An economic analysis of supply of and demand for rice in Nepal
Date
1980-10
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Abstract
This study attempts to add to the understanding of the rice situation at the regional (hill and mountain, and Tarai) and national levels in Nepal. The analysis is primarily based on past trends in consumption, production, prices, procurement and distribution and on estimated supply and demand functions for rice.
Between 1967/68 and 1978/79 the production of rice increased at an annual rate of 0.9% whereas the consumption of rice has been increasing at 1.13% per year mainly due to population growth. Area expansion was the more important factor contributing to rice output increase whereas yield accounted for 31% of the growth in output. Yields grew at 0.63% per year for Nepal. Yields in Tarai grew at 0.9% per year whereas yields declined in the hill and mountain regions at 1.16% per year. Low growth rates of yield were due to slow growth in inputs used, availability of irrigated land, and a declining real rice price which is attributed to the government's frequent interference in the market.
Price elasticities of rice hectarage are +0.46, +0.10 and +0.13 for the hill and mountain regions, Tarai, and Nepal respectively. Thus, price increases for rice do motivate farmers to plant more rice and thus stimulate rice production. Irrigation is also an important factor in increasing rice hectarage and production. Farmers in the hill and mountain regions are more responsive to irrigation than farmers in Tarai.
Relative rice price elasticities of consumption are -.35, -.29 and -.30 for the hill and mountain regions, Tarai, and Nepal respectively. Changes in the relative price of rice significantly affect the demand for rice resulting in the substitution of wheat and maize for rice. Income elasticities of rice demand are +.53, +.20 and +.32 for the hill and mountain regions, Tarai and Nepal, suggesting that consumers in the hill and mountain regions spend higher proportions of their additional income for rice.
Rice output is Projected to grow by 1.52% per annum whereas the demand for rice is projected to increase by 2.52% per annum. If those trends prevail Nepal is expected to be an importer of rice before the year 1989-90.
However, it is still possible to stimulate rice production in order to meet the growing demand by providing a minimum guaranteed price to rice producers increasing irrigated land and raising the level of other inputs as well as providing production loans. Also, the demand for rice can be curtailed to some extent by changing its price relative to that of wheat and maize, resulting in the substitution of wheat and maize for rice.