Forecasting Errors in the Absence of a Futures Market: The Seasonal Allocation of Wheat Supplies in India

Abstract

Agricultural policy in developing countries is strongly shaped by views about speculation in the foodgrain markets. The central issue is whether speculative expectations are rational. Yet, data availability and the absence of futures markets rarely permits a direct examination of this hypothesis. However, the government intervenes in the Indian wheat market in a manner that allows speculative expectations to be inferred from government purchase of grain. The application of standard tests of rational expectations is complicated by measurement errors. Results show systematic biases in forecasting errors of a form that would not be sustainable in the presence of a futures market.

Price support policy and market price dynamics: The case of Indian wheat

“…7 The NFSA integrates benefits from three primary programs: Integrated Child Development Services, a supplemental feeding program for pregnant and lactating women and children aged 6 months to 6 years; the Mid-Day Meal Scheme, a school-based feeding program for children aged 6 to 14; and the TPDS, which targets food insecure households. (Balakrishnan & Ramaswami, 1995;Gulati & Sharma, 1990;Ramaswami, 2000;Ramaswami & Balakrishnan, 2002). It is determined by the seasonality of market prices.…”

“…Figure 1 shows how wheat procurement and wholesale prices have progressed from 2001–2002 to 2019–2020. Previous research has looked into the relationship between wheat procurement prices and wholesale market prices (Balakrishnan & Ramaswami, 1995; Gulati & Sharma, 1990; Ramaswami, 2000; Ramaswami & Balakrishnan, 2002). It is determined by the seasonality of market prices.…”