Effects of Government Price Policies on Major Agricultural Commodities in Andhra Pradesh, India

Abstract

This study was concerned with analysis of export competitiveness and quantification of impact of price policies in Andhra Pradesh, using Policy Analysis Matrix and Partial Equilibrium Model in the Marshallian economic surplus framework. The findings from Policy Analysis Matrix revealed that, on the input side, the farmers are more subsidized for rice and maize, as Nominal Protection coefficient on Tradable Inputs are less than one across all the major importing countries (unlike for chickpea, cotton lint and chilies (dry)). On the output side (Nominal Protection coefficient on Tradable output), the farmers producing rice, maize and chilies (dry) are more protective compared to social prices. Considering both input and output policies together, the farmers are simultaneously protective (Effective Protection Coefficient) for rice and maize and hence, the overall transfer from society to farmers is positive (Subsidy Ratio to Producers). The findings from Partial Equilibrium Model showed that total net social loss was found to be positive implying protectionism favored the farmers across all the selected commodities. Further, the net social loss in production turned out to be positive confirming the main postulate of this study, a price greater than the equilibrium price will reduce the quantity demanded. The protectionist policies further led to a positive effect of trade liberalization on the welfare in the State and an increase in foreign exchange earnings, except for chickpea. Unlike farmers, consumers in Andhra Pradesh suffered welfare loss due to higher domestic prices over border prices for rice, maize and chilies (dry).