Agricultural Depression: Financial Aspects & Price Levels - Essay Sample

Introduction

Contemporary debate on agriculture has attracted a significant focus on the importance of financial aspects as a justification of the agricultural depression experienced in the past decades. Since costs of production get acquired ahead of earnings, business ventures in the agricultural and industrial sectors must handle two categories of price levels (Sarkar et al., 2018). If the price level at which the cost of production gets incurred remains lower than the one the entity sells its finished products, it obtains a conjuncture surplus in addition to its usual profits. Besides, the price level may decrease by the time the body sells its merchandise in which its revenue reduce. Economists argue that if the difference in agricultural production period becomes exceptionally long, the impact of such variation price levels remains an essential aspect of agriculture (Sarkar et al., 2018). Assuming a decline or an increase in the general price level, the influence upon fixed charges, not subject to frequent review, becomes vital. The first item in agriculture remains the cost of land.

The price levels of agricultural products in Canada and the United States of America may bear resembles since the two countries share the most common market values. However, understanding the nitty-gritty of commodity market price development remains crucial in assessing the possible impacts of government policies, schemes, and trade agreements that affect both countries and their price levels (Sarkar et al., 2018). Moreover, information on the relations of market forces for a specific period contributes to elasticity in policy-making for short and long-term market occurrences. Whether at an international terminal, product futures exchange, or port, the overall price level of agricultural goods is affected by different market forces that can shift the present or anticipated balance between supply and demand (Sarkar et al., 2018). The purpose of this paper involves the comparison of the United States of America and Canada's agricultural price levels.

Literature Review

Most market factors influence the pricing of agricultural goods and do originate from domestic food, industrial-use markets, and feed. According to Wesseler & von Braun, (2017), these market factors include end-users tastes and the shifting requirements of consumers; besides, the factors influencing the production processes (like input costs, weather conditions, and pests and diseases). Moreover, other factors that impact on agricultural price variations amongst countries include the availability of substitute crops with relative costs in either consumption or production, infrastructure (transport and storage), and government policies. Furthermore, global markets also play a significant role in determining the openness of a nation's local market to foreign competition and the level to which a country participates in international trade.

Economists argue that the appeal of farmland remains its ability to stay productive. The United States' farmland values have not decreased considerably since 2013 despite a considerable reduction in farm revenue. The pricing levels of farm commodities do not depend on the short-term commodity price fluctuates by selling farmland, which remains the cornerstone of the long-term trade. In Canada, there exist a steady growth in agricultural earnings leading to an expansion of farmland values since 2014, according to the long-term historical mean of 6-8% per annum (Wesseler & von Braun, 2017). Food security remains a global challenge, better agricultural mechanisms through the implementation of technology, and better prices of farm produce that increases farmers' income. As discussed earlier, the economic factors shape agricultural commodities' pricing in most countries across the globe.

Theoretical Analysis

Economists have had a massive influence on the factors and determination of price levels regarding farm produce, with emphasis on globalization and free trade. Treaties to eliminate trade barriers exist among various entities across the globe trying to liberalize businesses. The exact nature of these necessities much relies on global and local political goodwill (Jones et al., 2017). The modern trading patterns have shifted since the approach proposed by David Ricardo on relative advantage. Furthermore, economists have reviewed their models to incorporate attributes that influence price levels in various nations within the entire universe, like production factors.

Under these production factors that influence the global prices of farm products, there exists an increase in supply chain systems that presently dictate the worldwide market and the effectiveness of neo-mercantilist nations in realizing rapid development. Several European economists desire for liberalized markets (Jones et al., 2017). Such a theory has support from global institutions like the World Trade Organization (WTO), the International Monetary Fund (IMF0, and the World Bank. Such ideologies led to the enactment of the General Agreement on Tariffs and Trade (GATT) after World War II. GATT got founded in 1947.

The economic theory has progressed considerably since the foundation of GAAT. The United States has made significant treaties with other nations and global bodies to champion its farmers' rights and fair trade concerning its agricultural produce. Comprehending economic theories can establish a comparison between price levels between the United States and Canada (Jones et al., 2017). Some approaches claimed that thriving farm industries within countries depended on the volumes of their exports and imports, which heavily relied on the prices of their farm produce prices—the market surplus between the export and import results in price level disparities.

The theoretical aspect of price levels involves the increase in agricultural exports from a country and minimization of imports to boost price levels. Theorists believe that countries that ensure export surplus benefit from competitive advantage at the expense of importing more (Jones et al., 2017). Besides, a state that imports more raw materials and exports more finished goods experience commercial success, increasing its price level. The examination of export-import relations between the United States and Canada concerning various farm produce to establish the similarities and differences in price levels has gotten highlighted within this paper.

The economic theory can help understanding how the economic approaches have evolved, especially regarding price levels of farm goods and services. One method challenging the export-import balance involved the idea that if one country had the potential of producing a better product than the other. In contrast, its competitor could create a different commodity efficiently, and then both nations could benefit from one another through commercial agreements (Jones et al., 2017). Such a model allowed each country to specialize in producing a farm product that built a competitive advantage. Such a framework ensured enhanced performance and an increase in price levels that both parties would not enjoy without trading. Thus, the theory advocated for minimum federal government influence in the supply chain management system and the elimination of trade barriers.

Another theoretical approach involved the fact that commercial transactions do happen between entities whether one party has obtained a complete competitive advantage in the market regarding a commodity or not. The terms of trade, therefore, entails an environment in which both countries feel contented. The feeling of satisfaction requires an analysis of trade agreements between the United States and Canada. It assesses concerning farm products and the competitive advantage of each country regarding its item production (Jones et al., 2017). Empirical research has indicated that the approach remains applicable for several commodities in various countries, including Canada and the United States of America. Another essential aspect of global trade involves a term of business that refers to the number of exports required to attain a specified volume of imports. The deal terms fluctuate, either benefiting the country and its citizens or plummeting its prosperity. Several factors impact the terms of trade, such as a shift in the demand and supply curve, or federal government policy.

Agricultural Production and Prices

In the contemporary globalized markets for first agrarian products remain scrutinized by assessing the supply-and-use environments and influence for price control. Such attributes establish market stability. In the United States of America, the agricultural sector has several relations and engagements between and among different products (Wesseler & von Braun, 2017). For instance, corn production and charges influence feed expenses in the livestock sector. The United States generates and sells a diverse range of farm commodities across the globe. The United States has one of its states, California, leading in the production of agricultural products, such as livestock and cash crops. The California state generates about 11% of the entire GNP, according to the 2012 national statistics (Wesseler & von Braun, 2017). Other states like Texas, Iowa, Minnesota, and Nebraska ensure the country receives about a third of the county's agricultural output value.

The value of agricultural performance in the USA has grown in the past decades. The contributing factor to the growth remains the development in production and high prices. Apart from the impact of COVID-19, yield benefits for crops have remained individually significant. There exists an increase in farmland acreage resulting from the rise in preeminent prices in the past decade (Wesseler & von Braun, 2017). However, the increase in livestock production observed since 2012 has also met impediment in terms of high food costs for the animals and drought that has created slow progress in the latest years. Economists argue that the exchange rate remains a significant factor regarding the difference in price levels between Canada and the United States of America. The diminishing soy and corn prices since 2013 overlapped with a fluctuating US dollar.

The Canadian dollar has not depreciated to the same degree as that of the US in terms of soy and corn prices. However, there exist structural variations that have considerably advantaged Canadian farmers. Most farmers in the United States rely heavily on corn and soy, with about 55% of US cropland having the two crops (Wesseler & von Braun, 2017). However, Canada has just about 13% of its farmland growing soy and corn each year. Most of the land in Canada grows other crops not produced in the United States of America, continuing to attract high prices on the global markets, like lentils and canola. Such diversity in a mix of products in the agricultural sector of Canada positions it to effectively withstand a reduction in prices for any single crop (Wesseler & von Braun, 2017). Besides, the Canadian producers still have an economic advantage over several US farmers regarding corn production. Agriculture in Canada remains one of the most sophisticated and technologically advanced in the universe. Farmers in Canada employ scientific soil and crop analysis, together with a piece of state-of-the-art equipment.