Volatility in Indian Cereal Prices: A Panel Data Analysis Using the Cobweb Model

Purpose: The purpose of this study is to examine price volatility in India's cereal markets through the theoretical lens of the Cobweb Model. It aims to determine whether cereal prices exhibit convergence toward equilibrium or persistent instability, with implications for market coordination and agricultural policy. Design/Methodology/Approach: The analysis covers thirteen major cereal-producing states in India, using panel data for the years 2005, 2006, 2011, 2022, and 2023. Cereal consumption and production are used as proxies for demand and supply, respectively. A fixed effects regression model is employed to assess how current demand and supply respond to price signals, including a lag structure to capture delayed supply responses. The convergence coefficient (β) derived from the model is used to evaluate price behavior over time. Findings: The results show that demand declines when current prices rise, while supply increases in response to prices from the previous year. The estimated convergence coefficient (β = −0.39) indicates that cereal prices tend to stabilize over time rather than diverge or cycle unpredictably. The analysis also reveals that consumer responses to price changes occur more rapidly than producer responses, reflecting asymmetries due to structural and seasonal production constraints. These findings validate the applicability of the Cobweb Model in the Indian agricultural context. Originality: This study contributes to the limited empirical literature on the Cobweb Model in Indian agriculture by applying it within a panel data framework. It offers new evidence on cereal price behavior and supply-demand interactions across time and regions. The research also highlights the policy relevance of improving price forecasting systems, enhancing market infrastructure, and implementing coordinated interventions to support price stability and agricultural resilience in India.