What Drives India’s Rice Stocks? Empirical Evidence

India has a long tradition of maintaining public rice and wheat stocks. Storage and trade policies helped to stabilize prices in the past. However, stock levels and costs are surging while it remains unknown how different factors quantitatively contribute to public stock levels or how private stockholders are affected. This study addresses these issues by empirically quantifying drivers of public carry-over rice stocks at the national level. Furthermore, it applies a recently developed method and combines it with an instrumental variable approach to quantify determinants of private grain stocks. Public storage is found to be inert and driven by the minimum support price (MSP), market supply, and export bans. Private stocks are driven by private supply (production and private stocks) and export opportunities. Each ton of public stocks crowds out half a ton of private stocks but despite huge government interventions, speculative storage activities persist. This is beneficial for consumers as the public stocks currently offer no crisis-responsive consumer protection – only export restrictions do. The 29% increase of the real minimum support price in 2008 contributed 4.9 million tons to public stocks, the export ban another 3.9. These factors, combined with the bumper harvests in 2010 and 2011, led to the recent surges in public stocks. Findings furthermore indicate that policy makers were aiming to implement price stabilizing policies in the wake of the world food crisis but did not anticipate that these policies would result in massive public stock increases. This underlines the need for adjustments in the current system. Different econometric models are applied as robustness checks and yield comparable results.


Issue Date:
May 24 2016
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/235659
Total Pages:
26
JEL Codes:
Q1; I3
Series Statement:
9178




 Record created 2017-04-01, last modified 2017-08-22

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