Supply Response in Rainfed Agriculture of Odisha, Eastern India: A Vector Error Correction Approach
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This paper provides an empirical investigation of supply response in case of rice in
rainfed agriculture of Odisha. A composite weather index, instead of rainfall has been
incorporated in the model to monitor farmers’ supply response to weather. The vector
error correction approach which avoids the unrealistic assumption of fixed supply on
the basis of static expectation is applied. The empirical results reveal the fact that there
is price inelasticity of supply whereas the supply elasticity with respect to weather is
found to be very high. The policy implications suggest that there should be huge emphasis
on irrigation as well as weather insurance. Assured irrigation minimizes the dependence
on weather conditions and secures the crop from the vagaries of monsoon and
thereby reduces the risk attached with farming.