SRI KRISHNA COLLEGE OF ARTS & SCIENCE

AGRICULTURAL ECONOMICS ASSIGNMENT 1

TOPIC: DEMAND AND SUPPLY OF PERISHABLE PRODUCTS IN INDIA

SUBMITTED BY
P.M.LOHITH I B.Com A 10BCO025

Demand Introduction
Demand for a commodity refers to the desire backed by ability to pay and willingness to buy it. If a person below poverty line wants to buy a car, it is only a desire but not a demand as he cannot pay for the car. If a rich man wants to buy a car, it is demand as he will be able to pay for the car. Thus, desire backed by purchasing power is demand. The demand for any commodity mainly depends on the price of that commodity.

Definition
Alfred Marshall stated that the greater the

amount sold, the smaller must be the price at which it is offered, in order that it may find purchasers; or in other words, the amount demanded increases with a fall in price and diminishes with rise in price.

According to Ferguson, the law of demand is

that the quantity demanded varies inversely with price.

Demand Curve

The demand curve can be drawn using the demand schedules by measuring price on vertical axis and quantity on horizontal axis. The curve slopes downwards from left to right showing that, when price rises, less is demanded and vice versa. Thus the demand curve represents the

inverse relationship between the price and quantity demanded, other things remaining constant.

Elasticity of demand
The law of demand explains that demand will change due to a change in the price of the commodity. But it does not explain the rate at which demand changes to a change in price. The concept of elasticity of demand measures the rate of change in demand. The concept of elasticity of demand was introduced by Alfred Marshall. According to him the elasticity (or responsiveness) of

demand in a market is great or small according as the amount demanded increases much or little for a given fall in price, and diminishes much or little for a given rise in price.

Shift in demand curve

The other things that affect demand are also called as the Determinants of demand. They include income of the consumer, tastes, prices of substitutes and many more. Changes in these determinants will change demand independently of price. If income of the consumer increases, they will buy more irrespective of the price. Similarly a fall in income will bring a fall in demand even if there is no change in price.

Supply

Supply means the goods offered for sale at a price during a specific period of time. It is the capacity and intention of the producers to produce goods and services for sale at a specific price. The supply of a commodity at a given price may be defined as the amount of it which is actually offered for sale per unit of time at that price.

Supply schedule and supply curve

A supply schedule is a statement of the various quantities of a given commodity offered for sale at various prices per unit of time. With the help of the supply schedule, a supply curve can be drawn.

Demand and supply of agricultural products Introduction

World market prices for major food commodities such as grains and vegetable oils have risen sharply to historic highs of more than 60 percent above levels just 2 years ago. Many factors have contributed to the run up in food commodity prices. Some factors reflect trends of slower growth in production and more rapid growth in demand that have contributed to a tightening of world balances of grains and oilseeds over the last decade. Recent factors that have further tightened world markets include increased global demand for bio fuels feed stocks and adverse weather conditions in 2006 and 2007 in some major grain- and oilseed-producing areas. Other factors

that have added to global food commodity price inflation include the declining value of the U.S. dollar, rising energy prices, increasing agricultural costs of production, growing foreign exchange holdings by major food-importing

countries, and policies adopted recently by some exporting and importing countries to mitigate their own food price inflation. This report discusses these factors and

illustrates how they have contributed to food commodity price increases.

Rise of food prices

Figure 1 shows an index of monthly prices for food commodities, e.g., grains, vegetable oils, meats, seafood, sugar, bananas, and various other commodities that are the basis for human consumption of staple foods. Although prices, measured in nominal dollars, trended slightly downward between 1980 and 2002, there were several short periods (1980, 1983, 1988, and 1996) when prices did rise from the previous year. After 2001, prices began to rise slowly and by 2004 reached the level that they had been in the mid-1980s. In early 2006, commodity food prices began to rise more quickly. During the last 2 years, prices of these commodities rose sharply to a new high, more than 60 percent above what they were 2 years ago.

Spikes of food prices

Figure 2 puts the evolution of the food commodity price index into broader perspective. Monthly price indices for wheat, rice, corn, and soybeans back to 1970 have been added to the index for food commodity prices. Wheat and rice account for much of the world food consumption of grains. Corn is used for both food and animal feed. Soybeans provide vegetable oil for human

consumption and protein feed for animals. Combined, the four crops account for a large share of the staple foods that are consumed globally. Two general patterns are especially significant in figure 2. First, the index of average food commodity prices (data only available back to January of 1980) closely tracks the prices of the four major crops (wheat, rice, corn, and soybeans), although in a somewhat dampened manner. Second, there have been periodic spikes in the prices of the four crops during the last 38 years. Although some of the price spikes focused on only one of the crops, in general the prices of all four crops rise and recede in a similar pattern. This occurs because buyers can substitute among these or other commodities, whether for food use or animal feed use, and purchase whichever is cheaper. With the exception of the early 1970s, each period of rapidly rising prices was followed by a retreat back to their pre-spike level.

Potatoes
Lets take an example of perishable products as potato. Now we can examine the demand and supply of potato in India.

Introduction
Potato is the world's fourth important food crop after wheat, rice and maize because of its great yield potential and high nutritive value. It constitutes nearly half of the worlds annual output of all root and tuber crops. With an annual global production of about 300 million tonnes, potato is an economically important staple crop in both developed and developing countries.

Indian scenario in production of potatoes

India ranks 4th in area and also it is the 3rd largest country in world in production of potato after China and

Russian Federation. Potato is produced in an area of 14.00 lakh ha with a production of 250 lakh tonnes and productivity of 17.86 ton per ha.

Demand and supply of potatoes

Potato prices recovered by Rs 14.90, or 1.29 per cent, to Rs 375.90 per quintal in futures trade today, as traders enlarged their positions on pick up in spot market demand. Restricted supply from producing regions also supported the uptrend.

At the Multi Commodity Exchange counter, potato for September contract gained Rs 14.90, or 1.29 per cent to Rs 375.90 per quintal, with a trading volume of 741 lots. Potato for delivery in October traded higher by Rs 4.70, or 1.26 per cent, to Rs 379 per quintal in 394 lots, while August delivery up by Rs 4.10, or 1.11 per cent, to Rs 372 per quintal, with a business volume of 571 lots. Market men said increased buying by traders and speculators on pickup in demand in the spot market mainly led to a rise in potato prices at futures trade. They said restricted arrivals from producing belts in Haldwani and Agra also influenced the trading sentiment to some extent.