SS2 Lesson Note on the Implications of Demand and Supply for Agricultural Production

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CLASS: SS 2

TOPIC: IMPLICATIONS OF DEMAND AND SUPPLY FOR AGRICULTURAL PRODUCTION

CONTENT:

1. IMPLICATION OF DEMAND AND SUPPLY FOR AGRIC PRODUCTION
2. PRICE SUPPORT, PRICE CONTROL AND SUBSIDY PROGRAMME

SUB TOPIC 1: IMPLICATION OF DEMAND AND SUPPLY FOR AGRIC PRODUCTION

The implications of demand and supply for agricultural production include the following

1. When the demand for a farm produce exceeds supply, price tends to rise
2. When the demand for a farm produce is lower than the supply, the price falls
3. Increase in the income of the consumer will make them demand for more farm produce vice versa
4. Increase in the price of produce may lead to low demand for it and shift to the close substitute that has a lower price
5. High cost of production may lead to low output, low supply and high prices of produce and vice versa
6. Supply of farm produce will be low when environmental factors for production are unfavorable and vice versa
7. High cost of farm inputs may lead to low supply and high cost of farm produce and vice versa
8. If the taste of consumers is in favor of a product, the demand and price of such produce will increase and vice versa.
9. Increase in the number of producers will lead to increase in supply and reduction of price and vice versa.

PRICE SUPPORT AND ITS EFFECTS ON AGRICULTURE

Price support is the government-imposed price floors on selected farm produce. It is also known as ‘minimum prices’ established by the government above the equilibrium price. The government supports in the following ways:

1. Support for farm prices income and output
2. Support for soil and water conservation
3. Support for agric research
4. Support in the form of farm credit
5. Support in the form of insurance (crop and animals)
6. Subsidized sale of farm produce

EFFECTS

1. They increase farmers’ income
2. They increase food prices to consumers
3. They cause an over allocation of resources to agriculture
4. The pollution increases because of the greater use of agrochemicals
5. Society pays higher taxes to finance the purchase and storage of surplus output
6. They cause surplus production

PRICE CONTROL AND EFFECTS ON AGRICULTURE

Price control is the fixing of prices above (minimum price) or below (maximum price)the equilibrium price. It is also called minimum and maximum price legislation. Price control is divided into two:

1. MAXIMUM PRICE CONTROL (PRICE CEILING): This is the maximum legal price a seller may charge for a produce. It is fixed below the market equilibrium price. It enables the consumers to obtain more of the produce they could not afford at equilibrium price. Government uses it to control inflation

EFFECTS

1. There will be excess demand over supply and results in shortage of such commodities in the market
2. Rationing problem will occur
3. A black market will exist where produce are bought and sold at prices above the legal limits
4. Producers may hoard part of the produce to create artificial scarcity
5. Producers whose prices are controlled will have a fall in income
6. Low income received by producers may result in changing to production of other commodity causing a fall in output

MINIMUM PRICE CONTROL (PRICE FLOORS)

This is the minimum legal price fixed by the government to protect the producers from low and fluctuating income. It is also used to regulate wages. A seller can sell at or above the price. Price below minimum legal price is illegal. Marketing and commodity boards play this role in Nigeria before each crop season

EFFECTS

1. There will be excess supply over demand which results in persistent produce surplus
2. There will be a rise in prices of commodities.
3. Wastage will result from low demand and excess supply
4. Increase in demand for alternatives as they may be cheaper

SUBSIDY AND EFFECTS ON AGRICULTURAL

Subsidy is an incentive in cash or kind aimed at encouraging producers to produce more goods by reducing their cost of production. This includes government giving farmers farm inputs such as fertilizers, improved seeds at prices lower than the normal market prices.

REASONS FOR FARM SUBSIDIES

1. Farmers are poor and therefore should receive higher prices and incomes through public help
2. Farming and particularly the family farm is fundamental and should be nurtured as a way of life
3. Farmers are subject to extraordinary hazards such as flood, droughts, pests and diseases.
4. Farmers cannot fully insure themselves against hazards or natural disasters
5. Farmers have no control over prices like industries producing inputs
6. They are at the mercy of the market in selling their outputs
7. Subsidies serve as an aid to offset the disadvantageous term of trade

EFFECTS

1. It encourages farmers to produce and supply large quantities of farm produce
2. It reduces the cost of production

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