How has the minimum support price policy of India affected prices between commodities?

What is it about?

Under the current farmers’ demonstrations and discussions about the need to keep, modify or remove the Minimum Support Price (MSP) policy in India, our paper contributes with an analysis of the impacts of this policy on cross-commodity price linkages. Our works aims to identify if the MSP policy has affected market integration of related agricultural products through modifying price incentives, and ultimately, alter resource allocation and production between commodities. Results demonstrate the MSP partially and completely offsets price linkages between agricultural commodities, potentially introducing distortions in price incentives that affect land allocation and production between commodities. However, beyond the effects of the MSP across commodities, and given the low levels of support to food staples, Indian authorities can expect that prices shock on maize be transmitted to soybean over the next production period. Finally, this study demonstrates that the use of alternative data frequencies allows identifying differences in market reactions over time that can be related to production cycles and delays in price transmission.

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Photo by Alin Andersen on Unsplash

Photo by Alin Andersen on Unsplash

Why is it important?

It is critical to understand the effects of the Minimum Support Price (MSP) policy to assess its benefits and costs, respect to alternative policy interventions that could target only smallholders and avoid providing support to big producers.

Perspectives