Economic Analysis of Supply Response in Pakistan’s Agriculture

Abstract

This study represents an attempt at estimating the farmer supply response to different economic and material incentives. Several researchers have estimated the cultivator supply response to different techno-economic factors (Cummings, 1975a and 1975b; Askari and Cummings, 1977; Cooley, 1973; Chen, Courteny and Schmitz, 1972; Ghoshal, 1975; Tweeten, 1986). However, as agriculture modernises, the relative significance of different factors affecting farm inputs and outputs changes; factors regarded as significant determinants of farmer decision at one time may not be relevant at another time. Similarly, the transformation of agriculture in the desirable direction invariably necessitates and at times renders desirable the use of new measures and policy instruments. How farmers react to changes in market forces and government measures is important to know in different ways. In fact, policy makers are interested in knowing the appropriateness, effectiveness and impact of measures for the ultimate formation or legislation of farm regulations. Farmer supply responsiveness to changes in different factors may be ascertained from changes they introduce in their cropped area, cropping pattern, crop rotations, output, etc. Although the supply responsiveness of farmers may be measured from changes in any of these aspects of farming, this study has analysed the peasant supply response to price and non-price factors with respect to the allocation of the cultivated area among crops of wheat, cotton, rice, sugarcane and maize. Farmers in Pakistan grow some other crops as well. However, the crops considered for this analysis account for the major proportion, 68 per cent, of the cropped area and over 90 per cent of value added of all major crops raised in the country. As such, this study has measured the area allocated to these crops by farmers in response to changes in different factors considered for analysis.