Factors affecting farm productivity in rural India: Social networks and market access

This dissertation present three studies related to the factors that may help explain diﬀerential farm outcomes and marketing strategies among farmers in India. I focus my analysis on two sources: social networks and market access. In chapter two, I analyze how peers can aﬀect farmers’ cash crop revenues. Crop revenues vary greatly among farmers and the source of that variation is not fully understood. Using a household survey from India, we estimate peer eﬀects on cash crop revenue. Results show that 60% of farmers’ revenue is explained by peers. Peer eﬀects in input expenditures and land allocation cannot fully explain the variation in revenue, implying peers may also associate with management, negotiation and marketing strategies. Although caste-based networks are important, their eﬀect is smaller than that of self-reported peer networks. Peer eﬀects are strongest for agricultural peers and in the cultivation of a new crop. In chapter three, I ask to what extent an exogenous shock to agricultural credit provision may help farmers improve farm gate prices at sale. Farm gate prices for crops in many developing countries vary widely within a cropping season, by village, and by farmer. One hypothesis for this heterogeneity is that farmers are prevented from arbitraging prices due to lack of credit, forcing them to sell right at harvest, or in response to an immediate need for cash, such as illness. Even with credit, farmers need to have access to ii agricultural markets to take advantage of price arbitrage opportunities. In this paper, using longitudinal data on 1,348 households in India, we ask whether farmers are able to obtain higher farm gate prices when they have improved access to credit. We use the increase in agricultural loans associated with state elections as the exogenous shock to credit supply. Second, we ask how access to open markets associates with farm gate prices, and whether those with greater access to markets are better able to take advantage of the credit increase. We ﬁnd that increased credit aﬀects farm gate prices, but largely for crops other than paddy and wheat, which are highly regulated. Further, we ﬁnd that greater access to markets improves farm gate prices and enhances the beneﬁts of the increased credit. We rule out price eﬀects of elections through other agricultural assistance programs, and credit from other sources. Thus, we ﬁnd evidence that improving farmers’ ability to access arbitrage opportunities can improve their crop revenue. Finally, in chapter four, I investigate if social networks are associated with a long-run crop-speciﬁc relationship between a farmer and a trader. A farmer’s long-term relationship with a trader can improve access to market information but removes the farmers’ option to sell to other traders in a speciﬁc year. Social networks could act either as substitutes to traders, helping disseminate market information and fostering economies of scale, or as complements, where farmers help build relationships between their trader and their peers. Using a household survey from India, we investigate whether and how social networks are associated with a farmer’s choice to enter into a long-term relationship with a trader. We ﬁnd that peers directly aﬀect such choice. Further, we ﬁnd that network characteristics and the household’s position within that network inﬂuence the decision to have a long-term relationship. Speciﬁcally, the more central position of the household and the iii smaller number of connections with other households, the higher the likelihood a household has a long-term relationship with at least one trader. We rule out that these eﬀects are driven by proximity.