spatial and temporal behaviour of arrivals and prices of groundnut in karnataka

103 Pages·2009·1.72 MB·English

SPATIAL AND TEMPORAL BEHAVIOUR OF ARRIVALS
AND PRICES OF GROUNDNUT IN KARNATAKA – AN
ECONOMETRIC ANALYSIS

Thesis submitted to the
University of Agricultural Sciences, Dharwad
in partial fulfilment of the requirements for the

Degree of
Master of Business Administration
in
AGRIBUSINESS

By
CHANDRAKALA S. KALLIMATH

DEPARTMENT OF AGRIBUSINESS MANAGEMENT
COLLEGE OF AGRICULTURE, DHARWAD
UNIVERSITY OF AGRICULTURAL SCIENCES,
DHARWAD - 580 005

JUNE, 2009
ADVISORY COMMITTEE

DHARWAD (BALACHANDRA K. NAIK)
JUNE, 2009 MAJOR ADVISOR

Approved by :
Chairman : ____________________________
(BALACHANDRA K. NAIK)

Members : 1. __________________________
(VILAS KULKARNI)

2. __________________________
(R. A. YELEDHALLI )

3. __________________________
(JAYASHREE HANDIGOL)

4. __________________________
(ASHALATHA K. V.)
C O N T E N T S

Sl. No. Chapter Particulars
CERTIFICATE
ACKNOWLEDGEMENT
LIST OF TABLES
LIST OF FIGURES
1 INTRODUCTION
2 REVIEW OF LITERATURE
2.1. Time series analysis
2.2. Response of the prices to arrivals
2.3. Box-Jenkins model and its application
2.4. Market integration
3 METHODLOGY
3.1 Description of the study area
3.2 Selection of markets
3.3 Description of selected market
3.4 Nature and sources of data
3.5 Analytical tools and techniques
4 RESULTS
4.1 Trends, seasonal and cyclical movements in arrivals and prices
of groundnut in selected markets
4.2 Response of the prices on the arrivals of the groundnut
4.3 Forecasting of arrivals and prices of groundnut in selected
markets
4.4 Extent of market integration among the selected markets
5 DISCUSSION
5.1 Trends, seasonal fluctuations and cyclical movements in
arrivals and prices of groundnut in selected markets
5.2 Response of the prices on arrivals of the groundnut
5.3 Forecasting the prices of groundnut in selected markets
5.4 Extent of market integration among the selected markets
6 SUMMARY AND POLICY IMPLICATIONS
REFERENCES
LIST OF TABLES

Table Title
No.
3.1 Leading markets of groundnut in Karnataka
4.1 Trend in arrivals of groundnut in selected markets
4.2 Trend in prices of groundnut in selected markets
4.3 Seasonal variations in arrivals of groundnut in selected markets (1988-
2008)
4.4 Seasonal variations in prices of groundnut in selected markets (1988-
2008)
4.5 Cyclical variations in arrivals of groundnut in selected markets
4.6 Cyclical variation in prices of groundnut in selected markets
4.7 Response of the average prices on arrivals in the long run
4.8 Response of the prices on arrivals in the short run
4.9 ACF and PACF of groundnut prices in Challakere market
4.10 Conditional least square estimated groundnut prices in Challakere
market
4.11 Ex-ante and Ex-post forecast of monthly prices of groundnut in
Challakere market (Rs./q)
4.12 ACF and PACF of groundnut prices in Chitradurga market
4.13 Conditional least square estimated groundnut prices in Chitradurga
market
4.14 Ex-ante and Ex-post forecast of monthly prices of groundnut in
Chitradurga market( Rs./q)
4.15 ACF and PACF of groundnut prices in Bellary market
4.16 Conditional least square estimated groundnut prices in Bellary market
4.17 Ex-ante and Ex-post forecast of prices of groundnut in Bellary market
(Rs./q)
4.18 ACF and PACF of groundnut prices in Yadgir market
4.19 Conditional least square estimated groundnut prices in Yadgir market
4.20 Ex-ante and Ex-post forecast of monthly prices of groundnut in Yadgir
market (Rs./q)
4.21 ACF and PACF of groundnut prices in Davangere market
4.22 Conditional least square estimated groundnut prices in Davanagere
market
4.23 Ex-ante and Ex-post forecast of monthly prices of groundnut in
Davangere market (Rs./q)
4.24 Residual analysis of monthly prices of groundnut in selected markets
4.25 Correlation between the prices of groundnut between selected markets
4.26 Response of prices of groundnut at other markets with respect to
Challakere market
LIST OF FIGURES

Figure No Title
1 Trends in arrivals and prices of groundnut in Challakere market
2 Trend in arrivals and prices of groundnut in Chitradurga market
3 Trend in arrivals and prices of groundnut in Bellary market
4 Trend in arrivals and prices of groundnut in Yadagiri market
5 Trend in arrivals and prices of groundnut in Davangere market
6 Seasonal variation of arrivals and prices of groundnut in selected
markets
7 Seasonal variation of arrivals and prices of groundnut in selected
markets
8 Cyclical variations of arrivals and prices of groundnut in selected
markets
9 Response of the prices on arrivals of groundnut in the long run in
selected markets
10 Response of the prices on arrivals of groundnut in the short run in
selected markets
11 Ex-ante and ex-post forecast of groundnut prices in Challakere market
12 Ex-ante and ex-post forecast of groundnut prices in Chitradurga
market
13 Ex-ante and ex-post forecast of groundnut prices in Bellary market
14 Ex-ante and ex-post forecast of groundnut prices in Yadgiri market
15 Ex-ante and ex-post forecast of groundnut prices in Davangere
market
1. INTRODUCTION
Agriculture is the bedrock of Indian economy since time immemorial, where farm
rather than factories have been the mainstay of the masses. Currently 18.5 per cent of
India's Gross Domestic Product (GDP) is derived from agriculture, but it supports nearly 65
per cent of country's population there by making agriculture the lifeblood of our existence.
This trend will continue for some foreseeable future. The impressive achievements of this
sector have been the fruits of the joint efforts of the hard working farming community,
dedicated agricultural scientists, marketing professionals, the public, private and co-operative
sectors.
The technological change expands output by raising the efficiency of resource use
and employment by enhancing labour demand. However, the relative growth rates of output
and employment depend upon the type of technological change. There is a close relationship
among the level of technology, agricultural development, pattern and extent of labour
utilization.
The relative importance of various kinds of constraints in agricultural production has
changed over time. The dominance of economic and political constraints on agricultural
production has been very often highlighted. It has been stated that the level of agricultural
production depends not only on technological considerations, but also on government support
(Schultz, 1978). However, technological potential is a pre-requisite to harness the possible
benefits of government support through intervention and public policies.
Supply and demand are the two main variables which dictates the development
process of any industry or enterprise. In a market economy, the increase in agricultural
production and transfer of surpluses from one sector to other are to be brought about by the
price signals. The prices of most agricultural commodities are inherently susceptible to
violent fluctuations, the economic consequences of which are dire. The great depression of
the thirties was attributed to the cyclical fluctuations of primary product prices (Lewis, 1963).
In many cases, even though the production system is physically efficient, yet
inefficiency in pricing is seen because of market imperfections. In other words, the
mobilization and allocation of productive resources takes place through the marketing system.
Efficient pricing of agricultural commodities therefore assumes a crucial role in initiating and
maintaining the development process. A system of efficient pricing is sine-quo-non to
maximize agricultural production. It also leads to maximum social welfare from the given
output. The objectives can be achieved only if the marketing system ensures prices, which
are stable and remunerative to producers. The prices must be reasonable to consumers as
well as to meet the demand for the increased production.
Marketing plays, an important role in the economic development as it stimulates
production, avoids unnecessary fluctuation in output and prices and reduces costs of
production. However, for attaining these benefits, marketing system and marketing
technology have to keep pace with the production technology and socioeconomic
development of the country. The experience of many countries suggests that in the absence
of an efficient marketing system strategy for agricultural development cannot go vary far to
stimulate production (Khalon and George, 1985).
The nature and supply of agricultural products generally results in instability of prices
and income within agricultural sector as well as in other sectors of the economy. On demand
side, the instability in the prices of agricultural commodities has been one of the major factor
affecting the income level of the farmers as well as the tempo of agricultural production. This
instability in the price of agricultural commodities are influenced by number of factors such as
annual variation in production, low price elasticity of agricultural production (Khalon and
Tyagi, 1989). The information about behaviour of the price interms of price level, trend and
fluctuations is the most important factors in determining competitiveness of the commodity in
the domestic and international level to draw influence for fitire prices and to formulate the long
term strategy on trade (Chand Ramesh, 2002). The past trend in area, production and market
arrivals of commodities are also useful in understanding the present and to forecast the
future. Prices play a vital role in predominantly agricultural economies like India. Prices of
farm products fluctuate more than that of industrial goods due to heavy dependence on
natural factor. Hence, they have enormous human and political implications, especially in
developing countries. They have a profound effect on growth, equity and stability in
developing economies. Prices of farm goods affect income and living standards of farmers,
rural laboureres and the non farming population. They also affect the prices of non farm
goods and foreign trade.
Prices perform a number of functions in an economic system. According to Mellor
(1978), the three main functions of agricultural prices are to serve as an allocator of
resources, signaling to both producers and consumers regarding the level of agricultural
production and consumption, as a distributor of income and as an influence on capital
formation. In a competitive economy, the pricing mechanism provides the signals to the
producers in deciding what and how much has to be produced with the avlaible resources
for maximization of welfare. A particular movement of agricultural prices may facilitate the
achievement of certain goals, while the same movement may operate against some other
goal. For example, a steep rise in the price of food grains may fulfill the goal of remunerative
price to the farmers but it might adversely affect the standard of living of agricultural
labourers, other wage earners and non-farm consumers who buy the food grains. Therefore,
a continuous watch on prices is necessary in all societies.
Instability means lack of stability. Stability is the quality or characteristic of being
stable. The price or any object which is not likely to move or change is termed as stable. Thus
instability in prices can be defined as state in which prices continue to change with time for a
market. The extent of instability thus, needs to be examined in relation to time.
The fluctuating characteristic of agricultural prices leads to instability. It must be
clearly understood that all changes in prices do not imply instability. Since prices enter directly
in the decision- frame of farmers; both in production and marketing decisions, fluctuation or
instability in prices is the greatest source of risk, next only to weather.
The variations in market arrivals and prices are of two kinds. The first is related to the
fluctuations over time, (generally termed as temporal variations) and is caused by changes in
factors exogenous to the producers. The second comprises fluctuations over space (known
as ‘spatial’ price variation), and is the outcome of differences in location of production,
transportation bottlenecks etc. These factors in turn, lead to changes in the cropping pattern
and the income of the farmers.
The temporal variations are the result of a complex mixture of changes associated
with seasonal, trend, cyclical and irregular components. Among these, the first three
components can be easily identified and assessed. The seasonal component is considered to
be the most common and by far the most important (Cummings 1968).
The seasonal variation is a regularly recurring pattern that is completed once in
twelve months. Such seasonality is seen in the arrivals as well as in the prices of farm
products. It arises from the nature of production, the supply to the markets and the demand
and price formations for crops, the seasonal variations arises from climatic factors and
biological growth processes of plants. Following the seasonality in production and arrivals, the
prices also exhibit seasonal variations. Normally the prices of storable produce are lower at
harvest time and then rise as the season progresses, reaching their peak just prior to the next
harvest.
The study of seasonal variations is considered to be important as a guide to the
producer to market his products and to the consumer to purchase his needs at the right time.
It also serves as a guide to the Government to operate its policy measures (procurement and
buffer release) at the appropriate time.
The trends in arrivals and prices are the changes over years and observed in the long
run. The trends in arrivals are associated with development in technology of production, input
supply and infrastructure. The trends of farm product prices are associated with increase in
population, money supply, increased purchasing power and generally with inflation or
deflation observed in the economy. The study of trends enables us to indicate the general
direction of changes in arrivals and prices in different markets.
Cyclical variations in arrivals and prices are the widely accepted norms in farm
products. The cycle is more likely to be initiated by some external events but once it begins, it
may be continued on account of peasants responses to changes in prices. The knowledge of
such cycles help us in the insulating the economy against violent fluctuations.
The spatial price variations are the variations in prices observed over different markets.
They occur due to differences in location of production and consumption of commodities. In
theory, in a perfect market, the price of a good at one market is not expected to exceed the
price at other markets by more than the transport cost and nominal profit. The degree to
which wholesale prices of a commodity in different markets are related to one another is an
important consideration in determining the efficiency of the marketing system. The inter-
relation between the price movements in different markets mostly depends upon the nature
and extent of competition. An analysis of such inter-relationships helps us in understanding
the efficiency of the marketing systems.
The present study is devoted to an analysis of the temporal and spatial fluctuations in the
arrivals and prices of Groundnut in five different markets. It seeks to ascertain the optimum
period for the farmers to sell their product, for the consumer to buy their goods and for the
Government to take necessary policy decisions with regard to procurement and storage and
helping authorities to take up timely steps in the desired direction.
Importance of Groundnut in economy
Oil seed crops have been the backbone of agricultural economy of India from time
immemorial. Today these crops are cultivated on about 16.5 million hectares with total
production of 10 million tonnes. This area constitute approximately one-tenth of the total
cultivated area in India. On the oilseed map of the world, India occupies a prominent position
both with regard to acreage and production. The importance of these arises from the fact that
they are the chief sources for supply of fat to the human beings and oil cake to the
domesticated animals. Among the oilseed crops Groundnut, Sunflower, Safflower, Mustard,
Rapeseed, Sesamum, Niger and Soybean are the major ones.
The groundnut (Arachis hypogea L.), also known as the peanut, is a member of
family Papillionaceae, largest and most important of the three divisions of the leguminacea.
Groundnut is rich in protein as well as oil content and is often called as the poor man’s
cashewnut (Badami). The oil content of the seed varies from 44 to 50 percent, depending on
the varieties and agronomic conditions. Groundnut oil is edible oil. It finds extensive use as
cooking medium both as refined oil and vanaspati ghee. It is also used in soap making and
manufacturing cosmetics and lubricants, oleinstearin and their salts. Kernels are also eaten
raw, roasted or sweetened. They are rich in protein and vitamins A, B and B2 group.
Groundnut is one of the important commercial crop in the semi arid tropical regions of
India. Although India has the largest area under groundnut cultivation with about 44 percent of
the world area, it ranks second in the world next to china in production. India’s share in
world’s output is lower compared to its share in area, because of lower productivity.
Groundnut ranks first in terms of both area and production among the oilseeds in the country.
Groundnut occupies an area of 65.99 lakh ha, in the country with an output of 79.93 lakh
tones and with an average productivity of 1211 kg/ha respectively during 2005-2006, and the
bulk of the crop is grown during the kharif season as a rainfed crop (CMIE, Agriculture, 2008).
In India, groundnut cultivation is mainly concentrated in Gujarat, Tamil Nadu, Andhra
Pradesh, Karnataka and Maharashtra. Gujarat ranks first both in area and production of
groundnut followed by Andhra Pradesh, Tamil Nadu and Karnataka.
Karnataka is one of the important groundnut growing states in the country. Groundnut
covers the largest area among the oilseed crops in the state. Karnataka ranks fourth in area
and production and accounts for 14 percent of the area and 10 percent of the production of
the groundnut in the country. It is annually grown on an area about 9.5 lakh ha. producing
62.5 lakh tonnes with an average productivity of 679 kg/ha in 2005-06 (CMIE, Agriculture,
2008). Groundnut crop is grown in two seasons; it is grown as an irrigated crop covering an
area of 21.7 lakh ha with a production of about 29.11 lakh tonnes and during kharif as rainfed
crop covering an area of 87.31 lakh ha with a production of about 63.34 lakh tonnes. The area
under irrigated groundnut covers less than 10 percent in the state.
In view of many policy changes at the international, national and state level in recent
times, it is imperative to study the influence of agricultural sector exclusively on marketing and
price behaviour. The likely impact of WTO regime on marketing of agricultural products and
fluctuation of prices becomes utmost important, since it has a bearing on farmer’s income and
ultimately on the standard of living.
Present study is an attempt to assess the performance of groundnut marketing in five
major markets of Karnataka viz, Challakere, Chitradurga, Bellary, Yadgir, and Davangere,
with the following objectives.
OBJECTIVES
1. To estimate the trends, seasonal fluctuations and cyclical movements in arrivals and
prices of groundnut in major markets in Karnataka.
2. To examine the response of the prices on arrivals of the Groundnut.
3. To forecast the prices of Groundnut in selected markets.
4. To analyse the market integration with respect prices and arrivals of Groundnut.
5. To suggest appropriate policy measures based on findings of the study.
HYPOTHESIS
1. There is variation in prices and arrivals of Groundnut over time.
2. Market prices determine the market arrivals of the Groundnut in a market.
3. The prices prevailing in one market are in coordination with the other markets.
PRESENTATION OF THE STUDY
The entire study has been presented in six chapters, the nature and importance of
the present study and the specific objectives.
Chapter II deals with the review of the relevant research studies connected with the
objectives
Chapter III outlines briefly the main features of the study area, the nature and scope
from which relevant data have been collected and the statistical tools and techniques
employed in the study for evaluating the objectives.
Chapter IV is devoted to the analysis of the data through a variety of tables in to
which relevant details have been compressed and summarizes under appropriate heads and
presented in the tables.
Chapter V seeks to interpret the results of the study and explains the causal
relationships between certain variables and outcome, which they produced. It also discusses
a frame of inference for drawing policy measures.
In the chapter VI, a brief summary of the main findings of the study have been
presented along with the policy implications that emerged from the findings of the study.
2. REVIEW OF LITERATURE
Review of literature provides information to the researchers regarding the previous
works done in their area of research and there by helps them in identifying the theoretical
framework and methodological issues relevant to the study. It provides the researchers
proper direction to carry out their research work and enables them to arrive at meaningful
results. Keeping these facts in view, the available literature relevant to the objectives of the
present study was reviewed and they are presented here in the following headings,
2.1. Time series analysis
2.2. Response of the prices to arrivals
2.3. Box-Jenkins model and its application
2.4. Market integration
2.1 TIME SERIES ANALYSIS
Parson (1925) explicitly delineated different components of a time series.
These components were:
A) A long term or secular trend, after termed as the growth element.
B) A wave like or cyclical element in which rise and fall correspond
to prosperity and depression of a business cycle.
C) A seasonal movement or short-term fluctuations.
D) A random variation or irregular variations.
Decomposing an observation in a series into the above four constitute the analysis of
a time series.
An observation is generally considered to be the end result as some of these
components, the time series model accordingly termed as additive or a multiplicative model.
Generally a mathematic function is fitted over the whole course of the series by the
Rhodes (1921) and Quennouille (1949) proceed by fitting a polynomial to the segments into
which the series is divided.
Mitrannavar and Gummagolmath (1998) attempted to analyze the seasonal indices of
arrivals and prices of potato in regulated markets of north Karnataka. The long run trends in
arrivals and prices of potato for the selected Belguam and Hubli markets were analyzed using
three years moving average method. The study concluded that arrivals were highest in the
month of November in both the markets indicating glut during harvesting season. However,
price did not decrease during glut season as the majority of the traders purchased potato at
that time in Belguam market while there was a negative relationship between arrivals and
prices in Hubli market.
Nahatkar et al (1998) revealed that seasonal index of cotton prices was minimum in
the second quarter (January to March) and maximum in the third quarter (April to June). The
coefficient of price variation showed that price rise was higher during first quarter (October to
December), as buyers tend to attract more cotton growers to sell their produce at lower
prices. The data on cyclical variations showed that after every three years the cycle of cotton
prices changed irrespective of the variations in price in the three quarterly periods revealing
that within a year there was no sudden short fall or boom of cotton arrivals in the market. The
variation in arrivals of cotton was found to be higher than that of variations in prices.
Patel (2000) revealed that all markets have around 40 to 75 per cent of the total
market arrivals of rapeseed-mustard in peak marketing season. Whereas prices were lower
by Rs. 20 to 60 per quintal over mid and lean marketing season in Mehasana district of
Gujarat.
Mehta and Srivastava (2000) analyzed the seasonality in prices of groundnut and
maize. The results showed linear trend in maize prices. The oscillatory movements affecting
the prices are regular in period and amplitude. There existed a crop production periodicity of