Working Paper: CEPR ID: DP15942
Authors: Swati Dhingra; Silvana Tenreyro
Abstract: Crops are often modelled as homogenous products that are exchanged in perfectly competitive markets. While this may be true of world commodity markets, smallholder farmers face high trade barriers in selling their crops at home and abroad. Selling to agribusinesses with better intermediation technologies can enable smallholder farmers to overcome these barriers. This has provided a rationale for policies encouraging agribusinesses. We document the reliance of farmers on intermediaries and find that farmers selling to agribusinesses differ systematically from others. We incorporate these stylised facts into a flexible theoretical framework to study the aggregate and distributional consequences of the rise of agribusinesses. The rise of agribusinesses brings productivity gains to farmers, but it also skews the distribution of buyers of farm produce towards larger firms with greater buyer power. Taking the theory to data, we quantify behind-the-border barriers to trade embedded in a national policy which encouraged agribusiness participation. We combine this with microdata on household-crop incomesand find that the policy led to a reduction in incomes of small farmers. Losses were concentrated among farmers who sold to agribusinesses and in villages with a comparative advantage in policy-affected crops. On average, their incomes fell by 6 per cent with nooffsetting gains in non-farm channels of income. Profit margins of agribusinesses specialised in policy-affected crops rose, in line with the theoretical channel. The findings contribute to the academic and policy debate on the impacts of integration and marketpower on the size and distribution of the welfare 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 |
|---|---|
| agribusinesses (Q13) | farmer productivity (Q11) |
| agribusiness participation (Q13) | small farmer income (Q12) |
| agribusiness participation (Q13) | agribusiness profit margins (Q13) |
| policy changes (J18) | small farmer income distribution (Q12) |
| agribusiness participation (Q13) | buyer power concentration (L11) |