Capital is at the Center of Sustainable Production and Economic Development
Capital as a resource results from human works, and effort (FAO, 2011). Labor and land can be made more productive if land is improved. Land can be cultivated, drained or irrigated. Dams can be constructed to increase water supply. Such improvements on land require capital.
Capital is an essential factor of production that is useful in the operations, growth and development of a farm. It can be categorized into two:
· Durable/Fixed capital
· Working capital
Durable capital includes items that last for a long period of time. Such items include but not limited to: machinery, equipment and buildings. Working capital are the funds used to purchase inputs and materials. They include for instance; seeds and fertilizers, and repair and maintenance costs.
The Main Characteristics of Capital
1. Capital is man-made. Therefore its supply can be increased in relation to any given situation.
2. Capital is time bound. It is used over a period of time (it is calculated in terms of how much per cent per annum).
3. The use of capital increases efficiency and the productive power.
Functions of Capital
Supply of Raw Materials
Capital supplies raw materials. As an agribusiness enterprise must have sufficient supply of good quality raw-materials to carry out its production activities efficiently. A steel or coffee mill must both have supply of quality steel and coffee beans respectively.
Supply of Production Tools, Machinery, and Equipment
Capital supplies implements, machinery and other tools of production. Large scale production and thus sustainable mechanization is impossible without capital. Even in the most conventional and primitive economies, capital is necessary. Sustainable agricultural mechanization needs quality machinery like tractors, shredders, and harvesters.
Provision of Subsistence
Sustainable production involves a long-term plan with different stages. Production begins at sourcing of raw materials, planting, and may take a long while before the produce is delivered to the market. As a farmer, you require means to sustain this long-chain of production. Sustainable production requires sustainable supply of labor. Capital offers subsistence to laborers while they are engaged in production.
Importance of Capital
Essential for Production
It is very difficult to produce without capital. Nature is unable to furnish man with goods unless he has the machinery and tools to dig the ground in farming, mining or forestry. The productivity of man would be very low if he were to work the ground with his own hands, a productivity level akin only to feed himself and his family.
Increases Productivity
More goods can be produced with the help of capital (Seth, 2021). Extensive use of capital has led to increased productivity in all spheres and in all economies around the world. It increases also the productivity of the laborer due to better working conditions as a result of machines making his work easier, economical, and more efficient.
Economic Development
Capital raises the productivity of a people. Economic development is fully dependent on capital. The use of agricultural tools and machinery, building of factories, transport systems, harbors, dams and airports are all aids in generating capital and thus economic development is accrued through and in such works of production. Capital needs to be broadened and deepened and thus will lead to economic development.
Creation of Employment
Capital creates employment opportunities at its production. People have to be employed in producing capital goods like dams, machinery or factories. Additionally, more people have to be employed when capital is used in the production of more goods, working with the aid of machines and other tools.
Unemployment is as a result of a faster population growth compared to slow growth of capital. The additional labor force cannot thus be absorbed in employment because of lack of sufficient production tools to employ them. Setting up a high rate of creating and stocking capital will increase the opportunities of employment.
References
FAO (2011). Key Economic Concepts Chapter Two. Food and Agriculture Organization of Retrieved from: he United Nations.
https://www.fao.org/3/i0411e/i0411e02.pdf
Seth T. (2021). Capital: Meaning, Characteristics, Function and Importance of Capital. Economics Discussion. Retrieved from: