Pakistan Institute of Development Economics, Islamabad

Milk, Fodder, and the Green Revolution: The Case of Mixed Farming in the Pakistan Punjab
Author(s): Takashi Kurosaki
Source: The Pakistan Development Review, Vol. 35, No. 4, Papers and Proceedings PART II
Twelfth Annual General Meeting of the Pakistan Society of Development Economists
Islamabad, December 14-16, 1996 (Winter 1996), pp. 537-548
Published by: Pakistan Institute of Development Economics, Islamabad
Stable URL: http://www.jstor.org/stable/41259981 .
Accessed: 22/06/2014 06:31

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp

.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.

Pakistan Institute of Development Economics, Islamabad is collaborating with JSTOR to digitize, preserve and
extend access to The Pakistan Development Review.

http://www.jstor.org

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
ThePakistanDevelopment Review
35 : 4 PartII (Winter1996) pp. 537-548

Milk,Fodder,and theGreenRevolution:
The Case ofMixed Farming
in thePakistanPunjab
Takashi Kurosaki

This paperanalyseshouseholddecisionsin producingcerealcrops,greenfodder

crops,and milk,forthecase of mixedfarming in the PakistanPunjab. In the Punjab
agriculture,increasedhouseholdincomeand increasedyieldsof cerealcropsafterthe
Green Revolutionhave resultedin the growingimportanceof milk in household
economy.Usinga sensitivity analysisbasedon a householdmodelofcropchoicesunder
uncertainty, this paper emphasisesthe constraintthat fodderrepresentsfor further
increasesin food-grain output. Resultsshowthatthewelfarecost of production riskis
it is higherforland-poorhouseholds,
significant, and itssignificant to
partis attributable
greenfodderpricerisk. The welfareand supplyeffectsof moreelasticfodderdemand
and increasedfodderyieldsareinvestigated. Theseinnovations in foddertechnology are
suggestedto havea higherpotential to improvehouseholdwelfareand to inducea robust
supplyresponseofcerealcropswithrespectto theirprices,thana cropinsurancescheme
to hedgeagainstyieldrisk.

1. INTRODUCTION
The Punjabagriculture, bothin India and in Pakistan,has been knownas the
centreof theGreenRevolutionin SouthAsia. Due to itshighlydevelopednetwork
of publicirrigationcanals,highyieldingvarietiesof wheatand rice wereadopted
rapidlyin thelate 1960s and theearly1970s,resulting in a phenomenalincreasein
cerealproduction.The Punjabregionshave becomethegranaryof each country,
supplying surplusfood-grains tootherparts.
A recentphenomenon thatdeservesattention is an increaseof theimportance
of dairyproduction in thePunjab agriculture [Kurosaki(1995a)]. It has occurred
bothat themacroeconomic levelas an increaseof thelivestocksharein agricultural
value-addedand at themicroeconomic levelas an increaseof themilkincomeshare
inruralhouseholdeconomy.
Despiteits importance, veryfewstudieshave investigated a microeconomic
mechanismunderlying this phenomenon. To analysethe micromechanism,it is
necessaryto pay due attention to thefactthatthemajorpartof dairyactivitiesare
carriedoutin thebackyardoffarmswherecropsand dairyproduction are combined.

AssociateProfessor,
TakashiKurosakiis currently of EconomicResearch,Hitotsubashi
Institute
University,
Tokyo.

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
538 TakashiKurosaki

The cropsectorand thelivestocksectorare closelyinterrelated, amongwhich,the

mostimportant connectionis theprovisionof greenand dryfodderfromthefarm
landto animals.1At thesametime,in thecontemporary Punjabagriculture,all kinds
offodderaretradedso thathouseholdsneednotbe in autarky infodder.
This paperincorporates theseobservations in a theoretically
consistent way.
Its emphasisis on thegrowingimportance of milkin householdeconomyafterthe
Green Revolutionhas increasedhouseholdincome and cereal yields. Using a
sensitivityanalysisbased on a householdmodelof cropchoicesunderuncertainty,
thispaperemphasisesthegrowingconstraint thatgreenfodderrepresents forfurther
increasesincerealoutput.
The papierproceedsas follows. Section2 describesthestudyarea and data
sets used in thispaper. Section3 brieflyexplainsthe structure of the household
model used for the sensitivity analysis.Simulationmethodsfor the sensitivity
analysisare describedin Section4. Section5 evaluatesthe welfarecost of risk,
followedbySection6 thatinvestigates theeffects ofchangesin themarket structure.
The lastsectionconcludesthepaperwithpolicyimplications.

2. STUDY AREA
The modelinthispaperis calibrated formixedfarming householdsin therice-
wheatzone of thePakistanPunjab. Parameters are obtainedfromhouseholddata of
productionand consumption, collectedin theSheikhupura
originally by the
district
Punjab Economic Research Lahore.
Institute, The data set comprises97 household
observations each forthreeyearsfrom1988-89 to 1990-91,forwhichKurosaki
(1995a) providemoredetailedinformation.
Table 1 summarises informationon cropand livestockproduction and income
sourcesforthe samplehouseholdsin 1990-91. Major cereal crops are Basmati
paddy(majorcash crop) in theKharifseason and wheat(staplefood crop) in the
Rabi season. In additionto thesetwo cereal crops,mostfarmers keep livestock
a
animalsand allocate significant share of land
cultivated to foddercrops used as
-
greenfodder mostly,Jowarin Kharifand Berseemin Rabi. The sum of areas
devotedto thesefoddercrops and the dominantcereal crops (rice in Kharifand
wheatin Rabi) is 80 to 90 percentin thestudyarea. Milk is themostimportant
livestockproductsold to marketsregularly.Mosthouseholdskeepseveralcows and
she-buffaloes for milk production.Householdsfeed livestockanimalson green
fodderfromfarmland,dryfodderfromcrop byproducts such as wheatand rice
straw,andconcentrate feedssuchas cottonseedcake. Amongthese,theexpenditure
on greenfodder(includingunpaidcosts imputedfromvillageprices)occupiedthe
largestshareofthetotalfeedcostat around70 percent.
'in the traditional before,the provisionof draftpowersby bullockto crop
Punjab agriculture
was moreimportant.However,thisfunction
cultivation is becomingless importanttodaydue to rapid
development oftractorrentalservicemarkets.

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
 MixedFarmingin thePunjab 539

Table 1
Land and LivestockCharacteristics
and HouseholdIncome
ofSampleHouseholds(1990-91)
Mean Std.Dev.
Land (Acres)
TotalOperatedLand 11.198 9.363
TotalOwnedLand 9.036 8.724
AcreageunderBasmati 6.595 6.375
AcreageunderWheat 6.888 5.830
AcreageunderKharifFodder 1.916 1.188
AcreageunderRabi Fodder 1.825 1.285
LivestockSize
NumberofAdultShe-buffaloes 2.979 1.014
NumberofAdultBullocks 0.856 1.173
AU #ofTotalMilchAnimals 5.693 2. 109
AU #ofTotalDraftAnimals 1.389 3.506
AU #ofTotalLivestockAnimals 7.082 4.150
HouseholdIncomebySources (NominalRupees)
LivestockIncome (1) 16978 10751
CropIncome (2) 24978 20493
FarmIncome (3)=(l)+(2) 41957 24903
Off-farmIncome (4) 8122 3514
TotalHouseholdIncome= (3)+(4) 50079 23034
Source: The author'scalculation.The originalinformationwas collectedby the Punjab Economic
ResearchInstitute.
Note: The numberofobservations is 97.
#The adultanimalunits(AU) forlivestockanimalsaredefinedas follows.Draftanimals:1.0 for
0.57 foradultdonkeys,0.28
0.57 foryoungbullocks/he-buffaloes,
adultbullocks/he-buffaloes,
foryoungdonkeys,and 1.0 foradulthorses. Milchanimals:1.28 foradultshe-buffaloes,0.96
0.72 foradultcows,0.54 foryoungcows,and0.20 foradultgoats.
foryoungshe-buffaloes,

Marketsforagricultural productsin the regionare well developedso that

in greenfodderfortheiranimalsor in wheat
householdsneed notbe self-sufficient
fortheirfamilyconsumption.Comparedwiththecases forcereals,however,the
number ofthesamplehouseholdsparticipating ingreenfoddermarkets was notlarge.
About one-thirdof the sample householdssold surplusfodderand less than 10
percentpurchaseddeficitfodder[Kurosaki(Forthcoming)].This seems to suggest
in greenfoddereven it mayimplythat
thatsmallerfarmspreferto be self-sufficient
theyneedto purchasedeficitwheat.As is shownin Kurosaki(1997), marketprices

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
540 TakashiKurosaki

of green fodder are the most volatile among major agriculturalcommodities in the
area, suggestingthe localised natureof greenfoddermarkets. From the viewpointof
risk-aversefarmers,this structureof green fodder markets implies high risk of
transactions.Data indicatethathouseholds were well aware of the existenceof green
foddermarketsand participatedin themif necessary,but only marginally.

3. A HOUSEHOLD MODEL
A household model in this paper is based on Kurosaki (1996). Its unique
featureis thathouseholds' crop choices are affectednot only by theirwillingnessto
bear risk but also by their ordinal consumptionpreferencesfor individual goods,
whenboth income and consumptionprices are stochastic.The household model is an
attemptto link the intertemporalconsumption model of risk-coping mechanisms
(insurancein a broad sense) withtheriskmanagementproductionmodel in whichthe
distributionof household income is endogenously determined [Morduch (1990,
1995); Rosenzweig and Wolpin (1993); Rosenzweig and Binswanger(1993)].
Households' objective functionis v(K, p' ß, y, V)> where Y is the household
income definedbelow, p is a price vectorof consumptiongoods, and ß, y, and '|/ are
parameters characterising the function v. Vectors ß and y represent ordinal
consumption preferences for individual goods such as the income and price
elasticities of demand for a commodityand the share of the budget spent on the
commodity.'|/ characterises households' observed risk aversion. As discussed in
Kurosaki (1996), when households have no ex post risk coping measures contingent
on a realisation of stochastic elements,the functionv(..) is reduced to an indirect
utilityfunctionand '|/ is equivalent to households' actual risk aversion (actual risk
attitudes);when households have some ex post risk coping measures,v(..) should be
interpretedas an approximationof a households' value functionderived fromtheir
stochastic dynamic optimisation and '|/ reveals the mixture of households' risk
attitudesand the availability of these measures [Kurosaki (1996); Rosenzweig and
Binswanger(1993)].
In the model, households choose the acreage shares of the fourmajor crops in
the studyarea (Basmati paddy, wheat,and Kharifand Rabi foddercrops). They are
denoted /v/,where subscriptss (=/:, r) representtwo croppingseasons of Kharifand
Rabi, and i (=1, 2) representcereal and foddercrops. These crop activitiestogether
withmilkproductionin Kharifand Rabi, and non-farmincome YNthatis assumed to
be non-stochastic,constitutehouseholds' income flow Y as:

Ymf(U)m £ X Яд,(е)/,Л+ I nsm(Z)As+YN ... (1)

r /=l,2
lV=*, s=k,r

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
 MixedFarmingin thePunjab 54 1

wheren (e) is per-unit fromfarmactivitiesnetof production

profits costs,Lx is the
acreageof land availablein s, and As is thesize of a livestockherdin s. к (e) is
due to priceandyieldrisksrepresented
stochastic bye. e is revealedafterhouseholds
chooseproduction.
The empiricalmodelhas additional,technological on production,
constraints
whichrepresent resourceconstraints or lumpinessof some inputs[Eswaranand
Kotwal (1986); Chavas and Holt (1996)]. With this addition,the household's
optimisationproblembecomes
/w»£[v(/(U),p(E);P,Y,'|ř)]
s.t. gs(lsijs2''<*s) = b s = k>r (2)

whereE is an expectation g.v(..)=0are thetechnological

operator, constraints, and a
characterises thetechnicalsubstitutabilityof thetwo crops. It is assumedthatthe
optimisation problemin (2) has a well-defined interiorsolution,denotedby /*.
Kurosaki(Forthcoming) explainstheprocedureforderivingexplicitformsforthe
firstorderconditions, basedon Taylorapproximation following Fafchamps(1992).
This modelis able to incorporate consistent
in a theoretically waythetradeoff
amongcrops,notonlyin termsof relativeprofitability, but also in profitvariability
andconsumption stability.By growing cropswhoseprofits are less variableand less
positivelycorrelatedwithothersourcesof income,householdscan obtainincome
insurance effects);
(portfolio bygrowing cropswhoseprofits arepositively correlated
withpricesof majorconsumption items,householdscan obtainconsumption price
insurance(consumption priceeffects)
[Kurosaki (1995); Fafchamps (1992)]. Using
thehouseholddata set describedin Section2, structural parameters of thismodel,
i.e.,a, ß, у,and'|/havebeenestimated econometrically in Kurosaki(1996).2

4. SIMULATION METHODOLOGY
The strength of structurally householdmodelis thatwelfareimpacts
estimated
of changesin exogenousparameters consistent
can be evaluatedin a theoretically
to a morecommon,reduced-form
way. This is in sharpcontrast approach,whichcan
derive only supplyresponse. In this paper, welfareeffectsare evaluated by
equivalentvariation.The welfarestatusunderregime£,is expressedas E[v(f(l¡ ,
еД Р (£/))]>wherehouseholdincomeД..) is determined by theoptimalcropchoice
of a
vector £,. Denoting lump-sum
(/,*)anda stochastic transfer
byT,supplyresponse
of theoptimalproduction choice(A/*),a changein expectedincome(А £(/"))> and
2Theestimatedversionadoptsa specificationof thelinearexpenditure system(LES) forordinal
constant
preferences, relativeriskaversion(CRRA) with respectto the LES real incomethatallows
in y accordingto households'abilityto smoothconsumption
differences
structural ex post,and quadratic
fortheproduction
functions constraints.

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
542 Takashi
Kurosaki

equivalentvariation
( xE ) ofa changefromtheinitialregimee0 to a newregime£|
aredefinedas

А/**/Г(е,)-/о(ео)
áEiY^mElftf.eO]-E[fVle0)].
£[v(/(/;,eI)fp(eI))]= £[v(/(Zo*,eo)
+ xEtp(eo))] (3)

where

Ç = Ç (ti)* argmaxE[v(f(iti), fai))] ¿= 0,1

/
lo =Í¿teo>*E)*argmaxE[v(f(l9zo)+ %E9p(eo))]
i

Equivalentvariation
xEfora risklessenvironment,
forexample,is interpretedas the
amountof moneythatshouldbe givento a farmer undertheinitialriskyregimeto
makehimindifferent betweenthe two regimes.Therefore, it gives the monetised
valuationof thewelfarecostofrisk. Thesemeasuresof supplyresponseand welfare
changesareestimated usingnumerical whosedetailsare givenin Kurosaki
methods,
(Forthcoming).

5. WELFARE COSTS OF RISK

Table 2 givesresultssimulatedfora risklessenvironment. It showsthatthe
reference householdgroup("AVG") would increasethe area devotedto Basmati
paddyby 29 percentand thatto wheatby 47 percent. This resourcereallocation
resultsinan increaseinexpectedincometo themagnitude of2.0 percentoftheinitial
expected income. This is the amount of expected income sacrificedfor risk
diversification.The welfarecostofriskmeasuredbyTeis estimated at 7.9 percentof
theinitialexpectedincomeinthecase ofthereference groupanditis higherforland-
poor households. These numbers are comparable with theestimatesforsemi-ãrid
India[WalkerandRyan(1990)].
In thesecondcolumnof thetable,thewelfarecostsof fodderpriceriskare
estimatedby eliminating thevariability of greenfodderpricesonly. A surprising
is
finding that, of thetotalwelfare cost of 7.9 percentin thefirstcolumn,as largeas
4.9 points(or about62 percent)are attributable solelyto the priceriskof green
fodder. Only by eliminating the greenfodderpriceriskin Kharifand Rabi, can
households eliminatemorethanhalfofthetotalwelfarecostofrisk.The finding that
thefodderarea would decreasedramatically impliesthat thevolatile of
price green

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
 MixedFarmingin thePunjab 543

Table 2
Resultsfor WelfareCostsofRisk
Simulation
CompleteRisk GreenFodder
Elimination PriceElimination
"AVG" Household
1. SupplyResponse(ChangeinArea)
BasmatiPaddy 29.2% 11.3%
KharifFodder -37.0% -13.3%
Wheat 47.0% 32.7%
Rabi Fodder -100.0% -66.9%
2. ChangeinExpectedIncome(EY)
% to theInitialEY 2.0% 1.6%
3. WelfareChange(EquivalentVariation)
% to theInitialEY 7.9% 4.9%

"Land-Poor" Household
3. WelfareChange(EquivalentVariation)
% to theInitialEY 10.9% 9.2%

"Livestock-Poor"Household
3. WelfareChange(EquivalentVariation)
% to theInitialEY 12% 1.9%
Notes: "AVG" is thereference householdgroupwithmediancharacteristics amongsamplehouseholds.
in greenfodderand almostalwayshavesurplusin wheat
Itis likelyto be close to self-sufficiency
and Basmatipaddy. "Land-Poor"is thehouseholdgroupwithhalfthesize of operationalland
and othercharacteristics remainingthe same. This groupis a purchaserof greenfodderon
averageand sometimesis a purchaser of wheatforfamilyconsumption."Livestock-Poor" is the
householdgroupwithhalfthesize oflivestockherdand othercharacteristics remainingthe same.
Itis a netsellerofgreenfodder, wheatandBasmatipaddy,on average.

fodderforceshouseholdsto growgreenfodderto avoid thepricerisk. This is in

sharpcontrast to Sandmo's(1971) classicresultthata risk-averse firmproducesless
outputunderprice risk. In our case, a firm
risk-averse produces more greenfodder
undergreenfodderpricerisk.
Theseresultssuggesta viciouscircle. Volatility in greenfoddermarket prices
inducesfarmers to pursueself-sufficiency in greenfodder.Low marketparticipation
in greenfoddermarketsby thesehouseholds,in aggregate,resultsin thinmarkets
withinelasticsupplyand demand. These are indeedthe majorreasonsforprice
in local foddermarkets.
volatility
Anotherimplication of crop insuranceschemes
is therelativeineffectiveness

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
544 Takashi
Kurosaki

focusedon majorcerealyields. At leastforthesamplefarmers in thestudyregion,

simulationresultsconfirmthat the welfarecosts of yield risk are not large.
Therefore, crop insuranceschemesthatare currently debatedin Pakistanare not
likelyto attractfarmers'keeninterests.This findingis similarto thatreportedfor
ruralhouseholdsin semi-aridIndia [Walkerand Ryan(1990)]. It is morelikelythat
interestson cropinsuranceschemesobservedforsomefarmers in Pakistanare based
on theirexpectationforpurelydistributive oftheseschemes.
effects

6. EFFECTS OF CHANGES IN FODDER

MARKET STRUCTURE
An obviousquestionis, then,how a changein the structure of local green
foddermarkets inducesa changein householddecisionsso thattheviciouscircleis
broken.Table 3 givesa summary of resultsbased on a modelthatincorporates the
market equilibrium effectsin local green fodder markets. Considering the fact that
greenfodderis almosta nontradable commodity, a simple,iso-elasticdemandcurve
fromthehouseholds'perspective is adoptedin thissection.SincewheatandBasmati
marketsare moreintegrated withnationalmarkets[Kurosaki(Forthcoming)], their
market equilibrium effectsare neglected as in theprevious section.
Table 3, Column1 showswhatwouldhappenif thegreenfodderpricesare
stabilisedbecausethemarket demandfromthehouseholds'viewpoint becomesmore
price elastic. The fodder price stabilisationgives households an incentiveto grow
moreBasmatipaddyand wheat whose expectedprofitabilityhigher.However,due
is
to theoppositeincentive frominducedfodderpricerises,householdswouldbe able
to increasetheareasforcerealcropsonlymarginally: 0.7 percentin paddyand 0.2
percent in wheat. the
Nevertheless, adjustment would increase households'expected
incomeby 1.3 percentand households'welfareby 2.7 percent. As Table 2 has
shown, the experimental, complete fodder price stabilisationwould enhance
households'welfareby4.9 percent.Of this4.9 percentwelfaregain,2.7 points(or
about55 percent)couldbe achievedbya morepracticalfodderpricestabilisation.
Table 3, Column2 showswhatwouldhappenif a changeoccursin fodder
croptechnology as an increasein expectedfodderyieldsperacre. Resultsindicate
thatBasmatipaddysupplyincreasesby 12.3 percentand wheatsupplyincreasesby
8.2 percent.Becauseproduction ofgreenfodderis increased, expectedfodderprices
in local markets woulddecreaseby 21 percent in Kharifand by 15 percentin Rabi.
The net effecton expectedhouseholdincomeis a 6.4 percentgain and thaton
householdwelfareis a 7.4 percentgain. These resultsshow thatan increasein
fodderyieldswouldfreemorelandforcerealcropswhoseexpectedprofitability is
higher.The land thatwould be available for cereal crops under increased fodder
yieldsis relatively largerforhouseholdswitha largerlivestockherd("Land-Poor"
group).

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
 MixedFarmingin thePunjab 545

Table 3

ofChangesinMarketStructure
Effects
Experiment (1) (2) (3) (4) (5)
"AVG" Household
1. SupplyResponse(ChangeinArea)
BasmatiPaddy 0.7% 12.3% 2.6% 3.9% 14.1%
KharifFodder -0.8% -14.6% -3.0% -4.5% -16.9%
Wheat 0.2% 8.2% 0.7% 1.1% 8.7%
Rabi Fodder -0.4% -15.5% -1.2% -2.1% -16.5%
1. SupplyResponse(Changein
OutputQuantity)
BasmatiPaddy 0.7 12.3% 2.6% 3.9% 14.1%
KharifFodder -0.8% 2.5% -3.0% -4.5% -0.2%
Wheat 0.2% 8.2% 0.7% 1.1% 8.7%
Rabi Fodder -0.4% 1.4% -1.2% -2.1% 0.2%

2. ChangeinExpectedIncome(EY)
% to theInitialEY 1.3% 6.4% 11.5% 17.2% 19.2%

3. WelfareChange(Equivalent
Variation)% to theInitialEY 2.7% 7.4% 4.4% 13.5% 14.7%

4. InducedChangesinExpectedGreen
FodderPrices
KharifFodder 3.5% -21.1% 24.6% 18.5% 1.9%
Rabi Fodder 2.2% -14.7% 12.3% 10.6% -2.2%

"Land-Poor" Household
3. WelfareChange(Equivalent
Variation)% to theInitialEY 3.8% 10.6% -4.3% 6.5% 9.5%

"Livestock-Poor"Household
3. WelfareChange(Equivalent
Variation)% to theInitialEY 1.5% 3.8% 12.5% 18.7% 18.4%
Notes: In Column(1), priceelasticitiesof greenfodderdemandin Kharifand Rabi are doubled. In
Column(2), expectedyieldsof Kharifand Rabi foddercropsare increasedby 20 percent. In
Column(3), expectedpricesof Basmatiand wheatare increasedby 20 percent.In Column(4),
thesepricesare increasedsimilarly,simultaneouslywithdoublingprice elasticitiesof green
fodderdemand in Kharifand Rabi. In Column (5), these prices are increasedsimilarly,
withincreasesinexpectedyieldsofKharifand Rabi foddercropsby20 percent.
simultaneously

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
546 Takashi
Kurosaki

As a finalexperiment, theeffectsof risesin themeanpricesof wheatand

Basmatiriceare investigated withor without changesin thefoddermarketstructure
(Table 3, Columns 3, 4, 5). As describedin Kurosaki (Forthcoming),thegovernment
ofPakistanis implementing deregulationpoliciesin grainmarketing,
whicharelikely
to producean upwardmovementof domesticprices for the two commodities.
Considering theexistingestimatesforimplicitcommodity taxationforwheatand
Basmatiriceduringthe 1980s [Qureshi,Ghaniand Mushtaq(1988); Salam (1992);
JohnMellorAssociates(1993)], theeffects of20 percentincreasesin theirpricesare
reported in thispaper.
Whencereal pricesare increasedby 20 percentwithoutchangesin fodder
market structure (Column3), supplyresponseis verymarginal - Basmatipaddyarea
increasesby only2.6 percentand wheatarea by only0.7 percent. If not forthe
effectsof inducedfodderpriceincreases,householdswouldwantto expandcereal
production moresubstantially. However,becauseof themarketequilibrium effects
in local foddermarkets, householdswouldbe able to increasecereal crops' areas
onlymarginally.The adjustments wouldenhancehouseholds'expectedincomeby
11.5 percentbutbecause of increasedvariability in householdincomeand due to
otherrepercussions, thewelfaregain in terms of equivalentvariationwouldbe only
4.4 percent.Furthermore, thenetwelfareeffect on the"Land-Poor"householdgroup
is negative(-4.3 percent).Householdswithsmallerlandareas and largerlivestock
herdswouldnotgain muchby increasedcerealpricessince theircereal surplusis
smallor sometimes negative;theymightlose morefromincreasesin expectedfodder
prices.
Column4 in Table 3 shows the effectswhen cereal price increasesare
accompaniedby a moreelasticfodderdemandand thereby stabilisedfodderprices.
Column 5 shows the effectswhen cereal price increases and fodder yield
improvements occursimultaneously.Bothexperiments showthatthecerealsupply
responsewouldbecomelargerthanthecase without a changein thefoddermarket
structure.An importantfindingis thatwhenchangesin thefoddermarketstructure
occur simultaneously,welfarechanges would become positivefor all typesof
household groups. Their magnitudeswould become larger also- "AVG"
households'welfaregain wouldbe as highas 13.5 percentforthecase withmore
elasticfodderdemandand 14.7percentforthecase withhigherfodderyields.Atthe
same time,thereis a changein greenfoddermarketparticipation by households-
householdswithrelativelylargerlivestockherdswould turnmore to purchased
fodderand householdswithrelatively largerland areas wouldsell morefodderto
markets.

7. SUMMARY AND POLICY IMPLICATIONS

of mixed farmingin the
the microeconomics
This paper has investigated
of milkproduction
PakistanPunjabwithan emphasison thegrowingimportance in

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
 MixedFarmingin thePunjab 547

household economy. It has been foundthatthe welfarecost of risk is in the range of

7 to 11 percentof the initialexpected income, being higherforland-poorhouseholds.
Of these welfarecosts, those attributableto green fodderprice risk alone account for
themajor part. Only by eliminatinggreenfodderprice risk,can households eliminate
more than half of the total welfarecost of risk. This findingsuggests that,since a
crop insurancescheme to hedge against crop yield risk may not enhance households'
welfaresignificantly,theremay not be substantialdemand for such a scheme from
households in the studyarea.
Simulationresultsbased on a simple model of iso-elastic local foddermarkets
have highlightedthe importanceof elastic fodder demand or yield innovation in
foddercrops production. It is suggested that these changes would result in much
improvedwelfare,especially thatof poorer households,and withdeeper green fodder
markets. Simulationresultshave also shown thatthe supply response of cereal crops
to an increase in theirexpected prices would be much largerwhen the marketdemand
forfodderis more elastic or fodderyields are increased.
Demand for green fodder becomes more elastic when technological
innovationsoccur thatcreate cheaper substitutesforgreen fodderor thatmake green
foddermore storableand easier to transport.Improved infrastructure foragricultural
marketingin general is also expected to contributeto more elastic fodderdemand, as
well as to more efficientmarketingof milk and milk products. Fodder crop
productivityat the individualfarmlevel could be improvedby extensionservices and
R&D activities which are more focused on these crops. In Pakistan, public
expenditureon agriculturalresearch and extension has concentratedon increasing
productivityof cereal crops, neglectingfoddercrops, since "foddercrops seem to be
nobody's responsibility"[Governmentof Pakistan (1988), p. 192]. This paper has
shown thatadditional public investmentin foddertechnologycould contributeto an
enhanced productionof cereals and to the improvementof household welfare.
Since the analysis in this paper has focused on a static side of production
decisions (crop choices), dynamicresponse in the livestocksector is not investigated
fully. Analysing the dynamics of livestock,incorporatingthe effectsof thinfodder
marketson crop choices, deserves further
study.

REFERENCES

Chavas, Jean-Paul,and M. T. Holt (1996) Economic Behaviour underUncertainty:A

JointAnalysis of Risk Preferencesand Technology. Review of Economics and
Statistics78:2 329-335.
Eswaran, Mukesh, and A. Kotwal (1986) Access to Capital and AgrarianProduction
Organisation.Economic Journal96: 482-98.
Fafchamps,Marcel (1992) Cash Crop Production,Food Price Volatility,and Rural
Market Integration in the Third World. American Journal of Agricultural

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions
548 TakashiKurosaki

Economics 1АЛ 90-99.

John Mellor Associates, Inc. (1993) Agricultural Prices Studyy Main Report.
Washington,D. C: JohnMellor Associates, Inc.
Kurosaki, Takashi (1995) Risk Attitudes, Consumption Preferences, and Crop
Choices in thePakistanPunjab. Ph.D. dissertation,StanfordUniversity.
Kurosaki, Takashi (1995a) Risk and Insurance in a Household Economy: Role of
Livestock in Mixed Farmingin Pakistan.Developing Economies 33:4 464-485.
Kurosaki, Takashi (1996) Risk, Crop Choices, and ConsumptionPreferencesin the
Pakistan Punjab. Paper presentedin the AAEA Annual Meeting, San Antonio,
(Forthcoming.)
Kurosaki,Takashi (1997) ProductionRisk and Advantages of Mixed Farmingin the
PakistanPunjab. Developing Economies 35:1 28-47.
Kurosaki, Takashi (Forthcoming) Risk and Household Behaviour in Pakistan's
Agriculture.Tokyo: Instituteof Developing Economies.
Morduch,Jonathan(1990) Risk, Productionand Saving: Theory and Evidence from
Indian Households. HarvardUniversity.(Mimeographed.)
Morduch,Jonathan(1995) Income Smoothingand ConsumptionSmoothing.Journal
of Economic Perspectives9:3 103-1 14.
Pakistan,Governmentof (1988) Report of the National Commissionon Agriculture.
Islamabad: Ministryof Food, Agricultureand Co-operatives.
Qureshi, Sarfraz K., E. Ghani and M. Mushtaq (1988) Taxes Subsidies on
Agricultural Transfer Produces as Elements of Intersectoral of Resources:
Magnitude of the Transfer and Search for Policy Options. The Pakistan
DevelopmentReview 37:4 55 1-556.
Salam, Abdul (1992) Terms of Trade forAgriculturein Pakistan: 1980-81 to 1990-
9 1. Pakistan JournalofAgriculturalEconomics 1: 1 60-80.
Rosenzweig, Mark R., and H. P. Binswanger(1993) Wealth, Weather Risk and the
Compositionand Profitability of AgriculturalInvestments.Economic Journal 103
56-78.
Rosenzweig, Mark R., and Kenneth I. Wolpin (1993) Credit Market Constraints,
ConsumptionSmoothingand the Accumulationof Durable ProductionAssets in
Low-income Countries: Investmentsin Bullocks in India. Journal of Political
Economy 101:2 223-44.
Sandmo, Agnar (1971) On the Theory of the Competitive Firm under Price
Uncertainty.AmericanEconomic Review 61:1 65-73.
Walker, Thomas S., and J. G. Ryan (1990) Village and Household Economies in
India's Semi-arid Tropics. Baltimore:JohnsHopkins UniversityPress.

This content downloaded from 91.229.229.158 on Sun, 22 Jun 2014 06:31:44 AM

All use subject to JSTOR Terms and Conditions