Smallholder Farmers' Access to Markets for High-Value Agricultural Commodities in India

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Case Study #6-4 of the Program: ''Food Policy For Developing Countries: The Role Of Government In The Global Food System''


Sustained economic and income growth, a fastgrowing urban population, and the increasing integration of global agri-food markets are fueling rapid growth in demand for high-value food commodities in India. This is an opportunity for farmers, especially smallholder farmers, in India to augment their incomes and use surplus family labor in the production of high-value, labor-intensive food commodities. The transition to high-value agriculture, however, is unlikely to be smooth. One of the major impediments is smallholders' lack of access to markets for high-value commodities. Local rural markets are thin, and trading in distant urban markets is not remunerative owing to high transportation and transaction costs. Besides, they also face problems in gaining access to credit, highquality inputs, improved technology, information, and services. Improving smallholders' access to markets requires close linkages between farmers, processors, traders, and retailers to coordinate supply and demand. Institutions such as cooperatives, producers' associations, and contract farming are important means of linking producers with markets, as well as a source of credit, inputs, technology, information, and services. But there is concern that smallholders may be excluded from the institution-driven value chains. Agribusiness firms, to reduce the transaction costs of contracting with a large number of smallholders, have tended to contract with a few large producers who can supply large volumes and are capable of complying with food-quality standards. There is also a fear that agribusiness firms may exploit smallholders by extracting monopsonistic rent in the output market and manipulating the terms and conditions of contracts. Nonetheless, there is growing evidence that the advantages associated with institutional marketing outweigh its disadvantages. Policy makers should therefore create a level playing field to allow for the growth of the right kind of market institutions, promote competition among various market players and institutions, protect smallholders from institutional exclusion and unscrupulous trade practices, and support them with credit, insurance, technology, and services to improve their competitiveness and ensure food safety for consumers Policies should also focus on improving public infrastructure that generates widespread economic benefits. Your assignment is (1) to compare advantages and disadvantages of cooperatives, producers' associations, and contract farming, and (2) to identify required government policies and other conditions for the success of these institutions, focusing on social, economic, and political and legal aspects.

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10 pp.

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Cornell University Division of Nutritional Sciences

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P. S. Birthal, P. K. Joshi (2007). Case Study #6-4, ''Smallholder Farmers' Access to Markets for High-Value Agricultural Commodities in India''. In: Per Pinstrup-Andersen and Fuzhi Cheng (editors), ''Food Policy for Developing Countries: Case Studies.''10 pp.

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