Middleman Margins, Credit and Information Constraints: Potato Markets in West Bengal, India

  • Blog Post Date 31 March, 2012
  • IGC Research on India
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Dilip Mookherjee

Boston University

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Sujata Visaria

Hong Kong University of Science and Technology

This project investigates how potato farmers in West Bengal sell their crop to local traders, the determinants of farm-gate prices and margins earned by traders. Specifically, it examines the role of asymmetric information regarding prices in neighbouring wholesale markets where local traders resell these potatoes. Farmers in randomly chosen villages were provided information about daily wholesale prices. In one treatment, the information was provided on public noticeboards, while in the other it was relayed privately to randomly chosen farmers. Net of marketing costs, traders earn margins in the range of 55 to 100% of farm-gate prices. Information provision resulted in no change in average margins, but the private information intervention caused farm-gate prices and traded quantities to co-move more with wholesale prices. The evidence is inconsistent with long-term implicit contracts allowing risk to be shared between farmers and traders. Instead, the results can be explained by a model of ex-post bargaining, in which low outside options of farmers prevent informational interventions from having significant impacts.

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