An analysis of foodgrain market in Korea Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/gh93h238s

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  • In order to effectively use foodgrain prices as tools of government policy, it is necessary to know the possible effects of price incentives on different economic variables. The present study attempts to measure the effects of foodgrain prices, upon various economic variables, including production, consumption, both at the farm and urban levels, and farm sales of two major foodgrains, and to explore possible measures to improve the current foodgrain price policy. The results of the empirical study of farm producers' response indicate that Korean farmers respond significantly in their grain production to price changes and that they are more responsive in barley than in rice production in terms of both input use and planted acreage. This suggests that policy designed to raise barley price to farm producers would contribute relatively more to increasing overall foodgrain production. In studying the consumption behavior of farm and urban consumers, and sales decisions of farmers, a simultaneous equation model was used. The system comprises eight equations: six behavioral and two market identity equations. In specifying the model, special attention was given to a peculiar feature emerging from the dual role of farmers in semi-monetized agriculture, that is, as consumers on the one hand and as sellers of products on the other. Two types of analyses were carried out on the basis of the estimated behavioral parameters of the model. First, an analysis was made of the partial response to price changes by treating each behavioral equation as an independent single equation under the usual ceteris paribus assumption. Secondly, the total behavioral responses were analyzed by taking account of simultaneous changes in all endogenous variables in the system. The partial response analysis indicates that both farm and urban consumers have a “potential” tendency to respond negatively to price changes in their consumption of rice and barley and also a "potential" tendency to substitute one grain for another in the face of changing relative prices. It also shows a positive response in the foodgrain marketings of farm producers. But the total response analysis shows that the responses measured in the partial analysis are substantially offset by the interdependence of the prices of rice and barley on the open market, resulting in positive changes in the quantity demanded or no substitution at all. The empirical results also provide counter-evidence concerning the validity in the Korean economy of the so-called "target cash requirements hypothesis," advanced by a number of economists. One important policy implication that can be drawn from the study is that if the government's objective is to reduce foreign exchange spending on rice imports by restructuring foodgrain consumption (in addition to increased domestic production), it can be done through the use of price incentives by inducing the consumers to reveal their "potential" responses on the market. This is equivalent to forcing the ceteris paribus assumption made in the partial response analysis to operate in the real world through an appropriate governmental operation.
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