Agriculture Econo mics

1. Agriculture Economics

2. Agriculture Prices: Prices are determined by the forces of demand and supply in the market.

3. Prices may be determined on a day to day basis or can be fixed even over a longer time period due to the fact that agri supply can be increased over a longer time period The supply of agri output is fixed thats why an increase in the demand for agri comodities will lead to rise in the prices of those commodities

4. Demand for agri commodities are determined by the i) purchasing power of the consumers, ii) different used of the commodity, iii) tastes and fashion, iv) habits, v) nature of desire, vi) advertisement vii) boycotts, viii) expectations about the future

5. Why agri prices are important? Rational production (rational decision as what to produce) Urban consumers (fixed income group) Public Policy (subsidies etc) Impact of Cobweb Fluctuations

6. Changes in Prices of agri goods: Short run changes in prices Seasonal changes in prices Cylical changes (Mainly due to changes in supply and occur for a period of more than one year) Long run changes (Changes in populations, tastes, natural resources, techonology etc.)

7. a). Short term changes in prices: Changes in the short run occur due to changes in demand and supply i) Weather conditions and transportation ii) temporary fluctuations in consumer demand iii) Uncertainty in actual demand and supply conditions

8. Agriculture Pricing Policies: Pricing Policy consists of all those policy measures which are adopted by the govt to influence the prices of agriculture outputs as well as agri inputs such as fertilizers, seeds, water, machinery, credit etc. Input pricing Policy Output pricing Policy

9. Input Pricing policy: Govt negligence resulted in agri sector downfall Put more emphasis on industrialization than on agri The government started with subsidizing the agri inputs

10. Nominal subsidies are not enough to get the results Subsidies should be provided on temporary basis Opportunity costs of the funds should be analyzed Subsidies should be flexible to cater to the needs of the demand, cost and supply situations

11. Subsidized areas: Earlier it was fertilizers that topped the list followed by electricity and water Now only DAP fertilizers are subsidized; urea is not subsidized The government is not providing any subsidy on seeds

12. Problems related to subsidies: Budget deficit as subsidies are listed under the Development Expenditures

13. Output Pricing Policy: Earlier in the 50s the purpose was to protect the urban consumers Blunder was made by shifting the resources from agriculture sector to the industrial sector. Another blunder was hat industrial output prices were kept at higher prices than international prices and prices of agri output was kept lower than international prices

14. Output Pricing Policy: The policy failed because: a). Increased pressure for food from rising population b). Financing imports c). Agri sector could not be ignored because it supplies raw material to industry d). Stability in urban cost of living

15. Salient features of Output Pricing Policy: Fix procurement/support prices for wheat, rice and other food grains Determine the support prices for export crops like cotton, rice, onion, potato etc. Fix the sales prices of commodities used as raw material e.g; sugarcane, cotton, cotton seeds etc

16. Determination of Support Prices: a). Cost of production method b). Parity approach

17. Cost of Production Method: Support prices in accordance to the cost of production.

18. Problems related to Cost of Production Method: i). So many agri inputs not traded in the market so proper record is not available as how much is the cost of production. For Example: domestic women labor, management cost, land rent etc.

19. ii). Cost changes due to inflation iii). Technology affects cost of production iv). Economies of scale: Landlords v/s small farmers

20. Parity Approach: The approach is used to remove imbalance between the TOT between agri and non-agri sectors. Examples: bushel of wheat that could buy a unit of gold in 2000. Abushel of wheat should still buy a unit of gold even though the price of gold has gone up