Weekly Economics Seminar by Abhinav Narayanan
November 6, 2019 @ 1:30 pm - 2:50 pm
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Title: Farm support and market distortion: Evidence from a quasi-natural policy experiment in India
Speaker: Abhinav Narayanan, Research Economist, Reserve Bank of India
Abstract: This paper provides a causal evidence of market distortion that can arise due to farm support policies. We leverage a quasi-natural policy experiment in a major Indian state which implemented a Price Deficiency Payments (PDP) scheme during 2017. In the long run, PDP schemes can create supply gluts through changes in cropping pattern but using this policy experiment we show how supply gluts can arise even in the short run. Among the major crops covered by the policy, we find that it decreased Urad (Black gram) prices by 5 percent mainly due to an increase in the quantity arrivals by 30 percent in PDP regions, but had no impact on Soyabean. To rule out trader collusion behind depressed Urad prices, we use a novel bid level data on crop auctions from one of the PDP markets and show that PDP period was not associated with fewer number of bids or lower price of winning bid. We finally show that our empirical results are consistent with a model of farmer choice under PDP, where the farmer chooses the optimal time to sell her crop.