This document analyzes the role of middlemen in contributing to food inflation in India. It presents a model showing how large retailers or middlemen can artificially create shortages and increase prices through speculative hoarding of perishable commodities like vegetables when the government does not intervene. The model finds that middlemen will not dispose of or destroy food, but instead buffer and sell stock over multiple periods based on expected future prices. Government import and open market sale programs can help reduce inflation both by increasing supply and decreasing speculative hoarding incentives.
Virtual Global Food Reserve Policy to Protect the Poor and Prevent Market Fa...Joachim von Braun
The document proposes a virtual global food reserve policy to address food crises. It consists of two parts: 1) a minimum physical grain reserve for humanitarian assistance, and 2) a virtual reserve and intervention mechanism backed by a financial fund. The virtual reserve would intervene in futures markets when prices rise above estimated price bands, executing silent short sales to lower speculative prices without realizing losses. This mechanism aims to stabilize prices through influencing expectations while minimizing market distortions.
The document discusses the causes and consequences of the 2008 global food crisis and proposes policy changes. It analyzes several long-term trends that contributed to the crisis, including increasing fuel prices, diversion of crops to biofuel production, and the growth of meat consumption. Short-term issues like financial speculation and export bans exacerbated the crisis. Two policy changes are proposed: developed countries should gradually reduce agricultural subsidies while developing countries receive capacity building to improve yields and reduce food waste, in order to ensure adequate food supplies during the transition.
Demand-led market opportunities for farmers in the high value product sector ...Premier Publishers
Market information is indispensable in facilitating marketing of agricultural produce, particularly fresh produce given its high perishability. The purpose of this study was to estimate South African consumers’ demand for vegetables. Demand for six vegetables was analysed via a multi-stage budgeting system, using data from the Household Expenditure Survey and the 2010 edition of the Abstract of Agricultural Statistics. The estimated demand elasticities show that the demand for all vegetables increases with rising per capita income. Most of the vegetables were found to respond substantially to changes in their own prices and in the direction as expected with estimated negative own-price elasticities.
Economic Environment and Performance of Food and Beverage Sub-Sector of a Dev...paperpublications3
Abstract: This paper examines the implications of economic environment on the performance of food and beverage sub-sector of Nigeria. The economic environment is an embodiment of dynamic variables characterized by significant challenges impacting on the food and beverage sub-sector. Performance in this sector is measured in terms of profitability, exchange rate, interest rate, current asset, turnover, market share and return on investment among others. This study therefore serves as report of investigation into the implications of these variables on the performance of food and beverage sub sector. The ordinary least square technique is adopted in the methodology and the result reveals a significant relationship between economic environmental variables and the food and beverage sub-sector. The study advocates a strong public private partnership between government and the sector as well as encouragement of stable exchange rate so as to foster economic growth.
the role of agriculture in economic developmentmajesticmaths
This document discusses the role of agriculture in economic development. It notes that while agriculture's share of GDP is declining, agricultural productivity has been increasing in some regions through higher yields. However, agricultural growth did not lead to as much economic development in Sub-Saharan Africa as hoped. The document examines factors driving changes in agriculture, the relationship between agricultural growth and poverty reduction, linkages between agriculture and other sectors, and inclusion/exclusion of small farms. It questions why, despite investments, agricultural development has not resulted in more success in reducing poverty.
This document summarizes a student thesis analyzing the growth potential of farmers' markets. It reviews literature on farmers' market models, demand and supply factors. On the demand side, population density and social benefits influence attendance. Supply faces risks from weather and lack of crop insurance. The student models a "basket of goods" enterprise using Iowa crop budgets to assess profitability. Capital budgeting shows potential for expansion at a 35% discount rate, suggesting farmers' markets may grow if risks are addressed. Overall, the thesis examines economic and community impacts to determine long-term sustainability of farmers' market expansion.
Virtual Global Food Reserve Policy to Protect the Poor and Prevent Market Fa...Joachim von Braun
The document proposes a virtual global food reserve policy to address food crises. It consists of two parts: 1) a minimum physical grain reserve for humanitarian assistance, and 2) a virtual reserve and intervention mechanism backed by a financial fund. The virtual reserve would intervene in futures markets when prices rise above estimated price bands, executing silent short sales to lower speculative prices without realizing losses. This mechanism aims to stabilize prices through influencing expectations while minimizing market distortions.
The document discusses the causes and consequences of the 2008 global food crisis and proposes policy changes. It analyzes several long-term trends that contributed to the crisis, including increasing fuel prices, diversion of crops to biofuel production, and the growth of meat consumption. Short-term issues like financial speculation and export bans exacerbated the crisis. Two policy changes are proposed: developed countries should gradually reduce agricultural subsidies while developing countries receive capacity building to improve yields and reduce food waste, in order to ensure adequate food supplies during the transition.
Demand-led market opportunities for farmers in the high value product sector ...Premier Publishers
Market information is indispensable in facilitating marketing of agricultural produce, particularly fresh produce given its high perishability. The purpose of this study was to estimate South African consumers’ demand for vegetables. Demand for six vegetables was analysed via a multi-stage budgeting system, using data from the Household Expenditure Survey and the 2010 edition of the Abstract of Agricultural Statistics. The estimated demand elasticities show that the demand for all vegetables increases with rising per capita income. Most of the vegetables were found to respond substantially to changes in their own prices and in the direction as expected with estimated negative own-price elasticities.
Economic Environment and Performance of Food and Beverage Sub-Sector of a Dev...paperpublications3
Abstract: This paper examines the implications of economic environment on the performance of food and beverage sub-sector of Nigeria. The economic environment is an embodiment of dynamic variables characterized by significant challenges impacting on the food and beverage sub-sector. Performance in this sector is measured in terms of profitability, exchange rate, interest rate, current asset, turnover, market share and return on investment among others. This study therefore serves as report of investigation into the implications of these variables on the performance of food and beverage sub sector. The ordinary least square technique is adopted in the methodology and the result reveals a significant relationship between economic environmental variables and the food and beverage sub-sector. The study advocates a strong public private partnership between government and the sector as well as encouragement of stable exchange rate so as to foster economic growth.
the role of agriculture in economic developmentmajesticmaths
This document discusses the role of agriculture in economic development. It notes that while agriculture's share of GDP is declining, agricultural productivity has been increasing in some regions through higher yields. However, agricultural growth did not lead to as much economic development in Sub-Saharan Africa as hoped. The document examines factors driving changes in agriculture, the relationship between agricultural growth and poverty reduction, linkages between agriculture and other sectors, and inclusion/exclusion of small farms. It questions why, despite investments, agricultural development has not resulted in more success in reducing poverty.
This document summarizes a student thesis analyzing the growth potential of farmers' markets. It reviews literature on farmers' market models, demand and supply factors. On the demand side, population density and social benefits influence attendance. Supply faces risks from weather and lack of crop insurance. The student models a "basket of goods" enterprise using Iowa crop budgets to assess profitability. Capital budgeting shows potential for expansion at a 35% discount rate, suggesting farmers' markets may grow if risks are addressed. Overall, the thesis examines economic and community impacts to determine long-term sustainability of farmers' market expansion.
India is experiencing high inflation due to structural imbalances like agricultural shortages and fuel price rises. Allowing foreign direct investment in multi-brand retail could help reduce inflation by introducing more organized supply chains, increasing competition, and cutting out middlemen. Global retailers would bring more efficient warehousing and distribution systems, lowering costs. This would offset existing inefficiencies and waste. Increased investment and job creation could also raise disposable incomes and consumption, while farmers may earn more through better linkages to retailers. However, local small retailers may find it harder to compete. On balance, organized retail expansion is expected to put downward pressure on inflation over the long run.
This study sets to assess the effect of government intervention on economic development adopting Songhai Development Initiative Farm in Rivers State of Nigeria as a case study. It adopted the survey design with the instruments of personal observations, interviews and questionnaires to collect the required data. The data has internal consistency of 0.87, test-retest reliability of 0.85 (p < 0.001), split-half reliability of 0.82 (p < 0.001). The mean of 3 points was chosen as a cut off point for accepting or rejecting each of the items in the Likert’s scale. The Chi-square was also used to test the hypothesis. All items have mean (X ̅) that are higher than the cut-off mark and this is supported by low standard deviation for all the items which depicts a low variation of the observations from the mean. With the calculated Chi-square greater than the table value (i.e 30.34957 > 21.026) in absolute term, the study concludes that there is a significant relationship between Songhai Development Initiative Farm and the economic development. It, therefore, recommended that such and similar government direct involvements in the agricultural and other sectors should be encouraged for optimum benefits in output, job creation, income, social welfare and technological advancement.
The agricultural sector in Eswatini is viewed as an engine to foster economic growth, reduce poverty and eradicate inequality. The purpose of the study was to investigate the effects of monetary policy on the agriculture Gross Domestic Product (GDP) in Eswatini using annual data for the period starting from 1980 to 2016. Using the Vector Error Correction model (VEC), the empirical results indicated that in the long run, agriculture GDP, exchange rate, interest rate, inflation, broad money supply, and agriculture credit have a negative effect on agriculture GDP in Eswatini. In the short run the study indicated that the variation in agriculture GDP is largely significant caused by the lagged agricultural GDP, interest rate, exchange rate as well as inflation. Money supply and agriculture credit contribute 0.46% and 0.55%, respectively to the variation in agricultural GDP. The study recommends that programs aimed at availing affordable credit to farmers should be prioritized to cushion the agriculture sector against adverse monetary policy shocks in the short to medium term, specifically interest rates, to ensure continuous production.
The economic impact of agricultural development on poverty reduction and welf...Caroline Chenqi Zhou
This study employs quantitative and qualitative methods to identify the relationship between agricultural development, poverty reduction, and income inequality. Building upon the World Bank’s Enabling the Business of Agriculture study (2016) and data from the World Development Indicators (2015) for the years 2000 to 2014, we test two hypotheses. The first pertains to agricultural development and poverty reduction to assess to what extent agricultural development reduces poverty. The second, in a similar fashion, addresses the relationship between agricultural development and income inequality. To supplement our quantitative analysis of these questions, we include a case study of agricultural development, agricultural policy reforms, and their impact in Vietnam and Tanzania. We find evidence that agricultural development reduces poverty.
Rethinking agricultural development,the caribbeanDebbie-Ann Hall
This document summarizes the evolution of thinking around agricultural development and reviews agricultural development strategies in the Caribbean. It traces how development thinking shifted from prioritizing industrialization to recognizing agriculture's role in economic growth. While early strategies in the Caribbean focused on import substitution and export crops, recognition is growing that agricultural development is essential for food security, economic growth, and poverty reduction. The challenges now are to craft new strategies that boost domestic food production through improved policies, infrastructure, research, and support for small farmers.
This document is a term paper submitted by Khadija Sohail to the Head of the Department at Lahore College for Women University. The paper examines the factors affecting food inflation in Pakistan. It begins with an introduction that defines food inflation and discusses its impact. Section 2 provides a literature review of previous studies on food inflation. Section 3 discusses the theoretical framework. Section 4 covers the methodology and data analysis. The paper aims to determine the key factors driving food price increases in Pakistan and examine the relationship between food prices, monetary factors, and administrative prices. It tests the hypotheses that monetary expansion and weak administrative factors have contributed to food inflation.
Food inflation occurs when the prices of food items consistently rise over a period of time rather than seasonally or suddenly. In Pakistan, food inflation has fluctuated over the past few decades from as low as 1.68% in 1999-2000 to as high as 26.61% in 2008-2009. High food inflation significantly impacts poorer segments of the population where food constitutes a larger portion of expenses. Common causes of food inflation in Pakistan include a lack of agricultural infrastructure, volatile weather conditions, increases in global food and oil prices, black market activities, and shortages in supply. Potential solutions involve cracking down on hoarding and black markets, allowing greater private sector imports, improving storage facilities, and releasing buffer stocks in a timely
Fair trade aims to address issues of hunger and poverty among farmers by creating direct communication between producers and consumers. It ensures farmers receive a fair price for their products and have more involvement in the market. Three main issues exacerbating hunger are rising food prices, the global financial crisis, and increasing crop failures due to climate change. Fair trade could help by providing stability for farmers during economic difficulties and allowing them to better withstand effects of crop loss. The document argues fair trade is needed to help farmers survive and developing countries become more productive food producers.
This document examines the relationship between stock market indices and macroeconomic variables in India during the post-globalization period. It provides background on studies that have explored this relationship in other countries and contexts. The study uses secondary data on macroeconomic indicators and the BSE Sensex index from 1992-2011. Growth trends are analyzed using linear, exponential, and quadratic functions to understand how variables have moved over time. Preliminary results suggest several macro variables like GDP, capital formation, savings, and money supply have grown significantly and accelerated over the period, while others like industrial output and gold prices have had slower or decelerating growth. The analysis aims to better understand the direction and nature of the relationship between the Sensex and macroeconomic factors
The literature review discusses several past studies on India's tea export trends and the impact of trade openness. Chand and Tiwari analyzed growth and instability in India's agricultural exports from 1974-1990. Subramaniam analyzed how fluctuations in India's tea production and exports impacted international tea trade. Nagoor examined India's tea export performance and factors influencing exports and production under WTO. The review aims to analyze India's tea export trends under trade openness and suggest policy recommendations.
The implication of farmers’ behavior to the household economic income through...inventionjournals
ABSTRACT : This research is intended to identify, analyze, and theoretically and empirically explain: the effect of farmers’ behavior and farmers’ economic decision; the effect of farmers’ behavior with farmers’ household income; farmers’ economic decision with farmers’ household income; and farmers’ behavior with farmers’ household income through farmers’ economic decision.This research is an explanation (explanatory research), which explain the causal relationship among the research variables by the testing of hypothesis. The population in this research is farmers’ household in Minahasa regency. With samples of this research are 120 respondents. Purposive sampling is used to collect the data and the data analysis of this research using path analysis. The results of the research showed that: farmers’ behavior directly and significantly effect to the economic decision. farmers’ behavior directly effect to farmers household income; economic decision is directly and significantly effect to the farmers household income; farmers behavior is indirectly and significantly to the farmers household with economic decision as intervening variable.
Agricultural economics deals with how producers, consumers and societies use scarce resources in producing, processing, marketing and consuming food and fiber products. Agricultural development refers to changes in the agricultural sector and overall economy over time as countries become richer. As countries develop, the share of agriculture in GDP, employment and consumer spending declines while the service sector grows. Agricultural policy aims to influence the farm and agribusiness sectors through policies related to inputs, production, consumption and trade.
The document discusses inflation in India, including its types, causes, measurement, and current trends. It provides details on key inflation indices like the wholesale price index and consumer price index. Recent inflation in India has fallen towards zero inflation due to several factors: a large drop in international crude oil prices, stagnant food prices, compressed demand from lower rural wages and spending, and tight monetary policy from the RBI. However, the document notes this decline may not be sustainable as the key drivers of falling prices are volatile and outside monetary policy control.
Group No 5 Presents on food inflation in India. Food inflation has remained stubborn in recent years due to factors like increasing demand from higher rural wages, rising agricultural costs, and changes in consumption patterns. The document discusses the history of food production in India including the pre-Green Revolution period and the impacts and stages of the Green Revolution. It also summarizes recent trends in domestic and global food inflation and the role of supply constraints like oil prices. Other topics covered include the impacts of policies like MGNREGA, taxation, fiscal stimulus, and issues with the APMC Act and public distribution system.
This document discusses inflation in India, including defining different types of inflation rates and causes of inflation. It outlines how inflation is measured in India using the Wholesale Price Index and Consumer Price Index. The document then analyzes current factors contributing to low inflation rates in India, such as falling international crude oil prices and lower food price increases. It also discusses potential consequences and sustainability issues regarding India's recent achievement of near-zero inflation rates.
This document analyzes food inflation in Bangladesh over the past 12 years. It finds that both short-term factors like natural disasters and high oil prices, as well as long-term factors like poor agricultural policies, trade liberalization, and currency depreciation have contributed to rising food inflation. Food inflation has increased income inequality and pushed millions into poverty. While farmers see higher food prices, middlemen ensure farmers do not benefit from the price increases.
India has been facing high and persistent inflation in the last five year except in the interviewing year of 2009-10. High growth during this period facilitated a steep rise in incomes, which in turn pushed up the purchasing power of the population. The surge in demand triggered inflationary pressures, particularly in sectors where supply lagged behind. WPI inflation averaged 7.5 per cent in the five year period, which is way higher than the RBI’s comfort threshold of 5 per cent. One of the main drivers of inflation during this period has been the high food prices. Total food inflation (primary and manufacturing, herewith referred to as food inflation in the article) has averaged 10.3 per cent during the period under consideration. To be sure, in the current fiscal, even though overall WPI inflation has averaged 5.3 per cent in the first five months (April-August), food inflation has remained high at 9 per cent.
This persistence in flood inflation is a matter of concern for the policy makers as it affects the common man most profusely. In this article, we analyse the various aspects of food inflation- trying to answer the how’s and why’s coupled with the required policy prescription to tame the same.
Food inflation in India is currently at -1.03% according to the Wholesale Price Index. Rising production costs, speculation, and external factors like increasing crude oil prices are contributing to food inflation. High food inflation reduces purchasing power and forces many to borrow money. The government is trying to control inflation through monetary policy changes and subsidizing food prices, while also aiming to increase agricultural productivity and reduce farm-to-retail price gaps. Ensuring sufficient food production to support population growth is important to prevent high inflation in the future.
The document discusses the current state of inflation in India. Food inflation has been driving overall inflation, reaching 9.5% in March 2012 according to the Wholesale Price Index. The main reasons for inflation are cited as hoarding by trader cartels, the growing influence of large corporations in the food economy, issues in Indian agriculture including low productivity and farmer distress, and increases in input costs like fuel and fertilizer prices. Steps proposed to control food inflation include strengthening public distribution systems, curbing corporate influence, prohibiting commodity futures trading in food items, and subsidizing agricultural inputs.
India is experiencing high inflation due to structural imbalances like agricultural shortages and fuel price rises. Allowing foreign direct investment in multi-brand retail could help reduce inflation by introducing more organized supply chains, increasing competition, and cutting out middlemen. Global retailers would bring more efficient warehousing and distribution systems, lowering costs. This would offset existing inefficiencies and waste. Increased investment and job creation could also raise disposable incomes and consumption, while farmers may earn more through better linkages to retailers. However, local small retailers may find it harder to compete. On balance, organized retail expansion is expected to put downward pressure on inflation over the long run.
This study sets to assess the effect of government intervention on economic development adopting Songhai Development Initiative Farm in Rivers State of Nigeria as a case study. It adopted the survey design with the instruments of personal observations, interviews and questionnaires to collect the required data. The data has internal consistency of 0.87, test-retest reliability of 0.85 (p < 0.001), split-half reliability of 0.82 (p < 0.001). The mean of 3 points was chosen as a cut off point for accepting or rejecting each of the items in the Likert’s scale. The Chi-square was also used to test the hypothesis. All items have mean (X ̅) that are higher than the cut-off mark and this is supported by low standard deviation for all the items which depicts a low variation of the observations from the mean. With the calculated Chi-square greater than the table value (i.e 30.34957 > 21.026) in absolute term, the study concludes that there is a significant relationship between Songhai Development Initiative Farm and the economic development. It, therefore, recommended that such and similar government direct involvements in the agricultural and other sectors should be encouraged for optimum benefits in output, job creation, income, social welfare and technological advancement.
The agricultural sector in Eswatini is viewed as an engine to foster economic growth, reduce poverty and eradicate inequality. The purpose of the study was to investigate the effects of monetary policy on the agriculture Gross Domestic Product (GDP) in Eswatini using annual data for the period starting from 1980 to 2016. Using the Vector Error Correction model (VEC), the empirical results indicated that in the long run, agriculture GDP, exchange rate, interest rate, inflation, broad money supply, and agriculture credit have a negative effect on agriculture GDP in Eswatini. In the short run the study indicated that the variation in agriculture GDP is largely significant caused by the lagged agricultural GDP, interest rate, exchange rate as well as inflation. Money supply and agriculture credit contribute 0.46% and 0.55%, respectively to the variation in agricultural GDP. The study recommends that programs aimed at availing affordable credit to farmers should be prioritized to cushion the agriculture sector against adverse monetary policy shocks in the short to medium term, specifically interest rates, to ensure continuous production.
The economic impact of agricultural development on poverty reduction and welf...Caroline Chenqi Zhou
This study employs quantitative and qualitative methods to identify the relationship between agricultural development, poverty reduction, and income inequality. Building upon the World Bank’s Enabling the Business of Agriculture study (2016) and data from the World Development Indicators (2015) for the years 2000 to 2014, we test two hypotheses. The first pertains to agricultural development and poverty reduction to assess to what extent agricultural development reduces poverty. The second, in a similar fashion, addresses the relationship between agricultural development and income inequality. To supplement our quantitative analysis of these questions, we include a case study of agricultural development, agricultural policy reforms, and their impact in Vietnam and Tanzania. We find evidence that agricultural development reduces poverty.
Rethinking agricultural development,the caribbeanDebbie-Ann Hall
This document summarizes the evolution of thinking around agricultural development and reviews agricultural development strategies in the Caribbean. It traces how development thinking shifted from prioritizing industrialization to recognizing agriculture's role in economic growth. While early strategies in the Caribbean focused on import substitution and export crops, recognition is growing that agricultural development is essential for food security, economic growth, and poverty reduction. The challenges now are to craft new strategies that boost domestic food production through improved policies, infrastructure, research, and support for small farmers.
This document is a term paper submitted by Khadija Sohail to the Head of the Department at Lahore College for Women University. The paper examines the factors affecting food inflation in Pakistan. It begins with an introduction that defines food inflation and discusses its impact. Section 2 provides a literature review of previous studies on food inflation. Section 3 discusses the theoretical framework. Section 4 covers the methodology and data analysis. The paper aims to determine the key factors driving food price increases in Pakistan and examine the relationship between food prices, monetary factors, and administrative prices. It tests the hypotheses that monetary expansion and weak administrative factors have contributed to food inflation.
Food inflation occurs when the prices of food items consistently rise over a period of time rather than seasonally or suddenly. In Pakistan, food inflation has fluctuated over the past few decades from as low as 1.68% in 1999-2000 to as high as 26.61% in 2008-2009. High food inflation significantly impacts poorer segments of the population where food constitutes a larger portion of expenses. Common causes of food inflation in Pakistan include a lack of agricultural infrastructure, volatile weather conditions, increases in global food and oil prices, black market activities, and shortages in supply. Potential solutions involve cracking down on hoarding and black markets, allowing greater private sector imports, improving storage facilities, and releasing buffer stocks in a timely
Fair trade aims to address issues of hunger and poverty among farmers by creating direct communication between producers and consumers. It ensures farmers receive a fair price for their products and have more involvement in the market. Three main issues exacerbating hunger are rising food prices, the global financial crisis, and increasing crop failures due to climate change. Fair trade could help by providing stability for farmers during economic difficulties and allowing them to better withstand effects of crop loss. The document argues fair trade is needed to help farmers survive and developing countries become more productive food producers.
This document examines the relationship between stock market indices and macroeconomic variables in India during the post-globalization period. It provides background on studies that have explored this relationship in other countries and contexts. The study uses secondary data on macroeconomic indicators and the BSE Sensex index from 1992-2011. Growth trends are analyzed using linear, exponential, and quadratic functions to understand how variables have moved over time. Preliminary results suggest several macro variables like GDP, capital formation, savings, and money supply have grown significantly and accelerated over the period, while others like industrial output and gold prices have had slower or decelerating growth. The analysis aims to better understand the direction and nature of the relationship between the Sensex and macroeconomic factors
The literature review discusses several past studies on India's tea export trends and the impact of trade openness. Chand and Tiwari analyzed growth and instability in India's agricultural exports from 1974-1990. Subramaniam analyzed how fluctuations in India's tea production and exports impacted international tea trade. Nagoor examined India's tea export performance and factors influencing exports and production under WTO. The review aims to analyze India's tea export trends under trade openness and suggest policy recommendations.
The implication of farmers’ behavior to the household economic income through...inventionjournals
ABSTRACT : This research is intended to identify, analyze, and theoretically and empirically explain: the effect of farmers’ behavior and farmers’ economic decision; the effect of farmers’ behavior with farmers’ household income; farmers’ economic decision with farmers’ household income; and farmers’ behavior with farmers’ household income through farmers’ economic decision.This research is an explanation (explanatory research), which explain the causal relationship among the research variables by the testing of hypothesis. The population in this research is farmers’ household in Minahasa regency. With samples of this research are 120 respondents. Purposive sampling is used to collect the data and the data analysis of this research using path analysis. The results of the research showed that: farmers’ behavior directly and significantly effect to the economic decision. farmers’ behavior directly effect to farmers household income; economic decision is directly and significantly effect to the farmers household income; farmers behavior is indirectly and significantly to the farmers household with economic decision as intervening variable.
Agricultural economics deals with how producers, consumers and societies use scarce resources in producing, processing, marketing and consuming food and fiber products. Agricultural development refers to changes in the agricultural sector and overall economy over time as countries become richer. As countries develop, the share of agriculture in GDP, employment and consumer spending declines while the service sector grows. Agricultural policy aims to influence the farm and agribusiness sectors through policies related to inputs, production, consumption and trade.
The document discusses inflation in India, including its types, causes, measurement, and current trends. It provides details on key inflation indices like the wholesale price index and consumer price index. Recent inflation in India has fallen towards zero inflation due to several factors: a large drop in international crude oil prices, stagnant food prices, compressed demand from lower rural wages and spending, and tight monetary policy from the RBI. However, the document notes this decline may not be sustainable as the key drivers of falling prices are volatile and outside monetary policy control.
Group No 5 Presents on food inflation in India. Food inflation has remained stubborn in recent years due to factors like increasing demand from higher rural wages, rising agricultural costs, and changes in consumption patterns. The document discusses the history of food production in India including the pre-Green Revolution period and the impacts and stages of the Green Revolution. It also summarizes recent trends in domestic and global food inflation and the role of supply constraints like oil prices. Other topics covered include the impacts of policies like MGNREGA, taxation, fiscal stimulus, and issues with the APMC Act and public distribution system.
This document discusses inflation in India, including defining different types of inflation rates and causes of inflation. It outlines how inflation is measured in India using the Wholesale Price Index and Consumer Price Index. The document then analyzes current factors contributing to low inflation rates in India, such as falling international crude oil prices and lower food price increases. It also discusses potential consequences and sustainability issues regarding India's recent achievement of near-zero inflation rates.
This document analyzes food inflation in Bangladesh over the past 12 years. It finds that both short-term factors like natural disasters and high oil prices, as well as long-term factors like poor agricultural policies, trade liberalization, and currency depreciation have contributed to rising food inflation. Food inflation has increased income inequality and pushed millions into poverty. While farmers see higher food prices, middlemen ensure farmers do not benefit from the price increases.
India has been facing high and persistent inflation in the last five year except in the interviewing year of 2009-10. High growth during this period facilitated a steep rise in incomes, which in turn pushed up the purchasing power of the population. The surge in demand triggered inflationary pressures, particularly in sectors where supply lagged behind. WPI inflation averaged 7.5 per cent in the five year period, which is way higher than the RBI’s comfort threshold of 5 per cent. One of the main drivers of inflation during this period has been the high food prices. Total food inflation (primary and manufacturing, herewith referred to as food inflation in the article) has averaged 10.3 per cent during the period under consideration. To be sure, in the current fiscal, even though overall WPI inflation has averaged 5.3 per cent in the first five months (April-August), food inflation has remained high at 9 per cent.
This persistence in flood inflation is a matter of concern for the policy makers as it affects the common man most profusely. In this article, we analyse the various aspects of food inflation- trying to answer the how’s and why’s coupled with the required policy prescription to tame the same.
Food inflation in India is currently at -1.03% according to the Wholesale Price Index. Rising production costs, speculation, and external factors like increasing crude oil prices are contributing to food inflation. High food inflation reduces purchasing power and forces many to borrow money. The government is trying to control inflation through monetary policy changes and subsidizing food prices, while also aiming to increase agricultural productivity and reduce farm-to-retail price gaps. Ensuring sufficient food production to support population growth is important to prevent high inflation in the future.
The document discusses the current state of inflation in India. Food inflation has been driving overall inflation, reaching 9.5% in March 2012 according to the Wholesale Price Index. The main reasons for inflation are cited as hoarding by trader cartels, the growing influence of large corporations in the food economy, issues in Indian agriculture including low productivity and farmer distress, and increases in input costs like fuel and fertilizer prices. Steps proposed to control food inflation include strengthening public distribution systems, curbing corporate influence, prohibiting commodity futures trading in food items, and subsidizing agricultural inputs.
The document discusses inflation in India. It provides statistics showing India's inflation rates for wholesale and consumer prices are high at 7.55% and 10.36% respectively in May 2012. The chairman of an economic advisory council notes that while growth is slowing in India, inflation remains at a high level unlike other countries where growth and inflation are both low. The document then examines the nature and causes of inflation in India, including supply shocks from food and fuel price increases, trade deficits, and political instability. It argues that inflation in India is more structural due to issues like bottlenecks in the agriculture sector rather than monetary causes. Finally, it discusses how organized retailing in India could help reduce inflation by improving supply chain efficiency and increasing
This document is a presentation on inflation that defines inflation as a rise in prices over time and discusses its measurement and causes. It examines quality and quantity theories of inflation and how inflation is measured using price indices like the consumer price index. The presentation also outlines different types of inflation and explores the effects of inflation on areas like production, income distribution, and foreign trade. It analyzes the negative effects of inflation and costs like money losing value. The presentation concludes by considering measures that can be used to control inflation such as monetary policy, wage and price controls, and cost of living allowances.
Inflation is defined as a sustained increase in the general price level in an economy over a period of time. It can be caused by demand-pull factors like excess money supply or cost-push factors like increases in production costs. There are three main types of inflation - creeping inflation (under 5%), running inflation (8-10%) and hyperinflation (double or triple digit price increases). Governments use monetary policy like increasing interest rates and fiscal policy like increasing taxes or reducing spending to control inflation. Both demand-pull and cost-push inflation impact the economy by hurting consumers and fixed income groups.
This document presents information about inflation from an economics perspective. It defines inflation as a rise in general price levels over time that reduces purchasing power. Causes include demand-pull and cost-push factors. Effects are on investment, interest rates, exchange rates, unemployment, and purchasing power. Types are based on degree of government control, political conditions, and scope. Controlling inflation involves monetary measures like interest rates and fiscal measures like taxation. The conclusion is that low inflation enables slow economic growth while excess money leads to higher costs.
This document discusses inflation including its definition, types, causes, effects, measurement, and measures to control it. Inflation is defined as a sustained increase in prices or fall in the value of money. The main types are open, suppressed, galloping, and hyper inflation. Key causes include an increase in money supply and deficit financing. Effects include inefficiencies in markets and uncertainty discouraging investment. Inflation is primarily measured using the Consumer Price Index. Measures to control inflation involve monetary, fiscal, and other policies like increasing production and implementing price controls.
Study of Lifestyle Trends on Changing Food Habits of Indian Consumersiosrjce
Global markets have increased the plethora of options available to Indian consumers. With the clear
shift in consumer tastes and preferences, food companies have also capitalized on the same. While Indian
consumers are still not as heavily impacted by the obesity epidemic like some other developed nations – there is
a clear shift; one which does not augur well for the health of the average citizen. The objective of this paper was
to identify these key lifestyle trends that have emerged over the dozen years or so – and understand the way they
are changing food habits. For this purpose, we talked to 600 respondents across 6 cities in India. The research
was conducted using a questionnaire administered online and through CATI. The results overwhelmingly show
that there is a shift from opting to eat at home to opting to eat out. Also interestingly awareness about harmful
effects of processed foods was high but the reason for consumption was attributed primarily to ease of purchase.
The implications of the research are an attempt to ensure that key steps are taken by public officials: such as a
tax on unhealthy foods, subsidies for healthy food, and promotion of healthy norms. Also FSSAI guidelines need
to strengthen to ensure that customer awareness increase and food companies opt for a more transparent
communication platform.
This document provides a review of literature related to food security and insecurity. It discusses several studies that have examined issues like chronic and transient food insecurity, the evolution of the concept of food security, the buffer stock policy, impact of population growth and income on food demand, food demand projections, causes of food insecurity at national and household levels, and the relationship between liberalization, trade, agriculture, and food security. The review covers topics such as food availability and accessibility in the context of economic reforms, and the role of the Public Distribution System in providing food security.
International Journal of Humanities and Social Science Invention (IJHSSI)inventionjournals
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Responding to the Global Food Crisis Three Perspectives .docxdebishakespeare
Responding to the Global Food Crisis:
Three Perspectives
global
food
E S S A Y S
Responding to the World Food Crisis: Getting on the Right Track • Joachim von Braun
High Global Food Prices: The Challenges and Opportunities • Josette Sheeran
Policy Implications of High Food Prices for Africa • Namanga Ngongi
pricesprices
The dramatic rise and volatility of food prices over the last year have shaken the global food system. Governments and the international development
community generally have responded to various
aspects of the food crisis, but questions remain about
whether the right actions are being pursued, how best
to respond, and what the future holds.
The three essays here by Namanga Ngongi, president
of the Alliance for a Green Revolution in Africa,
Josette Sheeran, executive director of the World Food
Programme, and Joachim von Braun, director general
of the International Food Policy Research Institute,
respond to these critical questions. They point to the
dangers and pitfalls of misguided policies, but also to
the very real opportunities for responding in a way
that prevents future crises and assures food security
now and in the long term.
1
Responding to the World Food Crisis: Getting on the Right Track
How effective will these responses be in
actually ameliorating the food and agriculture
crisis? Are they likely to move the world closer
to or farther from a resilient and sustainable
food system that can supply the food needs
of all people? After all, the point is not just to
do something, but to do the right thing. So far,
however, although some sound actions have
been taken in response to high food prices to
mitigate the crisis, many others appear likely
to exacerbate it and further distort the fair
and efficient functioning of the food system.
But crises can also offer opportuni-
ties by causing a rethinking of basic issues
and assumptions. There is no doubt that the
crisis in food and agriculture poses tremen-
dous risks and hardships for poor people. At
the same time, it also has the potential to
stimulate changes that will improve the func-
tioning of the global food system for years to
come, although it is important to be aware of
the potential cynicism of seeing “opportuni-
ties” in crises that hurt many. Careful policy
action can alleviate the current crisis while
also reducing the chances of another such
crisis in the future and in fact helping reduce
poverty and hunger overall.
Agriculture trAnsformed
by new forces
Over the past century, the world has seen
only three major spikes in food prices: one
occurred after World War II, the second took
place in the 1970s, and the third is underway
now. Otherwise, international food prices have
generally followed a slow decline since the
1870s. At the same time huge fluctuations
have occurred at country and regional levels,
especially in Africa.
Now, the world’s farmers are operating
in a context where new forces ar ...
This document is a term paper submitted by a student for their BSC degree in economics. It includes information identifying the student such as their name, roll number, and department. The paper analyzes trends in economic growth, inequality, and poverty across Indian states since the early 1990s. It seeks to address questions related to defining poverty lines in India, measuring poverty accurately, the next steps in poverty reduction, the impact of economic reforms on regional inequality, and the relationship between growth and inequality reduction. The paper includes an abstract, introduction discussing key concepts, objectives, a literature review, methodology, data analysis, and conclusions.
Achieving sustainable food security for allYacinta Esti
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- India's inflation forecasts for 2011 have been revised upwards to between 7.7-7.2% due to persistent structural issues in agriculture and food industries that have prevented them from keeping up with growing demand.
- The key drivers of inflation have been high food prices, particularly for fruits and vegetables, as well as metals prices. Inflation is expected to remain high due to inefficiencies in India's agricultural supply chain and reliance on monsoon rains.
- To reduce inflation over the long term, India needs to address issues like lack of irrigation, small landholdings, inefficient supply chains, and low agricultural productivity through policy changes and infrastructure development.
Speculation in food commodity derivatives markets contributed to the huge spike in global food prices between 2007-2008. The deregulation of these markets in the 1990s and 2000s allowed large financial institutions like Goldman Sachs to create commodity index funds, drawing huge amounts of speculative capital into food commodities. By 2008, speculators dominated long positions in key food crops like maize and wheat. This speculation amplified price movements driven by real supply and demand factors, causing food prices to rise over 80% in a year and contributing to increased global hunger.
When i was going through articles about food inflation thought to compile and present it in a simple way for the benefit of all. It talks about what is inflation, causes for inflation and ways to resolve...
This document discusses the impacts of rising global food prices in Asia. It finds that while domestic food price inflation in Asia is not as severe as global inflation, rising prices still threaten growth and poverty reduction. Food price increases are driven by factors like increased demand from China and India, biofuel mandates, commodity speculation, and high oil prices. Countries responded with both export restrictions and increased imports, exacerbating the crisis. Higher prices negatively impact the poorest consumers, though rural agricultural producers may benefit. Overall, food inflation poses challenges but responses can help mitigate threats to the poor.
Evaluation of the Impact of Biofuels on Food PricesFGV Brazil
Evaluation of the Impact of Biofuels on Food Prices - November 2011
At the end of 2008, FGV Projects sponsored a survey to analyze the determining factors behind food prices. Among the main conclusions of the study, it was established that the expansion in the production of biofuels – more precisely ethanol from sugar cane – was not a relevant factor for the rise in food prices observed over the course of the year 2008. What really contributed decisively to the rise in food prices was speculation in the futures markets and an increase in demand at a time when world stockpiles were low.
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See more at: http://fgvprojetos.fgv.br/en/publicacao/evaluation-impact-biofuels-food-prices
To request a proposal from FGV Projetos, please visit: http://fgvprojetos.fgv.br/en/contact-us
RUNNING Head: IMPACTS ON FOOD SYSTEMS. 1
IMPACTS ON FOOD SYSTEMS 8
Impacts of Food Systems.
Students Name.
Institutional Affiliation.
Impacts on food systems.
Introduction
Sustainability in food systems entails the provision of the food security and nutrition which are essential to maintain and promote the living condition of the people under the earth (Ericksen, Ingram, & Liverman, 2009). The food system is according to the four pillar that defines its implication in any society. These four pillars are stability, availability, utilization and access. According to Food and Agriculture Organization, food security refers to “all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food which meets their dietary needs and food preferences for an active and healthy life”(Source, FAO SOFI 2011).
When four pillars are conjoined together with the sustainability and nutrition, a desirable food system foundation is therefore achieved. With such food programs, they will mainly lead in making a multiple SDS (Sustainable Development Goals). Because of these to monitor and provide a desirable food system in any country, a Global Food System Index is crucial in tracking and monitoring progress. In the ultimate of the global food system, we address the six important dimensions by the GFSI which traces their progression. These critical dimensions are social sustainability, health and nutrition consumptions, environmental productivity, climate and ecological sustainability and market dynamics (Shown in Figure 1).
Therefore the ideal goal of a food system tries to effectively dialogue challenges to ecological and human welfare transversely in all of its phases. The dimension arrives from the theories and concepts involving food systems which will inform and guide the relevant managerial personnel in their decisions after the consideration of the report on the available data’s provided in concern of the behaviors portrayed by the target group like tourists in any environment when food is involved for life sustenance.
Global economic growth in investments, trade, food and Market Dynamic
Food system synthesis propels the global financial increase in investment, trade and food prices — they makeup all that happens and is the boundaries of the market dynamic as stated to be one of the critical dimensions guiding the food systems and its synthesis. To have a desirable food system, we require to have: an interaction in food supply chains which functions with all fundamental priors in the whole food system and also a well-operating trade and market dynamics (McCarthy, Lipper, & Branca, 2011). Using good trade and market strategies we can regulate and reduce the adverse effects caused by the market astonishment and hence drastically.
I NEED A+, 5-6 pages EssayWhitepaper on Food SecurityThekarinorchard1
I NEED A+, 5-6 pages Essay
Whitepaper on Food Security
The members of the United Nations found great value in the whitepaper you provided on population growth. They are now asking you to expand the whitepaper to include global food security as it relates to population growth and poverty. Read the overview and provide an assessment based on the questions below.
I.
Overview
We can define global food security as the effort to build food systems that can feed everyone, everywhere, and every day by improving its quality and promoting nutritional agriculture (1). That said, there are certain practices that can advance this project:
Identifying the underlying causes of hunger and malnutrition
Investing in country-specific recovery plans
Strengthening strategic coordination with institutions like the UN and the World Bank
Encouraging developed countries to make sustained financial commitments to its success
We must bear in mind that more than 3 billion people—nearly one-half of the world’s population—subsist on as little as $2.50 a day, with nearly 1.5 billion living in extreme poverty on less than $1.25 a day. According to the World Health Organization, the United Nations, and other relief agencies, about 20,000 people (mostly children) starve to death in the world every day, for a total of about 7 million people a year. In addition, about 750 million (twice the population of the United States) do not have access to clean drinking water, meaning that some one million people die every year from diarrhea caused by water-borne diseases.
The earth’s population has grown since it reached 7 billion in 2010. It is expected to reach 8 billion in 2025, 9 billion in 2040, and 11 billion by the end of the 21st century (2). If the demand for food is predicted to rise 50% by 2030 and 70% by 2050, the real problem is not necessarily growing enough food, but rather making that amount available to people. Moreover, food illnesses are prevalent, with nearly 600 million reported cases of foodborne diseases each year. These mainly affect children but can also negatively impact the livelihood of farmers, vendors, trade associations, and ultimately, can reduce the Gross Domestic Product (national income) of a country. These issues can impose tremendous human, economic, social, and fiscal costs on countries, so addressing them allows governments to devote more resources to making desperately needed infrastructure improvements that raise the quality of life for everyone.
It is not enough to have adequate supplies of food available. Policies that focus exclusively on food production can exacerbate the problem, particularly if, to satisfy the need for quantity, the quality of the food is left wanting.
Reasons for Food Insecurity
Certainly, poverty and the contributing systemic internal conditions are the driving factors behind keeping adequate food resources from reaching people, but it is only one of several. Others are discussed next.
Inadequate Foo ...
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1. Developing Country Studies www.iiste.org
ISSN 2224-607X (Paper) ISSN 2225-0565 (Online)
Vol 2, No.1, 2012
Food Inflation in India and Role of Middlemen: The Case of
Speculative Buffering and Government Intervention
Hiranya Lahiri1
2. Jadavpur University, Kolkata-700032, West-Bengal, India
* E-mail of the corresponding author: hiranyaeco@gmail.com
Abstract
In India, the major driver of recent food inflation has been vegetables, pulses and oilseeds for which there is no
public procurement. This paper aims to model the behaviour of big retailers or middlemen who hoard such
perishable commodities and add to food inflation by creating artificial shortages due to speculative hoarding.
The paper shows the adverse impact of speculative buffering on average price. Lastly the paper argues that
import of food items and execution of open market sale by the government will help to reduce inflation not only
by bridging the supply gap, but also by reducing speculative buffering.
Keywords: Food inflation, Buffering, Open-Market Sale.
1. Introduction
Food inflation has become a major cause of concern for not only the common-man, but also for the policy
makers. Of late, high inflationary, pressure particularly double digit food inflation since October 2008 is turning
out to be a spoilsport in an otherwise robustly growing Indian economy. Food prices in India started increasing
since mid-2008 onwards. The year 2010 witnessed overall inflation rate crossing 10% for five consecutive
months. Inflation based on year-on-year wholesale price index (WPI) of primary food articles, still rules high at
above 10% (in November 2011). Several factors like drought-induced shortages in food supply, rising
international prices, various tiers in the value-chain are deemed to be the major reasons for food inflation in
India. Greater government spending leading to increased money supply, structural changes in demand patterns,
etc. are being cited as some other major reasons behind this high food inflation.
The problem of food-inflation is not new in India. The country has already witnessed many episodes of food-
inflation. It can be shown that apart from random supply-shock, which is held responsible for the recent surge in
food inflation, there is also a clear supply-demand gap. On the other hand, due to increase in income as well as
population pressure, the growth rate in demand has been increasing. Because of this widening gap, many
economists have provided some long-term solutions. These mainly involve increasing the productivity of crops
and augmenting the supply of food-grains (Chand, Gulati, Shinoj and Ganguly, 2011). Chand et.al. (2011)
advocate a proper export-import policy that will enable a sustainable availability of food grains in every year
depending upon the domestic production. Vimani and Rajeev (2001), advocate a lowering of Minimum-Support
Price (MSP), as a long-term solution for bringing down the overall price level. In their opinion, the word
minimum should cover only the variable cost of production. But these authors fail to capture the fact that this
channel will work only for those items for which there is a public procurement. In recent times, the major
drivers of food inflation have been onions, sugar, oilseeds and vegetables for which there is no public
procurement. Further, a lowering of MSP may not alter the market price if the amounts the middlemen (big-
retailers) pay to the farmers enter as a fixed cost in their profit function. In fact, in many situations, the price that
the farmers receive from the middlemen is subsistence price, and the increase in market price is often not passed
to the direct producer of crops. This paper adds this aspect in its analysis and shows that for the speculators, a
change in MSP may have no effect on overall price level.
The major problem with the above studies is that these are only long-term solutions. Since food inflation affects
a huge section of the Indian population who live at the brink of starvation, the government has to rely on short-
term measures as well. Also, none of these studies captures the reality of the Indian agricultural market, where
the entire value-chain is comprised of many stages between the initial production stage executed by the farmers
and the final stage of sell to the consumers by the small retailers. The present paper brings in this aspect
neglected in the afore-mentioned studies by analyzing the behaviour of the big retailers/ middlemen/ traders who
purchase crops from the farmers and hoard them, before they sell it in the final market to either the small
retailers or the ultimate consumers. The paper, by bringing in this aspect adds to the existing literature how the
behaviour of these traders can be affected so that they do not further contribute to supply shortages and therefore
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to food inflation by speculative buffering.
The role of middlemen or speculators has not been comprehensively studied in the literature. The major area of
concern for economists in this area has been whether the behaviour of the speculators is based on adaptive
expectation or on rational expectation (Chavas, 1999; Gillespie and Schupp, 2002; Holt and Mc. Kenzie, 2003).
While the former study deals with expectation formation in US pork market, the latter two are concerned with
the US ostrich and broiler markets respectively. Hardly an endeavour has been made in regulating their
behaviour. Chavas’ empirical attempt finds that in US pork market, expectation formation is mainly backward
looking (for 73% of the players considered) and only 19% of the players have rational expectation. In Gillespie
and Schupp, there is evidence against rational expectation in US ostrich industry due to lack of information. In
the early stage of development of this industry, speculators expected future demand to increase and this led to a
price rise for ostrich. However, markets did not grow as expected, and this led to a price crash in the latter
stage. In Holt and Mc. Kenzie, the authors fit a quasi rational model to US broiler industry and find that in
addition to the quasi-rational forecast, the true supply shock, future price and ex-post commodity price forecast
errors have at times been influential in producer’s price expectation. This study says that the extent of supply
shock affect price expectation.
However, none of these studies can be likened to the Indian market for agricultural products for various reasons.
First, in India, the market for pork or ostrich is very thin and supply shock in these markets hardly has an effect
on overall food inflation. Secondly, food inflation in India is mainly attributable to food grains like wheat, rice,
pulses and recently to vegetables. And thirdly, though price for meat and animal protein have increased over the
years, it is not due to a supply shock but due to an increased demand for nutrition led by higher income of
people. The kind of asymmetric information adduced as a reason for failure of expectation process being
rationally formed in Gillespi and Schupp is not applicable in the Indian case, as markets for food products are
stable (atleast in the short-run) and food inflation is primarily due to supply shock. The present paper considers
this aspect. Further, it assumes that it is the supply shock that affects the expectation of the traders about future
price and thus buffering by these agents (as in Holt and Mc. Kenzie). One relevant study that has focused on the
Indian rice market is due to Ramaswamy (2000), where the author points the absence of rational expectation in
the Indian wheat market. He argues that the agents make regular error in predicting future price. However, even
this study does not talk about actions that the government can take to regulate their behaviours and cool down
rice price.
The aim of this paper is to study how the decisions of the big-retailers/ traders or speculators affect the open-
market price during a supply crunch, and secondly to see if government intervention in the form of Public-
Distribution System can have favourable impact on the open market price. In reality, we get to see both types of
situations: for some crops like rice, wheat, pulses, sugar there is government procurement of these items from
the farmers, and analogously for other types of food items like vegetables or fruits, government does not
intervene in the functioning of the market. The purpose of this paper is to see how the middlemen (synonymous
with traders or big retailers in this paper) aggravate food-price inflation in these two cases during a negative
supply shock by the act of speculative buffering. Naturally, if the degree of food inflation is lower in the former
case, we argue that there is a case for intervention of the government in the latter case as well. This model is cast
in a partial-equilibrium framework. Thus, food inflation is synonymous with general inflation. The rest of the
paper is arranged as follows. Section 2 examines the behaviour of traders in aggravating food inflation due to
their speculative buffering in the absence of government intervention (i.e., PDS). Section 3 talks about the
policy intervention, that is, what the government can accomplish to reduce the inflationary impact of a negative
supply shock. Section 4 draws the conclusion of the paper.
2. Role of Middlemen in a Perfectly Competitive Set-Up under Exogenous Expectation and without
Government Intervention
Let us now formulate the behaviour of middlemen in creating food-price inflation. Since there are many crops
like onion, vegetables, fruits and others for which there is no public procurement, we concentrate on this case.
We assume that there are a very large numbers of traders (middlemen) who purchase crops directly from the
peasants at subsistence price . This model is cast in a perfectly competitive set-up, so that none of the traders
has any market-power in either the market from which they buy crops from the farmers, or in the market in
which they sell crops to the final consumers (or say, for the matter of fact to the small-retailers. But here we
assume that the big retailers sell directly to the final consumers). Let each middleman purchase ̅ amount of
food grain, which we assume to be exogenous. The reason why we take the marketable surplus as exogenous is
because the amount of harvest is a function of the decisions taken by the peasants at the previous period. Since
there is no public procurement for this type of crops, there is no restriction on the price paid to cultivators being
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equal to the procurement price. The amount of output purchased by the middlemen is contingent on the decision
taken by the cultivators regarding acreage area, input subsidies received and other market conditions. We further
assume that this amount of produce is exogenous to the model. The middlemen behave as follows: they
purchase ̅ amount of grain at the beginning of period t directly from the cultivators. Out of the total amount
they purchase, they decide how much to sell in period t to the final consumers and how much to carry over for
sell in the next period, t+1. In period t+1, no further arrival of crop occurs. Fresh stock comes only at period t+2.
The reason for this assumption is as that while production and harvest occurs only once or twice during a year,
consumption occurs through out the year. For simplicity we assume production and harvest occurs at t while
consumption occurs twice; at t and at t+1.
Let denote the amount of buffering done by a representative trader at period t. Obviously, if qt is the total
amount of grain sold in period t, then ̅ . Out this amount of buffered grain, a trader decides ,
that is how much to sell in t+1. Let the cost of buffering be given by ̅ . Moreover, out of this buffered
amount let fraction of the grain gets perished in by period t+1 and the entire amount of grains are perished
beyond t+1. That is grains last maximum for two periods. The incorporation of this fraction, , is necessary to
include transportation cost in the model (ala, the famous ice-berg model due to Samuelson), apart from
capturing the perishable nature of vegetables, fruits and other food items. This assumption is essentially valid
for vegetables, a major source for of the recent food inflation. Thus in period t+1, a trader can sell the maximum
amount 1 ̅ .
In period t, the trader knows the price, however, in period t+1, he is unaware of the price due to lack of perfect
foresight. He can only guess the future price and depending upon this expected price, he decides his optimum
allocation between period t and t+1. Let be the expected price of food crop in period t+1.
The trader faces two constraints: first, total sale ( ) and total amount of wastage ̅
1 ̅ }] must sum upto total amount of grain purchased ( ̅ . Secondly, total sale in t+1 must
be less than or equal to effective buffering, i.e.,
1 ̅ .
A representative trader will maximize his profit subject to the previous two constraints.
Mathematically,
Max.
̅ ̅
s.t
1 ̅ (1)
̅ 1 ̅ ̅ (2)
At equilibrium, (1) implies (2), and thus, we neglect constraint (2) from the maximizing problem.
The Lagrangian is given by:
̅ ̅ 1 ̅
With the Kuhn-Tucker conditions being:
!" !" !" !"
0, !# 0, 0, 0
!#$ $&' !( !(
!"
Now, 0 implies,
!#$
2 ̅ 1 (3)
!"
And 0 implies:
!#$&'
*0 (4)
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and thus,
!"
!(
+0 (5)
Therefore,
1 ̅ (6)
Lemma 1: A representative trader will not dispose or destroy any part of the food grain (contrary to Basu,
2011). That is, the often heard argument that traders purposely waste/ dispose a part of his procurement and
allows it to rot, in order to reap higher price per unit creating artificial shortage is not found to be true in this
model. The intuition is that, since fresh stock appears at t+2, and grains are perishable beyond two periods, it is
profitable for the traders to sell the entire amount of effective buffer stock.
Substituting (4) in (3) and solving for , and we get:
1
,$ -.̅ / /0 ,$&'
(7)
-
Now, it might be feasible that + ̅ . As a result, the entire amount of output will be sold in period t itself. This
kind of a situation will emerge if ̅ is very small or the fixed is very high. We neglect this kind of solution, as
the main aim of the study is to capture speculative activity of the traders which requires inter-temporal storage
and sell. Now,
1
/0 ,$&' /,$
̅ (8)
-
This result marks a departure from the result derived in Basu (2011) where hoarding had nothing to do with
speculation. Clearly, if agents expect the future price to increase, their buffering increases. In his paper, hoarding
is simply the gap between procurement and sale. As a result, the profit maximizing output in cournot
competition is an outcome of the profit maximizing exercise, sans any speculation.
Now,
1
/0 ,$&' /,$
1 (9)
-
Determination of equilibrium prices
Let there be n number of traders. Thus total supply of food grain at period t and t+1 denoted by 23 456 23
is n times the individual supply of grain given in (7) and (9) respectively. Now, let the demand curve be given by
27 4 and 27 4 for the two periods respectively. Market equilibrium is given by:
23 27
And for period t+1 we have,
23 27
That is:
1
,$ -.̅ / /0 ,$&'
5 4
-
1
∗ 9- : /0 ,$&' / :-.̅
Or, (10)
: -
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1
∗ 9-/: /0 ; ,$&' /:; .̅ /0 9: /0
And : -
(11)
Therefore equilibrium output levels and amount of food buffered are given by:
1
∗ 9/ /0 ,$&' -.̅
(12)
: -
1
∗ /0 :.̅ /9 /0 /0 ; ,$&'
(13)
: -
1
∗ :.̅ /9 /0 ,$&'
(14)
: -
Definitely, we need to assume that these variables take positive values. We need another additional assumption
here for this system of equations to given by (10) to (14) to be positive and meaningful. Since the equilibrium
values of prices and quantities are functions of n, the total number of middlemen, we must make n satisfy two
conditions: first, n must be sufficiently large enough so that none of the traders are able to exercise any influence
on price, i.e., agents are price takers. Secondly n must not be too large so that all short-run profits are
eliminated. In other words n must be such that there is some positive profit.
2.1 Comparative Static Result: Negative Supply Shock
Let us now assume that there is a negative supply shock in output. Our main purpose is to see how speculative
buffering adds to price inflation. Considering exogenous expectation, we assume that as there is a negative
supply shock, traders expect future (t+1) prices to increase. Since the traders learn about supply shock at the
beginning of period t, they can at best assume that future prices will increase, i.e.,
1
!,$&'
!.̅
+0 (15)
Now, differentiating equations (10) to (14) w.r.t. , and using (15), we get:
<=1
$&' /
∗
!,$ : /0 :-
<>
+0 (16)
!.̅ : -
<=1
$&'
∗
!#$ / /0 -
<>
*0 (17)
!.̅ : -
<=1
$&'
∗ /0 :
!?$ <>
@+ 0 (18)
!.̅ : -
1
∗ /: /0 ; <=$&' /:; /0
!,$&' <>
@+ 0 (19)
!.̅ : -
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1
∗ /0 ; <=$&' : /0
!#$&' <>
@+ 0 (20)
!.̅ : -
And ∗ ∗
!#$&' !,$&'
@+ 0 ↔ *0 (21)
!.̅ !.̅
Therefore, as and when there is a crunch is food supply, price in period t necessarily increases and output
supplied in period t necessarily decreases. What is noteworthy is that, had traders had no expectations about a
hike in period t+1 due to a supply shock then the increase in price would have been unambiguously less.
Buffering (hence, output sold in t+1) can either increase or decrease and accordingly prices in period (t+1)
would decrease or increase post negative supply shock.
Lemma 2: Contrary to the general perception that middlemen will increase buffering and under-supply the
market, we discern that buffering may actually decrease during a supply shock, i.e., we can have
<=1
$&'
∗
!?$ ( /0) :
<>
* 0.
!.̅ : -
Lemma 3: When buffering actually decreases post supply shock, price in period (t+1) automatically increases,
whereas, whenever buffering increases due to supply shock, price in period (t+1) decreases, contrary to general
perception that speculative behaviour is always inflationary.
Now, for speculative behaviour to inflationary in (t+1) as well, we need:
<=1
$&' /:; (
∗
!,$&' /:( /0); /0)
<>
+ 0.
!.̅ : -
This will be the case when
1
!,$&' :
B B+ .
!.̅ /0
This is the same condition for buffering to decrease due to a supply shock. The intuition for this is: when agents
expect future prices to rise less in response to a supply shock, they tend to buffer less and this adds to future
inflation. Since all traders are identical, this behaviour leads to relatively lower supply in period t+1. Thus for
larger value of future expected price, ∗ increases and ∗ decreases. In other words, when the above inequality
holds, agents expect future prices to rise less and thus they supply relatively more in period t and relatively less
in period (t+1). Thus, due to lower supply in period (t+1) food price increases in this period.
Lemma 4: Though future price expectation by traders increase inflation in period t, it actually helps to lower
inflation in period (t+1).
(the reason is the same as for lemma 3).
What happens to the average price?
∗ ∗ 1
,$ ,$&' 9 C- : :( /0) :0( /0)!,$&' /:.̅ - :( /0)
We define the average price (AP) by: (22)
(: -)
Now, carrying out the usual comparative static result of a negative supply shock, we see that
<=1
$&' /
!DE :0( /0) :-/:; ( /0)
<>
+0 (23)
!.̅ (: -)
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Thus average price unambiguously increases due to a supply shock. The second and the last term on the
numerator gives the pure marginal impact on average-price of a negative supply shock while the first term
denotes the further increase in the average due to expectation formation by the traders. Thus, it is clear that the
effect of a supply shock is further aggravated by the speculative behaviour of the middlemen. What is more
interesting is that, price expectation has a detrimental effect of average price. Thus, even though there might be
food-price deflation in the second period, average price will always increase. Infact greater the amount of
deflation in period (t+1) more is the overall food price inflation. The reason is clear. Since higher inflation due
to speculative behaviour by agents leads to greater amount of buffering and thus lower supply in period t
causing food price inflation, the opposite happens in period t+1.
Therefore, it is in the interest of the consumers and policy makers to keep the value of future expected price to a
minimum level, if not at zero. This brings us to the policy intervention by the government so that this objective
can be realized.
3. Policy Intervention
In this section we look at the various possible ways in which the government intervention can salvage the
economy from the pangs of food price inflation as well as affect the behaviour of middlemen so that so that their
expectation of a future price rise during a supply shock can be kept to a minimum. It must be noted in this
context that it is the expectation of a future price rise due to a supply shock that adds further to the increase in
average price. If somehow the expectation of a future price rise due to a supply shock can be moderated by
government’s policies, then the inflationary impact on food price will be less. This is evident from the
expression given in (23). The first term on the numerator gives the aggravation of inflation due to agents’
expectation of a future price due to the supply shock. The second and the third term are induced by the actual
supply shock. Therefore, the extent of food-price inflation can be sort of reduced if the increase in can be
moderated. We must also note that in a Marshallian framework, price will certainly increase if supply is
reduced. In this section, we try to discern how the behaviour of the middlemen can be controlled so that the
extent of price rise is not worsened.
3.1 Reliance on import and ban on export
This has been the conventional measure that the government of India has resorted to various times in the event
of a supply shock. Though there have been cases that the country has exported food items despite low
production because of higher global price than domestic price, the government must have clear cut policy that
will determine whether export should be carried out or not in such events. Since the data on acreage of crops,
weather conditions, pests etc are available to the government prior to harvest, this gives leverage to the
government to decide on whether to export a particular crop, and if yes, then how much.
Moreover, in the wake of a negative supply shock, the government should rely on imports. With a clear-cut
import policy of the government, the traders will know that if there is a supply shock, then import channels will
tend to operate and hence final supply in the market will increase to the extent that prices are stabilized. What
must be borne in mind is that, small retailers (in this model the consumers) must be able to purchase the
imported grain at a price less than equal to what they have to pay to the big retailers or the middlemen. In other
words, the government might need to give a subsidy so that cost to the retailers does not increase. With a policy
of this sort, the expectation of a future price hike will tend to be small, if not zero. This will happen because
traders will know that markets will be flooded with imported goods that will drive down the final price. This
will put a rein to speculative buffering. Needless to say, this policy will increase the fiscal deficit
The effect of export ban and greater import will be felt on the domestic currency. Since exports imply supply of
foreign currency and imports imply demand for foreign currency, export ban and greater import will put
downward pressure on the domestic currency. Under the managed float exchange rate regime that we have, RBI
will intervene in the foreign currency market by going for a monetary contraction, if the exchange rate shoots
the comfortable ceilings. As a result two opposite effects will occur. The depreciation will boost exports of the
non-agricultural sector, and hence output and employment, monetary contraction will reduce this initial
expansion somewhat by crowding out investment and reversing the improvement of the trade balance by
offsetting the initial depreciation of the currency. The actual direction of employment and output of the non-
agricultural sector will depend on the relative strength of the monetary contraction vis-à-vis the exchange rate
depreciation. If the monetary contraction is such that the exchange rate settles back at its initial level,
unambiguously the non-agricultural sector will shrink. However, if the exchange rate intervention is small there
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will be some expansion in the external sector but decline in investment will tend to lower final output.
Therefore, whenever the country has to resort to imports of food, it is best for the economy if the RBI does not
intervene in the foreign-exchange market, and allows the currency to depreciate. But in this case, the expansion
of the non-agricultural sector will lead to increase in the indirect demand for agricultural products, which will
contribute to further food inflation.
Another problem that might arise in this case is that import price may even be higher than the open market price.
In that case, a subsidy will be required to the retailers/ final consumers who will be able to purchase the grain
from the government at a price lower than equal to the open-market price. Higher the amount of import, lower
will be the open-market price, and thus, lower will be future price expected by the middlemen. Now, the
problem with subsidy is that, it hampers development and poverty alleviation program of the government. But it
must be borne in mind that this type of subsidy is only of a transient nature. Moreover, if the RBI does not
intervene in the foreign-exchange market so that expansion occurs in the non-agricultural sector, the government
will earn greater revenue which will take care of a part of the increase in the fiscal-deficit due to the subsidy.
3.2 Open market sale
If there is already some short-run profits, increasing the number of traders will help reduce prices of food-
grains. Also, as the food market is very large, there is a very high degree of competition among the trader.
Whenever, the number of middlemen increases, the short-run profit that accrues to an individual players
decreases. Moreover, as n increases, agents will expect the future price to increase by a lower amount. This in
turn increases the possibility of a decline in prices in both the periods. Average price is also likely to decrease
due to an increase in n.
However, in the short-run, increasing the number of traders may not be feasible, as this is a long-run solution.
By the time new players enter the market, it will be time for a new harvest. Thus, in this case, one possible
solution is that the government itself has to enter the market as sellers; by purchasing grains from the peasants
directly at subsistence price (in case of no public procurement of this crop) and selling the crop in the open
market at market price. In other words, there should be open market sale.
Mathematically, if R is the amount of open-market sale (and we assume that in both the periods, the government
procures and sell R amount of the crop), then the demand function would be 27 4 F and 27
4 F(1 . Hence, the equilibrium price levels for the two periods are given by:
1
∗ - 9/G : /0 ,$&' / :-H
(24)
: -
Here, I denotes the amount of food procured by the middlemen. Since the government procures a total amount
of 2F, we have the following identity : 2F I ̅ . Now,
1
∗ - : :0 9/G /: /0 ; ,$&' /:; H /0 G0 : -
: -
(25)
Therefore, the effect of a negative supply shock on the prices for the two periods, when the government
increases the open-market sale (R), is given by:
<J <=1
$&' / <J <=1
$&' / <J
∗
!,$ / - : /0 :- / : /0 :- - :/
<> <> <> <> <>
(26)
!.̅ : - : -
Now, unambiguously, an increase in open-market sale will have cooling down effect on the first-period price in
the event of a negative supply shock, as the third term on the numerator of the above expression is positive.
Similarly,
1
∗ /: /0 ; <=$&' /:; /0
<J
: /0 :/ :0/ - /0
!,$&' <> <>
(27).
!.̅ : -
Now, the third term on the numerator of the above expression will be positive when the following relation holds:
: :/ 0:
+ (28).
/0
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Given the fact that in perfect-competition, n takes a very large figure, the relation in (28) will automatically
hold. This implies that an increase in open-market sale will tend to lower the inflationary impact of a negative
shock on the price during period t+1.
Hence, increase in open-market sale by the government will have cooling down effect on prices for the two
periods in the event of a negative supply shock.
Regarding the behaviour of the average price, we know that during a negative supply shock, average price will
increase, when the prices in both periods rise, or, price rise in period t is stronger than the decline in price for
period t+1. But in the both the cases, an open market sale will bring down the average price.
Mathematically,
<=1
$&' / <J
!DE :0( /0) :-/:; ( /0) :( /0)( :/ ) :0 - ( :/ )/( /0)
<> <>
.
!.̅ (: -)
Since the third term on the numerator is always positive, increasing open-market sale will have a favourable
impact on average price when there is a supply shock.
One advantage of this open market sale in case of those crops for which there is no public procurement is that,
there cannot be any backflow of grains back to the FCI go-downs when the government purchase of food is at
subsistence price. Since the government gets the information about a poor crop before the harvest, the
government policy should be to directly purchase food grains from the peasant at subsistence wage and sell at
market price. Since market price is always higher than the subsistence price, there is no incentive for
arbitrageurs to purchase grains at the open market and sell it back to the government, thereby reaping arbitrage
opportunities. However, as open market price is higher than the subsistence price, there is no need to provide
any subsidy. Infact this will in turn improve the fiscal position of the treasury. First and foremost, there will
revenue accretion because of this kind of purchase and sell by the government, and secondly, low food price will
give a boost to the non-agricultural sector. The reason why it is so is that, low food price implies greater amount
of income that can be spent on the non-agricultural sector. Low agricultural prices will increase non-agricultural
good’s demand and will provide an expansion to growth and employment in this sector. Finally, this will further
add to government’s revenue.
Critics will however not advocate any purchase of crops by the government from the farmers at subsistence
price. Since the concept of government intervention in food market is associated with a welfaristic conception, it
might not be politically feasible for any government to buy crops at subsistence price. Infact, due to a supply
shock, already incomes of farmers decrease, and thus, if the government procures at subsistence price, this move
will see much resistance and criticism. Now, it is easy to see that any procurement price which is less that
market price will ensure that the system is viable. Point to be noted is that, if government intervention does not
take place, then competition among traders will ensure that peasants are getting subsistence price, only. Hence
government intervention cannot worsen the plight of the farmers further. But as this may not be politically
feasible (and also it may not be ethically correct since farmers suffer huge loss when their crops get destroyed,
and some protection must be offered to them) the practical solution will to stipulate a procurement-price which
is greater than the subsistence price, but lower than the open-market price. In this case, the system will be viable
and along with this, the problem of backflow of grains back to the government’s storehouses can be taken of.
However, since government has to compete in quantities with the traders in fetching output from the farmers,
the easiest and surest way in which the government can increase its procurement and consecutively sell in the
open market, is by issuing quotas to the big retailers. In times of lower harvest, the amount of quota should
decrease while the government can actually dismantle the quota system in times of normal or bountiful supply.
But care must be taken so that export of these crops does not occur to such an extent that it leaves an
unfavourable impact on prices in times of normal or super-normal harvest. Not only will this system will fetch
additional revenue to the government by selling quotas, but will also boost output in the non-agricultural sector
due to low agricultural prices as outlined in former case.
5. Conclusion
This paper does not deal in the exact expectation formation mechanism of the traders, but just assumes that they
expect a future price rise when they see a supply shock. In fact, the essence of the model lies in the exogenous
expectation regime. Since the agriculture market is too large, it is rational to assume absence of rational
expectation. The absence of rational expectation is further proved in Ramaswamy (2000).
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10. Developing Country Studies www.iiste.org
ISSN 2224-607X (Paper) ISSN 2225-0565 (Online)
Vol 2, No.1, 2012
This paper provides a theoretical foundation to the behaviour of big retailers. It shows how big retailers decide
on the on the amount of hoarding on the basis of their future price expectation. It further shows that agents do
not voluntarily destroy any part of output with the hope of reaping higher revenue in the future, when they see
that the present price has increased. Since food inflation has become a major problem in India during the past
three years, it is high time that the government takes some concrete short-term as well as long-term steps to put
the reins on soaring prices. This paper spells out some plausible short-run steps that the government can take,
without imposing must fiscal costs.
The contribution of this paper is primarily on the stabilizing effects of price intervention and output intervention
by the government. Government intervention not only affects directly the open-market price in this model, but
also indirectly affects the future expectations of prices formed by traders. A clear-cut policy will carry the signal
the traders about the possible direction of government intervention in the event of a supply shock, and thus
would insulate the price of output from the destabilizing speculation of the agents. When the agents know that
the government intervention will moderate the extent of the shock, their expectation of a serious price rise will
also be moderated. As a result, the food inflation will be purely due to the extent of shock and not due to wrong
hoarding actions of the middlemen. This is essentially how the government can control the behaviour of the
middlemen
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