Agricultural Economics 251
Department of Agricultural
Economics, Extension and Rural
Development
Agriculture in a changing environment

Agriculture is dynamic – it is continually changing
 Inside agriculture
 “Global village”

Internationalised community
 Conventions / treaties
 Policy influenced by conventions
 Farmer’s decisions influenced by international factors
 Exchange rates, currency and interest rates

The “New Agriculture” – the way in which we conduct
business in agriculture has changed.
Changing concepts in agriculture
Old concept
New concept
Farming is an art
Farming is more scientifically based
Technical knowledge is critical for
success
Human/personal/communication skills
are critical to success
Stability
Change/chaos/flexibility
Technological change and renewal
Institutional change and innovation
Tradition
New ideas
Public and open information and
research and development
Information and research is increasingly
more in private hands and closed and
not free
Changing concepts
Commodities
Farm products with specific
characteristics
Assets determined the success of the
enterprise
The consumer determines the success of
your business
Fixed assets such as land, buildings
Competitive advantages are obtained
and machinery are the source of one’s through ‘soft’ assets such as: people,
competitive advantage.
organisation and planning.
Cash is the main source of power
Information is the main source of power
Labour is a cost and equipment an
investment
Labour is an investment and equipment
a cost
Exploiters of natural resources
Guardians of natural resources
Changing concepts
Domestic markets are important
markets
International markets are very critical
Conflicting relationships with
buyers and suppliers
Partnerships with suppliers and
buyers
Independence
Interdependence and systems
Impersonal open markets
Personal markets characterised by
negotiations and contracts and
relationships
Core skills
New and different skills
The farm level decision making process

Management is important for success of the farm

Important element is the making of decisions


Decision making process is complicated by the
dynamic environment
But this module is designed to help you make these
decisions
Five functions of economic systems
Determines which goods and services should
be produced
 Organise production in order to satisfy
consumer needs
 Distribution of products
 Provision for maintenance, expansion and
investments
 Consumption will always be limited by the
stock of available goods and services

Role of prices
Determines what is to be produced
 How much should be produced
 How to produce, e.g. labour intensive /
capital intensives
 Who produces what
 Price will always be high enough to
limit demand to production

Organise
production
What to produce
Payments for goods
Receipts of producers
Consumers
(resource
owners)
Rationing of
goods and resources
by prices
Labour (wages)
Land (rent)
Capital (interest)
Management (profits)
Distribute proceeds
Interest rates
Producers
Quantity
demanded
Proceeds of production
Maintenance
and
Expansion
What is Economics?

Social science that deals with how consumers, producers
and the community choose between alternative uses of
scarce resources in production and consumption

“Social science” – human behaviour
 Changes
 Nothing constant, but predictable

“ceteris paribus” – all other things remain the same / “all
other things being equal”

Micro-economics: firm level; consumers

Macro-economics: economic growth, monetary and fiscal
policies, trade, exchange rates, etc.
What is Agricultural Economics?


Application of economic principles in agriculture
However, also involves social, environmental and economic
aspects of agriculture
Field of ag-economics must widen to include e.g. food- and
fiber industries.
Economics (and ag-economics)
 Decisions
 Consumers – maximise satisfaction
 Producers – maximise profit
 Community – allocation of scarce resources
 Economic problem: allocation of scarce or finite
resources.
 Relative scarcity of resources
 Natural and biological resources
 Human resources
 Capital