A stochastic simulation analysis of the effects of Indian wheat production instability on the world wheat market

Adverse weather factors in India augment the instability in wheat supply and trade. Consequently, India's wheat trade is a classic example of stochastic supply being the dominant factor in determining trade flows. This study analyzes the effects of random fluctuations in India's wheat supply on domestic and world price variability and trade flows of India and major exporters and importers by using stochastic simulation analysis. Trade mitigates price variability and, thus, acts as a buffer stock program in reducing price variability. The results show that production shortfalls (surpluses) in India benefit wheat exporters (importers) and hurt importers (exporters).