below the fob price. To reflect the fact that on average India is more likely to export rather than to import, the steady-state price is calibrated closer to the fob price than the cif price.

Based on detrended production, the random component of wheat production is estimated to have a standard deviation of 0.035 in both regions, and to be independent across time and space. The equality of production variability between the RoW composite and the single country of India is unusual and likely reflects the diversity of production regions within India and the fact that almost all of India’s wheat is grown under irrigation. In general, the volatility of output would be expected to be much higher for an individual country than for the RoW composite, because of the low correlations between the outputs of different countries.

Annual interest rates are assumed to be the same for each region, at 5%. Choosing appropriate storage costs is important, as this variable significantly affects the results. For private stock holders in India and in the RoW, per unit storage charges are assumed to be US$ 22.40 per ton, based on estimates of worldwide benchmark private sector costs from a recent World Bank study (World Bank and FAO 2012).<sup>7</sup> Combined with the opportunity cost of the grain, this physical storage cost entails an overall storage cost at steady state of 17.5% of India’s domestic price. Public storage costs in India appear to be much higher, at around US$ 87 per ton,<sup>8</sup> but these costs are likely to be underestimated because they neglect the cost of storage losses. Anecdotal evidence appears to indicate that such losses are large because storage conditions are inadequate,<sup>9</sup> but the actual rate at which stocks deteriorate is unknown. For private storage costs, following (29), the maximum storage subsidy compatible with a stable steady state is equal to 1.4. Similarly, for public storage costs of US$ 87 per ton, the maximum subsidy is 1.1.

7 Private storage costs in India are competitive relative to the global benchmark used here. Estimates of storage costs from National Bulk Handling Corporation, a private entity, are equivalent to about US$16 per ton in general, but a bit higher at about $19.2 in the National Capital Region or port locations (Anil Choudhary, Managing Director and CEO, _personal communication)_ . Data from IFC from recent modern grain silos projects indicate a cost of storage at about US$ 19.75 per ton in Punjab, where the private developer of storage provides land, and $11.5 per ton in Madhya Pradesh, where land is provided by the government. The Food Corporation of India has fixed ceiling rates for storage rental from private providers under the “Private Entrepreneurs Guarantee” (PEG) scheme at Rs 4.78 per quintal per month, which translates to only US$ 9.56 per ton (see Department of Food and Public Distribution website at http://dfpd.nic.in/?q=node/34). Finally, the base storage rental rates established by the Central Warehousing Corporation for private sector bidding for wheat storage under normal access conditions (that is flat terrain with easy access such as may be expected in the national capital region) are about US$ 18 per ton (see http://www.cewacor.nic.in/Docs/commodity_tariff_2013-14.pdf).

8 The economic cost of the Food Corporation of India available at http://fciweb.nic.in/finances/view/9, accessed May 12, 2014. For the financial year 2012/13, the annual rate of buffer stock carrying cost is estimated to be Rs 4,744.6 per ton. The average exchange rate from April to March was 54.35 Rs/US$, which leads to an annual storage cost of US$ 87.3 per ton.

9 “As crops rot, millions go hungry in India,” Reuters, July 1, 2012; “2,400 MT wheat rotting in govt granaries for past 2 years,” The Times of India, May 7, 2013.

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