In recent economic scenario the level of competition has been significant in various industries. After the globalisation, a global market has been formed where the competitors compete with one another and they not only have to face the local competitors but the global competitors as well. It is known that market structure of an industry can specify various characteristics that are seen in the forms of the industry. Each market structure has specific characteristics and thus it is very important that those are taken into consideration and implement various policies and regulations to address the issues in the market for increasing the productivity and the efficiency. There are basically four market structures that are seen in most of the industries. They are perfect competition, monopoly, monopolistic competition and oligopoly (Krugman and Wells, 2013). Here it can be said that the level of competition and the efficiency differs in various forms of market and various regulations are also implemented for increasing the efficiency of the market structure. The main aim of this paper is to identify the market structure of the agricultural industry in Australia and what reforms have been done in the industry.
Agricultural industry is one of the prominent industries in Australia. The market structure that can be related to the agricultural sector is perfect competition (Krugman and Wells, 2013). The agricultural industry can be categorised as a perfectly competitive market due to the close similarity of the industry with the market structure. It is known that in a perfectly competitive market, there are many buyers and many sellers, the products that is sold in the market is homogenous, there is no barriers of entry and exit in the market, there is perfect information within the buyers and the sellers regarding the price and the quantity, there is zero transaction cost and there should be no externality present in the industry (Pindyck and Rubinfeld, 2013). No buyers or seller can influence the price or quantity in the market. The sellers are price takers and the equilibrium is determined by the interaction of the market demand and supply curve (Pindyck and Rubinfeld, 2013).
It is known that the extreme conditions of the perfect competition are not usually seen in industries nowadays. But the agricultural market can come close as a perfectly competitive market. In agricultural market, there are large number of buyers and sellers, selling nearly homogenous products to the consumers (Pindyck and Rubinfeld, 2013). No individual producer or the consumer can affect the equilibrium price or quantity in the agricultural market and the firms are price takers as the equilibrium price and quantity is determined with the help of market demand and supply conditions. There are no barriers of entry or exit for the firms and there is factor mobility in the market. Thus it can be said that the agricultural industry is a form of competitive market structure (Pindyck and Rubinfeld, 2013).
Reforms in Agricultural Industry:
Here it can be said that the government intervention is seen in various industries in order to increase the efficiency and the effectiveness of the industry (Australian agricultural productivity growth, 2014). Increasing the competition within the industry and among business units is one of the aims of the government. In case of agricultural industry, there is prevalence of competition in the market. But there are various areas where the reforms can be implemented in the agricultural sector. There are various policy reforms that are implemented by the government in the Australian agricultural industry. For example, the National Competition Policy (NCP) reforms decreased the rigidities in the input market and thus it led to a spillover effect in the agricultural industry by increasing the flexibility in the input market (Australian agricultural productivity growth, 2014). Due to the reforms in terms of output price support and statutory marketing arrangement agricultural industry could adjust the price and quantity in the market. the structural adjustment programme that was implemented in the agricultural industry increased the efficiency in terms of market operations.
In Australian agricultural industry, the first reform was seen in 1980s when the tariffs and subsidies were lowered and the regulations were made more flexible. The interest of the farmers was taken into consideration adjustments were made for achieving the productivity gains. In the dairy industry of Australia, the market was transformed from a high protected market to an open market for increasing the efficiency (Australian agricultural productivity growth, 2014). The government also helped in undertaking various research and development programmes for the benefit of the agricultural industry. Steps were taken for addressing the issues in terms of changing climatic condition and how it can affect the agricultural sector. The financial risks were also managed with the help of government assisted investment.
The price floor is another form of government regulation or policy that is implemented in the agricultural industry. The price floor is basically the price control or limit that is imposed by the government. The price floor is the price that is set by the government and the product cannot be sold below the price level (Abs.gov.au, 2015). The price floor is usually set below the equilibrium price for protecting the interest of the farmers. In certain situations the farmers are unable to cover all the costs due to lower prices in the market. Thus the price floor can be implemented by the government for saving the interest of the farmers.
In conclusion it can be said that the market structure is very important in order to identify the characteristics of various industries. It is evident that in recent economic condition the government tries to maximise the social and economic benefits and thus they can implement various regulations and policies in the industry. In agricultural industry of Australia, similar regulations are implemented by the government in order to increase the efficiency and productivity in the market. The interests of the farmers are also taken into consideration and policies are implemented for maximising the welfare of the entire economy.
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Krugman, P. and Wells, R. (2013). Microeconomics. New York, NY: Worth Publishers.
Pindyck, R. and Rubinfeld, D. (2013). Microeconomics. Boston: Pearson.