Introduction

Whereas the previous chapter was concerned with the theory of supply and input demand at the level of the firm, attention now switches to supply and input demand at the market level. That is, we are concerned with the outcomes of the decisions of all farmers in a particular market, where the market for any commodity may be defined in relation to whole countries, regions of countries, or even at the world level. Since agricultural policy is typically made at national or regional level, and since the statistics which provide the key information about developments in the agricultural sector are usually presented for these levels, policy-related empirical research needs to focus upon market level behaviour.

Certainly, issues of market level agricultural supply are central to development strategies, and there will be a requirement that the agricultural sector should provide a growing surplus (over and above the needs of the agricultural population) of agricultural product. The reasons for this have been well documented but can be summarised as: (i) to increase food supplies and agricultural raw materials at ‘ low’ prices, (ii) to increase the purchasing power of farmers and hence the domestic market for non-agricultural products in the rural sector, (iii) to facilitate transfers of labour and other resources from agriculture for industrial development, and (iv) to increase foreign exchange earnings from agricultural exports. The contribution which the agricultural sector can make in these areas will depend on the responsiveness of domestic producers to economic incentives and to price signals in particular.