Analysis of supply response of cotton farmers to changes in cotton prices in Zambia

Abstract

Cotton is one of the major cash crops produced in Zambia. It is mostly produced by small scale farmers on contract basis with the ginners. There are over 180,000 small scale cotton farmers. However, there is no local market for the cotton that is ginned. Therefore, ginners export almost all the cotton that is produced in the country. The resulting effect is that the cotton sector is highly affected by exogenous factors such as world market price, prices of substitutes for cotton which are not produced in Zambia as well as policies in cotton sectors of larger countries. Thus prices usually fluctuate and these fluctuations result in fluctuations of national cotton production levels. This study's aim is to analyze the responsiveness of cotton farmers to prices in cotton and the significance of other non-price factors that affect cotton production. This analysis is essential to ensure that the sector does not collapse as it is a source of income for many. This information is important in setting prices to ensure that farmers continue producing cotton. The study is based on two basic economic concepts which are supply elasticity and the basic theory of the production function of the firm. Supply response analysis is based on the Nerlovian model. It uses secondary data collected from CSO and IMCS collected in the years 2008, 2009 and 2010. The study revealed that the most influential non-price factor is how much cotton is sold in the current year which increases land allocation to cotton by about 40%. Other factors that affect allocation of land to cotton negatively include unavailability of farming implements to farmers, amount of land allocated to other farm products, significance of farming income in total house hold income. A unit increase in any of these factors reduces land allocated to cotton by2%, 2.2% and 6% respectively. The strength of the effect of price was revealed to inconsistent as it was observed through calculation of supply elasticity that cotton supply elasticity was in some years elastic and in others not. It is strongly recommended that farmer input loans include farming implements such as tractors and installation of irrigation systems to increase productivity thus reducing responsiveness to changes in price.