The Structure of Production and Investment in Australia's Pastoral Zone

This paper develops a dynamic optimal intertemporal investment model under the adjustment cost hypothesis to analyse the structure of production and investment in Australia's pastoral zone. The dynamic model is applied to pooled cross-sectional and time-series data obtained from ABARE farm surveys for the period 1979 through to 1993. Empirical results provide strong statistical evidence to indicate that quasi-fixity of inputs of labour, capital, sheep numbers and cattle numbers are characteristic of the agricultural sector in the pastoral zone. The results reveal that it takes about two years for labour, a little over three years of capital, a little over two years for sheep flock inventory and cattle herd inventory to adjust toward their long-run optimal levels. Results indicate substitution between labour-capital and sheep-cattle input pairs. The results also indicate that output supply and input demand responses are price inelastic in both the short and long run.