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

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, we analyse the cost and welfare implications of this policy and unpack the contribution of its different elements. To analyse alternative policies, we assume that social welfare includes an objective of price stabilization and assess optimal policies corresponding to this objective. We consider fully optimal policies under commitment as well as optimal simple rules and show that adopting simple rules can achieve most of the gains from fully optimal policies. JEL classification: F13, O13, Q11, Q17, Q18.

Food Grain Policies in India and their Implications for Stocks and Fiscal Costs: A Dynamic Partial Equilibrium Analysis

“…Our study considers prices, price variability and private grain stocks as endogenous market variables. Our equilibrium model allows us to analyse counterfactual scenarios and contributes to the existing research on Indian food-grain policies, for example, by Gouel et al (2016), Gulati and Jain (2013), Gulati and Saini (2014), Pursell (2014), Shreedhar et al (2012) and Srinivasan and Jha (2001). Specifically, we make explicit links between policies and market fundamentals, consider both crops simultaneously, estimate fiscal costs, implement endogenous international prices (large country case) and also provide a solid empirical grounding in actual processes, all of which distinguish this study from previous research on Indian food policy.…”

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

“…From being a chronic food-aid recipient to an oftensignificant net exporter, the Indian wheat market has experienced a significant shift since the 1960s, as evident by the indicators of grain self-sufficiency rate, stocks-touse ratios, and net trade (Gulati et al, 2013). The aggressive drive towards food grain self-sufficiency, which includes expanded irrigation, subsidies for different inputs, full support for farmers who have adopted improved varieties and inputs, relatively stable producer prices, and long-term management of domestic and international price relationships, can be attributed to transformation of the wheat sector in India (Gouel et al, 2016).…”

Effect of public stockholding on wheat price dynamics in India: A quantile autoregression approach

“…High levels of trade intervention, including tariffs and recurrent quantitative restrictions, have been added to the regulations. The policy changes, which aim to boost supply and lower price volatility simultaneously, have succeeded in stabilising wheat prices in India relative to global prices (Gouel et al, 2016;Pursell et al, 2009;Shreedhar et al, 2012;Srinivasan & Jha, 2001). Wheat farmers in India receive support from the government in the form of market price support and budgetary support (Mullen et al, 2005).…”