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Change in Input Relations in Bangladesh Agriculture, 1973-1995

BILKIS RAIHANA
Assistant Professor, Department of Economics, Asian University of Bangladesh, Uttara, Dhaka, Bangladesh.

Abstract/ Executive Summary:

The major forces of technological change and input substitution induced by relative factor price changes have led to important changes in the input mix in Bangladesh agriculture. The labour input has been replaced by fertiliser and irrigation. This change in input use raises significant issues with respect to the nature of factor substitution and input demand. This study sheds light on these issues by using the translog cost function approach. The findings reveal that the AES between land and fertiliser (N-F) shows increasing substitutability relationship over time, whereas the AES between fertiliser and irrigation (F-I) displays high substitutability throughout the study period along with a declining trend in the latter period.

Keywords: Bangladesh Agriculture, Input Relationships

Location: Bangladesh agriculture sector

Start Date: 00-00-1972

End Date: 00-00-1975

Program Area: Socio-economic and Policy

Non-commodity: Impact

Objectives:

The specific objectives of this study are as follows: (1) to assess the input relationship by considering the signs and magnitudes of translog estimates of Allen partial elasticity of substitution (AES); (2) to analyse the changing input demand by estimating cross elasticities of input demand (ED); and (3) to explore the factors that are responsible for the changing input relationships.

Methodology:

The translog function introduced by Christensen, Jorgenson and Lau (1973) is used in this study. Like other Flexible forms, the translog function does not impose any a priori restriction on the values of elasticity of substitution.

3.1 The Cost-Share Equations According to Shephard (1953), the share of an input in total cost can be viewed as its share in the total product. This is called Shephard’s Lemma. Following the Shephard’s Lemma, the cost-minimising share equations for the various inputs can be obtained by logarithmically differentiating equation (2) with respect to input prices.

3.2 Elasticities of Substitution and Demand In the cost shares equations, the estimated gamma coefficients do not have any clear economic meaning, but these form the basis for deriving the estimate of elasticities of substitution and demand.

3.3 The Data: For estimating the parameters of the translog model, most of the available data are either incomplete or are not readily available. Time series data on price and quantities of output and inputs for Bangladesh agriculture sector are used for the period 1972-73 to 1994-95. Bangladesh agriculture has witnessed radical changes during the early two decades. The trend of input prices in Bangladesh agriculture over the first two decades showed rapid changes. From 1973 until the early 1980s, the rise in input prices was relatively slow. But from the early 1980s, there were rapid increases in input prices, increasing consumption of both fertiliser and irrigation, a very moderate increase in cultivated land and decrease in the use of labour in Bangladesh agriculture became evident. The splitting of this period in this manner enables study of the impact of inflation and enables examination of whether fertiliser-irrigation substitutability and land-labour complementary relationship has changed during this period. Therefore, the first two decades of Bangladesh agriculture are studied to see whether our agriculture that moves away from the traditional mode of production to the age of modern input use and it may provide an assessment of this period. It is necessary to separately construct the input cost shares, price indexes of four inputs and indexes of all output for estimating the coefficients of the cost share equations corresponding to the translog function.

3.5 Cost Share Estimates and Divisia Price Indexes of Inputs: In analysing factor substitution, the cost shares of inputs are needed to estimate the translog cost function. From this table it is observed that the cost shares of land did not increase significantly but it fluctuated several times. In Bangladesh, a slight increase in the quantity of cultivated land was observed during the study period. Coupled with this, extreme increase in land price may have caused an increase in the cost share of land. The cost share of labour in total cost has gradually decreased during the study period. Although the daily wages of agricultural labour has increased over time, its share in total cost has declined over time. The declining tendency in labour cost share happened due to the transfer of the agriculture labour force from the traditional sector to the non-agricultural sector.

Source of Information: Bangladesh Development Studies; Vol. XXXVI, September 2013, No. 3

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

This study spans 23 years during which input prices and intensities changed. Considerable changes occurred in input relationship in Bangladesh agriculture over time. Differences exist in sign and magnitude of the values of AES and various cross price elasticities. In both the homothetic and non-homothetic structures, the AES between labour and fertiliser (L-F) appeared as complements in the early years, while in the latter years, it was found to be substitutes and these changes release labour force from the agricultural sector. Turning to the policy implications of these results, it is necessary that employment opportunity in the non-agricultural sector is created so that surplus labour from the agricultural sector is absorbed there. In this study, increasing substitutability between land and fertiliser (N-F) is observed and it is associated with the moderate increase in total cropped area. This suggests that proper utilisation of cultivable land might be ensured. The highest degree of substitutability is obtained between fertiliser and irrigation (F-I), associated with the relatively high energy price which implies that farmers use more fertiliser and less irrigation. But use of more fertiliser has severe adverse effects on the soil. This suggests that it is essential to control the frequently use of fertiliser by developing the farmers awareness. An issue of much concern in recent years is the increasing use of chemical fertilisers, especially nitrogen in agriculture. The use of nitrogen has severe adverse effects on the environment, such as rising levels of nitrates in some crops as well as in drinking water. So in order to save the environment, it is necessary that government take proper policy measures to ensure the supply of energy at reasonable price as well to spend enough money on research and development expenditure to produce energy-efficient farm machines so that farmers are interested to use more mechanical inputs and less biochemical inputs in the production process.

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