Fertilizer demand for rice cultivation in Java and Bali

Abstract

This study analyses the factors affecting fertilizer demand for rice cultivation in Java and Bali. Fertilizer demand, as a function of the fertilizer-rice price ratio and differences in the level of fertilizer used, is estimated for each Provinces by using covariance analysis. In an alternative formulation, fertilizer demand function captured the different production responses as well as different price responses between provinces. The alternative demand function needs estimates of production elasticity of fertilizer belonging to each province. These production elasticities are obtained by employing covariance analysis in the Cobb-Douglas pro- duction function. From the production function analysis, the study has found that production elasticities are different between provinces. From an alternative demand function analysis the study has found a) Demand is more price elastic in the equation which only captures the different in price response than in the equation which captures both the different in price response and production response. b) the production elasticity has a greater effect on quantity of fertilizer demanded than the fertilizer price relative to rice. By employing covariance analysis in the production function and the demand function, a weakness is introduced. We cannot employ covariance analysis as slope shifters to distinguish interprovince difference in the production elasticity of demand in log-log functions. If this is done as a few past studies, then both the intercept term and the slope term are affected by a change in the measurement unit, even though log-log functions are used, with supposedly "measurement-unit-free" elasticity estimates. This is contradictive to our expectation.