Factors Affecting Prices of Agricultural Commodities
Crops and cattle are considered agricultural commodities since they are raised & reaped for food and occasionally for fuel.
According to the USDA, India was the sixth largest net exporter of agricultural goods in 2013 with exports of $39 billion, ranking it as the 7th largest agricultural exporter globally. Agriculture accounts for just over 14.7% of total export earnings. In addition, over 20% of Indian exports are made up of goods made from agricultural raw materials. In other words, agricultural-related goods account for 38% of all exports from the country.
Over the past few decades, as agricultural production has increased, it has kept up with population growth while also posing significant supply, storage, & distribution problems. To guarantee a "fair" and "remunerative" pricing for the Indian farmer is a difficulty given the extremely fragmented markets and unstable commodity prices. The government implemented a variety of reforms with this in mind. Since commodity markets do affect the lives of billions of investors in the nation's diversified and expansive commodities ecosystem, it
has become vital to improve the current institutions in prompt and derivative trade.
Growing a crop and selling it on a nearby market are just the beginning of trading agricultural commodities. Understanding the fundamentals of commodity trading and possessing the technology necessary to run your firm may change the game.
Price-influencing factors for agricultural commodities
1. Production costs
Purchasing agricultural products requires a significant investment of capital. Land clearing, land repair, farm input, harvest, crop preservation, etc. are all a part of the crop production process.
Due to the elements involved, animal production also requires a significant amount of funding. The pricing of such agricultural goods will be high when the production cost is high, while the pricing will be lower if the production cost is low.
2. Production Quality
Agricultural produce that is of a good quality commands a higher price in the market. Some goods are more expensive when they are brand-new. However, when they have been on display for a long period or are afflicted by pests, such as grains that spoil or decay like fruits and vegetables, they tend to draw low pricing.
In conclusion, the price of agricultural farm products increases with their quality.
3. Production Quantity
If supply of agricultural products increases but demand stays constant, prices will often go down. However, prices will increase if the supply of agricultural products falls but demand stays the same.
When production is high, it drives prices down, and when production is limited, it forces prices to rise. This happens as a result of a greater rate of supply than demand. When there is equilibrium, the moderate price is attained.
When the price reaches the point where the amount supplied and the amount demanded are equal, it is said to be in equilibrium.
4. Supply and demand dynamics
They are the ones who set agricultural commodity prices. Demand is the consumer's ability and willingness to consume or purchase specific goods or services at a specific price. The amount of products and services that a manufacturer is willing to sell to the market at a specific price, location, and time is referred to as the supply.
The economic model and its guiding principles are determined by these two forces. The law of the supply and demand is used to set prices for the sale of items. When prices increase, producers can set high prices for their products, but few people will actually buy them, which causes demand to decline.
5. Production’s Market Price
The market rate is the reasonable cost at which products or services are sold on the open market. A sudden increase in cassava flour's commodity market price may push a consumer to switch to corn flour as a substitute. As a result of this change, cassava flour will become less expensive due to decreased demand. The market's supply and demand dynamics have an impact on price.
6. The Seasonal Produce of Agriculture
The pricing of agricultural items like fruits and vegetables may be significantly impacted by this. During the dry season, various things are unavailable on the market. If such a product is found in the market, it may be rare and would be priced premium because of their rarity.
For instance, during the dry season, there are typically few crops like okra, cabbage, and spinach in the markets. However, they are in plentiful supply on the market and their costs significantly drop during the wet season.
7. The number of Manufacturers
When there are fewer producers, the rate of need will naturally outpace the rate of supply, resulting in a rise in price. However, if there are several producers, the pricing will be shoved down because of market pricing competition.