Agricultural economics, marketing and extension

Production economics

• Law of diminishing returns: adding more of a variable input to fixed inputs eventually gives smaller increases in output.
• The optimum input level is where the marginal value product equals the marginal cost of the input.
• Enterprise budgets: gross income − variable costs = gross margin; then subtract fixed costs for net farm income.

Risk and uncertainty

Weather, prices, pests and policy changes. Risk management: diversification, insurance (including index-based crop insurance), contract farming and forward selling.

Marketing

Marketing functions: assembly, grading, storage, processing, transport and selling. Channels: GMB, auction floors (tobacco – through the Tobacco Industry and Marketing Board, TIMB), contract buyers, commodity exchanges, supermarkets and informal markets. Value chains and value addition increase farmers' share of the final price.

Agricultural finance

Sources: own savings, banks, microfinance, input credit through contract schemes, and government programmes.

Extension

Agritex officers transfer knowledge through demonstrations, field days, farmer field schools, radio and mobile phone platforms. Approaches: training and visit, participatory and farmer-to-farmer extension.

Agricultural policy

Land tenure, input support, price policy, research (e.g. crop breeding institutes), and climate-smart agriculture.

Check yourself

1. State the law of diminishing returns.
2. Give two methods farmers use to manage price risk.
3. Name one extension method.