Supply response of rice and jute farms in Bangladesh
Date
1975
Authors
Karim, Rezaul
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Canberra, ACT : The Australian National University
Abstract
Time series data for 19 years from 1951/52 to 1969/70 were analysed
to estimate supply response functions for rice and jute in Bangladesh. A
priori, farmers' decisions on rice acreage were expected to be influenced
by net expected profitability per acre of rice and jute. Farmers' decisions
on jute acreage were expected to be influenced by net expected profitability
per acre of rice and jute, and acreage restriction regulations on jute up
to 1959/60. Yield per acre was expected to be influenced by the level of
input use and the weather. But as data on the level of input use was not
available in the case of jute, the relative expected price of jute and rice
was used as a proxy variable. Total production of each crop was the acreage
of the crop times yield per acre.
Net expected profitability per acre was defined as expected price per
maund times expected yield per acre less expected cost of production per
acre. Farmers' price and yield expectation formations were specified using
both the Fisher arithmetic lag structure and the Koyck geometric lag structure,
The expected cost of production per acre was assumed to be the previous years'
average costs. The coefficient of the net expected profitability variables
were tested for homogeneity both within and between the rice and jute
acreage equations. Only the homogeneity within the jute acreage equation
was acceptable at the 5 percent level of confidence. The best fit of the
models was obtained using the Koyck geometric lag formulation of expectations
with a two year lag distribution of weights and with X equal to .6.
For the acreage and jute yield functions impressive fits were obtained.
For the rice yield function the fit was poor. For rice acreage, net expected
profitability of rice per acre was the lone significant determinant. For
jute acreage, the relative net expected profitability of jute and rice per
acre and the acreage restriction regulations were significantly different
from zero. For rice yield, technology was significantly positive and for
jute yield none of the variables except trend were significantly different
from zero at the 5 percent level. The poor fit for the rice yield may have
been due to the inadequacies of the data.
The farmers were responsive to economic variables in the sample period.
The elasticities of response were greater for the cash crop jute than for the food crop rice. The short and long run price elasticities of rice
production were .11 and .21 respectively and those of jute production were
.85 and 1.67. The price, yield and cost of production of rice had greater
influence in determining jute production than rice production. Identical
changes in the profitability of both rice and jute left jute supply unchanged
in the sample period. The estimated price elasticities of the crops were
comparable with those estimated by other researchers for similar crops in
the subcontinent.
Based on the estimated elasticities, an analysis was made for the
implications for production, GDP and foreign exchange of 12 different changes
in price, yield and cost of production per acre of the two crops. Although
price policies could be manipulated to increase production, current social
conditions and the country's export trading position indicate that a more
satisfactory solution would be to attempt to increase production by increasing
yield per acre.
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