The Effect of Increased Energy Prices on Agriculture: A Differential Supply Approach

Abstract

The increase in energy prices between 2004 and 2007 has several potential consequences for aggregate agriculture in the U.S. We estimate the derived input demand elasticities for energy as well as capital, labor, and materials using the differential supply formulation. Given that the derived input demand for energy is inelastic, it is more price-responsive than the other inputs. The results also indicate that the U.S. aggregate agricultural supply function is responsive to energy prices.