Causes of agricultural price fluctuation
- Supply rigidness due to over dependence on natural factors, e.g. weather, hazards etc.
- Agricultural products have long gestation periods which lower the elasticity of supply.
- Agricultural commodities are perishable and therefore difficult to store for a long time. The farmer must dispose off at whatever price ruling in the market.
- Agricultural commodities are bulky and therefore difficulties to transport from areas of plenty to areas of scarcity (shortage).
- Agricultural commodities being food, their demand is inelastic.
- Divergence between planned and actual output levels due to poor planning capacity of the farmers.
- The products form a very small fraction! percentage of inputs (raw materials required in the manufacturing of industrial goods.
- Agricultural commodities, being primary products, have low-income elasticity of demand. As incomes rise, people spend greater proportion of income on manufactured goods.
- Agricultural products face competition with synthetic substitutes leading to fall in demand.
- LDCs have weak agricultural commodity agreements leading to poor bargaining power.
- Prices of agricultural products are usually dictated by the major buyers (MOGs) LDCs are merely price takers.
- LDCs have poor surplus disposal machinery due to poor transport system.
- The major consumers of agricultural products introduce raw-materials saving innovations.
- In LDCs, because of unplanned production by many producers, there is always excess supply of agricultural commodities in the market.