Wednesday, August 17, 2011
Tuesday, November 2, 2010
Agricultural Processing
The Paradox of Low Price for Farmers and
High Price for Manufacturers
We often experienced the contrast of farmers getting low prices where as the manufacturers whose use these agricultural products as raw materials realise high prices. John Kenneth Galbriath, the celebrated American economist and the former US Ambassador to India, put forwarded an explanation for this paradoxical situation.
He pointed out that farmers are facing ‘Perfect Competition’ where as the manufacturers are facing ‘Monopolistic Competition’ and hence the price differential. Perfect Competition is a market situation where the sellers do not have any control over the price because of the existence of very large number of sellers. Hence it is difficult to form farmers’ organisations to lobby for remunerative prices. On the other hand, Monopolistic Competition is a market situation where the sellers enjoy total control over the price due to the presence of only few number of sellers. They can easily form producers’ cartels and can even influence government and policy making.
In addition to it, the farmers are dealing with products that are highly perishable or having small shelf-life. Hence they are compelled to sell their products at whatever low prices prevailing in the market.
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High Price for Manufacturers
We often experienced the contrast of farmers getting low prices where as the manufacturers whose use these agricultural products as raw materials realise high prices. John Kenneth Galbriath, the celebrated American economist and the former US Ambassador to India, put forwarded an explanation for this paradoxical situation.
He pointed out that farmers are facing ‘Perfect Competition’ where as the manufacturers are facing ‘Monopolistic Competition’ and hence the price differential. Perfect Competition is a market situation where the sellers do not have any control over the price because of the existence of very large number of sellers. Hence it is difficult to form farmers’ organisations to lobby for remunerative prices. On the other hand, Monopolistic Competition is a market situation where the sellers enjoy total control over the price due to the presence of only few number of sellers. They can easily form producers’ cartels and can even influence government and policy making.
In addition to it, the farmers are dealing with products that are highly perishable or having small shelf-life. Hence they are compelled to sell their products at whatever low prices prevailing in the market.
Download in PDF:
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