The Covid-19 impact on agricultural market arrivals and prices in India: A Panel VAR approach

Using panel data on market arrivals and prices for the 17 Indian states from July 2019 to June 2020, the present study examines whether the growth of COVID-19 pandemic influenced market arrivals and prices in the agricultural food commodity market. A point of departure of our analysis is that we take into account the dynamic and lagged interactions between market arrivals and prices of food commodities, namely, rice, onion, potato, and tomato, and the severity of the COVID-19 pandemic by applying a first differenced specification to the panel VAR model based on the GMM. Our results suggest that there was virtually no effect of the COVID-19 pandemic on market arrivals while the former negatively influences food prices in the short run. However, once we consider feedback effects, the overall elasticity of market arrivals with respect to the COVID-19 pandemic turns from weakly positive to zero in a relatively short term. The overall price elasticity with respect to the COVID-19 pandemic turns from positive to zero or negative in onion and tomato, and from negative to zero in rice and potato. We also find a great deal of regional heterogeneity where, for instance, the negative effect of the pandemic on prices is larger in Maharashtra, the state with the worst pandemic. While the effect of the pandemic is short-lived, policymakers need to take into account dynamic effects over time given the complexity of the transmission mechanism.