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THE TREND AND PATTERN OF NATURAL RUBBER PRICE IN INDIA: AN, EXPLORATORY ANALYSIS Lekshmi. 5., Mohanakumar .5.,and George. K.T. (1996). The trend pattern ofnatural rubber price in India: An exploratory analysis. Indian Jounzal of Natural Rubber Research, 9(2):82-92. Annual average price of natural rubber (NR) in India duringthe 27 year period from1968-69 to 1994-95 wasana lysed with the objectives ofdelineating the trend, identifying thedifferent phases and direction of price movement and the contributing factors. NRprice in India did not show any significant pattern ofconsistent movement towards a particular direction in the long run. Two broad phases (1968-69 to 1984-85 and 1985-86 to 1994-95) of NR price movement were identified based on the observed trend. Wide but less frequent fluctuations and mild but frequent fluctuations were the characteristics of the first and second phases respectively. Among the different economic variables, viz., production, consumption, stock, import and world price of NR, the production of NR was found to be the most significant variableinfluencing theprice. Significant statisticalrelationswere not discerniblewith import and world price Role of the non- quantifiable factors in price determination could notbe ascertained; and therefore, aprice forecasting .based on the empirical modeling is less likely toapproximate reality. Key words: Natural rubber, Price trend, Import, India. S. Lekshmi (for correspondence) S. Mohanakumar and K.Tharian George,RubberResearch Instituteof India, Kottayam - 686 009, Kerala, India. The vagaries of market arising from disequilibrium of supply and demand bear serious implications on the net income of the producers of perennial crops compared to annual crops. An important factor contributing to price fluctuations of peren- nial crops is borne out of itsrelatively inelastic supply in theshort run. Studies on the price behaviour of perennial crops as- sume added significance due to higher investment, gestationperiod,span of eco- nomic lifeand secular trend in prices. Though there are substantial differences in the form and content of the international pricestabilisation schemes evolved during the inter- war and post-warperiodsfor the selected perennial crops exported from de- veloping countries, the unique factor be- hind the schemes was a secular decline in J"ir real pnces .. Natural rubber (NR)is one among the perennial cropssubjected to price stabilisation schemes (Corea,1992) .under various historical contexts. However, the political economyof change in the control over production, marketsand consumption of NR and its implications on the international and coun- try specific behavioural patterns of price movements are not subjected to detailed analysis both at theanalytical and policy levels. The availablestudies on NR prices are broadly confinedtoempirical analysis of the secular trend rather than examining in detail the contributing factors encom- passing inter-yea r and intra-year fluctua- tions. An anal ysis of the price behaviour of NR in the Sing'lllC)fe market showed a statistical regularity in its movement in the long run. Howvvl'r, forecasting based on

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Page 1: PATTERN OF NATURAL RUBBER PRICE IN INDIA: …wtocentre.iift.ac.in/DOC/THE TREND AND PATTERN OF... · THE TREND AND PATTERN OF NATURAL RUBBER PRICE IN INDIA: ... Annual average price

THE TREND AND PATTERN OF NATURAL RUBBER PRICE ININDIA: AN, EXPLORATORY ANALYSIS

Lekshmi. 5., Mohanakumar .5., and George. K.T. (1996). The trend pattern of natural rubber pricein India: An exploratory analysis. Indian Jounzal of Natural Rubber Research, 9(2): 82-92.

Annual average price of natural rubber (NR) in India during the 27 year period from 1968-69 to1994-95 was ana lysed with the objectives of delineating the trend, identifying the different phasesand direction of price movement and the contributing factors. NR price in India did not showany significant pattern of consistent movement towards a particular direction in the long run.Two broad phases (1968-69 to 1984-85 and 1985-86 to 1994-95) of NR price movement wereidentified based on the observed trend. Wide but less frequent fluctuations and mild but frequentfluctuations were the characteristics of the first and second phases respectively. Among thedifferent economic variables, viz., production, consumption, stock, import and world price ofNR, the production of NR was found to be the most significant variable influencing the price.Significant statistical relations were not discernible with import and world price Role of the non-quantifiable factors in price determination could not be ascertained; and therefore, a priceforecasting .based on the empirical modeling is less likely to approximate reality.

Key words: Natural rubber, Price trend, Import, India.S. Lekshmi (for correspondence) S. Mohanakumar and K.Tharian George, Rubber ResearchInstitute of India, Kottayam - 686 009, Kerala, India.

The vagaries of market arising fromdisequilibrium of supply and demand bearserious implications on the net income ofthe producers of perennial crops comparedto annual crops. An important factorcontributing to price fluctuations of peren-nial crops is borne out of its relativelyinelastic supply in the short run. Studies onthe price behaviour of perennial crops as-sume added significance due to higherinvestment, gestation period, span of eco-nomic life and secular trend in prices.Though there are substantial differences inthe form and content of the internationalprice stabilisation schemes evolved duringthe inter- war and post-war periods for theselected perennial crops exported from de-veloping countries, the unique factor be-hind the schemes was a secular decline in

J"irreal pnces .. Natural rubber (NR) is oneamong the perennial crops subjected toprice stabilisation schemes (Corea,1992).under various historical contexts.

However, the political economy ofchange in the control over production,markets and consumption of NR and itsimplications on the international and coun-try specific behavioural patterns of pricemovements are not subjected to detailedanalysis both at the analytical and policylevels. The available studies on NR pricesare broadly confined to empirical analysisof the secular trend rather than examiningin detail the contributing factors encom-passing inter-yea r and intra-year fluctua-tions. An anal ysis of the price behaviour ofNR in the Sing'lllC)fe market showed astatistical regularity in its movement in thelong run. Howvvl'r, forecasting based on

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past price behaviour W,lSrtlther difficult inthe context of the variations in factors whichdetermined the magnitude of the scatter(standard deviation) of the price from itsmean (Allen, 1969). It was also observedthat the important international markets forNR, uiz., London, KUilla Lumpur and Co-lombo were interlinKed and the variablesinfluencing the long run price movementsin these three markets were found to bemore or less the same. Moreover, a lead lagrelationship was observed between KualaLumpur and London markets as any changeeffected in the market price of NR in KualaLumpur was tt,¥,smitted to the London

, mStrket after a lag of two weeks (Kanbur. a.nd Morris; 1980). Burger and Smit (1989)

attempted a price forecasting of NR upto2090 AD under two scenarios of projected

, . '>.1 supply of and demand for the commodity.i ,·Under the .normal rate of growth of thesupply and. demand, the NR price fore-casted was to. register an upward move-ment after 199Lt:, In the alternative scenarioof augmented supply resulting from doublereplanting and new planting, the price waslikely to decline after 1995. However, it wascategorically admitted that the variations inNR price could not be explained by eco-nomic variables alone (Sooi)992). The longrun trend in NR price movement in theKuala Lumpur market exhibited a patternof parabolic shape, which supported theobserved statistical regularity in NR pricebehaviour all.d explained in terms of thedirect correlation between world economicgrowth and price of NR (Chevv, 1994).

Compared to the major NR produc-ing countries, India has been enjoying aprotected price regime since 1942 eitherthrough statutory controls or price supportunder different historical contexts with vary-ing forms of intervention. The price policyhas been actively supplemented by a grow-ing domestic market <lnd as early as 1948India became a net importer of NR. How-

ever, studies on the Indian context aremainly confined to government policy, pricemovements and the contributing factorsrather than ana lysing the trend in NR price.An earlier study on NR price movement inIndia sought to explain the observedmonthly variations in NR price in terms ofthe changes in production, consumptionand the ratio of the manufacturers' stock tototal stock of NR during 1970s. Imports ofNR was presumed to have negligible im-pact on Indian price and, therefore, ex-cluded from the model. The model revealedthat though the NR price in India wasinfluenced by the changes pertaining toimport and export policies of the govern-ment particularly after 1973-74 period, pro-

. duction, consumption and stocks of NRwere the crucial variables in determining itsmarket price (Mani, 1984). The increase inNR output'during peak production periodwas found pushing down the price andremained less responsive to fall in produc-tion during lean seasons. To a certainextent, this one-way relationship was foundoperating between NR price and its con-sumption. The uniqueness of the inverseand positive relationships of price with thesupply and demand of NR "vas attributed tothe oligopsony nature of the market (Ipe,1988 and Jacob, 1994).

The major gap identified with theearlier studies on Indian NR prices was theabsence of a scientific approach in analysingthe trend in prices incorporating all vari-ables likely to influence NR price such asproduction (supply), consumption (de-mand), imports, total stocks (held by manu-factures and growers together)and interna-tional price ofNR in the price determinationprocess. Another missing link identifiedwas the characterisation of the differentphases in the NR price movements.

The main objectives of the stud ywere to delineate the secular trend in NR

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price and to identify the nature of differentphases and direction of the price movementand to examine the price formation of NR inthe domestic market in terms of supply,demand, stocks, imports and the worldmarket price. The present study assumesadded significance in the context of grow-ing market integration process of Indianeconomy with the world market.

METHODOLOGY

The study covered the 27 year periodfrom 1968-69 to 1994-95 and the analysiswas based on the annual average price ofungraded sheet rubber reported at theKottayam market. The choice of the periodwas influenced by the onset of a new phasein the price policy of the governmentcharacrterised by partial price decontrolsince 1968-69. About 75 per cent of thesmallholders' sheet rubber is traded in theprimary market as ungraded sheet andtherefore the price of ungraded sheet wastaken as the representative price of NR.Further, the price of RSS IV grade sheetrubber was available only from the year1976-77. The <;:hoiceof the price for theanalysis was further justified as the coeffi-cient of variation of prices of differentgrades of NR was found to have movedrather consistently (Appendix 1). The trendin the price was examined using a 'randomtest' supplemented by an analysis of threeyear moving average intended to even outthe seasonal fluctuations and to capture thesecular trend in the price movements. Lin-ear, semilog, Gompertz and logistic curveare the important functional forms to esti-mate growth rate. Quadratic function canbe treated either as d second degree func-tion or as a variable parameter form of log-linear function to test if the growth rate isaccelerating, decelerating or growing at aconstant rate (Pushpagadan,1992). Hence, asemi-log quadratic equation was fitted todetect the direction of the price movement.

The relationship bl..:'tvveenprice and itsexplanatory variable:, was analysed by fit-ting a linear regression model. Each vari-able was checked for stationarity employ-ing Dicky-Fuller(DF) test and the variableswere tested for co-integration. An errorterm was used to restore relevant infonna-tion that can be lost due to differencing thedata by employing Granger-representationtheorem(error correction model).

The results of the random test re-vealed the absence of any discernible trendin the long nm NR price movement. Thetest statistic employed for random test was:.

z = R-E (R)SE (R)

•. <

N = number pfobsfrvations

The necessar'y condition of thenull hypothesis is that it is accepted if thevalue of 'z' lies within the range' ~T.96~Z ::::1.96. The first difference of NR price serieswas taken to derive the runs.(Appendix-2).The value of 'z' obtained by employing atwo tailed test at 5 per cent level of signifi-cance was -0.588 rejecting the randomnessin NR price movemcn t. However, a threeyear moving average of NR price (Figure 1)

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Period I' f2 R2

1968-69 to 0.0759' -0.00067 0.941994-951968-hl) to (J,0911' 0.00346' 0.911984-851968-69 to 0.0902 0.00249 0.901985-8h

1968-69 to 0.0760* -0.0010' 0.931992-93

OW

1.11

showed relatively more frequent fluctua-tions in the 1980s and early 19905 than in1970s. To recapitulate it, the trend growthrate for the entire period of the' analysis andfor. different phases were/'worked out byfitting a semi-log quadratic equation of theform: ' ,

In NRP = a+ bt' + Ct'2+ ut

(1)

where, In NRP is the natural loga-rithm of NR price. As t' and t'2 areorthogonal, the estimates are free frommulticollenearity (Pushpangadan,1992). TheNR price grew at a rate of 7.6 per centduring the 27 year period (Table I). Thegrowth rate for the first 17years was 9.1 percent with a positive and significant t'2coefficient indicatin~ that NR price grew atan increasing rate during the period 1968-69to 1984-85. The positive t'2 coefficient be-came insingnificant as price in 1985-86wasadded to the price series in the regression.It appears that there exists a discontunity in

Table 2. Period-wise growth rates of NR price.Coefficients

Period I Period II

In Y = 0.8678 0.0546 0.94 1.21(13.08) (.1.78)

CORC = 0.0920 (l,0561 0.89 1.74(8.75) (3.h9)

Growth rate is calculilted using kinked exponentialfunction; In Y = al + bl (ell t+d, k) + b, (d.2 t-d2 k)and. is adjusted for illltocorrelation (core.) usingCohrane-Orcutt meth(ld.Values in parentheses indicate t values

the trend growth rates from 1985-86. Adummy variable, '0' for the period upto1984-85and 'I' from 1985-86to estimate thepresence of a break, if any, in the tre'ndgrowth rate, was used. The result obtainedusing dummy variables was of the form:In Y = 5.85 + 0.0785 t + 0.0118 Dt R2DWt values (20.41) (2.3) 0:97 1.31'At the point 1984-85, a significant coeffi-cient was obtained for 'Dt' which confirmedthe presence of a break at that point. Boyce(1986)method of kinked exponential trendfunction was employed to estimate theperiod-wise growth rate (Kannan andPushpangadan, 1988).Th'e results of thefunction for the two sub-periods areshown in Table 2. Thus, two broad phases(1968-69to 1984-85 and 1985-86 to 1994-95)of NR price movement were identifiedbased on the analysis of the observed trend.

The analysis of the' trend in the NRprice movement (Appendix 2) during theentire period also indicated that the 1980'sand 1990's were more prone to fluctuationsthan the 1970's. The trends during the twobroad phases were subjected to a detailedanalysis to confirm the results obtained.The coefficient of variation of the priceduring the two phases showed a highervalue for the first phase indicating rela-tively wider fluctuation compared to thesecond phase (Table 3). This observationwas in sharp contrast to the result obtained

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in appendix 2. A higher value of the coeffi-cient of variation in the first phase wasconfirmed by an analysis of the quinquen-nial average price and its deviation from theminimum and maximum prices for the fivesub-periods (Table 4). The results (Table 4,Appendix 2) showed that there were wideprice fluctuations during the second andthird sub-periods compared to the last twosub-periods which implies a less frequentbut wide fluctuations in the first phase andmore frequent but mild fluctuations in thesecond phase.

Theoretically, the trend in NR pricemovement could be explained in terms ofquantifiable economic variables such as itssupply, demand, stock and imports and,non-quantifiable policy inputs related toprice support, tariff and non-tariff barriersto imports. Another plausible factor influ-encing the Ind{an NR· price could be theprice movement in the world market thoughthe inter-relationship is,yet to be analysed indetail. At this juncture, it is important toanalyse the main features of NR importsinto India and the trend in international

'. price movements before incorporating thesetwo variables (apart from supply, demand'and stocks) into the, price determinationmodel. Hence, the"quintessence of themodel is its dynamic nature which incorpo-rates imports of NR into India and theinternational market price as the influenceof these two on Indian NR price were nothitherto analysed.

Table 3. Phase-wise coefficient of variation* ofNR price

Period Mean SO CV

1968-69 to 1333.16 748.58 0.561994-951968-69 to 880.17 425.34 0.471984-851985-86 to 2103.24 513.41 0.251994-95

* Estimated frum Indian [~!lbber Stallotico, relevant issues

Table 4. Quinquennial deviation from the averageNR price

Deviation Deviationminimum maximum(% ) ( 'X, )

8.80 8.40

22.70 27.30

20.80 18,80

4.10 4.30

14.00 18.00

1968-69 to 461.801972-731973-74 to 667.201977-781978-79 to 1204.501982-831983-84 to 1654,701987-881988-89 to 2044.001992-93

NR price in India had been statutorilycontrolled from 1942 and was an essentialingredient of the policy oriented towardsenhancing NR production in the country(George and Chandy, 1996). The year 1968marks the beginning of a major policy shiftcharacterized by price decontrol and mar-ket intervention. This modus operandi isbeing continued till date under varioushistorical contexts with the main objectiv,e

.. of stabilising the price at remunerativeJevels (Appendix 3). Subsequent policychanges in tariff and non-tariff barriers onimports of NR into india were also designedto stabilize the prices in the domestic mar-ket. The major tariff barrier has been importduty whereas the non-tariff barrier con-sisted of the regulations on the mode ofimports (cannalized Vs direct imports). Thequantity of NR imported has been based onthe reported consumption-production gapand the import duty is assumed to protectthe domestic market prices. Since 1968, themajor share of the imported rubber wasc.annalized through Stille Trading Corpora-tion (STC) and the bill,ll1ce was in the forn,of direct imports by 11)(· exporters of rubberproducts as 8n i/w('/Itive to boost the ex-ports. Therefore, It'd Illicallv the tarjff and- '

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non-tariff measures' on NR imports intoIndia were expected to play the crucial roleof stabilizing the doml'stic prices at desiredlevels from the instabilities of the world NRmarket.

An analysis of the quantity of rubberimported as percent<lge of consumption-production gap for the 27 year periodindicated that the qU<lntity of NR importedexceeded the reported gap for 16 years(Table 5). Among the years in which thequantity of imports exceeded the deficit, theyear 1969-70 assumes special significance asmore than four times 9f the required quan-

'.Tabl~ 5. N~ imports* in relation to deficit andconsum ptio!)

. t!'.; :..Imports' ~s % of

consumption- consumptionproduCtion gap'

.•.. ,.-.'.. ~.'

1968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-931993-94

1994-95

54.93. ;' \'.418.33

-50:04-9.18-3.591.01

0.000.000.000.00

50.46

192.0045.05

120.25112.48105.11 •120.61112.05120.04102.66109.47l)9.78

[4').711O~U7~().(D

l:N.58

9.87

20.67.2.830.45

0.290.040.000.000.000.008.97

19.49

5.3322.6917.0817.1617.2217.4517.6318.6719.0713.0014.263.813.984.75

1.76

* Computed from II/dilill Fi.1I/ll,cr Statistics, relevantissues.

Oi:;,t;0 30000,-(j; 2000~

(1)

Ol tOOo~(1)

>ell 0~ Ln f"- 0) a; <"l(1) f"- 0) a; .<"l a:> a:> a:> 0)>. f"- f"- a:> 0) 0) 0) 0)(') 0) 0) 0) 0) 0) ~ ~ ,- ,-~ ,- ~

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Table 6. Seasonwise imports of NR ( Percentageshare"" )

1968-691969-701970-711971-721972-731973-741974-751975-761976-771977-781978-791979-801980-811981-821982-831983-841984-851985-861986-871987-881988-891989-90,1990-911991-921992-931993-94,1994-95

4845184344

100oooaa

5094744822

64

659471

75

946562'4761

48

52558257

56oaoao

10050

6

26527838

356

292515

35

3853

39

52"" C~~i:JUted from Indian Rubber Statistics, relevant

issues.

ing gap in the mid 1980s and the pricesagain converged in the early1990s (Fig. 2).Although the Indian and the World marketprices recorded comparable growth ratesduring the 20 year period, substantial dif-ferences were observed in the two sub-periods, 1976-85 and 1986-95 (Table 7).During the first sub-period (1976-85) theIndian price recorded maximum growthrate (12.38 (10) compared to the world price(2.73%) and the absolute difference betweenthe two was the highest in the year 1985.Subsequently, the difference between In-dian and world price narrowed down and

,Table 7. Trend growth rates of world and Indian

NR priceWorld Indian

Year price price

1976-95 844 8.081976-85 2.73 12.381986-95 15.76 9.82

Growth rate is calculated using the formula logy = a + bt

in the second sub-period, growth rate ofworld price (15.76 %) was higher than thatof the Indian price (9.82 %). The Indian NRprice expressed as a ratio of world price alsoillustrated that the Indian price was rela-tively higher in 1980s and since 1990 themovement of the price was in tandem withthe international price (Table 8).

Therefore, under the given specificfeatures of the Indian NR market, annualfluctuations in prices are sought to be~xplained by the inelastic supply behaviourof the crop in relation to its demand cor-

, Year World price Indian price Ratio ofRSS 3 RSS 4 Indian to(Rs/lOOkg) '(Rs/IOOkg) world price

1976 674 +i" 620 0.921977 692 630 0.911978 789 885 1.121979 1011 . 1024 un1980 1083 1154 1.071981 872 1423 1.631982 7391473 1,YY1983 10421672 1.601984 10401689 1.621985 8901694 1.901986 9081670 1.6Y1987 1217 '1760 1.451988 1600 lim 1.131989 1482 2040 1.381990 1425 2147 151lYYI 17'16 2128 1181992 2457 2463 1.001993 2531{ 7.546 ](JO1994 3455 '\107 Ol)()

'1Y95 5()30 ';1)59 !O I

Source: llldU/Il 1<1I!J[wr .c;illli"li,s re1l'\',llll I~S;'l'S

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roboratcd by th(, direction of changein stock accumuliltion(variable taken asstock ) the trend in world NR price andI-I

quantity iluporkd (inclusive of years of noimport) effected through the import policy.Given the above specification it was hy-pothesised that,

PI = f ( Pdl' C1, 51_1, II' Pwi ) (2)where,

PI = annual average price of NRt

P = the prod uction of NRdl I

C = consumption of NRI I

5 = Stock of NR1-1 '-I

I = Import of NRI I

PWI= Intemat~onalprice of NR, -,(Grade-III(, Ku_alaLumpur ..)

'Give'n the model, the relations expected are:

apt < 0, apt > 0

alt apwt

The model is specified as a log-linearform:

In PI = a + aj In Pdt + a1 In Ct + a3 In 5'_1+ a4 In II + a~In Pwt + e, (3)

where 'In' indicates the naturalloga-rithm and 'e

l' is the error term.

Macro economic variables remainintegrated (non-stationary) when short-runmovements deviate from its long run equi-librium path. However, two integratedvariables can be 'co-integrated' when theyconverge in the long run despite short rundivergence (Alexander and Wyeth, 1994).This notion of long run convergence has tobe verified for price, production, consump-tion, stocks, import and >yorldprice. Moreo-ver, the standard regression equation presupposes that the time series data arestationary (integrated variable) and if not,they must be di(ferenced enough to achievestationarity and it can be checked using the

unit root test. The unit root test involves aregression of the first difference of a seriesagainst its lagged value.

The null hypothesis of a unit root isrejected if the parameters are negative andsignificantly different from zero. The seriesachieved stationarity in the second order ofintegration for which the following formwas used.

where a1 In Pt is the second differenceof the logarithmic value of NR price and aIn PI-1is the one year lagged value of its firstorder chaDge.

The results indicate that all the vari-ables became stationary in the second dif-ference; second order of integration (Table9). Therefore, the long run movement ofpric~ and other explanatory variables in theanalysis were influenced by short run fluc-tuations and the co-integration test revealedthat the series could be co-integrated in amodel eventhough the variables are indi-vidually non-stationary. The model waschecked with and -wilhout world price forNR and obtained the best fit in the follow-ing form:

In P, = a + a1 In Pdl + a1 In Ct + a3

In St_l+ a4 In It + as In PW1 + et (5)

The term e, refers to the deviationfrom equilibrium and this equilibrium errorin the long run tends to become zero andthis error term co-integrating equation hasto be stationary in a model specification.Verification of the stationarity of the error

Table 9. Results of unit root test

PriceProductionConsumptionStockImportWorld price

4.9629-3.4769

-5.3058-7.00354.2846-4.9698

1 01., = 4.32

5 % = 3.6710 'X, = 3.28

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The test implies that the deviationfrom the equilibrium are stationary, i.e., theerror adjusts to the long run equilibrium.

The reported results showed that amodel could be fitted using an error correc-tion model (Engle and;Granger,1987) whichinclude an error correction term as anexplanatory variable. This error term re-stores the relevant information that hasbeen lost due to differencing data andrepresents the error from a model usingnon-differenced data. The error correctionrepresentation model is specified as:

a In P t = a + a1 a In Pdt+ a2 a In Ct + a3 a InSt.'1+ a4 a In It + as a In Pwt+ a6 eH + ut (7) .

The results of the analysis given inTable 10 showed a positive relationshipbetween price and demand; given thesupply, an mcrease in consumption led torise in price;' Conversely,. an in~rease insupply of NR had a dampening effect on .NR price. confirming the findings of an

, earlier study (Mani, 1984). A significant. inverse relationship w,as al~o olJs~rved be-

t~e~n the stock ahd price. The impact of thevolume of imports on the price was foundto be statistically insignificant. Eventhoughthe movement of the domestic price of NRwas expected to be positively related to theworld price, the statistical relation obtainedbetween the two variables was insignificantimplying the extent of protection given toTable 10. Inter-relationship between price and ex-

planatory variables (Error correction model)

Variables Coefficient T-value

Production -1.941 -3.410Consumption 1.278 2.266Stock -0.248 -2.027Import -0.025 -1.875World price -0.039 -0.331

R2 0.654OW 2.116 ".

the Indian NR market through tariff andnon-tariff barriers during the period understudy.

CONCLUSIONAnalysis of arumal NR price in India

did not show any statistically significanttrend to move consistently towanJ.;>a par-ticular direction in the long run. Ho(Yever,two distinct phases could be identified inthe NR price movement for the period 1968-69 to 1994-95. The important factors behindthe mild and less frequent price fluctuationsfrom 1985-86 to 1994-95 compared to 1968-69 to 1984-85 appeared to be on account ofnon-quantifiable variables pertaining to ad-hoc policy measures related to price sup-port and imports of NR. The model fittedto gauge the degree of influence of differenteconomic variables, viz., production, con-sumption, stock, import and Wo.rldprice, onthe price formation revealed'that the pro-duction was· the most imp ().nCl.+l t factorcompared to consumptioIl an<;l'other vari- '1 I , .

abIes. Eventhoug~, ~he yolume', of imports"jwas thought to be a pol~cy vari~ble mflu~:' 0 •

encing NR pric~, no sigrificanf statisticalrelation could be obtamed to .,prove .that ',: ~", ...hypothesis. Nevertheless, policy inputs .'r 0' (

such as announcement, timip,g and channelof imports might have played a crucial role" ."0'

in determining the trend in prices. Despitethe graphically observed synchronimousmovement between international and In-dian prices, the influence of the former onthe latter was quite insignificant during the27 year period.

The' price determination model de-veloped in this study has well definedlimitations for evolving a price forecastingmodel as the non-quantifiable policy inputsrelated to the price support and importsplaya significant role in determining theNR price in India. Nonetheless, the studyunderlines the need for a close perusal ofvarious facets of the political economy of

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the government policies to unearth the rolesand means through which the contributingfactors interact and influence the pricedetermination process.

"

The authors are thankful for thevaluable comments and suggestions byDr.D.Narayana, Associate Fellow andDr.Indrani Chakraborthy, Research Associ-ate of the' Centre for Development Studies,Thiruvanathapuram and Dr.Colin Barlow,Senior F~po~ a~d Dr.K.P. Kalirajan, SeniorFellow of the Research School of Asian andPacific SttIdies,,'lAustralian National Univer-sity.:'l( k''' .

REFERENCES...., .~; _,):" .r:t.. ~.

", ~. . ,"AlI~n}'r?W'(f969f'A1lalysing price patferns. Rubber

Di:Jelopment, 22(4): 12~-125,

Alexander,C. and Wyeth,J.(1994)< Cointegration andmarket integration: An application to the Indo-nesian rice market. Toun1cli of DevelopmentStudies, 30(2):303-328.' '

Arnade,C.and Vasvada,U.(1995). Casualty bet weenproductivity and exports in' agriculture: -Evidence from Asia and Latin America. Toumalof Agricultural Economics, 46 (2): 174-186.

Boyce, J. (1986). Kinked exponential models for growthrates estimation. Oxford Bulletin of Economicsalld Statistics, 48(2):48-55.

Burger K., Haridasan. V., Smit, H.P, and Zant , W.(1995). The Indian rubber economy: History,analysis and policy perspectives. ManoharPublications, New Delhi, p.176.

Burger,K.and Smit,H.P.(l989). Long-term and short-term analysis of the natural rubber market.Review of World EcollOmics,124 (4): 719-745.

Chew,C.S.{1994). Technical analysis of RSS 1 price,1925-1993, and its future direction.Malaysian Rubber Review, 15(3):41-46.

Corea,G. (1992). Taming Commodity Markets. VistarPublications, New Delhi, pp.18-20.

Engle, RF and Granger,C.W.} (1987). Co-integration;, and errorcorrection: Representation, estima-

tion and testing. Econometrica, 55(2):251-276.

George,K.T.and Chandy,B.(1996). Market interve-ntion,value-addition and consolidation: Theinterface between small rubber growers andco-operative sector in Kerala. In: RediscoveringCO-operation, Vol.3, (Ed.R Rajagopalan) Insti-tute of Rural Management Anand, Anand, pp.3-11.

Gujarati, N.D.(1995). Basic econometrics. McGraw-Hills International Edition, New Delhi, pp.707-729

Ipe,V.C.(1988).Seasonal fluctuations in the price ofnatural rubber in India, Indian Journal of Natu-ral Rubber research, 1(1):31-34.

.}acob,J.(1994).Staggered rcplant1ngmJd income stabilisation: A case study of small 'rubber holdings in Kerala:"M.Phil Dissertation, }awaharlaJ Nehru Univer-sity, Centre for Development Studies,Thiruvanathapuram.' , '.

Kanbur,M.G.and Morris,J.L.(1980). 'Mea~uremeht ,of; .cycles of natural rubbecr price,s. Indian Econ'omic

ReVlerv, 15(1): 53-63. .... . ! .

Kannan,KP. and Pushpangadan,K.(1988).Agriclilturalstagnation in Kerala : An exploratory analysis.;Economic and Political Weekly, 23(39):A120- A:128. .

Mani,S.(1984). Price, moyernents for an agriculturalraw material with inventory adjustments: Caseof Indian natural rubber market in 1970s.Ecol1omic and Political Ioeekly; 19· (52' & 53):A:205 -A:212.

Pushpagadan,K.(1992). Methods in applied econo-metrics, growth rates. Centre for DevelopmentStudies, Thiruvananthapuram, Working Pa-per No.288.

Sinharoy,S.and Nair,RS.(1994). International trade andpepper price variations: A co-integration ap-proach. Indian Journal of A:.,>ricultural EC0I101/1-ics,49(3):417-425. "

Sooi,C. NG.(1992). Of direct trade and pricingof natural r!1bber. Malaysian RubberReview,13(3):45-55.

Trivedi,K.P.(1989). The prices of perennial crops: Therole of rational expectation and commoditystocks.In: Priman) Commodih) Prices: ECOl1017licModels and PoliC1). (Ed. L. A.Winters andD.Sapsford).Cambridge University Press, Cam-bridge, pp. 72-101.

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92 LEKSHMI et aI.

Appendix 1. Price ratio of different grades of NR Appendix 2. Trend in NR price

Grade-l Grade-II Grade-ill Ungraded c.v. Year Rs per 100 kg RunsYear of w1graded NR

1977-78 1.06 1.04 1.02 0.98 0.03 1968-69 4661969-70 501 + 1

1978-79 1.05 1.04 1.01 0.98 0.03 1970;71 464·\'·t 1971-72- 421 21979-80 1.04 1.03 1.02 0.98 0.02

PHASE 11981-81 1.05 1.03 1.02 0.98 0.03 1972-73 459 +

1981-82 1.05 1.04 1.02 0.98 0.03 1973-74 515 + 31974-75 849 +

1982-83 1.06 1.04 1.02 0.99 0.03 1975-76 744

1983-84 1.05 1.04 1.02 0.98 0.03 1976-77 596 41977-78 632 +

1984-85 1.04 1.03 1.01 0.97 0.03 1978-79 953 +

1985-86 1.08 1.05 1.02 0.97 0.04 1979-80 1017 + 51980-81 1212' +

1986-87 1.07 1.05 1.03 0.97 0.04 1981-82 1431 +

1987-88 1.07 1.05 1.02 0.97 0.04 1982~83 1410 6.-')..'

1983-84 1708 + 7,.1988-89 1.06 1.03 1.01 0.97 0.03 1~S4-85 1587 8

~ !.

1~85-861989-90 1.06 1.04 1.02 0.97 0.04 1661 +': 9

" 1986-87 " ('! ;"~ ,~~5~~ 10

\ , it199b_~\- ).1.07 ,"1.05 1.02 0.96 0.04 1987-88 1726 +

·"i. 1988-89 ,1745 +1991-92 1.07 1.04 1.02 ",0.97 0,051989-90 2058 . + 11

1992~93 . 1.07 1.05 1.03 0.96 0.04 PHASE 2' .' :.: ~,.~:

-(!( \·tj.." ..•. .,~.,

<! 1990-91 202319Q3-94 1.09 1.05 1.03 0.97 0.05 ,'.:

., 1991-92 '1975 121994-95 1.09 0.96 1.05 0.97 0.05 1992-93 2420 +

1993-94 .~437 +Notes: Price of Grade -IV of NR is taken as the base. 1994-95 3396 + 13Source: Indian Rubber Statistics, relevant issues.

Source: Indian Rubber Statistics, relevant issues

.Appendix 3. Price policy regimes of NR in India

Policy

Period Min. price Max. price Others

May. 1942 - Sept. 1946 Yes NoOct. 1946 - Nov. 1947Dec. 1947 - Dee. 1963 Yes YesJan. 1964 - Sept. 1967 Yes NoOct. 1967 - Nov. 1968 Yes YesDec. 1968 - Entry ofSTe in the marketDec. 1968 - Aug. 1981 Yes NoSept.1981 - Feb. 1986 No NoFeb. 1986 - Sept. 1988 Yes Yes Bu(('~r stock schemeOct. 1988 - Jan. 1991 Yes Yes BU((l!r stock schemeJan. 1991 - YesSource: Burger et al. (1995)