Factors that Determine the Price of Agricultural Produce
The following factors, determine the price of agricultural produce;
1. Cost of Production:
A lot of capital is involved in acquiring agricultural produce. Crop production involves land clearing, land reparation, farm input, harvest and crop preservation, etc.
Animal production also involves a lot of capital because of the factors involved. If the cost of production is low, the price will be low, but when the cost of production is high, the price of such farm produce will be high.
2. Quality of Produce:
If agricultural produce has high quality, it attracts a better price at the market. Some products are sold at a higher price when they are fresh. But they attract low prices when they have spent a lot of time on display, or are affected by pests, like grains that perish or rot like fruits and vegetables.
In summary, the higher the quality of agricultural farm produce, the better the price.
3. Quantity of Produce:
If there is an increase in the quantity of agricultural produce supplied, and demand remains the same, the price will tend to fall. But if there is a decrease in the quantity of agricultural produce supplied, and demand remains the same, the prices will rise.
When the quantity produced is high, it forces the price to come down, but when the quantity produced is low, it forces the price to go up. This is due to the rate of demand that is higher than the supply. The moderate price is obtained when there is equilibrium.
Equilibrium is a situation, in which the price has reached the level, where quantity supplied equals quantity demanded.
4. Forces of Demand and Supply:
This determines the price of farm produce. Demand is the willingness and ability of a consumer, to consume or buy particular goods, or services, at a particular price. Supply is the quantity of goods and services, that the producer is willing to offer to the market, at a particular price, place, and time.
These two forces determine the economic theory and its main principles. The law of supply and demand explains how prices are set for the sale of goods. When demand is high, producers can charge high prices for goods, and only a few consumers will purchase the goods, and demand will fall.
5. Market Price of Produce:
The market price is the economic price, for which goods or services are offered in the marketplace. An unexpected increase, in the price of cassava flour in the market, can force a buyer or consumer to shift to buying corn flour. This shift will force the price of cassava flour downwards, as there will be less demand for it. The market price is determined by the level of demand and supply to the market.
6. Seasonality of Agricultural Produce:
This can greatly affect the price of agricultural products such as fruits or vegetables. There are some products that cannot be found in the market, during the dry season. If such produce is seen in the market, they may be few and would be sold at higher prices, due to their scarcity in the market.
For example; vegetables like Okra, lettuce, and spinach, are usually few in the markets during the dry season. But during the rainy season, they are in abundant supply to the market, with a drastic fall in prices.
7. The Number of Producers:
When the producers are few, the rate of demand will be greater than the supply, automatically, which will lead to an increase in price. But if the producers are many, the price will be forced down, due to competitiveness in market price.
8. Government Policy:
The government plays a major role in determining the price of a commodity in the market, especially when the producers are cheating the consumers. The price regulatory council (PRC) is an agency that determines the prices of commodities in the market, to safeguard unimaginable exploitation in the market.