Agricultural Marketing and Price Analysis

COURSE OUTLINE

AER 3123: Agricultural Marketing and Price Analysis
September -December 2023 Semester

Instructor: Kavoi M.M. Agricultural and Resource Economics
Time Tuesday: 10.00AM-1.00 PM
Venue: DARE Room
Course Objectives: The main objective of the course is to initiate students into the practice of
reading and conducting applied agricultural marketing research. Students
will have opportunities to use logic and critical thinking skills, while
integrating economic theory with applied problem solving.
Course approach: The approach to the course uses both simple graphical and calculus to
explain the various concepts and relationships.


1. Introduction
1.1. Distinguishing Characteristics of Agricultural prices
1.2. Role of Prices


2. Demand for Agricultural Products
2.1. Logical Basis of Demand Theory
2.2. Consumer and Market demand
2.3. Static and Dynamic Aspects of Demand
 Movement along demand curve due to price change
 Dynamic change-Change due to factors influencing demand
 - Lags in adjustment
 Changes in demand
 Speculative demand
 Derived demand
3. Demand Elasticities:
 Price Elasticity
 Income Elasticity
 Cross-price elasticity
 Relationships among Elasticities
4. Consumer Demand Analysis
 Types of demand analysis
 Methods of Modelling demand
 Specification of Demand Equations
 Selected Flexible demand systems



1

, 5. Supply Relationships in Agriculture

5.1. Theory of Supply
 Theoretical Basis of supply functions
 Supply curves
 Changes in Supply
 Price elasticity of supply
 Derived demand of inputs
 Long run supply curves and Irreversible Supply

6.0. Supply Modelling and Analysis

 Supply models and Elasticities
 Dynamic models
 Infinite la-Geometric Lag models
 Adaptive expectation models
 Partial Adjustment
 Finite La-Polynomial distributed Lag

7.0. Theoretical models of market structure and performance:
7.1. Market Equilibrium and Price Adjustment: Theory and practice
Competitive Market Equilibrium
Monopoly and Monopsony
Oligopoly and Oligopsony
Monopolistic Competition
7.2. Structure-Conduct-Performance
7.2.1. Structure of Markets
 Conceptual Framework of S-C-P
 Product differentiation
 Conditions of entry
7.2.2. Conduct of Markets
7.2.3. Performance of markets

7.3. Economies of Size and Competition
7.4. Equilibrium in a Competitive market
7.5. Cobweb Model of price adjustment

8.0. Marketing Margins-Prices over Form, Time and Space
 Models of margin behavior
 Empirical measures of Margins
 Incidences of changes in Marketing costs

9.0. Spatial Price Relationships
 Spatial price relationships
 Price relationships for commodities sold in one central market
 Market Boundaries

2

,10.0. Market organization
 Horizontal & vertical integration of agricultural industries



References:
Required: Tomek W.G. and L. Robinson. Agricultural Product Prices, Fourth Edition. New
York: Mc Graw-Hill.

Chapter 1
1. Introduction

1. Level and behavior of agricultural product prices:
 The principal objective of this course is to provide students with an understanding
of the complex array of forces that influence the level and behavior of agricultural
product prices.
2. Introduce students to studies of price behavior-Theory versus empirical analysis:
 A secondary objective is to introduce students to studies of price behavior and
thereby assist them in bridging the gap between theory and empirical analysis.
 Empirical analyses aid in understanding the performance of the economy, especially
the consequences of price or policy changes.
3. Prices determine farm incomes, consumer welfare and export earnings:
 Although the agricultural sector is a declining component of most national
economies, agricultural product prices remain important both economically and
politically.
 They strongly influence the level of farm incomes and in many countries the level
of food and fiber prices are important determinants of consumer welfare and the
amount of export earnings.
 A decline of only a few cents per kilogram in the prices of such internationally
traded commodities as sugar, coffee, and cocoa can have serious political and
economic repercussions in such countries as Mauritius, Colombia, and Ghana.
 As Deaton (1999) pointed out, inaccurate forecasts of commodity prices led to
poor policy prescriptions for African nations.
 In the United States, a large drop in the farm price of hogs was reported as likely to
drive 24,000 pork producers out of business (Wall Street Journal 1998). This, in
turn, led to questions about why hog prices had dropped so rapidly and by such a
large amount, and empirical models can help answer such questions.


1.1. Distinguishing Characteristics of Agricultural Prices

 Agricultural commodities provide an exceptionally interesting vehicle for the
study of price-making forces.


3

,  The manner in which commodity prices are determined ranges from markets with
near monopoly-like institutions, sometimes assisted by governmental regulation
and intervention, to reasonable approximations of the textbook definition of
pricing under competitive conditions.
 Thus, in examining agricultural prices, one must inevitably study a wide range of
models of price determination and pricing institutions.

1. Agricultural commodity prices are more volatile than are the prices of most
nonfarm goods and services.

 It is not unknown for the prices of commodities to drop by 75 percent or spike
upward by 100 percent or more within a few months.
 For example, the retail price of milk was around Kshs 45.00 in January 2017, jumped
to around Kshs 65.00 in July and is likely to drop by November-december 2017
during short rains. The average price of 2 kg maize packet was about Kshs 90.00 in
2013 and by June-July 2017, it was Kshs. 180.00. By February-March 2018, it might
drop back to around Kshs 90. Major commodities like sugar, wheat, and cotton also
have variable prices.

2. A typical time series of commodity prices exhibits both random variability and
systematic behavior.

 Sometimes, as just noted, spikes occur; that is, prices jump rather abruptly to a
high level and then fall back to the original level or even lower.
 These generalizations apply roughly to series of varying frequency, such as daily,
monthly, or annual prices, but it will be convenient in subsequent discussions to
distinguish between inter year and intra-year price behavior.
 Also, most of our discussion is about the behavior of average prices, say, why a
series of monthly prices changes with the passage of time.
 A more complete discussion would include the possibility of systematic and
random changes in other descriptive statistics through time.
 For example, the mean, variance, kurtosis, and skewness of the distributions of
monthly maize prices all vary systematically from harvest through the storage
period.

3. The characteristics of agricultural product price behavior relate importantly to the
biological nature of the production process.

 Significant time lags exist between a decision to produce and the realization of
output, and actual production may exceed or fall short of planned production by a
considerable margin.
 At least a year is required for producers to" change pig production, 3 years to
change the supply of beef, and 5 to 10 years for growers to increase the output of
tree crops such as apples.
 Yields vary from year to year because of variability in weather conditions and the
presence or absence of diseases or insect infestations.


4