Towards a better estimation of agricultural supply elasticity: the case of soya beans in Brazil

Abstract

Brazil is a major exporter of several agricultural commodities and has shown strong interest in agricultural trade negotiations. For several commodities, trade liberalization is expected to be followed by farmgate prices increase and to boost domestic production. However, in a country as big as Brazil, possible supply responses to price increase will probably strongly differ from one region to another. This article focuses on soya beans for which Brazil became a top exporter. The panel data technique is used to estimate the soy bean supply response at national and regional level. Soya bean supply is shown to be very price elastic. Moreover, soya bean supply own price elasticity is much higher in the Center-North regions than in the South of the country. Substitution between livestock and soya bean is also very significant in the Center-North region. World agricultural trade models should take account for such regional variability of soya bean supply elasticity. The results also allow us to discuss the issue of soya bean expansion at the Amazon border.

Keywords:

• soya bean
• Brazil
• supply elasticity
• panel data

JEL Classification:

• Q11
• C23

Notes

¹ A full documentation of the Aglink model can be found in OECD (2006). The model is used mainly to derive the OECD-FAO agricultural outlook.

² This study was conducted in the context of the EU-Mercopol project (www.eumercopol.org), aimed at providing ex-ante impact analysis of agricultural trade liberalization between Europe and Mercosul countries.

³ For the graph exposed in the report, most of the Cerrado region pertains to the Center West macro region.

⁴ However, it is worth emphasizing that only if T → ∝ the FE is consistent for the dynamic error component model (see Nickell,1981), unfortunately in our data base T is fixed and short.

⁵ For more details, see Sadoulet and de Janvry (1995, Chap. 4).