Aggregate Agricultural Supply Research Articles

Effects of Exchange Rate Variability on Coffee Export Growth in Tanzania

Exchange rate movement is perceived as a very important factor in influencing the performance of the agriculture sector. When the currency of the exporting country depreciates against the trading partners’ currencies tends to stimulate demand and improve export earnings. An increase in value of the currency against the other trading partners’ currencies (e.g. USD) tend to affect the costs of production that may affect aggregate agricultural supply. However, the linkage of the exchange rate and agricultural export growth in particular traditional exports such as coffee has never been properly and intensively documented for appropriate decision-making in Tanzania. Therefore, this study was set to assess how exchange rate variability has affected coffee export growth in Tanzania. The study made use of time series data from 1991 to 2022 using the vector error collection model (VECM). Given the influences other than the real effective exchange rate on the export of coffee growth, we discriminately incorporated inflation rate, discount rate, and money supply, as the independent variables. Yearly data (1991-2022) obtained from the Bank of Tanzania and the International Coffee Organization were used for the analysis. The results from this study reveal that the real effective exchange rate has an enormous positive impact on coffee export growth in the long run. This implies that, the depreciation of the domestic currency against USD has advantage on coffee export growth when considering the demand side as it tends to stimulate coffee demand in the rest of the world, thus leading to an increase in export volume and revenue which helps to foster coffee export growth. However, in the supply side, this depreciation should be carefully monitored as excess depreciation may end up by rising inputs prices especially those inputs imported such as fertilizers, agrochemical, aggrotech and agro machineries that may intern affect the production level. The study ends by concluding, that it is imperative for the Central Bank to carefully observer exchange rate fluctuations and implement appropriate monetary policy strategies in favour of the agriculture sector in particular exportable crops such as coffee. This will help to manage the risks and opportunities that may arise in coffee export growth associated with currency movement.

Food prices and poverty in Africa

AbstractThis study investigated the effect of food prices on poverty in 37 sub‐Saharan African economies between 2001 and 2020. The study employed Prais‐Winsten regression, variations of the Fixed Effects model to account for conventional biases in econometric modeling, and the Method of Moment Quantile Regression with Fixed Effects to account for existing poverty levels. The findings revealed that a higher proportion of Africans will fall into poverty due to the increase in food prices. This result is consistent with the presence of endogeneity, cross‐sectional dependence, and unobservable heterogeneity. The study also reveals that the increase in food prices has a greater effect in sub‐Saharan African countries with lower levels of poverty as compared to those with high poverty levels, showing that rising food prices disproportionately hurt countries with low poverty levels, pushing more Africans below the poverty line in those countries. The study recommends the need for the implementation of supply‐side agricultural policies that enhance productivity in the sector, thereby boosting aggregate agricultural supply and precipitating a decline in food prices.

International aggregate agricultural supply for grain and oilseed: The effects of efficiency and technological change

AbstractThis paper analyses the effects of the main determinants of international aggregate agricultural supply. We propose a new model that captures the farmers’ expectations through the storage approach, instead of using Nerlove's basic model. As an innovation, we add the effects of efficiency and technological change directly, thus achieving a more powerful and informative estimation than with the usual dynamic model. Moreover, we consider the effect of climate and construct a sowing and harvesting calendar for each country and each crop to measure the supply more precisely. We also analyze the effects of agricultural prices and their volatility, of commercial policy and of changes in inventories on the suppliers’ decisions. Finally, we examine the differences in these determinants depending on the level of development of the countries. [EconLit citations: Q11, Q16, Q18].

Measuring the Responsiveness of Agricultural Supply to Macro-Economic Environmental Factors: Evidence from Nigeria

Evaluating the responsiveness of agricultural supply to macro-economic environmental factors is an important step to implementing agricultural policies in Nigeria. This study investigated agricultural output responsiveness to the level of infrastructure, rate of Inflation, exchange rate volatility, and financial deepening in the sector using annual time series spanning from 1971 to 2008, and source from CBN statistical bulletin. The study through the Augmented Dickey-Fuller (ADF) test of unit root shows that all variables were stationary and integrated of the same order (I(1)). Further, the Johannsen test of cointegration established the existence of a long-run relationship among the variables. Moreover, from the Vector Error Correction model estimated, aggregate agricultural supply was inelastic to the level of infrastructure, exchange rate volatility and financial development; while the rate of inflation appears elastic. Also, it was uncovered that exchange rate volatility and inflation rate affect the sector negatively. It was based on the findings that the researchers proffers improving and providing quality infrastructure facilities to rural communities and a well-coordinated and articulated monetary and fiscal policy to abate the effect of exchange rate volatility and soaring

Aggregate Agricultural Output Supply Response in Akwa Ibom State of Nigeria: An Application of the Nerlovian Adjustment Model

A large number of economists have concentrated their efforts on the study of the supply response of the crop sub-sector and individual crops to price and non-price incentives, but studies on aggregate supply response are few. This study is necessary in that it would assist policy makers to identify and evaluate the key variables which are important in determining aggregate agricultural output supply. The Nerlovian adjustment model was used for the estimation. The estimated coefficient were very low, indicating weak or minimal contributions of the variables to output growth in Akwa Ibom State. Moreover, the estimated short-run and long-run elasticities were fairly inelastic. However, the adjustment coefficient which measures the speed and magnitude of changes in planned output in response to anticipated output was above average. What this portrays is that farmers in Akwa Ibom State were more responsive to policy incentives. More of these factors should be committed to agricultural production, so as to improve productivity.

Aggregate Agricultural Output Supply Response in Akwa Ibom State of Nigeria: An Application of the Nerlovian Adjustment Model

Aggregate Agricultural Output Supply Response in Akwa Ibom State of Nigeria: An Application of the Nerlovian Adjustment Model

The Effect of Increased Energy Prices on Agriculture: A Differential Supply Approach

The increase in energy prices between 2004 and 2007 has several potential consequences for aggregate agriculture in the U.S. We estimate the derived input demand elasticities for energy as well as capital, labor, and materials using the differential supply formulation. Given that the derived input demand for energy is inelastic, it is more price-responsive than the other inputs. The results also indicate that the U.S. aggregate agricultural supply function is responsive to energy prices.

Aggregate agricultural supply response in Ethiopia: a farm‐level analysis

AbstractThis study examines the responsiveness of peasant farmers in Ethiopia to price and non‐price factors. Quadratic production and restricted profit functions are estimated using farm‐level survey data from Ethiopia in 1994. The results indicate that farmers respond only modestly to price incentives. The own‐price output supply elasticity is very low and output supply is not responsive to fertilizer prices or the wage rate. Non‐price factors are far more important in affecting production and resource use than price incentives. The results are robust to whether the primal or dual approach is used to estimate elasticities. The results underscore the need to strengthen market incentives through effective policies that will improve farmers' access to fertilizer, land and credit, public investment in roads and irrigation. Copyright © 2004 John Wiley & Sons, Ltd.

Food crops, exports, and the short-run policy response of agriculture in Africa

The response of agriculture to changes in relative prices is an important factor in the success of structural adjustment programs in Africa. In this paper I estimate supply functions for total agricultural output, food crops and export crops in 14 African countries for the years 1975 to 1990. Food and export crops are substitutes in production in the short run. Total agricultural output responds negatively to increases in export prices and positively to increases in food prices. A plausible explanation is that as farmers shift resources to export crop production, food supply falls in the short run, while the increase in export supply may take several years to materialize. The exchange rate is significant in explaining both food and export crop production and aggregate agricultural supply, suggesting that the exchange rate is acting as a proxy for excluded macroeconomic variables or that changes in the exchange rate are not passed immediately through to prices.

Food crops, exports, and the short‐run policy response of agriculture in Africa

AbstractThe response of agriculture to changes in relative prices is an important factor in the success of structural adjustment programs in Africa. In this paper I estimate supply functions for total agricultural output, food crops and export crops in 14 African countries for the years 1975 to 1990. Food and export crops are substitutes in production in the short run. Total agricultural output responds negatively to increases in export prices and positively to increases in food prices. A plausible explanation is that as farmers shift resources to export crop production, food supply falls in the short run, while the increase in export supply may take several years to materialize. The exchange rate is significant in explaining both food and export crop production and aggregate agricultural supply, suggesting that the exchange rate is acting as a proxy for excluded macroeconomic variables or that changes in the exchange rate are not passed immediately through to prices.

Aggregate supply response in Tanzanian agriculture

Tanzania is among the many African countries that have engaged in agricultural liberalization since the mid-1980s. in the hope that reforms that introduce price incentives and efficient marketing will encourage producers to respond. This paper assesses that claim by examining the supply response of agricultural output in Tanzania. Our estimates suggest that aggregate agricultural supply response is quite high so that the potential for agricultural sector response to liberalization of agricultural prices and marketing may be quite significant. The long-run elasticity of aggregate food crop output to relative prices was almost unity. Short-run supply responses were estimated at about 0.35 for aggregate food crops and for all (food and export) crops. Liberalization of agricultural markets, where it increases the effective prices paid to farmers, can be effective in promoting production, although complementary interventions, to improve infrastructure, marketing, access to inputs and credit, improved production technology etc, are probably necessary.

Aggregate Agricultural Supply Response in Developing Countries: A Survey of Selected Issues

The authors review several studies of the aggregate agricultural supply response. Using both economic and econometric reasons, they argue that time series estimation typically generates a downward-biased estimate of the response to a credible reform. Even though time series estimates can provide an accurate picture of past behavoiral relations, they do not provide an adequate basis for forecasting the impact of policy reform. This is especially true in developing countries, where policy reforms involve large changes and have included agricultural price reform, industrial trade liberalization, financial sector reform, and macroeconomic stabilization. Under those circumstances, parameters values obtained under the former policy regime have little relevance in the new regime. The authors also argue that investment in public goods should be viewed as complementary to, not competitive with, price policy. They claim that to select the policy with the biggest impact on output makes no sense. They provide what they consider to be better criteria for choosing the best from alternative policies.

Agricultural pricing and public investment

Aggregate agricultural supply is price inelastic, but responsive to investment in agricultural infrastructure (irrigation, roads, research, extension). Thus, the government should tax agriculture and finance infrastructure. Although unlikely to pay for itself directly, it will increase taxable agricultural surplus, but by raising rural living standards, and therefore the supply price of urban labour, it reduces urban tax revenue. Its marginal social product is therefore overstated when measured at world prices, though understated at distorted agricultural prices. With scale economies in industry, the case for taxing and investing in agriculture is strengthened. It may allow the economy to escape stagnation.

Aggregate agricultural supply response in Chile, 1962–82

Supply response in agriculture is evaluated using a multisector model of the Chilean economy which was estimated econometrically using data for the period 1962–1982. The economy is disaggregated into agriculture, mining, manufacturing, services and government. The main groups of variables included in the simulation are factor markets, technology, intermediate inputs and prices. It is shown that output responds to price change and that the strength of the response increases with time. The supply elasticity for agriculture is evaluated conditional on total resources and constant price level in order to highlight the substitution effect, which has been questioned. The elasticity converges to unity in a 10 year period. The main features of the model and how it operates are described, and policy implications are drawn.

PRICISM v. STRUCTURALISM IN SUB‐SAHARAN AFRICAN AGRICULTURE

A re‐examination of data frequently used to support the notion of price discrimination against agriculture in Sub‐Saharan Africa suggests that the extent of agricultural taxation has been overstated. In addition, a review of the evidence on the aggregate agricultural supply response to price indicates that elasticities are low, with the most plausible estimates lying in the range 0.2–0.4. Eight structural constraints explaining the poor supply response, to which Sub‐Saharan Africa is particularly prone, are identified. Further evidence is presented to show that output responds more significantly to structural factors than to price, and that investment in rural infrastructure will bring about an improved response to price. Capital constraints limit price‐induced private investment, so that public sector led investment in new technology and rural infrastructure would appear to be the single most important strategy for reversing the decline in African agriculture.

International supply response

Long-run aggregate agricultural supply elasticities obtained from conventional supply functions fitted to time series data tend to be relatively inelastic in the range of 0.1 to 0.4. I argue that these estimates substantially understate the true long-run supply response in agriculture. Because of the lack of international input price data, implicit output/input price ratios are estimated from a production function assuming profit maximization. The estimation of an aggregate supply function utilizing these price ratios yields long run aggregate supply elasticities in the range of 0.90 to 1.19. These figures are substantially larger than those obtained from conventional supply functions fitted to time series data, but correspond closely to estimates reported in an earlier cross-country study that used different price data for different points in time. The results imply that policies which distort domestic and/ or world market prices of agricultural products cause greater output distortions in both the DCs and LDCs than are predicted by the small supply elasticities obtained from conventional supply estimation.

International Supply Response

AbstractLong‐run aggregate agricultural supply elasticities obtained from conventional supply functions fitted to time series data tend to be relatively inelastic in the range of 0.1 to 0.4. I argue that these estimates substantially understate the true long‐run supply response in agriculture. Because of the lack of international input price data, implicit output/input price ratios are estimated from a production function assuming profit maximization. The estimation of an aggregate supply function utilizing these price ratios yields long run aggregate supply elasticities in the range of 0.90 to 1.19. These figures are substantially larger than those obtained from conventional supply functions fitted to time series data, but correspond closely to estimates reported in an earlier crosscountry study that used different price data for different points in time. The results imply that policies which distort domestic and/or world market prices of agricultural products cause greater output distortions in both the DCs and LDCs than are predicted by the small supply elasticities obtained from conventional supply estimation.

On the determinants of cross-country aggregate agricultural supply

A sample of 58 countries for the period 1969–1978 is analyzed in order to determine the role of prices and various forms of public inputs on agricultural supply and some factor demand. The within-country analysis provides estimates of weak short-run supply elasticities. The main determinants of output, both within country and across countries are variables representing infrastructures and a measure of comprehensive capital. The results are evaluated within a theoretical framework.

International Farm Prices and the Social Cost of Cheap Food Policies: Comment

Peterson's original paper (see WAERSA 21, 5621) supports the increasingly popular belief in the agricultural economics profession that government policies have reduced agricultural production in LDCs. Policy implications are that LDCs could raise production by improving domestic agricultural incentives, especially output prices. McIntire argues that this view, as quantified in Peterson's paper, can be seriously misleading (in terms of evidence from sub-Saharan Africa) because (a) it is based on a misinterpretation of the price data, (b) it obscures the market structure of many countries, (c) it groups African countries with others where agricultural supply functions are probably more price elastic; (d) it obscures the role of foreign trade. He argues also that actual prices received by farmers in LDCs are higher than those reported by FAO and used by Peterson. In reply Peterson restates his plea that countries would be better served if policy makers regarded the long run aggregate agricultural supply elasticity to be elastic rather than inelastic in making policy decisions.

International Farm Prices and the Social Cost of Cheap Food Policies

AbstractThe evidence suggests that real prices received by farmers in the LDCs have been substantially lower than farm prices in the developed nations. Estimates of a long‐run aggregate agricultural supply elasticity from cross‐section data reveal that it is relatively elastic, in the range of 1.25 to 1.66. It is estimated also that with more favorable farm prices agricultural output in a group of twenty‐seven LDCs could have been 40% to 60% greater than it was and the national income of the group increased by more than 3% annually.