Dynamic Supply Response for pulses in India: Role of price and non-price factors

Akshay Bhatnagar Pramod Kumar Joshi

Avinash Kishore Devesh Roy

May 31st, 2016 , New Delhi

Introduction

• Neglected by Green Revolution

• India’s position in the world:

• 33% of area

• 25% of production

• 27% of consumption

• Imports 3 - 4 million tones of pulses every year

• Important source of protein

• Per capita availability decreasing – 60 g/day in 1950 & 31.6

g/day in 2011

Increasing domestic supply is critical

Government tried several schemes to boost production

• Pulses Development Scheme (4th FYP) (1969-70 to 1973-74)

• National Pulses Development Project (7th FYP) (1985-86 to

1989-90)

• Special Food Grain Production Program (1988-89)

• ISOPOM – (2004)

• NFSM-Pulses (A3P) – (2007-08)

• Special Plan to achieve 19+ Million tonnes of Pulses

production during Kharif (2012-13)

• To study the dynamic supply response of pulses

• To study the factors affecting relative area allocation to pulses

• Price versus non-price factors

• If supply not price responsive- why?

Objectives of our study

Preview of results

• Price factors do not account for supply response

• Non-price factors like rainfall deficit significant

• There can be issue of risk premium precluding response to prices

• Do farmers intensify cultivation instead of increase cropped area in response to increase in prices?

7

Crops Particulars

(1960-70)

-

(1971-90)

-

(1991-2000)

-

(2000-2010)

Chick Pea

Area -21.64 - 18.46 17.68 6.43

Production - 9.73 - 18.06 39.19 12.3

Yield 14.98 0.51 19.02 5.12

Pigeon Pea

Area 8.26 32.54 -1.89 3.37

Production 10.68 42.6 -5.81 7.64

Yield 2.4 7.32 -3.99 3.91

Total Pulses

Area - 8.02 3.31 - 0.93 2.25

Production - 0.87 10.34 2.15 14.08

Yield 7.97 6.72 3.67 11.23

Wheat

Area +26.11 48.53 15.62 3.18

Production 95.54 171.58 42.55 12.13

Yield 55.13 82.98 23.33 8.73

Paddy

Area 11.88 10.46 8.72 - 1.53

Production 33.77 70.56 28.55 10.34

Yield 19.72 54.00 18.54 12.09

(Percentage change)

Comparative Performance of pulses & cereals

Pulse landscape in India

• Not much increase in area and yield over the last 5 decades • Crowded out by cereals

• Moved away from green revolution belt

• Moved away from irrigated areas

• 87% of pulses are grown in rainfed areas

Pigeon pea Production (‘000 tons) across districts of India: 1970 & 2007

Pigeon pea yields (kg/ha) across districts of India: 1970 & 2007

Changing composition of Indian pulses production basket – TE 1991

Chickpea 36%

Pigeonpea 19%

Lentil 5%

Blackgram 12%

Greengram 10%

Peas 4%

Others 14%

Chickpea 47%

Pigeonpea 16%

Lentil 6%

Blackgram 10%

Greengram 8%

Peas 4%

Others 9%

Changing composition of Indian pulses production basket – TE 2012

Methods

• Arrellano-Bond, difference GMM Estimation technique specifically designed for "Small T and Large N • a linear functional relationship;

• a dynamic left-hand-side variable which depends on its own past realizations

• Endogeneity and dynamic panel bias

Data

• Estimation based on dataset combining two secondary datasets • ICRISAT-VDSA Meso Level dataset and plot-level Cost of Cultivation

data from CACP

• VDSA-comprehensive long district-Level panel-data on key agriculture and socioeconomic variables

• Farm harvest price for each plot/farmer from CACP combined with crop area in a district from VDSA meso-data

• A Balanced panel of 305 districts in 18 states over 2005-06 to 2011-12.

Some motivating statistics

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE]

[CELLRANGE] [CELLRANGE]

[CELLRANGE]

0

50

100

150

200

250

300

350

400

450

Area under Pulses in Drought Years & Normal Years

Drought Non Drought

Motivating statistics: continued- variation across districts

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

1 9 6 6 - 1 9 8 0 1 9 8 1 - 1 9 9 0 1 9 9 1 - 2 0 0 0 2 0 0 1 - 2 0 1 1

PULSE SHARE

Ambala Bareilly Budaun Gwalior Indore Jhansi

Mainpuri Rampur Saran Shahjahanpur Ujjain

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

1 9 6 6 - 1 9 8 0 1 9 8 1 - 1 9 9 0 1 9 9 1 - 2 0 0 0 2 0 0 1 - 2 0 1 1

PULSE SHARE

Bahraich Balangir Bulandshahar Cuddapah Dhanbad Dhenkanal

Ganjam Gorakhpur Keonjhar Nellore Rohtak The Dangs

(1)

VARIABLES Normal

regression with

NIA

L.newPPEA_TA -0.155

(0.188)

L2.newPPEA_TA -1.208***

(0.141)

newCOTN_TA -0.000710

(0.157)

newRICE_TA -0.0190

(0.0207)

newRICE_TAI_share -0.000461***

(8.88e-05)

newPPEA_TAI_share -0.00144***

(0.000423)

L.newPPEA_TAI_share 0.000295

(0.000186)

L2.newPPEA_TAI_share -0.00218***

(0.000654)

newN_TC -0.000225***

(7.11e-05)

newP_TC 0.000415***

(0.000141)

drought_12 -0.184

(1.400)

drought_13 -5.688***

(1.964)

drought_14 -4.303*

(2.465)

ln_State_med_FHPCreated1 2.214

(3.784)

L.ln_State_med_FHPCreated1 5.298

(3.994)

L2.ln_State_med_FHPCreated1 1.712

(1.829)

ln_State_med_FHPCreated9 5.274

(4.424)

ln_State_med_FHPCreated21 -4.569

(3.810)

newNIA -0.0464**

(0.0191)

Observations 276

Number of distcode91 138

Take away

• Farm gate prices do not seem to affect area under pulses in a well-specified dynamic model

• Question: Is the supply curve vertical? • Unlikely

• Conjecture: It is probably piece wise vertical • Beyond a threshold price change it is upward sloping

• Results are robust to varying lag lengths

Policy implications

• Big price increases needed to overcome risk

• Calls also for better transmission of prices to farmers

• Can minimum support prices work?

• Do they cover risk? Are changes in MSP countercyclical?

• Price policies can have limitations

Major Findings

• July rainfall – Negatively

associated with relative area

allocation to pigeonpea

• Take soil conservation,

drainage, agronomic measures

to address flooding and

drought problem in pigeonpea

• Developing short duration

varieties in pigeonpea to

compete with cereals

• Big price changes possibly

needed

Policy Implications

Thank you !!!!!