Supply response in rainfed agriculture of odisha, eastern india: A vector error correction approach

Abstract

This paper provides an empirical investigation of supply response in case of rice in rainfed agriculture of Odisha. A composite weather index, instead of rainfall has been incorporated in the model to monitor farmers' supply response to weather. The vector error correction approach which avoids the unrealistic assumption of fixed supply on the basis of static expectation is applied. The empirical results reveal the fact that there is price inelasticity of supply whereas the supply elasticity with respect to weather is found to be very high. The policy implications suggest that there should be huge empha- sis on irrigation as well as weather insurance. Assured irrigation minimizes the de- pendence on weather conditions and secures the crop from the vagaries of monsoon and thereby reduces the risk attached with farming.