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 on net social loss in production and consumption, and welfare gain of farmers and consumers and change in Government revenue with respect to major food grains and commercial crops. Policy Analysis Matrix and Partial Equilibrium Model in the Marshallian economic surplus framework are employed in this study. 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)). However, from 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 favoured 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 (in view of its net-importer status). Unlike farmers, consumers in Andhra Pradesh suffered welfare loss due to higher domestic prices over border prices for rice, maize and chilies (dry), However, there is a considerable increase in Government revenue due to pricing policies formulated by the Government of Andhra Pradesh. The welfare gains to farmers are negative for chickpeas and cotton in view of higher domestic prices compared to border prices. So, the key point evident is that due to protectionism, the magnitude of net loss to consumers’ welfare compared to welfare gain of farmers is higher between Rs. 21916 lakh to Rs. 23768 during TE 2020-21 implying welfare transfers from consumers to farmers. Thus, the Government of Andhra Pradesh is spending an enormous amount of money to keep the protection policies going for the benefit of farmers. However, considering the net importer status of chickpeas, the Government should further escalate the subsidy both in production and marketing programs.