Livestock Economics, Marketing and Business Management

MARKETABLE LIVESTOCK COMMODITIES

Producer’s Surplus

• Producer’s surplus is the quantity of produce which is, or can be, made available by the livestock farmers to the nonfarm population.
• Producer’s surplus is of two types:
  • Marketable surplus
  • Marketed surplus

Marketable surplus

• Marketable surplus is that quantity of produce which can be made available to non-farm population of a country. It is a theoretical concept of surplus.
• Marketable surplus is the residual left with producer-farmer after meeting his requirements for family consumption, payment to labour, payment to landlord as rent, and social and religious payments in kind. This may be expressed as follows

MS = P – C Where,

• MS = Marketable surplus
• P = Total production and
• C = Total requirements (family consumption, farm needs, payment to labour, landlord and payment for social and religious work).

Marketed surplus

• Marketed surplus is that quantity of the produce which the producer-farmer actually sells in the market, irrespective of his requirements for family consumption, farm needs and other payments. Marketed surplus may be more, less or equal to the marketable surplus.
• Whether the marketed surplus increases with the increase in production has been under continual theoretical scrutiny.
• It has been argued that poor and subsistence farmers sell that part of the produce which is necessary to enable them to meet their cash obligations.
• This results in distress sale on some farms. In such a situation, any increase in the production of marginal and small farms should first result in increased on-farm consumption.
• An increase in the real income of farmers also has a positive effect on on-farm consumption because of positive income elasticity. Since the contribution of this group to the total marketed quantity is not substantial, the overall effect of increase in production must lead to an increase in the marketed surplus.

Relationship between marketed surplus and marketable surplus

• Marketed surplus may be more, less or equal to the marketable surplus, depending upon the condition of the farmer and of the produce.
• The relationship between the two terms may be stated as follows

Marketed surplus < or > or = Marketable surplus

• Marketed surplus is more than marketable surplus when the farmer retains a smaller quantity of the products than his actual requirements for family and farm needs. This is true especially of small and marginal farmers, whose need for cash is immediate. This situation of selling more than the marketable surplus is termed as distress or forced sale. Such farmers generally buy the produce from the market in a later period to meet their family and /or farm requirements. The quantity of distress sale increases with the fall in the price of the product. A lower price means that a larger quantity will be sold to meet some fixed cash requirements.
• Marketed surplus is less than the marketable surplus when the farmer retains some of the surplus produce. This situation holds true under the following conditions:
• Large farmers generally sell less than the marketable surplus because of their better retention capacity. They retain extra produce in the hope that they would get a higher price in the later period.
• Farmers may substitute one product for another product either for family consumption purpose and the variation in prices.
• Marketed surplus may be equal to marketable surplus when farmer neither retains more nor less than his requirement. This holds true for perishable commodities of the average farmer.