Introduction and background to the topic

Agricultural markets have been for a long time considered as one of the ideal examples of a perfectly competitive market. Usually, when one goes to a market there are a large number of buyers and sellers who are selling the same kind of products (Desquilbet et al. 2017). Knowledge about the demand and supply side of the market helps provide both the buyers and sellers with greater power and makes it easy to navigate the market. Knowledge also helps in having a better idea whether investing in the market will yield any profits or not.

Entry and Exit to this kind of market also do not have any restrictions as such thereby making it an ideal example of a perfectly competitive market. There is another important aspect which needs to be kept in mind when it comes to the agricultural market and that is inflation (Benetti and Cartelier, 2019). The expectation of whether the inflation would increase or decrease has a huge impact on the price of the agricultural goods. There are several factors such as loan-able funds, which has a major role to play in the agricultural sector is significantly influenced by the expectation of inflation in the market.

Main Body

Understanding of Key Issues

Firms in this kind of market can exit quite easily as well thereby making the competition level fall sometimes. As per the opinion of Zhang (2020), in this kind of market firms can hardly offer many innovative features through their products, thereby making marketing an important tool. The rate of interest both short term and long term are significantly influenced by the rate of inflation in the economy. It should be noted in this case, that the rate of interest is an important aspect when it comes to the prices of the agricultural goods. Any changes in the interest rates change the cost of borrowing and subsequently changes investment, which in turn has a huge effect on the price of the goods (Benetti and Cartelier, 2019). It also has a subsequent effect on the purchasing power of the firms, thereby changing the entire demand and supply scenario.

Markets like that of those selling agricultural goods tend to have intense price-based competitions. As per the opinion of Mahoney and Weyl (2017), in agricultural markets, buyers tend to bargain a lot before purchasing any product as each of them wants to make the best price decisions for them. The loan-able funds have a significant role to play in this regard. There lies an important relationship between supply in the agricultural market and the demand for loan-able funds. In the UK, the last two years has affected the market for agricultural products and thus, made it difficult for sustaining the demand for loan-able funds in the market (Zhang, 2020). An important aspect of loan-able funds is that it covers a huge part of government budget surplus and thus can affect the supply of money in the market. Thus, it can be stated that to ensure that the market for loan-able funds remain stable, the rate of interest should be maintained efficiently.

Thus, any firm who is presently thinking of entering into a perfectly competitive scenario needs to analyze the resources that are required to survive in such a market as well as that of possible cost structures. In a perfectly competitive market sellers are assumed to have perfect knowledge about their own offerings to that of a diverse set of buyers (Benetti and Cartelier, 2019). Thus, any firm that may have transaction cost integrated within its process needs to eliminate this or it automatically gets eliminated in this kind of a market.

Analysis

A perfectly competitive market poses a lot of challenges for any new firm as compared to any other kind of regulated market. Farm Drop is an organization that entered the United Kingdom in the year 2012. Farm Drop came to operate in the United Kingdom’s agricultural market which has already been packed up with stiff competitors. The supply of loan-able funds in the market is significantly dependent upon the rate of interest. The higher the rate of interest, it leads to an increase in the quantity of goods and also encourages savings in the economy (Lordkipanidze, 2019). Savings is an important determinant in the economy, and thus, this is the reason that the monetary policy in the UK has been devised keeping the supply of loan-able funds in the economy. Back in that year of 2012, this was quite an innovative as well as that of creative approach that has helped this firm to become successful in this market. As per the opinion of Hunt (2017), a new firm that tends to enter in this kind of a market should not deflect too much from that of the current price level, as this may make this firm get kicked off from that of a particular market. Thus, not only about entering this market but to stay in this market as well, there needs to be a constant alignment of this firm’s policies with that of the market.

An important aspect that needs to be considered in this case is that the interest rate in the economy is also dependent upon several other factors, such as the economic growth, government deficit, and foreign rate of interest and so on. Any changes in these aspects will have a significant impact on the prices of the agricultural goods as well as the supply of loan-able funds in the economy (Hunt and Morgan, 2017). This can be best explained in the current context of the COVID-19 pandemic, where due to the pandemic and rising rates of inflation, the supply of loan-able funds in the market was affected negatively.

Conclusion

It can be concluded from the above discussion that perfect competition is a very challenging scenario for any new firm which can turn into either a boon or a bane. However, the credit regarding making this situation advantageous or disadvantageous depends upon the strategic plan that is to be taken up by a particular firm. The absence of any kind of restrictions regarding entry or exit as well as that of various kinds of regulations makes a level playing field for everyone. However, this competitive scenario requires the usage of an effective strategy on the part of the firm. The pricing policy can take a penetrative approach on part of as particular firm in order to give it be huge advantage to set up its base in the initial days. Later prices can however be augmented as per the needs as well.

References

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