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Sub-Topic 2: Price Determinants
In a market, there are buyers and sellers. The buyers bring their money to the market to buy goods while the sellers bring the goods to the market for sale. The factors that determine the price at which both the seller (farmer) and buyer (consumer) are satisfied are:
- (i) Cost of production
- (ii) Quality of produce
- (iii) Quantity of produce
- (iv) Forces of demand and supply
- (v) Market price
- (vi) Seasonality of produce (Discuss what the price is composed of).
- (vii) Taxation
- (viii) Trade union
- (x) Government policies
- (xi) Technological advancement
- (xii) Changes in supply and demand
Cost of production: to determine the price for your product, it is important to use your cost of production as your base. Therefore, you must know your cost of production so that a break-even point can be established.
Government policies: government subsidies reduce the input cost for farmers, and support prices fixed by the government that ensures that prices do not fall below such levels. Policies that curb the export of agricultural products may prevent shortages or causes a glut in the market, leading to stable prices or a fall in prices. On the other hand, the free import of agricultural products may lead to demand matching and vice versa.
Forces of demand and supply: demand is how much people are prepared to buy at the market price. Prices can affect how much demand there is for a product. Normally, if the price goes up, demand goes down, and vice versa
Market sentiments: at times, market sentiments or perceptions play a big role in determining agricultural prices. For instance
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