Lecture 3 Flashcards
What is a definition of industrialized agriculture? What are characteristics?
- Capital intensive, high energy use, concentration of economic power, low cost production
- Big data
- Mechanization, automotization, contract farming with large agri-business firms
- Increased food production, lower price of food
- Less labor intensive
What are positive impacts of industrialized agriculture?
- Efficiency
- Increased productivity
- Quality assurance
- Innovation
- Improved global food security
What are negative impacts of industrialized agriculture?
- Depleted soil and water resources
- Pollution
- Loss of genetic diversity
- Dramatic alterations to the way of life in rural communities
What are some agriculture policy concerns?
- Marketing challenges and consumer preferences
- International trade
- Infrastructure
- Biosecurity
- Management skills and labor supply
- Coordination
- Technology
- Water
- Resource access issues
What are the main tools for supporting producers?
- Subsidies : governement payments to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, influence their cost
- Tariffs: a tax imposed on imported goods and services used to restrict trade by increasing the price imports for consumers
What is an issue when it comes to policy and markets?
Unstable markets:
- Falling incomes
- Unstable prices
What is falling incomes?
Linked to unstable markets
- Supply has increased tue to more efficient production methods; new entrants into the market. demand is relatively price and income inelastic, hence revenue falls following the price reduction
- Loss of power to processors and supermarkets (price makers) who increasingly dictate terms and prices to farmers (price takers). The is referred to as MONOPSONY POWER.
What is a monopsony?
- A monopsony has buying or bargaining power in their market.
- This buying power means that a monopsony can exploit their bargaining power with a supplier to negotiate lower prices.
- The reduced cost of purchasing inputs increases their profit margins increasing the chances of a business making super-normal profit
- Monopsony exists in both product and labour markets – in this chapter we focus on buying power in the markets for goods and services
What is unstable prices?
Many commodity markets exhibit short term instability (volatility)
Usually reflects changes in conditions of supply- with changes in weather patterns and short-term growing conditions playing a large part
Ex: rice price rises when there is a drought in Australia
What is buffer stocks?
- Buffer stocks of produce can be used to help stabilize prices by taking surplus output and putting it into storage, or with a bad harvest, releasing stock from storage.
What are some common policy responses to unstable market?
- Buffer stocks
- Price guarantee
- Set aside programmes
- Export subsidies (dumping)
- Quotas
- Better information about future shoclks.
What are disadvantages of buffer stocks?
- Additional costs to society - construction, extra storage insurance, managing scheme
- Some commodities can’t easily be stored
- The system relies on starting with a good harvest
- Critics argue that they distort the operation of free markets and prevent the price mechanism working effectively
- Potential MORAL HAZARD: providing insurance against poor harvest encourage producers to be inefficient
What is prices guarantees?
- Prices guarantees to producers irrespective of the output they produce.
What are disadvantages of price guarantees?
- They encourage over-production creating a surplus of Q2 to Q1
- They can promote inefficiency. For example, farmers may not try to be efficient if they are guaranteed a buyer
- There can also be extra costs of storage or disposal
What is a set-aside program?
- Farmers and growers are paid to take land out of production to prevent surpluses and hence avoid storage, distribution and management costs
