Farmers’ choice of market channels and producer prices in India: Role of transportation and communication networks

This paper assesses the effect of transportation and communication networks on farmers’ choice of market channels for paddy and wheat, and subsequently on the prices they receive from these channels. It is found that smallholder farmers sell more to informal channels i.e. local traders and input dealers, and typically receive lower prices from them compared to the government-set minimum support prices (MSP). The prices realized from the sales in regulated markets are also less than the MSP despite these being claimed to be more transparent in price discovery. Econometric results show that farmers’ access to transportation and information enables them to obtain better price terms from informal as well as formal channels. The effect of information is relatively stronger, implying that farmers’ access to transportation itself is not sufficient but is effective when combined with provision of market information. Further, our proposition is that despite a positive impact of the improved market access on price realization from informal traders, farmer-trader relations are unlikely to undergo a meaningful change because of the tied transactions involving inputs, credit and outputs.