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An Econometric Analysis of Foodgrain Demand and Marketings : Partial v.s. Total Response Analysis

페이스북
커버이미지
  • 저자 문팔용(文八龍)
  • 발행일 1972/10/01
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요약 The results of the study shows that the higher price of rice
induces the average Korean farmers to increase family
consumption and reduce market sales when total responses on
the open market are taken into account. Superficially, it appears
to confirm the "target cash requirement" hypothesis advanced by
a number of economists. But the net result of increasing
consumption and decreasing sales are only partially associated
with the increase in money income due to the higher price they
receive. Although marginal, or submarginal, farmers who are in
the underconsumption status would show such reaction when the
price of rice rises, it is not the general case in Korea.

A knowledge of the real causes for an increase in family
consumption and resulting decrease in marketings is crucial from
the standpoint of policy formulation. It makes a great deal of
difference whether this reaction of farmers is due to an increase
in money income brought by a price rise of it is attributable to
other causes, even if the result is exactly the same amount of
reduction in marketings. If a reduction in market sales of rice
were caused by an increase in money income, the price-raising
policy would serve to foster the aggregate foodgrain production,
but it would not help in alleviating the overall market shortage
because the additional output would be absorbed by increased
family consumption.

It was found in the analysis of consumers' responses to
price changes, however, that both farm and urban consumers
habe a "potential" tendency to respond negatively to price
changes in their consumption of rice and barely and that they
have a "potential" tendency to substitute rice for barley or
barley for rice whenever either one of the prices changes, but
that this negative response to price changes and the tendency
toward cross substitution between two grains are offset by the
simultaneous change in the price of the other grain on the open
market., resulting in positive changes in the quantity demanded,
or no substitution at all.

The fact that such potentials exist, though they are not
actually displayed, provides and optimistic view in respect to the
effectiveness or price policy in restructuring foodgrain
consumption. If the government's objective is to reduce foreign
exchange spending on rice imports by reducing rice consumption
and increasing the consumption of barley of other grain, 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 he ceteris paribus assumption,
which is made in the partial analysis, to operate in the real
world, that is, the price relationship which lead sto the results
obtained by the partial analysis must be maintained by the
government operation. More specifically, a policy designed to
raise rice prices and lower barley prices to consumers would
decrease rice consumption and increase barley consumption, and
at the same time higher prices for both grains ar harvest time
would stimulate increased production of both grains, especially of
barley. The actual operation of this policy requires a two price
system for barley as well as some degree of manipulation of the
price of rice. In order for such a pricing policy to be effective, a
sufficient stock of grain should be held by the government.

The operation of a two price system for barley will create a
considerable amount of loss in the government budget. But if
the government sells rice in the urban area at higher prices, it
may be able to generate a substantial amount of net revenue
with which a loss in barley operation can be compensated. When
the government used low price policy for rice in the urban area
in the past the government cost was borne by farm producers
and the urban tax payers. The higher rice price policy will shift
this burden directly to consumers so far as rice consumption is
concerned, but if the net revenue generated by such operation is
plowed back into barely stock management, there will be little of
no burden in aggregate on the urban consumers. Individual
consumers who still prefer to consume rice even at higher price
will bear the cost.

There is a movement within the Korean government to
reform price policy in this direction. Although the adoption of
such a policy is a sto[p in the right direction which is consistent
with the results of empirical analysis in this study, determination
of the price level for rice and barley still remains as the
problem. The instrument of price policy can be successfully used
in achieving the objectives only when the prices are determined
at the appropriate level.

Finally, the impact of wheat flour prices deserves special
attention in formulating foodgrain price policy although the
demand situation for wheat flour was not analyzed in detail due
to an lack of data. As was already pointed out, the government
policy to keep the price of wheat flour ar low level(relative to
the prices of rice and barley)caused a rapid increases in its
consumption. There is no doubt that such a low price policy
served to reduce rices as well as barely consumption.

As discussed earlier, however the relative price of wheat
flour has been lowered to such a level that further decrease in
its price would cause an increase in rice consumption, whereas it
would cause a decline in barley consumption.

The policy based on a simple judgment that a lower price
for imported wheat will continue to serve to reduce rice
consumption does not seem to be workable in all situations any
longer. If the government is determined to reform its foodgrain
price policy with a view to increasing barley production as well
as increasing its consumption in the urban area, a higher sales
price for imported wheat flour would better serve this purpose
because it may promote a shift to barley consumption and
reduce rice consumption. The consequence of such a policy
would also enable the government to create a considerable
amount of revenue which in turn can be injected to cover the
cost incurred for implementing tow-price system for barley. Of
course, a change in this direction must be a step-wise one in
relation to the rate of growth in rice and barley production. In
any case, the present ceiling price system for imported wheat
should be reconsidered.

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