The purpose of this exercise is to examine and critically review the existing literature on the theory about macroeconomic linkages to agriculture, and empirical evidence on this relationship.

Such situations are reminders to economists, for instance, the agricultural economists, that macroeconomics is a matter to be addressed. Agriculture as an industry is vulnerable to risks (Shane & Liefert, 2010). Farmers and the agribusiness owners are, therefore, advised to be alert on matters affecting the sector. They are expected to at the all-time monitor the varying weather patterns, prices and sales of agricultural products. Uncertainties affecting the agricultural economy have been observed in many countries in the past years. For example, the Asian financial crisis in the 1990s; incidences of inflation, rising prices of agricultural products (Penson, 2010).All these uncertainties can in one way or another affect the performance of agricultural economies. The ultimate outcome is the reduced financial strength of agriculture. Agricultural sector is the greatest booster of the world’s economy. In most countries, particularly in Australia it is the largest industry earning the country a fantastic deal of income. The unfortunate aspect of agricultural economy is that, most farmers and agribusinesses are unfamiliar with the vital risks and uncertainties that might interfere with their economy (Orden, 2010). The farmers, hence, need to understand the business and economics relating to agriculture to enhance realization of profits in their sector. Macroeconomics is here to enhance the farmers understanding of agricultural economy.Macroeconomic linkages to agriculture simply refer to the factors considered when relating agriculture and economy. Five factors or variables are mainly used to relate the two fields. These are the rate of inflation, the interest rate, real gross domestic product (GDP), the foreign exchange rate and the unemployment rate (Penson, 2010). Linking macroeconomy to agriculture requires the implementation of policies. Discussions have existed about the impacts of macroeconomic policies on agriculture. This is mainly because for long the policies have had dramatic impacts on the agricultural sector. Therefore, understanding the policy process has become crucial to the agribusinesses, farmers and the policymakers. Understanding the impacts of macroeconomic policies on agriculture helps the farmers act strategically to the current or future changes in the macroeconomy. This knowledge also enables the farmers and agribusinesses to become active in the policy making process hence influencing the making of macroeconomic policies that benefit agriculture (Baek and Koo, 2010).Many studies have been done on the links relating agriculture and macroeconomy. Varying results have been got about the relationship, but the common aspect is the variables. For instance, (Baek & Koo, 2010) explains the contribution of agriculture to gross domestic product (GDP) which in turn is used to approximate the net income. (Orden, 2010) Tries to discuss the relationship among agriculture, macroeconomy and monetary policy also referred to as exchange rate. These two studies prove that macroeconomy and agriculture are matters to be addressed.Macroeconomic policies aim at influencing the performance of a nation’s economy. Several macroeconomic policies have been made to influence agricultural production. In Australia, policies relating to government spending, level of taxation and money supply in the country are used to influence the net economy of the country. Changing these economies will always …
Posted by: Cathrine Schoenfeld

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