Rigid growth characteristic of demand for oil in China's agro‐production

Abstract

Purpose

The demand for oil in agricultural production increases continuously with the world oil price soaring, reflecting a rigid growth characteristic, but there are no clear reasons for this. The purpose of this paper is to assess the essential reasons of this issue in theoretical and empirical perspectives.

Design/methodology/approach

The paper develops the model of derived demand for petroleum in agro‐production; analyzes the effect on agricultural labor‐machinery due to the changes in relative price of input factors; and reveals the reasons for the rigid growth of the demand for farm diesel; as well as estimates the substitution of agricultural machine for labor.

Findings

The results indicate that the rigid growth characteristic of the demand for farm diesel is due to the adjustment of the product and factor markets; and the most important reason is the changes in structure of the agro‐production inputs caused by the relative soaring price of agricultural labor‐machinery.

Practical implications

The government should attach importance to its impact on farmers and take effective measures to insure the stable development of agricultural production.

Originality/value

This research investigates the main reasons for the rigid growth characteristic of demand for oil in China's agro‐production from a novelty perspective. The proposed conceptual model is unique, it analyzes the substitution of agricultural mechanical for labor from the perspective of changes in relative price, and selects the two level constant elasticity substitution production functions to estimate the substitution of agricultural machinery for labor.

Citation

Wang, L. and Tian, Z. (2009), "Rigid growth characteristic of demand for oil in China's agro‐production", China Agricultural Economic Review, Vol. 1 No. 3, pp. 327-341. https://doi.org/10.1108/17561370910958891