Agriculture
certainly is among the most prominent sectors of any economy. Psalm 104
illustrates this point: “Bless the lord, O my soul, thou dost cause the grass
to grow for the cattle, and plants for man to cultivate, that he may bring
forth food from the Earth.” Unequivocally, from biblical times agriculture has
been a discipline worthy of study. We specifically are interested in the
economic relationships inherent in the agricultural sector.
The roots of agricultural economics perhaps can be traced back to ancient Egypt, arguably to the first agricultural economist, Joseph. Joseph interpreted the dreams of the Pharaoh of Egypt and correctly predicted seven years of feast and seven years of famine.
What is agricultural economics? If you were to say
“Agricultural economics is the application of economic principles to
agriculture,” you would be technically correct—but in a narrow context. This
definition does not recognize the economic, social, and environmental issues
addressed by the agricultural economics profession. To perceive agricultural
economics as being limited only to the economics of farming and ranching
operations would be incorrect. These operations account for only 2% to 4% of
the nation’s output. Actually, the scope of agricultural economics goes well
beyond the farm gate to encompass a broader range of food- and fiber-related
activities. When viewed from this broader perspective, the agricultural sector
accounts for approximately 12% to 15% of the nation’s output. Before we define
agricultural economics further, let us first examine the scope of economics and
the role that agricultural economists play in today’s economy.
Read on: Meaning, Nature and Scope of Agriculture
Definition of Agricultural Economics
Because agricultural economics involves the application of economics to agriculture, we may define this field of study as follows:
Agricultural economics is an applied social science that deals with
how producers, consumers, and societies use scarce and natural resources in the
production, processing, marketing, and consumption of food and fiber products.
Agricultural Economics, as its title implies
is the branch of economics which deals with all aspects of problems related to
agriculture. According to Snodgrass and Wallace, “Agricultural economics is an
applied phase of the social science of economics in which attention is given to
all aspects of problems related to agriculture.” Prof. Gray treats agricultural
economics as a branch of the general subject of economics. It is only one of
the many branches of applied economics such as Industrial Economics, Labour
Economics, Monetary Economics, Transport Economics, Public Economics,
International Economics, Household Economics, etc. Thus according to Prof.
Gray, agricultural economics is only a phase of an immense field called
economics in which primary attention is paid to the analysis of the economic
problems associated with agriculture, Prof. Gray defines agricultural
economics, “as the science in which the principles and methods of economics are
applied to the special conditions of agricultural industry.” Agricultural
economics treats the selection of land, labour, and equipment for a farm, the
choice of crops to be grown, the selection of livestock enterprises to be
carried on and the whole question of the proportions in which all these
agencies should be combined. These questions are treated primarily from the
point of view of costs and prices. As we know, economic activities are divided
into production, exchange, distribution and consumption, agricultural economics
covers all of them what to produce, how to produce, how much to produce, what
to sell, where to sell and at what price to sell; what to distribute, among
whom to distribute and on what basis to distribute; and what to consume and how
much to consume. Specifically, we can say agricultural economics includes the
choice of farming as an occupation, the choice between cultivator and animal
husbandry, machinery and labour; combination of various factors of production,
intensity of cultivation, irrigation, manure, marketing, soil conservation,
land revenues system, costs, prices, wages, profits, finance, credit,
employment, etc.
In all these cases the fundamental problem
before the agricultural economist is to recommend the combination of factors of
production in ideal proportion under given conditions in the economic interests
of the agricultural community. Agricultural economics is concerned with the
allocation of resources in the agricultural industry, with the alternatives in
production, marketing or public policy.
Agricultural economists are concerned with
the study of efficiency in farm production, with the returns that will result
from employing various quantities and combinations of inputs in farming, and
with determining the best farm production alternatives under given physical and
economic conditions. They are concerned with the economics of agricultural
markets, with the costs of marketing various farm products, and with the
alternative steps or changes that may be made in the marketing structure to
serve the objectives of society more efficiently. They are interested in
analysis of the alternatives in public policy and the economic effects of
carrying out a particular programme, such as price support law or a soil
conservation programme. Agricultural economists make use of the tools of
economic analysis in studying these situations.
Read on: Meaning, Nature and Scope of Agriculture
Scope of Agricultural Economics
The above definitions indicate the scope of
agricultural economics. A common theme of scarcity of resources and multitude
of uses runs through almost all of these definitions. This way agricultural
economics is not that different from general economics. All the tools of
analysis used in general economics are employed in agricultural economics as
well. We have the same branches of agricultural economics i.e. economics of
production, consumption, distribution, marketing, financing and planning and
policy making as in the case of general economics. A study at the micro and
macro level for the agricultural sector is also generally made. Static and
dynamic analyses are also relevant for the agricultural sector of the economy.
To be more specific, these definitions point
out that agricultural economics examines how a farmer chooses between various
enterprises e.g., production of crops or raising of cattle and how he chooses
various activities in the same enterprise e.g., which crop to grow and which
crop to drop; how the costs are to be minimized; what combination of inputs for
an activity are to be selected; what amount of each crop is to be produced;
what type of commercial relation the farmer have to have with people from whom
they purchase their input or to whom they sell their product. Agricultural economics
does not only study the behaviour of a farmer at the farm level. This is, in a
way, the micro analysis.
Agricultural problems have a macro aspect as
well. Instability of agriculture and agricultural unemployment are the problems
which have to be dealt with, mainly at the macro level. There are the general
problems of agricultural growth and the problems like those concerning tenure
systems and tenure arrangements, research and extension services which are
predominantly macro in character. Such problems their origin, their impact and
their solutions are the subject matter of agricultural economics. The scope of
agricultural economics is larger than ‘mere economizing of resources’.
Agriculture is, as we know an important
sector, of the overall economy. The mutual dependence of the various sectors of
the economy on each other is well established. Growth of one sector is
necessary for the growth of the other sectors. As such, in agricultural
economics, we study how development of agriculture helps the development of the
other sectors of the economy; how can labour and capital flow into the
non-agricultural sectors; how agricultural development initiates and sustains
the development of other sectors of the economy. This implies that agricultural
economics is not only concerned with the use of scarce resources in agriculture
proper but also examines the principles regarding the out flow of scare
resources to other sectors of the economy and about the flow of these resources
from other sectors into the agricultural sector itself.
Read on: Meaning, Nature and Scope of Agriculture
Nature of Agricultural Economics
Agricultural economics makes use of the
principles of general economics. The first point to be noted with regard to the
nature of agricultural economics is that, in general, it borrows most of its
principles from its parent body of knowledge i.e., the general economics. Even
the main branches of agricultural economics are similar to those of general
economics. But then a question arises, if the principles of general economics
are not different from the principles of agricultural economics, why is there a
need for separate study of agricultural economics? The answer lies in the fact
that agricultural economics does not merely imply a direct application of
principles of economics to the field of agriculture. The principles of
economics are too general in nature and the general theory of economics has
been considered as an abstraction from reality. Before this theory is applied
to agriculture which includes, besides crop production, forestry and animal
husbandry, for the purpose of economic analysis its principles have to be
modified so that their postulates totally tally with the main features of the
agricultural sector. A few examples will make it clear. We study in economic
theory, price formation under various market structures e.g., monopoly, perfect
competition and oligopoly. So far as agriculture is concerned, it is presumed
that as the number of farms is very large and at the same time, their size is
relatively small and the crops produced are undifferentiated (homogeneous),
perfect competition is likely to prevail in the agricultural produce market.
In other words, we shall almost be
completely ignoring the study of price formation of agricultural produce under
condition of oligopoly or monopolistic competition or monopoly. There is the
system of tenancy or crop sharing in agriculture – a problem particular to
agriculture only. Study of this problem will necessitate modification of the
principle of resource allocation as propounded in general economics. The
modification of the economic principles, required to be made before being
applied to agriculture are so large and varied that there is a complete
justification for studying agricultural economics as a separate body of
knowledge.
What Does An Agricultural Economist Do?
The application of economics to agriculture
in a complex market economy such as that of the United States has a long and
rich history.
We can summarize this activity by discussing
the activities of agricultural economists at the microeconomic level and at the
macroeconomic level.
Role
at Microeconomic Level
Agricultural economists at the micro level
are concerned with issues related to resource use in the production,
processing, distribution, and consumption of products in the food and fiber
system. Production economists examine resource demand by businesses and their
supply response. Market economists focus on the flow of food and fiber through
market channels to their final destination and the determination of prices at
each stage. Financial economists are concerned with issues related to the
financing of businesses and the supply of capital to these firms. Resource
economists focus on the use and preservation of the nation’s natural resources.
Other economists are interested in the formation of government programs for
specific commodities that will support the incomes of farmers and provide food
and fiber products to low-income consumers.
Role at Macroeconomic Level
Agricultural economists involved at the
macro level are interested in how agriculture and agribusinesses affect
domestic and world economies and how the events taking place in other sectors
affect these firms and vice versa. For example, agricultural economists
employed by the Federal Reserve System must evaluate how changes in monetary
policy affect the prices of various food commodities. Macroeconomists with a
research interest may use computer-based models to analyze the direct and
indirect effects that specific monetary or fiscal policy proposals would have
on the farm business sector. Macroeconomists employed by multinational food
companies examine foreign trade relationships for food and fiber products.
Others address issues in the area of international development.
Marginal Analysis
Economists frequently are concerned with
what happens at the margin. A macroeconomist may focus on how the addition of
another input by a business, or the purchase of another product by a consumer,
will change the economic well-being of the business and the consumer. A
macroeconomist, on the other hand, may focus on how a change in the tax rate on
personal income may change the nation’s output, interest rates, inflation, and
the federal budget deficit. The key word in this example is change, or, more
specifically, how a change in price, quantity, and so on will affect other
prices and quantities in the economy, and how this situation might change the
economic well-being of consumers, businesses, and the economy as a whole. Many
of the chapters to follow include a discussion of marginal analysis so as to
better understand economic decisions made at the firm, household, or economy
level.
Key agencies that agricultural economists
deal with include the Economic Research Service (www.ers.usda.gov), the U.S.
Department of Agriculture, and the American Farm Bureau Federation (AFBF)
(www.fb.org), the voice of agriculture. The current U.S. secretary of
agriculture is Sonny Perdue, and the current president of the AFBF is Zippy
Duvall, a farmer from Georgia.
Read on: Meaning, Nature and Scope of Agriculture
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