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Grain price stabilization in India: Evaluation of policy alternatives

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  • Jha, Shikha
  • Srinivasan, P.V.

Abstract

Stabilization of prices is an important element of food policy in India as in most other countries - both developing and developed. However, since the magnitude of grain stocks held for this purpose as well as the costs of physical storage have become prohibitively high, there is now a need for finding cost-effective alternatives including non-interventionist and marketoriented methods for price stabilization. In this paper we consider the case of rice and wheat which are staple foodgrains in India. We make a comparison between alternative price stabilization policies including that of holding buffer stocks in terms of their impact on domestic price stability, producer and consumer welfare and government costs. A multi-market equilibrium framework is used where private storage, consumption, supply and prices of rice and wheat are determined simultaneously. Indian exports and imports are assumed to affect world prices. The alternative price stabilizing mechanisms are ranked according to both the criteria, welfare and price stability achieved. The main findings are as follows. The ranking of alternatives varies with the criterion used. Greater price stability need not necessalily imply greater welfare. The option of variable levies on private external trade turns out to be the most inexpensive and that of domestic buffer stocks the costliest in achieving price stability. Further, the efficacy of buffer stocks and subsidy to plivate storage in stabilizing prices is lower under free trade as compared to the case where the economy is closed to private external trade. © 1999 Elsevier Science B.V. All rights reserved.

Suggested Citation

  • Jha, Shikha & Srinivasan, P.V., 1999. "Grain price stabilization in India: Evaluation of policy alternatives," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 21(1), August.
  • Handle: RePEc:ags:iaaeaj:175101
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    References listed on IDEAS

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    1. Bruce L. Gardner & Ramón López, 1996. "The Inefficiency of Interest-Rate Subsidies in Commodity Price Stabilization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, pages 508-516.
    2. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, March.
    3. Ahluwalia, Deepak, 1993. "Public distribution of food in India : Coverage, targeting and leakages," Food Policy, Elsevier, vol. 18(1), pages 33-54, February.
    4. Islam, Nurul & Thomas, Saji, 1996. "Foodgrain price stabilization in developing countries," Food policy reviews 3, International Food Policy Research Institute (IFPRI).
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    Cited by:

    1. Dawe, David, 2001. "How far down the path to free trade? The importance of rice price stabilization in developing Asia," Food Policy, Elsevier, vol. 26(2), pages 163-175, April.
    2. Kozicka, Marta & Kalkuhl, Matthias & Saini, Shweta & Brockhaus, Jan, 2014. "Modeling Indian Wheat and Rice Sector Policies," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169808, Agricultural and Applied Economics Association.
    3. Chen, Li-Ju & Ye, Chusheng & Hu, Shih-Wen & Wang, Vey & Wen, Jiandong, 2013. "The Effect of a Target Zone on the Stabilization of Agricultural Prices and Farmers' Nominal Income," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(1), April.
    4. A. Ganesh-Kumar & Ashok Gulati & Ralph Cummings & Jr., 2008. "Reforming Foodgrains Management : Achieving Food Security with Cost-Effectiveness," Development Economics Working Papers 22152, East Asian Bureau of Economic Research.
    5. Ghosh, Madanmohan & Whalley, John, 2004. "Are price controls necessarily bad? The case of rice in Vietnam," Journal of Development Economics, Elsevier, vol. 73(1), pages 215-232, February.
    6. Rashid, Shahidur & Gulati, Ashok & Cummings, Ralph Jr. (ed.), 2008. "From parastatals to private trade: Lessons from Asian agriculture," IFPRI books, International Food Policy Research Institute (IFPRI), number 978-0-8018-8815-1.
    7. Christophe Gouel, 2012. "Agricultural Price Instability: A Survey Of Competing Explanations And Remedies," Journal of Economic Surveys, Wiley Blackwell, pages 129-156.
    8. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," World Bank Economic Review, World Bank Group, vol. 29(1), pages 72-101.
    9. Parwez, Sazzad, 2015. "A Conceptual Model for Integration of Indian Food Supply chains," MPRA Paper 73310, University Library of Munich, Germany, revised 09 Aug 2015.
    10. Parwez, Sazzad, 2015. "A Conceptual Model for Integration of Indian Food Supply chains," MPRA Paper 73263, University Library of Munich, Germany, revised 09 Aug 2015.
    11. Dev, S. Mahendra & Ravi, C. & Viswanathan, Brinda & Gulati, Ashok & Ramachander, Sangamitra, 2004. "Economic liberalisation targeted programmes and household food security," MTID discussion papers 68, International Food Policy Research Institute (IFPRI).
    12. Jabir Ali & Kriti Bardhan Gupta, 2011. "Efficiency in agricultural commodity futures markets in India: Evidence from cointegration and causality tests," Agricultural Finance Review, Emerald Group Publishing, vol. 71(2), pages 162-178, August.
    13. Rashid, Shahidur & Gulati, Ashok & Mahendra Dev, S., 2008. "Parastatals and food policies: The Indian case," IFPRI book chapters,in: Rashid, Shahidur & Gulati, Ashok & Cummings, Jr., Ralph (ed.), From parastatals to private trade: Lessons from Asian agriculture, chapter 3, pages 51-76 International Food Policy Research Institute (IFPRI).
    14. Parwez, Sazzad, 2013. "Food Supply Chain Management in Indian Agriculture: Issues, Opportunities and Further Research," MPRA Paper 60441, University Library of Munich, Germany, revised 03 Jul 2014.
    15. Wani, M.H. & Paul, Ranjit Kumar & Bazaz, Naseer H. & Manzoor, M., 2015. "Market integration and Price Forecasting of Apple in India," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 70(2).
    16. Femenia, Fabienne, 2011. "To Subsidize or Not to Subsidize Private Storage? Evaluation of the Effects of Private Storage Subsidies as an Instrument to Stabilize Agricultural Markets After CAP Reforms," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114360, European Association of Agricultural Economists.
    17. Uttam Kumar Deb & Mahabub Hossain & Steve Jones, 2011. "Rethinking Food Security Strategy: Self-sufficiency or Self-reliance," Working Papers id:3458, eSocialSciences.
    18. repec:ris:ecoint:0808 is not listed on IDEAS
    19. Rashid, Shahidur & Gulati, Ashok & Cummings, Jr., Ralph, 2008. "Times have changed: Learning new ways of doing business," IFPRI book chapters,in: Rashid, Shahidur & Gulati, Ashok & Cummings, Jr., Ralph (ed.), From parastatals to private trade: Lessons from Asian agriculture, chapter 9, pages 225-239 International Food Policy Research Institute (IFPRI).
    20. Landes, Maurice R. & Jha, Shikha & Srinivasan, P.V., 2007. "Indian Wheat and Rice Sector Policies and the Implications of Reform," Economic Research Report 6386, United States Department of Agriculture, Economic Research Service.
    21. Mohammad Bakhshoodeh & G. R. Soltani, 2002. "Rice Market Liberalization in Iran: Welfare and Poverty," Working Papers 0231, Economic Research Forum, revised 17 Oct 2002.
    22. Chakrabarti, Suman & Kishore, Avinash & Roy, Devesh, 2016. "Entitlement fetching or snatching? Effects of arbitrage on India’s public distribution system," IFPRI discussion papers 1588, International Food Policy Research Institute (IFPRI).
    23. Sheu, Jiuh-Biing, 2016. "Supplier hoarding, government intervention, and timing for post-disaster crop supply chain recovery," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 90(C), pages 134-160.

    More about this item

    Keywords

    Price stabilization; Buffer stocks; Canalized trade; Variable levies; Private storage; Free trade; India; Agricultural and Food Policy; Crop Production/Industries; Demand and Price Analysis; Q17; Q18;

    JEL classification:

    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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