Agricultural Economics is a branch of economics that helps to optimise the use of resources that are bottlenecks or scarce to increase the efficiency and effectiveness of production processes.
Nowadays, agriculture is not just limited to planting seeds and harvesting crops. It involves a carefully considered course of action that makes the most efficient use of available resources while keeping environmental issues in mind.
Did you know? Agricultural economics is an applied field concerned with allocating, distributing and utilising the resources required for production.
Agricultural Economics: Overview
Agricultural economics can be defined as a study of agriculture from a business point of view that encompasses the activities that originate with growing the product and involves
- Product Manufacturing
- Product Development
- Product Financing
- Product Marketing
- Product Processing
- Product Regulation
- Product Research
- Product Taxation and
- Product Transportation.
Agricultural economics involves applying economic principles to conditions specific to the agricultural industry to solve all aspects and problems associated with it. It involves deciding the right mix of land, labour, equipment, growing crops, livestock, etc. The proportion of these things is decided based on the cost and price associated. Apart from this, it also looks after the problems of allocation efficiency where there is a choice between alternative uses. Decisions about alternatives are taken while considering the scarcity of various resources. All resources should be used in a way that ensures maximum wealth generation.
Scope of Agricultural Economics
After a careful examination of the definition of Agricultural Economics, we conclude that it revolves around the scarcity of resources and choices among alternatives. Thus, this follows the basic principles of economics.
The various branches of economics given below are all relevant here as well.
- Economies of scale
- Demand and supply
We also find the relevance of micro and macroeconomics here. In agricultural economics, we analyse how the development of the agriculture sector can catalyse the growth of other sectors to lift the economy. Thus, the scope of agricultural economics is much wider than just allocating resources and choosing the right alternatives. This is because, being an important sector, it is pivotal to the growth and sustainability of the entire country.
Thus, here we also study:
- The inflow of limited resources into the agricultural sector
- The outflow of limited resources from the agricultural sector.
The Nature of Agricultural Economics
We have discussed above that agricultural economics derives most of its principles from its superset - General Economics. Even the branches of both of these areas of study are similar. The only reason broad economics branches into the farming economy is that the principles of the former cannot be directly applied to the latter without modifying them to suit the problems and the issues concerned with agriculture. Therefore, agriculture economics has evolved into a different branch of study.
Types of Farms in Agricultural Economics:
Farming is prevalent in many forms, but the five most prominent ones among them are as follows:
Most prominent in the backward sections of the population, this type of agriculture is most prevalent in places where the industrial sector is unavailable. Thus the population is mainly dependent on agriculture. It is characterized by small farms, large families, labour-intensive techniques and little or no use of technology. Working conditions and the standard of living are often poor.
If traditional farming is at one end of the spectrum, commercial farming can be considered to be at the other end. Here, the farms are owned by several people (like Joint Stock Companies) and decision-making is vested in the hands of top managers. Labourers are hired to operate the farms. It is generally technologically advanced and aims at deriving the maximum profits from its activities by being completely influenced by market forces. It could also be referred to as 'capitalistic farming'.
Essentially the same premise as capitalistic farming, this kind of farming differs in ownership. In commercial farms, the owners are joint stock companies, whereas, in state farms, the owner is the state itself. It has all the advantages of capitalistic farming with a social welfare motive rather than a profit-making motive. Just like commercial farming, decisions are taken by hired managers and the work is done by hired farmers.
In this type of farming, ownership and control are vested in a community. The community consists of a general body of collective farms, and its members elect an executive board entrusted to manage the affairs of the farm. The board is also responsible for providing various social services like education, healthcare, entertainment, etc.
It is a method of farming that overcomes the difficulties associated with small farms in traditional farming. These difficulties include digging a well, weak bargaining power in the market, fencing, crop rotation, etc.
The Importance of Agricultural Economics
Agriculture is the backbone of the nation’s economy because it
- Employs two-thirds of the population
- Increases the rate of capital formulation
- It is a vital part of the national income
- Provides food for the growing population
- Supplies raw materials to agro-based industries (Agri-economics)
- Serves as a market for industrial products, etc.
Therefore, to obtain the desired level of farm surplus and aid technological and commercial growth, it is pertinent to study, analyse and apply economic tools to boost agricultural development.
The Challenges of Agricultural Economics
Farmers do not respond promptly to changes in the demand for the product. Once they plant the seeds, they cannot do much about increasing or decreasing production until the next crop cycle. This limitation along with fluctuating prices is the major drawback of the agricultural industry.
Fluctuating prices mean unstable incomes. The income of farmers is generally low compared to other workers. Because of this reason, farmers have very little incentive to continue farming and not seek employment elsewhere.
The government has taken measures to alleviate these problems and foster better results among farmers.
Some of these measures are as follows:
The government regularly offers subsidies to farmers on the purchase of fertilizers, pesticides, machinery, etc to facilitate efficient production.
A major part of agricultural income is exempt from taxation. By doing this, the government provides direct relief to farmers.
The government offers various incentives to industrialists to encourage them to set up factories in rural areas to generate employment and foster development.
The government applies various import quotas to match the prices of cheap imported goods with the prices of domestically cultivated products to maintain competition.
Agricultural economics is a term coined by combining agriculture and economy and is nothing but a branch of economics specially curated for agriculture. All the tools of economics, like demand and supply, economies of scale, pricing theories, distribution policies, etc., can all be applied to the field. Agricultural economics increases knowledge of one of the most significant sectors of the nation. Its tools allow you to project and forecast results, demands, etc. It helps develop a more thorough and proactive approach to farming rather than the reactive approach found in traditional farming.
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