Measuring the impact of surface ozone on rice production in China: a normalized profit function approach

Purpose - The purpose of this study is to investigate the impacts of surface ozone pollution on rice profit, output and variable inputs in China. Design/methodology/approach - This study estimates the rice profit function using county-level rice production data and ozone monitoring data in 2014 and 2015 to capture the impact of ozone pollution on rice profit. Then, it uses dual approach to identify the impacts of ozone on the supply of rice and the demand for variable inputs. The ozone concentration data are obtained from 1,412 monitoring stations established by the National Environmental Monitoring Centre of China. Findings - The results show that surface ozone would significantly reduce rice profits; a 1% increase in (the daily average ozone concentration from 9 am to 4 pm) leads to a 0.1% decrease in profits. In addition, ozone has a negative impact on the levels of inputs and the supply of rice, and the elasticities of rice output, fertilizer input and labour input with respect to are −0.87, −0.86 and −0.78%, respectively. These results suggest that ozone pollution affects rice production via two channels: the direct damage on rice growth and the indirect negative impact of reducing variable inputs. Originality/value - This study estimates the impacts of surface ozone pollution on rice profit and output, and quantifies its influence on variable inputs in China, which provides a better understanding of farmers' adaptation behaviour.