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Abstract
Raising agricultural price policies on costs of production is commonly
applied. although with reservations by agricultural economists.
Agricultural economists' concerns are centered on the problems with
assigning values to the contributions of durable inputs and to the value of
those inputs supplied by the farm operator and the operators' household.
Some of these expressed reservations of agricultural economists can be
reduced if focus is placed on the policy goal to be achieved in developing
the production cost estimate. The policy goal affects the selection of the
population on which the cost estimates are made and the items of cost to be
included in the cost estimate.
Policies designed to provide incentives to producers must be targeted
toward the costs of those producers supplying the major portions of output
for the commodities in questions. Thus, the costs of an often relatively
small number of large producers become heavily weighted. However, policies
to sustain the income of selected groups of farmers must be based on the
costs of production experienced by a large number of small farmers.
Costs estimates should distinguish between financial costs and
economic costs. Structural differences occur in the cost structure among
farmers. In setting prices, major attention should be given to the annual
and capital replacement financial costs. Price policies cannot be directed
to meet a specifically targeted economic cost.