Post on 16-Jan-2017
transcript
Cooling effect of Pulse
Imports on Domestic
Prices By
Akanksha Negi, Devesh Roy and Raj Chandra International Food Policy Research Institute
Raj Chandra 20-06-2016
Imports and Inflation
Trade fills the gap between production and consumption and can also contribute to cool down inflation (Gokarn, 2011)
Has been employed as a tool to stabilize prices for a spectrum of food products facing price pressures
In case of potential threat of significant price rise, trade policy has been quick and large
When price pressure was faced on wheat in 2006, 6 million tons was imported from Australia
Edible oil is another example
Stop-gap import of milk, sugar, onion and other vegetables represents common policy stance
Raj Chandra 20-06-2016
Imports and Domestic Price Dynamics:
A quick look
Annual shortage of around 2-3 million tons of pulses over the past
decade
Demand outspacing supply both at aggregate level and across variety
resulted in persistently high prices
Liberal trade policy has been adopted in case of pulses since 2000
Import has maintained a steady growth of 36 percent over the past
decade
Evolution of pulse import coincided with persistent increase in prices
To what extent have imports cooled domestic market in pulses is an
interesting question to explore
Raj Chandra 20-06-2016
Imports and Domestic Price Dynamics:
A quick look contd..
Pulses Total Import Pulses WPI
20-06-2016 Raj Chandra
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Quanti
ty in m
illion t
ons
0.0
50.0
100.0
150.0
200.0
250.0
2005 2006 2007 2008 2009 2010 2011 2012
WPI
Pulses WPI
Objective
How imports of pulses have affected their domestic
prices?
What is the nature of effect on pulse prices? Do imports
bring down prices or just slow their rate of increase?
What is the time span for imports to have a bearing on
price of pulses?
20-06-2016 Raj Chandra
Methodology
We employ basic Vector Error Correction Model
Steps:
Stationarity: Traditional unit root test- DFGLS & KPSS
Test for unit root in the presence of structural break-zivot andrews
Cointegration: Johansen’s cointegration test to find the order of integration
VECM was employed to study the dynamics between pulses import and domestic prices
VECM allows to delineate the short run as well as long dynamics
Impulse response graph to visually interpret the short term adjustment by imports to shock in price and vise versa
The cointegrating equation provides the estimate for long run import price equilibrium relationship
Raj Chandra 20-06-2016
Data and Variables Time Period: 2002-2012
Data Sources:
Imports: Customs Dataset (Government of India)
Domestic Prices: Centre for Monitoring Indian Economy Pvt. Ltd (CMIE)
Market Arrival: Centre for Monitoring Indian Economy Pvt. Ltd (CMIE)
Variables:
Imports
Domestic Prices
Market Arrival (Principal Market)
Frequency: Weekly
20-06-2016 Raj Chandra
Import and Price Dynamics: 2002-2012
Green Gram
5.5
66.
57
7.5
log
Pric
e
24
68
10
log
Impo
rt
2002w1 2004w1 2006w1 2008w1 2010w1 2012w1Date in weeks
log Import log Price
Import and Domestic Price of Green gram
20-06-2016 Raj Chandra
Import and Price Dynamics: 2002-2012
Pigeon pea
20-06-2016 Raj Chandra
66.
57
7.5
log
Price
46
810
12
log
Impo
rt
2002w1 2004w1 2006w1 2008w1 2010w1 2012w1Date in weekslog Import log Price
Import and Domestic Price of Pigeon pea
Import and Price Dynamics: 2002-2012
5.5
66
.57
log
Pri
ce
24
68
10
12
log
Im
po
rt
2002w1 2004w1 2006w1 2008w1 2010w1 2012w1Date in weeks
Import and Market Price of Chickpea
20-06-2016 Raj Chandra
66
.57
7.5
log
Pri
ce
24
68
10
12
log
Im
po
rt
2002w1 2004w1 2006w1 2008w1 2010w1 2012w1Date in weeks
Import and Market Price of Black Matpe
Long Run Dynamics between Imports
and Domestic Prices
Raj Chandra 20-06-2016
Long Run Dynamics between Imports
and Domestic Prices Contd..
20-06-2016 Raj Chandra
Impulse Response Functions- Pigeon Pea
Impulse variable: Prices
Response: Imports
Impulse: Imports
Response: Price
20-06-2016 Raj Chandra
Seasonality and Imports: Case of Pigeon
pea
Wide variation in prices is mainly driven by fluctuations in market arrival
The nature of demand and supply for agricultural products creates instability
in prices for producers, consumers and income for farmers
Seasonality is quite important in pigeon pea markets with highest arrivals
during January to March
Lowest arrivals observed in the month of October
Seasonality indices lower during April to June with lowest in the June (0.92)
(IIPR 2013)
With seasonality trade can play important role in evening out prices
Harvest season differs across countries: India- December to January;
Myanmar- January to February and East Africa- July to October
20-06-2016 Raj Chandra
Seasonality and Imports: Case of Pigeon
pea
20-06-2016 Raj Chandra
Myanmar
200
00
300
00
400
00
500
00
600
00
Avg
_P
rice
0
.05
.1.1
5
Wee
kly
_Im
po
rt
2002w1 2004w1 2006w1 2008w1 2010w1 2012w1Date in weeks
Import_Quantity Domestic_Price
Tanzania
02
00
00
400
00
600
00
Avg
_P
rice
0
.00
2.0
04
.00
6.0
08
Wee
kly
_Im
po
rt
2002w1 2004w1 2006w1 2008w1 2010w1 2012w1Date in weeks
Import_Quantity Domestic_Price
Seasonality and Imports: Case of Pigeon pea
Contd..
20-06-2016 Raj Chandra
Low or almost negligible import are associated with the periods of high
domestic prices
With imports coming, in the following period there is seems to be some
association in terms of moderating prices
Big import spikes are associated with fall in prices in subsequent periods
Import series displays a distinct floor in the import and price graph
The density of log imports clearly shows a truncated distribution
Effective way to deal with such truncated distribution is to consider the net
imports
Export data limited as pulses export being restricted due to government
policy
Policy Implication
Imports and prices needs to be considered in conjunction
Clear evidence of import and price comovement
A unitary shock in imports at first leads to a sustained increase in
prices up till 20 weeks, after which price stabilizes
Expansion on extensive margin might speed up things
Roughly imports’ role in cooling pulse markets reflect the reactionary
stance rather than a pro active disposition
Import needs to be operationalized quickly as it takes some time to
bear on prices
20-06-2016 Raj Chandra
Thank you!
20-06-2016 Raj Chandra