ifpri - cooling effect of pulse imports on domestic prices, raj chandra, ifpri

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


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


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?


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


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


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



Pigeon pea


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


5.5

66

.57

log

Pri

ce

24

68

10

12

log

Im

po

rt


Import and Market Price of Chickpea


66

.57

7.5

log

Pri

ce

24

68

10

12

log

Im

po

rt


Import and Market Price of Black Matpe

Long Run Dynamics between Imports

and Domestic Prices


Long Run Dynamics between Imports

and Domestic Prices Contd..


Impulse Response Functions- Pigeon Pea

Impulse variable: Prices

Response: Imports

Impulse: Imports

Response: Price


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


Seasonality and Imports: Case of Pigeon

pea


Myanmar

200

00

300

00

400

00

500

00

600

00

Avg

_P

rice

0

.05

.1.1

5

Wee

kly

_Im

po

rt


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


Import_Quantity Domestic_Price

Seasonality and Imports: Case of Pigeon pea

Contd..


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


Thank you!


ifpri - cooling effect of pulse imports on domestic prices, raj chandra, ifpri

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