University of Gondar
College of Business and Economics
School of Economics
Assefa Tilahun (PhD)
January, 2025
The Subject of Agricultural Economics
Is made up of - Agriculture and Economics
The Subject of Agricultural Economics
Agriculture can be defined as the
production,
processing,
marketing and
distribution of crops and livestock
… Cont---
Economics is the science
Of analyzing the use of limited resources to achieve
desired ends.
Which studies how man satisfies his wants through the
allocation of scarce resources.
Cont...
Agricultural Economics is an applied science which is mainly
concerned with economic problems (production, marketing and
financing) that are associated with farmers' effort to make a
living.
Agricultural Economics is an applied science and as such is
concerned with the identification, description and classification
of the economic problems of agriculture, to the end that these
problems may be solved.
Cont---
Agricultural economics
does not study only the behavior of a farmer at a farm
level which is the micro analysis.
But agricultural problems have also a macro aspect.
Instability of agriculture and
agricultural unemployment are the problems which
have to be dealt with, mainly at the macro level.
CONT...
Taylor “It deals with principles which underlie the farmer’s problems
of what to produce, how to produce and what to sell to secure the
largest net profit of the society as a whole.”
Black “the object of the science of economics in agriculture as
anywhere else is to provide the basis for economizing resources.”
Goodwins “It is a social science connected with human behavior
during the process of production, distribution and consumption of
products on the farm and ranches”.
Nature of Agricultural Economics
Ashby “It is an applied science i.e.; it is a methodical pursuit of
knowledge of economic process and organization in agriculture and
their results.”
Hibbard “Agricultural economics is a study of relationships arising
from the wealth getting and wealth using activities of man in
agriculture.”
CONT...
Thus, Agricultural Economics is both
a social science (art) and
a natural science.
A farmer's activities, decisions and functioning are greatly affected
by society which in turn is equally affected by the farmer's
decisions.
To the extent, farmer's decisions are affected by: his own
psychology, Social institutions and religious and other taboos.
In this respect, agricultural economics is subject to all such
influences as exist within the domain of social sciences.
Nature of Agricultural Economics
In general, Agricultural Economics as a science
it explains the cause and effect relationships between various
economic variables operating in agriculture.
Relationship as found to exist can be used for solving various
problems affecting agriculture.
The Specific Features of Agriculture
Agriculture is different from other sectors in the following major
features:
1. Land is the most important factor of production in
agriculture.
2. Nature plays an important role in agricultural production.
The vagaries of nature greatly influence agricultural production
in one way or the other.
The floods,
The drought,
The heat,
The cold,
The diseases leave their impact on agricultural production
both in terms of quality as well as quantity.
Cont...
3. Use of machinery is limited in Agriculture
This is not to say that machinery cannot be used in agriculture at
all.
It only implies that the production operations for which
machinery is used in agriculture are few in number.
The main reason for this is the biological nature of agriculture.
For example, the plant germinates and grows without the aid
of machinery but it depends on nature.
Machine is used mainly in operations up to the sowing of a crop
or for harvesting and for post harvesting operations.
Cont...
4. Seasonal nature of turnover of agricultural production
Production takes place only at specific periods of the year.
The consequent concentration of activities in a limited period and
the consequent temporary requirements of ancillary services create
special problems of transport, marketing, credit, etc
5. Many of the agricultural products are perishable in nature
Some products of agriculture like vegetables, fruit and milk have a
very short life, a number of others deteriorate considerable in
quality if stored for more than one crop year.
This feature of agricultural products has two important implications.
Cont..
6. Area of operation for a worker is relatively large
Area of operation for a worker is relatively large in agriculture as
compared with that in an industry
An agricultural worker invariably moves over a large area in order to
attend to the jobs assigned to him,
be it ploughing of the field or its watering or the harvesting of
crops.
The relatively large area of operation for an agricultural worker has
economic implications.
Firstly, supervision of the workers engaged in an agricultural
process is difficult.
Cont...
7. A farm is a multi-product production unit
This means that a farm is engaged in the production of many
independent products simultaneously.
For example, each crop is independent of every other crop and the
farmer has to decide which crop to produce and which not to
produce.
As a result, problems of resource allocation over different products
become more important in case of a farm than in case of a
manufacturing firm which is generally a single product firm or
generally confines its production to a very few products.
2.1 Contribution of Agriculture in Economic Development
Any economy can be broadly divided into three sectors, namely,
Primary, Secondary and Tertiary sectors.
Agriculture is the most important constituent of the primary sector.
The primary sector consists of
Agriculture (including forestry and animal husbandry),
Mining and
Fishing
The secondary sector contains
All types of industries.
The tertiary sector represents the service sector which includes
Banking,
Transport,
Insurance,
Trade and
Other services.
2.2 The Role of the agricultural sector in Ethiopia
What is the role of agriculture in the Ethiopian economy?
a) Contributions to the Supply of Food, Inputs and Expansion of
Markets
Agriculture is known to supply the country with
Food grains, Cash crops, Milk and dairy products, and Meat
products etc…..
There are two effects on urban areas and industrial development:
Firstly, it reduces the cost of living in the urban areas as a result of
abundant supply of food.
• This implies a reduction in the cost of production.
• This reduction in the cost of production makes industrial profit
higher.
Secondly, increasing the supply of cheap raw material for industrial
sector
• Reduces the cost of raw materials.
2.2 The Role of the agricultural sector in Ethiopia …
c) Contribution to Employment
• Almost 85% of the populations earn its living from the sector.
d)To the Foreign Exchange Earnings
The sector contributes 90% of the export earnings of Earnings of
Ethiopia. These exports are composed of cash crops like coffee,
pulses and oil seeds, cut flowers, flowers fruits and vegetables and
chat.
The other component of the export is the livestock sub-sector in the
form of hides and skins, live animals and leather products.
Almost 60% of the foreign exchange earnings come from the
Contribution of the Industrial Sector to the Development of Agriculture
1) Industry provides market for the products of the agricultural
sector
The expansion of the industrial sector will strengthen the
commercial motives of the farmer and they are likely to shift
from the food crops to the cash crops.
2) Provision of Modern Agricultural Inputs
Agriculture in the developed economics is highly capital
intensive, using sophisticated machinery, heavy doses of
fertilizers and insecticides and high yielding variety seeds.
The industrial sector also provides the agricultural sector with
a better transportation and communication facilities.
Contribution of the Industrial Sector to the Development of Agriculture…
3) Supply of Consumption Goods
The developing industrial sector supplies not only modern inputs to the
agriculturalists but also the consumption goods.
4)Provision of Infrastructure for Agricultural Development
Modernization of agriculture depends up on the use of modern
agricultural inputs.
Means of communication are required for disseminating modern
information about technology to the farmers.
Schools, agricultural research institutes, colleges, hospitals, electricity
and power,Transport and warehoused are some of the other components
of the infrastructure required for the development of agriculture.
Relationship between Agriculture and Industry
Industry is not the substitute of agriculture; rather they are
complementary to one another.
Both these sectors are so attached with each other that it is not
possible to increase the growth of one sector without the
improvement of the other sector.
If agriculture is considered as the ‘heart’ of the country, then
obviously industry must be consider as the ‘brain’.
(A) Impact of Agriculture on Industry
Agriculture has huge positive impacts on the industrial development,
such as:
It regularly supplies raw materials to the consumer goods
industries.
It supplies food items to the industrial labourer and fodders for the
domestic animals in the dairy industries on a regular basis.
Farmer-households used to save their money in the bank and other
financial institutions which ultimately is used by the industry
owners in the form of investment.
It regularly supplies manpower to the industries
(B) Impact of Industry on Agriculture
The impact of industry on agriculture as follows:
It regularly supplies scientific tools and equipment’s like tractors,
harvesters, pump-sets chemical fertilizers etc.
To increase the market for finished agricultural goods like roads,
railway, storage etc. are very essential.
Industries provide huge employment opportunities and therefore help to
absorb all the surplus labour in agriculture.
Agricultural sector itself is a huge market for the different finished
products of Industries.
Thus, both agricultural and industry are complementary to each other.
The development of one sector depends on the growth and performance of
the other sector.
Inter Dependence of Agriculture and Industry
The interdependence of agriculture and industry helps the
development of both the sectors.
The most important aspect of this inter dependence is that the
products of one serve as important inputs for the other.
Growth of one sector thus means ample supply of inputs for the
other.
The situation is such that a greater flow of products from one
sector to other simultaneously ensures a greater return flow of
inputs itself, though with some time lag.
Limits of Interdependence
The account of the contribution of each sector to the other should
not lead one to conclude that this interdependence is competing.
Each sector uses some inputs which are not supplied by the other
sector.
For instance industrial sector does not depend upon the
agricultural sector for supply of minerals and salts as raw
materials.
Much of its capital is now supplied from its own sources.
It itself supplies machinery to it.
Limits of Interdependence …
Similarly agricultural sector will continue to depend upon nature
for certain inputs like water supply even after industrial sector has
provided it with canals and modern irrigation facilities.
As use of machinery is limited in agriculture, human and animal
power will continue to be important inputs for the sector.
For these inputs, the agricultural sector will again depend upon
itself.
Development of agricultural sector will not remove all the
hindrances inhibiting the development of the industrial sector.
These too have to be attended to. Same is the case with the
industrial sector.
Contributions of Agriculture to Industries
A) Supply of raw materials to industries:
Many industries look to the agricultural sector for supply of raw material.
B) Provision of market for the industrial sector:
The increasing income of the farm sector leads to an expanded
demand for the consumer’s goods produced in the industrial sector.
Though no enquiry directly pertaining to this issue has been
conducted in India, the data collected by the National Sample Survey
organization does indicate that the goods produced in the industrial
sector are finding their way into the consumption schedule of the rural
people.
Contributions of Agriculture to Industries
C) Provision of capital and labour to the non-agricultural sector:
Since it is the agriculture which is the custodian of capital and
labour in the initial stages of economic development
It can be positively asserted that, these factors have moved to the
industrial sector mainly from the agricultural sector, in initial stages
of economic development in most of the countries.
Contributions of the Industrial Sector to the Agricultural Sector
A) Provision of modern inputs to the agricultural sector:
One of the major contributions of the industrial sector is to provide
modern input to agriculture. The inputs are in the form of fertilizers,
pesticides, machinery etc.
B) Provision of infrastructure:
No doubt, many of the items included infrastructure serve the
agricultural sector as well as the industrial sector but these are provided
mainly by the industrial sector.
Transport, electricity, financial institutions, health services, educational
and research institutions, all owe their existence mainly to the facilities
provided by the industrial sector.
Thank you!!!