LESSON 2

2.1 Commercial production/ production for market

Commercial production refers to an economic undertaking in which output is meant for sale and producers are profit-motivated.

Or Refers to one which is carried out primarily for exchange, usually under taken on large scale.

Commercial production emphasizes exchange and specialization. The system involves indirect production whereby output is exchanged and is typical of a monetary economy. For example, cash crop farming, plantation farming/ estate farming and large-scale farming, mining sector, manufacturing sector.

Note: Commercialization of the economy—refers to the deliberate act of encouraging large scale production mainly for exchange, thereby reducing the level of subsistence production.

It involves increasing the production of output for market/sale, and profit –motivated production.

2.2 Features/ characteristics of commercial production

Production is mainly profit-motivated / production is mainly for sale in order to get profits.
Production is usually on large scale aimed at satisfying the market.
Production mainly involves the use of scientific and modern techniques of production/ production is mainly involves use of capital-intensive techniques.
Money is mainly used as a medium of exchange.
High levels of income and standards of living to those engaged in it.
Production usually involves division of labour and specialization.
Dominated by progressive indigenous people and foreigners.
There is a lot of research in production.
Hired/salaried labour is mainly used.

2.3 Advantages of commercial production

Widens the tax base and raises the taxable capacity and this in turn increases the government revenue. This is due to increase in productive activities and incomes in the economy on which taxes are imposed. (It is also easier for tax authorities to assess taxes on marketed output).
Promotes production of high-quality output which competes in local and international markets. This is because commercial production promotes competition, hence use of better methods of production.
Promotes specialization and exchange due to large-scale production resulting into monetization of the economy. In turn different regions exploit more resources to satisfy the market demand. Specialization also increases output and profits.
Generates more employment opportunities and thus check on disguised unemployment. Production for market expands faster and hence availing more jobs for various categories of workers (skilled, semi-skilled and unskilled labour), hence better standards of living.
Leads to production of more output and increased productivity since the individuals produce n in excess of their needs. This in turn leads to high rate of economic growth and in the long run economic development.
Promotes the development of social and economic infrastructure in the country. in order to support commercial production infrastructure such as roads to access market for output; schools, hospitals, banks, power supply are set up.
Promotes technological development. commercial production encourages the use of modern and scientific methods of production through innovations and inventions, which leads to efficiency.
Increases the foreign exchange earning capacity of the country because more output is exported. This improves the balance of payment position.
Leads to high incomes and higher standards of living to those involved in the sector. This is because there is increased quantity and variety of output for consumers’ benefit.
Encourages the development of the industrial sector for example agro-based industries. Commercial production also expands the market of the industrial output, some of which are used as inputs in the agricultural sector.
Accelerates rural transformation into a modern sector. For example, commercial production expands the market for agricultural output and increases extension services to the rural producers.

2.4 Disadvantages of commercial production

Leads to over exploitation of (natural) resources. There is excessive tapping of natural resources such as minerals due to the profit-motivates and this results into quick resource exhaustion.
It is expensive to undertake commercial production. High costs are incurred such as in distributing the final output to distant markets and maintaining sophisticated machinery. There is also high expenditure on factor inputs as producers compete for the factor inputs.
(Commercial production requires a lot of capital in form of finance and machinery, yet this is limited in developing countries. This discourages many potential local investors).
Requires a lot of skilled labour for modern operations which is also limited in most developing countries. This also discourages many potential investors.
Encourages mass production/over production which is at times difficult to market. This is due to narrow markets in developing countries and thus wastage of resources.
Commercial production emphasizes cash crop production at the expense of food crop production. This is at times associated with food shortages in the country.
The use of money as a medium of exchange is at times inflationary (persistent increase in the general price level in an economy). This eventually undermines production.
Commercial production is less flexible. A change in demand or tastes of consumers against a product makes the large-scale producers to suffer great losses and waste of resources.
In the long run, there is a danger of technological unemployment, as firms become capital intensive. They substitute manual labour with machines yet there is abundant unskilled and semi-skilled labour especially in developing countries.
Commercial agriculture that requires large pieces of land leads to land shortage, and is also a source of land conflicts in society.
It is associated with social costs. There is a likely danger of water and air pollution caused by the disposal of industrial waste and reclaiming of swamps for various economic activities, which reduces the quality of life.
It encourages rural urban migration and its negative effects. Many people move away from rural areas to urban areas where many economic activities are concentrated. This influx comes along with creation of slums, open urban unemployment and high crime rate.

2.5 Factors that have retarded the growth of Uganda’s commercial sector

Small size of the market
Limited capital for large scale production
High level of conservatism among the people.
Limited skilled labour supply such in management and production.
Underdeveloped infrastructure
Limited/ weak entrepreneurial skills
High population growth rates
Insufficient supply of some strategic inputs.
Unfavourable government policies on investment such as high taxation.
Poor land tenure system especially the case of agriculture.
High marginal propensity to import.
Price fluctuations of agricultural output.
Poor techniques of production used by most farmers/ low level of technology.
Political instabilities in some parts of the country.
Unfavorable government policy such as high taxation of industrialists.

2.6 Measures that should be adapted to expand commercial production in your country

There should be:

Expansion of market for locally produced goods through market research, both local and foreign.
Strengthening regional cooperation to widen market
Training programs to equip labour with skills
Land reforms
Technological development through research
Control of the population growth rate
Provision of a stable political climate in all parts of the country.
Attempts to stabilize prices of primary products
Development of infrastructures
Provision of subsidies and tax holidays to small scale producers.
Attraction of more foreign investors with the required capital
Encouragement of savings for commercial production.
Improved economic planning