LECTURE III Agricultural Production Economics

Production  Is the transformation of two or more inputs (resources) into one or more products.  Transformation takes place by combining the inputs in various amounts for different needs and uses.  Combining necessarily implies that there must be more than one input to make a product.  If nothing was added, the original resource simply remains what it was.  Thus nothing can be made with less than two inputs, and some products take hundreds of different inputs for their creation.

Factors of Agricultural Production  Classified under four major categories including:  Land  Labour  Capital  Management or entrepreneurship

Land  Provides the space for production.  Factory sites and farmsteads are both set upon land.  Water is usually put in the land resource classification.  In parts where unexploited land is plenty land-use per household can be varied.  The economic optimum policy is to operate an “extensive” system with a large land:labour ratio and hence low labour inputs and yields per hectare.  Once all available land is in use, increased labour input must mean intensifying the system of land use to produce more per hectare.  The important aspects of land include  Quality  Location  Land tenure.

Quality of Land  Land is not a resource whose quality is evenly distributed over the surface of the world.  Major differences in land quality are often found within the area of a single farm and cropping systems are organised accordingly.  This uneven distribution gives rise to more production advantages in some areas than others.  It is thus important that all farmers including pure subsistence farmers make land allocation decisions.

Location of Land  Most farm families maintain a compound or kitchen garden close to the house, which is fertilized with ashes and household refuse and is continuously cropped.  Land further from the home is used less intensively.  This may reflect a conscious choice to build the settlement on the most fertile soil in the area.  However, even if all the land were of equal fertility, the one near the home would be cultivated more intensively because of its location.  Time is lost walking to and from remote plots, so the surplus over labour costs must be lower.  This means the remote plots will be cultivated less intensively.

Land Tenure System  Land tenure system is the set of laws and customs that establish rights and duties relating to land use.  From the national point of view, the two main requirements of a system of land tenure are that it should:  Lead to the most productive distribution of land among potential users and potential uses.  Provide sufficient security of tenure to justify measures to maintain or improve the productivity of farms.  It is widely believed that individual freehold tenure is a highly desirable, even an essential, component of any agricultural development programme.  The pride of ownership and the security offered to the farm family by this form of tenure are thought to encourage long-term improvement and conservation of the land and associated water resource

Land Tenure System  Continuous cultivation of vegetables as an intensive form of land use requires frequent visits throughout the year.  Time lost walking to and from the plot would be serious if the plot was farm from the home.  In short the surplus per hectare would decline rather sharply with increase in distance.  For less intensive rotational cropping, requiring less frequent visits, the surplus is lower at or near the home but declines more slowly with distance.  Return per hectare for shifting cultivation falls even more slowly with distance.

Labour  Labour is the physical and mental effort spent in producing goods and services.  Tractor drivers, harvest hands, draftsmen and engineers are examples of labour.  Although some labour is hired, the core of farm workforce is made up of family members.  The size of farm or of livestock herd among pastoralists, depends upon the number of active family members.  So long as the marginal product is greater than the cost of extra labour, a large family is desirable, among other reasons, because a farmer can thereby increase his/her wealth and power.

Labour  The amount of labour used, i.e. the actual labour input over a given period on a particular farm, depends upon the family structure, the number of hours worked and the rate of working per hour.  Within the family there is generally some division of labour, many tasks being traditionally considered as age- and sex-specific.  Most domestic work is the responsibility of women who also contribute immensely to farm work especially weeding, food-crop harvesting and processing (including threshing) and the care of small stock.  Men do bush clearing and land preparation and take sole responsibility for the cultivation of cash crops.

Labour  Efficiency is improved, if each group specializes in those tasks they perform best.  Work inputs are usually measured in man- hours or man-days, which is simply a product of the number employed and the time worked by each.  It is therefore assumed that the labour of one man/woman for one hundred hours is equivalent to the labour of one hundred men /women for one hour or five men/women for twenty hours.  This assumption ignores the possible advantages of teamwork.

Capital  Everything used in the production process, which is not a gift of nature but has been produced in the past is referred to as capital. It includes:  Buildings (including homes)  Tools  Machinery  Roads  Drainage ditches  Terraces  Irrigation equipment  Growing crops e.g. coffee  Livestock  Stocks of food  Seed and fertilizers  Education.

Capital  Capital assets may be classified according to the length of their lives into long-term, medium-term or short-term.  Long-term capital has a life of many years and may be virtually permanent.  It includes buildings, wells, dams, and land improvements.  Certain tree crops may come into this category.  Capital with medium life span of just a few years include work stock such as oxen, breeding and milking stock and many tools and equipment.  Short-term capital is generally consumed within one year and includes stock of food, seed, agricultural chemicals and cash.  Short-term capital is also known as circulating or working capital.

Management/Entrepreneurship  This is the final broadly defined resource.  It is the human element in the production process.  It is the element that initiates, modifies and maintains the production process through its never-ending decisions regarding all the factors of production, including itself.  Management is used synonymously with entrepreneurship.

Management/Entrepreneurship  Physical resources of land, labour and capital are not productive unless they are organized and coordinated by someone who makes the necessary decisions and carries them out.  To this extent, management may be viewed as a productive resource.  Without inputs of management, a farm would not exist.  Within the agricultural industry, the main management task devolves upon the many smallholder families, which make up the farming population.

Management/Entrepreneurship  Governments also intervene to change the structure of the industry, to encourage the employment of hired managers or to improve the standard of management on family farms.  Policy choices must be influenced not only by considerations of returns to scale but also by assessments of managerial efficiency of smallholder population.