Farm Supply Response in India-Pakistan: A Case Study of the Punjab Region

Author(s): Raj Krishna

Source: The Economic Journal, Vol. 73, No. 291 (Sep., 1963), pp. 477-487
Published by: Wiley on behalf of the Royal Economic Society
Stable URL: http://www.jstor.org/stable/2228581
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FARM SUPPLY RESPONSE IN INDIA-PAKISTAN:

A CASE STUDY OF THE PUNJAB REGION1
INTRODUCTION

IN this paperI present some estimates ofthe " short-run " and " long-run"
elasticities of supply (acreage) of agricultural commodities derived from time
series data for the Punjab,2 which has always been an important agricultural
region of the Indo-Pakistan sub-continent.
The study was intended to put to a test the widely prevalent notion that
peasants in poor countries do not respond, or respond very little, or negatively,
to price movements.3
The choice of the region has been dictated by the availability of relatively
reliable long-period data. Moreover, since agriculture is a location-bound
industry, the real alternatives faced by farmers can be formulated and the
relevant variables (such as relative price indices) defined more appropriately
for a region than for an aggregate of heterogeneous regions.
THE

MODEL

The basic model used is the Nerlovian " adjustment " model:4
(1)

(2)

xt=a

Xt - X-l

+ bPt-l + cYt-l + gZt-, + hWt + ut

B(Xt* - Xt-1)

1 The work reported in this paper started in the Ph.D. dissertation " Farm Supply Response in

the Punjab: A Case Study of Cotton " submitted by the author to the University of Chicago in
September 1961 as a fellow of the Council of Economic and Cultural Affairs. It was continued and
completed at the Institute of Economic Growth, Delhi (India), with a grant from the Rockefeller
Foundation.
The author is grateful to the Economics Faculty of the University of Chicago, and especially to
Professors T. W. Schultz, D. G. Johnson, Zvi Griliches and A, C. Harberger for continuous help in
developing the dissertation.
2 " Punjab " means undivided Punjab throughout this paper.
3 See, for example, R. N. Poduval and P. Sen, " Prices, Trade and Marketing of Agricultural
Commodities in India," inJ. P. Bhattacharjee (ed.), Studiesin IndianAgriculturalEconomics(Bombay:
The Indian Society of Agricultural Economics, 1958), pp. 88-9. N. S. Joshi and B. R. Dhenkey,
Irrigationand Agriculturein theFirst Five-YearPlan: An Appraisal(Poona: Deccan Book Stall, 1954),
pp. 164-5. Mahesh Chand, " Agricultural Terms of Trade and Economic Growth," IndianJournal
of AgriculturalEconomics,1958, pp. 191-2. B. Misra and S. P. Sinha, " Agriculture and Its Terms
of Trade with Special Reference to India," Indian Journalof AgriculturalEconomics,1958, pp. 196-7.
of the Indian Societyof
B. K. Madan, "Presidential Address," Proceedingsof the EighteenthConference
AgriculturalEconomics,1958, pp. 13-14. Walter C. Neale, " Economic Accounting and Family
Farming in India," EconomicDevelopmentand CulturalChange,Part I (April 1959), pp. 297-8. R. 0.
Olson, " Discussion: Impact and Implications of Foreign Surplus Disposal on Underdeveloped
Economies," Journalof Farm Economics,December 1960, pp. 1043-4.
The last three references contain very pointed opinions in favour of negligible or negative supply
response.
4 Marc Nerlove, Dynamics of Supply (Baltimore: Johns Hopkins Press, 1958); and Distributed
Lags and Demand Analysisfor Agriculturaland Other Commodities(Agriculture Handbook No. 141;
Washington: United States Department of Agriculture, 1958). This paper owes a great deal to the
pioneer work of Marc Nerlove.

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THE ECONOMIC JOURNAL

478

[SEPT.

Xt* is the standard irrigated acreage that farmers would plant in the year
t if there were no difficulties of adjustment.' Xt is the standard irrigated
acreage actually planted to the crop in the harvest year t. The " standard
irrigated " acreage of the crop is the irrigated acreage plus the unirrigated
acreage multiplied by a standardisation factor.
P is the relative price of the crop, i.e., the post-harvest price of the crop
deflated by an index of the post-harvest prices of the alternative crops.
Y is the relative yield of the crop, i.e., the yield of the crop deflated by an
index of the yields of alternative crops.
Z is the total irrigated area in all crops of the season.
W is rainfall.
u is the error term.
B is the Nerlovian coefficient of " adjustment." The farmers, it is postulated, are able to increase the acreage of a crop in any year only to the extent
of a fraction B of the difference between the acreage they would like to plant
and the acreage actually planted in the preceding year.
Equations (1) and (2) yield the estimating equation:

ao + b2Pt-1 + b3Yt 1 + b4Zt-1 + b5Wt+ b6Xt 1 + vt

and
where aO ==aB, b2 = bB, b3 cB, b4 gB, b5 =IhB, b6 = (1 -B)
(3)

Vt=

Xt

But.

Out of the " shifter" variables Y, Z and W, shifting the acreage-price

relation, only those are included in the estimating equation of a given crop
which were found, on preliminary analysis, to be important factors determining the acreage of that particular crop. Thus, yield has been included
in the equations for cotton and rice, because the yield of these crops registered
a significant upward trend during the period 1913-14 to 1945-46, to which
the data relates, and strongly influenced the acreage of these crops. The
trend was due to varietal improvements and the expansion of irrigation
brought about by the Government.
Rainfall has been included in the equations for bajra (millet), jowar
(sorghum), wheat (unirrigated), gram and barley.2 It is an important factor
determining the acreage planted to these crops, for a large part of the total
1

The year is the harvest year, which runs in the Punjab from July to June.
The acreage of these crops in a given harvest year is influenced by the rainfall of the same year.
Two-thirds of the annual rain in the Punjab falls in the monsoon season-June to September. The
summer crops, bajra and jowar, are sown soon after the onset of the monsoon duringJune andJuly.
The farmers make their best guesses about the state of the season from the weather indications in the
early monsoon weeks and adjust their crop acreages accordingly. There are also late sowings of
some summer crops in August and September. The winter crops, wheat, barley and gram, are
planted from the middle of October onwards, and their acreage is influenced in part by the moisture
left in the fields by the monsoon. (See H. K. Trevaskis, Punjabof Today, An EconomicSurveyof the
Punjab in Recent Years, 1890-1925, Vol. II (Lahore: Civil and Military Gazette, 1932), p. 161,
E. M. Puder, " Agricultural Adjustments to the Natural Environment in the Punjab," unpublished
MS. dissertation, University of Chicago, 1925. M. S. Randhawa, Agricultureand AnimalHusbandry
in India, (New Delhi: Indcian Council of Agricultural Research, 1958), pp, 340-1.
2

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1963]

FARM SUPPLY RESPONSE IN INDIA-PAKISTAN

479

acreage (40% in the case of wheat and 70-80% in the case of other crops)
was unirrigated.
In the case of cotton (A)1 and wheat (irrigated), whose acreage recorded
a long-term upward trend over the period due to the allocation of a substantial part of the newly irrigated land to them, lagged irrigated acreage in
all crops is used as one of the determining variables.
The dependent variable is acreage planted and not output. But the
elasticity of planned output with respect to price can be supposed to be at
least equal to the elasticity of acreage planted if it is reasonableto assumethat
inputs other than land are varied at least in proportion to acreage and returns to scale are not diminishing.2 This is a reasonable assumption with
regard to poor regions, where the rural man-powerfinds gainful employment
only for a part of the year, and, therefore, the labour input can be increased
with the land input without much additional cost, and, at the prevailinglevel
of technique, the cost of capital service per unit of land is also small. Hence
in the following discussionit will be supposedthat the responseof the demand
for the input of land is a good (minimum) approximation to the responseof
planned supply.
Changes in input prices have been neglected for want of adequate data.
But the little evidence that is available about a few farms in the 'thirtiessuggests that up to the onset of the Second World War the deflated cost of cultivation did not vary significantly.
No demand relation has been specified on the assumption that the demand curves for individual crops facing Punjab producers were highly
elastic. This is not an unreasonableassumptionconsideringthat the output
of each crop in the Punjab before the Second World War was only a small
fraction of the total Indian output.
An " adjustment " model was chosen in preference to an expectational
model for several reasons. It may be useful to discuss these reasons briefly.
The choice between different lag models depends, in the first place, on
whether the different lags postulated in them are plausible formalisationsof
the institutional, technological and expectationalfactsof the sectorconcerned.
Secondly, it depends on the difficultiesof estimation presented by them.
The distinction between expectation lags and adjustment lags is important in theory; for the former are supposed to reflect the manner in which
past experience determinesthe expected values of the variables such as prices
and yields, which in turn determine the levels of output and inputs intended
by producers, while the latter reflect technological and/or institutional constraintswhich permit only a fraction of the intended levels to be realised during a given short period. Assuming that both types of lag are important,
and neither can be supposed a priori to be non-existent, which means that
1 Cotton (A) stands for the so-called " American " varieties and cotton (D) for the local varieties
grown in the Punjab.
2 Marc Nerlove, Dynamicsof Supply,op. cit., pp. 67-8.

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[SEPT.

THE ECONOMIC JOURNAL

480

none of the lag coefficientsis unity, ideally a model should specify a separate
lag coefficientfor each expectational variable and a different adjustmentlag
coefficient. But such a model presents serious estimation problems.'
We have to choose, therefore, between a model which provides for an
adjustmentlag only and a model which neglects the adjustmentlag in favour
of expectation lags.
In a pure expectation lags model a simplification may be made by
assuming that the expectation lag coefficients of different expectational
variables are identical. Thus, if all our variables were expectational we
could write:
(4)
(5)

Pt*-Pt-

+ bPt* + cYt* + gZt* + hWt* + ut

Xt-a
- P* 1)
1B(Pt

(6)

Yt* -Yt~_l

B(Yt-l-

Yt*1l)

(7)

Zt* -Zt I-*

Wtll

B (Zt - 1
B(Wt-

Zt*lt)

(8)

W*1)

This model yields the estimating equation:

(9)

Xt

ao + b2Pt l + b3Yt-1 + b4Zt-1+ b5Wt_1+ b6Xt_1+ wt

where a = aB, b2
Wt

Utt-

bB, b3 = cB, b4 = gB, br - hB, b6 = (1

B) and

B)ut-

The estimating equation (9) derived from the pure expectation model is
the same as equation (3) derived from a pure adjustment model except for
the lag in W and the error term, which has serial correlationin equation (9)
but not in equation (3).
The difficultiesdue to serial correlationpeculiar to distributed-lagmodels
have been discussedby Koyck, Klein, Nerlove and Griliches.2 The essential
difficulty is illustrated by our second model. If the ut in this model is supposed to be serially uncorrelated, then the wt in the estimating equation (9)
If, on
is automatically serially correlated, since wt
(1 - B)ut1.
the other hand, Wt is taken to be seriallyindependent, ut is serially correlated.3
Various ways have been suggested to meet this problem. Koyck and
1 Models of this type and the difficulties involved are discussed in Marc Nerlove, DistributedLags
and DemandAnalysis (Washington, 1958), pp. 68-9, and Dynamicsof Supply (Baltimore, 1958), pp.
236-40. A model specifying separate price expectation and yield expectation equations and a
separate acreage adjustment equation was also tried in connection with the present analysis. But
the results only confirmed the difficulty, mentioned by Mr. Nerlove, of estimating unique and
distinct values of the expectation lags and the adjustment lag, apart from the general serial correlation problems common to distributed lag models, which are briefly discussed below.
2 L. M. Koyck, DistributedLags and Investment
Analysis (Amsterdam: North Holland Publishing
Company, 1954); L. R. Klein, " The Estimation of Distributed Lags," Econometrica,1958, pp. 55365; Nerlove, DistributedLags and Demand Analysis (Washington, 1958) and Dynamics of Supply
(Baltimore, 1958); and Zvi Griliches, "A Note on Serial Correlation Bias in Distributed Lag
Models," Econometrica,
January 1961, and" Distributed Lags, Disaggregation and Regional Demand
Functions for Fertilizer," Journalof Farm Economics,February 1959.
3 Klein, op. cit., p. 560; Nerlove, DistributedLags, op. cit., p. 76.

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FARM SUPPLY RESPONSE IN INDIA-PAKISTAN

19631

481

Klein have suggested a method for estimating coefficients on the assumption

that ut
-rutet, where et is serially independent.
But neither this method nor the model yielding equation (9) has been
used in this paper, for, in the first place, the assumption made in this model of
identical expectation lags for different expectational variables may be
questionable. Secondly, if different coefficients of expectation are specified
for the two or more expectational variables the number of variables in the
resulting estimating equation becomes very large. Even for a model with
only two expectational variables the estimating equation has six determining
variables;1- and with only twenty to thirty observations available many
degrees of freedom are lost. Moreover, the estimates are not unique.2
When many expectational variables are involved, and equations for many
commodities have to be estimated, iterative procedures too become very
cumbersome.
It was therefore decided to use only the adjustment model yielding
equation (3). The advantage of this model is that if the estimated residuals
vt of equation (3) are found to be serially uncorrelated, then, since vt = But,
the ut are also serially uncorrelated. And, therefore, the estimated coefficients are not likely to be affected by serial correlation. It is true that the
adjustment model oversimplifies expectation behaviour. But in view of the
difficulties involved, it was regarded as the best feasible choice.

ESTIMATES

Multiple regression coefficients of equation (3) with suitable shifter

variables for each crop computed with 1914-15 to 1945-46 data for 1 1 crops
are shown in Table I. The facts relevant to the interpretation of the results
and the inferences suggested by them are discussed below.

RESULTS FOR INDIVIDUAL CROPS

Cotton (A). The acreage of cotton (A) registered a steep increase from
about 400,000 acres in 1922 to more than 1,800,000 acres in 1944. A part
of this increase came from the substitution of American varieties for the local
varieties-the former yielding about 8% more fibre than the latter, and a
price premium of 31 %on an average during the period. The yield of cotton
(A) itself was almost doubled between the early 'twenties and the early
'forties. The main explanation of the increase in acreage lies, however, in
the increase in the total canal-irrigated area of the province from 4i5 million
acres in 1901 to 12i5 million acres in 1943. In the ten major cotton (A)
districts 975,000 acres were added to cotton (A) out of 1,535,000 acres of
2

No.

29I.-VOL.

Nerlove, DistributedLags, op. cit., p. 60.

Nerlove, DistributedLags, op. cit., p. 62.

LXXIII.

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KK

482

THE ECONOMIC JOURNAL

TABLE

[SEPT.

I (a)

AcreageResponseFunctionsfor SomePunjab Crops

Regression coefficients.

symbol.

,Crop period.

tt

~~~~~~~~tI,tt

*
- _t-

t,
_

...-1.**

W.

CA

Cotton (A) *
1922-23 to 1941-42

623
(1.08)

CD

Cotton (D) *
1922-23 to 1943-44

6 83
(1.36)

Maize *
1914-15 to 1943-44

2-12
(0.51)

Sugar-cane *
1915-16 to 1943-44

Pt-2
145
(0.38)

Pt-,
0 72
(0.49)

Rice *
1914-15 to 1945-46

3 07
(0.99)

8-01
(3.16)

BJ

Bajra t
1914-15 to 1945-46

0 03
(0*01)

0417
(0.06)

-0 12
(0.05)

Jowar +
1914-15 to 1943-44

-4 70
(2.75)

-0 30
(0.12)

8-80
(3.85)

WW

Wheat ?
1914-15 to 1943-44

4.74
(2.08)

2 61
(1.18)

WD

Wheat +
1914-15 to 1945-46

8-44
(4.96)

Gram +
1914-15 to 1945-46

-11-48
(7.96)

Barley +
1914-15 to 1945-46

3 02
(3.59)

034
(0.09)

3 24
(1.14)

5 36
(4.19)

R.
- 1- -

056
(0-13)

0 96

0*45
(0.13)

0-85

0*60
(0.13)

0-79

044
(0.20)

0-66

0-48
(0.15)

0 79

0-76
(0.09)

0 92
0 59

0,41
(0.24)

0-92

59 16
(13-20)

0 71

111.11
(26.77)

0-66

20 50
(6.46)

0 23
(0.17)

0 54

* The dependent variable is standard irrigated acreage.

t The dependent variable is the ratio (%) of the unirrigated area under bajra to the unirrigated
area in all kharif (summer) crops.
+ The dependent variable is unirrigated area.
? The dependent variable is irrigated area.
? In the case of jowar the relative price variable is an index of the own price of jowar deflated
by an index of the price of bajra only. In the case of wheat (unirrigated) the own price index of
wheat is deflated by the price index of gram only; and in the case of wheat (irrigated) the deflator
is an index of ten alternative crops. In the barley and gram equations the deflator is an index of
the price of wheat only. In the case of all other crops the deflator is an index of the prices of six
alternative kharif crops.
The appropriate deflators for the price of each trop were selected on the basis of an analysis of
acreage shifts.
tt The yield of wheat (unirrigated) is relative to tlle yield of gram; and that of cotton (D) and
rice to an index of the yields of six alternative summer crops.
** In the wheat (irrigated) equation Z is the irrigated area in all rabi (winter) crops; in the case
of jowar and cotton (A) it is the irrigated area in all kharif (summer) crops; and in the case of
bajra it is the ratio (%) of the irrigated area in kharif crops to the total kharif area.
11In the equations for gram, jowar and wheat (unirrigated) the lagged acreage variable has been
omitted after preliminary experiments showed its coefficient to be small and non-significant.

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1963]

483

FARM SUPPLY RESPONSE IN INDIA-PAKISTAN

I (b)

TABLE

AcreageResponseFunctionsfor Some Punjab Crops

Adjustment coefficients and
elasticities.
Equation
symbol.

Serial correlation
according to
Durbin-Watson

Crop, eriod.
Exp

EB.
__

SR

__

LR.

_ _

__

T e s t.

LR.

SR.

CA

Cotton (A)
1922-23 to 1941-42

0 44

0-72

1-62

(Z)

1 28

2-87

No S.C.

CD

Cotton (D)
1922-23 to 1943-44

0.55

0 59

1 08

(Y)

0*39

0-72

No S.C.

Maize
1914-15 to 1943-44

0 40

0-23

0 56

Sugar-cane
1915-16 to 1943-44

0-56

0 34

Test
inconclusive

Pt-2
017

0-60
Pt-

030
0 90

172

No S.C.

(Z) 0-20
(W) -0 08

0-83
-0 34

No S.C.

(W)
(Z)

0 30
-0 60

No S.C.

0-14

(Z)

0 45

0 77

No S.C.

Rice
1914-15 to 1945-46

0-52

0-31

0 59

BJ

Bajra
1914-15 to 1945-46

0-24

0 09

0-36

Jowar
1914-15 to 1943-44

0 59

0-08

No S.C.

-0-58

(Y)

WW

Wheat
1914-15 to 1943-44

WD

Wheat
1914-15 to 1945-46

0-22

(Y)
(W)

0-15
0-36

No S.C.

Gram
1914-15 to 1945-46

-0 33

(W)

0-87

No S.C.

Barley
1914-15 to 1945-46

0 50

(W)

1.19

No S.C.

0 77

0 39

0-91

Exp is elasticity of acreage with respect to relative price.

Exo is elasticity of acreage with respect to other variables.
SR is short-run; LR is long-run.
See also footnotes to Table I (a).

additional irrigated land made available for all summer crops during 192241. Thus nearly two-thirds of the additional irrigated kharif area was
devoted to cotton (A).
The estimated elasticities show that the acreage of cotton (A) has been
highly responsive both to its relative price and the expansion of total irrigation capacity. These variables, along with lagged acreage, explain as much
as 92 % of the variance of acreage.
Cotton (D). Relative yield is an important explanatory variable besides
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484

THE ECONOMIC JOURNAL

[SEPT.

relative price in the equation for cotton (D). The acreage of cotton (D) also
increased due to the expansion of irrigation and the upward trend in yield in
the middle of the period under study, but declined steeply during the early
'forties. The price elasticity of the acreage of cotton (D) is also significantly
high.
Maize. No shifter variable turned out to be important in the case of
maize. Therefore, price elasticity has been calculated from a regression of
acreage on relative price and lagged acreage only.
Sugar-cane. Sugar-cane occupies the field for ten to twelve months.
Since planting begins in March, the acreage planted in the crop year t is
influenced more by the post-harvest price of the year t - 2 than the postharvest price of the year t - 1, for the preparations for plantings of the year t
begin even before the sugar season (December-March) of the immediately
preceding harvest is over. Hence the larger and more significant effect of
Pt-2 than of Pt-1 in the estimated equation.
Rice. As in the case of cotton, yield was specified as one of the explanatory variables in the rice equation. And the response of the rice acreage
with respect to yield is quite significantly high: 0 9 in the short-run and 1b7
in the long-run.
Bajra. In the bajra equation the dependent variable is not the absolute
bajra acreage, but the ratio of the unirrigated acreage in bajra to the unirrigated acreage in all kharif (summer) crops. Bajra is a dry crop with
nearly 80% of the acreage unirrigated. It is, in fact, one of the best dryarea crops.1 That is why, interestingly, the coefficient of rainfall is significantly negative: the lower the rainfall, the larger the proportion of the
kharif area allocated to bajra. Although bajra is one of the inferior food
grains, the acreage of bajra recorded a sharp upward trend during the interwar period. The hypothesis which seems to explain this phenomenon is that
as the proportion of the irrigated area in all kharif crops to the total area in
all kharif crops, Z, rose (from about a third to about a half) the proportion of
the unirrigated kharif area devoted to bajra increased pari passu. In other
words, as more irrigated area became available for the kharif crops which did
well only under irrigation the peasants devoted an increasing proportion to
the unirrigated area to the best dry kharif crop, viz., bajra. Hence the
significant coefficient of Z in the bajra equation.
Jowar. The R2 of the equation for jowar, another inferior grain crop, is
very low indeed. But the coefficient of rainfall is significant. And the coefficient of relative price is negative and significant at the 10 % level. Jowar
thus turns out to be the only important Punjab kharif crop whose acreage is
not responsive, or possibly negatively responsive, to relative price movements.
Wheat. Of the total area in wheat about half used to be irrigated and
half unirrigated. Separate regressions have been run for the irrigated and
1 See M. S. Randhawa, Agricultureand Animal Husbandryin India (New Delhi: Indian Council
of Agricultural Research, 1958), p. 119.

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485

FARM SUPPLY RESPONSE IN INDIA-PAKISTAN

1963]

the unirrigated area, for the patterns of crop substitution and other factors
determining wheat acreage in the irrigated and unirrigated tracts are
different. The unirrigated area is largely determined by rainfall, the price
coefficient being only marginally significant. The irrigated area had a
marked trend due to the expansion of irrigation and was significantly responsive to relative price movements.
Barley and Gram. In the rabi crop complex gram and barley like wheat
(unirrigated) turn out to be crops whose acreage is more or less insensitive to
relative price movements, but depends significantly on rainfall.

GENERAL

CONCLUSIONS

The estimated coefficients of adjustment and elasticities of acreage with

respect to price, are presented in Table II, along with elasticities of acreage
estimated by other workers for other regions for comparison.

TABLE II

(B) andPriceElasticitiesof Acreage

of Adjustment
EstimatedCoefficients
Elasticity.
Commodity and period.

B.

_-

Short run.

Cotton (A)
.
Cotton (D)
Maize
.
Sugar-cane
.
.
Rice .
.
.
Bajra
.
.
Jowar
Wheat (irrigated)
Wheat (unirrigated)
.
.
Barley
.
.
Gram

.
.
.

.
.
.

.
.
.

.
.

Jute

Cotton
Wheat
Corn

.
.

.
.

.
.

.
.

Punjab (Our Estimates)

0 44
(1922-41)
0 55
(1922-43)
0 40
(1914-43)
0 56
(1915-43)
0 52
(1914-45)
0-24
(1914-45)
(1914-43)
0 59
(1914-43)
_
(1914-45)
0 77
(1914-45)
(1914-45)

Long run.

1-62
1-08
0-56
0 60
0 59
0 36
-058 *
0 14
0-22 *
0.50 t
-0 33 t

0-72
0 59
0-23
0 34
0-31
0 09
0-08
0 39

India (Mr. Venkataraman's

Estimnate)
t
1
0-64
(1911-38)

0-46

U.S.A. (Mr. Nerlove'sEstimates)?

0-51
(1909-32)
0-52
(1909-32)
0 54
(1909-32)

0 34
0-48
0-10

0-73
0-67
0 93
0-18

* Coefficient significant only at the 10% level.

t Coefficient not significant.
+ L. S. Venkataraman, "A Statistical Study of Indian Jute Production and Marketing with
Special Reference to Foreign Demand," Unpublished Ph.D. Dissertation (Department of Economics,
University of Chicago, June 1958).
? Marc Nerlove, " Estimates of the Elasticities of Supply of Selected Agricultural Commodities,"
Journalof Farm Economics,1956, pp. 496-509.

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486

THE ECONOMIC JOURNAL

[SEPT.

The estimated elasticities presented will, it is hoped, be a useful addition

to the existing repertory of the elasticities of supply (acreage) of different
agriculturalcommodities in different parts of the world.
The estimates can be used in a number of ways. They are useful for
cross-checkingthe acreage forecasts for individual crops. At present the
forecasts in India are based almost entirely on an assessment of climatic
factors. But the acreage predicted by a model of the type used in this paper
is a resultant of the effect of climatic as well as economic factors.
The estimates can also be used to gauge the effects of given policiestaxes, subsidies, price supports, etc.-on the relative acreages of different
crops and facilitate the choice of maximum net-benefit policies.
The following conclusions may be drawn from our analysis and results.
It will be seen that of the major Punjab crops,jowar seems to be the only
crop which might possibly have a negative response to relative price movements. Barley and gram seem to be rainfall crops. All other crops have
positive short-runprice elasticities varying from as low a figure as 0-1 in the
case of wheat and bajra to the medium magnitudes 0-2-04 in the case of
maize, sugar-cane and rice up to 06 and 07 in the case of cotton. The
correspondinglong-run elasticities range from 0415 to 1 6. It is significant
that the long-run elasticity of cotton acreage exceeds unity.
The models of farm supply behaviour which have been found to work
with the data for Western countries not only do not break down when
applied to Indian data but yield plausible, interesting and internationally
comparable results.
If we compare 1 our estimates for the Punjab with Mr. Nerlove's estimates for the United States we find that while the elasticity of the acreage of
wheat in the Punjab was much lower than that in the United States, the
elasticities of cotton and maize acreage in the Punjab were significantly
higher. This is a remarkable result for a poor agricultural economy like
that of the Punjab in the inter-war period. The elasticity of cotton in the
Punjab was also higher than that forjute-another fibre crop-for India as a
whole.
Our analysis shows that the more correctly we are able to specify the
relevant non-price variables, the more significant are the net regression coefficients and elasticities of the price variable that we get. The arguments
between the protagonists of the price variable and the non-price variables
thus appear to be barren and superfluous. In the context of econometric
work on supply response the net effect of price variables can be properly
measured only if the non-price variables determining supply are wellspecified, and vice versa.
1 Mr. Nerlove and Mr. Venkataraman used only relative price and lagged acreage as determining variables, while we have used other relevant variables as well. But the elasticities may still be
compared, as they are computed from "net " regression coefficients-net of the effects of other
relevant variables. The " relative price" is relative to an index of the relevant " substitute " crop
or other prices in each case.

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1963]

FARM SUPPLY RESPONSE IN INDIA-PAKISTAN

487

The price-factor versus non-price-factors debate also turns from an eitheror debate into a how-much-this-and-how-much-that
debate. Our results
show, for example, that in the determination of acreage, price alone was the
important factor identified in the case of maize and sugar-cane; price was a
more important factor than yield (in terms of elasticities) in the case of cotton
(D); irrigation capacity was more important than price in the case of cotton
(A), bajra and wheat (irrigated); yield was more important than price in
the case of rice; and rainfall was almost all-important in the case of unirrigated wheat, barley and gram.
Our analysis also reveals that a priori beliefs about the responsiveness of
the output of individual crops to price movements and other factors cannot
be accepted at their face value. No general presumption in favour of the
irresponsiveness of crop output to prices in poor economies can be upheld.
The responsiveness, however, varies as between different crops and regions.
When more studies of the responsiveness of crop output in other poor regions
are carried out inter-regional comparisons of responsiveness can be made.
The coefficients of adjustment (B) estimated from our equations indicate
that the rapidity of adjustment of the acreages of crops by the peasants in
response to changing circumstances are not very different from those estimated for the United States. The Punjab peasants were evidently not
unusually tardy in adjusting fairly " rationally " to changes in their economic
environment.
RAJ KRISHNA

Instituteof EconomicGrowth,
Delhi, India.

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