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Cooling effect of Pulse
Imports on Domestic
Prices
By
Akanksha Negi, Devesh Roy and Raj Chandra
International Food Policy ...
Imports and Inflation
 Trade fills the gap between production and consumption and can also
contribute to cool down inflat...
Imports and Domestic Price Dynamics:
A quick look
 Annual shortage of around 2-3 million tons of pulses over the past
dec...
Imports and Domestic Price Dynamics:
A quick look contd..
Pulses Total Import Pulses WPI
10-06-2016Raj Chandra
0
0.5
1
1.5...
Objective
 How imports of pulses have affected their domestic
prices?
 What is the nature of effect on pulse prices? Do ...
Methodology
 We employ basic Vector Error Correction Model
Steps:
 Stationarity: Traditional unit root test- DFGLS & KPS...
Data and Variables
 Time Period: 2002-2012
 Data Sources:
Imports: Customs Dataset (Government of India)
Domestic Prices...
Import and Price Dynamics: 2002-2012
Green Gram
5.566.577.5
logPrice
2468
10
logImport
2002w1 2004w1 2006w1 2008w1 2010w1 ...
Import and Price Dynamics: 2002-2012
Pigeon pea
10-06-2016Raj Chandra
66.577.5
logPrice
468
1012
2002w1 2004w1 2006w1 2008...
Import and Price Dynamics: 2002-2012
5.566.57
logPrice
2468
1012
logImport
2002w1 2004w1 2006w1 2008w1 2010w1 2012w1
Date ...
Long Run Dynamics between Imports
and Domestic Prices
The long run dynamics between imports and prices are captured by the...
Long Run Dynamics between Imports
and Domestic Prices Contd..
After controlling for market arrival the cointgrating relati...
Impulse Response Functions- Pigeon Pea
Impulse variable: Prices
Response: Imports
Impulse: Imports
Response: Price
10-06-2...
Seasonality and Imports: Case of Pigeon
pea
 Wide variation in prices is mainly driven by fluctuations in market arrival
...
Seasonality and Imports: Case of Pigeon
pea
10-06-2016Raj Chandra
 Myanmar
2000030000400005000060000
Avg_Price
0
.05
.1
....
Seasonality and Imports: Case of Pigeon pea
Contd..
10-06-2016Raj Chandra
 Low or almost negligible import are associated...
Policy Implication
 Imports and prices needs to be considered in conjunction
 Clear evidence of import and price comovem...
Thank you!
10-06-2016Raj Chandra
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Cooling effect of pulse imports on domestic prices

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Raj Chandra, IFPRI

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Cooling effect of pulse imports on domestic prices

  1. 1. Cooling effect of Pulse Imports on Domestic Prices By Akanksha Negi, Devesh Roy and Raj Chandra International Food Policy Research Institute Raj Chandra 10-06-2016
  2. 2. 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 10-06-2016
  3. 3. 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 10-06-2016
  4. 4. Imports and Domestic Price Dynamics: A quick look contd.. Pulses Total Import Pulses WPI 10-06-2016Raj Chandra 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Quantityinmilliontons 0.0 50.0 100.0 150.0 200.0 250.0 2005 2006 2007 2008 2009 2010 2011 2012 WPI Pulses WPI
  5. 5. 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? 10-06-2016Raj Chandra
  6. 6. 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 10-06-2016
  7. 7. 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 10-06-2016Raj Chandra
  8. 8. Import and Price Dynamics: 2002-2012 Green Gram 5.566.577.5 logPrice 2468 10 logImport 2002w1 2004w1 2006w1 2008w1 2010w1 2012w1 Date in weeks log Import log Price Import and Domestic Price of Green gram 10-06-2016Raj Chandra
  9. 9. Import and Price Dynamics: 2002-2012 Pigeon pea 10-06-2016Raj Chandra 66.577.5 logPrice 468 1012 2002w1 2004w1 2006w1 2008w1 2010w1 2012w1 Date in weeks log Import log Price Import and Domestic Price of Pigeon pea
  10. 10. Import and Price Dynamics: 2002-2012 5.566.57 logPrice 2468 1012 logImport 2002w1 2004w1 2006w1 2008w1 2010w1 2012w1 Date in weeks Import and Market Price of Chickpea 10-06-2016Raj Chandra 66.577.5 logPrice 2468 1012 logImport 2002w1 2004w1 2006w1 2008w1 2010w1 2012w1 Date in weeks Import and Market Price of Black Matpe
  11. 11. Long Run Dynamics between Imports and Domestic Prices The long run dynamics between imports and prices are captured by the cointegrating equation:  Pigeon Pea: 𝒍𝒏𝑷 𝒕 = 𝟐. 𝟕𝟎 − 𝟏. 𝟕𝟏𝒍𝒏𝑴 𝒕  Green Gram: 𝒍𝒏𝑷 𝒕 = 𝟑. 𝟔𝟒 − 𝟏. 𝟑𝟓𝒍𝒏𝑴 𝒕  Lentil: 𝒍𝒏𝑷 𝒕 = 𝟐. 𝟓𝟐−. 𝟓𝟕𝟓𝒍𝒏𝑴 𝒕 *Note: 𝐥𝐧𝐌𝐭 is the log value of imports and 𝐥𝐧𝐏𝐭 is the market price of the respective pulse Raj Chandra 10-06-2016
  12. 12. Long Run Dynamics between Imports and Domestic Prices Contd.. After controlling for market arrival the cointgrating relation can be presented as:  Pigeon Pea: 𝒍𝒏𝑷 𝒕 = 𝟑. 𝟓𝟑 − 𝟏. 𝟓𝟖𝒍𝒏𝑴𝒕 + 𝟎. 𝟎𝟎𝟗𝒍𝒏𝑴𝑨 𝒕  Green Gram: 𝒍𝒏𝑷 𝒕 = 𝟑. 𝟔𝟕 − 𝟏. 𝟏𝟎𝒍𝒏𝑴 𝒕 − 𝟎. 𝟐𝟐𝒍𝒏𝑴𝑨 𝒕  Lentils: 𝒍𝒏𝑷 𝒕 = 𝟐. 𝟔𝟏−. 𝟕𝟕𝒍𝒏𝑴𝒕 − 𝟎. 𝟑𝟐𝒍𝒏𝑴𝑨 𝒕 *Note: 𝑙𝑛𝑀𝑡 is the log value of imports and 𝑙𝑛𝑃𝑡 is the market price of the respective pulse and 𝑙𝑛𝑀𝐴 𝑡 is the market arrival for pulses in one of the principal market 10-06-2016Raj Chandra
  13. 13. Impulse Response Functions- Pigeon Pea Impulse variable: Prices Response: Imports Impulse: Imports Response: Price 10-06-2016Raj Chandra
  14. 14. 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 10-06-2016Raj Chandra
  15. 15. Seasonality and Imports: Case of Pigeon pea 10-06-2016Raj Chandra  Myanmar 2000030000400005000060000 Avg_Price 0 .05 .1 .15 Weekly_Import 2002w1 2004w1 2006w1 2008w1 2010w1 2012w1 Date in weeks Import_Quantity Domestic_Price  Tanzania 0200004000060000 Avg_Price 0 .002.004.006.008 Weekly_Import 2002w1 2004w1 2006w1 2008w1 2010w1 2012w1 Date in weeks Import_Quantity Domestic_Price
  16. 16. Seasonality and Imports: Case of Pigeon pea Contd.. 10-06-2016Raj 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
  17. 17. 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 10-06-2016Raj Chandra
  18. 18. Thank you! 10-06-2016Raj Chandra

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