Acreage and yield response for major crops in the pre- and post-reform periods in India: A Dynamic panel data approach

Abstract

Supply response to price changes is likely to increase with the increasing liberalization of the agricultural sector in India. Past studies revealed a weak supply response for Indian agriculture. No recent reliable estimates are available to determine whether the response has improved after the economic reforms introduced in the early 1990s in India. This report estimates supply response for major crops during the pre- and post-reform periods using the Nerlovian adjustment cum adaptive expectation model. Estimation is based on dynamic panel data technique using pooled cross-sectional time-series data across the states of India for the period 1970-71 to 2004-05. As expected, food grains reveal less response than nonfood grains. With proper specification of the price variable, the acreage elasticity significantly increased by about 20 to 40% post reforms as compared to pre reforms for all crops, except cotton and groundnut. Yield response is higher than acreage response for the main cereals, rice and wheat. Treating yield variable as a proxy for nonacreage inputs, the results confirmed that farmers respond to price incentives increasingly by adjusting non-acreage inputs than acreage for main cereal crops.