Abstract:
India’s plantation sector is currently operating in an entirely
different scenario from the earlier one of protection and market
intervention by the commodity boards. In the pre-reform period, mainly
the domestic forces of supply and demand guided domestic prices of the
crops since the sector was insulated from external competition and
operating in a regulated marketing system by the commodity boards.
With the opening up of the economy and commodity market
liberalization, domestic markets are increasingly getting integrated with
the global market, wherein instability in domestic price is driven mainly
by the global supply and demand forces. In this context, the paper
attempts to explore the dynamics of domestic price instability of five
major plantation crops: Coffee, Tea, Natural Rubber, Black Pepper and
Small Cardamom, specifically looking at its two dimensions - inter-year
and intra-year. The study has found that while inter-year instability has
been explained mainly by the multi-year cyclicality arising in response
to the cycles in production, intra-year instability has been explained
mainly by the seasonality of production with wide inter crop variations.
The crops for which domestic market is highly integrated with the global
market (Natural Rubber, Black Pepper and Coffee) are found to be
showing greater price instability in the open trade regime as compared
to the closed regime. The crops, which are highly domestic market
oriented (Small Cardamom and Tea), are showing a decline in instability
in the open trade regime as compared to the closed regime. Hence,
increased international integration of commodity markets for Natural
Rubber, Coffee and Black Pepper is found to have resulted in an increase
in price instability. On the other hand, greater domestic market orientation
of Small Cardamom and Tea appears to have helped reducing their price
instability in the open trade regime as compared to the closed regime.
