Three Influential Factors to A Country’s Agricultural-Based Economy
A country’s agricultural-based economy is basically determined by market mechanism, which consists of demand, supply, and price: the adjustment system of these quantitative factors. Most people, as consumers of agricultural products, will be familiar with the demand-side aspects of the agricultural economy; for example, a range of the price for rice, and a daily consumption of bread. Farmers, as suppliers of agricultural products, play an important role in a country’s primary industry, although their business styles (e.g. comercial scale or self-sufficient scale) vary from country to country. These subjects in a country’s agricultural economy are likely to behave differently according to three major factors: eating culture, international trade, and a government’s agricultural policy.
First of all, eating culture forms a country’s range of demand for agricultural products. A typical economic phenomenon which explains this is a changing consumption of rice in Japan. Japanese eating culture has dramatically changed from a traditional style to a mixed style with western culture, which is enabled by economic development in the late 20th century. In this process, a rice consumption per capita have decreased until now, while a consumption wheat has gradually increased throughout the development period (fig. 1).
This means the demand for rice has been partly substituted for the demand for wheat. In other words, changing diet of people affects a country’s demand for agricultural products.
On the other hand, international trades restrict a range of suppliers’ behavior in a nation’s primary industry. In agricultural industry, as well as other industrial field, trades between countries is very effective to supply a country’s necessary farm products efficiently. For example, growing wheat in Japan costs extremely much, compared with the production costs in the United States (fig. 2). According to this data, Japanese farmers are clearly not competitive at wheat price in the international wheat market. This example shows that farmers should specialize themselves to advantageous crops in their country, instead of covering all kind of crops demanded by their country, if they are under the free trade market.
In addition, a government’s agricultural policy affects its country’s farm product supply in both plus and minus effects. Tariff on imported farm products is a common policy among most countries for the protection of domestic productions to support farmers. A famous case of tariff barriers is the Common Agricultural Policy (CAP) imposed on some farm products in the EU region such as cereals, daily and beef. The CAP includes not only a conventional tariff program on imported farm products into the region, but also a subsidy program on exported farm products from the region, sometimes called ‘reverse tariff’ (fig. 3). In contrast, there is also a certain program which set a limit for the supply of farm products. In 1970s, Japanese government introduced a policy of reducing rice acreage in order to prevent the price corruption because of shrinking demand for rice and growing efficiency of the rice production. As a result of these governmental interventions in the agricultural market, farmers would be protected well, although the distorted supply might cause grobal inefficiency in the world agricultural economy.
In conclusion, it is proved that a diet of people which differs from cultures determines the demand for agricultural products, and that the range and quantity of a country’s farm product supply is affected by the international trade with other countries and the agricultural policy of the government. As a consequence, these factors decides how suppliers and consumers behave, and then structures a country’s agricultural-based economy.
References
Niek Koning. (2006). Agriculture, development and international trade: Lessons to be learned from the Common Agricultural Policy of the European Union.
http://roppa.info/IMG/pdf/Niek_Koning-Agriculture_development_and_international_trade-Niamy_November_2006.pdf
Ali, M. & Vocke, G. (2002). How Wheat Production Costs Vary. Wheat Year Book, March 2002. Economic Research Service, United States Department of Agriculture.
“Self-Sufficient Rates”. Statistics. Ministry of Agriculture, Forestry, and Fishery of Japan. Retrieved May 11, 2012.
http://www.maff.go.jp/j/tokei/index.html
“Wheat; Agricultural Production Costs”. Statistics. Ministry of Agriculture, Forestry, and Fishery of Japan. Retrieved May 11, 2012.
http://www.maff.go.jp/j/tokei/index.html
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