Supply Response at the Field Level: Disentangling Area and Yield Effects

• Agricultural Economics Workshop

Date and Location

Thursday, November 29, 2018, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Agricultural price supply response is thought to occur mainly through changes in acreage rather than through yield increase. Many studies find that yields respond weakly to prices, leading to the counter-intuitive idea that yields are insensitive to prices. In this paper, I argue that this result is likely due to the use of aggregated data: county- or state-level yields are averages, whose composition itself is affected by price changes. When area expansion is done by cultivating less fertile fields or by foregoing rotation, this composition effect reduces average yields, even if yields increase on each individual field. To disentangle the effect of the intensive and composition effect on county-level yields, I will run an analysis at the field level. Taking advantage of the availability of remotely-sensed crop choice and yield data for close to one million fields in the US Midwest, I will be able to analyse response effects separately for fields in mono-culture and in rotation, and to obtain estimates of the intensive versus rotational effects on yields. Using this measure, I then reconstruct county-level yields, and investigate the offsetting effects of intensive and rotational margin on aggregate yields.