Rural Market Deregulation: Evidence from Indian Agriculture

This project explores the effects of an important deregulation reform in the agricultural marketing sector in India, which allowed private marketing channels to farmers previously limited to the government markets.

In 2003, the Indian government amended the Agricultural Market Produce Committee (APMC) Act, opening new marketing channels to farmers previously limited to government markets. The amendments were aimed at freeing farmers and consumers from trading intermediaries. Since the implementation varied across states, there is scope to study the impact of the reform on the retail and wholesale prices and to compare the results across different levels of implementation. In addition to assessing how the APMC amendments affected the ability of farmers to obtain a more favorable return for their produce, the researchers will also consider who benefitted the most from reducing the share of intermediaries – the farmers or the end consumers?

To explore these questions, the researchers will construct a database which will include daily prices for almost 3,000 markets for various crops sold from 2000 and 2014 and market characteristics. Using this newly available data, they will assess the impact of the reform on market performance and at different levels of the marketing chain. Several market frictions such as information asymmetries, barriers to entry and transportation costs and their effect on farmers will also be considered. The researchers will also construct a model of the vertical relationship between farmers, traders and end-consumers, and use it to predict the price and the effect of the APMC under different market assumptions.

This project fits within a broader strand of research exploring the effect of entry-limiting government regulations on market outcomes. Further, the focus on the efficiency of agricultural markets is of particular concern to Indian policy-makers, as the ability of farmers to earn their subsistence from agriculture is at the core of the development of Indian rural areas.