1.1.1 Economics and Agricultural Economics
1.1.2 Basic Economies and Economic Freedom
1.1.3 Macroeconomics and Microeconomics
1.1.4 What is Agribusiness
1.1.5 History of Agribusiness
1.1.6 Commodities
1.1.7 Normative and Positive Statements
1.1.8 Agribusiness Sectors
1.1.9 Production Agriculture and Efficiency
Economies of Scale Explained
Modern Marvels: How Corn Fuels America (S13, E39)
Perfect Competition Video - Jacob Clifford
Why Chicken Sandwiches Don't Cost $1500
Agribusiness in the U.S.
Overview
Economics and Agricultural Economics
Learning Objectives
2a Define economics, agricultural economics, macroeconomics, and microeconomics.
5a Understand basic concepts of economics and explain their significance.
Economics and Scarcity
Economics is the study of how humans make decisions in the face of scarcity. These decisions can be individual, familial, business, or societal. If you look around carefully, you will see that scarcity is a fact of life.
Scarcity means that human want/need for goods, services, and resources exceeds what is available. Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want, but those resources exist in limited supply. Of course, the ultimate scarce resource is time; everyone—rich or poor—has just 24 expendable hours in the day to earn income to acquire goods and services, as well as for leisure time and sleep.
At any point in time, there is only a finite number of resources available. Think about it this way: In 2015 the labor force in the United States contained over 158 million workers, according to the U.S. Bureau of Labor Statistics. The total land area was 3,794,101 square miles. While these are certainly large numbers, they are not infinite. Because these resources are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.
Agriculture and Economics
Agricultural Economics is an applied field of economics concerned with the application of economic theory in optimizing the production and distribution of food and fiber products. Agricultural economics began as a branch of economics that specifically dealt with land usage. It focused on maximizing the crop yield, while maintaining a good soil ecosystem. Throughout the 20th century the discipline expanded; consequently, the current scope of the discipline is much broader. Agricultural economics influences food policy, agricultural policy, and environmental policy.
Attributions
Title Image: "Cornfield in South Dakota" by Lars Plougmann, Wikimedia Commons is licensed under CC BY-SA 2.0
"Agricultural Economics" by Wikipedia is licensed under CC BY-SA 3.0
"Principles of Microeconomics for AP® Courses 2e" by Steven A. Greenlaw, David Shapiro, OpenStax is licensed under CC BY 4.0
Access for free at https://openstax.org/books/principles-microeconomics-ap-courses-2e/pages/1-1-what-is-economics-and-why-is-it-important
Basic Economies and Economic Freedom
Learning Objectives
5p Explain different types of economic systems.
Types of Economies
Think about what a complex system a modern economy is. It includes all production of goods and services, all buying and selling, all employment. The economic life of every individual is interrelated, at least to a small extent, with the economic lives of thousands or even millions of other individuals. Who organizes and coordinates this system? Who ensures that, for example, the number of televisions a society provides is the same as the amount it needs and wants? Who ensures that the right number of employees work in the electronics industry? Who ensures that televisions are produced in the best way possible? How does it all get done?
Traditional Economy
There are at least three ways that societies organize an economy. The first is the traditional economy, which is the oldest economic system and is used in parts of Asia, Africa, and South America. Traditional economies organize their economic affairs the way they have always done (i.e., tradition). Occupations stay in the family. Most families are farmers who grow the crops using traditional methods. What you produce is what you consume. Because tradition drives the way of life, there is little economic progress or development.
Command Economy
Command economies are very different. In a command economy, economic effort is devoted to goals passed down from a ruler or ruling class. Ancient Egypt was a good example: a large part of economic life was devoted to building pyramids—like those in Figure 1.1.2a—for the pharaohs. Medieval manor life is another example: the lord provided the land for growing crops and protection in the event of war, and, in return, vassals provided labor and soldiers to do the lord’s bidding. In the last century, communism emphasized command economies. In a modern command economy, the government decides what goods and services will be produced and what prices it will charge for them. The government decides what methods of production to use and sets wages for workers. The government provides many necessities like healthcare and education for free. Currently, Cuba and North Korea have command economies.
Market Economy
While command economies have a very centralized structure for economic decisions, market economies have a very decentralized structure. A market is an institution that brings together buyers and sellers of goods or services, who may be either individuals or businesses. The New York Stock Exchange (Figure 1.1.2b) is a prime example of a market that brings buyers and sellers together. In a market economy, decision-making is decentralized. Market economies are based on private enterprise: the private individuals or groups of private individuals own and operate the means of production (resources and businesses). Businesses supply goods and services based on demand. Supply of goods and services depends on what the demands are. A person’s income is based on their ability to convert resources (especially labor) into something that society values. The more society values the person’s output, the higher the income (think Taylor Swift or Kylian Mbappé). In this scenario, market forces (such as the desires of the people) determine economic decisions.
Mixed Economy
Most economies in the real world are mixed. They combine elements of command and market (and even traditional) systems. The U.S. economy is positioned toward the market-oriented end of the spectrum. Many countries in Europe and Latin America, while primarily market-oriented, have a greater degree of government involvement in economic decisions than the U.S. economy. China and Russia, over the past several decades, have moved more in the direction of having a market-oriented system, but they both remain closer to the command economy end of the spectrum.
Economic Freedom
What countries are considered economically free? Who is in control of economic decisions? Are people free to do what they want and to work where they want? Are businesses free to produce when they want and what they choose, and to hire and fire as they wish? Are banks free to choose who will receive loans, or does the government control these kinds of choices?
Each year, researchers at the Heritage Foundation and the Wall Street Journal look at 50 different categories of economic freedom for countries around the world. They give each nation a score based on the extent of economic freedom in each category. (Note that while the Heritage Foundation/WSJ index is widely cited by an array of scholars and publications, it should be regarded as only one viewpoint. Some experts indicate that the index’s category choices and scores are politically biased. However, the index and others like it provide a useful resource for critical discussion of economic freedom.)
The 2016 Heritage Foundation’s Index of Economic Freedom report ranked 178 countries around the world; Table 1.1.2a lists some examples of the most free and the least free countries. Although technically not a separate country, Hong Kong has been granted a degree of autonomy such that, for purposes of measuring economic statistics, it is often treated as a separate country. Several additional countries were not ranked on the included chart because at the time of ranking they were considered to be experiencing extreme instability that made judgments about economic freedom impossible. These countries include Afghanistan, Iraq, Libya, Syria, Somalia, and Yemen.
Countries with the Most Economic Freedom | Countries with the Least Economic Freedom |
| 1. Hong Kong | 167. Timor-Leste |
| 2. Singapore | 168. Democratic Republic of Congo |
| 3. New Zealand | 169. Argentina |
| 4. Switzerland | 170. Equitorial Guinea |
| 5. Australia | 171. Iran |
| 6. Canada | 172. Republic of Congo |
| 7. Chile | 173. Eritrea |
| 8. Ireland | 174. Turkmenistan |
| 9. Estonia | 175. Zimbabwe |
| 10. United Kingdom | 176. Venezuela |
| 11. United States | 177. Cuba |
| 12. Denmark | 178. North Korea |
The assigned rankings in Table 1.1.2a are based on estimates, yet even these rough measures can be useful for discerning trends. In 2015, 101 of the 178 included countries shifted toward greater economic freedom, although 77 of the countries shifted toward less economic freedom. In recent decades, the overall trend has been a higher level of economic freedom around the world.
Regulations: The Rules of the Game
Markets and government regulations are always entangled. There is no such thing as an absolutely free market. Regulations always define the “rules of the game” in the economy. Economies that are primarily market-oriented have fewer regulations—ideally just enough to maintain an even playing field for participants. At a minimum, these laws govern matters like safeguarding private property against theft, protecting people from violence, enforcing legal contracts, preventing fraud, and collecting taxes. Conversely, even the most command-oriented economies operate using markets. How else would buying and selling occur? The government heavily regulates decisions of what to produce and prices to charge. Heavily regulated economies often have underground economies (or black markets), which are markets where the buyers and sellers make transactions without the government’s approval.
The question of how to organize economic institutions is typically not a straightforward choice between all market or all government, but instead involves a balancing act over the appropriate combination of market freedom and government rules.
Attributions
"Principles of Economics 3e" by Steven A. Greenlaw, David Shapiro, Daniel MacDonald, OpenStax is licensed under CC BY 4.0
Access for free at https://openstax.org/books/principles-economics-3e/pages/1-4-how-to-organize-economies-an-overview-of-economic-systems
Macroeconomics and Microeconomics
Learning Objective
2a What is the difference between Macroeconomics and Microeconomics?
Microeconomics and Macroeconomics
Economics is concerned with the well-being of all people, including those with jobs and those without jobs, as well as those with high incomes and those with low incomes. Economics acknowledges that production of useful goods and services can create problems of environmental pollution. It explores the question of how investing in education helps to develop workers’ skills. It probes questions like how to tell when big businesses or big labor unions are operating in a way that benefits society as a whole, as well as when they are operating in a way that benefits their owners or members at the expense of others. It looks at how government spending, taxes, and regulations affect decisions about production and consumption.
It should be clear by now that economics covers considerable ground. We can divide that ground into two parts: microeconomics and macroeconomics. Microeconomics and macroeconomics are not separate subjects, but rather complementary perspectives on the overall subject of the economy.
Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses.
Macroeconomics looks at the economy as a whole. It focuses on broad issues such as growth of production, the number of unemployed people, the inflationary increase in prices, government deficits, and levels of exports and imports.
To understand why both microeconomic and macroeconomic perspectives are useful, consider the problem of studying a biological ecosystem, like a lake. One person who sets out to study the lake might focus on specific topics: certain kinds of algae or plant life, the characteristics of particular fish or snails, or the trees surrounding the lake. Another person might take an overall view and instead consider the lake's ecosystem from top to bottom: what eats what, how the system stays in a rough balance, and what environmental stresses affect this balance. Both approaches are useful, and both examine the same lake, but the viewpoints are different. In a similar way, both microeconomics and macroeconomics study the same economy, but each has a different viewpoint.
Whether you are scrutinizing lakes or economics, the micro and the macro insights should blend with each other. In studying a lake, the micro insights about particular plants and animals help to provide information about the overall food chain, while the macro insights about the overall food chain help to explain the environment in which individual plants and animals live.
In economics, the micro decisions of individual businesses are influenced by whether the macroeconomy is healthy. For example, firms will be more likely to hire workers if the overall economy is growing. In turn, macroeconomy's performance ultimately depends on the microeconomic decisions that individual households and businesses make.
Microeconomics
With microeconomics, we can learn about the theory of consumer behavior, the theory of the firm, how markets for labor and other resources work, and how markets sometimes fail to work properly. The following are some questions that microeconomics can help us answer:
- What determines how households and individuals spend their budgets?
- What combination of goods and services will best fit their needs and wants, given the budget they have to spend?
- How do people decide whether to work, and if so, whether to work full time or part time?
- How do people decide how much to save for the future, or whether they should borrow to spend beyond their current means?
- What determines the products, and how many of each, a firm will produce and sell?
- What determines the prices a firm will charge?
- What determines how a firm will produce its products?
- What determines how many workers it will hire?
- How will a firm finance its business?
- When will a firm decide to expand, downsize, or even close?
Macroeconomics
A nation's central bank conducts monetary policy, which involves policies that affect bank lending, interest rates, and financial capital markets. For the United States, this is the Federal Reserve. A nation's legislative body determines fiscal policy, which involves government spending and taxes. For the United States, this is the Congress and the executive branch, which originates the federal budget. These are the government's main tools. Americans tend to expect that government can fix whatever economic problems we encounter, but to what extent is that expectation realistic?
With macroeconomics, we can determine an economy's overall health by examining a number of goals, such as growth in the standard of living, low unemployment, and low inflation. The following are some questions that macroeconomics can help us answer:
- What determines the level of economic activity in a society?
- In other words, what determines how many goods and services a nation actually produces?
- What determines how many jobs are available in an economy? What determines a nation’s standard of living?
- What causes the economy to speed up or slow down?
- What causes firms to hire more workers or to lay them off?
- What causes the economy to grow over the long term?
Attributions
"Principles of Microeconomics for AP® Courses 2e" by Steven A. Greenlaw, David Shapiro, OpenStax is licensed under CC BY 4.0
Access for free at: https://openstax.org/books/principles-microeconomics-ap-courses-2e/pages/1-2-microeconomics-and-macroeconomics
What is Agribusiness?
Additional Resources
For more information about U.S. food prices and spending, Click on this link to access USDA "Food Prices and Spending" on the web.
For more information about world food prices, Click on this link to access Our World in Data "Food Prices" on the web.
For information about the future of farming, Click on this link to access TDC's "The Future of Farming" on YouTube.
Learning Objectives
1a Explain the meaning of Agribusiness.
What is Agribusiness?
Agribusiness encompasses all aspects of the business of agricultural production. The agribusiness industry includes food, forest, and fiber producing operations, the manufacture and distribution of farm equipment and supplies, and the processing, storage and distribution of commodities. All the activities in the production of food and fiber are treated as an integrated system, and this system reaches well beyond the farm. Each subset of this industry focuses on efficient operations to keep prices reasonable.
Agribusiness is a dominant economic force in many countries around the world; however, political unrest, war, reduction in usable land, and a changing climate make it difficult to plan production. These challenges demand that agribusinesses find ways to operate more efficiently, such as investing in new technology, introducing crop fertilization and watering methods that reduce waste and remove harmful side effects, and finding new methods to connect to the global market.
The agribusiness industry contains a wide variety of companies and operations which can range in size from a small, organic family farm all the way to large multinational conglomerates. Some examples include agricultural machinery manufacturers—such as John Deere, multinational food processing and commodities trading corporations—such as The Archer-Daniels-Midland Company (ADM), seed and agrichemical manufacturers—like Monsanto, along with local farmers' cooperatives, agritourism and recreation companies, biofuel producers, and livestock feed manufacturers.
Like all businesses, market forces affect the agribusiness industry. Changes in consumer demand can cause prices to increase or decrease and force businesses to change their production. For example, if consumers shift away from eating red meat, the demand and prices for beef will fall. If consumers increase the demand for avocados, the prices for avocados will rise. Agribusinesses need to be nimble to react to changes in demand. The beef producer may have to look abroad to export to new markets or risk failing. The avocado producer will have to find ways to operate more efficiently and increase production to remain competitive in the market. Overall, every sector of agribusiness seeks efficiency.
Today, technology plays a prominent role in agribusiness, helping to make operations more efficient. Technology such as GPS, drones, robotics, and self-driving vehicles are used to raise, harvest, and process animals and plants for use.
In the United States, efficiencies in production have led to U.S. households spending a lower share of their disposable income on food over time. For the past 15 years, U.S. consumers have spent around 10% of their income on food (see Figure 1.1.4b).
In contrast, many people in developing countries have to spend over 30% of their disposable income on household food (see Figure 1.1.4c).
Attributions
Basil Hans, V. (2008, September 21). Agri-business and Rural Management in India: Issues and Challenges. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1271622
Chen, J. (2021, March 15). Agribusiness explained: What it is, Challenges, and Examples. Investopedia. Retrieved from https://www.investopedia.com/terms/a/agribusiness.asp
History of Agribusiness
Learning Objectives
1b Discuss the events that led to Agribusiness as a profession.
Agricultural Revolution
For much of the world until the mid-1800s, most people were involved in agriculture. For example, in the United States, 90% of the population were farmers in 1790. Essentially, people produced the food they consumed. Around the mid-1800s, the advancement of agricultural techniques were improved—such as crop rotation, the invention of new tools, and the improvement of old tools, the efficiency of various agricultural operations. This era, called the Agricultural Revolution, contributed to unprecedented population growth and new agricultural practices, triggering such phenomena as the development of a coherent and loosely regulated agricultural market, and the emergence of capitalist farmers.
Industrial Revolution
Shortly after the advent of the Agricultural Revolution, the Industrial Revolution was in full swing. Soon people were seeking non-farm, higher income, employment opportunities in urban areas. These consumers were no longer producing their own food; they instead relied on being able to purchase food from someone else. By 1890, farmers were 43% of the labor force.
The Term Agribusiness
The word agribusiness was coined in 1957 by two Harvard Business School professors: John Davis and Ray Goldberg—the authors of A Concept of Agribusiness. They gave the definition for the term as: "the sum total of all operations involved in the manufacture and distribution of farm supplies; production operations on the farm; and the storage, processing, and distribution of farm commodities and items made from them" (Davis, John H.; Goldberg, Ray A. (1957). A Concept of Agribusiness. Division of Research, Graduate School of Business Administration, Harvard University.)
Davis and Goldberg sought to revolutionize the agriculture sector favoring corporate-driven agriculture or large-scale farming to revolutionize the agriculture sector. With this system-based approach, they ushered in a new understanding of farming as a business with interconnected components.
Industry Concentration
New approaches were needed to weather economic problems. The need for management and governance became important as farms shifted to resemble more typical business. Two economic solutions are value chains and the vertical integration of different systems within farm production. These business approaches made it more difficult for smaller farms to remain competitive, eventually being absorbed into more prosperous farms.
Industry concentration continues to this day and puts the economic power of the agriculture sector into the hands of fewer and fewer business, which in turn increases their ability to influence governance of industry standards to provide outcomes beneficial to themselves.
History of Agriculture Timeline
Attributions
Thesunshineisours. (2020, February 5). What is agribusiness? how did agribusiness evolve? ECOSYSTEMS UNITED. Retrieved from https://ecosystemsunited.com/2020/02/02/what-is-agribusiness-how-did-agribusiness-evolve/
"Trends in Agriculture" by North Dakota State University is licensed under CC BY-NC-SA 3.0
Commodities
Learning Objectives
1c Discuss commodity types.
Agricultural Commodities
A commodity is a raw product. Examples of commodities include grains—like corn, wheat and soybeans; livestock—like cattle and hogs; metals—like gold and silver, and energy sources—like crude oil and natural gas.
The raw product is typically sold, and then processed and/or packaged in some way. For instance, corn may be sold to a processor who makes ethanol; gold may be sold to a processor making jewelry; and crude oil may be sold to a processor who makes plastic. These processed goods are then shipped to retailers, who then sell a finished product to consumers.
To make it easier to buy and sell these raw goods, the quality of the commodity must be uniform from all producers. This means all the bushels of corn, all the bales of cotton, and all the barrels of crude oil are essentially the same, regardless of who produced them.
Attributions
"Understanding Commodity Markets" by Tyler Schau, OER Commons is licensed under CC BY 4.0
Normative and Positive Statements
Learning Objectives
2b Define normative and positive statements.
Positive and Normative Statements
The economics approach generally portrays people as self-interested. For some critics of this approach, even if self-interest is an accurate description of how people behave, these behaviors are not moral. Instead, the critics argue that people should be taught to care more deeply about others.
However, the assumption that individuals are purely self-interested is a simplification about human nature. In fact, we need to look no further than to Adam Smith—the “father of modern economics”—to find evidence of this. The opening sentence of Smith’s book, The Theory of Moral Sentiments, puts it very clearly: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.” Clearly, individuals are both self-interested and altruistic, and Economists recognize this fact. In light of moral theories surrounding economics, it is important to remember that economics is not moral philosophy and that it involves the consideration of individual freedoms.
First, economics is not a form of moral instruction. Rather, it seeks to describe economic behavior as it actually exists. Philosophers draw a distinction between positive statements, which describe the world as it is, and normative statements, which describe how the world should be. Positive statements are factual. They may be true or false, but we can test them, at least in principle. Normative statements are subjective questions of opinion. We cannot test them since we cannot prove opinions to be true or false. They are just opinions based on one's values. For example, an economist could analyze a proposed subway system in a certain city. If the expected benefits exceed the costs, he concludes that the project is worthy—an example of positive (fact) analysis. Another economist argues for extended unemployment compensation during the Great Depression because a rich country like the United States should take care of its less fortunate citizens—an example of normative (opinion) analysis. The line between positive and normative statements may not always be crystal clear, but economic analysis does try to remain rooted in the study of the actual people who inhabit the actual economy.
Second, we can label self-interested behavior and profit-seeking with other names, such as personal choice and freedom. The ability to make personal choices about buying, working, and saving is an important personal freedom. Some people may choose high-pressure, high-paying jobs so that they can earn and spend considerable amounts of money on themselves. Others may allocate large portions of their earnings to charity or spend it on their friends and family. Others may devote themselves to a career that can require much time, energy, and expertise but does not offer high financial rewards, like being an elementary school teacher or a social worker. Still others may choose a job that does consume much of their time or provide a high level of income, but still leaves time for family, friends, and contemplation. Some people may prefer to work for a large company; others might want to start their own business. People’s freedom to make their own economic choices has a moral value worth respecting.
Attributions
"Principles of Microeconomics for AP® Courses 2e" by Steven A. Greenlaw, David Shapiro, OpenStax is licensed under CC BY 4.0
Access for free at: https://openstax.org/books/principles-microeconomics-ap-courses-2e/pages/2-3-confronting-objections-to-the-economic-approach
Agribusiness Sectors
- Instructor Idea:
- If time allows, the History video that is linked, shows how the sectors work together in the cotton industry. Many students are familiar with the idea of how their food is grown but the process that many food items take from field to table can be unclear.
Learning Objectives
1d Discuss the sectors of the agribusiness industry, including the service sector.
5 Economic Sectors
Agribusiness can be divided into 5 different economic sectors:
- Input Sector
- Production Sector
- Processing Sector
- Marketing and Sales Sector
- Service Sector
Sustainable practices can be included in every sector.
Input Sector
Inputs are the foundation for the entire production process and influence all other sectors of agribusiness. The agribusiness input sector includes all resources that provide safe, secure, and profitable agricultural production. Businesses must invest in quality inputs to get quality results (outputs). Inputs are the foundation for the entire production process and influence all other sectors of agribusiness. Some of these input investments are seed, fertilizer, machinery, fuel, and credit.
There is a lot of innovation in this sector. Seeds have been developed for disease and pest resistance, higher crop yields, and increased tolerance to environmental stress. Machines are consistently upgraded with more advanced computer systems to improve the speed of production. And animal feeds are produced to improve the quality of the livestock.
Production Sector
The agribusiness production sector deals with crop cultivation, raising animals, and harvesting fish; this production is either for human and animal consumption or to use as raw materials for secondary products. Efficiency in this sector depends on improvements in the agricultural input sector.
Independent farm owners and ranchers, commercial farms, farm workers, fisheries, and loggers are working in the production sector of agribusiness. People who grow and harvest crops for immediate use are also members of this sector.
Processing Sector
Today, most agricultural products do not reach consumers in their original harvested state. The agribusiness processing sector is where products are refined for human consumption or other uses. Any activity that maintains or improves the quality of the agricultural product, alters the products’ physical or chemical characteristics, or adds value in any way to the product falls in the processing sector. This sector also packages and brands agricultural products.
Value-added agriculture refers most generally to manufacturing processes that increase the value of primary agricultural commodities. Value-added agriculture may also refer to increasing the economic value of a commodity through particular production processes—such as organic produce—or through regionally branded products, whicht increase consumer appeal and willingness to pay a premium over similar but undifferentiated products. Value-added agriculture increases a product’s customer base and, as a result, producers expand their revenue sources.
Marketing and Sales Sector
The marketing and sales sector of agribusiness is involved with getting the right goods and services to the right people at the right time, place, and price. People working in this sector find out what potential buyers need and want and then work to provide the goods and services to meet or exceed those needs and wants.
This sector is not only concerned with getting agricultural products to consumers, but also with the buying and selling of all resources among the other sectors. There are conflicts of interest between buyers and sellers in every exchange. Purchasers want to get the best quality items at the lowest prices, while sellers want to get the highest return possible for those same items. For example, farmers want to purchase high quality, high yield seeds for a low price; however, seed producers want to make the best profit possible for the same seeds. In turn, when farmers sell the soybeans harvested from those seeds, they look for ways to increase their profitability; on the other hand, the soybean processing company will be searching for the highest quality they can find for the lowest price. Balance between these conflicting interests must be achieved to produce a quality product at a price that the end consumer will purchase.
Service Sector
In agriculture business, the service sector encompasses the support for all the activities within and among the other sectors. The service sector includes technology and training to increase efficiencies in production, research universities and companies developing better resources and process to improve future production and processing of agricultural commodities, the loan and governmental subsidies officers, specialty organizations that represent agricultural needs locally and national and much more.
A recent addition to the agriculture business service sector is agritourism. This is a way for farms, ranches, aquaculture, and forestry operations to add revenue, while also educating the public about their operations and importance in the community. Some common examples of agritourism activities include:
- living history farms
- winery tours and wine tasting
- rural bed & breakfasts
- corn mazes
- petting farms
- fishing trips
- horseback riding
- agricultural fairs
- harvest-your-own-operations
What are Agrifood Systems?
"What are agrifood systems?" by Food and Agriculture Organization of the United Nations is licensed under CC BY 4.0
Attributions
"Introduction to Business" by OpenStax is licensed under CC BY 4.0
Olabisi, S. (2021, February 28). What are the sectors of agribusiness? Open Education Online. Retrieved from https://openeducationonline.com/magazine/sectors-of-agribusiness/
Strengthening farming program - product processing. BC Ministry of Agriculture and Food. (2014, March). Retrieved from https://www2.gov.bc.ca/gov/content/industry/agriculture-seafood/agricultural-land-and-environment/strengthening-farming
University of Arkansas Division of Agriculture Research and Extension. (2022, March 14). Agritourism - An overview. National Agricultural Law Center. Retrieved November 25, 2022, from https://nationalaglawcenter.org/overview/agritourism/
"Value-added agriculture" by Wikipedia is licensed under CC BY-SA 3.0
Production Agriculture and Efficiency
Learning Objectives
5b Discuss the interactions of agribusiness sectors and how they are interconnected.
5c Analyze the efficiency of production agriculture.
Agricultural Productivity
Agricultural productivity is measured as the ratio of agricultural outputs to inputs. While individual products are usually measured by weight—which is known as crop yield, varying products make measuring overall agricultural output difficult. Therefore, agricultural productivity is usually measured as the market value of the final output. This productivity can be compared to many different types of inputs, such as labour or land. Such comparisons are called partial measures of productivity.
Agricultural productivity may also be measured by what is termed total factor productivity (TFP)—a method of calculating agricultural productivity that compares an index of agricultural inputs to an index of outputs. This measure of agricultural productivity was established to remedy the shortcomings of the partial measures of productivity; notably it is often hard to identify the factors cause them to change. Changes in TFP are usually attributed to technological improvements.
History of Agricultural Labor and Innovation
Before the Industrial Revolution, agriculture workers labored six days a week, from sun up to sun down, just to keep their crops growing. Certain seasons were more demanding than others, specifically the plowing and harvest seasons. Because of the intensity and necessity of agricultural labor, it was the largest employment source in Europe. Men, women, and children worked side by side to feed the country. Often, if the father was a farm owner and worker, his entire family labored alongside him. Working in agriculture was not just a job but often a lifestyle for families.
Though the labor was difficult, agricultural work became the largest source of employment because of the ‘self-supply’ benefit, which is the ability to stock their own food stores through their own work. Another attractive aspect was the constant high demand for their products. The ever-rising demand for food provided farming families with a fairly steady income, although there were exceptions because of the uncertainty of crop success.
Because of the difficulty of agricultural work, it became necessary to innovate the agricultural industry, and this led to the Agricultural Revolution, which arguably started in the mid-18th century. The Agricultural Revolution helped bring about the Industrial Revolution through innovations and inventions that altered how the farming process worked. These new processes, in turn, created a decline in both the intensity of the work and the number of agricultural laborers needed. Because of the decline in need for agricultural workers, many worked industrial jobs, further fueling the Industrial Revolution. At the beginning of the Agricultural Revolution farm hands chose to migrate to the city to work industrial jobs; however, as the decline in need for agricultural workers grew, many were also forced to look for work in the industries.
Agricultural Technology
Agriculture became increasingly mechanized in the 1920s with widespread use of the tractor, combine harvester, and other heavy equipment. Information about superior techniques was disseminated through county agents employed by state agricultural colleges and funded by the federal government. The new technologies meant that the most efficient farms were larger in size and more business-oriented firms, hurting the profits of small, family farms that had long been the model in rural America. Despite this increase in farm size and capital intensity, the great majority of agricultural production continued to be undertaken by family-owned enterprises.
Crop Specialization
Since before the 1970s, the composition of total acres planted per crop across the U.S. has become increasingly specialized. By 2019, total crop acreage of major crops was nearly dominated by corn, soy, and wheat (winter, spring, and durum). In 1925, corn and wheat comprised a majority of the acreage planted, with cotton and oats following closely behind; however, the difference in acreage planted for these crops was comparatively small. From the mid-1920s to the 1970s, acreage for cotton, oats, barley, and peanuts gradually decreased; meanwhile, acreage for soybeans rapidly increased, and wheat and corn acreage remained consistently dominant. Therefore, the 1970s era onward was characterized by observable specialization toward certain crops.
From the 1970s through 2019, acres planted for corn, soy, and wheat (particularly soy) increased at the same time that other major commodities decreased. Steady declines of the planted acreage of sorghum, cotton, barley, and oats became evident, as corn and wheat remained consistent, and soy continued to expand.
As of 2019 corn, soy, and wheat comprise a total of 210,958,000 planted acres; corn and soy alone cover nearly 166 million. According to the 2017 Census estimates of total cropland in the U.S., corn, soy, and wheat cover 64.7% of harvested cropland acres; corn and soy alone cover 56.6%.
Attributions
"Agricultural Productivity" by Wikipedia is licensed under CC BY-SA 3.0
"Foundations of Western Culture II" by foundations.uwgb.org, University of Wisconsin-Green Bay is licensed under CC BY-NC-SA 4.0
"Past and Current Dynamics of U.S. Agricultural Land Use and Policy" by Kaitlyn Spangler, Emily K. Burchfield, Britta Schumacher, Frontiers is licensed under CC BY 4.0
"Boundless U.S. History" by , Boundless is licensed under CC BY-SA 4.0
Citations For Wikipedia
Preckel, Paul V.; Hertel, Thomas W.; Arndt, Channing; Nin, Alejandro (2003). "Bridging the Gap between Partial and Total Factor Productivity Measures Using Directional Distance Functions". American Journal of Agricultural Economics. 85 (4): 928–942. doi:10.1111/1467-8276.00498. ISSN 0002-9092. S2CID 154456202.
Zepeda, Lydia (2001) Agricultural Investment and Productivity in Developing Countries, FAO Economic And Social Development Paper No. 148, ed., FAO Corporate Document Repository, 12 July 2007, http://www.fao.org/docrep/003/X9447E/x9447e00.HTM.
Citation For Past and Current Dynamics of U.S. Agricultural Land Use and Policy
Spangler K, Burchfield EK and Schumacher B (2020) Past and Current Dynamics of U.S. Agricultural Land Use and Policy. Front. Sustain. Food Syst. 4:98. doi: 10.3389/fsufs.2020.00098
Efficiency and Specialization
Instructor Ideas:
- The YouTube videos can be watched by the class together to bring home the concepts discussed in this section.
- After watching the 'Why Chicken Sandwiches Don't Cost $1500' the instructor can use this information as a spring board for a class discussion over how important these concepts are in the everyday lives of people.
Learning Objectives
5d Explain how specialization is related to efficiency.
The Problem of Scarcity
Think about all the things you consume: food, shelter, clothing, transportation, healthcare, and entertainment. How do you acquire those items? Most likely, you do not produce them yourself; you buy them instead. How do you afford the things you buy? You work for pay. If you do not, someone else does so on your behalf. Yet, most of us never have enough income to buy all the things we want. This is because of scarcity.
Every society, at every level, must make choices about how to use its resources. Families must decide whether to spend their money on a new car or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or into the school system. Nations must decide whether to devote more funds to updating infrastructure or to protecting the environment. In most cases, there just isn’t enough money in the budget to do everything. How do we use our limited resources the best way possible—to obtain the most goods and services we can? There are a couple of options.
First, we could each produce everything we each consume. Alternatively, we could each produce some of what we want to consume, and “trade” for the rest of what we want. Let’s explore these options. Why do we not each just produce all of the things we consume? Think back to pioneer days, when individuals knew how to subsist off their own labor—from building their homes, to growing their crops, to hunting for food, to repairing their equipment. Most of us do not know how to do all—or any—of those things, but it is not because we could not learn. Rather, we do not have to. And that is because of something called the division and specialization of labor, a production innovation discussed by Adam Smith (see Figure 1.1.10a) in his book, The Wealth of Nations.
The Division of and Specialization of Labor
The formal study of economics began when Adam Smith (1723 – 1790) published his famous book The Wealth of Nations in 1776. Many authors had written on economics in the centuries before Smith, but he was the first to address the subject in a comprehensive way. In the first chapter, Smith introduces the concept of division of labor, which means that the way one produces a good or service is divided into a number of tasks that different workers perform, instead of all the tasks being done by the same person.
To illustrate division of labor, Smith counted how many tasks went into making a pin: drawing out a piece of wire, cutting it to the right length, straightening it, putting a head on one end and a point on the other, and packaging pins for sale, to name just a few. Smith counted 18 distinct tasks that different people performed—all for a pin!
Modern businesses divide tasks as well. Even a relatively simple business like a restaurant divides the task of serving meals into a range of jobs like top chef, sous chefs, kitchen help, servers to wait on the tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—not to mention the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where it is located. A complex business like a large manufacturing factory—such as the shoe factory (see Figure 1.1.10b) or a hospital—can have hundreds of job classifications.
Why the Division of Labor Increases Production
The division and specialization of labor has been a force against the problem of scarcity. When we divide and subdivide the tasks involved with producing a good or service, workers and businesses can produce a greater quantity of output. In his observations of pin factories, Smith noticed that one worker alone might make 20 pins in a day, but that a small business of 10 workers (some of whom would need to complete two or three of the 18 tasks involved with pin-making) could make 48,000 pins in a day. How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves? Smith offered three reasons.
First, specialization in a particular small job allows workers to focus on the parts of the production process where they have an advantage. People have different skills, talents, and interests, so they will be better at some jobs than at others. The particular advantages may be based on educational choices, which are in turn shaped by interests and talents. Only those with medical degrees qualify to become doctors, for instance. For some goods, geography affects specialization. For example, it is easier to be a wheat farmer in North Dakota than in Florida, but easier to run a tourist hotel in Florida than in North Dakota. If you live in or near a big city, it is easier to attract enough customers to operate a successful dry-cleaning business or movie theater than if you live in a sparsely populated rural area. Whatever the reason, if people specialize in the production of what they do best, they will be more effective than if they produce a combination of things, some of which they are good at and some of which they are not.
Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality. This pattern holds true for many workers, including assembly line laborers who build cars, stylists who cut hair, and doctors who perform heart surgery. In fact, specialized workers often know their jobs well enough to suggest innovative ways to do their work faster and better. A similar pattern often operates within businesses. In many cases, a business that focuses on one or a few products (sometimes called its “core competency”) is more successful than firms that try to make a wide range of products.
Third, specialization allows businesses to take advantage of economies of scale, which means that for many goods, as the level of production increases, the average cost of producing each individual unit declines. For example, if a factory produces only 100 cars per year, each car will be quite expensive to make on average. However, if a factory produces 50,000 cars each year, it can set up an assembly line with huge machines and workers performing specialized tasks, which will result in a lower average cost of production per car. The ultimate result of workers who can focus on their preferences and talents, learn to do their specialized jobs better, and work in larger organizations is that society as a whole can produce and consume far more than if each person tried to produce all of his or her own goods and services.
Trade and Markets
Specialization only makes sense if workers can use the pay they receive for doing their jobs to purchase the other goods and services that they need. In short, specialization requires trade. And trade is how our modern society has evolved into a relatively strong economy.
Instead of trying to acquire all the knowledge and skills involved in producing all of the goods and services that you wish to consume, the market allows you to learn a specialized set of skills; then, you use the pay you receive from employing your skills to buy the goods and services you need or want. Think about it. You do not have to know anything about electronics or sound systems to play music—you just buy a cellular device or computer, download the music, and listen. You do not have to know anything about artificial fibers or the construction of sewing machines if you need a jacket—you just buy the jacket and wear it. You do not need to know anything about internal combustion engines to operate a car—you just get in and drive.
Attributions
"Principles of Microeconomics for AP® Courses 2e" by Steven A. Greenlaw, David Shapiro, OpenStax is licensed under CC BY 4.0
Access for free: https://openstax.org/books/principles-microeconomics-ap-courses-2e/pages/1-1-what-is-economics-and-why-is-it-important