Can warehouse receipt finance improve trading terms for small farmers and reduce price seasonality? We study this question in the context of a warehouse receipt program in India using detailed market data and warehouse locations.
Insufficient access to institutional credit and adequate storage facilities impairs the ability of small-scale farmers to transfer wealth across time. To meet household consumption needs and repay production loans, farmers are often forced to sell their produce at an unfavourable price immediately after harvest. Moreover, a phenomenon of "selling low and buying high" has been noticed among poor farmers who effectively buy their produce back from the market at higher prices, as household stocks dwindle before the next harvest. The pattern of selling crops close to harvest also produces sharp seasonal price fluctuations, which are a common characteristic of staple crops in many developing countries. In this project, we study the role of a 2007 warehouse receipt credit system established in India in improving terms of trade for farmers, increasing price responsiveness of crop supply to the markets, and reducing seasonal price volatility.
