Econometric analysis of farm machinery investment and simulations under alternative energy, price support, and export policies

Kisan Ramachandra Gunjal

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: The historical trends in structure, extent, and intensity of agricultural mechanization are analyzed in this study. The numbers of tractors, grain combines, corn pickers and picker shellers, pickup balers, and field forage harvesters peaked during the early 1960s. The decline in their numbers after the '60s is brought about mainly by the qualitative changes in those machines. The total tractor horsepower on farms also increased over the period 1963-79. Analysis of measures such as acres per horsepower, number of tractors and combines per farm, and acres per tractor and combine indicates that the intensity of machinery-use has increased over the last four decades. The productivity of machinery input in agricultural production has also increased;Based on the various investment theories, the alternative models of stock adjustment, expectations, and derived demand type are estimated for tractor and other machinery investments at the national and regional levels using 1950-77 annual data. Investment demand functions for harvesting machinery are estimated at the national level. Statistical tests for structural change in the machinery investments are performed. The demand elasticities with respect to prices, income and other economic variables are calculated. In general, the other machinery demand is the most elastic and the harvesting machinery demand is the least elastic with respect to their own prices. Harvesting machinery may have a higher priority in the annual machinery purchases of farmers and hence a lower elasticity of demand. In general, the tractor demand elasticity with respect to its own price as well as aggregate crop price is increasing from west to east;Dynamic multipliers expressing the long-lasting effects of the interest rates, price of fuel and oil, and net farm income are calculated for selected machinery investments. The impact and long-term multipliers are also presented;Finally, a block recursive simulation model of the regional farm machinery investments is developed. The relevant variables are selected from agriculture, industry, and economy in general to complete the linkages specified in the model. The regional tractor and other machinery investments and national tractor, harvesting machinery, other machinery, and all machinery investments are predicted up to 1990. The potential effects of six alternative policies of energy prices, support prices and agricultural exports on future farm machinery investments are also analyzed.

Date: 1981-01-01
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