Agricultural Factor Use and Substitution in the Southeastern United States

A study of the agricultural factor markets that support the farm economy of the southeastern United States aids the understanding of how farmers change the mix of factors as product and factor prices change. Factor demand elasticities were estimated for capital, land, labour, chemicals, energy and other intermediate inputs. On average, labour accounted for USD 0.410 of every USD 1 spent on agricultural inputs followed by other intermediate inputs, which accounted for USD 0.255. The demands for farm labour and other intermediate inputs were inelastic. The demand for farm chemicals was elastic, which indicates a lack of pricing power by companies that sell them. A substantial reduction in the use of farm chemicals could be achievable by increasing their price. Most of the factors are substitutes with the exceptions of capital and energy, and land and chemicals, which were found to be complements.