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

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Listed author(s):
  • 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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 7551.

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Date of creation: 02 Feb 2016
Handle: RePEc:wbk:wbrwps:7551
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Keywords: Debt Markets; Access to Markets; Economic Theory&Research; Emerging Markets; Markets and Market Access;

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  1. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
  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. 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.
  4. 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.
  5. Muhammad, Andrew & Seale, James L. & Meade, Birgit Gisela Saager & Regmi, Anita, 2011. "International Evidence on Food Consumption Patterns: An Update Using 2005 International Comparison Program Data," Technical Bulletins 184306, United States Department of Agriculture, Economic Research Service.
  6. Albert Marcet & Ramon Marimon, 1994. "Recursive contracts," Economics Working Papers 337, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 1998.
  7. 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).
  8. 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.
  9. 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.
  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. 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.
  13. Pursell, Garry & Gulati, Ashok & Gupta, Kanupriya, 2007. "Distortions to Agricultural Incentives in India," Agricultural Distortions Working Paper 48483, World Bank.
  14. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  15. 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.
  16. 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.
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Cited by:

  1. 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.

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