Welfare analysis of changing food prices: a nonparametric examination of rice policies in India

Abstract

The paper examines the welfare impact of the Indian government’s rice price policies in the light of the global food crisis of 2007–08 using a nonparametric approach for regression and density estimation. In particular, the impact of a ban on export of rice and increased farm gate price support for farmers, implemented to keep domestic consumer prices lower and producer prices higher than they would otherwise have been, was analysed. The net impact of the export ban was positive, as it was able to cushion the Indian population (84 % of whom are net consumers of rice) from the adverse effects of the crisis. However, the extent of welfare varied among different household types, as the poor in India are heterogeneous in nature. Thus agriculture-price policies do not have a homogenous effect on the poor in India. The majority of rice-producing farmers are relatively poor but benefitted from the increase in farm gate prices. Poor households that did not cultivate rice were the worst affected in the food crisis, as their budget share of rice is higher than that of rich households.