Current Agricultural Production
The agricultural sector, at the farm gate, contributes 3% to Australia’s gross domestic product. In 2014-15 the gross value of farm production was in excess of $53 billion. (Australia and Statistics, 2016). After adding in the vital and value adding processes that food and fiber go through after leaving the farm gate, along with the value of all economic activities that …show more content…
It can be difficult to increase demand, largely due to income elasticity of demand and price elasticity. These both dictate the quantity of a good consumers will purchase.
Income elasticity of demand is measured in the change in quantity demanded to an alteration in price of a product. (Gall 2016). As the producers are able to supply a larger amount of a product, consumers become willing to buy more although the price consumers are prepared to pay decreases. In agriculture, this can be seen with products such as wheat. The supplier can only increase the demand for the product if there is a shortage in supply.
Price elasticity largely depends on whether a good is classified as a luxury or necessity. A multitude of agricultural products are necessities, therefore have a low income elasticity resulting in the product demand to stay the same even when consumer incomes rises. (Gall 2016). Engels law states that consumers with a lower income spend a greater proportion of available income on food then high income consumers.
Supply and demand elasticity generally have a large effect of agricultural product pricing and is a dependent for a range of factors