Demand and Supply of Agricultural Products

Introduction:

Demand rent factors which would be discussed later on and supply of agriculture products have very basic but strong interrelation in the world of economics as well as farming. 

Consumers are the reason behind creating the demand for products and the farmers/producers are the people who fulfill the demand by producing the needed supplies. 

This chain of  Demand and Supply of Agricultural Products is interlinked with each by various factors which can sometimes give favor to the producers/farmers or the regular consumers. 

In the supply chain of agriculture products, there is a concept known as commodity chains which has its own importance over the supply chain. 

The concept of commodity chains express the importance of food security and sustainability in the world of agriculture. The food industry has expanded in the past few years and this has led to the creation of commodities chains.

Demand:

In business, the term “demand” usually refers to the desire and ability of consumers to buy a good or service. In essence, demand represents how much of a product or service is wanted by buyers at any given price.

Generally speaking, when demand for a product or service is high, prices will be higher because there’s more competition among sellers. 

But this trend has a certain threshold level. If the price of a product gets very high its demand starts to decrease because it becomes inaccessible for the consumer. As a result people tend to buy the other product and skip the expensive one.

Conversely, low demand usually means lower prices. The trend in most markets is for demand to rise over time as incomes grow and more people enter the workforce.

Supply:

Market supply is the total number of goods and services that are available for purchase in the market at a given price. The supply of a product is determined by how much producers are willing to produce and sell at a given price.

Key points of supply and demand:

• There can be many factors involved in the supply and demand set up in the market.
• In case if the price of product being produced is high, the number of the products being produced would be directly proportional to each other.
• If the price of a product is high the rate of consumption by the consumer would be low.
• After looking at these points the market supplies and price trend takes place.

Equilibrium price:

The equilibrium price is the point at which the supply and demand for a product are in balance. When the equilibrium price is reached, it indicates that the market is functioning properly and that both the consumer and seller are getting what they want. 

At this point the market product has good quality with the price that has the ability to attract the consumer to the market.

The equilibrium price can be affected by a number of factors, including trend, product, and value. It’s important to note that the equilibrium price can change over time, so it’s important to stay up-to-date on the latest market trends.

Effect of supply and demand on farmer:

The market for a product is determined by the relationship of supply and demand. When the demand for a product is high and the supply is low, the price of the product will be high.

Conversely, when the demand for a product is low and the supply is high, the price of the product will be low. The trend of a product is also determined by the relationship of supply and demand.

When the demand for a product is high and the supply decreases, then the trend for that product will be increasing prices. 

If there is an oversupply, or an increase in production that does not meet consumer needs, then prices will trend downward as producers compete to sell their products.

Understanding how these relationships work is important for farmers who are looking to get the best value for their crops.

It is important to know supply and demand play a huge role on the farmers production quality and its profitability also.

When in the market the farmer faces competition and the urge to bring the high quality product raises in the market the consumer gets more options for a good product, while in return the farmer gets a good price for its product. 

Factors affecting demand

Factors affecting the demand in the market of the product can be very complex sometimes. The trend of high or low demand for products can be based on multiple reasons.

Price:

In most markets, the price of a product is determined by the interaction of supply and demand. When the demand for a product increases, the price usually rises as well, in order to bring the quantity demanded closer to the quantity supplied. The opposite is also true; when demand falls, prices usually fall as well.

For example if we take newly produced equipment being produced for the farmers which are expensive have new demand at the market as compared to the equipment which are cheap.

The reason that prices rise and fall when demand changes is because the value of a product is not fixed. The value of a product is determined by how much people are willing to trade for it. When demand increases, people are willing to trade more for the product, so the value (price) goes up.

Income:

Income has a significant impact on demand. When people have more money, they are more likely to buy high-priced products. The trend is for people to demand more expensive products as their income rises. 

Conversely, when people have less money, they are more likely to buy low-priced products. The trend is for people to demand less expensive products as their income falls. This is because people value goods differently based on how much money they have.

In developing countries where the income of people is not very high they are not able to afford high value products such as saffron is considered a very highly expensive commodity to produce. It sells around 2500$ per pound. So these kinds of commodities do not have high demand in public or farming communities.

Tastes and Preferences:

The effect of tastes and preferences on demand is an important concept to understand when studying market trends. People’s likes and dislikes can have a significant impact on what products are in high or low demand, and how much consumers are willing to pay for them.

It’s also important to note that tastes and preferences can change over time, which can lead to shifts in demand for certain products.

Countries like Bangladesh do not use wheat as their preferred food. Most of them use rice and fish. Other countries surrounding Bangladesh such as India, Pakistan prefer to use wheat.

Advertising and Promotion:

The effects of advertising and promotion on demand are vast and varied. Some economists argue that advertising creates value by informing consumers about new products and helping them compare the features of various products in the market. 

Others argue that advertising can distort trade by convincing consumers to buy products they don’t need or wouldn’t have chosen without the advertising. Advertising can also lead to high levels of demand for some products while causing demand for other products to be low.

Some of famous brands such as Nestle, you find them advertising their products on T.V, billboards and social media. These kinds of brands are famous all over the world.

Seasonality:

The demand for a product is greatly affected by the seasonality of the market. The value and demand for a product can be high during some seasons and low during others. 

This affects not only the prices of products, but also how much trade takes place in these products. Seasonality has a big impact on what products are demanded and how much these products are worth.

Demand for commodities like fish is high in certain countries during winter but it decreases in summer. Same way all vegetables or fruits are not available in every season. That’s why their demand decreases as well.

Factors affecting Supply

Supply of any product by the producer has various factors affecting its trend. Over time it can change depending on the conditions. Let’s talk about these factors and how they can increase or decrease the supply in the market.

The availability of resources: Land, labor, and capital:

As the availability of resources like land, labor and capital changes, it affects the supply in the market. When there is a high availability of land, for example, the price of goods will be lower because there is more available to produce them. 

Conversely, when there is a low availability of land, goods will be more expensive because there is less available to produce them. The trend in the market can also affect the value and price of goods.

For a farmer, having land on a large scale would make him able to produce more agricultural commodities which means he will be able to provide more supply as compared to a small farmer.

Having small patches of agricultural land is a major problem in developing countries, that’s why due to minor destructive factors they face famine. Same way if the labor is too expensive or there are less people to work with you would notice a down fall in supply.

Having reserve money for farmers is important because in case of any hardship they should have enough money to take certain steps in uncertain conditions.

Technology and production:

The market is constantly changing and evolving. New technology and production methods are introduced, which in turn affects the supply in the market. The trend is for goods to be produced at a higher value and at a lower price. 

The value of a good is what consumers are willing to pay for it, while the price is what producers are asking for it. When the value is high, the price will usually be high as well. However, this is not always the case. There are many factors that contribute to how much a good costs.

About 2 decades ago there were not many modern and technological innovations introduced in agricultural sectors.

But now there are many new technological methods being introduced that insure high yield which increase the amount of supply in the market. Such as using drones to do surveys, apply control measures and the same with the GPS and GIS ensure high yield of crops.

Weather and natural disasters:

Weather has a huge impact on production of agricultural supply. Last year Pakistan lost up to 10% more wheat than previous years due lack of rain, which led to seed shrinking. Eventually the supply of wheat was less than previous years. This forced Pakistani officials to import wheat from Russia. It shows if weather is favorable farmers can supply more to the market.

Natural disasters can be very destructive to the supply chain. This not causes shortness of supplies but also huge economical damage. There are many natural disasters such as floods, fire, and pest attacks.

Two years African countries, Iran, Pakistan, China and India suffered from one of the worst locusts attacks. It cost millions of dollars to control the attack and balance the supply chain over the years.

Politics and economics:

Politics and economics are two important factors that affect the supply in a market. The trend of the high or low value of goods and services is greatly determined by these two aspects. 

The price of these items is also greatly influenced by how the government or other economic institutions control them. When it comes to the market, supply always has an effect on demand.