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Abstract
This paper surveys the literature on agricultural supply response to prices in developing countries.
Empirical estimates of elasticities depend both on the methodology adopted and on countryspecific
factors relating to technology, economic structure and macro constraints. The paper seeks
to establish some general conclusions on supply responsiveness within these limitations. Supply
response to output prices at the aggregate and at the crop levels is considered first. Crop-specific
acreage elasticities range between zero and 0.8 in the short run while long-run elasticities tend to
be higher- between 0.3 and 1.2. Yield elasticities are smaller and less stable than acreage elasticities.
Clearly, inter-crop pricing can be relied upon to effect shifts in the commodity composition
of agricultural output. Evidence also suggests that supply elasticities vary systematically with such
factors as price and yield risks, multiple-cropping, the importance of the crop, farm incomes, farm
size, tenancy and literacy. The most controversial and important aspect of supply response is the
effect on aggregate agricultural output of agriculture's terms of trade. Conventional time-series
estimates range from 0.1 to 0.3. A major cross-country study reports an aggregate elasticity as high
as 1.66. It is argued that cross-country estimates are apt to exaggerate aggregate responsiveness
while time-series studies underestimate it somewhat. For LDCs, a tentative range of 0.4 to 0.5
seems plausible. Hence, the distributive effects of the terms of trade are likely to be more significant
than the allocative effects. Asian evidence shows that only a third of the inter-country differences
in fertilizer use can be attributed to fertilizer price policies. Provided new technologies
and infrastructure are in place, fertilizer subsidies can help in technology diffusion and in overcoming
credit constraints. The choice between price supports and input subsidies will depend on
a variety of country- or situation-specific factors. Nevertheless, a significant general factor favoring
price supports is that they can more easily be coupled with price stabilization goals than input
subsidies. Though sparse, the available evidence on the response of marketed surplus suggests that
price policy is not a reliable instrument for regulating inter-sectoral trade.