Agricultural Market Imperfections And Farm Profitability In India

The gap between the incomes of agricultural workers vis-a-vis non-agricultural workers in India has widened since the 1990s and improving farmers’ income has emerged as the key policy focus in recent times. In realizing this objective, functioning of the markets is very critical as market imperfections can increase the production and transaction costs of farmers and can have a crucial bearing on farm income. The present study, based on primary data, attempts to explore imperfections (if any) in important markets viz. output, input, factor and credit markets. The study also takes into account the asset base, skill endowments, coping mechanisms of farmers in the face of economic hardships and their social capital. Some of the important government programs have also been analyzed. The study was conducted in four states – Bihar, Gujarat, Madhya Pradesh and Punjab. Based on multi-stage sampling methodology, 1800 households spread over 45 villages and 21 districts were surveyed across four states. Tabular analysis has been complemented by an econometric analysis using data at the household level. The results show a strong inverse relation between land productivity and farm size and this was almost entirely driven by an intensive use of family labour on smaller farms. There was little evidence of differences in intensity of use of any other factor or input. This underlines the prevalence of imperfections mainly in the land and labour markets. The per capita income increased with the farm size though, underlining the positive impact on income of better access to technology and credit of larger farmers.