IDEAS home Printed from https://ideas.repec.org/a/oup/oxecpp/v68y2016i3p811-835..html
   My bibliography  Save this article

Managing food price volatility in a large open country: the case of wheat in India

Author

Listed:
  • Christophe Gouel
  • Madhur Gautam
  • Will J. Martin

Abstract

India has pursued an active food security policy for many years by using a combination of trade policy interventions, public distribution of food staples, and assistance to farmers through minimum support prices defended by public stocks. This approach has been quite successful in stabilizing staple food prices, but comes at a high cost, and with potential risks of unmanageable stock accumulation. Based on a rational expectations storage model representing the Indian wheat market and its relation to the rest of the world, we analyse the cost and welfare implications of this policy, and unpack the contribution of its various elements. To analyse alternative policies, we assume that social welfare includes an objective of price stabilization and assess optimal policies corresponding to this objective. We consider fully optimal policies under commitment as well as optimal simple rules, and show that adopting simple rules can achieve most of the gains from fully optimal policies.

Suggested Citation

  • Christophe Gouel & Madhur Gautam & Will J. Martin, 2016. "Managing food price volatility in a large open country: the case of wheat in India," Oxford Economic Papers, Oxford University Press, vol. 68(3), pages 811-835.
    • Handle: RePEc:oup:oxecpp:v:68:y:2016:i:3:p:811-835.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/oep/gpv089
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christophe Gouel, 2013. "Rules versus Discretion in Food Storage Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(4), pages 1029-1044.
    2. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," The World Bank Economic Review, World Bank, vol. 29(1), pages 72-101.
    3. Will Martin & Kym Anderson, 2012. "Export Restrictions and Price Insulation During Commodity Price Booms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(2), pages 422-427.
    4. Albert Marcet & Ramon Marimon, 2019. "Recursive Contracts," Econometrica, Econometric Society, vol. 87(5), pages 1589-1631, September.
    5. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399.
    6. Ganesh-Kumar, A. & Mehta, Rajesh & Pullabhotla, Hemant & Prasad, Sanjay K. & Ganguly, Kavery & Gulati, Ashok, 2012. "Demand and supply of cereals in India: 2010-2025:," IFPRI discussion papers 1158, International Food Policy Research Institute (IFPRI).
    7. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters, in: The Economics of Food Price Volatility, pages 261-306, National Bureau of Economic Research, Inc.
    8. Jean-Paul Chavas & David Hummels & Brian D. Wright, 2014. "The Economics of Food Price Volatility," NBER Books, National Bureau of Economic Research, Inc, number chav12-1, March.
    9. Christophe Gouel, 2013. "Rules versus discretion in food storage policies," Post-Print hal-00939613, HAL.
    10. Srinivasan, P. V. & Jha, Shikha, 2001. "Liberalized trade and domestic price stability. The case of rice and wheat in India," Journal of Development Economics, Elsevier, vol. 65(2), pages 417-441, August.
    11. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    12. Donald F. Larson & Julian Lampietti & Christophe Gouel & Carlo Cafiero & John Roberts, 2014. "Food Security and Storage in the Middle East and North Africa," The World Bank Economic Review, World Bank, vol. 28(1), pages 48-73.
    13. Michael J. Roberts & Wolfram Schlenker, 2013. "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate," American Economic Review, American Economic Association, vol. 103(6), pages 2265-2295, October.
    14. Andrew Coleman, 2009. "Storage, Slow Transport, and the Law of One Price: Theory with Evidence from Nineteenth-Century U.S. Corn Markets," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 332-350, May.
    15. Muhammad, Andrew & Meade, Birgit Gisela Saager, 2011. "International Evidence on Food Consumption Patterns: An Update Using 2005 International Comparison Program Data," Technical Bulletins 120252, United States Department of Agriculture, Economic Research Service.
    16. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
    17. World Bank & FAO, 2012. "The Grain Chain," World Bank Publications - Reports 23964, The World Bank Group.
    18. Turnovsky, Stephen J & Shalit, Haim & Schmitz, Andrew, 1980. "Consumer's Surplus, Price Instability, and Consumer Welfare," Econometrica, Econometric Society, vol. 48(1), pages 135-152, January.
    19. Pursell, Garry & Gulati, Ashok & Gupta, Kanupriya, 2007. "Distortions to Agricultural Incentives in India," Agricultural Distortions Working Paper Series 48483, World Bank.
    20. James G. MacKinnon, 2010. "Critical Values For Cointegration Tests," Working Paper 1227, Economics Department, Queen's University.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ginn, William & Pourroy, Marc, 2022. "The contribution of food subsidy policy to monetary policy in India," Economic Modelling, Elsevier, vol. 113(C).
    2. Wusheng Yu & Jayatilleke Bandara, 2017. "India's Grain Security Policy in the Era of High Food Prices: A Computable General Equilibrium Analysis," The World Economy, Wiley Blackwell, vol. 40(8), pages 1547-1568, August.
    3. Taraz, Vis, 2018. "Can farmers adapt to higher temperatures? Evidence from India," World Development, Elsevier, vol. 112(C), pages 205-219.
    4. Marta Kozicka & Matthias Kalkuhl & Jan Brockhaus, 2017. "Food Grain Policies in India and their Implications for Stocks and Fiscal Costs: A Dynamic Partial Equilibrium Analysis," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(1), pages 98-122, February.
    5. Martin, Will, 2021. "Tools for measuring the full impacts of agricultural interventions," IFPRI-MCC technical papers 2, International Food Policy Research Institute (IFPRI).
    6. William Ginn & Marc Pourroy, 2022. "The Contribution of Food Subsidy Policy to Monetary Policy in India," Working Papers hal-02944209, HAL.
    7. Will Martin & Nicholas Minot, 2022. "The impacts of price insulation on world wheat markets during the 2022 food price crisis," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(4), pages 753-774, October.
    8. Brockhaus, Jan & Kalkuhl, Matthias & Kozicka, Marta, 2016. "What Drives India’s Rice Stocks? Empirical Evidence," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235659, Agricultural and Applied Economics Association.
    9. Durevall, Dick & van der Weide, Roy, 2014. "Importing High Food Prices by Exporting: Rice Prices in Lao PDR," Working Papers in Economics 607, University of Gothenburg, Department of Economics.
    10. Xiangjun Wu & Juan Xu, 2021. "Drivers of food price in China: A heterogeneous panel SVAR approach," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 67-79, January.
    11. Valenti, Daniele & Bertoni, Danilo & Cavicchioli, Davide & Olper, Alessandro, 2023. "Understanding the role of supply and demand factors in the global wheat market: a Structural Vector Autoregressive approach," FEEM Working Papers 338780, Fondazione Eni Enrico Mattei (FEEM).
    12. Dick Durevall & Roy Weide, 2017. "Importing High Food Prices by Exporting: Rice Prices in Lao PDR," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(1), pages 164-181, February.
    13. Jan Brockhaus & Jan Brockhaus & Matthias Kalkuhl, 2015. "Drivers of private grain storage. A computational-economics and empirical approach," EcoMod2015 8430, EcoMod.
    14. Kym Anderson, 2016. "Agricultural Trade, Policy Reforms, and Global Food Security," Palgrave Studies in Agricultural Economics and Food Policy, Palgrave Macmillan, number 978-1-137-46925-0, August.
    15. McCorriston, Steve & MacLaren, Donald, 2016. "Parastatals as instruments of government policy: The Food Corporation of India," Food Policy, Elsevier, vol. 65(C), pages 53-62.
    16. Tripathi, Ashutosh K. & Mishra, Ashok K., 2023. "Assessing the Relationship between Public Stockholding and Market Price Dynamics: The Case of Wheat Market in India," 2023 Annual Meeting, July 23-25, Washington D.C. 335622, Agricultural and Applied Economics Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters, in: The Economics of Food Price Volatility, pages 261-306, National Bureau of Economic Research, Inc.
    2. Brockhaus, Jan & Kalkuhl, Matthias, 2015. "Grain emergency reserve cooperation – A theoretical analysis of benefits from a common emergency reserve," 2015 Conference, August 9-14, 2015, Milan, Italy 212767, International Association of Agricultural Economists.
    3. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," The World Bank Economic Review, World Bank, vol. 29(1), pages 72-101.
    4. Donald F. Larson & Julian Lampietti & Christophe Gouel & Carlo Cafiero & John Roberts, 2014. "Food Security and Storage in the Middle East and North Africa," The World Bank Economic Review, World Bank, vol. 28(1), pages 48-73.
    5. Christophe Gouel, 2020. "The Value of Public Information in Storable Commodity Markets: Application to the Soybean Market," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 846-865, May.
    6. Matthias Kalkuhl & Lukas Kornher & Matthias Kalkuhl & Irfan Mujahid, 2015. "Food price volatility in developing countries – the role of trade and storage," EcoMod2015 8415, EcoMod.
    7. Christophe Gouel, 2013. "Rules versus Discretion in Food Storage Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(4), pages 1029-1044.
    8. Bradford, Scott C. & Negi, Digvijay Singh & Ramaswami, Bharat, 2022. "International risk sharing for food staples," Journal of Development Economics, Elsevier, vol. 158(C).
    9. Christian Elleby, 2014. "Poverty and Price Transmission," IFRO Working Paper 2015/01, University of Copenhagen, Department of Food and Resource Economics.
    10. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
    11. Pieters, Hannah & Swinnen, Johan, 2016. "Trading-off volatility and distortions? Food policy during price spikes," Food Policy, Elsevier, vol. 61(C), pages 27-39.
    12. Vincent H. Smith & Joseph W. Glauber, 2020. "Trade, policy, and food security," Agricultural Economics, International Association of Agricultural Economists, vol. 51(1), pages 159-171, January.
    13. Jean‐Paul Chavas & Jian Li, 2020. "A quantile autoregression analysis of price volatility in agricultural markets," Agricultural Economics, International Association of Agricultural Economists, vol. 51(2), pages 273-289, March.
    14. Martin, William J., 2012. "Managing High and Volatile Food Prices," Trade Issues Papers 142732, International Agricultural Trade Research Consortium.
    15. Porteous, Obie, 2017. "Empirical effects of short-term export bans: The case of African maize," Food Policy, Elsevier, vol. 71(C), pages 17-26.
    16. Oglend, Atle & Kleppe, Tore Selland, 2017. "On the behavior of commodity prices when speculative storage is bounded," Journal of Economic Dynamics and Control, Elsevier, vol. 75(C), pages 52-69.
    17. Chavas, Jean-Paul & Li, Jian, 2017. "The Effects of Private Stocks versus Public Stocks on Food Price Volatility," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259185, Agricultural and Applied Economics Association.
    18. Matthias Kalkuhl & Mekbib Haile & Lukas Kornher & Marta Kozicka, 2015. "Cost-benefit framework for policy action to navigate food price spikes. FOODSECURE Working Paper No 33," FOODSECURE Working papers 33, LEI Wageningen UR.
    19. Fabio Gaetano Santeramo & Emilia Lamonaca & Francesco Contò & Gianluca Nardone & Antonio Stasi, 2018. "Drivers of grain price volatility: a cursory critical review," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 64(8), pages 347-356.
    20. Nicolas Legrand, 2023. "War in Ukraine: The rational “wait‐and‐see” mode of global food markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(2), pages 626-644, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:oxecpp:v:68:y:2016:i:3:p:811-835.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/oep .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.