How U.S. Agriculture Adjusts to Energy Price Changes

Abstract

The primary objective of this research is to measure the impacts of rising energy prices on U.S. agriculture and to analyze the capability of U.S. agricultural producers to adjust for energy price volatility. This study compares four different models of producer adjustment: the static model, the simple error correction model, the partial adjustment model, and the fully dynamic model. The first three models are nested within the fully dynamic model using ]948-2002 U.S. agriculture data. Morishima elasticities of substitution and price elasticities are estimated to investigate whether U.S. agriculture's responses to energy prices have changed over time. The elasticity estimates indicate that there are substitutions among production factors in U.S. agricultural production, and the substitution elasticities have increased over the 1948-2002 period. This finding suggests an increasing possibility for farmers to substitute other production inputs for energy to mitigate the effects of changing energy prices.