Agricultural economics covers a wide range of industry concerns including environmental sustainability, global food supply, and overall farming efficiency. The governmental components of this field often involve quotas, import restrictions, price floors and ceilings, subsidies, aid, and other forms of trade protection to reduce aggregate supply in markets.
Applied mathematics is also used to analyze and forecast market prices using mathematical programming, computable general equilibrium, and simulation models.
Government Policy
Governments are deeply involved in agriculture, regulating prices and influencing supply, demand and trade. They have a variety of agricultural policy goals that range from protecting farmers’ incomes to supporting innovation and research. These policies can be used to influence resource use and farm productivity, but they can also have unintended consequences, such as promoting the cultivation of crops that are unhealthy for human consumption or increasing the cost of foods to consumers by inflating prices through hidden wealth transfers or tax benefits.
Several types of government policies impact agricultural economics, including domestic price supports and input subsidies. While these policies are intended to support farmers, they often distort production decisions and trade flows and can have negative environmental impacts. They also can increase the profitability of large farms, promoting concentration in the farming sector.
Historically, many government agricultural policies were designed to protect farmers from economic forces that were beyond their control. However, this type of government intervention in agricultural markets has shifted since the onset of neoliberalism. As such, many governments now provide less direct support to farmers and are focused on achieving other policy goals, such as promoting innovation and encouraging sustainable crop practices. Increasing the production of healthy food, for example, may require more government assistance with research and extension services than simply providing financial support to farmers.
International Trading Environment
Many international trade issues are directly relevant to agricultural economics. These include international crop trade agreements, import and export policies, and global market integration (Hovi and Baldos, 2014; Hertel et al., 2007). The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) also impacts international agricultural trade as it regulates the use and transfer of patents for plant varieties.
Assumptions about the state and magnitude of future global market integration are important for agricultural economics modeling. They affect the model results on a regional basis and influence global average projections. However, they have much less impact on model results for individual regions and crops. This is due to the high level of heterogeneity of these impacts.
Changing assumptions about the extent of future global market integration can have large impacts on projected world agriculture. For example, a shift from regional segmented markets to full global market integration increases total net agricultural crop trade flows by 254% in 2100 relative to scenario E0. Fig 7 shows a step-by-step comparison of the total net agricultural crop trade value flows between the GCAM regions as we move from regional segmented to full global market integration.
These results show that the assumptions about global market integration have a significant effect on future regional crop trade patterns. The resulting changes in regional economic and land use modeling results have implications for researchers, especially for model intercomparison.
Infrastructure
In agricultural economics, infrastructure is a major factor in improving land productivity and lowering costs. It includes infrastructure for irrigation, roads and transportation, equipment and machinery, building structures such as greenhouses and silos, energy production for agriculture, and institutional infrastructure for research, education, information systems, and financial services. It also involves waste management and telecommunications systems. Increasing agricultural productivity requires investing in these infrastructure components.
The effectiveness of agricultural infrastructure can be determined by its substitutability or complementarity with other inputs. Barro’s Public Expenditure Model treats infrastructure as a production factor and includes it in the production function. However, this model does not account for the effect of infrastructure on other factors such as the availability of labor and market prices. This means that infrastructure may not necessarily reduce production costs in all quantiles.
Developing modern data infrastructure to support agriculture requires a carefully coordinated and comprehensive effort from all stakeholders, including farmers. While there are many obstacles, such as concerns about privacy and a lack of industry-standard data sharing architectures, a centralized federal system with clear direction encouraging and incentivizing state governments to share their data could lead to a more productive and streamlined agriculture sector. It can also increase the value of USDA conservation and risk management programs and help catalyze private ecosystem services markets to compensate farmers for the environmental benefits they create.
Technology
Agricultural technology is important for many reasons, from increasing yields to decreasing the cost of food. The informal innovation and discovery processes that characterized agriculture over thousands of years have given way to more organized scientific efforts, including research institutions, investment and intellectual property protection. Agricultural economics examines these efforts and the factors that influence the outcome of those endeavors.
Because agriculture is often a commodities business, market information is crucial. An area of specialization within agricultural economics has developed to provide market outlooks and analyses. These specialists study past cyclical trends, current weather behaviour in key producing countries and general demand conditions in order to make projections on prices over the coming months.
Government policy also has a significant impact on the agriculture market, most frequently in the form of subsidies and price ceilings. This essentially controls the overall supply and demand equilibrium points in the market. Governments may also reduce supply by utilizing quotas or foreign aid.
Aside from reducing the amount of money spent on food, technological advances can also increase the overall abundance of foods available. This has the effect of lowering the relative importance of food price variability in household budgets and lessening the likelihood of food shortages. This is particularly important for the world’s poor, who are most vulnerable to any fluctuations in food prices.
