Terms of Trade (Agriculture vs Non-Agriculture)

Definition

Terms of Trade (Agriculture vs Non-Agriculture) refers to the ratio of prices received by the agricultural sector to the prices paid by it for non-agricultural goods and services. It indicates whether agriculture is gaining or losing in exchange with the non-agricultural sector.

Formula

Terms of Trade (ToT) = ( Price Index of Agricultural Products ÷ Price Index of Non-Agricultural Products ) × 100

ToT > 100 → Favourable to agriculture
ToT = 100 → Neutral
ToT < 100 → Unfavourable to agriculture

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