An Investigation of Rice Production and Cost Structure: A Case Study in Guilan Province

This paper studies the structure of cost and production of rice using cross section data from rice farming in Guilan in 1997. A translog cost function is specified for this purpose and estimated, using Iterative Seemingly Unrelated Regressions for both the short and the long run where all factors are taken to be variables. The results of the study are as follows: 1. Neither in the short-run nor in the long-run is the possibility of technical substitution among the factors of production strong. 2. Own and cross price elasticity of demand for inputs are positive but less than one, hence limited substitutability among inputs is possible as the result of a change in input prices. 3. As the structure of production of rice in Guilan exhibits increasing returns to scale, increased allocation of land to the production of rice could result in a lower price of the product. 4. Inputs are not homogeneous, therefore, not all producers are faced with the same price for the same input. Nevertheless, the cost of production has been lower for those farmers who have paid a higher price for an input. Therefore, the higher price for inputs is more than that compensated by the quality of each input in the production process. 5. Due to the inelasticity of the demand for rice with respect to prices, a large price increase is required to stimulate farmers to allocate more resources to the production of rice. 6. Since the possibility of substitution among inputs is limited, a large increase in relative prices is required in order to change the structure of rice production.