Agricultural Supply Response and Yield and Price Risk

The book argues that risks related to yield and price variability should be taken into account when agricultural policies are designed. In this book, the production and supply response of Ethiopian agriculture (which includes not only the standard arguments like expected prices but also expected yield and price risks) are captured in a three-equation supply response model. The finding for aggregate agriculture reveals that the sector did not respond to price changes during the sample period between 1971 and 2003. However, the sector is found to be yield and price risk responsive. Crop specific supply response analysis on the other hand suggests significant difference between crops in responding for different incentive structures. To this end, maize and wheat growers did not respond to risks but responded to price changes. Teff growers on the other hand responded to yield risks but not for price changes. The implication from the findings is that a rational pricing and marketing policies, information dissemination, appropriate irrigation schemes as well as structural changes do matter for improvement of supply response in the context of poor agrarian economy.