energy vol. 14, No. 11, pp. 737-746, 1989 0360-5442/89 $3.00 + 0.00 Printedin Great Britain. All rights reserved Copyright @ 1989 Pergamon Press plc IMPACTS OF ENERGY PRICES AND TRADE-DEMAND ELASTICITIES ON SASKATCHEWAN AGRICULTURE DEVI D. TEWARI,?§ SUREN N. KULSHRESHTHA,$ and A. SCHMITZS: t Indian Institute of Management, Ahmedabad-380 056, India and $ Department of Agricultural Economics, University of Saskatchewan, Saskatoon, Canada S7N OWO. (Received 28 Sepfember 1988; received for publication 25 April 1989) Abstract-With the help of a quadratic programming sector model of Saskatchewan agriculture, it is demonstrated that magnitudes or rising energy-price impacts can be significantly different if producers face different levels of trade-demand elasticities. Although consumers would always lose as a result of rising energy prices under varying demand elasticities, this is not always the case with producers. Net returns to producers may increase even under a rising energy-price regime if they face very inelastic markets. Similarly, other energy price impacts are shown to differ significantly under varying demand elasticities. INTRODUCTION The impacts of rising energy prices on agriculture have been studied widely since the beginning (in 1973) of the increasing trend of energy prices. These impacts fall into economic and non-economic (or environmental) categories. The non-economic impacts may include changes in the ecosystem, such as air pollution, which result from changes in the level and pattern of energy consumption. Economic impacts are felt directly through on-farm adjustments and indirectly through adjustment in farm gate prices resulting from increased transportation cost to move the farm produce to export positions. These adjustments finally affect each of the following: cost of cultivation or supply price, level and location of production, use of energy-related and other farm input(s), product mix, net and gross returns, and consumer and producer surpluses among others. Economic impacts may be further classified into welfare changes that reflect losses and gains to consumers and producers and other energy-price impacts related to farm businesses. Past analyses of energy price impacts have been focussed primarily on estimating the economic impacts. For example, the demand for energy-related inputs, in general, has been estimated to become more inelastic as energy use is curtailed in response to rising energy prices. ’ This change results in increased cost of production, requiring an increase in produce price to maintain agricultural net income. Therefore, an increase in production under a rising energy price regime can be achieved only by increasing product prices in the domestic and international markets or by providing subsidies to producers in the absence of rising product prices.‘y3 On the demand side, provided rising energy costs on farms can be transferred to consumers through rising product prices, rising produce prices would curtail product demand in both domestic and international markets.4 As a result, changes will occur in the agriculture sector. Net returns to producers may decline;5 product mix may change in favour of less energy-intensive crops.6 Less energy-intensive production regions become relatively more advantageous as compared with more energy-intensive regions.’ As a result, income transfers occur from irrigated to dryland agriculture and from more energy-intensive production to less energy-intensive regions. Furthermore, there may be enhanced migration from rural areas to cities, which will cause an increase in the average farm size and a decrease in the number of farms.8 PTo whom all correspondence should be addressed. 737