Technology Adoption and the Agricultural Supply Response Function

Guilherme DePaula
July 2018  [18-WP 582]

Abstract: In this study, I exploit the recent technology-driven soy boom in Brazil to assess how the diffusion of different technologies, namely the genetically modified soy and biological nitrogen-fixing soy varieties adapted to the Brazilian savanna, change the agricultural supply response function. I use a novel panel dataset combining farm-level data for 1.5 million commercial farms from the 1996 and 2006 Brazilian agricultural census surveys to estimate the price effects on the expansion of the soy acreage. I find that the acreage response functions become increasingly elastic towards the agricultural frontier because of the existence of different technological diffusion processes. The large price effect on the adoption of nitrogen-fixing soy designed to convert marginal savanna pastureland into soy production explains most of the heterogeneity in the acreage supply function in Brazil. The estimated long-run price elasticity of soy acreage is 0.6 in the south and 1.8 in the savanna. On the agricultural frontier close to the savanna–Amazon border, the price elasticity of agricultural land is 0.13, implying that a 10% permanent increase in soy prices would result in the conversion of 1 million hectares of natural vegetation to farmland.

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