Estimation of Factor Demand and Substitution in the Australian Pig Industry: A Dual Approach

This study seeks to estimate the rate by which inputs in Australian pig production are substituted for one another when prices change. It employs a dual approach to response analysis. Using cost shares of inputs and input price indexes for the period 1977-78 to 1990-91, a set of equations derived from a transcendental logarithmic function is estimated with symmetry and homogeneity constraints imposed. The results indicate that, with the exception of the demand for feed which is a vital production input, pig producers are very responsive to own price changes. The estimated elasticities generally differ in magnitude from similar studies of the Australian agricultural sector, and suggest that, at a lower level of aggregation, farmers are more flexible in changing input mix.