The Impact of Two-Tier Producer and Consumer Food Pricing in India

Open Access
Publisher Website
Google Scholar
Abstract
India's government buys wheat, rice, and sugar at below the market price and then sells it in ration shops in the urban and rural areas. The rest is sold in the open market. This creates a two-tier price system for consumers and producers. Supporters of the government's procurement policy claim that it raises the open-market price so much that it increases the sales-weighted average of the rationed price and the open-market price; in that case, both the farm sector as a whole and low-income urban consumers with access to the ration shops gain, and high-income urban consumers who buy at the open-market price lose. This view has provided an intellectual basis for the policy. This article examines a variety of cases: with and without rationing; with rationing through ration cards or queuing; with and without access by the urban rich to the ration shops; with or without free trade; and with a marketable surplus having either positive, negative, or zero price elasticity. The impact of the policy on the average price is in general ambiguous or negative. Under the most plausible assumptions, it is negative, implying that farmers as a whole lose from the procurement policy.

This publication has 0 references indexed in Scilit: