The Impact of Public Law 480 Imports on Prices and Domestic Supply of Cereals in India

Abstract

This article quantifies the impact of imports of cereals under Public Law 480 on the prices and domestic supply of cereals in India. An econometric model encompassing six simultaneous equations is set up. An analytical framework for measuring the impact of P.L. 480 imports on prices and domestic supply is constructed. The statistical analysis supports the belief that the importation of cereals under P.L. 480 leads to lower prices and a decline in domestic supply but that the decrease in domestic supply is less than the quantity imported. Thus, there is a net addition to the quantity available for consumption, which is a significant contribution in a shortage economy. INDIA has figured prominently in the operations of U.S. Public Law 480. Of the total market value of $9,401 million programmed under Title I for all countries during the period July 1, 1955, to December 31, 1964, $2,486 million (26 percent) was for India. Of all the cereals available for human consumption in India during the period 1957-1963, some 5 percent were from imports under P.L. 480 Title I. In an economy which is unable to meet its food needs from domestic production, this is a significant contribution. This article measures the impact of the imports of P.L. 480 cereals on the prices and the domestic supply of cereals in India. Background No attempt so far has been made to study the impact of P.L. 480 imports on Indian agriculture in a systematic and analytical way. In 1960, T. W. Schultz [9] put forth an admittedly speculative argument that the effects of P.L. 480 imports upon agriculture of the recipient country were likely to be adverse through a fall in the prices of agricultural products. The cultivators in India would be faced with a decline in the prices of farm products, and the incentive to maintain or expand agricultural production would be thwarted. Professor Schultz has recently repeated the same argu