Farm Support and Market Distortion: Evidence from India

57 Pages Posted: 10 Jun 2020 Last revised: 8 Oct 2020

See all articles by Shekhar Tomar

Shekhar Tomar

Indian School of Business

Abhinav Narayanan

Government of India - Reserve Bank of India

Date Written: July 24, 2020

Abstract

Using a recently implemented Price Deficiency Payments (PDP) policy in India known as the Bhavantar Bhugtan Yojana (BBY), we examine how such farm support policies affect farm-gate prices and quantity arrivals. We study two major crops covered under the scheme, Urad (Black-gram) and Soyabean. We find that Urad prices fell by 4 percent, and quantity arrivals increased by 42 percent during the BBY period. In contrast, we find no significant effect on Soyabean. We argue that the size of deficiency payments can explain this difference in market outcomes. Using bid-level crop auction data, we rule out collusion among intermediaries as a potential explanation for our results. Finally, we estimate the monetary losses incurred by the farmers and the government due to this policy.

Keywords: price deficiency, price loss coverage, farm support, equilibrium price, collusion

JEL Classification: Q11, Q14, Q18

Suggested Citation

Tomar, Shekhar and Narayanan, Abhinav, Farm Support and Market Distortion: Evidence from India (July 24, 2020). Indian School of Business, Available at SSRN: https://ssrn.com/abstract=3601917 or http://dx.doi.org/10.2139/ssrn.3601917

Shekhar Tomar

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

HOME PAGE: http://shekhartomar.com

Abhinav Narayanan (Contact Author)

Government of India - Reserve Bank of India ( email )

Bakery Junction Service Road
Vazhuthacaud
Thiruvananthapuram, Kerala 695033
India

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