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Agricultural Economics

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Agricultural economics originally applied the principles of economics to the production of crops and livestock — a discipline known as agronomics. Agronomics was a branch of economics that specifically dealt with land usage. It focused on maximizing the crop yield while maintaining a good soil ecosystem. Throughout the 20th century the discipline expanded and the current scope of the discipline is much broader. Agricultural economics today includes a variety of applied areas, having considerable overlap with conventional economics.


Economics is the study of resource allocation under scarcity. Agronomics, or the application of economic methods to optimizing the decisions made by agricultural producers, grew to prominence around the turn of the 20th century. The field of agricultural economics can be traced out to works on land economics. Henry Charles Taylor was the greatest contributor with the establishment of the Department of Agricultural Economics at Wisconsin in 1909

Another contributor, Theodore Schultz was among the first to examine development economics as a problem related directly to agriculture.[5] Schultz was also instrumental in establishing econometrics as a tool for use in analyzing agricultural economics empirically; he noted in his landmark 1956 article that agricultural supply analysis is rooted in "shifting sand," implying that it was and is simply not being done correctly

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Risk management in agriculture

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OECD analysis identifies three layers of risk faced by farmers:

  • Normal risk is frequent but not too damaging and is typically managed at the farm or household level - for example, small variations in price or yield. General tax, health and social systems help to manage such risks.
  • Potentially insurable risks, such as hail damage, have intermediate levels of frequency and magnitude of losses.
  • Catastrophic risks are infrequent, but cause great damage for many farmers - flooding, drought or disease outbreaks, for instance. The significant uncertainties associated with these events and the possibility of substantial losses makes it difficult to find market solutions, and there is a good chance of market failure.

A holistic approach
The standard approach to risk management in agriculture is linear. The risk is assessed by the farmer, who then determines a strategy to manage it. Policymakers would then look at this particular risk and this strategy rather than the broader picture. For example, a risk such as price volatility would cause difficulties for the farmer, and with no futures market available for all commodities the government may decide to intervene in prices.

However, agricultural risks are not independent but linked to one another and are part of a system that includes all available instruments, strategies and policies designed to manage risk. Using our example of price volatility, a price hike may have been caused by drought and a price fall by overproduction - themselves both risks that a farmer must manage. To manage in the event of price volatility, a farmer can use a variety of strategies, such as off-farm work, savings or diversification. And government policies could include price intervention but also direct payments to farmers.

OECD analysis calls for a holistic approach to risk management that focuses on the interactions between different types of risks, the strategies undertaken by farmers, and the whole set of government policies that impact on risk management.

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Business Ideas

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People may dream of giving up the corporate rat race and making a living off the land, but agriculture is a business like any other. However, agriculture encompasses many different areas, from vegetable, livestock and forage production to nurseries, equine operations, garden centers and landscape and floral design. Find the right market and explore business ideas for your small agricultural enterprise to make money and thrive

Local Foods

  • The locovore movement, in which people seek to buy locally grown food, has brought new popularity to the farmers' market. These markets are either gatherings of farmers bringing in their ware to central areas or individuals selling directly from their own property on a road stand. Other avenues for locally produced food include restaurants or community-supported agriculture (CSA). Based on a monthly or annual subscription method, residents pay farmers to receive designated amounts of fresh produce. The farmer knows in advance what demand is, so can plan accordingly.
  • Native Plant Nursery

  • The idea of planting native plants, shrubs and trees suitable for local soils is gaining favor. Encouraged by both environmentalists and horticultural professionals, native plants provide food and cover for native birds and wildlife. Native plant nurseries can range in size from a few acres to large operations. Among the advantages is that operators can make money from some lands not suitable for conventional farming. They can plant native wetland plants for gardens in soggy or marshy areas. Smaller native plant nurseries can sell directly to the public or provide garden centers with plants.
  • Horse Boarding

  • For farmers who like equines, horse boarding can be profitable and rewarding. Those with land close to affluent suburbs, especially if near trails or within easy trailering distance to state or county parks, can attract boarders looking for a convenient facility not far from their home. Options range from boarding a few horses on the property to offset expenses to operating a full-fledged training stable as a full-time business venture. The latter is best left to those with professional experience in either racing or showing. Look into insurance needs in your state. Many states have equine liability laws which protect stable owners to some extent, but not for gross negligence. As well-known horsewoman Pamela Nicholson Saul, owner of Rolling Acres Farm in Maryland, states: "Do your homework before the first horse ever sets foot (or hoof) on your property."


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    How to Invest in Agriculture

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    Investment in agriculture can take many forms. Today investors can invest in grain, farms, fertilizer and agricultural transport. Investment can be through mutual funds, exchange traded funds, direct stock participation or bonds of agricultural companies. Investment is not restricted to domestic companies. Multinational investment companies grow and create product lines throughout the world and have headquarters in Europe, Asia and North and South America. Investors seeking to invest in agricultural products should focus on the specific aspects of agricultural products in which they are interested and then find the right investment vehicle



  • Research and buy agricultural stocks by investing in companies that increase yield per acre. Stocks that produce potash, hybrid disease-resistant seed and fertilizer and maintain water sources are important contributors to successful farming. Many of the products produced are exported throughout the world and are less vulnerable to fluctuations in any one economy.


  • Invest in large multinational companies that have established agricultural businesses around the world. These companies are well capitalized, pay dividends and are in a position to rise with the general improvement in agricultural demand. Among large-capitalization stocks are DuPont, Monsanto, Caterpillar and Archer Daniels. Avoid small companies that may have great products but little management expertise or financial stature to promote their product line. Agricultural stocks usually require large amounts of fixed expenses, making small companies and startups risky investments.


  • Trade exchange traded funds, also known as ETFs. Exchange-traded funds represent stocks from different market sectors. Agriculture is one segment available to investors. The stocks in the fund are passively managed, meaning there is no buying or selling of the component stocks except when it enters or leaves the index. ETF fees are reasonable, usually running about .3 percent per year. They are liquid and marketable investments. Many ETFs trade on the American Stock Exchange.
  • Trade agricultural futures. Study and understand why futures trading is a highly leveraged, fast-moving market. Investors considering futures trading should have extensive market knowledge of stocks, bonds and risk-taking strategies. Trade agricultural futures for most grains, meats, softs (cotton and plant byproducts), orange juice and vegetable oils. Trading with leverage of 10 times or more the initial required deposit requires a sound buy and sell strategy.
  • Buy agriculture stocks when economies are in a recession. Use technical indicators to buy and sell stocks when current price exceeds the stock's long-term moving averages -- the average of closing prices for the past 200 days or more. Exit stocks that fall below their lowest price of the past 20 days. Use agricultural stocks as key parts of a long-term portfolio. Use periods of weakness to add to positions rather than sell.

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