Role of Price on Replanting Decisions of Rubber: An Application of Almon Lag Model

Rubber is one of the major plantation crops cultivated in Sri Lanka. It gives an environmental service apart from its economic potential. To have a continuous supply of rubber, it is vital that the balance between mature and immature rubber stands be maintained in the long run. In order to do this, at least 3% of the total area under rubber needs to be re-planted annually. However, in the recent past, replanting as well as new planting has declined. One of the major variables that affect the replanting decision by farmers is the price of rubber. Hence, this study evaluated the role played by the lagged price of rubber in replanting decision making. Almon lag model was employed to data related to rubber prices from 1980 to 2004. A second degree polynomial was found to be best in describing the data, as expected. The maximum time lag was found to be eight years but a lag of four years had the highest impact on the replanting decision. The paper discusses the policy implications of the delayed response of replanting to prices.