Lecture Notes: Economic Functions in Agriculture

Definition of a Farm

• An economic unit that engages in production and sale of agricultural produce and services to gain a profit.
• Key Parts:
  • Economic unit
  • Agricultural produce and services
  • Profit

Key Terms

• Profit
• Economic unit
• Production
• Land
• Labor
• Capital
• Management
• Value Chain
• Supply Chain
• Consumption
• Marketing

Economic Functions

• Production:

  • Activity engaging management and use of resources for producing agricultural commodities.
  • Focuses on providing goods and services to satisfy needs and wants.
  • Benefits: Increased wealth, promotes economic welfare, improves the standard of living.
  • Inputs: Factors of production - land, labor, capital, management.
  • Outputs: Goods and services (e.g., tractor, crops, refrigerator).

• Consumption:

  • Utilizes goods and services.
  • Influenced by health, income level, religion, and aesthetics.

• Marketing:

  • Drives production and consumption.
  • Promotes goods and services flow.
  • Functions: Merchandising, handling, processing, supporting.

Factors of Production

• Land:

  • Natural resources found in sea and on land.
  • Most essential factor; location is critical.
  • Problems: Increasing population, competition for housing/agriculture, increased land price.
  • Solutions: Green belt zoning, financial assistance, subdividing land.

• Labor:

  • Human effort in production.
  • Types: Family labor, operator labor, hired labor.
  • Problems: Rural-urban drift, low wages, psychological attitudes, demographic changes.
  • Solutions: Educate the public, provide infrastructure, incentive programs.

• Capital:

  • Compromises money, buildings, equipment, tools.
  • Types: Fixed (buildings, machinery) and Working (feed, cash).
  • Rewards: Interest for financial capital providers.

• Management (Enterprise):

  • Determines success or failure of production.
  • Involves analyzing, decision making, budgeting.

Types of Production

• Primary: Raw materials (e.g., crops, livestock).
• Secondary: Converts raw materials (e.g., guava jam).
• Tertiary: Services (e.g., farm store, veterinary).

Value and Supply Chain

• Value Chain: Adds value to raw materials to produce a product for sale.
• Supply Chain: Steps to get the product to consumers.

Key Questions for Review

1. Why is land often the essential factor of production?
2. Which factor of production is most important and why?
3. Is labor always important to make a product?
4. Is there a factor that is not necessary to make a product?
5. Difference between fixed and circulating capital.

Thought for the Day

"Investments in agriculture are the best weapons against hunger and poverty, and they have made life better for billions of people."