Market co-integration, price discovery and causation of basmati paddy in Haryana

Abstract

This paper tests the extent of market co-integration of prices of Paddy among major markets of Haryana and Amritsar market of Punjab by using Johansen Granger Causality Tests and also captures the speed of adjustment to deviations in long run equilibrium in Paddy markets by using Vector Error Correction Model. India's basmati (aromatic) rice exports crossed a record of two million ton (mt) in the last financial year, in the process helping the country recoup some of the losses suffered because of more than two-year-long ban on non-basmati rice exports. In Haryana about 40 percent of the total area under rice is occupied by basmati Paddy. During 2008–09 the area under basmati rice has crossed more than 60 percent of the total area under rice mainly due to inclusion of PUSA 1121 under the category of basmati. According to the latest data compiled by Agricultural and Processed Food Products Export Development Authority (APEDA), exports of the premium aromatic rice has increased by an impressive 44 percent in comparison to 1.6 million tonne in 2008–09. In value terms, the export of basmati rice has crossed `19,400 crore last fiscal against `9,476 crore achieved during 2008–09. This has gone a long way in wiping off the almost `7,000 crore annual loss that India suffered because of ban on non-basmati rice exports imposed couple of years to check rising local prices. We are expecting the rise in exports to continue during the current fiscal as well.