Domestic Price and Welfare Effects of the 2007-11 Indian Grain Export Restrictions

Food inflation has been a major concern for Indian policy makers the last decade. In an attempt to prevent domestic wheat and rice prices from rising during the food crisis the Indian government restricted export of these two key staples first by increasing minimum export prices successively followed by an outright export ban lasting from 2007-11. In this paper we ask, what was the effect of this ban on domestic prices and consequently on the welfare of the consumers? We approach this problem by applying new Bayesian techniques to estimate the price impact by calculating the entire counterfactual price development following the export ban. Our results indicate that the ban did indeed have a significant effect on domestic rice and wheat consumer prices. Domestic wheat prices increased around 40 percent less than they would have in the absence of a ban. We do not, however, find a significant relationship between international and domestic rice prices in India prior to the export ban. The effect of the export ban on domestic rice prices was to make them less responsive to changes in producer support. We conclude that welfare impact from the rice export ban was probably smaller than the literature suggests.