AGRIC6: Nature and Scope of Agricultural Economics

This unit looks at Agricultural Production Economics, goals of Production Economics and subject matter of agricultural production Economics

The scope of agricultural production economics includes production, distribution, consumption and government activities in relation to agriculture and farm enterprises. To be more specific, the scope of agricultural economics can also be analysed on the political aspect.

AGRIC6: Nature and Scope of Agricultural Economics 1Agriculture sector has undergone a sea change over time from being subsistence in nature in early stages to the present day online high-tech agribusiness. It is no more confined to production at the farm level. The storage, processing and distribution of agricultural products involve an array of agribusiness industries. Initially, agricultural economics studied the cost and returns for farm enterprises and emphasized the study of management problems on farms. But now it encompasses a host of activities related to farm management, agricultural marketing, agricultural finance and accounting, agricultural trade and laws, contract farming, etc.

Both microeconomics and macroeconomics have applications in agriculture. The production problems on individual farms are important. But agriculture is  not independent of other sectors of the economy. The logic of economics is at the core of agricultural economics but it is not the whole of agricultural economics. To effectively apply economic principles to agriculture, the economist must understand the biological nature of agricultural production. Thus, agricultural economics involves the unique blend of abstract logic of economics with the practical management problems of modern day agriculture.

The widely accepted goal of agricultural economics is to increase efficiency in agriculture. This means to produce the needed food, fodder, fuel and fibre without wasting resources. To meet this goal, the required output must be produced with the smallest amount of scarce resources, or maximum possible output must be obtained from a given amount of resources.

Definition: Production economics is the application of the principles of microeconomics in production. Based on the theory of firm, these principles explain various  cost concepts, output response to inputs and the use of inputs/resources to maximize profits and/ or minimize costs. Production economics, thus provides a framework for decision making at the level of a firm for increasing efficiency and profits.

Why study production process

The study of production economics is important in answering the following questions:

  1. What is efficient production?
  2. How is most profitable amount of inputs determined?
  3. How the production will respond to a change in the price of output?
  4. What enterprise combinations will maximize profits?
  5. What should a manager do when he is uncertain about yield response?
  6. How will technical change affect output?

Agricultural Production Economics

It is a sub-discipline within the broad subject of agricultural economics and is concerned with the selection of production patterns and resource use efficiency so as to optimize the objective function of farming community or the nation within a framework of limited resources. It may be defined as an applied field of science wherein principles  of economic choice are applied to the use of resources of land, labour, capital and management in the farming industry.

Goals of Production Economics

The following are the goals of agricultural production economics:

  1. Assist farm managers in determining the best use of resources, given the changing needs, values and goals
  2. Assist policy makers in determining the consequences of alternative public policies on output, profits and resource use.
  3. Evaluate the uses of theory of firm for improving farm management and understanding the behaviour of the farm as a profit maximization.
  4. Evaluate the effects of technical and institutional changes on agricultural production and resource
  5. Determine individual farm and aggregated regional farm adjustments in output supply and resource use to changes in economic variables.

Subject Matter of Agricultural Production Economics

Agricultural production economics involves analysis of production relationships and principles of rational decision making to optimize the use of farm resources on individual farms as well as to rationalize the use of farm inputs from the point of view of the entire economy. The primary interest is in applying economic logic to problems that occur in agriculture. Agricultural production economics is concerned with the productivity of farm inputs. As such it deals with resource allocation, resource combinations, resource use efficiency, resource management and resource administration.

The subject matter of agricultural production economics involves the study of factor-product, factor-factor and product-product relationships, the size of the farm, returns to scale, credit and risk and uncertainty, etc. Therefore, any problem of farmers that falls under the scope of resource allocation and marginal productivity analysis is the subject matter of agricultural production economics.

Objectives

  1. To determine and outline the conditions that give the optimum use of capital, labour, land and management resources in the production of crops and livestock.
  2. To determine the extent to which the existing use of resources deviates from the optimum
  1. To analyse the forces which condition the existing production pattern and resource use.
  2. To explain the means and methods in getting from the existing use to optimum use.

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