Fluctuating Prices and Declining Income of Farmers

INTRODUCTION

Farming is the growing of crops and the rearing of animals. Major agricultural products include; fish, cereals, cattle, vegetables, oilseed, poultry, potatoes, sheep. Farming added £5. 6 billion to the united kingdom market in 2006.

In the previous 25 years, farming in Britain has altered a great deal. Farming provided occupation for a large number of people, but nowadays, with the help of equipment and equipment, and the issues associated with farming, only a few people remain on the farm.

The total labour power used in agriculture in the UK is 541, 000, of whom 190, 000 are employees and the rest of the 351, 000 are self-employed farmers, partners, directors and spouses. Overall, 1. 8% of the UK's labor force is directly used in farming. The UK food chain accounts for almost 8% of the total overall economy (RuSource, 2008).

However, farmers have always faced problems such as Increasing inhabitants growth, drinking water logging and salinity, changing the arable land into non-agricultural uses, high cost of development, fluctuating prices, declining income, increased duty etc.

But this article will target mainly on why farmers have been facing fluctuating prices and declining income over time.

PRICE AND AGRICULTURE

Price is the money needed to acquire something or the quantity of payment or payment for something. A price fluctuation is a big change in the purchase price market. Agricultural experts and businesspeople have blamed fluctuating product prices, difficult capital accesses and poor development of downstream market sectors for poor performance of the country's agricultural industry.

Some of the causes of price fluctuations in agriculture includes; seasonal change in resource which is adversely damaged by natural or climatic factors, insufficient money, use of crude implements, seasonal lack of demand, etc.

The market composition of a plantation which is perfect competition also affects the price. The market structure is in a way that the farmer cannot impact the price. The retail price is determined strictly by the causes of demand and offer.

According to PT Perkebunan Nusantara (PTPN) IV executive director Dahlan Harahap, fluctuating prices influenced the agricultural industry's shows because the majority of the companies relied on their income on exports. Several major goods which are usually exported include crude hand olive oil (CPO) (77 percent exported), silicone (83 percent), cacao (86) and caffeine (70).

INCOME AND AGRICULTURE

Income is the utilization and savings opportunity gained by an entity in just a specified time frame, which is generally expressed in monetary terms. However, for homes and people, "income is the amount of all wages, salaries, profits, interest repayments, rents and other types of income received in confirmed time frame. For firms, income generally identifies net-profit: what remains of income after expenses have been subtracted.

Farmers have faced declining income over time due to high cost of production and low return to investment. Relating to Dahlan, high lender interest is one of the factors impeding the country's agricultural industry. Indonesia, he added, models the highest loan provider interest rate in Southeast Asia. This however affects farmer's income.

UK farming incomes are described at the industry level with a measure known as Total Income from Farming (TIFF) and at the farm level by a strategy known as Online Farm Income. Both options have exhibited permanent decline because the 1960's, reaching a low point in 2000 with average Net Farm Income at just £8700.

Governments of many countries have noticed it expedient to intervene in agricultural markets, and have resorted to different forms of settings and subsidies. These have often resulted in the deposition of huge surpluses, that have sometimes rotted in storage space and sometimes been sold abroad at subsidized prices.

The theory of demand and supply may be used to understand why farmers face fluctuating price and declining since Price is a reflection of resource and demand.

DEMAND AND OFFER IN AGRICULTURE

The agricultural sector is an extremely unique sector in economics because it exhibits characteristics in terms of the demand for and the supply of its goods not seen in any other sector. The main characteristics of demand are that it is both income and price inelastic and they have high dependency on human population and likes which cause demand to be static in both the short and the long run. On the other hand source is very volatile in the brief run credited to extraneous factors because supply is a biological process though over time due to technological advances we tend to observe an increasing trend.

Also, because agricultural products are perishable and because the creation period is long, source will be inelastic so producers will have to source in the short run even at suprisingly low prices.

Another attribute of supply is its atomistic framework and asset fixity. These quite simply imply that you will see a large quantity of insignificant providers and that a lot of agricultural asset will be fixed. These have various implications for prices which are extremely unstable in the short run and over time present a declining pattern.

Similarly farm incomes tend to be unpredictable in the short run and converge in the long run though it must be observed that this is also credited to extensive federal government subsidisation of agriculture.

DEMAND

Demand refers to how much (quantity) of a product or service is desired by potential buyers. The number demanded is the quantity of a good that a consumer is prepared and in a position to buy at a given price over a given period of time.

Demand curve is a graph displaying the relationship between your price of your good and the amount of the nice demanded over a given time period. Price is measured on the vertical axis; volume demanded is assessed on the horizontal axis

The legislations of demand expresses that the amount of a good demanded per time period will land as price increases and will rise as price comes, other activities being equivalent (ceteris paribus).

Demand on price and income

According to Richard and Chrystal (2007);

Agricultural development is at the mercy of large variations caused by factors that are beyond human control. For example, inclement weather reduces productivity below that prepared by farmers while exceedingly good weather pushes end result above organized levels.

Inelastic

demand

De

E

Elastic

demand

D1 Price

Inelastic

demand

P0

Elastic

demand

Quantity

0 q1 q0 q3

Unplanned changes in output

.

Figure 3. 1 Unplanned fluctuations in end result (Richard and Chrystal 2007)

Because plantation products often have inelastic needs, large price fluctuations triggers unplanned changes in creation which in turn influences farmer's income.

Stabilization of agricultural prices: Farmers are allowed to sell their complete crop every year. When production unexpectedly surpasses normal output, the federal government buys in the market. It allows price to land, but only by the same proportion that creation has increased. When production unexpectedly falls in short supply of normal output, the federal government enters the marketplace and sells some of its stocks and options. It allows price to go up, but only by the same percentage that development has dropped below normal. Thus, as farmers come across unplanned fluctuations in their productivity, they encounter exactly offsetting fluctuations in prices, so that their revenues are stabilized. In place, the federal government has converted the elasticity of demand from being inelastic to being unitary. Having a unit elasticity the total revenue of sellers will not change as quantity changes, because given ratio changes in quantity are offset by identical percentage changes of price but in the opposite course.

Figure 3. 2 Income stabilization (Richard and Chrystal 2007)

Income stabilization is achieved by allowing prices to fluctuate in inverse proportion to output

Appropriate government intervention in agricultural marketplaces can reduce price fluctuations and stabilize producers' income.

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