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

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  • 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
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    References listed on IDEAS

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    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.
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    6. 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.
    7. Christophe Gouel, 2013. "Rules versus discretion in food storage policies," Post-Print hal-00939613, HAL.
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    Cited by:

    1. Taraz, Vis, 2018. "Can farmers adapt to higher temperatures? Evidence from India," World Development, Elsevier, vol. 112(C), pages 205-219.
    2. William Ginn & Marc Pourroy, 2020. "The Contribution of Food Subsidy Policy to Monetary Policy," Working Papers hal-02944209, HAL.
    3. 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.
    4. 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.
    5. 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.
    6. Jan Brockhaus & Jan Brockhaus & Matthias Kalkuhl, 2015. "Drivers of private grain storage. A computational-economics and empirical approach," EcoMod2015 8430, EcoMod.
    7. 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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