1. AGRICULTURE: ECONOMICS AND POLICY5
C H A P T E R
AGRICULTURE: ECONOMICS AND POLICY

2. Agriculture Prices
Aaaaaaa

3. Outline: 1 Concept of agri. prices and its importance 2
Changes in prices of agri. goods 2
Problems due to instability in Agri. Prices 3
Agriculture Price Policy 4

4. Concept of agri. Prices and Importance
The monetary representation of value of any commodity is known as price. In the same way, the monetary expression of agri. Goods is called the agri. prices.
The prices of agri. goods are of great importance for the country like Afghanistan.
Rational Production Decisions:
On the basis of agri. prices the farmers make decision regarding produce of the farm. It means that prices as a signal will guide the rational producer regarding what to produce. As a matter of fact they will produce those goods which command higher prices.

5. 2. Urban Consumers:
The agri. prices also influence the urban consumers. As if the prices of agri. goods are lower, as desired by them, they will be benefited. This situation is of great importance for those urban and non-agri. users who are concerned with fixed income group.
3. Public Policy:
The above points show that rising agri. prices are beneficial for farmers while the reverse is the case with urban users. In such circumstances, it becomes the responsibility of the state to follow what type of public policy. It means whether it prefers the interests of the farmers or gives importance to urban users.

6. 4. Industrialists:
The prices of agri. goods are also important for industrialists as the cotton and sugar-cane are the basic inputs for textile and sugar industries. Each producer wants to minimize the costs and maximize output. Thus in the pursuance of minimization of costs, each firm would like to purchase the agri. inputs at lower prices but the policy of lower prices for agri. Inputs lead to promote unequal income distribution. The agri. sector remain surrounded by poverty and depression.

7. 5. Financial Payments:
The prices of agri. goods are also important for landlords, money-lenders, artiyas and agri. bankers as most of the farmers have borrowed from them. These big people not only have a look on the produce of farmers but they also give importance to the prices of agri. goods. If the farmers are in a position to get reasonable prices for their harvest of wheat, rice, sugar-cane and cotton etc. they will be in a position to make their financial payments.

8. 6. Public Revenue:
The prices of agri. goods are also important for revenue department of government. As if farmers get the fair prices of their goods, the revenue assessment will be easier for the govt. officials etc. if due to drought, floods or onset of pests etc the production decreases the problems will rise regarding assessment of the agri. produce. In such situation govt. revenue target will be affected and to meet the revenue gap the public borrowing will have to be made.

9. CHANGES IN PRICES OF AGRI. GOODS
There are four types of changes which may occur in agri. Prices.
1. SHORT-TERM PRICE FLUCTUATIONS: The changes in prices which remain confine to short-run only are attributed to short-term changes in prices. These changes occur due to temporary changes in demand and supply. The short-run changes occur due to follow reasons:
a. Weather Conditions and Transportation: The short-term price changes may rise due to weather conditions or transportation problems. For example, if due to flood the road link suspends, it becomes difficult to transport goods, especially perishable goods. As a result, the rise in prices of fruits etc in the markets can be assigned to short- term changes.

10. Price fluctuations……. continued
b. Temporary fluctuation in consumer demand:
The consumers demand depends upon the expected consumers in the market, their purchasing power, their preferences, substitutes of goods and weather conditions. However, due to changes in supply, these factors respond slowly. As a result, the consumers demand remains stable due to short-run and long-run. Thus the short-run changes in demand are concerned with changes in expectations of whole sellers.
SEASONAL VARIATIONS:
The big changes in supply of agri. goods occur due to seasons. It has been observed that when the crop is harvested its price falls because of abundance. It remains low for the period of 2 to 3 months. Then it starts rising as the supply of the produce is short and gets maximum before the arrival of new crops.

11. Price fluctuations……. continued
CYCLICAL CHANGES:
The changes in prices which occur for a longer period (more than one year) are called cyclical changes in prices. These changes normally occur due to changes in supply. For example, if the prices of eggs are higher in one year, it means that the hens laying eggs are reduced in number. Then the farmers will increase the hens in their poultry farms. When number of hens increase the supply of eggs will increase leading to decrease their prices. Such fluctuations in the prices and outputs of eggs will remain operative. These changes in prices and outputs are given the name of cyclical changes in prices.

12. Price fluctuations……. continued
LONG-TERM CHANGES: So many factors like affect supply and demand in long-run which leads to long-run price fluctuation. It include:
a. changes in population, b. changes in fashions, c. changes in natural resources, d. changes in techniques of production e. changes in costs of production etc

13. Problems due to instability in Agri. Prices:
There are big fluctuations in the incomes and outputs of the farmers
The uncertainty regarding distribution and allocation of resources rises in the economy.
The terms of trade go against agri. sector in case of lower prices. This situation benefits the consumers and industrial producers at the cost of farmers.
The agri. Sector becomes unprofitable and least attracting sector and more lands are not cultivated.
Because of financial problems the small farmers are bound to sell their produce when prices are falling while big farmers and commission agent store the goods and sell them when prices start rising. All such means that the instability in the prices of agri. goods hits the small farmers.

14. Agricultural Price Policy:
Agriculture price policy is a method of influencing the price of agricultural goods so that it acts as an incentive to produce certain goods in desired quantities.
The price policy of agricultural commodities generally aims to achieve the following objectives:
To minimize fluctuations and provide stability to the prices of agricultural goods
To promote balanced increase in production so as to fulfill domestic consumption requirements.
To provide food grains to the consumes at reasonable prices.
To provide a regular flow of raw material to agro-based industries at fair prices.

15. Objectives of Agricultural Price Policy…… continued
To encourage investments in agriculture especially in the production of goods in which the national targets call for major increase in production.
To encourage increase in production and reducing production cost by promoting use of better technologies.
To increase earnings of foreign exchange through exports of agricultural goods.

16. Forms of intervention in pricing of farm products:
There are a number of measures which the government of a country takes in regulating the prices of farm products. These measures area discussed as follows:
1. Administrative Prices: it is very difficult for the government of a country to maintain a favourable price climate both for the farmers and the consumers. Both the sections have conflicting interests. If prices of agricultural goods are raised to promote the growth of agricultural output, then the consumers quality of life is affected. In case the agricultural goods are priced low, then their production is adversely affected and the farmers suffer. The government therefore, tries to strike nice balance and maintains price level which suits the interests of producers as well as the consumers.

17. Forms of intervention in pricing of farm products…. continued
The set of administered prices usually consists of
Support Prices: to benefit the farming community, the government revises and fixes the support prices of important corps every year. The prices are generally announced before the sowing time. The farmers then plan allocation of area, input and other resources for different crops. Support prices thus contributes to income stability of the farmers.
Procurement Prices: the government also announces procurement prices for the purchase of food grains or industrial raw material. The government purchases the desired quantity of goods for maintaining stock, meeting any emergency and stabilizing the prices of agricultural goods in the market.

18. Forms of intervention in pricing of farm products…. continued
Issue Prices: the government provides specified quantity of goods to the consumers at the prices which are lower than the market prices.
2. Influencing Supply and Demand of a commodity:
the government can intervene in price of farm products by influencing their demand/supply in the market.
For example, the government may procure a part of the produce from the traders or farmers. Procurement of a commodity reduces its supply in the open market. The farmers are then allowed to sell the remaining quantity of the good in the open market at the prevailing market price.
another form of state intervention in price is to encourage export of goods which are surplus in the country. The export of surplus goods raise the price level in the country.

19. Forms of intervention in pricing of farm products…. continued
3. Creation of infra-structure facilities:
The government can also influence the prices of goods by providing necessary infra-structure such as roads, construction of warehouses etc. the farmers with the provision of these facilities are able to get fair and reasonable price for their produce.
4. Influencing the behavior of market functionaries:
The government can also influence the prices of goods by influencing the behavior of the market intermediaries by fixing a minimum price for the products or directly procuring the agri- products from the farmers.

20. Thank You