Towards the estimation of demand and supply functions for vegetables in Sri Lanka

Abstract

Vegetables occupy an important place in domestic food production and consumption in Sri Lanka. However, the performance of the vegetable production sector has not been satisfactory, especially during recent years. The available estimates suggest that the current per capita consumption levels are far below the levels recommended by nutritionists and that the quantity available for consumption has decreased during recent years. Increased production of vegetables has desirable effects on the economic growth and welfare of the people in the country. Thus, the government of Sri Lanka places considerable emphasis on the production of vegetables in its annual crop production programmes. Policy makers are concerned with the formulation of effective policies to increase the consumption and production of vegetables. Knowledge of the factors determining consumers' demand and producers' supply response is of vital importance in the formulation of such policies. At present the knowledge on the above subjects is very limited due to lack of studies - perhaps caused by paucity of data. This study attempts to provide a basic methodological framework for such studies and make an empirical estimation of demand and supply functions, within the limitations of available data. Aggregate consumer demand at national level is analysed by employing both single equation and simultaneous equation techniques. Aggregate supply response at the national level is analysed in terms of both output and acreage. The analyses concentrate on five selected vegetables. Two of them are exotic while the other three are indigenous vegetables. It is shown that income has a more significant impact on consumers' demand for vegetables than price. Indigenous vegetables are found to be less preferred by the consumers over exotic vegetables, with increasing real income. Thus, the need for popularizing the indigenous vegetables, while increasing the production of exotic vegetables, is stressed. Moreover, it is shown that there is a necessity for the initiation of research to find out the feasibility or otherwise of using indigenous vegetables in the food processing industries. The major hypothesis postulated for supply is that the producers positively respond to relative price changes. The analyses generally support this hypothesis. However, the acreage response analysis reveals a somewhat slow adjustment by the producers to changes in economic circumstances. It is shown that, in the short-run, the impact of the changes in productivity (technological change in vegetable cultivation) on the output is relatively more important compared with that of price. Thus, there is scope for increasing the output of vegetables by encouraging the producers to adopt improved technology. In turn, this would rely mainly on the provision of research and extension facilities and the development of an efficient input supply system, along with the implementation of price support policies. Show more