kal25:
Very Educative.

Vantayo:
Nice ...very true

phyllosilicate:
A farm is a profit maximization unit. The goal of most farmers is to get the highest possible output at the lowest possible cost. To achieve this goal, the farmer must make the economic decision of what to produce, how much of the product to produce and what amount of resource/resource combination should be allocated.

Agricultural Economics is the application of techniques and principles of economics to solve agricultural problems. Below are the five Agricultural economic principles every farmer must know.


1. How Much Input to use (Input Output Relationship)
When planning a farm operation, the farmer needs to decide the quantity of inputs to use. He has to decide how much feed to feed his chicken, how much seed to sow per acre, and how much fertilizer to apply per acre. He needs some rule to decide how much input would be economically optimal. The rule of deciding on this optimal level is based on marginal returns and marginal cost.

The law of diminishing marginal return states that as units of variable input are added to units of one or two fixed inputs, after a point, each incremental input produces less and less additional output.

For example, if incremental of nitrogen fertilizer were applied to maize, after a point, each incremental units of nitrogen would produce less and less additional maize. Were it not for this law, a single farmer would produce all the maize required in the world, merely by acquiring all of the available Nitrogen fertilizer and apply it to his farm.

Most farmers makes the mistake of sowing too much seeds in their plot of land, rearing large numbers of chicken in a small space and stocking large number of fingerlings in a small fish pond. They do this thinking it would increase their profit. But the opposite is usually the case. As a rule of thumb, increase the use of an input if the value added by the use of that input is larger than the additional cost.


2. How to Combine Inputs (Input Input Relationship)
Usually more than one input X is needed to produce a product Y. Also one input X1 can often replace another input X2. For instance, in beef production silage or grain can be used as feed, while in poultry maize or guinea corn can be used as feed.

I once told a poultry farmer to replace some amount of maize with brewery spent grain during feed formulation when he complained of the high cost of maize. He refused saying his “doctor” asked him to stick to a feed formula.

A farmer should know that a given a given amount of product Y can be produce with different combination of input say X1 and X2. Also, a farmer should strive to find out which combination of input X1 and X2 will minimize the cost of producing a given amount of Y.

As a general rule, substitute one input for another if the cost of the substituting one input for another if the cost of the substituted inputs is less than the cost of the input that has been replaced and the productivity level stays the same.


3. How to Combine Enterprise or Products (The Output Output Relationship)
A farmer has to decide upon a possible combination of products. There may be many alternatives: Milk, beef, eggs, poultry, fish, cereals and legumes. In deciding upon the combination of products, the first task is to determine the physical relationship between the enterprises. There are mainly three relationships: complementary, supplementary and competitive.

By complementary, I mean that given limited resources, the production of one product increases production of another product without extra resources. Examples include milk and beef (calves)

Supplementary relationship means that one product Y1, does not in any way affect production of another product Y2. Examples include Bee (Honey) production and forestry.

Finally, competitive relationship means that given limited resources, the products compete with each other and the production of one will decrease production of the other e.g. similar cropping plants such as maize and gunea corn.

Given the physical relationship between various products, how can a farmer decide upon the combination of two products so that profit would be maximized? As a general rule, substitute one product for another if the value of the product is larger than the value of the product that has been replaced and that the total cost remains the same.

4. Inelastic Demand for Farm Products.
The consumers of farm products are humans with a basic but LIMITED need for farm products, the result is the well-known relative price inelastic aggregate demands for farm products.

As income increases, the demand for agricultural products will increase in lesser proportion when compared with industrial goods.

For example, Mr. Adams becomes a billionaire, he can increase his number of shirts from five to fifty, the number of his cars from one to ten , but he would hardly increase the plate of rice he consumes from one to two.

5. Agricultural Prices and Production Usually Moves in Opposite Direction.
Farmers usually complain that prices are high at the time they have nothing to sell and prices are low at the time of harvest. When the aggregate supply of agricultural commodities is high the prices would be low and when the aggregate supply is low the price would be high.

For this reason the US government spend billions of dollars to pay farmers to plant lesser fields and buy up surplus farm products. As unbelievable as this seems, it is a strategy of controlling supply of agricultural products so that farmers can sell at fair prices.

Here in Nigeria, we have National reserves that ought to buy up surplus farm products when the supply is high and release them when the supply is low (which is the present case). But recently the Federal Ministry of Agriculture said that out of the over a million tonnes capacity, Nigeria only store 8000 tonnes during the time of surplus.

A corollary of this principle is that a farmer’s income increases when success is achieved at growing a crop in which other farmers have widespread failures.

Agricultural Economics is a very broad field, but these are the basic principles every farmer must know.





Written by Phyllosilicate