Agricultural Prices and Production in Post-Reform India by Tripathi Ashutosh Kumar;

Author:Tripathi, Ashutosh Kumar;
Language: eng
Format: epub
ISBN: 1813109
Publisher: Taylor & Francis Group

4.4

SUMMARY

We summarise the analysis of this chapter with the following observations:

First, the behaviour of international market prices of agricultural commodities clearly shows that a country like India cannot afford to excessively rely on the international market. Doing so will make domestic agriculture vulnerable to the developments/policies of the major exporting countries. Although the world demand and supply situation determines the movements in world prices, the output and stockholding policies of major exporting countries still holds large implications for world price movement and stability. To elaborate, in the case of rice, just after the Asian crisis, international price of rice started declining. Low demand from some big importers of rice from Asia and Latin America was one of the reasons behind this decline. on the supply side, India and China’s entry as exporters in the international rice market and domestic policies undertaken by developed countries increased the supply-demand gap. This decline in international prices of rice was accentuated by heavy subsidisation of rice farmers in the USA. The increased direct support to US rice producers by way of counter-cyclical payments to absorb the shock of low prices and maintain their high trading volumes resulted in oversupply of rice in the international market and exacerbated the decline in international rice prices.

Second, the broader conclusion that one can draw from the volatility analysis is lower inter-year variability in domestic market prices compared to international market prices. on the other hand, the higher intra-year variability in domestic markets (except sugar) than the international markets highlights the fact that Indian market prices are more prone to within-the-year fluctuations. The decadal analysis of intra-year variability shows that domestic market prices have witnessed a continuous decline in volatility. In domestic markets, highest volatility was observed in the 1980s followed by the 1990s and the most recent sub-period. The only exception to this was groundnut seed and oil where volatility has increased slightly during the most recent sub-period. In contrast to domestic markets, international market prices showed cyclical movement in intra-year volatility. The decade of the 1990s turned out to be a relatively stable period compared to the 1980s in the case of international market prices for most of the commodities except for rice and wheat. After the 1990s, international market prices again witnessed an increase in volatility with the exception of rice and wheat where volatility has declined relative to the decade of the 1990s. The results from the GARCH model confirm the results obtained by using standard deviation method and show similar pattern of intra-year variability across commodities as observed by the standard deviation method. In sum, comparing data across periods for India and the world separately, we find volatility reduced for most crops in the Indian market, but not so in the global, implying that the world market has become more volatile whereas the Indian market has become less so in recent periods.

Therefore, from the analysis of price volatility, we do not see much ground for granting price volatility a significant role in determining the

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