Determinants of land use in wheat production: The Australian wheat-sheep zone

The Australian wheat industry is an important contributor to the Australian economy and farm sector. This paper investigates the determinants of land use in wheat production for the Australian wheat-sheep zone. Land allocation between the wheat and the wool enterprises are considered in view of maximizing the expected farm profit. Wheat area supply response, is estimated across the wheat-sheep zone using data for the period 1990-2004. The statistical results indicate that the wheat growers in the Western Australia are more (relative expected) price responsive than the growers in the eastern states. Current wheat area is highly depended on the previous year’s wheat area and the area adjustment is also not significantly different between the regions. Estimates for the wheat own-price and the cross-price elasticities are with the expected signs and all less than unity, though the cross-price elasticities are more inelastic. Wheat yield is positively influenced by the area sown. Rainfall also has positive influence on the wheat yield but the time-related exogenous factors had only minor influence on the yield. The results are discussed in view of providing guidance for the decision on the land use. The paper also discusses the econometric approaches for analysing larger sample size (data).