Producers Surplus of Agricultural Commodities
The quantity that is or can be made accessible to the country’s non-producing population is known as the producer’s surplus. From a marketing standpoint, this surplus is more important than overall commodity production. Agricultural development is determined by the rate at which agricultural production expands, while economic development is determined by the growth in the marketable surplus. For the country’s economic progress, an increase in output must be accompanied by an increase in marketable surplus. Knowledge of the surplus of producers aids policymakers and merchants in the following areas:
- Farming sound price policies:
Price support programs are an important component of agricultural policy that helps boost productivity. Knowing the amount of marketable excess aids in the formulation of these policies.
- Developing proper procurement and purchase strategies:
The quantity and behavior of marketable and sold excess must be considered in the procurement policy for feeding the public distribution system. Likewise, merchants, processors, and exporters must base their purchasing strategy on advertised amounts of various farm products.
- Checking undue price fluctuations:
The government and traders can make suitable preparations for the movement of produce from one location where it is in surplus to another area where it is lacking if they know the volume and extent of the surplus. This helps to minimize price fluctuations in agricultural commodities. Knowledge of marketable surplus also aids traders and the government in making storage decisions.
- Export/import decisions:
Advanced assessments of the excess of such commodities with external trade potential are useful in making judgments about the commodity’s export and import. If the surplus is predicted to be less than what is required, the country can plan for imports; if the surplus is expected to be greater, options for exporting the surplus can be investigated.
- Development of transport and storage system:
Knowing about marketable excess aids in the development of sufficient transportation and storage systems to handle it.
Read more: Importance of Demand Elasticity
Types of producer’s surplus:
The agriculture producer’s surplus is of two types.
- Marketable surplus:
- Marketed surplus:
Marketable surplus:
The marketable surplus is the amount of produce that can be made available to the country’s non-farm population. Surplus is a theoretical term. After satisfying his needs for family consumption, agricultural needs for seeds and feed for cattle, payment to labor in kind, payment to artisans-carpenter, blacksmith, potter, and mechanic-payment to the landlord as rent, and social and religious payments in kind, the producer-farmer has a marketable surplus.
Marketed surplus:
The quantity of products that the producer farmer sells in the market, irrespective of his needs for family consumption, farm needs, and other requirements, is referred to as marketed surplus. The marketed surplus may be greater than, equal to, or less than the marketable surplus.
There is only one term, according to Bansil: marketable surplus. This might be subjectively or objectively defined. Marketable surplus, in this context, refers to the theoretical surplus available for sale with the producer farmer after he has met all of the requirements. Objectively, the marketable surplus is the entire number of new crop arrivals on the market.
Relationship between marketed surplus and marketable surplus
Depending on the farmer’s condition and the type of crop, the marketed surplus may be more, lesser, or equal to the marketable surplus. The relationship between marketed surplus and marketable surplus is given below:
- When a farmer preserves a tiny portion of the produce over his actual need for family and farm needs, the marketed surplus exceeds the marketable surplus. This is especially true for small and marginal farmers, who have a greater and more immediate need for cash. Distress or forced sale refers to the circumstance of selling more than the marketable surplus. These farmers typically purchase food from the market at a later date to fulfill their family’s and/or farm’s needs. With a decrease in the product’s price, the number of distressed sales increases. To achieve any set cash requirement, a lower price indicates that a larger quantity should be supplied.
- When a farmer keeps some of the extra produce, the marketed surplus is smaller than the marketable surplus. Under the following circumstances, this condition holds true.
- Large farmers typically sell less than the marketable surplus because they keep adding products in the hopes of getting a better price at a later time.
- Due to price fluctuations, farmers may switch one crop for another, either for personal use or to feed their livestock. The farmer may consume more of the first harvest and less of the second crop as the price of the crop falls in comparison to the competing crop.
- When the farmer retains neither more nor less than his requirement, the marketed surplus may be equal to the marketable surplus. This is especially true for perishable goods.
Read more: Price Mechanism Limitations
Factors affecting marketable surplus
The marketable surplus varies from area to region and crop to crop within the same region. It also differs from one farm to the next. The amount of marketable excess on a given farm is determined by the following factors:
- Size of holding:
The size of the holding and the marketable surplus have a positive relationship.
- Production:
The more the marketable surplus on a farm, the higher the productivity, and the less the marketable surplus on a farm, the lower the productivity.
- Price of the commodity:
There is a positive as well as a negative link between commodity price and marketable surplus. Farmers are said to be price-conscious, which explains the favorable association. Farmers are tempted to sell more and keep less when the price of their productivity rises. As a result, the surplus has increased. The opposite is also true. The negative link between prices and marketable excess, on the other hand, implies that farmers’ cash requirements are inelastic. Farmers, according to the argument, sell the amount of output that provides them with the funds they require to meet their cash needs. As the price of the product rises, they sell a tiny quantity to raise the funds they require and vice versa. In other words, farmers sell a lower quantity when prices rise, and a larger number when prices fall.
- Size of the family:
There is a negative relationship between the size of the family and the marketable surplus. The higher a family’s number of members, the smaller the farm’s surplus.
- Requirement of seed and feed:
There is a negative relationship between the requirement of seed and feed and the marketable surplus. The lower the marketable excess of the crop, the higher the demand for these purposes.
Non-food crops’ marketable surpluses (cotton, jute, rubber) are often higher than those of food crops. Even among food crops, the marketable surplus as a percentage of total output is higher for commodities like sugarcane, spices, and oilseeds that require some processing before final consumption.
- Consumption habits:
The amount of produce kept by the farm family is determined by their consumption habits. Rice, for example, accounts for a tiny percentage of overall cereal consumption by farm families in comparison to those in southern or eastern regions. As a result, Punjab farmers sell a bigger share of a given paddy/rice crop than rice-eating farmers in other states.
Read more: Factors Affecting Supply Elasticity
Read More: Scope and Importance of Agricultural Marketing
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