Price and Non-Price Factors in the Growth of Fertiliser use after Green Revolution

Due to the limitations on expanding area under crops due to physiographic reasons, the yield based growth is the most important task facing Indian agriculture today. Fertiliser is one of the most important components of this yield based growth. Increases in this crucial input are required to achieve the targets of foodgrain production. The role of price and non-price factors in the growth of fertiliser use between 1966-67 to 1986-87 has been studied in the present paper to find out whether price factor is important and if so, how much growth can be attributed to this variable. Studies in the past have tried to explain this but, some of the relevant variables were left out. None of the studies have attempted to quantify the growth which can be attributed to different variables. The present study is a modest attempt to quantify the contribution of price and non-price factors in this growth process. It is found that price elasticity of fertilisers varies from -0.26 to -0.41 in different models and the price variable explains only 20 per cent of the growth in fertiliser use during the study period, i.e. from 1966-67 to 1986-87. Non-price factors explain 80 per cent of the growth in fertiliser use. More than 60 per cent of the past growth is explained by four factors namely, irrigation, retail outlets, credit and area under high yielding varieties, and these four should be considered as the major factors for bringing larger increases in fertiliser use. Rainfall is also an important determinant of fertiliser use the effect of which can only be mitigated by bringing more area under irrigation. Irrigation development deserves the highest priority in expanding fertiliser use followed by opening more retail outlets right in the villages, enhanced credit facilities and increased spread of high yielding varieties respectively in that order. The income of the farmer is also an important determinant of the fertiliser demand and efforts should also be made to increase the income of the farmer. Policy makers in the past have relied heavily on the price factor. This distortion needs correction because subsidies on inputs like fertilisers are cutting into the resources for the development of non-price factors.