Law of One Price: Price Variation of Rice in West Bengal

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Price Variation of Rice in West Bengal

Abstract

There is a saying that goes: rice and fish make a Bengali. West Bengal is a predominantly paddy growing state where 5,719,800 hectare of land is under paddy cultivation. The state of West Bengal has always contributed nearly 14-16 per cent of the all India production of rice and productivity of rice in West Bengal has always been higher than the all India average. Significant variation in the price of rice has being observed across the state at every point in time. The data was gathered for the monthly variation in price of rice across 19 districts over a period of five years. The data broadly indicates that the prices in northern districts of the state such as Siliguri, Jalpaiguri and Darjeeling were higher than those of the other districts by a factor of approximately 30%. The analysis suggested various reasons for these variations, including but not limited to transportation costs, transaction charges, seasonal variations, geographical barriers, access to information, influence of price of substitutes, high entry barrier, state intervention, as well as various other factors such as un-milled paddy flowing in from neighboring states at much lower prices and discrimination based on demography. Prolonged presence of these significant differences in prices leads to the conclusion that there might be other factors which have prevented arbitrage and consequently the convergence of prices across the state.

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INDEX

Particulars| Page No.|
Introduction| 4|
Price Variation in Different varieties of Rice| 6|
Variation in Prices of Rice across locations| 7|
Sources of Price Variation| 8|
Conclusion| 12|
Appendix| 13|
Reference| 14|

Introduction

West Bengal’s rural economy was characterized by rapid growth in the 1980s and early 1990s. The major features of growth, which was particularly marked in the rice economy of the State, were rapid growth in aggregate production; growth in yields per hectare, particularly in the boro (or rabi) season, but also in the aman (or kharif) season; and an overall narrowing of the gap between districts with respect to production and yield performance.

West Bengal’s path to agricultural growth has been unique in post-Independence India. In those parts of the rest of India that saw a rapid and substantial growth in agricultural incomes, the major sources of surplus accumulation were capitalist landlords, rich peasants, and, in general, the rural rich. In West Bengal, by contrast, the moving force of agricultural change and of the dynamism of the rural economy in the 1980s and 1990s were small cultivators. Agricultural growth in West Bengal was made possible because of the removal, by means of land reform and the establishment of panchayati raj, of institutional fetters to growth.

It has been pointed out that “the West Bengal example”, where value added has grown faster than gross output, contrary to the trends elsewhere, suggests that greater efficiency in input use is possible through reform and devolution" (Sen 1992). In 2005-06, with a production of 14.5 million ton, West Bengal was the largest producer of rice in the country, followed by Andhra Pradesh and Uttar Pradesh. West Bengal accounted for 15.8 per cent of all-India rice production in 2005-06.

Period| Area| Production| Yield|
1980-81 to 1989-90| 1.40| 7.32| 5.98|
1990-91 to 1999-00| 0.37| 2.08| 1.71|
2000-01 to 2006-07| 1.64| 1.27| 1.64|
1997-98 to 2006-07| -0.28| 1.70| 1.98|
1992-93 to 2006-07| -1.14| 1.98| 2.11|
1980-81 to 2006-07| 0.60| 3.48| 2.90|
Table 1: Exponential trend growth rates of area, production and yield of rice in West Bengal|

Table 1 shows that, while over a 26-year period, rice production in the State grew at a remarkable 3.5 per cent per annum, the growth spurt of the 1980s has petered out. The growth rate over the last decade was only 1.7 per cent. The rate...
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