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AGRICULTURE ECONOMICS
MEANING
Agricultural production economics is a field of specialization within the subject
of Agricultural Economics.
It is concerned with the selection of production patterns and resource use efficiency
in order to optimize the objective function of farming community or the nation
within a framework of limited resources.
The goals of agricultural production economics are:
(1) To provide guidance to individual farmers in using their resources most
efficiently and
(2) To facilitate the most efficient use of resources from the standpoint of economy.

Definition
Agricultural production economics is an applied field of science where in the
principles of choice are applied to the use of capital, labour, land and management
resources in the farming industry.

Subject matter
• Agricultural production economics involves analysis of production relationships
and principles of rational decisions in order to optimize the use of farm resources
on individual farms and to rationalise the use of inputs from the nation's point of
view.
• The primary interest is in applying economic logic to problems that occur in
agriculture. Agricultural production economics is concerned with the
productivity of inputs. As a study of resource productivity, it deals with resource
use efficiency, resource combination, resource allocation, resource management
and resource administration.
• The subject matter of production economics involves topics like factor-product
relationship, factor-factor relationship, product-product relationship, size of the
farm, returns to scale, credit and risk and uncertainty, etc.
• Any problem of farmers that falls under the scope of resource allocation and
marginal productivity analysis is the subject matter of agricultural production
economics. The agricultural production economist is therefore concerned with
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 any phenomena, which have a bearing on economic efficiency in the use of
resources.

OBJECTIVES
1. To determine and outline the conditions which give the optimum use of capital,
labour, land and management resources in the production of crops and livestock.
2. To determine the extent to which the existing use of resources deviates from the
optimum use.
3. To analyse the forces which condition existing production pattern and resource
use, and
4. To explain means and methods in getting from the existing use to optimum use of
resources.

BASIC CONCEPTS IN PRODUCTION ECONOMICS

Following are the concepts, which are used in production economics,
1. Farm: It is a piece of land, where crop and livestock enterprises are taken up
under a single management and has specific boundaries.

2. Agricultural holding: The total area of land owned by an individual or join

family whether cultivated by the family or rented out.

3. Operational holding: Total land area held under a single management for the
purpose of cultivation. It excludes any land leased out to another person.

4. Family holding: It refers to a farm which yields a gross income of Rs. 1600 or a
net income of Rs. 1200 per annum.

5. Optimum holding: It refers to the maximum size of holding which a family

should possess. Three times to the family holding is considered to be an adequate
size of optimum holding.

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6. Economic holding: It is defined as one which could provide a reasonable
standard of living to the cultivators and give full employment for a family of normal
size.

7. Marginal farmer: Farmer owning less than 2.5 acres of dry land or 1.25 acres of
wet land is called a marginal farmer.

8. Small farmer: Farmer owning land holding ranging from 2.5 acres to 5.00 acres
of dry land or above 1.25 acres and below 2.5 acres of wet land is called a small
farmer.

9. Production: The process whereby some goods and services called inputs are
transferred into other goods called products or output.

10. Product: A product is an outcome of the utilization of resources and services of

resources. Examples: Paddy, sugarcane. wheat, milk, eggs, meat, etc.

11. Production function: A systematic and mathematical way of measuring the

relationship among different quantities of inputs of input services used in the
production of a commodity and corresponding quantities of output is called
production function.

12. Continuous production function: This production function arises for those
inputs which can be divided into smaller doses. Continuous variables can be known
from measurement. Examples: seeds, fertilizers etc.

13. Discontinuous or discrete production function: This production function

arises for those inputs or work units, which are used in whole numbers. In other
words, the discrete production function is obtained for inputs, which cannot be split
up into smaller doses. Discrete variables can be known from counting Examples:
Number of ploughings, weedings, harvestings, etc.

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14. Short run production function: The planning period during which one or
more resources are fixed. In the short run, output can be varied only by intensive
use of fixed resources. Example: Y= F(X1, X2, X3, X4, ... Xn). The vertical bar in
parenthesis separates variable inputs from fixed inputs.

15. Long run production function: It is a planning period during which all
resources are varied in quantity. The supply can be fully adjusted according to the
demand. Example: Y=f(X1 X2, X3, X4 , X5...Xn).

16. Technical coefficient: The amount of input per unit of output is called technical
coefficient.

17. Technical unit: It is a single convenient unit in production for which output and
returns are calculated. Examples. A hectare of land, a head of livestock, etc.

18. Plant: It means a group of technical units i.e. 5 ha. farm or 1000 birds poultry
or 10 animal dairy, etc.

19. Farm-firm: It is also known as economic unit which is run under one
management. It represents an aggregation of resources for which costs and returns
are worked out treating as an unit. Example: A farm holding.

20. Resources: Anything that aids in production is called a resource. They

physically enter the production process to transform into output.
Examples: Seeds, fertilizers, feeds, veterinary medicines, etc.

21. Resource services: The work done by a person or a machine or livestock is

called resource service. Here only services are available for the production and the
resources do not physically enter the production.
Examples: Services of labourer, machinery, farm implements etc.

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22. Fixed resources: Resources which remain unchanged irrespective of the level
of production are called fixed resources. These resources exist only in the short run.
The costs associated with these resources are called fixed costs. Farmer has little
control over the use of these resources.
Examples: Land, buildings, machinery, implements, etc.

23. Variable resources: Resources which change with the level of production are
called variable resources. Higher the level of production, greater the use of these
resources and vice versa. The costs which are associated with variable resources are
called variable costs. These resources exist in the short run as well as in the long
run. Farmer can excercise greater control over the use of these resources.

24. Flow resources: The resources which cannot be stored and should be used as
and when they are available. For instance, if the services of a labourer available on
a particular day are not used, then they are lost forever, similarly, the services of
machinery, farm buildings, etc.

25. Stock resources: Stock resources are those which facilitate for their storage,
when they are not used in one production period. Examples: Seeds, fertilizers, feed,
etc.
Defining an input as a flow or stock, depends on length of time period under
consideration. The user life of a tractor is assumed to be 10 years, if we take the
services of a tractor for its entire useful life of years, then tractor is a stock resource.
But, tractor provides its services during each day of a production season. If we
consider the services provided by tractor in each day, then it is a flow resource.
Therefore, tracer can be regarded as flow and stock resource.
The other examples are farm buildings, land, machinery, etc.

26. Mono-period resource: It is the resource which can be used only once in
production. Examples: Seeds, fertilizers, etc.

27. Poly-period resource: It is the resource which is used in the production process
over several periods. Examples: Machinery, Implements, etc.
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28. Production period: It is also termed as transformation period. It is the time
period required for the transformation of resource or inputs into products.

29. Choice indicator: Choice indicator is an yardstick indicating which of the two
or more alternatives maximizes a given end Choice indicators are always expressed
in ratios. Substitution ratio and price ratio are the examples of choice indicators.

30. Farm entrepreneur: He is the person who organizes and operates the farm
business and bears responsibility of the outcome of the business.

31 Farm business manager: He is a person appointed by the entrepreneur to

manage or supervise the farm business and paid for his services. He carries the
instructions of the entrepreneur. He is not responsible for the outcome of the
business.

32. Productivity: Productivity denotes the efficiency with which various inputs are
converted into products. It signifies the relationship between output and inputs. In
simple terms output per unit of input is called productivity Example: 5 quintals of
product/ha.

33. Efficiency: It means absence of wastage or using resources as effectively as

possible to satisfy the farmers' needs and goals.

34. Technical efficiency: It is the ratio of output to input.

35. Economic efficiency: It is the expression of technical efficiency in monetary

value by attaching prices. In other words, the ratio of value of output to value of
input is called economic efficiency. It is the maximization of profit per unit of
input.

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36. Allocative efficiency: It occurs when no possible reorganization of production
can make any one better off without making someone else worse off. It refers to
resource use efficiency.

37. Optimality: It is an ideal situation in which costs are minimum or profits are
maximum.

38. Cost of cultivation: The expenditure incurred on all inputs and input services in
raising a crop on an unit area, is referred to as cost of cultivation.
Example: Costs in Rs./ha

39. Cost of production: The expenditure incurred in producing a unit quantity of

output is called cost of production. Example: Costs in Rs./tonne or quintal.

40. Variable: Any quantity which can have different values in the production
process.

41. Independent variable: It is a variable whose value does not depend on other
variables. Such variables influence the dependent variable.
Examples: Land, labour, liquid money, fertilizer, etc.

42. Dependent variable: A variable that is governed by another variable. Example:

Crop output

43. Constant: A quantity that does not change its value in a general relation
between variables.

44. Coefficient: When rate per unit is calculated, we use the term coefficient, a
multiplying factor. For example, the regression coefficient of an input in
production function denotes response of output per unit of input. Similarly,
elasticity coefficient of input gives the percentage change in crop output per one
percent increase in input level. But technical coefficients refer to requirements of
inputs per unit of land or per unit of crop output.
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45. Slope: Slope of a line represents the rate of change in one variable that occurs
when another variable changes i.e., it is the rate of change in the variable on the
vertical axis, per unit change in the variable on the horizontal axis. Slope is always
expressed as a number. Slope varies at different points on a curve, but remains the
same on all points of a given line.

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