Mon. Sep 21st, 2020

Supporting Farmers

Broader economic framework analysis of a poultry business

3 min read

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All economic activity consists of transforming resources (land, labour and capital) into goods and services which serve the needs and desires of people.
Much of the quantitative assessment in cost-benefit analysis is simple accountancy: assigning monetary values to various measured or estimated physical quantities, categorizing them under a cost or benefit heading, adding them up, and finally comparing the totals.
Proper economic analysis should provide a framework by which the benefits of production are shown in the economic system, and how these benefits are valued by society.
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This can only be done with a “before and after” or “with or without” analysis. Benefits can be measured in two ways:
i) by a technical component which represents the higher productivity of resources used (and hence reduced unit costs) in supplying poultry products; and
ii) an economic component which reflects the value placed by society on those supplies.
The technical effects are demonstrated in an economic analysis as a shift of the supply curve – the basic relationship showing the minimum price at which different levels of production can be made available to the market.
The value placed on this change in potential availability is then entirely dependent on the demand for poultry products.
With rising demand for these products, additional supplies become expensive, and therefore the extra production translates into a substantial gain in benefits to the community.
It can be argued that this usually happens in developing countries where, compared to the staple diet, poultry products are a luxury commodity with a relatively higher value.
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Hence, the demand curve  shows that the quantity demanded is highly responsive to price and income changes, with additional consumption causing little decrease in value. The demand for poultry products is price/income elastic.
This simple model highlights the overall economic impact of higher poultry production as manifested on the market for poultry products.
Production and consumption rise  but the average price paid by consumers (and received by producers) falls.
Consumers gain significantly, reaping the benefits of both greater supplies and lower prices. Producers also gain. Although unit costs fall, the increase in production compensates for the price reduction and, as evident from the diagram, total revenue received by producers,  is greater than the previous.
It is this net economic benefit that an economic analysis of family poultry development schemes and programs should be seeking to estimate.
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