Chapter 28 The macroeconomics of agriculture

The existence of linkages between the agricultural sector and the rest of the economy points to the specificity of that sector and justifies why we can conceive of a macroeconomics of agriculture . The primary sector is characterized by product homogeneity, a pre-condition for the absence of imperfect competition. Also, agricultural prices are subject to seasonal variations. Moreover, farming activities are often carried on by large fractions of the population and are very dispersed on the territory. Finally, production of commodities relies on an irreproducible factor of production — land — whose availability is finite and whose productivity cannot be individually infinitely increased. Given these features, we expect macroeconomic policy to affect the agricultural sector, and agricultural prices and markets to affect other sectors and the macroeconomy in a specific way (as opposed to the other sectors). In this essay, the transmission mechanisms and linkages — by which changes in one sector alter economic performance in other sectors — are described under the sub-headings of backward linkages — from agriculture to the rest of the economy — forward linkages — from the macroeconomy and the international economy to agriculture — and second-round feed-back interdependent linkages. Models and studies attempting to quantify the linkages are then discussed in terms of theoretical constructs, structural econometric models, computable general-equilibrium models, and time-series models.