Oromia State University

ECONOMICS DEPARTMENT
ECONOMICS OF AGRICULTURE
 UNIT 1
INTRODUCTION

Outline

1.1 Definition and scope of economics of agriculture

1.2 Historical development of agriculture
1.3 Role of agriculture in economic development
1.4 Interdependence of agriculture and industry
1.1. Definition and Scope of economics of agriculture
 The word agricultural economics are made up of
two words ‘agriculture’ and ‘economics’.
 The word ‘agriculture’ has been associated
with the industry of basic food production
known as farming.
 Agriculture is defined as the production,
processing, marketing and distribution of
crops and livestock.
 Economics is the science of analyzing the
use of limited resources to achieve the
desired goals.
 . . . cont
 Agricultural economics is an applied phase of economics in
which attention is given to all aspects of problems related to
agriculture.
 An important role of agricultural economists is to formulate
the methods, techniques and procedures by which the
problems of agriculture may be tackled.
 Agricultural economics is a social science concerned with the
allocation of scarce resources among the uses associated with
producing, processing and consuming the farm products.
 Agricultural economics as an applied science which is mainly
concerned with economic problems, which are associated with
farmers’ effort to make a living.
  Scope of Agricultural Economics
 The scope of agricultural economics is extended to;
 the distribution and consumption problems of farm
products as well;
 what to distribute, among whom and on what basis to
distribute;
 what to consume and how much to consume
 Studying agricultural economics also includes the
functioning of government in agriculture.
 . . . cont
 Specifically, the scope of agricultural economics can be stated
to include the;
 choice of farming as an occupation,
 choice of farm and livestock, machinery and labor,
crops and cropping system,
 size of the unit of production,
 grouping of the factors of production, intensity of
cultivation, manuring, irrigation, soil conservation,
selling of agricultural products, land system and rent,
 agricultural finance and rate of interest, wages and
employment, prices, costs and profits, standard of
living etc.
 . . . cont
 The task of agricultural economists is to point out
what is best to do in economic interest of
agricultural community under the given
conditions.
 Generally, the scope of agricultural economics is
very vast.
 Agricultural economics is concerned with solutions
of those problems that require the active
participation of the government, i.e. problems
connected with price control, supply of credit,
international trade etc.
 1.2. Historical Development of Agriculture
 Agricultural communities developed approximately
10,000 years ago when humans began to domesticate
plants and animals.
 In the early stages of development, agriculture is
explicitly treated in most theories of economic
development.
 Agriculture was considered as a passive contributor
to economic growth in 1950s and 1960s.
 Classical Economists view agriculture as a passive
contributor to economic development.
 Agriculture acted more as a source of food and labor
than a source of growth.
 ….Development of Agriculture
 Beginning from 1960s, agriculture was treated as it
play a central role for development, driver of
growth.
 Agriculture has strong, direct forward linkages to
agricultural processing and backward linkages to
input-supply industries.
 The ADLI strategy stressed the central role of
increased agricultural productivity in achieving
industrialization through expanding demand for
goods produced by domestic industry.
 1.3. Role of Agriculture to Economic Development
 We can understand important role of agricultural
sector through its contribution to other sectors or to
the whole economy in general.
 There can be the following major contributions that
Agriculture can make for economic development.
1. Product contribution
 Agriculture releases different products which can be used as
a raw material by other sectors. The availability of such
factors of production will help other sectors to flourish.
2) Market contribution
 A market contribution of agriculture refers to the fact that the
demand from agriculture must be the major source of
autonomous demand for industrial goals.
 Role of Agriculture to Economic Development
3) Factor contribution
 The factor contribution of agriculture consists of two
parts: a labor contribution and a capital contribution.
4) Other contributions
1. Providing adequate and affordable food for
increasing populations.
2. Providing employment for a large percentage of
the rural population.
3. Improving the welfare of the rural people
4. Earning and saving foreign exchange.
5. Increasing national incomes.
 1.4. Interdependence of Agriculture and Industry
 Industry for its development needs capital for
investment, labor for running the factories, raw
materials as their inputs and demand for their products.
 A developed agriculture as we have seen above can
contribute all these ingredients for the rapid
development of the industrial sector of an economy.
 The developed industrial sector itself becomes an engine
for rapid growth of agricultural sector.
 Hence with the passage of time, agricultural sector
begins to depend upon the industrial sector for its own
development. In the later stages both sectors become
interdependent.
 there are two channels through which the sectors are
linked to each other: through production and demand.
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The End!