Commercialization

of Agriculture
BY Abhishek Sinha

Agricultural
commercialization

 Definition
Indicators Labor productivity
Pros and cons
Agricultural commercialization and
the Structural Transformation
framework
Constraints and challenges facing
the promotion of agricultural
commercialization

Agricultural Commercialization
(Definition)
The degree to which agricultural
production and marketing is
based on market exchange and
specialization vs. internalized
within the household

Agricultural Commercialization
(Indicators)
Household Commercialization Index (HCI)
HCI = value of farm sales / value of farm production
Ranges from 0 1.0
The higher the number, the more commercialized the
household
Existence of / degree of reliance on:
Factor markets (fertilizer, labor, etc)
Financial markets (loans)
Output markets (crop sales)
Rising labor productivity in agriculture

Labor Productivity
Y
L

Y*A
A L

Y/L = Labor productivity

A/L = Land to Labor Ratio
Y/A = Yield

Where:
Y = Net output
L = Labor
A = Area

For labor productivity (Y/L) to increase,

smallholder farmers must
increase the net value of output per unit
area (Y/A).
In many areas of India, cropped area per
labor unit (A/L) is declining
over time as rural populations grow faster
than the expansion of
cropped area.
Hence for labor productivity to rise, Y/A
must increase dramatically to
offset the decline in A/L.
The net value of output (Y) refers to the
gross value of output minus all
costs involved in producing that output.
One way to boost Y/A may be high-yielding

Commercialization:
Pros and Cons
Some
Pros:

Can achieve growth in net output per unit area

(Y/A) with shifts in cropping patterns toward
higher value crops
Can be the result of input intensification, as long
as the value of output exceeds the costs of the
additional inputs.
Cons:
Dependence on markets, both for the
commercialized crops as well as the food market.
Competition from large-scale farming
Important: Commercialization only works if the
food market is functioning well!

Opportunities and
Challenges
Trade in agriculture
commercially
More competition
Competition needs
efficiency

What hinders efficiency?

Fragmented or loosely linked enterprises in
the commodity value chain
-low reliability in business relationships
(in terms of quantity, quality and price)
Regulatory requirements (health, sanitary
and quality)
-Government-mandated
-Industry/super-market
-buyers
High costs of production
-small scale of production
-poor coverage & low quality of
infrastructure
-inadequate public support

WTO And Agribusiness

Scale sensitivity
Standards (quality and quantity)
Technology transfer in agriculture
-Plant variety
-Biotechnology
-Agro-chemicals
-Processing techniques
Service openings
Effects of policy change abroad
Food prices and production
competitiveness