Estimation of Farm Supply Response and Acreage Allocation: A Case Study of Indian Agriculture

This report presents empirical estimations of Indian farmer's land allocation decisions. Farmers' decisions about what crops to grow and on how much land are modeled to be rational and consistent with utility maximization in the context of opportunities and expectations about future rain fall, yields, and prices. The authors find application of the conventional adaptive expectation Nerlovian model to Indian data to be inappropriate; specification of the price expectation in this model is inadequate because it implies that farmers do not distinguish between trends and occasional random shocks. This report differs from the conventional approach in 1. Using expected revenue instead of expected prices as a proxy for expected profits. 2. Using auto-regressive integrated moving average (ARIMA) model to model crop revenue expectations. The revenue expectation functions, estimated separately, are used to compute revenues relative to those of major competing crops, which are identified on the basis of sowing and harvesting periods. The estimated acreage response equations are also tested in a validation exercise for 16 major Indian crops

Farm Supply Response in Kenya: Acreage Allocation Model

Employing ARIMA estimation of expected prices and yields, Nerlovian response functions are estimated for large and small farms in Kenya. Results show that (expected) yield levels, rather than expected prices affect the supply response of small farms, whereas large farms react more strongly to prices

Agricultural trade liberalization: growth, welfare and large country effects

The impacts of trade liberalization for India have been examined with an applied general equilibrium model with nine agricultural sectors, one non-tradeable nonagriculture sector and one tradeable nonagriculture sector and with five rural and five urban expenditure classes. Different scenarios are generated using the model. Since comparison of GDP in two alternative scenarios can be misleading, the policy alternatives are assessed on the basis of their impact on welfare in terms of equivalent incomes of different expenditure classes. A policy is assessed preferable only when the distribution of welfare is found to be preferable in a well defined way. It demonstrates the importance of accounting for large country effects in rice trade and estimates the welfare optimal tariff/ quota for rice exports for India-which is shown to be just half a million tons of net export of rice. The results also show that nonagricultural trade liberalization is even more important for agriculture than even agricultural trade liberalization, both of which help accelerate growth. © 1997 Elsevier Science B.V