In recent years, market forces have signaled a strong demand for rice as well as other Arkansas crops. However, high fuel, fertilizer, and chemical costs have negatively impacted farm income, and these input costs are widely known to impact planting decisions of farmers. The goal of this study is to develop and estimate an acreage response model for rice. The model is used to compute acreage response elasticities and provides insight into roles that input costs and crop prices play in acreage decisions made by producers. Economic theory predicts that prices for important inputs such as fuels and fertilizers as well as the relative prices of rice and soybeans will impact acreage decisions. Soybean prices are expected to be important because most of the machinery needed to produce rice and soybeans is the same and these crops are already used commonly in rotation. Results of the study show that crop price variables do indeed play a significant role in producer planning. Short- and long-run own-price acreage response elasticities are estimated to be 0.69 and 1.19, respectively. Soybean prices have the expected negative impact on rice acreage with a cross-price elasticity of -0.33 in the short run and -0.57 in the long run. On the other hand, the expected economic impacts of input prices on rice acreage were not supported by the results. Estimated relationships were negative, as would be predicted by economic theory, but were not statistically significant.
Ballard, J. Grant and Thomsen, Michael R.
"An acreage response model for Arkansas rice farms,"
Discovery, The Student Journal of Dale Bumpers College of Agricultural, Food and Life Sciences. University of Arkansas System Division of Agriculture. 9:10-15.
Available at: http://scholarworks.uark.edu/discoverymag/vol9/iss1/5