- The objective of this study is to analyze empirically the demand
structure for the following important farm production inputs in
Oregon: hired labor, chemical fertilizer, farm machinery, repairs
and operating costs of motor vehicles and other machinery designated
as "machinery supplies," purchased feed and miscellaneous inputs.
Twenty-year data (1950-69 except 1951-70 for hired labor)
were analyzed with the aid of simple equation least-squares multiple
regression techniques for all inputs. In addition, a simultaneous-equation
model is applied to hired labor data. The demand for each
input is predicted through 1975.
This study indicates that hired farm labor employment depends
heavily upon wage rates. Contrary to earlier national and regional
studies, the short-run demand for hired farm labor in Oregon during
1951-70 was found to be elastic, -1.2 to -1.5 and -1.5 to -2.6 in
the single-equation and the simultaneous-equation demand models
respectively. This implies that if farm wage rates rise, the number
of workers employed declines in greater proportion than the wage rate
rise. Conversely, if wage rates fall the number of workers
employed will increase disproportionately. The number of hired
workers employed on Oregon farms declined by 40.6 percent (37
thousand to 22 thousand) between 1950 and 1970. A further 25 percent
decline is projected by 1975.
The demand for fertilizer and purchased feed are comparable
in many ways. The demand for each is inelastic (-0.45 and -0.58)
in the short-run, and moderately elastic (-1.05 to -1.35) in the long-run.
The adjustment coefficient, which indicates the percent of the
required adjustment that can be made in one year in feed or fertilizer
purchases, in both cases are about the same--around 0.50.
However, profitability of livestock enterprises as an independent
variable (RL subscript [t]) is statistically significant in the demand equation for
purchased feed, but profitability of farming as a variable (R subscript [t]) is not
significant in the fertilizer models. Furthermore, fertilizer
purchases continued to increase in spite of static or slightly
decreasing crop prices. Although the input price variable is
statistically significant in the demand models for both fertilizer
and purchased feed, decreasing fertilizer prices have probably
contributed heavily to the increase in the use of fertilizers in
If the past declining trend in the "real" price of fertilizer continues
and other relationships do not change materially, there will
be a 43 percent (381.8 thousand tons to 547.5 thousand tons)
greater consumption of fertilizer in Oregon over the next six years.
Based on past experience, such an increase is undoubtedly within
the capability of the fertilizer industry to meet the requirement.
The expenditure for purchased feed is projected to be 9 percent
greater in 1975 than in 1969 in terms of constant 1957-59 dollars.
The increase becomes 25 percent when expressed in terms of what
feed prices are expected to be in 1975 dollars.
Unavailability of data on annual capital outlay for the purchase
of machinery and equipment by Oregon farmers is a serious problem
in the estimation of the demand structure for farm machinery.
However, annual inventories of machinery and equipment on Oregon
farms is used as a substitute variable. The analysis indicates the
demand for machinery and equipment inventories to be inelastic.
The demand for "machinery supplies", a variable with considerable
complementarity with machinery and equipment inventory, was also
found to be inelastic. A 10 percent increase in the price of farm
machinery or price of "machinery supplies" is associated with a
4.5 percent decrease in the total machinery and equipment inventory,
and a 6.3 percent decrease in "machinery supplies" purchased.
The estimated elasticities may be biased due to high multi-collinearity
problems in their demand models. However, the
prediction ability of these models is undoubtedly good. It is expected
that there will be a $32 million increase (1957-59 dollars)
in the value of machinery inventories on Oregon farms by 1975 over
the 1969 level. The increase is $104 million in 1975 dollars. The
expenditure for repairs and operating costs of motor vehicles and
other machinery (machinery supplies) are expected to be fairly
constant during this period in terms of 1957-59 dollars. This
peculiarity of increasing inventory of machinery and equipment in
1957-59 dollars and a constant expenditure for "machinery supplies"
is judged to be due to the fact that the machinery inventory effect
and the price effect seem to cancel out and maintain the constant
expenditure for "machinery supplies." Prices of "machinery
supplies" have tended to decline over the period of the study. The
projection of expenditure for "machinery supplies" in terms of
current dollars indicates a 12 percent increase by 1975 which is
wholly accounted for by expected inflationary tendencies in the
In contrast to chemical fertilizer, purchased feeds, machinery
and equipment inventories and "machinery supplies," miscellaneous
inputs (interest, electricity, veterinary supplies and services, etc.)
has a very high elastic demand. Due to the evidence of there being
two distinct trends in expenditures for miscellaneous inputs, the
data were analyzed on the basis of the two periods. The dummy
variable approach developed by Damodar Gujarati fails to reject
the null hypothesis of the discontinuity in the demand curve for
miscellaneous inputs during the 1950-69 period at the 5 percent test
level. The mean price elasticity of demand was found to be -1.22
for the period 1950-57 and -4.28 for the period 1958-69. Such a
high elasticity is probably due to a strong complementarity between
miscellaneous inputs and the increasing total agricultural plant
size, and the substitution effect due to gradually falling relative
prices of miscellaneous inputs.
A 23 percent increase (1957-59 dollars) in expenditure for
miscellaneous inputs is projected by 1975 compared to 1969. The
increase in terms of 1975 dollars amounts to 46 percent: from $72.8
million to $106.4 million.
It is anticipated that the information regarding the demand
structure for farm production input factors discussed in this study
will be useful to people involved in farm labor policy-making, and
decision making in farm supply business firms, credit agencies
and farming businesses in planning for the extension of their volume
of operations in the next few years. The future demand for these
farm inputs, among other factors, will largely depend on the trend
of their "real" or relative prices. The projected amount of expenditures
for these inputs in current dollars will be modified by any
changes in the extent of inflationary tendencies in the economy.