Agricultural Economics | The Canadian Encyclopedia


Agricultural Economics

Agricultural economics, is a field of study related to the application of economics theory to problems and issues surrounding the production, processing, distribution and consumption of agricultural food and fibre products.

Agricultural economics, is a field of study related to the application of economics theory to problems and issues surrounding the production, processing, distribution and consumption of agricultural food and fibre products. Agricultural economics differs from the study of crop science or animal science primarily because of its relation to human behaviour.

In Canada the discipline probably had its origin in the application of economic thinking to problems of physical agriculture in courses taught in the agricultural colleges. Farm management and marketing courses were among the first courses taught that related strictly to agricultural economics. In 1926 a Department of Farm Economics, headed by J.E. Lattimer, was established at Macdonald College, McGill University. The Ontario Agricultural College at Guelph offered undergraduate courses in the discipline; graduate programs were offered with the help of the Department of Political Economy at the University of Toronto, which had appointed its first professor of Rural Economics, T. Jackman, in 1921.

At the federal level, establishment in 1929 of the Economics Branch of the then Department of Agriculture was a response to the need for research into pressing agricultural problems, problems which worsened with the Great Depression. Although an agricultural economics department did not then exist at UBC, courses in the field were being offered as early as 1920. The University of Manitoba established a Department of Farm Management and Co-operative Marketing in 1915; University of Manitoba's Department of Agricultural Economics had a 4-year agricultural-business program and awarded the first master's degree in the field in 1932. Degrees in agricultural economics are offered at the bachelor level at Nova Scotia Agricultural College, and at the bachelor and postgraduate levels at Laval, McGill, Guelph, Manitoba, Saskatchewan, Alberta and British Columbia. Various agricultural colleges also offer courses for training in agricultural economics.

Teaching practice, theory and research in the field were influenced by American universities (eg, Cornell, Wisconsin, Minnesota). Course content was originally concerned with production at the individual farm level. Thus, agricultural economics was essentially problem-oriented. Agricultural economists have also made contributions to general economics theory. The most outstanding example, former Harvard professor John Kenneth Galbraith, was trained at Guelph as an agricultural economist and developed the theory of "countervailing powers"- ie, that competition is less a restraint on corporations than are interest groups on the opposite side of the market. Agricultural economics as a field of study is divided into various subfields, each concerned with a specific major problem area. Common to all activities of the agricultural economist is the need for progressive improvement in the state of agriculture and rural living.

Farm Production Economics

Historically the first major problem area addressed was farm production economics. In this subfield, significant questions pertain to how a greater farm net income may be attained; how production costs may be reduced; which combination of farm inputs is best; and which product or commodity should be produced. These general questions may be translated into very practical terms: Should I plant wheat, corn or barley this year? Would I be better off feeding calves to slaughter weight or buying heavy feeders?

In the past, agricultural economists used 2 perspectives to answer farm production questions: the farm management approach and a conceptual approach based on theoretical models. In the first approach, farm surveys were used to determine production costs among groups of similar farms to gain an appreciation of which type of farm was most successful. Recommendations could then be made to all farmers to change their practices to match more closely those of successful farmers. The conceptual approach was based on the application of existing economic theory to agriculture. Economists using the conceptual approach developed farm models to serve as theoretical ideals for comparison with real situations. The major criticism of this type of analysis is that results are too theoretical and too far removed from the practicalities of farming.

Farm Welfare Economics

Farm welfare economics is concerned both with the needs of farmers and with those of society as they are influenced by developments in agriculture or by the decisions of individual farmers. At one time, Canadian farmers were largely self-sufficient, producing food and fibre for their own families with little surplus for sale. As educational opportunities grew, many farm children gained an education and left the farm for urban areas. At the same time, new technologies were being adopted, eg, use of high-yield, disease-resistant, quick-growing seed and of tractors instead of horses, which allowed one farmer to work a much larger acreage. Specialization also occurred as some farmers became experts at grain production while others raised poultry or hogs. These changes were not accidental; farmers pursued them in an effort to reduce costs and increase sales and gross revenue. Success or failure depended on management capability as well as on differences in basic farm resources (eg, soil productivity). Hence, some areas of Canada have not progressed as much as others, and it has been increasingly difficult for smaller farms to achieve incomes above the poverty line.

Agricultural economists have attempted to understand the reasons for this evolution and to develop alternative policies and programs that ease the adjustment of those leaving agriculture and strengthen the agricultural capability of rural areas (see Rural Society).

Agricultural economists have been involved in the design and evaluation of programs to encourage the further processing of farm products and to establish distinctive agriculture and food systems in rural areas. For example, the Canada/Alberta Nutritive Processing Program provides special grants to firms that establish food-processing operations in the province. Provinces such as PEI and Newfoundland have attempted to produce more foodstuffs locally, thereby reducing the flow of funds out of their provinces. Many programs are devoted to building necessary infrastructures such as improved roads, storage facilities, veterinary clinics, etc. In Ontario, emphasis has been placed on improving farm drainage to enhance soil productivity.

Agricultural economists have also been involved in international development work, especially through the Canadian International Development Agency (CIDA) and the World Bank. The World Bank has a detailed program analysis process that specifies beforehand the overall benefits to a country's national economy and the financial benefits to farmers and other participants that may be expected from an agricultural and rural development program; eg, one of the larger foreign aid programs is the Canadian wheat program, which introduced large-scale mechanized grain farming to Tanzania in eastern Africa.

Agriculture Policy

The agricultural sector is constantly undergoing change as a result of new technology, shifting demands, international agreements and disagreements and changing pressure groups. These changing conditions necessitate the periodic re-evaluation of farm policies. The task of objectively analysing alternative policies frequently requires the expertise of agricultural economists. These policies and programs have taken many forms, from direct subsidies on commodities to control over production and prices. Agricultural economists have been very influential in prescribing the workings of each scheme as well as in the ongoing management of the systems established.

Agricultural Marketing

Much of economic theory is based on the concept of the free market; however, farmers usually have found themselves competing to sell their commodities to one or, at best, a few buyers. Agricultural economics studies have focused on the means by which markets and participants can be judged to be performing marketing tasks efficiently. Such information, combined with farmers' perceptions that their bargaining power is weak against industries such as grain companies and meat packers, has fostered the development of farmer co-operatives, boards and associations to redress alleged faults in the marketing process (see Co-Operative Movement). Agricultural economists have also played a role in defining standard grades of products; for example, Canadian hog- and cattle-grading systems serve as world-recognized models (see Commodity Inspection and Grading).

One of the basic assumptions underlying the operation of a free market is the availability of information. Many farm commodities are marketed outside of a rigidly controlled process; thus, the provision of market information for such commodities as corn, wheat, hogs, cattle and oilseeds is important. An area of specialization has developed within agricultural economics to provide market outlooks and analyses. Such specialists study past cyclical trends, current weather behaviour in key producing countries, general demand conditions and government policies in order to make projections on prices in coming months.

Land Resource Economics

The applied nature of agricultural economics is nowhere more evident than in the subfield of land economics, a specialized area of production economics that focuses on land, the major factor in farm production. In most instances farmland cannot generate sufficient return to warrant the price paid, because the market price of land is usually higher than its productive value. This discrepancy results from expectations about future increase in value. The balance between personal and public rights over property has long been in debate. For example, does the Crown have the right to expropriate farmland for airports, urban expansion or recreational purposes and, if so, what price should be paid? Intermingled in these issues are public concerns over land use, eg, zoning of agricultural land for food production and laws regarding weed control or soil conservation practices. Many agriculturists believe that farmers are custodians of the land, holding it for future generations. Unfortunately, high interest rates and low farm commodity prices have led some farmers to exploit their land to the fullest to survive. This exploitation has resulted in charges that they are mining the soil of its nutrients to the detriment of the land resource. The impact of economics and public taxation measures on these problems are frequent subjects for study by agricultural economists.

Agricultural economists have also studied the sometimes conflicting needs of farmers, wildlife species, foresters and outdoor recreationists. A complicating factor in the resolution of problems related to land use is the lack of definition regarding the ownership of natural resources. Wildlife eat hay and other crops belonging to farmers, but the wildlife may belong to the Crown or society at large. Land may be privately held, but hunters may pursue wildlife in season. Management of conflicts and of common-use natural resources is yet another area of agricultural-economic endeavour. Benefit-cost analysis has developed from natural resource economics and the need to quantify decisions. This methodological tool has played an important part in analysing public-sector questions and in ranking projects in which governments can invest.

See also Farm Law.

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