Concept of Production
By now you must be familiar with the meaning of agricultural economics, production economics and agricultural production economics. We have already discussed the scope of this specialized branch of economics. During the study of this course, you will come across some terms and concepts in which you need to know their meanings. This topic is devoted to the explanation of these concepts. Some important concepts that we will be discussing in subsequent posts includes: Production, Types of production, Factors of production and efficiency.
At the end of this topic, you should be able to:
define production
explain the three types of production
explain the four factors of production
give the meaning of at least two other common terms used in agricultural production economics
Meaning of Production
Production is the process whereby some goods and services are transformed into other goods. The transformed goods are known as inputs, factors or resources and the newly created goods are called products, outputs or yield in the case of crops.
Types of Production
There are basically three types of production namely:
a. Primary production
b. Secondary production
c. Tertiary production
a. Primary Production
This includes all branches of production that may not be easily consumed at the initial stage but used for further production. For example, production of cassava, mining and quarrying are all classified as primary production.
b. Secondary Production
This production comprises of all kinds of manufacturing and constructing works i.e. turning the new materials produced in primary production into finished goods.
c. Tertiary Production
This type of production involves the provision of direct services such as the distribution of goods and services at each level of production to the final consumers.
EXERCISE
Discuss the three types of production
Factors of Production
The resources used for the production of a product are known as factors of production. Factors of production are termed inputs, which may mean the use of the services of land, labour, capital and organization in the process of production
The term output refers to the commodity produced by various inputs.
a. Land
The term land is used in the widest sense to include all kinds of natural resources, farmland, mineral wealth such as coal and metal ores and fishing-grounds. Perhaps the main services of land are the provision of a site where production can take place. Land differs fundamentally from other factors in three ways;
i. It is fixed in supply
ii. It has no cost of production
iii. It varies in quantity
b. Capital
Capital comprises of buildings, machinery, raw materials, partly finished goods and means of transport i.e. capital is considered as a stock of producers‟ goods used to assist in production of other goods.
c. Labour
Labour is the human effort employed in production. It is indispensible to all forms of production. The supply of labour services can be varied either by a change in the number of hours or days worked in a given period of time. The supply of a labour in a country depends on these three factors:
i. The total population of the country
ii. The proportion of the population available for employment, and
iii. The number of hours worked by each person per year.
d. Entrepreneur
Entrepreneur describes the managerial ability of the owner of the firm or its manager. The entrepreneur is responsible not only for deciding what method of production shall be adopted but also for organizing the work of others, he has to make many other important decisions such as what to produce and how much to produce. Perhaps the primary function of the entrepreneur is to bear the risk and uncertainty of production.
Other Concepts in Agricultural Production Economics
The concepts discussed below are adopted from Reddy et al. (2009):
Resources
Anything that aids in production is called a resource. They physically enter the production process to transform into output. For example-seeds, fertilizers, feeds, veterinary medicines etc.
Resources can be classified into the followings:
i. Fixed Resources: Resources which remain unchanged irrespective of the level of production are 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. For example; land, buildings, machinery implements etc.
ii. Variable Resources: Resources which change with the level of production are called variable resources. The higher the level of production, the greater the use of these resources. The costs which are associated with these resources are called variable costs. These resources exist in the short run as well as long run. Farmer can exercise greater control over the use of these resources. Examples are: seeds, fertilizers, plant protection chemicals, feed etc. The distinctions between fixed and variable resources cease to exist in the long run. In the long run all resources are varied.
iii. 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 and farm buildings etc.
iv. Stock Resources: Stock resources are those which facilitate for their storage when they are not used in one production period. Examples are: seeds, fertilizers, feed etc.
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. For example productivity can be expressed as 10kg of output/ha.
Efficiency
Efficiency means absence of wastage or using resources as effectively as possible to satisfy the farmer‟s need and goals.
Efficiency can be expressed in the following ways:
i. Technical Efficiency: It is the ratio of output to input
ii. 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.
iii. Allocative Efficiency: It occurs when no possible organization of production can make any one better off without making someone else worse off. It refers to resource use efficiency. It is an ideal situation in which costs are minimum and profits are maximum.
Variable
Any quantity which can have different values in the production process. Other concepts associated with variable are:
Independent Variable: it is a variable whose value does not depend on other variables. Such variables influence the dependent variable. Examples are: land, labour, liquid money, fertilizer etc.
Dependent Variable: A variable that is governed by another variable. Example is crop output.
Constant: A quantity that does not change its value in a general relation between variables.
Coefficient: When rate per unit is calculated we use the term coefficient, a multiplying factor. For example;
The regression coefficient of an input to production function denotes response of output per unit of input
Elasticity coefficient of input gives the percentage change in crop output per one cent increase in input level.
Technical coefficient refers to requirements of inputs per unit of land or per unit of crop output.
Slope
Slope of a line represent the rate of change in one variable that occurs when another changes i.e. it is the rate of change in the variable on the vertical axis per unit of 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.
EXERCISE
i. Itemize the four factors of production
ii. Explain the following concepts:
- Resources
- Productivity
- Efficiency
- Variable
- Slope
CONCLUSION
This post has exposed you to some basic concepts used in agricultural production economics. Concepts like production, factors of production, efficiency, variables, productivity, coefficient, slope etc are very essential in understanding agricultural production economics.
SUMMARY
The main points in this unit include the followings:
Production means transformation of input into output
Production can be classified into three: primary, secondary and tertiary production
Resources used for production are called factors of production
Factors of production can be grouped into four-land, labour, capital and entrepreneur
Resources are anything that aids in production and can be classified into variable resources, fixed resources, flow resources and stock resources.
Productivity means efficiency with which inputs are converted into output
Efficiency also means absence of wastage or using resources as effectively as possible to satisfy the farmer‟s goals
Efficiency can be classified into- technical efficiency, economic efficiency and allocative efficiency.
Variables are any quantity which can have different values in the production process. Variables can be dependent or independent
In agricultural production economics we can identify the following types of coefficients: regression coefficient, elasticity coefficient and technical coefficient
Slope of a line represent the rate of change in one variable that occurs when another changes.
ASSIGNMENT
1. Give the meaning of the following agricultural production economics concepts:
a. Variable
b. Coefficient
c. Efficiency
d. Resources
e. Slope
REFERENCES/FURTHER READING
Abbot, J.C. and J.P. Makeham (1980). Agricultural Economics and Marketing in the Tropics. London, Longman Publishers.
Adegeye, A.J. and J.S. Dittoh (1985). Essentials of Agricultural Economics. Ibadan, Impact Publishers.
Nweze, N.J. (2002). Agricultural Production Economics: An Introductory Text. Nsukka. AP Express Publishers.
Olayide, S.O. and Heady E.O. (1982). Introduction to Agricultural Production Economics. Ibadan. University Press Ltd.
Olukosi, J.O. and A.O. Ogungbile (1989). Introduction to Agricultural Production Economics: Principles and Applications. Zaria. AGTAB Publishers Ltd.
Marshall A.C. (1998). Modern Farm Management Techniques. Owerri. Alphabet Nigeria Publishers.
Reddy, S.S., P.R. Ram, T.V. Sastry and I.B. Devi (2004). Agricultural Economics. New Delhi. Oxford and Ibh Publishers Ltd.
