2014




ECONOMICS OF AGRICULTURE (EOA611S)
LECTURER: E.J. Ngeendepi
Email: engeendepi@polytechnic.edu.na
Tel: 061-2072876
Notice!!!



Course reader( Study guide) is available @ the
Printers.
Course outline to be loaded on e-learning. You
have the responsibility of printing it.
My contact detail + consultation time will appear
on the course outline.
UNIT 1
The Nature and Methods of Economics
Objectives
After completing this section, students should be able to:
 Understand the characteristics of Agriculture
 Define Agricultural Economics
 Define Economics
 Understand the differences Between Micro & Macro Economics
 Understand Economic Theories and Models
 Understand the importance of Economics
 Understand what are Economic Goals
 Understand Resources or Factors of Production and their payment
 Differentiate between, choices, scarcity and alternative resource use
 Understand Graphs and Their Meaning
References:
Chapter 1 Agricultural Economics and Agribusiness: Gail and Cramer,
Clarence Jensen and Douglas Southgate.
1. Agricultural Economics
Characteristics of Agriculture
There are at least 2 important characteristics of the agricultural
industry making it distinct from all the others.
Cyclical nature of production: Caused by Physical and Biological
factors.
I.
I.
II.
Biological Factors: Time it takes to raise livestock/ grow fruits.
Physical Factors: Climate conditions & diseases effect on agric production.
Price instability : Caused by changes in agricultural product market.
This factors include:
II.
I.
II.
III.
Producer decisions: Shifting between crops and livestock affect agric prices.
Competition in Agric industry: Competitive, with many producer but none
produce in large quantities to influence prices.
Homogeneous product: Same products from all producers.
These conditions cause supply and demand to influence prices.
Definitions of Economics
What is Economics: It is social science that studies the principles governing
the effective utilisation of limited resources with numerous alternative
applications to satisfy multiple needs. We can also say it is the study of
choice under conditions of scarcity.


Social science: It deals with the interaction of people as they buy, sell,
produce and consume.
Resources (Factors of production): Anything
goods/services. They are divided into two.
used
to
I.
Human resources = Labor and Entrepreneurial skills.
II.
Material resources = Land and Capital.
Economics has two parts: Micro and Macro.
produce
MICRO VS MACRO ECONOMICS
Microeconomics
Macroeconomics
1. Concerns with the behavior of
Economic units, Individual firms, industry Economy as a whole Aggregate or
or households economy
subdivision of the gov’t and business
sectors of the economy
2. Concentrates on Specific
2. Concentrates on Total
Output/price of products
Output/ general price levels
Number of workers employed by a firm.
Total number employment in the economy
Revenue, income/expenditure
of a single firm or household
Total income, expenditure in the economy.
IMPORTANCE OF ECONOMICS



For good citizenship.
Aids personal/ business decision.
Assist in solving social problems.
THE FOUR RESOURCES
Human

Labor: Physical and mental effort of human. Payment=
Wage.

Entrepreneurship: Those who organize and manage
resources to produce goods and services. Payment =
Profit
b) Material

Land: The ground and natural resources- rivers, trees,
minerals used in producing goods and services. Payment
= Rent.

Capital: Include buildings, equipments e.tc. Used to
produce goods and services. Payment: Interest.
A)
Scarcity, alternative uses and choices
1. Scarcity and alternative uses: Scarcity does not refer to the
quantity. E.g. Land is available yet most land is scarce because
it has alternative uses.
2. Goods and services: Anything from which individuals receive
satisfaction or utility.
3. Choice and society: Implies the existence of alternatives. Thus,
choices are made from the alternatives. Choices are
determined by society’s laws, customs and practices. These
constitute a society’s Economic system. There are two types of
major Economic Systems.
a)
Capitalism
b)
Socialism
ECONOMIC SYSTEMS
They are laws, institution, customs, habits and practices
that taken together establish the way in which society
allocates its scarce resources to satisfy unlimited wants.
 Unlimited wants and scarce resources: Resources are
scarce/limited but material wants are unlimited.
Material wants are the desires of people to use goods
and services that provide utility or satisfaction.
 Two types of Economic system:
1)
Capitalism: Competitive, Free market system or Laissez
Faire.
2)
Socialism: Authoritarian, Command Economy or public
ownership of resources.

DIFFERENCE BETWEEN CAPITALISM AND
SOCIALISM
Capitalism
Socialism
Resource ownership
Human resources owned by individuals
Human resources owned by individual
Material resources owned by businesses
and individual
Material resources owned by Government
All resources are privately owned
All resources are Government owned
Method of Resource use
Private individual decide how to utilize
resources for the purpose of profit.
Government authority decide how to use
resources but not driven by profit motives.
METHODOLOGY OR ECONOMIC ANALYSIS
a) Variable: Measure of an event or a quantity that can take different
values e.g. Price, number of books.
b) Relationship between variables can be studied in this
forms:
I.
II.
III.
c)
d)
Hypothesis: When there is no evidence to support it.
Theory: If there is evidence.
Law or principle: If it is certain.
Model: The theory, law or principle may take the form of a
model. May be expressed in the form of words, diagram,
graphs and mathematical equations.
E.g. If Y = profit;
R= Revenue; and C= Cost. Then
Y=
f(R-C).
Graphical Expression of models: Models may take the form of
graphs to assist in visualising and understanding
quantitative
relationships. Graph can be used to express the relationship
between variables.
Graphical Expression of models:
1) Axis: There are two Axes ( Horizontal and Vertical).
a)
Horizontal axis (X axis): Measure dependent variables.
b)
Vertical axis (Y axis): Measure independent variable.

X axis = horizontal Line

Y axis = vertical line

0 = point of interception

Quadrant = 4 parts of graph

Coordinates = points on graph
2. Graphs Relationships
i.
Direct/ Positive relationship: If 2 variables move in the same direction. As X increases,
Y also increases vice versa. Graph for the 2 variables will slope up from left to right (
Positive slope).
ii.
Inverse, Indirect or Negative relationship: If X-increases, Y tend to decrease vice
versa. Graph slope from down from left to right and has a negative slope.
Graphical Expression of models…..
iii. Slope:
Changes in Y- variable
Changes in X- variable
Linear graph: Straight line graph. Y = a +bx whereby; Ydependent variable,
x- independent variable,
a- intercept and b-slope.
iv. Non linear graph: Not a straight line and slope varies as you
move along the graph.
ECONOMIC GOALS OF OUR ECONOMIC
SYSTEM
Economic growth or higher standard of living.
Full employment or efficiency: All available resources must be
fully employed or all resources must realize full production. This is
indicated in production possibilities analysis by producing a
combination of goods that places the economy on the production
possibilities curve.
Full employment entail efficiency. There are two types of
efficiency:
Technical or productive efficiency: When goods/services are
produced in the least costly way then the economy have attained
Technical efficiency (producing maximum output by using minimum
input).



a)


It is the ratio of Output to Input.
T.E
=
Physical Output
Physical input
b) Allocative or Economic Efficiency: Resources are being
used to produce the combinations of goods and services that
society wants most, given their income levels.





Economic or allocative efficiency is a concept that include
Technical efficiency.
Equitable distribution of resources or income: Implies
fairness in the distribution of society’s output. Society’s
resources must be shared according to skills levels.
Price level stability: General price level should be stable in
order to avoid inflation and deflation.
Economic Freedom: Consumers and Businesses should enjoy
high degree of economic freedom in their economic activities.
Economic stability: Provision should be made for those who
are disabled, aged handicapped and chronically ill etc.
AGRICULTURE ECONOMICS DEF:
Is an applied social science that deals with the
usage of the resources (Land, labour, Capital and
Entrepreneurship) to produce food and fiber , and
distribute to society for consumption.
NOTE: Agricultural economics uses economic theory to
find answers to problems in agriculture.

THE AGRIBUSINESS INDUSTRY AND ITS
ORGANIZATION


I.
II.
III.
IV.
Agricultural industries are related to the Marketing industry that transform, transport
and transfer food and fiber to consumers.
Agriculture industry is comprised of large number of industries that manufacture and
distribute goods and other farm supplies used in agriculture.
Farm supplies: Include feed, seeds, fertilizer, petroleum products, farm
machinery, chemicals and other farm supplies.
Food Processors and Assemblers: Are the link between farmers and food
wholesalers and retailers. They add form utility to the raw farm products
products; e.g. transformation of pot bellies into sausages. In Namibia this sector
consist of subsistence and commercial farms with farms from 3000 to 8000ha.
The sector is mainly controlled by individuals and partners.
Wholesalers and food brokers: Processor sell their agricultural products to
wholesalers and retailers through food brokers. The broker is an independent
sale agent for the processor who neither takes possession nor title to grocery
product. Food wholesalers link food processor with retailers who sell directly to
consumers and institutional outlets e.g. Namib mills, Agra etc.
iv) Retailers: Sell agricultural products directly to consumers and institutional outlets. A retail
chain is a group of stores owned and operated by the same firm. Chain stores combine
wholesaling with retailing and are able to lower costs.
Modern Agribusiness system includes:
The modern agribusiness system is made up of the following three sectors:
1)
2)
3)
Agricultural input sector: Firms supplying seed, fertilizers and credit to farms.
Production sector: Farmers producing agricultural products.
Processing and manufacturing sector: Include food processors and
manufacturers and distribution firms.
Figure 1: The modern agribusiness system
Input Sector
Production sector
Processing and
Manufacturing sector
THE ECONOMIZING PROBLEM
To satisfy society’s wants these questions need to be
addressed:




Resource use: At what level should our resource be used?
Level of goods and services produced: What goods and
services should our society produce with our resources and in
what quantities?
Organising production: How should total output be
produced? What is the best combination of resources, what
is the best technology to be used?
Distribution of output: How should output of the economy be
shared among the various economic units.
Society’s Production Possibilities
Assumptions:
 Two goods
 Fixed factors of production
 Common resources
 Full employment
Production Possibility Curve



Production possibilities, which analyzes the alternative combinations of two goods
that an economy can produce with given resources and technology, indicates full
employment when production is on the production possibilities curve.
Full employment is the condition that exists when all available resources are
engaged in the production of goods and services.
In particular, each point on the production possibilities curve is based on the
presumption that all existing resources are used to produce the two goods. This
means that full employment exists at every point ON the production possibilities
curve.
END OF UNIT 1:
THANK YOU!!!
QUESTIONS???