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Modeling Indian Wheat and Rice Sector Policies

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  • Kozicka, Marta
  • Kalkuhl, Matthias
  • Saini, Shweta
  • Brockhaus, Jan

Abstract

This paper serves to disentangle the complex system of Indian food policies, related to wheat and rice procurement, storage, distribution and trade. Using time series for national aggregate data, these policies are econometrically analyzed, next their implications for the markets are assessed and finally their fiscal costs are estimated. The study revealed strong impact of the policy measures on the production, procurement, stocks and trade. We detected several market distortions and mounting fiscal costs. Wheat and rice supply strongly and significantly responds to the minimum support price (MSP). Wholesale prices at planting or lagged harvest time prices are largely irrelevant for the production. The Food Cooperation of India’s (FCI) procurement volume is driven by the production level and the difference between the MSP and the market price. The signs of the estimated price elasticities of demand are consistent with the theory, however for rice they turned out to be insignificant. The negative income elasticity of rice consumption as well as the downward trend in rice consumption suggest changing habits and the inferior character of rice as a consumption good. The public stock analysis suggests higher storage losses for rice (10%) than for wheat (2%). Strong crowding out effects of the public stocks on private stocks and negative impact of export restrictions on private ending stocks was found. Total exports are highly distorted by the trade regulations, which whipped out the trade response to the price incentives. Starting from 2006/07, there is a clear upward trend in inflation adjusted costs of operating the public food procurement and distribution system, coming mostly from the rising procurement volume and the MSP. On the other hand, the revenues have declined in real terms, due to lower real central issue prices and only marginal revenues from the domestic sales and exports. As a result, the food subsidy has shown a permanent growth in real terms. The seasonal analysis of the intra-year data revealed strong seasonality of prices and procurement and stock levels, in particular for wheat (less for rice).

Suggested Citation

  • 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.
  • Handle: RePEc:ags:aaea14:169808
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    References listed on IDEAS

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    1. Kym Anderson, 2013. "Agricultural price distortions: trends and volatility, past, and prospective," Agricultural Economics, International Association of Agricultural Economists, vol. 44(s1), pages 163-171, November.
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    Cited by:

    1. Matthias Kalkuhl & Lukas Kornher & Matthias Kalkuhl & Irfan Mujahid, 2015. "Food price volatility in developing countries – the role of trade and storage," EcoMod2015 8415, EcoMod.
    2. Weber, Regine, 2015. "Welfare Impacts of Rising Food Prices: Evidence from India," 2015 Conference, August 9-14, 2015, Milan, Italy 211901, International Association of Agricultural Economists.
    3. Sudha Narayanan & Nicolas Gerber, 2015. "Social safety nets for food and nutritional security in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-031, Indira Gandhi Institute of Development Research, Mumbai, India.
    4. Rahul Anand & Naresh Kumar & Volodymyr Tulin, 2016. "Understanding India’s Food Inflation; The Role of Demand and Supply Factors," IMF Working Papers 16/2, International Monetary Fund.
    5. 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.
    6. repec:bla:jageco:v:68:y:2017:i:1:p:98-122 is not listed on IDEAS
    7. Marta Kozicka & Dr Matthias Kalkuhl & Jan Brockhaus, 2015. "Food Grain Policies in India and Their Implications for Stocks and Fiscal Costs: A Partial Equilibrium Analysis," EcoMod2015 8377, EcoMod.
    8. Jan Brockhaus & Jan Brockhaus & Matthias Kalkuhl, 2015. "Drivers of private grain storage. A computational-economics and empirical approach," EcoMod2015 8430, EcoMod.
    9. Kozicka, Marta & Kalkuhl, Matthias & Weber, Regine, 2015. "Public Distribution System vs. Market: Analysis of Staple Food Consumption in India Using QUAIDS with Rationing," 55th Annual Conference, Giessen, Germany, September 23-25, 2015 209243, German Association of Agricultural Economists (GEWISOLA).
    10. Kalkuhl, Matthias & von Braun, Joachim & Torero, Maximo, 2016. "Food Price Volatility and Its Implications for Food Security and Policy," MPRA Paper 72164, University Library of Munich, Germany.
    11. Sudha Narayanan Narayanan & Nicolas Gerber, 2016. "Safety Nets for Food and Nutritional Security in India," FOODSECURE Working papers 37, LEI Wageningen UR.
    12. 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.

    More about this item

    Keywords

    Agricultural and Food Policy; Crop Production/Industries; Demand and Price Analysis; Food Security and Poverty;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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