The Transmission of World Prices to Farm-Level Prices in India | Original Article

ABSTRACT:

Developing countries, such as India, are slowly adopting market-oriented policies and lowering or withdrawing various supports, while subsidies in developed countries, particularly for cotton, have persisted at high rates. This chapter examines recent movements in international and domestic cotton prices and the transmission of world price movements to domestic prices in India.Cotton is being offered in the international market. It is an average of the cheapest five quotations from a selection (at present numbering 19) of the principal upland cottons traded internationally. Taking the average of the five cheapest quotations is a tried and tested means of identifying those which are the most competitive and are therefore likely to be traded in the most volume. This practice is a proxy for weighting, which is impractical due to the absence of timely data by which weights could be calculated. Changes in the selection are made solely to reflect shifts in the cottons most frequently traded and occasionally added to or withdrawn from the, following the provision of appropriate notice, as the quality and availability of cotton from the various countries change. The base quality of the index is “Middling1-332 and is calculated by taking a simple average of the day’s cheapest five Far Eastern quotations.