Inter Commodity Price Linkages in India: A Case of Foodgrains, Oilseeds and Edible Oils

Abstract

The main objective of this paper is to analyze the nature of price inter-linkages among four commodity complexes, namely cereals, pulses, oil seeds and edible oils. The co-integration and error-correction analysis in the case of cereals led to the conclusion that there was a unique relationship among wheat, rice and spiked millet while great millet, maize, barley and finger millet did not belong to the cereals common market. Among pulses, lentil, green gram and Bengal gram constituted a single common market. In the case of oilseeds, only groundnut, mustard, sunflower and soybean belonged to the common market. In edible oils, groundnut, rape-seed-mustard and coconut formed a common market in the long run. In the late 1990s, prices of oilseeds drifted away from the long-run equilibrium path because of a short period disturbance in the oilseeds market. However, the drift was not visible in the case of edible oils plausibly because of the presence of imported edible oils. The diversions were least for cereals and to some extent for pulses, evidently because of the cushion available in terms of procurement and minimum support price policy of Government of India in their cases.