A Cost Function Analysis to Estimate the Effects of Fertilizer Policy on the Supply of Wheat and Corn

Abstract

Cost functions by crop (U.S. and French wheat and corn, and English wheat) are estimated and marginal costs derived. Fertilizer input demand and output supply elasticities, estimated via marginal cost, are computed capturing the effect of fertilizer-reducing policies (a tax and a quota). Supply and fertilizer demand effects are compared within and across countries. The results generally support the hypothesis that fertilizer-reducing policies have a greater effect on crop supplies that use fertilizer more intensively, and that fertilizer policy multilaterally imposed will give U.S. producers a relative competitive advantage vis-a-vis French and English producers.