How has the minimum support price policy of India affected cross-commodity price linkages?

Abstract

For several decades, the government of India has implemented a minimum support price (MSP) policy for agricultural commodities to reduce price risk levels for farmers. Concerns have been raised about whether this policy could affect market integration of related agricultural products, modify price incentives, and ultimately alter resource allocation and production between commodities. This study uses a panel vector auto-regression model across six states for the period 2002-2017 to analyse the effects of the MSP on the transmission of price shocks between cereals and oilseeds. The results demonstrate that the MSP partially and completely offsets price linkages between agricultural commodities, potentially introducing distortions in price incentives that affect land allocation and production between commodities. Beyond the effects of the MSP across commodities, Indian authorities can expect that price shocks on maize be transmitted to soybean over the next production period. Finally, this study demonstrates that the use of alternative data frequencies can identify differences in market reactions over time that can be related to production cycles and delays in price transmission.

Economic Implications of Changing Household Management of Basic Needs for Poverty Alleviation and Sustainability Policy, an Illustration of Food and Energy

“…First, Janvry et al (1991) explain how the selling and purchasing prices, relative to the shadow value of food, determine the amount of production allocated to own-consumption. For example, India's system of subsidized grains and procurement price (Aditya et al, 2017;Chhotray et al, 2020;George and McKay, 2019) is already known to alter choices in crops production (Morales et al, 2021) and consumption (Pingali et al, 2017) by altering relative prices. However, it remains unclear how these interactions change when income grows and basic food requirements are fulfilled.…”