Agricultural Economics : Importance, Nature, and Scope

Agricultural Economics is an applied field of economics in which principles of choice are applied in the use of scarce resources such as land, labor, capital, and management in farming and allied activities.

In this article we will discuss about the Meaning, Definition, Nature, Importance and Scope of Agricultural Economics.

It deals with the principles that help the farmer use land, labor, and capital. Its role is evident in offering practicable solutions in using scarce resources of the farmers for maximization of income.

Meaning of Agricultural Economics

The word “agriculture” comes from the Latin words “ager” referring to the soil and “culture” to its cultivation. Agriculture in its widest sense can be defined as the cultivation and /or production of crop plants or livestock products. It is synonymous with farming the field-dependent production of food, fodder, or industrial organic materials.

 Definitions of Agricultural Economics

The definitions of agricultural economics are given by the economists as follows:

According to Snodgrass and Wallace, “Agricultural economics is an applied phase of the social science of economics in which attention is given to all aspects of problems related to agriculture.”

According to Prof. Gray, “Agricultural economics is the science in which the principles and methods of economics are applied to the special conditions of the agricultural industry.”

Prof. Hubbard has defined agricultural economics as, “the study of relationships arising from the wealth-getting and wealth-using activity of man in agriculture.”

According to Prof. Jouzier, “Agricultural Economics is that branch of agricultural science which treats of the manner of regulating the relations of the different elements comprising the resources of the former whether it is the relation to each other or to human beings in order to secure the greatest degree of prosperity”.

According to Prof. Heady, “Agricultural economics is an applied field of science wherein the principles of choice are applied to the use of capital, labor, land and management resources in the farming industries.”

According to Prof. Holerow, “Agricultural economics is concerned with the allocation of resources in the agricultural industry, with the alternatives in production, Agriculture marketing or public policy.”

Scope of Agricultural Economics

The foregoing definitions indicate the scope of agricultural economics. A common theme of scarcity of resources and choice of uses runs almost through all of these definitions. That way, agricultural economics is not different from general economics. The scope of Agricultural Economics is to include the questions – what to distribute, among whom to distribute and on what basis to distribute, what to consume, and how to consume.

All the tools of analysis used in general economics are employed in agricultural economics as well. We have the same branches of agricultural economics i.e. economics of production, consumption, distribution, marketing, financing and planning, and policy-making as in the case of general economics.

A study at the micro and macro level for the agricultural sector is also generally made Static and dynamic analyses are also relevant for the agricultural sector of the economy. To be more specific, these definitions point out that agricultural economics examines how a farmer chooses various enterprises e.g., the production of crops or raising of cattle, and how he chooses various activities in the same enterprise.

E.g., which crop to grow and which crop to drop, how the costs are to be minimized, what combination of inputs for an activity is to be selected; but the amount of each crop is to be produced but the type of commercial relation the farmer has to have with people from whom they purchase their input or to whom they sell their product. 

Agricultural economics does not study only the behavior of a farmer at the farm level. That is, in a way, the microanalysis. Agricultural problems have a macro aspect as well. The instability of agriculture and agricultural unemployment are the problems that have to be dealt with, mainly at the macro level. And then, there are the general problems of agricultural growth and the problems like those concerning tenurial systems and tenurial arrangements, research, and extension services which are again predominantly macro in character.

Such problems their origin, their impact, and their solutions are the entire subject matter of agricultural economics. Again, ‘agricultural economics’ at present does not confine itself to the principles concerning economizing of resources in agriculture only whether at the micro or macro level or from the ‘static’ a ‘dynamic’ point of view.

The scope of agricultural economics is larger than mere economizing of resources Agriculture is, as we know an important sector, of the overall economy. The mutual dependence of the various sectors of the economy on each other is well established. The growth of one sector is necessary for the growth of the other sector.

As such, in agricultural economics, we also study how the development of agriculture helps the development of the other sectors of the economy, how can labor and capital flow into the non-agricultural sectors, and how agricultural development initiates and sustains the development of other sectors of the economy. What this implies is that agricultural economics not only develops concerning the use of scarce resources in agriculture proper but also examines the principles ;

(a) regarding the outflow of scarce resources to other sectors of the economy and

(b) about the flow of these resources from other sectors into the agricultural sector itself.

In short, the Scope of Agricultural Economics includes production, distribution, consumption, and government activities in relation to agriculture and farm enterprises. 

Nature of Agricultural Economics

Agricultural economics makes use of the principles of general economics. The first point to be noted with regard to the nature of agricultural economics is that, in general, it borrows most of its principle from its parent body of knowledge i.e. the general economics. Even the main branches of agricultural economics are similar to those of general economics. But then a question arises. If the principles of general economics are not different from the principal of agricultural economics, that is why, there is a need for a separate study of agricultural economics. 

The answer lies in the fact that agricultural economics does not merely imply a direct application of principles of economics to the field of agriculture. The principles of economics are too general in nature and the general theory of economics has been considered as an abstraction from reality. Before this theory is applied to agriculture which includes, besides crop production, forestry, and animal husbandry for the purpose of economic analysis, its principles have to be modified so that their postulates totally tally with the main features of the situation of obtaining in the agricultural sector.

A few examples will make it clear. We study in economic theory, price formation under various market structures e.g., monopoly, perfect competition, and oligopoly. So far as agriculture is concerned, it is presumed that as the number of farms is very large and at the same time, their size is relatively small and the crops produced are undifferentiated (homogeneous), perfect competition is likely to prevail in the agricultural produce market. 

In other words, we shall almost be completely ignoring the study of price formation of agricultural produce under conditions of oligopoly or monopolistic competition or monopoly. Then, there is the system of tenancy. or crop sharing in agriculture a problem particular to agriculture only. Study of this problem will necessitate modification of the principle of resource allocation as propounded in general economics The modification of the economic principles, required to be made before being applied to agriculture are so large and varied that there is a complete justification for studying agricultural economics as a separate body of knowledge. Is Agricultural Economics and Applied Science?

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Importance of Agricultural Economics in Indian Economy

The field of agricultural economics finds to seek relevance between cause and effect using the most advanced method viz., production functions and programming models. It uses theoretical concepts of economics to provide answers to the problems of agriculture and agribusiness. Initially, earnest efforts were made by economists to use economic theory in agricultural problems.

Now, the subject of agricultural economics is enriched in many directions, Due to the commercialization of agriculture, the importance of Agriculture Economics has increased. Since the agriculture sector forms the backbone of the Indian economy. India is an agricultural country, endowed with abundant natural resources. So prosperity of the nation is largely dependent on agriculture. The role of agriculture in the national economy is of vital importance.

1. Share of agriculture in the national income: 

During 1950-51 to 1960-61 the share of agriculture was greater than 50 percent of total GDP. The share of agriculture is decreasing continuously and it has declined to 13.9 percent in 2013-14. However, the share of manufacturing services and service sectors is increasing. Agriculture plays an important role in the nation’s economy which is still dependent on agriculture.

2. Agriculture as a source of livelihood: 

Agriculture provides employment to around 52 percent of the total workforce in the country. Agriculture dominates the economy to such an extent that a very high proportion of the working population in India is engaged in agriculture.

3. Importance of agriculture for industrial development: 

Indian agriculture has been the source of supply of raw materials to leading industries such as cotton, jute, sugar, etc. There are many industries that depend on agriculture in an indirect manner like handloom weaving, oil crushing, rice husking, etc. Since the ninth five-year plan the importance of food processing industries has been increasingly recognized and given due weightage in economic development.

4. Role of agriculture in the field of international trade: 

The importance of agriculture also arises from the role it plays in India’s trade. Agriculture products such as tea, sugar, oilseed, and tobacco, constitute the main items of exports. Support of transport and trade: Agriculture provides the main support for India’s transport system since railways and roadways secure the bulk of business from the movement of agricultural products.

Internal trade is mostly in agricultural products. Thus agricultural trade provides more opportunities to the service sector. The prosperity of farmers is the prosperity of industry: Good crops and high products enhance the purchasing power of farmers thereby increasing the demand for other manufactured goods. It will help to stimulate the growth of the non-agricultural sector and also help to reduce and strain on foreign exchange earnings. 

5. Supply of Food and Fodder: 

The agriculture sector also provides fodder for livestock. Cow and buffalo provide protective food in the form of milk and they also provide draught power for farm operations. Moreover, also meets the food requirements of the people, Import of food grains has been very small in recent years, rather export avenues are being looked for.

6. Role of Agriculture in Economic Planning: 

The prospect of planning in India also depends much on the agricultural sector. A good crop always provides impetus towards a planned economic development of the country by creating a better business climate for the transport system, manufacturing industries, internal trade, etc. A good crop also brings a good amount of finance to the Government for meeting its planned expenditure.

Similarly, a bad crop leads to a total depression in the business of the country, which ultimately leads to a failure of economic planning. Thus the agricultural sector is playing a very important role in a country like India and the prosperity of the Indian economy still largely depends on the agricultural sector. Thus from the foregoing analysis, it is observed that agricultural development is the basic precondition of sectoral diversification and development of the economy.

7. Vast Employment Opportunities: 

The agricultural sector is significant as it provides greater employment opportunities in the construction of irrigation projects, drainage systems, and other such activities. With the fast-growing population and high incidence of unemployment and disguised unemployment in backward countries, it is only the agriculture sector that provides more employment chances to the labor force. In this way. significance of agriculture emerges more and more.

8. Overall Economic Development: 

In the course of economic development, agriculture employs the majority of people. This means raising the level of the national income and standard of living of the common man. The rapid rate of growth in the agriculture sector gives a progressive outlook and further motivation for development. As a result, it helps to create a proper atmosphere for the general economic development of the economy. Thus, economic development depends on the rate at which agriculture grows.

9. Source of Saving: 

Improvement in agriculture can go a long way in increasing savings. It is seen that rich farmers have started saving, especially after the green revolution in the country. This surplus amount can be invested in the agriculture sector for further; development of the sector. Saving potentials are large in the agriculture sector which can be properly tapped for the development of the country.

10. Source of Government Income: 

In India, many state governments get sizeable revenue from the agriculture sector. Land revenue, agricultural income tax, irrigation tax, and some other types of taxes are being levied on agriculture by the state governments. Moreover, considerable revenue is earned by way of excise duty and export duty on agricultural products. Raj Committee on Agricultural Taxation has suggested the imposition of taxation on agricultural income for raising revenue.

Agriculture growth has a direct impact on poverty eradication. Agriculture growth is an important factor influencing inflation, agricultural wages, and employment generation. It is clear that agriculture is the backbone of the Indian economy and prosperity in agriculture can influence the prosperity of the Indian economy.

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Characteristics of Agricultural Economics

The following are the key characteristics of agricultural economics:

1. Interdisciplinary

Agricultural economics draws on principles from various fields, including economics, sociology, statistics, and agronomy. As such, it is an interdisciplinary field that requires an understanding of how these different disciplines interact to affect the production, distribution, and consumption of agricultural products.

2. Focuses on Scarcity

Agricultural economics is concerned with the allocation of scarce resources in the production, distribution, and consumption of food and fiber. Resources such as land, labor, and capital are limited, and agricultural economists study how they can be used most efficiently to maximize production and consumption.

3. Concerned with Market Structure

Agricultural economics is also concerned with market structure and how it affects the production and distribution of agricultural products. Market structure refers to the number of buyers and sellers in a market, as well as the degree of competition. Agricultural economists study how market structure affects the prices of agricultural products and the allocation of resources in the industry.

4. Relevant to Policy Making

Agricultural economics has significant relevance to policy making, as it provides insights into the economic effects of various policies and programs related to agriculture. For example, agricultural economists can help policy makers understand the impact of subsidies on the industry and the economy as a whole.

Types of Agricultural Economics

1. Farm Management Economics

Farm management economics is the study of how farmers make decisions about production, input use, and marketing strategies. This type of agricultural economics is concerned with maximizing profits while minimizing costs. It involves analyzing farm-level data to identify inefficiencies and opportunities for improvement. Farm management economics is critical for the success of individual farmers and the agricultural sector as a whole.

2. Agricultural Policy Economics

Agricultural policy economics is the study of how governments influence the agricultural sector through policies and regulations. This type of agricultural economics is concerned with the allocation of resources, such as subsidies, taxes, and tariffs. Agricultural policy economics is critical for understanding the impact of government policies on the agricultural sector and the broader economy.

3. Agribusiness Economics

Agribusiness economics is the study of how firms in the agricultural sector make decisions related to production, marketing, and distribution. This type of agricultural economics is concerned with understanding the behavior of firms in the agricultural supply chain. Agribusiness economics is critical for the success of firms in the agricultural sector and the overall efficiency of the food system.

4. Environmental and Resource Economics

Environmental and resource economics is the study of how natural resources, such as land, water, and air, are used in the agricultural sector. This type of agricultural economics is concerned with the tradeoffs between economic growth and environmental sustainability. Environmental and resource economics is critical for the long-term sustainability of the agricultural sector and the planet.

5. Development Economics

Development economics is the study of how the agricultural sector can contribute to economic growth and development in developing countries. This type of agricultural economics is concerned with improving the livelihoods of farmers and rural communities. Development economics is critical for reducing poverty and promoting economic growth in low-income countries.

6. Agricultural Finance

Agricultural finance is the study of how farmers and agribusinesses obtain and manage financial resources. This type of agricultural economics is concerned with the financing of agricultural production, marketing, and investment. Agricultural finance is critical for the success of farmers and agribusinesses, especially in developing countries where access to finance is limited.

7. International Agricultural Trade

International agricultural trade is the study of how agricultural products are traded between countries. This type of agricultural economics is concerned with the impact of trade policies and regulations on the global food system. International agricultural trade is critical for understanding the complex relationships between countries and the flow of goods and services across borders.

8. Agricultural Marketing and Consumer Behavior

Agricultural marketing and consumer behavior is the study of how consumers make decisions related to food and agricultural products. This type of agricultural economics is concerned with understanding consumer preferences, attitudes, and behavior. Agricultural marketing and consumer behavior are critical for the success of firms in the agricultural sector and the overall efficiency of the food system.

9. Agricultural Production Economics

Agricultural production economics is the study of how agricultural inputs are used to produce crops and livestock. This type of agricultural economics is concerned with optimizing production while minimizing costs. Agricultural production economics is critical for the success of individual farmers and the overall efficiency of the food system.

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Q. Who has defined agricultural economics?

Agricultural Economics has been defined by numerous scholars throughout history. From Adam Smith to modern economists, each has contributed to shaping this dynamic field.

Q. What are the concepts of Agricultural Economics?

They encompass everything from market analysis and production theory to risk management and environmental sustainability. These concepts provide a framework for understanding how economic principles apply to agriculture and how they can be leveraged to create more sustainable and equitable food systems.

Q. Who is the father of agricultural economics?

The father of Agricultural Economics is considered to be John Stuart Mill, a 19th-century philosopher and economist.

Q. Who is the father of agricultural economics in India?

The father of Agricultural Economics in India is considered to be Dr. V.K.R.V. Rao. He was a renowned economist and educationist who dedicated his life to studying and promoting agriculture in India.


After diving into the world of agricultural economics, I am left with a deep appreciation for the importance of this field. Through exploring the core concepts and definitions, I have gained a newfound understanding of the intricate relationship between agriculture and economics. The nature of agricultural economics is complex yet fascinating, as it encompasses a range of topics including production, consumption, and distribution of agricultural goods. The scope of agricultural economics is vast, spanning from the individual farm level to the global market. Overall, it is clear that agricultural economics plays a crucial role in shaping our world, and I feel grateful for the opportunity to have gained a better understanding of this vital subject.

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