Dynamic Interaction Between Food and Fuel Markets in India: Has India Joined the Global Race?

Abstract

The study makes an attempt to investigate cointegrating relation between crude and three energy crops namely sugarcane ,soyabean and wheat for India for a sampled period Jan 2011-Dec 2020 by taking log transformed daily closing spot prices. The dynamic relation between crude and energy crops is established using ARDL and NARDL cointegration techniques. The results revealed co-integration being established only for sugarcane with crop’s critical region improving from 5% to 1% when Dummy representing break was included in ARDL Model. The asymmetric impact of crude on sugarcane was visible both in short and long run. Further, short run results were in one direction only i.e. a rise in crude was impacting prices of two crops namely sugarcane and wheat with no visible impact of any of energy crops on crude. The coefficient of ECM (-1) term for sugarcane was -0.005 which was negative and significant showing stability of equilibrium, however adjustment speed was rather slow @ 0.5 % per period. The study recommends policy makers to harmonize and synergize energy and agricultural policies as both sugarcane and wheat are food staples in India. The country needs to develop a pre-warning and a crisis response mechanism regarding biofuel policies so as to avoid any food crisis situation as seen in early 2000 in some of the countries where energy crops significantly make way to bio-fuels.