importance of nonfarm income received by farm families. In the United States, Canada, and Japan more than half of the total income of farm families comes from nonfarm sources, while in most western European countries at least a third of the income of farm families is earned outside of agriculture.