“Demand and
Supply of Cereals in India: 2010-2025”
Citation: Ganesh-Kumar, A., R. Mehta, H. Pullabhotla, S. K. Prasad, K. Ganguly
and A. Gulati. 2012. “Demand and Supply of Cereals in India: 2010-2025”. Report
prepared for the Cereals System Initiative for South Asia (CSISA), Discussion
Paper 01158, International Food Policy Research Institute, Washington
D.C.
Abstract:
This paper
attempts to project the future supply and demand up to 2025 for two main
cereals cultivated and consumed in India, rice and wheat. A review of studies
that forecast the demand and supply of Indian agriculture commodities revealed
three important limitations of such studies: (a) The forecasts are generally
overestimated (in the ex post situation); (b) the methodology is not clearly
outlined; (c) ex-ante validation of the forecast have not been carried out.
This study seeks to present forecasts based on models that are validated so
that forecast performances can be assessed.
In this
study, a quadratic almost ideal demand system (QUAIDS), which allows for
expenditure shares to rise or fall with rising incomes
has been used to model household demand. The model has been estimated with data
on consumption of 11 major agricultural commodities from the
Supply of
rice and wheat were modeled through two approaches: a production function and
through separate modeling of crop acreage and yield. Under the first approach,
simple Cobb-Douglas production functions relating crop output to the price of
the crop compared to the price of competing crops and the price of fertilizer,
the total area and proportion of irrigated area under the crop, total
fertilizer consumption, and annual average rainfall were estimated using
national level data over the period 1981-82 through 2007-08. In the second
approach, crop output was determined as the product of the total acreage under
that crop and its yield. Crop acreage functions wherein the area under the crop
was modeled as a function of the relative price of the crop, the irrigated crop
areas, and rainfall with data for the period 1981-82 through 2007-08. Functions
relating crop yield to the price of that crop and its competing crops and the
price of fertilizer, proportion of irrigated area under the crop, total
fertilizer consumption, and annual average rainfall were estimated for rice and
wheat over the period 1981-82 to 2007-08. Based on these alternative models,
our supply forecasts show that by 2025, the projected rice output varies from a
minimum of 135.5 million tons under pessimistic conditions on investments and
fertilizer growth to a maximum of 165.6 million tons under optimistic
conditions. Similarly, in the case of wheat, the model forecasts for 2025 range
from a low of 93.6 million tons to a high of 114.6 million tons. Simple growth
models project an output of 149 million tons for rice and 120 million tons for
wheat by 2025.
Using the
forecasts of demand and supply, the likely surpluses and deficits were estimated
under different scenarios. The results show that, under reasonable scenarios on
demand and supply the country is likely to face growing surplus in rice, from
15.5-30.8 million tons in 2015 to 26.9-60.9 million tons in 2025. Wheat too is
mostly projected to witness a surplus, though some deficit in 2025 may occur
too. The range of surplus for wheat is 5.0-20.4 million tons in 2015, while in
2025 it ranges from a deficit of 8.1 million tons to a surplus of 28.3 million
tons.
These trends
suggest that managing the projected growth in surplus rather than managing any
deficit is likely to be the bigger policy challenge for India in the future,
especially in the case of rice, while in the case of wheat some small deficits
cannot be completely ruled out.