Transcript Chapter 33

C HAPTE R
5
AGRICULTURE:
ECONOMICS AND POLICY
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Agriculture
Prices
Outline:
1
Concept of agri. prices and its importance
2
Changes in prices of agri. goods
3
Problems due to instability in Agri. Prices
4
Agriculture Price Policy
Concept of agri. Prices and Importance
 The monetary representation of value of any commodity is
known as price. In the same way, the monetary expression of
agri. Goods is called the agri. prices.
 The prices of agri. goods are of great importance for the country
like Afghanistan.
1. Rational Production Decisions:
On the basis of agri. prices the farmers make decision
regarding produce of the farm. It means that prices as a signal
will guide the rational producer regarding what to produce. As
a matter of fact they will produce those goods which command
higher prices.
2. Urban Consumers:
The agri. prices also influence the urban consumers. As if
the prices of agri. goods are lower, as desired by them, they
will be benefited. This situation is of great importance for
those urban and non-agri. users who are concerned with
fixed income group.
3. Public Policy:
The above points show that rising agri. prices are beneficial
for farmers while the reverse is the case with urban users. In
such circumstances, it becomes the responsibility of the state
to follow what type of public policy. It means whether it
prefers the interests of the farmers or gives importance to
urban users.
4. Industrialists:
The prices of agri. goods are also important for industrialists
as the cotton and sugar-cane are the basic inputs for textile
and sugar industries. Each producer wants to minimize the
costs and maximize output. Thus in the pursuance of
minimization of costs, each firm would like to purchase the
agri. inputs at lower prices but the policy of lower prices for
agri. Inputs lead to promote unequal income distribution.
The agri. sector remain surrounded by poverty and
depression.
5. Financial Payments:
The prices of agri. goods are also important for landlords,
money-lenders, artiyas and agri. bankers as most of the
farmers have borrowed from them. These big people not
only have a look on the produce of farmers but they also
give importance to the prices of agri. goods. If the farmers
are in a position to get reasonable prices for their harvest of
wheat, rice, sugar-cane and cotton etc. they will be in a
position to make their financial payments.
6. Public Revenue:
The prices of agri. goods are also important for revenue
department of government. As if farmers get the fair prices
of their goods, the revenue assessment will be easier for the
govt. officials etc. if due to drought, floods or onset of pests
etc the production decreases the problems will rise regarding
assessment of the agri. produce. In such situation govt.
revenue target will be affected and to meet the revenue gap
the public borrowing will have to be made.
CHANGES IN PRICES OF AGRI. GOODS
There are four types of changes which may occur in agri. Prices.
1. SHORT-TERM PRICE FLUCTUATIONS:
The changes in prices which remain confine to short-run only
are attributed to short-term changes in prices. These changes
occur due to temporary changes in demand and supply. The
short-run changes occur due to follow reasons:
a. Weather Conditions and Transportation:
The short-term price changes may rise due to weather
conditions or transportation problems. For example, if due to
flood the road link suspends, it becomes difficult to transport
goods, especially perishable goods. As a result, the rise in
prices of fruits etc in the markets can be assigned to shortterm changes.
Price fluctuations……. continued
b. Temporary fluctuation in consumer demand:
The consumers demand depends upon the expected consumers
in the market, their purchasing power, their preferences,
substitutes of goods and weather conditions. However, due to
changes in supply, these factors respond slowly. As a result,
the consumers demand remains stable due to short-run and
long-run. Thus the short-run changes in demand are concerned
with changes in expectations of whole sellers.
2. SEASONAL VARIATIONS:
The big changes in supply of agri. goods occur due to
seasons. It has been observed that when the crop is harvested
its price falls because of abundance. It remains low for the
period of 2 to 3 months. Then it starts rising as the supply of
the produce is short and gets maximum before the arrival of
new crops.
Price fluctuations……. continued
3.
CYCLICAL CHANGES:
The changes in prices which occur for a longer period (more
than one year) are called cyclical changes in prices. These
changes normally occur due to changes in supply. For
example, if the prices of eggs are higher in one year, it means
that the hens laying eggs are reduced in number. Then the
farmers will increase the hens in their poultry farms. When
number of hens increase the supply of eggs will increase
leading to decrease their prices. Such fluctuations in the
prices and outputs of eggs will remain operative. These
changes in prices and outputs are given the name of cyclical
changes in prices.
Price fluctuations……. continued
4.
LONG-TERM CHANGES:
So many factors like affect supply and demand in long-run
which leads to long-run price fluctuation. It include:
a. changes in population,
b. changes in fashions,
c. changes in natural resources,
d. changes in techniques of production
e. changes in costs of production etc
Problems due to instability in Agri. Prices:
a. There are big fluctuations in the incomes and outputs of the
farmers
b. The uncertainty regarding distribution and allocation of
resources rises in the economy.
c. The terms of trade go against agri. sector in case of lower
prices. This situation benefits the consumers and industrial
producers at the cost of farmers.
d. The agri. Sector becomes unprofitable and least attracting
sector and more lands are not cultivated.
e. Because of financial problems the small farmers are bound to
sell their produce when prices are falling while big farmers
and commission agent store the goods and sell them when
prices start rising. All such means that the instability in the
prices of agri. goods hits the small farmers.
Agricultural Price Policy:
Agriculture price policy is a method of influencing the price of
agricultural goods so that it acts as an incentive to produce certain
goods in desired quantities.
The price policy of agricultural commodities generally aims to
achieve the following objectives:
i.
To minimize fluctuations and provide stability to the prices of
agricultural goods
ii. To promote balanced increase in production so as to fulfill
domestic consumption requirements.
iii. To provide food grains to the consumes at reasonable prices.
iv. To provide a regular flow of raw material to agro-based
industries at fair prices.
Objectives of Agricultural Price Policy…… continued
v. To encourage investments in agriculture especially in the
production of goods in which the national targets call for
major increase in production.
vi. To encourage increase in production and reducing production
cost by promoting use of better technologies.
vii. To increase earnings of foreign exchange through exports of
agricultural goods.
Forms of intervention in pricing of farm products:
There are a number of measures which the government of a
country takes in regulating the prices of farm products. These
measures area discussed as follows:
1. Administrative Prices:
it is very difficult for the government of a country to maintain a
favourable price climate both for the farmers and the consumers.
Both the sections have conflicting interests.
If prices of agricultural goods are raised to promote the
growth of agricultural output, then the consumers quality of life is
affected. In case the agricultural goods are priced low, then their
production is adversely affected and the farmers suffer. The
government therefore, tries to strike nice balance and maintains
price level which suits the interests of producers as well as the
consumers.
Forms of intervention in pricing of farm products…. continued
The set of administered prices usually consists of
a. Support Prices: to benefit the farming community, the
government revises and fixes the support prices of
important corps every year. The prices are generally
announced before the sowing time. The farmers then plan
allocation of area, input and other resources for different
crops. Support prices thus contributes to income stability of
the farmers.
b. Procurement Prices: the government also announces
procurement prices for the purchase of food grains or
industrial raw material. The government purchases the
desired quantity of goods for maintaining stock, meeting
any emergency and stabilizing the prices of agricultural
goods in the market.
Forms of intervention in pricing of farm products…. continued
c. Issue Prices: the government provides specified quantity of
goods to the consumers at the prices which are lower than
the market prices.
2. Influencing Supply and Demand of a commodity:
the government can intervene in price of farm products by
influencing their demand/supply in the market.
For example, the government may procure a part of the
produce from the traders or farmers. Procurement of a commodity
reduces its supply in the open market. The farmers are then allowed
to sell the remaining quantity of the good in the open market at the
prevailing market price.
another form of state intervention in price is to encourage
export of goods which are surplus in the country. The export of
surplus goods raise the price level in the country.
Forms of intervention in pricing of farm products…. continued
3. Creation of infra-structure facilities:
The government can also influence the prices of goods by
providing necessary infra-structure such as roads, construction of
warehouses etc. the farmers with the provision of these facilities
are able to get fair and reasonable price for their produce.
4. Influencing the behavior of market functionaries:
The government can also influence the prices of goods by
influencing the behavior of the market intermediaries by fixing a
minimum price for the products or directly procuring the agriproducts from the farmers.
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