Supply Response of Basmati Rice: Evidence from Pakistan

Abstract

The study of agriculture supply response to prices has received immense prominence in recent years and is an important agenda for future research. The objective of the research is to understand the factors affecting the acreage basmati rice supply response in Pakistan covering the period from 1975-76 to 2012-13. The study empirically examines the own and cross price elasticity demand of basmati rice. The analysis of the own price and cross price elasticity indicates that a change in price of a single crop not only affects the land allocation and other resources for that particular crop but also changes the allocation of land to other crops depending upon their competitive relationship. The study concludes that own price and the price of irri rice significantly affect acreage under basmati rice. Regarding cotton the study found that the farm gate price of cotton is insignificant determinant of the basmati rice area while high price of fertilizer have negative impact on basmati rice acreage. Policy makers should formulate such a comprehensive agricultural policy that should treat all the determinants of basmati rice acreage as a group because prices of other crops like irri rice also have significant impact on acreage supply response of basmati rice. Fertilizer price has negative relation with the rice production in this regard to sustain higher rice production government should provide subsidized fertilizers to rice farmers. Technological change is at the heart of high growth strategies so there is need to evolve new high yielding varieties of basmati rice.