Examining Agricultural Household Welfare through Output Marketing Choices and Land Market Efficiency : Evidence from Rural India Public Deposited

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  • Development research and policy aim to improve household welfare by improving access to assets and economic opportunities (Besley & Burgess 2000; Deininger et al. 2003). In rural and agrarian contexts, these goals may be achieved by well-functioning markets for outputs, inputs, off-farm work, and credit. The status of these markets impacts household welfare and resilience, as well as the equity and efficiency of resource use. Designing policies for improving household welfare requires an understanding of markets in rural areas. In particular, policymakers must understand how household and location characteristics impact household participation in markets and how participation impacts welfare. This dissertation contains three essays that address rural household welfare and the role of policy for Southern India. The first essay examines the selection and impact of agricultural marketing channels for farm households in rural villages of Andhra Pradesh, India. The evaluation of agricultural marketing channels in developing countries is becoming more relevant due to the growth of modern food retail (e.g. large grocery stores). This type of supply channel evolution is beginning in India as the supermarket, food processing, and food service sectors have grown rapidly in recent years. For the most part, this growth has not extended beyond the retail end of the supply channel: the traditional wholesale markets (also known as mandis) are still the most significant means for transferring food from rural to urban areas. As such, this paper analyzes current crop and milk marketing channels available to rural households in Andhra Pradesh. The goals of this analysis are to identify how household and location characteristics impact channel choice (ex-ante), if existing channels provide differential returns from one another, and which types of households benefit more or less within a channel (ex-post). The results indicate that household income is higher for households selling crops to brokers and selling milk to co-operatives. Moreover, channel choices and resulting impacts are affected by both transport and search costs. This analysis provides evidence that policy aimed at reducing transport and search costs directly associated with a channel can improve household welfare under current channel structures. Given the likely characteristics of emerging channels, similar policy is expected to improve farmer welfare in the future too. The second essay is an analysis of rural land leasing markets in multiple states across India. Land leasing markets are hypothesized to improve the efficiency of land allocation and provide welfare gains to participating households. However, in developing countries, these markets are commonly impacted by transactions costs, missing or incomplete non-land markets, and insecure property rights. This study assesses how Indian land markets perform in terms of equity and efficiency, identifies land market distortions, and examines how policy can address these distortions. Using a panel dataset of households from rural villages in Andhra Pradesh, Karnataka, Madhya Pradesh, and Maharashtra, this research contributes to previous work by developing conceptual and empirical analyses that are consistent with the specific structure of land leasing decisions in India and provide insights into functioning of land leasing markets. The results confirm that land markets improve factor ratios by transferring land from input-poor to input-rich smallholder households. However, land market functioning is found to be limited by the presence of transactions costs and missing or incomplete non-land markets. From a policy standpoint, the results suggest that, due to the linkages across markets (e.g. input markets), policies that promote rural market development are expected to have the greatest impact on land markets in the short run. The third essay continues to focus on land markets and, in particular, illustrates the role of land markets in household resilience. This study identifies household economic resilience as the ability of a household to avoid low values or loss of economic value in the presence of changing conditions over time. In much of the development literature, research aims to identify ways of improving the well-being of households in developing countries. Understanding resilience adds a new dimension to this by examining a household’s current state of well-being along with possible future states (better or worse) and what factors contribute to these. This is especially relevant for agricultural households that are subject to varying biophysical and economic conditions. Land markets can play a role in household resilience by allowing households to adjust their operated land area as conditions change. This type of adjustment can improve welfare by enabling households to pursue different activities (on or off-farm) with the goal of household income maximization. The relationship between land markets and resilience is examined empirically by predicting land market participation and resulting welfare outcomes under a variety of price and policy scenarios. The goal is to provide evidence that households use land markets to adjust to price changes and that policy addressing land market imperfections can increase that adjustment, in terms of land market participation and resulting welfare. This analysis utilizes estimates from econometric models of land leasing and household welfare, and it focuses on cereal price changes and a market development policy. The results support the hypothesis that land markets contribute to household resilience by enabling households to respond to changing conditions and improve their welfare. Moreover, the results indicate that policy aimed at land market distortions can further increase household resilience.
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