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Profits, Supply and Hyv Adoption in Bangladesh

Sanzidur Rahman
School of Geography University of Plymouth, Plymouth, PL4 8AA, UK

Bhavani Shankar
Department of Agricultural and Food Economics, School of Agriculture University of Reading, Reading, RG6 6AR, UK

Abstract/ Executive Summary:

The adoption of HYV’s, increased farm profitability, and the accelerated supply of cereals are important objectives for Bangladesh agriculture. In this paper, we have investigated the manner in which price and non-price factor affect these three criteria, based upon a model of rational variety choice. The model is empirically implemented using translog profit functions and a switching regression framework and applied to a cross-sectional firm-level dataset of Bangladeshi farms for the 1996 crop year. Results indicate that rice prices, land availability, irrigation, rural infrastructure, labour wages and prices of animal power services are important factors, while fertilizer price play a marginal role. Given these results, the policy of liberalization of agricultural inputs (particularly fertilizers) and reforms to maintain high rice prices during harvest seasons appear sound since these allow producers to receive rice prices close to world levels without burdening the government with input subsidies. Result also shows that educated Bangladeshi farmers substitute their time inputs away from agriculture, resulting in lower HYV adoption, farm profitability and rice supply.

Keywords: HYV adoption, Resource allocation decisions, Profitability, Bangladesh.

Location: in Bangladesh

Start Date:

End Date:

Program Area: Socio-economic and Policy

Non-commodity: Profitability

Objectives:

(1) As pointed out previously, several of the empirical studies on adoption were ad-hoc and not specified on the basis of models of farmer behaviour. Models based on explicit 6 optimizing behaviour can provide a better understanding of the process by which external factors determine adoption1. (2) The majority of previous studies have used cross-sectional data pertaining to the early and middle stages of HYV adoption. Besley and Case (1993) point out that where the technology is incompletely diffused through the population, parameters estimated from single cross-sections can be hard to interpret. They also note that once the diffusion process is complete, cross-sectional studies can provide insights into how farm characteristics affect adoption.

Methodology:

Farmers are viewed as profit-maximizing agents who make two sets of decisions. One is a choice between TV and HYV technologies and the second the choice of variable inputs, given the chosen technology. The set of output and input prices and the set of fixed factors thus determine all variables of interest: the choice between varieties, variety-specific output supply, input demands and profits³. Replacing the latent variable with the observed adoption dummy enables (5) to be estimated by probit methods. (ii) The estimate of (5) can be used in computing ‘correction terms’ that enables the conditional expectation of error terms of individual profit functions (1) and (2) to be zero. Consequently, variety-specific profit functions estimated with the appropriate correction term included among the regressors are consistent and unbiased (Heckman, 1976; Lee, 1976; Pitt, 1983). The following features can be noted regarding the model: (i) Probit estimation of (5) not only enables the estimation of a correction factor to remove bias in variety-specific profit function estimates but also provides information on how price and non-price variables affect the probability of adoption. (ii) The empirical probit equation is derived from the optimizing behaviour. The adoption decision is seen as a purely economic outcome where a variable can affect the probability of adoption only if it belongs in the profit function. (iii)Second-stage variety-specific profit function estimates provide added information on how the key price and non-price factors affect farm profitability and output supplies. Our three criteria can thus be evaluated in mutually consistent fashion. This study utilizes cross-sectional primary data for the crop year 1996. The data were collected by a team of field researchers via an intensive farm-survey coordinated by one of the authors of this paper. Multistage random sampling techniques were used in selecting study locations as well as the sample farmers. Three agro-ecological regions of Bangladesh are represented in the dataset: the Old Brahmaputra Floodplain, the High Ganges River Floodplain and the Middle Meghna River Floodplain. Samples from 21 villages – eight villages of the Jamalpur Sadar sub-district of Jamalpur, six villages of the Manirampur subdistrict of Jessore, and seven villages of the Matlab sub-district of Chandpur – were used to represent these regions. Information was obtained on input and output quantities as well as prices, at the plot level. Additionally, socio-economic characteristics of the farm families and village-level infrastructural development data were also recorded. The geographical dispersion of the sample plots and imperfections in input markets in Bangladesh ensure adequate variability in prices across the cross-section4. In our sample, rice price varied from Tk 3.75 to Tk 7.5 per kg; fertilizer price varied from Tk 4.00 to Tk 10.00 per kg; labour wage varied from Tk. 25.00 to Tk 65.00 per person-day, and price of animal power services varied from Tk. 30 to Tk. 110 per animal-pair days, respectively. A formal F-test for differences in the prices of fertilizers, labour wage, animal power services and the rice across 21 villages in each of the three cropping seasons (i.e., Aus, Aman and Boro season) under study rejected the nullhypothesis of “no-difference” at 1% level for all, thereby confirming that significant price variation exists in our sample, and hence, the application of the profit function model is justified. A total of 946 observations (324 observations of traditional rice varieties and 622 observations of HYV rice varieties) constitute the final sample.

Source of Information: https://pearl.plymouth.ac.uk

Article Link (Online Journal): http://hdl.handle.net/10026.1/4024

Funding Source:

1.

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The adoption of HYVs, increased profitability of individual farming operations, and the accelerated supply of rice are important objectives for Bangladeshi agriculture. Most prior research has investigated these issues in a fragmented manner, often using ad-hoc models. In this paper, we have investigated the manner in which price and non-price factors affect these three criteria, based upon a model of rational variety choice. The model is empirically implemented using translog profit functions and a switching regression framework and applied to a cross-sectional farm-level dataset of Bangladeshi farms in 1996. The results provide some broad lessons for Bangladeshi agricultural policy: (i) Maintaining high rice prices seem to be the most important factor as this would increase HYV adoption, overall farm profits as well as rice supply. (ii) Although the conventional wisdom holds that input prices are key to the adoption of input-intensive HYVs, their effects are relatively small and secondary to output price effects except labour wages. 19 (iii)Increase in availability of land is an important measure in a land-scarce country like Bangladesh.

Knowledge Management: Journal