2 - Economics of agricultural production: theoretical foundations

Summary

Introduction

Growth in agricultural production is necessary not only to increase food availability and raise nutrition levels of the population; it is essential to the development process. Indeed it is accepted that a prerequisite for rapid economic growth is the channelling of agricultural surplus (production in excess of own consumption) to the non-farm sector. It will not however be our purpose to analyse the way in which the agricultural sector can make a contribution to development. Rather the importance of agricultural production will be taken as given and we will focus instead on the determinants of agricultural output. In this and the following two chapters particular attention will be given to (i) the factors which influence the supply of agricultural product, (ii) the factors which govern the usage of productive inputs (labour, fertiliser, machinery etc.), (iii) the efficiency of resource use and (iv) the impact of technological change. These topics are central to the analysis of agricultural markets and in particular to the design of effective development policies aimed at motivating agricultural producers, mobilising resources in the sector and spreading new technologies.

In this chapter we present the main elements of the theory of production economics which have proved useful in the study of agricultural markets. As with all branches of economics, production economics is concerned with the allocation of scarce resources to alternative uses. In production theory the main choices centre upon what to produce (which product or combination of products), how much to produce (the level of output) and how to produce (the combination of inputs to use).