THEME.4:0 FARMING BUSINESS ECONOMICS AND AGRICULTURAL EXTENSION
PRICE AND ITS DETERMINANTS (PRICE THEORY)
This is a form in economics which describes the relationship supply, Demand and price of goods and services,
DEMAND.
This refers to the quantity of goods and services that consumers are willing to buy at a particular price and go on buying in a given/particular period.
PRESENTATION/REPRESENTATION Demand Schedule.
This refers to the list of the quantities of a commodity (good) or service that re bought at different prices.
Such a schedule must show clearly the situation it refers i.e. should state the people whom it refers time, place and any other conditions which will help to distinguish it from any other demand schedule.
Example DEMAND SCHEDULE FOR GREEN MAIZE AT MIKUMI MARKETING 2004
PRICE THS/COB
QUANTITY PURCHASED(OF
COBS)
AT5.00
8000
6.00
7000
7.00
6000
8.00
5000
9.00
4000
10.00
3000
11.00
2000
14.00
500
Demand curve this refers to graphical presentation of the demand schedule after plotting the data above, one gets a demand curve.
The price- demand quantity demanded relationship
< span>The law of Demand; States that, as price of a commodity or service rises, always is followed by a seduction in quantity demanded, and a fall in price, always is followed by an increase in quantity demanded while other factors/conditions of demand remain constant i,
Usually this law is proved by the down ward sloping of the demand curve.
Change in Demand when there is a change in demand it means that at each price, a different quantity is purchased then was previously done. This can be an increase or decrease in demand. In this case, when there is an increase in demand the whole curve shifts to the right and when there is a decrease in demand the whole curve shift to the left.
Example: Demand Schedule for oranges at Kisanga Market in March June and December 2004.
Price
Tsh/orange
QUANTITY BOUGHT
MARCH(D1)
JUNE(D2)
DECEMBER(D3)
1.00
8000
10,000
6000
1.50
7000
9000
5000
2.00
6000
8000
4000
2.50
5000
7000
3000
3.00

4000
6000
2000
3.50
3000
5000
1000
4.00
2000
4000
500
Demand curves for oranges at Kisanga Market in March June and December 2004
FACTORS WHICH CAUSE CHANGES IN DEMAND
i. Changes in tastes and habits of consumers
When tastes and habits of consumers change in favor of a curtain commodity, the demand for that commodity increases when the opposite occurs, the demand for a given commodity diseases
ii Changes in consumer’s income
When the income of consume
rs rise, the demand for a particular product may either rise of fall and vice versa.
For some products, an increase in consumer’s incomes leads to rise in demand while other products such cases may lead to decrease in demand.

iii. Changes in the price of goods in question
Generally when the price of a certain good rises, the demand for such a good decreases and vice versa

iv. Changes in the price of other goods (Complementary goods.)
When the price of other goods rises, consumers tend to buy more quantities of a good which has a relatively lower price, especially for complementary goods e.g. Maize flour and Rice.

v. Changes in population
An increase in population may lead to an increase in demand for agricultural products e.g. food. Elasticity of Demand (Ed)
This is a measure of how the quantity of a good or service demanded, changes when the price of that commodity or service changes.
It is expressed as:-
Ed = %change in Quantity of a good
% change in price
Categories of Elasticity of demand (Ed)
a) Elastic demand Is achieved when Ed is greater than one I.e. >1
b) Inelastic demand
This is achieved when elasticity of demand is less than one i.e. Ed<1
C) Unit /Unitary elastic demand.
This is achieved when elasticity of demand is equal to one Ed=1
Example: Demand Schedule for tomato source
Price of Tomato source/bottle
Quantity demanded per week.(bottles)
160.00
1000
140.00
2000
110.00
3000
100.00
8000
80.00
9600
60.00
14000
40.00
16000
20.00
2000
Question: when prices fall from 160/= to 140/= demand extends from 100 bottles to 200 bottles.
Ed = 1000-2000×100
100
Hence Ed = -8 inelastic demand
Question: when prices fall from 40/=- 20/= demand expands
From 16000 – 2000 bottles
Ed = 16000- 2000 x100
16000
40-20×100
40
Hence Ed = 0.5 inelastic
FACTORS WHICH DETERMINES ELASTICITY OF DEMAND OF GOODS
I. Presence of goods and services with a lot of close substitutes have more elastic demand than those with few or no close substitute
II. Demand of essential commodities is usually inelastic e.g. salt, match boxes
III. Demand for luxury goods and services are usually more elastic than necessity goods and services.
SUPPLY
This is the quantity of a given commodity or service that producers are able to produce and are willing to offer for sale at a given price.
PRESENTATION
i) Supply Schedule.
This is a list or table showing the quantities of a commodity or service that are offered for sale at different prices
Example: Supply schedule for maize by peasants at Mikumi Market 2005

PRICE OF COB
ob)
Quantity(Q) OF COBS
50
250
40
220
30
180
20
120
10
50











SUPPLY CURVE
This is the graphical presentation of supply Schedule
Law of supply
As the market price increase the quantity supplied of commodities increase while decrease/fall in price always results to decrease in commodity supplied
Factors causing changes in Supply
I. Climatic factor (Weather) Good weather results to high yield hence great supply.
II. Occurrence of pests and disease this reduces yields of agriculture commodities
III. Changes in the price of commodity. As the price increase, the quantity supplied increases and vice versa.
IV. Change in production cost when production costs rises production becomes law hence low supply and vice versa.
V. Change in
technology
used in production
VI. New production technology may increase production hence increase supply.
VII. Occurrence of was or other hazard
VIII. Occurrence of was or other hazards this may disrupt production to be low hence low supply.
IX. Government regulation e.g. taxation if tax is high for a return commodity production will decrease which leads to lows supply.
X. Change is taste and habit when this occur farmers may be stimulated to produce more of the other commodity leading to increase in its supply than the other one.
Change of supply.
When there is a change in supply it means that at each prices a different quantity is supplied than previously. When there is a decrease in supply the whole supply curve shift to the left and when there is an increase in supply the whole supply sure shift to the right.
Example supply schedule for manager by peasants at Kariakoo market in March June and december 2006.
price
QUALITY
Tsh/mango
MARCH
JUNE
DECEMBER
1.00
2000
3000
1000
1.50
3000
4000
2000
2.00
4000
5000
3000
2.50
5000
6000
4000
3.00
6000
7000
5000
3.50
7000
8000

6000
Elasticity of supply (E)
This is a measure of how the quantity of a good or service change when the price of that commodity or service changes. i.e.
Example: The supply of salt falls from 50kg to 20kg as a result price per kg increased from 10/= to 20/= per kg calculate elasticity of supply.

NB: As in the case of elasticity of demand; elasticity of supply has also three categories:
I. When Es is less than one (ES supply is inelastic
II. When Es is greater that one (ES>I) the supply is elastic.
III. When Es is equal to one (Es=i) the supply is said to be unit/unitary elastic.
PRICE
This is a measured of value (work per unit of Agriculture good as service.
Functions of price
I. Price inform producer what to produce and how much to produce
II. Price help consumers to decide what to buy and how much to buy.
III. Price a measure of value per unit of a good or service.
IV. Price help in the allocation of scarce resources such as facture of production.
V. Price distributed goods and service among consumers according to supply and demand
VI. Price help to determine the amount of investments and earning that people can make (profit or loss)
VII. Price guider goods and service so that they are available at the right place and at the right time when they are wanted by the consumers.
Types of Agriculture price.
There are 4 main types of agricultural prices mainly.
a. Market price: There represent the actual value of goods and services.
They are determined by the forced of demand and supply Categories of market price.
i. Farm gate price (producer price) these are prices which farmers receive when they sell their farm products at the farm boundaries.
ii. Whole sale price these are prices which are paid by traders pay when they buy goods in large quantities. Such traders who are buying in large quantities are known as whole sales.
iii. Retail price: These are prices which retail traders receive when they sell goods are consumers.
NB: Retail traders (O2 retailers) are middlemen who receive or buy goods from whose sales and all them at retail price.
b. Shadow prices: This is the opportunity cost of a commodity as good.
Price which exist under pure and perfect competition.
c. Price at factor cost These are price which are determined the factors of production that were used in producing that good.
d. Import or export parity prices These are price which is paid by importers when importing a given good or commodity
Price fluctuation.
The price of Agriculture produced normally moves up and down over time. This process occurs in cycles.
This rising and falling of price over time in called price fluctuation.
Types of price
i. Short term price fluctuation: This is the rising and falling of prices which occur from years to year month to month week to week, hour to hour etc. Such movements are caused by temporary changes in supply and demand.
• Most of the commodities are perishable e.g. milk, eggs vegetables etc.
ii. Long time price fluctuation: These are fluctuations which occur over generation resulting from long term changes of demand and supply.
• These are caused by change in population technology and real incomes of consumers.
iii. Amount price fluctuations: these are fluctuations which occur years to year caused by change in yields and level of production, due to weather and other factors.
iv. Seasonal price fluctuations: These are fluctuations which is brought about by annual crop production whereby during planting weeding supply is low and prices becomes high; while during harvesting, supply in high and price decreases.
v. Cyclical price fluctuations: These are fluctuations which occur in regular patterns or cycles during the production of perennial crops e.g. coffee and some livestock e.g. pigs and poultry.
These fluctuations are brought about by cycles in the level of production whereby production decision in done in cyclic manner. For example the producers of pig this year may fetch high price hence next plan year production in increased: but due to long production period there may be a delay in increased output. When the products states of come large quantities may arise coming decrease in price.
Assignment.
Read and write other causes of price fluctuation Ref: Basic Agro economics (K sibuga) pg 35-36
i. Problems caused by price fluctuation pg 36
ii. Price control stabilization
MARKETING.
This refers to the movement of row agriculture products from the farm to the ultimate consumer.
This includes: – Storage, transportation, grading standardizing, processing, packaging labeling, advertizing etc.
Equilibrium price-This is a market condition whereby quantity supplied and quantity demanded at market place are the same.
Example Demand and supply schedule related price.
DEMAND
(Millions of bags)
PRICE/90KG
Buying price
SUPPLY
Million of bags
0.85
80.00
3.70
1.20
75.00
3.60
1.70
70.00
3.45
2.30
65.00
3.25
3.00
60.00(Eq.price)
3.00 Equilibrium point

3.80
55.00
2.70
4.70
50.00
2.35
5.65
45.00
1.95
6.75
40.00
1.50
7.90
35.00
1.00
FACTORS OF PRODUCTION: Ref chapter 4 which a farm wants to produce any farm pg 13 products he has to use input or sources of which they are of different types. These factors are divided into 4 groups collectively known as factors of production.
These factors include:-
o Land
o Labour
o Capital
o Entrepreneurship (management)
This includes all the natural resources which are found in a particular place such as soil and its minerals. Rivers, lakes, pests, venation, climate itself etc.
Characteristics of land as a factor of production.
o The quantity and quality of the land of a place determine the type of informing which can be done in that particular place.
o Different area of Tanzania has different type of land as such different place is suitable for different type of forming.
o The amount and distribution of rainfall are the main factor limiting the use of land of Tanzania.
Importance of land.
o It is a source of raw materials such as coal, oil for power, rivers for Hydroelectricity power etc which could be used in the country or exported for exchange.
o It is a source of food and agriculture materials which are necessary for both domestic consumption and for export.
Land Tenure systems
This refers to the procession of right to the use of land. Forms of land tenure systems adapted in Tanzania.
i. Individual land tenure systems : These include
a. Individual owner operator system: This implies forming on the land the individual process individual right.
o Here the farmer has greatest possible degree of freedom of choice of his production plan.
o This system tends to prevail in highly populated areas such as Kilimanjaro region.
o This system provide greatest incentive to effect forming and in conservation and improvement e.g. Agriculture credit.
b. Land lordism/tenancy tenure system. This system of tenure involves ownership of land by relatives few individuals who leave its operation to tenants to form the land for sent.
c. Estate/plantation land tenure system.
This form involves estates or plantations which are owned by individual foreigners or joint venture between foreign investment and individual shares.
They are often involved in large scale production of single commodities/good such as sisal tea, tobacco, coffee, sugarcane etc.
ii. COLLECTING LAND TENURE SYSTEM.
a. Communal tenure system. This is the possession of right over land by the whole community.
o Each individual makes as much as he wants’ from the land without any incentive to receive or to improve the land.
o This system is prevalent in most pastoral area as well as mixed primary area; and unlimited land in relation to the community needs.
b. Cooperation tenure system: This category includes various collective arrangements under governmental or other authority.
Here farmer may own their land individually but operate them on a cooperative basic.
The whole land unit may be operate in a communal basic e.g. ujamaa farmer in Tanzania.
Land reformThis is any organized action designed to improve the structure of land tenure and land use.
Aim: To alter way as to achieve the most efficient use of agriculture resources.
Measures under land reforms: includes
a. Redistribution of land: This involves taking land from a few individuals who own large area of land and relocation/redistribute to tenants etc. e.g. transfers of land ownership from wealthy Europeans owners to poor citizen.
b. Consolidation and registration of holding: Individual land ownership fragment are brought together and given a title dead in suspect of holding.
c. Land use and conservation control: Government may intervene where traditional land use pattern leads to overstocking over cultivation and subsequent soil deterioration in such cases measures are imposed by the government to ensure that land is contently consisted.
d. Planed transfer of population: Transfer of population from sparely population residents transferred to Lindi as Morogoro regions
LAND CAPABILITY CLASSES
In farming every piece of land hex to be used without being raided or undergoing any other types of deterioration. The best way to determine the suitable use of any piece of land is to consider it capabilities and its limitation.
land capability includes all good properties e.g. good drainage fertile soil moderate ph values: sufficient soil depth good climate good water holding capacity and less risk of erosion
Land limitation include all bad properties e.g. steep slope poor drainage presence of toxic substances presence of socks, poor climate too acidity or alkaline etc.
Hence land is classified according to its capability and limitation as follows:
Land class I: This class has soil with very few limitations that may prevent its use
o Characterization: land is almost level (flat)
Have deep well drained soil
The soil are naturally fertile and if not they give crop yield when manure are applied
o Have high water holding capacity
o Soils give good result for many years with minimum crop husbandry e.g. use of fertilizers, crop rotation etc.
LAND CLASS II: This class has soil with some limitations which prevent the use of land for growing certain crops
Characterization: The land has gentle slope
o Has inadequate soil depth and restricted drainage
o They may have light to moderate alkalinity and salinity condition
o The land is subjected to moderate erosion
o Soil structure and soil workability are not equal
NB: Because of these limitations: Class II soil requires better management rotation etc
LAND CLASS III: This class has soil with serious limitation which allow only few types of crops to be grown
Characteristic: Have shallow soil depth
€€€€€€€€€€€€€ ∙ Have low water permeability of soil
€€€€€€€€€€€€€ ∙ Very low soil fertility
€€€€€€€€€€€€€ ∙ Moderately alkaline soils
€€€€€€€€€€€€€ ∙ Moderate steep slopes encourages erosion
NB
Because of these limitation class III soil require the application of the most management practice than in class I.

LAND CLASS IV
Land in this class has soil that can be used for cultivation of only few crops
Row crops are not suitable due to possibility of erosion hence close spaces crops are suitable.
Characterization
Have soil with low water holding capacity
Have steep slopes which are subject to soil erosion
Have shallow soil
Have poorly drained soil
Soil have plenty of salt i.e. too alkaline or acidic
NB:
Due to this limitation soil in class IV Require move intensive management practice: and few crops can be grown.
LAND CLASS V: This type of land is not suitable for cultivation of any crop as there is serious limitation
Characterization
Have stone and rocks in the soil
Have poor drained soil
Have too short rain season not suitable for crop production
Have possibility of floods from rivers and steam
NB: Due to these limitations such land is only suitable for development permanent pasture
LAND CLASS VI:
This type of land has soils which are not suitable for cultivation. They have limitation that are similar to those of class V; however in this case limitations are more serious
The best use for such land is mainly for pasture range management or else the land should be left as a wood land
LAND CLASS VII:
Has soil with limitations similar to classed V& VI but the limitation are serious that even pasture improvement is not possible. The land can be used fo
r wild life or left as a wood land.
LAND CLASS VIII:
Soil in this class is mainly rock sand beaches etc. they are complete not suitable for crop production. Is only suitable for wildlife, catchment areas, recreation etc.
II. LABOUR- This refers to the human physical and mental services employed in the production process. Labour varies in skills as some lack any skill while others are highly skilled.
Labour input is usually measured in unit of man hours or man days. This represents the work input of t he average man for one hour/day.
Characteristics of labour as a factor of production.
o Labour is supplied only by livings especially human being; as such it involves social problem.
o Labour is not transferable between people i.e. the ability to do work canno t be transferred from one period to another.
o Labour can within limit choose what to do. This means that human being can decide on what to do on particular days or how long to work if they are not notified with working conditions, or get tired they may refuse to work to be done on the farm.
Categories of labour
Labour has been categories into two main groups mainly
1) Family lab our: this consists of members of a family and is organized by the head of the family when is the main operator. Since member is of different ages in the family; labour tasks are assigned according to age and ability.
2) Hired lab our. There are two types of hired labor
a. Casual lab our: This type supplement family and permanent lab our, when there is a lot of work to be done on the farm.
o It is usually hired as agreeable terms in relation to the amount of work in task to be done.
b. Permanent labour: The need of permanent lab our doe
c. Depend on the nature and size of the farm enterprise.
Method of improving lab our productivity.
a. Training the lab our force. This may take place in training centers, field day agriculture shows (e.g. name) workshop, seminars etc.
b. Supplying to workers proper tools and Equipments:
Using farm machinery e.g. fracture drawn equipments (egg) ploughs, harrows welders act) milking machines, spraying machines etc.
c. Living incentives: These are things given workers without much supervision e.g. attractive salaries medical facilities, housing security, rewinds etc.
iv. CAPITAL
These are man-made assess which are used to produce other goods or assist other factors of production e.g. land and labour to produce. Capital increase productivity of land and lab our. Characteristics of capital as a factor of production.
Capital results from the accumulator of assess over the years, through saving by a person or people.
Capita is largely man-made by using his labour power and natural resources.
NB: Form assert: This include all those things which are present in the farm e.g. buildings machinery, livestock crop produce act.
Depreciation: This refers to the date of wearing out of an assent in the farm. All long life farm assets such as machinery buildings act, continue to exist in the farm for fairly long period determine in time either through natural wearer hence need replacement.
Investment: This is a process of utilizing saving generated from agriculture to acquire assets used for production activities.
Categories of capital.
I. Long-term class of capital (fixed capital) this includes all long life assets such as machinery building structure acts.
II. Medium term class of capital (working capital) these are assets which can be used for production.
III. They cannot stay for a long time, since they are used up completely in the production process e.g. Feeds, seeds fertilizer, pesticides et
IV. Shark term class of capital (liquid capital) Refers to capita which can easily and quickly changes to money. They include have cash, money in bank, debts payable act.
Ways of capital investment.
I. By saving: capital may be accumulated by saving income during production.
II. By purchasing: This include acquisition of asset e.g. purchasing building or machinery.
III. Physical effort: individual effort through hard working.
IV. MANAGEMENT (Entrepreneurship)
This is the process of planning and diction making in the organization of other factors production so as to minimize total loss and maximize total profile (revenue) in the production process.
Factors of management or entrepreneurship.
Management activities take into account of utilizing the manager who combine and organize other resource appropriately. Hence the manage helps:-
a. Short term planning: This involves making quick decision when urgent operations are implemented e.g. crop or livestock infected by diseases.
b. Long term planning: These involve decision which is linked to the future plans and operation on the farm e.g. constriction of dips fence purchases of farm machinery etc.
c. Information gathering: Such information includes price market trend production technique, production constraints weather condition, disease outbreak soil condition labor trend etc.
d. Keeping farm record up to date and using hem in day to day management of the farm.
e. Risk evaluating and bearing which results from his decision action e.g. fire outbreak loss or damage of an asset etc.
Management process
The following steps are importance in decision making
I. Recognition/identification of the problem
II. Observation and collection of relevant fact (data collection)

III. Analysis and specification of alternating iv. Crisis of alternative ( i.e. risk bearing)

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