The Market Structure Of The Agriculture Sector Economics Essay

Food is no longer a cheaper good as it was in the yesteryear. Harmonizing to the UN Food and Agricultural Organization ( FAO ) , the universe nutrient monetary values hit their highest degree recorded in January 2011 and were set to maintain lifting in the month to come. The universe nutrient monetary values index in 2011 were reached 231 in January, transcending the old extremum of 224.1 set at the planetary nutrient crisis in 2007-08. Compare the nutrient monetary value with a twelvemonth ago, the monetary value of wheat and maize were raised by more than 80 % , while soya bean monetary values jumped by about 60 % . The monetary value of sugar has been doubled since last June and reached its highest degree in 37 old ages. ( MySinchew, 2011 )

The market construction of Agriculture is perfect competition and sometimes referred to as pure competition. Agriculture house is a perfect competition because it market construction characterized by a big figure of houses so each of the house in perfect competition produces an undistinguished per centum of entire market end product and therefore that no individual house can act upon or command over the governing market monetary value. ( Geoff Riley, 2006 )

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Besides, the agribusiness merchandise is said to be standardized or homogeneous. Its agencies that, agribusiness merchandise is a merchandise where purchaser can non distinguish in footings of quality, packaging or labeling. Therefore, in agribusiness market clients do n’t care which specific house they buy from because it is perfectly indistinguishable. Therefore, the houses can non bear down different monetary values for the same merchandise in the market. ( AmosWEB Encyclonomic )

Besides that, There are freedom of entry and exist from the market in perfect competition. This type of market is executable in the long tally and no house will rule the market and evict other house. ( Geoff Riley, 2006 )

Furthermore, each house ‘s merchandise supplied to the markets that are prefect replacements for the merchandise of others houses, so the demand for each house ‘s merchandise is absolutely elastic. Therefore, the houses in the perfect competition have no power to put the monetary value they have to sell the merchandise at the traveling market monetary value. This type of house are said to be monetary value takers. ( AmosWEB Encyclonomic ) This can be shown in both figure 1a and figure 1b.

Market Firm

Price Price


P* P


Quantity Quantity

Figure 1a Figure 1b

Beginning: Grey Parry and Steven Kemp, 2000 Pathways in Economics, 5th edition, Tactic Publisher, South Pertg Wa.

At the equilibrium monetary value, the measure demand and quantity supply of the market is balance. The equilibrium monetary value can be shown in figure 1a, where the supply and demand curve intersects with each others. The equilibrium monetary value is at P* .

At any monetary value below P* , the market deficit of the merchandise would be. At this monetary value the measure demand is higher than measure supply therefore it will causes extra demand in this merchandise. Due to the merchandise deficit, the purchaser would offer among themselves for the limited supply and monetary value would lift to extinguish the deficit. ( Grey Parry and Steven Kemp, 2000 ) . Conversely, if the monetary value is above the P* , the market excess of the merchandise would be. Therefore, it will do extra supply in this merchandise. Sellers will desire to extinguish the excess by take downing monetary values. That is because, when the monetary value falls, the measure of demand would lift to extinguish the deficit. ( Grey Parry and Steven Kemp, 2000 ) .

Demand consequence the nutrient monetary value

When either supply or demand alterations, the equilibrium monetary value will alter. As shown in figure 2a below, the addition of nutrient demands from D1 to D2 do the both monetary value ( P1 to P2 ) and measure sold ( Q1 to Q2 ) to increase. At the old equilibrium monetary value of P1, measure demanded will now greater than the measure supplied. Therefore, the extra demand will ensue the measure supply motion along the supply curve to a higher equilibrium monetary value where the measure of demand and supply is one time once more in balance. A lessening in demand for nutrient would hold the opposite consequence, the equilibrium monetary value will diminish and the measure besides will diminish. ( Grey Parry and Steven Kemp, 2000 )

Food Price

D2 S

P2 D1


Q1 Q2 Quantity

Figure 2a

Beginning: Grey Parry and Steven Kemp, 2000 Pathways in Economics, 5th edition, Tactic Publisher, South Pertg Wa.

A alteration in demand will ensue in figure of factors which are:

Bio-fuel production addition

The recreation of nutrient for doing bio-fuels has lead to increased demand for bio-fuel natural stuff, such as wheat, soy, corn and so on. Therefore, the increasing in biofuel production doing less nutrient available for human ingestion and the monetary value of nutrient harvests were increase dramatically. The most clearly illustration are the usage of maize in the United States for the production of biofuels. In the approximately 25 % to 30 % of maize end product in the US is used for ethanol biofuels. ( CNET News, 2008 ) Biofuels have forced planetary nutrient monetary values up by 75 per cent and these monetary values are higher than the antecedently estimated, a survey by the recent study of World Bank ( Sumanjeet Singh, 2009 )

Population Growth

A turning population increase the figure of demand for nutrient will take to drastic monetary value addition, which is non easy to fall in the hereafter, due to miss of stocks and decelerate turning providers of agricultural end product. In 2007, universe population was estimation to be 6.6 million and the turning rate of 1.17 per cent per annum. Therefore, in a research in 2007, an FOA nutrient monetary value index rose by 40 per cent since 2000 and international wheat monetary values have tripled. Therefore, this research show that the addition in the monetary value of nutrient merchandise that are basics for most of the universe ‘s population. ( Sumanjeet Singh, 2009 )


When the existent incomes rise, the measure of demand nutrient will lift. That is due to the people can be able to afford to purchase more nutrient at any monetary value. Subir Gokam, Subir Gokarn, deputy governor of the cardinal bank, estimation that the 39 % rise in income per individual in the old five old ages might hold crested an excess 220million regular consumers of milk, eggs, meat and fish. ( John Weeks, 2011 )

Festival season

During the spring festival 2003, nutrient monetary values at local moisture markets and supermarket have risen perceptibly. The monetary value of veggies and aquatic merchandises rise by 10 to 20 per centum at local moisture markets. That is due to during the last few yearss for the spring festival the demand for nutrient are rose 30 per centum over a few hebdomads ago. Beside that, in this period the retail monetary value of bamboo shoots has surged by 25 per centum and the general monetary value of aquatic merchandise has besides increased by 10 per centum in recent yearss. (, 2003 )

Change in Demand eating wonts

In the early of 1985 the mean Chinese consumer merely ate about 20kg of meat a twelvemonth, now they eat more than 50kg. The additions the demand for meat in those developed states, lead to increase the demand for grain to feed to animate beings. That is because, to bring forth a kg of porc meat needed to utilize three kgs of grain and a kg of beef needed to utilize eight kgs of grain merchandise. Therefore, a displacement in diet will take to greater demand for agricultural resources. ( Garry Peterson, 2007 )

Supply consequence the nutrient monetary value

As shown in figure 2b below, when the supply of nutrient addition from S1 to S2, the nutrient monetary value will fall from P1 to P2 and the measure demand will be motion along the demand curve to a new equilibrium monetary value where the supply curve intersects with demand curve. Finally the new equilibrium monetary value and measure will P2 and Q2. A lessening in supply for nutrient would hold the opposite consequence, the equilibrium monetary value will lift and the measure will diminish.

Food Price

D S1

P1 S2


Q1 Q2 Quantity

Figure 2b

Beginning: Grey Parry and Steven Kemp, 2000 Pathways in Economics, 5th edition, Tactic Publisher, South Pertg Wa.

A alteration in supply will ensue in figure of factors which are:

Natural catastrophe

Natural catastrophe conveying a earnestly influence on the nutrient production. The worst drouth happened in Russia last twelvemonth damaged a mostly figure of wheat harvest and do the Russian authorities to discontinue grain export for the twelvemonth. Seriously deluging in Australia besides amendss wheat harvests and causes some of the harvests were downgraded for usage merely as carnal nutrient. Consequently, the wheat harvests were faced deficit in the past twelvemonth and do the monetary value of grain nutrient has risen aggressively. ( Dr. Grary Peters, 2011 )

Smaller harvest outputs

Smaller harvest outputs besides have played a function in the lifting nutrient monetary values. The grain merchandises are lifting late, it possibly causes of about 40 % of the universe ‘s agribusiness lands are earnestly degraded. The most earnestly affected parts are Central America and Africa. When the dirt were degraded, the land will non suitable for farming and do the nutrient of production lessening. ( lan Sample, 2007 )

Negative clime alterations

The word agribusiness providers were significantly decreased due to the planetary heating. Therefore, in the planetary heating period will ensue in extra monetary value addition for the agricultural harvests. Beside that, harmonizing to the Integrated Regional Information Networks, IRIN, it province that within the following four decennaries maize monetary values could lift by up to 131 per centum due to the planetary temperature and some of the African husbandman might hold to give up agribusiness if the conditions are acquiring hotter. ( IRIN News, 2010 )

Fiscal guess

Fiscal guess in nutrient will easy act upon the existent monetary value of groceries, doing them to go more volatile and to lift and fall more dramatically. Jayati Ghosh, Professor of Economics at Jawaharlal Nehru University, New Delhi said that from about late 2006, a batch of fiscal house, bank and others realized that there was a subprime mortgage crisis and following recognition crunch in US lodging market, and they are took their money out of belongings and set into trade goods alternatively. ( Ghosh, J. , 2010 ) This US trade goods guess could hold a world-wide impact on nutrient monetary values are reflected in the globalisation of nutrient production. (, 2008 )

Cost of oil

The surging oil monetary values in late have played a function in a lifting nutrient monetary value ( Ghosh, 2008 ) , which affects agribusiness costs indirectly or straight assortment of ways. This is because the oil is an of import resource as an as an input in the cultivation procedure itself every bit good as in transporting nutrient. ( Sumanjeet Singh, 2009 ) For case, universe cereal monetary value have increase dramatically with export monetary values of major grain up to at least 70 per centum from February 2010. Consequently, this will ensue in lifted up both the cost of conveyance and cost of production. (, 2011 )

Harmonizing to the Work Bank study, the fertiliser monetary values have risen 150 per cent in the past five old ages. The monetary value of the nutrient will besides influenced by the monetary value of fertiliser as the cost of fertilisers contributes a mostly cost of grain production in the USA, which is responsible for 40 per cent of universe grain export. ( Sumanjeet Singh, 2009 )

Crisp rise in oil monetary values in the recent yesteryear can be seen as follows.

Oil monetary values during 2008

Calendar month

Price per barrel in US $

03rd June 2008


17th March 2008


29th April 2008


15th May 2008


21st May 2008


05th July 2008


01st August 2008


14th August 2008


21st August 2008


29th August 2008


02nd September 2008


16th September 2008


Beginnings: Anoma Abhayaratbe, 2008,



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