Research Strategy

2 Research Strategy: Basic Premises The future of Indian agriculture depends on successfully facing the challenges of greater market integration - both nationally and internationally The future of Indian agriculture depends on successfully facing the challenges of greater market integration - both nationally and internationally There is a continuing need to campaign for an end to developed country subsidy policies that generate costly distortions in international markets There is a continuing need to campaign for an end to developed country subsidy policies that generate costly distortions in international markets But this does not necessarily imply that India should use its scarce resources to provide countervailing assistance to its farmers: optimal allocation of India’s resources should be determined by looking at the best options for using those resources to increase India’s national income and reduce poverty But this does not necessarily imply that India should use its scarce resources to provide countervailing assistance to its farmers: optimal allocation of India’s resources should be determined by looking at the best options for using those resources to increase India’s national income and reduce poverty It is in India’s interest to minimise divergences between global and domestic prices and maximise efficiency gains from aligning domestic with foreign prices – while being sensitive to adjustment costs and problems It is in India’s interest to minimise divergences between global and domestic prices and maximise efficiency gains from aligning domestic with foreign prices – while being sensitive to adjustment costs and problems

3 Background Policies should aim to exploit India’s comparative advantages to allocate resources efficiently to maximise rural and national income consistent with the goals of food security and poverty alleviation Policies should aim to exploit India’s comparative advantages to allocate resources efficiently to maximise rural and national income consistent with the goals of food security and poverty alleviation Basic thrust of Indian reforms is towards greater market integration both internally and with world markets Basic thrust of Indian reforms is towards greater market integration both internally and with world markets But - very substantial reductions in ‘bound’ tariffs are needed to have any impact because of large gaps between bound and applied (effective) tariffs Impact of Indian reforms will depend also on trade policy developments in the global arena Impact of Indian reforms will depend also on trade policy developments in the global arena

4 Three-Pronged Research Strategy Understanding mechanisms of market integration and price transmission and the global context of agricultural markets is central to effective policy formulation and evaluation of the consequences of alternative policy options Understanding mechanisms of market integration and price transmission and the global context of agricultural markets is central to effective policy formulation and evaluation of the consequences of alternative policy options Detailed case studies of particular agricultural commodity markets Detailed case studies of particular agricultural commodity markets Reform options and experiences in India and Australia Reform options and experiences in India and Australia Sector (crop)-specific (‘partial equilibrium’) modelling Sector (crop)-specific (‘partial equilibrium’) modelling at this stage focus on at this stage focus on Rice, wheat, cotton and pulses (tur/arhar) Rice, wheat, cotton and pulses (tur/arhar) Economy-wide (‘general equilibrium’) modelling, drawing on detailed sectoral studies and extending to global models Economy-wide (‘general equilibrium’) modelling, drawing on detailed sectoral studies and extending to global models

5 Domestic Reforms and International Trade Regime Particular attention to link between domestic reforms and ‘border’ trade policy reforms Particular attention to link between domestic reforms and ‘border’ trade policy reforms Transmission (‘pass-through’) of world prices to domestic producer and consumer prices depends on: Transmission (‘pass-through’) of world prices to domestic producer and consumer prices depends on: world market price changes world market price changes government interventions through regulations and state trading enterprises (STEs) government interventions through regulations and state trading enterprises (STEs) nature of the marketing chain and market structure nature of the marketing chain and market structure

6 Reforms, ‘Pass Through’ and STEs Reforms will improve ‘pass though’ but interventions will continue Reforms will improve ‘pass though’ but interventions will continue Strong political economy factors (food security fears) Strong political economy factors (food security fears) But a greater reliance on market instruments to achieve price stability and food security is on the agenda But a greater reliance on market instruments to achieve price stability and food security is on the agenda Markets becoming more liberal but… Markets becoming more liberal but… typically such will not be perfectly competitive but dominated by a relatively small number of large traders, each of whom is able to exert some market power typically such will not be perfectly competitive but dominated by a relatively small number of large traders, each of whom is able to exert some market power but some STEs likely to continue with mandates to intervene in various ways but some STEs likely to continue with mandates to intervene in various ways Both overall market structure and nature of STE are important in determining outcome of reforms Both overall market structure and nature of STE are important in determining outcome of reforms STEs may either provide (implicit) protection or dis-protection to an industry STEs may either provide (implicit) protection or dis-protection to an industry

7 Current Stage of Research A number of detailed case studies of specific regional agricultural markets in progress in progress A number of detailed case studies of specific regional agricultural markets in progress in progress STE modelling has started - a case study of the Indian rice market – at preliminary exploratory stage STE modelling has started - a case study of the Indian rice market – at preliminary exploratory stage Evaluation of existing experience of market development in India – initiated, in progress Evaluation of existing experience of market development in India – initiated, in progress Market reforms and development: drawing on international (particularly Australian) reform experience - initiated Market reforms and development: drawing on international (particularly Australian) reform experience - initiated Economy-wide modelling, drawing on sectoral research studies, in progress Economy-wide modelling, drawing on sectoral research studies, in progress

8 Scope and Limitations Availability of extra resources has allowed us to widen scope of project, research team and collaboration Availability of extra resources has allowed us to widen scope of project, research team and collaboration But some important issues outside scope of project: impact of agricultural reforms on household income distribution and social inequality, on the environment etc. But some important issues outside scope of project: impact of agricultural reforms on household income distribution and social inequality, on the environment etc.