Estimating Input Demand and Output Supply on Wheat Farms in Haryana State of India

Abstract

The profit function approach was used to derive the factor demand and the output supply functions. The normalized quadratic profit function and demand equations were estimated jointly using the SUR estimation technique. The Output supply equation is estimated residually from the estimated model consisting of normalized profit function and demand equations. Farm level panel data are used and the model is estimated assuming that the intercept terms vary across the farms. The theoretical framework fits the data well. The empirical results support the hypothesis of profit maximization. The own price elasticities of demand for human labour ranged from -0.46 in zone 1 to -0.29 in zone 2 and for fertilizer demand, it ranged from -0.42 in zone 3 to -0.21 in zone 1. The own price elasticity of wheat supply was found to be very small in all the zones. Land has a strong influence on wheat supply and input demand. At the observed price structure, fertilizer demand is expected to increase in all the zones which may be due to the fact that the negative price effect will be outpaced by output price. The human labour demand is expected to decrease in zone 1 and zone 2 at the observed price structure.