CHAPTER ONE

1. Introduction
1.1 Definition and scope of economics of agriculture
The words agricultural economics are made up of two words; agriculture and economics. Before
we define agricultural economics as a whole, it would be appropriate to define agriculture and
economics separately. Agriculture, in its widest sense can be defined as the cultivation and/or
production of crops or livestock products. It is synonymous with farming: the field or field-
dependent production of food, and industrial organic materials. Modern agriculture has much
wider scope today and it includes the farm supply industries as well as the product processing
industries and distribution industries.
Having known the meaning of agriculture, let us know what economics is. Economics is the
study of how societies choose scarce resources (land, labor, capital and management), which are
needed in order to produce goods and services that satisfy human wants. It is a science which
studies how people satisfy their wants through the allocation of scarce resources. Now having
defined agriculture and economics, we look into the field of agricultural economics.
Agricultural economics is defined as a discipline that adopts the principle and methods of
economics to the problem of agricultural production and people engaged in agriculture activities.
It can also define as an applied science which is mainly concerned with economic problems that
are associated with farmers’ efforts to make a living. As we know that farmers problems are
numerous and varied in character but can be grouped under the following: Production,
Processing, Marketing, and Financing & Consumption. Hence, agricultural economics is the
science dealing with the allocation of scarce resources among those
competing alternative uses found in production, processing, marketing, financing and
consumption of agricultural products to achieve the maximum satisfaction of economic wants.

Economics of agriculture concerned with:

- The functional relationship between inputs (land, labor, capital, entrepreneurs) and output
- The efficiency of resource use under risk and uncertainty
- The impact of technological change on productivity and profitability in farming
- Factors influencing agricultural production, etc.
Evolution of the Subject Matter
The application of economic theory to agricultural problems has gone through a process of slow

1
acceptance. The origin of the field, now known as Agricultural Economics reach back in many
directions and over a long period of time. The filed came from two separate sources: - from the
physical sciences, and later, from economic theorists. Since agriculture and its production
systems are influenced by physical (topography, climate), social (tradition, culture) and
economic (market, infrastructure) factors, a comprehensive body of science, which includes
physical science, social science, and economic theory, is fundamental.
The severity and length of the agricultural depression beginning in the 1880s caused increasing
attention to be devoted to its causes and possible solutions. Primarily agronomists and
horticulturalists made the most notable early efforts. They recognized that the ability to grow
plants and animals was not sufficient to make farmers succeed. Agricultural Economics is an
important subject area because it is concerned with society's basic needs. Getting food and other
agricultural products to all people in the world in the right form at the right time is an extremely
complexProcess.
Scope of Economics of Agriculture:
It uses theoretical concepts of economics to provide answers to the problems of agriculture or
farmers. Such as:
-what to produce –Selection of enterprises to be produced
-how to produce – Choice of methods of production
- how much to produce-decision about amount to be produced depend on dd&ss
- For whom to produce – concerned with distribution in order to secure the largest net profit
for him-self consistent with the best interest of the society as a whole.

1.2 Specific feature of agricultural production

The agricultural products are of different nature than industrial products. So the features of
products can be divided in three major types on the basis of production, marketing and
consumption.
1.Production-related features of agricultural goods
The production related features of agricultural products are as follows:
a. Seasonal production
Most of the agricultural goods are produced only in certain season. The food crops such as
maize, paddy, wheat etc.; cash crops such as sugarcane, tobacco, jute and vegetables, potato and

2
fruits are produced in certain suitable seasons. But some products such as fish, diary products,
eggs etc. can be produced in all seasons. Every thing cannot be produced in all seasons. So,
seasonal products affect agricultural market.
b. Small size of holding and Scattered Production

Except some limited goods most of the agricultural goods are produced in all parts of the
country. As farmers live scattered in different parts of the country, middlemen collect
agricultural products and supply to markets. Farm products are produced throughout the
length and breadth of the country and most of the producers are of small size. This makes
the estimation of supply difficult and also creates problem in marketing.

2. Marketing-related features of agricultural goods

The major marketing related features of agricultural goods are as follows:
a. Perishable products
Most of agricultural products are of perishable nature, but all are not equally perishable within
same duration of time. Some perish within shorter time and some others remain usable for little
longer. Fish, milk, meat, fruits, vegetables etc. remain fresh only for shorter time, so they are
quick perishable. Such products should be supplied to market as quicker and possible. Special
cold storage is needed to keep such goods safe and fresh. Food crops/grains such as rice, wheat,
mustard etc, remain usable relatively for long time.
b. Bulky products

Most of the agricultural products are weighty and bulky. The characteristics of bulkiness of
most farm products makes their transportation and storage difficult and expensive. This
fact also restricts the location of production to somewhere near the place of consumption
or processing. The price spread in bulky products is higher because of the higher costs of
transportation, handling and storage.

c. Quality and quantity variation

Quality and quantity of agricultural products become different according to the productivity of
land, season and climate. The quality of seeds, use of fertilizers etc. also causes difference in

3
quality. There is no such problem in manufactured goods because they can be produced of
uniform quality.

3. Consumption-related features of agricultural goods

The consumption features of agricultural products are as follows:
a. Continuous consumption
Agricultural products are very important to meet daily needs of people. So, it is necessary to
have regular supply of agricultural products such as food grains, fish, meat, milk, fruits etc to
satisfy daily demand.
b. Inelastic demand
The demand for agricultural products remains relatively less elastic. Demand for such products
does not decrease or increase due to rise or fall of prices. The consumers are compelled to meet
their daily needs at minimum level, even if the price of agricultural products rises up.
c. Price fluctuation
The price of agricultural products remains unstable. The price of agricultural products is easily
affected by supply and demand. Apart from the problem in estimation of total supply in a
small-farm agriculture, an individual farmer faces a typical marketing situation. As his
share in total supply is very small, he can not influence the market supply. Further, owing
to the inelastic nature of demand of most of the farm products, the market price for his
product is determined independent of his supply. It is in this context that an individual
farmer is supposed to be operating in a buyer’s market. Contrary to this, most of the
manufacturing firms, owing to their larger share in the market, can control, to some
extent, the supply and thus influence the price of the product they sell.

1.3 Main attributes of traditional agriculture

Traditional agriculture is characterized by having very little technicality and very low use of
technology. This makes its large-scale production not too productive. The production here is
only for the consumption of the farmer and those who work the land. Tools such as the sickle,
hoe or shovel are often used. In the case that farmers have a tractor, it is not usually used at its
maximum power.
Traditional agriculture is a very rudimentary activity and its production depends on most of the
physical capabilities of the farmer and his workers. This makes both performance and

4
optimization of resources for better products low. To all these characteristics it must be added
that the way in which the land is worked is not the way it is currently done. The way in which the
land is worked corresponds to some ancestral and empirical knowledge or practices that are
communicated from generation to generation.
Traditional agriculture can be defined as a primitive style of farming that involves the intensive
use of ;
Indigenous knowledge: also referred to as Traditional Knowledge or Traditional Ecological
Knowledge is a body of observations, oral and written knowledge, innovations, practices, and
beliefs that promote sustainability and the responsible stewardship of cultural and natural
resources through relationships between humans and their landscapes.
Traditional tools: traditional agriculture does not apply modern technologies instead Sickle,
spade, and axe are some of the traditional agricultural implements used by farmers. It is a labour
and time-intensive agriculture practice.
Natural resources: Natural resources are materials from the Earth that are used to support life
and meet people's needs. Traditional agriculture highly depend on natural resources like air,
sunlight, soil and water.
Organic fertilizers: Organic fertilizers that feed the soil and sustain plants include animal waste
and byproducts, such as bird and bat guano, blood meal, bone meal and feather meal, as well as
fish and kelp fertilizers.
1.4 Agricultural systems:

1.4.1 Low external input agriculture (shifting cultivation, pastoralism,

peasant agriculture)

Low external input agriculture" (LEIA) is a type of agriculture that relies on low amounts of
external inputs such as synthetic fertilizers, pesticides, and fossil fuels. This approach focuses on
using local resources and knowledge to promote sustainable farming practices that improve soil
health, conserve natural resources, and increase biodiversity.
Advantages of Low External Input Agriculture (LEIA):
Environmental sustainability: LEIA practices promote environmental sustainability by
reducing the use of synthetic inputs, which can lead to soil degradation, water pollution, and loss
of biodiversity.

5
Improved soil health: LEIA practices improve soil health by increasing organic matter,
nutrients, and microbial activity, which can increase soil fertility and productivity.
Lower carbon footprint: LEIA has a lower carbon footprint compared to HEIA due to reduced
use of fossil fuels and synthetic inputs.
Reduced health risks: LEIA can reduce health risks to farmers and consumers by minimizing
exposure to synthetic inputs.
Increased biodiversity: LEIA practices promote increased biodiversity through the use of crop
rotations, intercropping, and other techniques that support beneficial insects and other wildlife.
Disadvantages of Low External Input Agriculture (LEIA):
Lower yields: LEIA practices may result in lower yields compared to HEIA practices due to the
reduced use of synthetic inputs.
Higher labor requirements: LEIA practices can require more labor-intensive work due to the
use of traditional farming techniques.
Limited access to external inputs: LEIA practices can limit access to external inputs such as
synthetic fertilizers and pesticides, which can be necessary in certain circumstances to address
specific pests or nutrient deficiencies.
Dependence on local resources: LEIA practices rely heavily on local resources and knowledge,
which may limit the ability to scale up or adapt to changing environmental conditions or market
demands.
Overall, LEIA practices can provide a more sustainable approach to agriculture that prioritizes
environmental and social sustainability. While there may be some challenges associated with this
approach, the benefits of promoting sustainable agriculture practices can help to address many of
the environmental, social, and economic challenges facing modern agriculture.

1.4.2 High external input agriculture (the case of Industrial & green
revolution agriculture)
HEIA: "High external input agriculture" is a term used to describe a type of agriculture that relies
heavily on external inputs such as synthetic fertilizers, pesticides, and fossil fuels. This type of
agriculture often focuses on maximizing yields and profits in the short-term, without considering
the long-term impacts on the environment or on the health and well-being of farmers and
consumers.

6
The Green Revolution, also known as the Third Agricultural Revolution, was a period
of technology transfer initiatives that saw greatly increased crop yields and agricultural
production. These changes in agriculture began in developed countries after World War II and
spread globally till the late 1980s.
In the late 1960s, farmers began incorporating new technologies such as high-yielding
varieties of cereals, particularly dwarf wheat and rice, and the widespread use of chemical
fertilizers (to produce their high yields, the new seeds require far more fertilizer than traditional
varieties), pesticides, and controlled irrigation.
HEIA can lead to soil degradation, water pollution, and loss of biodiversity, as well as contribute
to climate change through greenhouse gas emissions from the production and use of synthetic
inputs and from the loss of soil carbon. It can also have negative social impacts, such as the
displacement of small-scale farmers and the concentration of power and wealth in the hands of a
few large agribusiness corporations.
Sustainable agriculture practices, on the other hand, seek to reduce reliance on external inputs
and prioritize ecological and social sustainability. This can involve techniques such as crop
rotations, agroforestry, cover cropping, and integrated pest management, as well as the use of
organic and regenerative farming practices that focus on building soil health and increasing
biodiversity.

Advantages of High External Input Agriculture (HEIA):

High yields: HEIA practices often result in higher yields and profits in the short term due to the
heavy use of synthetic inputs.
Increased food production: HEIA can increase the overall food production, which can help to
feed a growing population. Malnutrition problem easily managed.
Lower labor requirements: HEIA practices can reduce labor requirements for farmers due to
the use of machinery and synthetic inputs.
Lower food prices: HEIA can result in lower food prices due to increased production and lower
labor requirements.
Increase in Income and profit margin
Productivity of land is increased

7
Disadvantages of High External Input Agriculture (HEIA):
Environmental degradation: HEIA practices can contribute to environmental degradation,
including soil erosion, water pollution, and loss of biodiversity.
Soil degradation: The excessive use of synthetic inputs can degrade the quality of the soil over
time, reducing its productivity and resilience.
Health risks: HEIA can pose health risks to farmers and consumers due to the use of synthetic
inputs, which can lead to pesticide exposure and food contamination.
Contribution to climate change: HEIA contributes to climate change through the production
and use of synthetic inputs, as well as through the loss of soil carbon.
Dependency on external inputs: HEIA practices can create dependency on external inputs such
as synthetic fertilizers and pesticides, which can be expensive and subject to price volatility.
Traditional varieties of seeds face extinction