Estimation of Elasticities of Milk Production in the Eastern Region of India: A Normalized Profit Function Approach

Abstract

The study employed a normalized translog profit function approach to estimate the output supply and factor demand elasticities of milk production in the eastern region of India. The profit maximization hypothesis was rejected, and thus, the farmers in the region must be motivated to take up dairy farming on scientific lines to maximize their profits. Most of the cross-price elasticities of input demand were negative, revealing that the inputs were complements of each other. The elasticities revealed that when the milk price changes, the milk supply increase was lesser than the demand for inputs. The large negative elasticity of the labour wage rate urges dairy farmers to move towards mechanization and use IT techniques in dairy farming. Keywords: Elasticity, milk, normalized profit function, seemingly unrelated regression equations, translog. JEL Codes: A11, C01, C02, C39, Q21.