Impact of Market Reforms on Integration of Food Markets in India

Abstract

Using the maximum likelihood method of co-integration, this chapter examines the impact of the market reforms on spatial integration of wheat markets in India. Reviewing briefly the provisions of the Model APMC Act and the status of reforms in Indian states, we have investigated whether the reforms have improved spatial integration (efficiency) of the markets by strengthening the relationship among the wheat prices quoted at various market centres in four selected states. The regional wheat markets, which were integrated relatively weakly during the pre-reform period, become integrated to a greater extent during the post-reform period. By and large, the extent of market integration has been associated positively with the magnitude of reforms in the marketing system, suggesting that further reforms and minimization of government interventions in the agricultural commodity markets would further improve spatial efficiency in the markets. The finding of an improvement in the degree of integration of the wheat markets after the reforms and the tendency of the wheat prices to move towards a common stochastic trend lend support to the proposal of declaring each state a ‘single market’ and the idea of setting up a ‘common national market’ for agricultural commodities.