Farm household economics: Some policy implications for emergent farmers in Southern Africa

Abstract

Farm household economics recognises the fact that production and consumption decisions are made jointly by small farm (ie surplus‐producing) households. This phenomenon is of particular importance in areas where small farm households predominate.

Most empirical applications of farm household economics have been directed at measuring the effects of price changes on consumption and have relied on the ‘separable’ approach in deriving estimates. This approach assumes that production decisions always precede consumption decisions with farm households treated as profit maximizers in production and utility maximizers in consumption. Results have clearly demonstrated consumption responses smaller than estimates based on consumer theory alone.

Although many researchers regard mathematical programming as a potentially suitable tool for simulating smallholder behaviour, proponents of new household economics would be reluctant to accept any model that does not (a) maximize utility (rather than profit) and (b) capture the ‘profit effect’ which variations in product prices have on the farm household's full‐income constraint. Attempts to include these basic postulates of farm household economics in programming models are in progress.

Notes

Lecturer, Department of Agricultural Economics. University of Natal, Pietermaritzburg.