Samenvatting Economics of Agribusiness

Samenvatting Economics of Agribusiness
Refresher calculus
Functions

- Equation: function is equal to number
- Abc formule:



- Continuous function: no jumps
- Smooth function: no kinks
- Monotonic function: always increasing or decreasing

Derivatives

- First order derivative: measures the slope of a function
- Second order derivative: curvature of a function
o If it is increasing or decreasing

Differentation rules

- Product rule: f’*g + f*g’
- Quotient rule: f’* g – f*g’/ g^2
- Chain rule: g (h(x))  dg/dh * dh/dx

Elasticities

- Elasticity:




o Elasticity is percentage change in variable y if variable x changes with 1%

Integrals

- Indefinite integral: geen gebied, formule, met constante erbij
o Wanneer er boven en onder het integraal teken geen cijfers staan
- Denifite integral: een gebied onder een curve met 2 punten




o B en a invullen in de x

Convexity and concavity of functions

- Convex: second order derivative >0
o 2 punten  lijn erdoorheen, min is eronder
- Concave: second order derivative <0

, o 2 punten  lijn erdoorheen, max is erboven

Optimisation

- Optimisation: FOD = 0
o Slope is horizontal
o FOC
- Maximum: SOD <0
- Minimum SOD >0

Constrained optimisation

- Lagrange: zie slides 24-28

Hoofdstuk 1
Agri-complex

- Agriculture and horticulture: sum of industries producing agricultural and horticultural
products
o Industry: firms producing similar products with a similar technology
o Services, forestry not included
- Agri-complex/ agribusiness
o Based on domestically produce draw products
 All products that disappear is if there is no agriculture (no milk, but still
retail  import)
 Including processing, input delivering industry
o Based on domestically produced in imported raw products
 All products that disappear if there is nog agriculture and no import
 Example: cacao beans
o First definition: still beans  still import
o Second definition: no beans  no import
- Production chain: all production stages from resources to consumers

Value added

- Value added: revenue – variable costs
o No profit (firm needs to hire people and pay interest)
- Factor inputs: production factor
 General
o Net versus gross value added
 NVA: sum of rewards of production factors (also measure of production)
 GVA: with capital depreciation
o Net and gross domestic product
 NDP: sum of NVA all industries
 GDP: adding capital depreciation
o National income
 GDP – foreign people in NL + domestic people in foreign
 Caveats
o External effects not taken into account
 External effect: non-priced by products
o Income is not utility
 Utility is more important than income

,  But income is taken into account
o Income distribution is not taken into account
 Many rich people  high GDP
o Non-valued productions not taken into account
 Household work, volunteer work
 Economic growth: GDP (total value added) gone up

Share of agriculture in GDP decreases


GVA agriculture GVA agriculture Y agriculture Y food C food C total
= × × × ×
GDP Y agriculture Y food C food Ctotal GDP
a ×b × c × d × e
A b c d e

 A: decreases (because of)
o Differentation: dividing production process vertically
 Not all processing in the same firm
 Oppositie = integration: all in one firm
o Specialisation: dividing production process horizontally
 Specialisation in one process
 Opposite = diversification: besides milking, mini camping
 Differentiation and specialisation for scale advantages and lower production costs
o High productivity increase in agriculture
 Same unit of factor of input  producing more  GVA/Y falls
o Special factors
 B: decreases
o How much of output agriculture is for food processing
o Demand for more processed products
 C: ?
o Degree of self-sufficiency
 D: decreases
o Law of engel
o More welfare  expenditure on food increases  share on food expenditure
decreases  food in total expenditure decreases
 E: ?
o Share of consumption in GDP
o Final demand = C+G+I+E-M

Employment

 General
o Source of income
o Taxes
 Source of government income
 Labour is family members/ seasonal workers
 Caveats
o Working is a way to earn income but often involves negative utility
 Not be valued positive automatically
o Created by subsidies
 Unfavourable to economic welfare (hinders employment other sectors)

,  Large budget costs government
 Development over time

o
E agri Ltot
=
Etot Lagri (
Y × Pagri
× agri
Y tot × Ptot )
P
× tot
Pagri
 Decrease
o Labour productivity in agriculture: -
o Share in value total production: -
o Terms of trade: -

Balance of payment

 General
o Part of final demand  create GDP
o Exports are source of foreign currencies
o Export balance: exports minus imports
 Caveats:
o Income earned with exports is important
o Transit trade is important
 Imports are also needed

Land use and landscape

 External effect
 Agriculture important land using activity
 Share of agriculture decreases
 Strict land policy: destination of land
 Difference between housing land price and agricultural land describes importance of
agriculture

Emissions of pollutants

 Negative external effect
 Greenhouse effect:
o CO2, N20, CH4
 Acidification:
o NH3 (ammonia)
 Eutrophication: N,P
o Restrictions
o Decreased because of milk quota
 Adaptation costs: costs for adapting to global warming (dikes)

Conclusions

 Share of agriculture in GDP and employment is low and decreasing. The share of agribusiness
is larger
 Share of agriculture and agribusiness in exports is large in the Netherlands. However this
share is not that important
 Share of agriculture in emission of pollutants in the Netherlands is large but decreasing
 Agriculture is an important land using activity