Farmers and consumers rely on one another. Not only would one not exist without the other, but the actions of each depend upon the actions of the other. Theirs is an interdependent relationship.
Farmers produce agricultural commodities which supply us with food, fiber (such as cotton for fabric), and some types of fuel (ethanol and other biofuels). These raw products enter into a market where price is determined by the interaction of demand and supply. A consumers' willingness and ability to buy a product (demand) and the sellers' willingness and ability to produce and sell the product (supply) determine the market price of agricultural commodities.
The demand for agricultural products is influenced by many factors, including consumer tastes and preferences. Consumers create and follow eating trends that are influenced by both scientific research and social influences. For example, discovering the health benefits of lean meats increases the demand for chicken and lean cuts of pork and beef, and decreases the demand for meat products high in saturated fats. Other dietary trends such as gluten-free and low-carb diets increase the consumption (demand) of related commodities and potentially decrease the demand for others.
Social influences also play a role in creating demand for agricultural goods. For example, some consumers prefer buying food labeled and produced in a specific way, such as free-range eggs, grass-fed beef, organic milk, etc. The number of buyers in a market impacts demand too. The more buyers in a market, the greater potential for demand. Consumer income also plays a role in potential demand. With some products, an increase in consumers' income leads to greater consumption. Similarly, a decrease in consumers' income can lead to a decrease in the consumption of non-essential foods. Availability of related goods also impacts demand. Many agricultural products have similar substitutes. For example rather than drinking cow milk, a consumer may drink soy, almond, or rice milk based upon the cost, availability, and preference of one milk over the other.
Supply is determined by the available amount of a commodity at a particular time. An increase in production costs may decrease supply. For example, if feed costs go up, farmers may sell their livestock earlier or decrease the size of their herd to reduce their expenses. Doing so will decrease the overall supply. Technology on the farm can increase agricultural supply if it improves overall production efficiency. For example, improving varieties of wheat through artificial selection and plant breeding can allow a farmer to harvest more wheat on the same amount of land, thus increasing the supply. Other factors impacting supply include taxes, subsidies, the cost of related commodities, and the number of sellers in a specific market.
An increase in the demand for a product without an increase in the supply will lead to a higher market price. An increase in the supply of a product without an increase in demand will lead to a lower price for the product.
