Price instability in black pepper: A comparative analysis of preliberalisation and post-liberalisation periods

Abstract

Black pepper as an internationally traded commodity has always been associated with price fluctuations which are influenced by numerous factors including production and consumption in India and the world, international prices, export-import policies, exchange rates and trade agreements. The present study is focused on price instability of black pepper in Indian and international markets in the pre-liberalisation and postliberalisation periods. Annual instability indices of nominal and real prices of black pepper in the domestic and international markets were computed and used to compare price instability before and after agricultural trade liberalisation in India. The study revealed that the magnitude of price instability of black pepper hasincreased significantly in Indian markets during the post-liberalisation period, whereas it has declined in the international markets. The destabilising effect of trade liberalisation on prices of black pepper was comparatively more in Indian markets as compared to the international markets. This could be attributed to the transmission of volatility from international markets to domestic markets after liberalisation, resulting in reduction in instability of international prices and a concomitant increase in instability in the domestic markets. Hence, suitable price stabilisation policies need to be implemented to safeguard the producers of black pepper in India from price fluctuations resulting from liberalisation of international trade in agricultural commodities.