IDEAS home Printed from
   My bibliography  Save this article

Weather Shocks And Agricultural Commodity Prices In India



    () (National Institute of Public Finance and Policy, 18/2, Satsang Vihar Marg, Special Institutional Area (Near JNU), New Delhi 110067, India)


    (Department of Economics, Delhi School of Economics, University of Delhi, Delhi 110067, India)


    (Department of Economics, Ramjas College, University of Delhi, Delhi 110007, India)


We analyze the impact of weather shocks on price formation in spot and futures market for food in India where until the recent introduction of commodity futures markets in 2005, the transmission of these shocks to short-term (spot) price movements was unclear. Hitherto, the price discovery mechanism was weak and end price was expected to be different (mostly higher unless some product prices were administered) from the market-clearing price. In addition, this weak mechanism was expected to result in higher price volatility. The introduction of a futures market is expected to reduce risk, a major component in agricultural production as well as in price formation. Though the commodity futures market in India is nascent, we model transmission of weather shocks to futures and spot prices using monthly data. Based on cointegration analysis, our results suggest strong long-run co-movement between futures prices and spot prices for commodities traded in futures markets. Changes in rainfall affect both futures and spot prices with different lags. However, rainfall shocks generate larger responses from futures prices than from spot prices. Although there could be other factors that affect futures prices, after controlling for fuel prices, our results clearly show the transmission mechanism of weather shocks from futures to spot prices. We also explore the changes in responsiveness of prices of major agricultural commodities to rainfall with introduction of futures contracts to facilitate the pass-through of various types of shocks to agricultural commodity prices. Using smooth transition regression, we find that the bivariate relationships between rainfall and prices of rice, wheat and pulses show some nonlinearity with the structural change happening after the introduction of futures market. These relations are found to be much stronger in the post-structural change period that broadly coincides with the introduction of futures market.

Suggested Citation

  • N. R. Bhanumurthy & Pami Dua & Lokendra Kumawat, 2013. "Weather Shocks And Agricultural Commodity Prices In India," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 4(03), pages 1-20.
  • Handle: RePEc:wsi:ccexxx:v:04:y:2013:i:03:n:s2010007813500115 DOI: 10.1142/S2010007813500115

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

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

    References listed on IDEAS

    1. N R Bhanumurthy & Pami Dua & Lokendra Kumawat, 2012. "Weather Shocks, Spot And Futures Agricultural Commodity Prices: An Analysis For India," Working Papers id:5172, eSocialSciences.
    2. Dipak Dasgupta & R N Dubey & R Satish, 2011. "Domestic Wheat Price Formation and Food Inflation in India: International Prices, Domestic Drivers (Stocks, Weather, Public Policy), and the Efficacy of Public Policy Interventions in Wheat Markets," Working Papers id:4291, eSocialSciences.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Weather shock; spot prices; futures prices; smooth transition models; India; JEL Codes: G14; JEL Codes: Q10; JEL Codes: E30;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)


    Access and download statistics


    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:wsi:ccexxx:v:04:y:2013:i:03:n:s2010007813500115. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.