Working Paper: CEPR ID: DP14384
Authors: Swati Dhingra; Silvana Tenreyro
Abstract: Policies to encourage agribusinesses-led development of crop markets are high on the agenda of many policy-makers. Since the 1980s, several countries have moved to a model in which agribusinesses provide market access to farmers. The motivation behind these policies is to raise income and wellbeing, particularly for low-income rural households. Yet, systematic analyses of the overall impact of such policies on household welfare are scant. This paper provides a novel modelling framework to study the role of agribusinesses in shaping the gains from trade and the share accruing to small farmers. Exploiting a national policy change in Kenya in 2004, we find that the shift to the agribusiness model reduced farmer incomes from policy-affected crops, relative to other crops. The relative fall in incomes was higher for farmers selling primarily to large agribusinesses. Correspondingly, agribusiness firms specialized in policy-affected crops saw larger increases in profit margins. Farmers in villages with a comparative advantage in policy-affected crops saw larger reductions in consumption, especially of durable assets. The findings contribute to the academic and policy debate on the impact of market power on the size and distribution of the gains from trade.
Keywords: agribusiness; market power; intermediated trade; middlemen; oligopsony
JEL Codes: F1; F6; Q1; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy shift to agribusiness-led intermediation (Q13) | reduction of farmer incomes (Q12) |
| policy shift to agribusiness-led intermediation (Q13) | reduction of farmer incomes for farmers selling to large agribusinesses (Q13) |
| agribusiness firms specializing in policy-affected crops (Q13) | larger increases in profit margins (L25) |
| larger increases in profit margins (L25) | reallocation of gains from trade away from smallholder farmers (F16) |
| policy shift to agribusiness-led intermediation (Q13) | larger reductions in consumption for farmers in villages with comparative advantage in policy-affected crops (Q18) |
| larger reductions in consumption (E21) | impact on household welfare (D19) |