Chapter 4


 fertilizer, seeds, fuel, machinery, etc. The effect of changing input prices on the food
 economy is described under section 2 of Annex 1. In general, increased input prices will
 reduce the incentive effect of increased output prices.

 The impact on food production depends on the types and intensity of inputs used in
 alternative agricultural production processes and different production systems; food crop
 versus export crop production, and smallholder versus large scale production. The
 question can only be answered on the basis of the particular conditions in a certain
 country or region.

3) Price elasticity of food production and supply

 The relative price changes, caused by an exchange devaluation, are expected to induce
 increased production and supply of tradables. The degree of production and supply
 response is expressed in terms of price elasticities of production/supply. See Annex 1,
 section 2 and Box A-1 for a discussion of the relevant concepts.

 As to the response of food production to price changes, the following aspects need to be
 considered:

 Individual crop versus aggregate supply response: although individual crops
 respond strongly to price changes, aggregate supply response is usually very low, as
 the expansion of one crop is at the expense of other crops (negative cross-price-
 elasticities). This fact is illustrated in Table 4.4 which shows a selection of individual
 crop elasticities, cross-price elasticities, and the aggregate supply elasticity of all crops
 in an area of semi-arid India.

 If, as discussed above, cash crops for export experience the strongest price increases as
 result of a devaluation, the production of food crops may go down, in spite of price
 increases for food crops relative to non-agricultural goods.


Table 4.4: Individual crop, cross price and aggregate price elasticity in semi-arid India

Crop Price of Price of Price of other Price of Price of other
 wheat sorghum coarse cereals chickpeas crops
Wheat 0.33 -0.35 -0.5 0.03 -0.12
Sorghum -0.39 0.77 0.06 0.00 -0.26
Other coarse cereals -0.14 0.16 0.23 -0.48 0.41
Chickpeas 0.08 0.00 -0.41 0.46 -0.14
Other crops -0.07 -0.13 0.08 -0.03 0.25
Implied (weighted aggregate) elasticity of supply of all crops: 0.05

Source: Binswanger 1989


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