Effect of Change in Indian Rice Price on Nepalese Rice Market: A Partial Equilibrium Model

Abstract

Using a partial equilibrium model, this study has investigated cross-border price effect on the rice demand and supply in Nepal. Due to bigger market and close proximity, Indian rice price is likely to affect Nepalese rice price. This study has examined the effect of Indian rice price on Nepalese rice demand, and supply by making projections for the next 10 years period using the baseline data from 1992 to 2013. The model has estimated that the per capita rice demand will decrease from 130 kg/capita to 128 kg/capita between 2013 and 2023. The model has also introduced 3 per cent price shock (increase) in Indian rice price, a trend in past five years, to examine the scenario of rice import and export for Nepal. Due to increase in price in the Indian market, Nepalese rice price would also increase which will give an incentive to the farmers to produce more rice and Nepal will stop importing rice from India by the year 2019.