This study compares the input demand, factor shares and price-cost relation of the cost of cultivation of south coastal Andhra Pradesh (zone-2) with a well endowed zone in canal irrigation and Rayalaseema (zone-3) with a dry zone depending upon lift irrigation. This study uses the cost of cultivation data from 1981-82 to 1999-2000 collected under the comprehensive scheme on cost of cultivation of principal crops spread over five agro-climatic zones of Andhra Pradesh. This paper reveals that the comparison of short-run and long-run elasticities of human labor and fertilizers indicate contrasting scenarios, i.e., a rise in wage reduces the labor use per hectare relatively more in wet land zones, while a rise in the price of fertilizers reduces their use relatively more in dry land zones. Further, this study proves that there has been a more continuous increase in the use of modern inputs than traditional inputs across all the zones and at the state level. The authors conclude that the spread of yield-increasing technology with better output prices played a significant role in bringing other zones on par with zone-2, at least after the late 1980s, reducing the inter-regional variations.

The cost of cultivation analysis revealed that the rise in prices of modern inputs is relatively low compared to the traditional inputs (Reddy, 1997). At the same time, there is also a higher level of use of modern inputs over traditional inputs. These two observations put together indicate that the relative prices of substitutable inputs have led to the substitution of modern inputs in place of traditional inputs. To assess the impact of prices on the demand for inputs, the input demand function is analyzed in this paper. Furthermore, the level of input use and their prices do have a bearing on factor shares in the gross value of output. This calls for an analysis of factor shares. Another related issue to be examined is whether the Minimum Support Price (MSP), which is expected to induce the adoption of modern technology, is in consonance with the cost per quintal, as there is a change in the composition and level of use of inputs and their prices. Against this background, the following specific issues are taken up for analysis in the next three sections: i) The demand for labor and fertilizers at the state as well as zonal levels, including the changes in prices of other important inputs and quantities used per hectare; ii) The trends in factor shares; and iii) Output prices and the support price-cost relationship during the period 1981-82 to 1999-2000.