Unifying Agricultural Wholesale Markets: Impact on Market Prices and Farmers' Profitability

Proceedings of the National Academy of Sciences, forthcoming. Preprint version

15 Pages Posted: 28 May 2019 Last revised: 20 Dec 2019

See all articles by Retsef Levi

Retsef Levi

MIT Sloan School of Management - Operations Research Center

Manoj Rajan

Rashtriya e Market Services

Somya Singhvi

USC Marshall School of Business

Yanchong Zheng

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: December 18, 2019

Abstract

As a leading effort to improve the welfare of smallholder farmers, several governments have led major reforms of improving market access for these farmers through online agricultural platforms. Leveraging collaboration with the state government of Karnataka, India, this paper provides the first empirical assessment on the impact of such a reform -- implementation of the Unified Market Platform (UMP) -- on market prices and farmers' profitability. UMP was created in 2014 to unify all trades in the agricultural wholesale markets of the state to be carried out within a single platform. By November 2019, 62.8 million metric tons of commodities valued at $21.7 billion (USD) have been traded on UMP. Employing a difference-in-differences method, we demonstrate that the impact of UMP on modal prices varies substantially across commodities. In particular, the implementation of UMP has yielded an average 5.1%, 3.6%, and 3.5% increase in the modal prices of paddy, groundnut, and maize. Furthermore, UMP has generated a greater benefit for farmers who produce higher-quality commodities. Given low profit margins of smallholder farmers (2%-9%), the range of profit improvement is significant (36%-159%). In contrast, UMP has no statistically significant impact on the modal prices of cotton, green gram, or tur. Utilizing detailed market data from UMP, we analyze how features related to logistical challenges, bidding efficiency, in-market concentration, and the price discovery process differ between commodities with and without a significant price increase due to UMP. These analyses lead to several policy insights regarding the design of similar agri-platforms in developing countries.

Keywords: poverty reduction, smallholder farmers, market reform, impact assessment, difference-in-differences, developing countries

Suggested Citation

Levi, Retsef and Rajan, Manoj and Singhvi, Somya and Zheng, Yanchong, Unifying Agricultural Wholesale Markets: Impact on Market Prices and Farmers' Profitability (December 18, 2019). Proceedings of the National Academy of Sciences, forthcoming. Preprint version, Available at SSRN: https://ssrn.com/abstract=3381256 or http://dx.doi.org/10.2139/ssrn.3381256

Retsef Levi

MIT Sloan School of Management - Operations Research Center ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Manoj Rajan

Rashtriya e Market Services ( email )

Karnataka State Agricultural Marketing Board
2nd Raj Bhavan Road
Bengaluru, Karnataka 560001
India

Somya Singhvi

USC Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA
United States

Yanchong Zheng (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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