Price with little acreage response: support prices, procurement, and the margins of crop output growth
Year: 2026
Type: article
Abstract: Output price support is often justified because it directs land towards priority crops. We test this in India using a balanced panel of 8 crops that have had minimum support prices continuously from 1983–84 to 2025–26, built from 11 editions of the Reserve Bank of India’s statistical handbook and extended to 10 crops for two further tests. A simple model of crop choice on a fixed land base implies that a support price can change which crop is sown but not how much land is sown. Real support prices increased by 81–108%, almost all after the mid-2000s. Under pooled two-way fixed effects, which assume that all crops respond alike, the short-run acreage elasticity is 0.194 (wild cluster bootstrap p = 0.080) and does not fall with controls for weather, irrigation, and the determinants of the support price; under the Mean Group estimator, which allows each crop its own response, it is 0.120 and not significant ( p = 0.251); and in a share system that imposes adding-up across crops it is 0.038 ( t = 1.41). The 2018–19 cost-plus reform implies a similar elasticity one season later (0.23) that cannot be distinguished from zero; yields do not respond; and, under the wild bootstrap, the response is not detectable after the first season. With net sown area increasing by only 6.3% between 1959–60 and 2024–25, gross sown area increased by 48% through multiple cropping, which is closely associated with irrigation, and the supported crops gained 12.3 percentage points of area share while their relative support price decreased by 15.9%. Nationally, support prices have at most a modest effect on land allocation, detectable only in the first season; their transfer and food-security roles should be appraised directly, and state-level evidence is needed to locate any larger response.
Language: English
Domain: Life Sciences
Open Access status: gold
Estimated APC paid: $2,353
OpenAlex ID: W7224950485