IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/7551.html
   My bibliography  Save this paper

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

Author

Listed:
  • Gouel,Christophe
  • Gautam,Madhur
  • Martin,William J.

Abstract

India has pursued an active food security policy for many years, 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 policy has been quite successful in stabilizing staple food prices, but 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, this paper analyzes the cost and welfare implications of this policy and unpacks the contribution of its different elements. To analyze alternative policies, social welfare is assumed to include an objective of price stabilization and optimal policies corresponding to this objective are assessed. Considering fully optimal policies under commitment as well as optimal simple rules, it is shown that adopting simple rules can achieve most of the gains from fully optimal policies, with both potentially allowing for lower stockholding levels and costs.

Suggested Citation

  • Gouel,Christophe & Gautam,Madhur & Martin,William J., 2016. "Managing food price volatility in a large open country : the case of wheat in India," Policy Research Working Paper Series 7551, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7551
    as

    Download full text from publisher

    File URL: http://documents.worldbank.org/curated/en/265831467991973913/pdf/WPS7551.pdf
    Download Restriction: no
    ---><---

    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," World Bank Economic Review, World Bank Group, 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, May.
    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.
    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. Chavas, Jean-Paul & Hummels, David & Wright, Brian D. (ed.), 2014. "The Economics of Food Price Volatility," National Bureau of Economic Research Books, University of Chicago Press, number 9780226128924, March.
    13. Donald F. Larson & Julian Lampietti & Christophe Gouel & Carlo Cafiero & John Roberts, 2014. "Food Security and Storage in the Middle East and North Africa," World Bank Economic Review, World Bank Group, vol. 28(1), pages 48-73.
    14. 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.
    15. 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.
    16. 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.
    17. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
    18. Kym Anderson & Will Martin, 2009. "Distortions to Agricultural Incentives in Asia," World Bank Publications - Books, The World Bank Group, number 2611, December.
    19. World Bank & FAO, 2012. "The Grain Chain," World Bank Publications - Reports 23964, The World Bank Group.
    20. 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.
    21. Pursell, Garry & Gulati, Ashok & Gupta, Kanupriya, 2007. "Distortions to Agricultural Incentives in India," Agricultural Distortions Working Paper Series 48483, World Bank.
    22. 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. 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.
    2. 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.
    3. Ginn, William & Pourroy, Marc, 2022. "The contribution of food subsidy policy to monetary policy in India," Economic Modelling, Elsevier, vol. 113(C).
    4. Taraz, Vis, 2018. "Can farmers adapt to higher temperatures? Evidence from India," World Development, Elsevier, vol. 112(C), pages 205-219.
    5. Jan Brockhaus & Jan Brockhaus & Matthias Kalkuhl, 2015. "Drivers of private grain storage. A computational-economics and empirical approach," EcoMod2015 8430, EcoMod.
    6. 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.
    7. 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.
    8. 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, November.
    9. 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.
    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.

    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. 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.
    2. 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.
    3. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," World Bank Economic Review, World Bank Group, 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," World Bank Economic Review, World Bank Group, 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. 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.
    7. Matthias Kalkuhl & Lukas Kornher & Matthias Kalkuhl & Irfan Mujahid, 2015. "Food price volatility in developing countries – the role of trade and storage," EcoMod2015 8415, EcoMod.
    8. 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.
    9. 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.
    10. Anderson, Kym & Strutt, Anna, 2014. "Food security policy options for China: Lessons from other countries," Food Policy, Elsevier, vol. 49(P1), pages 50-58.
    11. Christian Elleby, 2014. "Poverty and Price Transmission," IFRO Working Paper 2015/01, University of Copenhagen, Department of Food and Resource Economics.
    12. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
    13. Pieters, Hannah & Swinnen, Johan, 2016. "Trading-off volatility and distortions? Food policy during price spikes," Food Policy, Elsevier, vol. 61(C), pages 27-39.
    14. 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.
    15. Li, J. & Chavas, J.-P., 2018. "How Have China s Agricultural Price Support Policies Affected Market Prices?: A Quantile Regression Evaluation," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277557, International Association of Agricultural Economists.
    16. Martin, William J., 2012. "Managing High and Volatile Food Prices," Trade Issues Papers 142732, International Agricultural Trade Research Consortium.
    17. Digvijay S. Negi & Bharat Ramaswami, 2020. "International risk sharing for food staples," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-002, Indira Gandhi Institute of Development Research, Mumbai, India.
    18. Kym Anderson & Maros Ivanic & William J. Martin, 2014. "Food Price Spikes, Price Insulation, and Poverty," NBER Chapters, in: The Economics of Food Price Volatility, pages 311-339, National Bureau of Economic Research, Inc.
    19. Hoekman, Bernard & Martin, Will, 2012. "Reducing distortions in international commodity markets : an agenda for multilateral cooperation," Policy Research Working Paper Series 5928, The World Bank.
    20. Jean-Christophe Bureau & Thorsten Rogall, 2017. "EU Policies and Global Food Security," LICOS Discussion Papers 39217, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

    More about this item

    Keywords

    Debt Markets; Access to Markets; Economic Theory&Research; Emerging Markets; Markets and Market Access;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:wbk:wbrwps:7551. 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: . General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    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: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    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.