Presentation made to Ministry of Agriculture, Government of India
May 24th 2011
Objective
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Prices: Price Behaviour, Volatility
Price Transmission: Farm gate →Wholesale ↔ Retail,
Domestic ↔ International, Thinness of international
market
Consumption: Monetization of economy, Changes in
diet, calorie and nutritional content
Output: Composition of Output, Yield, Efficiency
(NFSM), Ground Truthing
Data Issues and Taxonomy for Agriculture Statistics
Policy Responses to Volatility and Mitigation: Short,
Medium and Long Run – Supply and Demand Side,
Reliance on market mechanism, Trade policy
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Characterising Price Behavior
• Cyclic pattern i.e. swings from trough to peak
• Right skewness: Upward spikes not matched by
similar price decline
• Excess kurtosis: Tails of the price distribution fatter
than the normal
• Time varying volatility: Unstable variance across
time
• Stochastic trend: Random movements across an
average price
• Positive autocorrelation due to storing of
commodities from the harvest to post-harvest season
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Characterising Price Behavior
• Variation of prices over intra harvest period and
distribution of prices across regions
• Volatility - by type of commodity (characteristics)
– Seasonal
– Storage*, Warehouse Receipts
– Futures Market (Why markets function well in
some commodities)
– Market Integration
• Objective 1: Identify Cycles, Temporary / Permanent
Shocks, Structural Factors - Group commodities
based on their price behavior
Literature
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Price Transmission:
Farm gate →Wholesale ↔ Retail
• Imperfect price transmission:
– Incomplete transmission
– Lags in price adjustment between respective stages
in the marketing chain
– Asymmetric responses to positive and negative
price changes
• Market structure matters - Number of market
intermediaries, Differences in volumes transacted in
Mandis, Market integration
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Price Transmission:
Farm gate →Wholesale ↔ Retail
• Asymmetry in transmission from wholesale to retail –
Increase in the wholesale prices is passed on quickly (no.
of days) to consumers as compared to a decrease
• Size and speed of transmission is crucial from policy
perspective
• Frequency of price change and quantum of price change
• Objective 2: Understanding transmission mechanism
Literature
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Price Transmission:
Domestic ↔ International
• Objective 3: To quantify ‘thinness’ of market and
understand its implications for price transmission and
trade policy
• International trade in agricultural commodities by
country commodity pairs. What is the duration and
volume of trade by country commodity pair?
• Composition of India’s (exports and imports) trade
basket & role of tariffs
• Studying impacts (such as trade, welfare and revenue
effects) associated with alternative trade policy scenarios
can be analyzed using the SMART model
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400.0
300000
350.0
250000
300.0
200000
250.0
200.0
150000
150.0
100000
100.0
50000
50.0
0.0
0
WPI Onion
Export Volume
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Consumption
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Looking at
– Trends in Consumption
– Producer: Monetization of the rural economy,
vulnerable to price volatility
– Consumer: Prices, Affordability, Dietary habits
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Consumption
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Inferring food security from consumption patterns
(NSSO Data) Calorific content of India’s
agricultural output, Food Security: Macro →
Household (?) (Markets, Prices, Affordability)
Technology & fortification
Changing patterns in domestic consumption
Objective 4: Secondary data analysis using NSSO
data and NNMB data to understand linkages
between household occupation, poverty and
nutritional value of consumption basket
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Output : Composition and Yields
• Trends in Production and Yields
– Food grains (buffer stocks, PDS) & Non Food
grains
– Vegetables
– Fruits
• The G-20 document talks about Rice, Wheat, Maize –
such a focus is very narrow
• Objective 5: The debate on food-non food crop
production and its impact on prices – Relevance to
India (CGE model)
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Improving Yields
• Bridging Yield Gap - Ensure access to existing
technology, gaps in access & use of technology
across agro climatic regions, developing new
technology (shifts the production frontier collaborate with agricultural scientists)
• Improving Yields - Investments in agriculture and
Investments for agriculture
• Objective 6: Use the unit level cost of cultivation
(input and output) data to understand the extent to
which farmers are away from the production frontier
and quantify the yield gap
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Investments in / for Agriculture
• Objective 7: Analysis of state governments capital
expenditure (1991-2010) on agriculture
• Objective 8: Quality of ‘investments in’ and
‘investments for’ agriculture : Examine specific
schemes – for example RIDF (NABARD)
• Objective 9: Output elasticity of agricultural credit
• Objective 10: Relate the yield gap to quality of
investments in and investments for agriculture –
subject to availability of data on yield gap
• Objective 11: Review paper on role of markets &
institutions
Factors contributing to increase in food
production
• Objective 12: Pilot Study of impact of NFSM
– Role of ATMA
– Convergence with other programmes
• Identify a cluster of villages in one or two districts
where production has increased
• Conduct survey to identify factors
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Validation of Crop Forecasts
• Objective 13: Ground Truthing Exercise *(V.C)
• Developments in remote sensing techniques have
enabled generation of contemporaneous estimates of
crop area and production
• Identify a district covered under National Food
Security Mission for ground truthing the estimates
from remote sensing data
• IGIDR needs to collaborate with ISRO \ National
Remote Sensing Agency in this regard
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Online Digital Portal
• Objective 14: Online Portal
• IGIDR will collaborate with IRIS Knowledge
Foundation (IRIS-KF) to build the online portal on
aspects related to agriculture
• IRIS-KF has developed eSocialSciences, an online
social science portal and Knowledge Community on
Children in India for UNICEF
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Taxonomy for Agricultural Statistics
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Rangarajan Committee – Recommended use of
XBRL. XBRL is now the mandated reporting
standard for banks and companies in India
This reporting standard can be extended to socioeconomics statistics including agricultural statistics
In order to work towards adoption of XBRL
standard it is important to develop a taxonomy
Objective 15: Review paper on improving
agricultural statistics – the role of XBRL
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Deliverables
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Develop a comprehensive interlinked database
Taxonomy for Agricultural Statistics
Knowledge Briefs - 4 Pager
Discussion Papers
Analytical Papers
Dissemination
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Issues for Discussion
• Access to price database (available online and
internally within the ministries), cost of cultivation
data, NNMB data
• Collaboration – Identify partner institutions
• Budget to be finalized upon clarity on scope and
duration of the project
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Recap of Objectives
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Group commodities based on their price behavior
Domestic price transmission mechanism
Frequency of price change
Thinness of international market and its implications
Linkages between household occupation, poverty
and nutritional value of consumption basket
6. Debate on food-non food crop production and its
impact on prices
7. The extent to which farmers are away from the
production frontier and quantify the yield gap
8. State governments capex on agriculture
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Recap of Objectives
8. Quality of investments in and investments for
agriculture
9. Output elasticity of credit
10. Relate the yield gap to quality of investments in and
investments for agriculture
11. Review paper on role of markets & institutions
12. Pilot study on National Food Security Mission
13. Ground Truthing Exercise
14. Online Portal
15. Taxonomy for Agricultural Statistics
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Trend
• Deflated prices of wheat and corn show a downward
trend from 1950 to 2001 (Wright, 2011)
• Trends in the price series studied through the unit root
analysis (Cuddington, 1992; Ghoshray, 2010)
• Long run trends are small as compared to the price
variability (Cashin and McDermott, 2002)
• Decline in the trend is not gradual but takes place in
“installments” i.e the price series have structural
breaks (Zanias, 2005)
Cycles
• Real commodity prices are characterised by longcycles (Hadri, 2010)
• Reasons for the cyclic pattern: Low elasticity of
demand and supply, Speculative bubbles
• Commodity price cycles are characterized by shortlived booms and sharp bursts (Deaton and Laroque,
1992; Deaton, 1992)
• The presence of cycles create booms and busts in GDP
(exports) and hence the estimates of magnitude,
duration and shape of the cycle are important from the
policy perspective
Cycles contd...
• Cashin, McDermott and Scott (1999) date commodity
prices using the Bry-Boschan business cycle
algorithm and estimate the amplitude, duration and
frequency of the cycle. They also examine whether
the duration spent in either boom and slump affects
the probability of a change in the state
• Price slump lasts longer than the booms (Cashin and
McDermott, 2002)
• Labys et al. (2000) use the NBER (Moore, 1980)
chronology to find the timing, frequency and
amplitude of price cycle
Frequency of Price change
• It reflects how quickly prices adjust in response to
changing demand and supply conditions
• Is the frequency of price change equal for both the
wholesale and retail markets at a centre
• How synchronized is the frequency of price change
across different markets in the country
Frequency of Price Change
• Frequency of price change implies the percentage of
price quotes which changed values from their last
month level
• Disaggregated CPI data has been used to understand
the frequency of price change (Bils and Klenow
(2004); Baharad and Eden(2004))
• The aim is to understand whether prices change in a
staggered (State Dependent Pricing) or random
(Time-Dependent Pricing) manner
• Hazard Functions are further used to measure the
predictability of a price change
Frequency of Price Change and Hazard
Function
• Hazard function represents the distribution of the
length of time that elapses from the beginning of an
event until its end (Ikeda and Nishioka, 2007)
• Hazard rate, an outcome of the hazard function
predicts the chances of prices changing in the next
period given that they have remained constant till the
last period.