Price Variability and Its Determinants: An Analysis of Major Foodgrains in India

The paper evaluates government price policy in controlling food price variability using monthly indices of wholesale prices of wheat, rice and coarse-grains. Annual price analysis showed that inter-year variability in annual nominal prices declined for both wheat and rice in the nineties as compared to eighties. The variability declined for the real price of rice also but the real price of wheat and nominal and real prices of coarse grains displayed increased variability during the 1990s in comparison to 1980s. Analysis of monthly prices revealed that intra-year variability shot up for wheat while it came down for rice during the nineties in comparison to eighties. The rise in price wedge in wheat and in course cereals during the nineties was caused by rise in seasonality, trend and cyclical-irregular factors. In the case of rice, on the other hand, the contribution of these three factors was in different directions. The regression results indicated that the government actions of buying and selling were more successful in reducing the seasonal range in wholesale prices in the case of rice as compared to wheat. Variations in production of coarse grains also significantly caused seasonal hike in prices of wheat and rice but they were more close substitutes to wheat than to rice. Any deviation of cereals' availability from long term trend led to higher government intervention in terms of procurement and disbursement of wheat and rice. Similarly, deviations in own output of wheat and rice also led to higher intervention by the government in these two commodities. Deviations in rainfall, yield and wholesale prices were the significant variables, which lent instability into the production of wheat and rice.