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Food Grain Policies in India and their Implications for Stocks and Fiscal Costs: A Partial Equilibrium Analysis

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  • Marta Kozicka
  • Matthias Kalkuhl
  • Jan Brockhaus

Abstract

This paper analyzes current and possible future reforms of the Indian food policies of the two most important staple grains, wheat and rice, within a two commodity dynamic partial equilibrium model with stochastic shocks. The model is empirically grounded and reproduces past values well. It uses a new reduced-form approach to capture private storage dynamics. We evaluate implementation of the National Food Security Act (NFSA) under several policy measures with the current regime as well as two scenarios with a regime change - implementation of cash transfers and deficiency payments. Implications for market fundamentals and fiscal costs were simulated in the medium term - until 2020/21. The NFSA puts a high pressure on fiscal costs and public stocks. Relying on imports with low MSPs results in a high stock-out risk and the lowest fiscal costs, however with high domestic price levels and volatility and high international prices. A policy strategy to manipulate procurement prices in order to maintain public stocks close to the norms leads to slightly higher fiscal costs with lower and more stable prices and ample stocks. A cash-based regime can bring considerable savings and curb fiscal costs, particularly if targeted to the poor, and would leave ample stocks due to higher private stocks. However, this scenario shows the highest market price levels and variability, which can have negative effects on some producers and consumers as well as political stability.

Suggested Citation

  • Marta Kozicka & Matthias Kalkuhl & Jan Brockhaus, 2016. "Food Grain Policies in India and their Implications for Stocks and Fiscal Costs: A Partial Equilibrium Analysis," FOODSECURE Working papers 41, LEI Wageningen UR.
  • Handle: RePEc:fsc:fspubl:41
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    References listed on IDEAS

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    1. United Nations UN, 2015. "The Millennium Development Goals Report 2015," Working Papers id:7097, eSocialSciences.
    2. 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.
    3. Rabah Arezki & Markus Brückner, 2011. "Food prices and political instability," NCID Working Papers 01/2011, Navarra Center for International Development, University of Navarra.
    4. 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.
    5. Matthias Kalkuhl & Lukas Kornher & Marta Kozicka & Pierre Boulanger & Maximo Torero, 2013. "Conceptual framework on price volatility and its impact on food and nutrition security in the short term," FOODSECURE Working papers 15, LEI Wageningen UR.
    6. Shreedhar, Ganga & Gupta, Neelmani & Pullabhotla, Hemant & Ganesh-Kumar, A. & Gulati, Ashok, 2012. "A review of input and output policies for cereals production in India:," IFPRI discussion papers 1159, International Food Policy Research Institute (IFPRI).
    7. Kumar, Praduman & Kumar, Anjani & Parappurathu, Shinoj & Raju, S.S., 2011. "Estimation of Demand Elasticity for Food Commodities in India," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 24(1), pages 1-14, January.
    8. Pullabhotla, Hemant & Ganesh-Kumar, A., 2012. "Review of input and output policies for cereal production in Bangladesh:," IFPRI discussion papers 1199, International Food Policy Research Institute (IFPRI).
    9. Shweta Saini & Marta Kozicka, 2014. "Evolution and Critique of Buffer Stocking Policy of India," Working Papers id:6153, eSocialSciences.
    10. United Nations UN, 2015. "The Millennium Development Goals Report 2015," Working Papers id:7222, eSocialSciences.
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    Cited by:

    1. Saini, Shweta & Sharma, Sameedh & Gulati, Ashok & Hussain, Siraj & von Braun, Joachim, 2017. "Indian food and welfare schemes: Scope for digitization towards cash transfers," Discussion Papers 261791, University of Bonn, Center for Development Research (ZEF).
    2. 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

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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