Determination of Changes of Use of Agricultural Inputs, Due to the Liberalization of Input Prices (Case Study: Cotton production in Iran)

In this study, first we evaluate the total amount of support for domestic cotton (AMS) for the years 1988 to 1999. Then, using time series data for the study years, translog cost function was constrained. Having calculated the price elasticity of demand for farm inputs, farmers’ reactions to price changes due to the price liberalization wereidentified. The results of study showed that in the whole period of the free exchange rate, production of the cotton crop has been supported . In the year 1992 and between the years 1999 to 2001 the production of cotton has not been supported and the farmers had to pay a hidden tax.Price elasticity for the inputs including fertilizer, seeds, and water were estimated -0.342, -0.72, and -0.754, respectively. This shows that for every one percent increase in the price liberation, the input decreased less than one percent. The price elasticity for the pesticide input was equal to: - 7.614 which presents a significant reduction in the use of pesticide due to the price increase that resulted from liberalization. Ultimately, we suggest that implementing better breeding, farming methods and technologies provides an effective circumstance for domestic producers to compete with their foreign counterparts. Furthermore, the study suggests that due to the high price elasticity of demand for pesticides,, the prices move gradually up with the promotion of biological control of pests and diseases in order to reduce the consumption of poison.

Keywords:

Aggregate Measurement of Support (AMS) , Cotton , Price Liberalization , the constrained translog Cost function , Inputs Use