Thursday, February 22

Is the Electronic Market the Way Forward to Overcome Market Failures in Agriculture?

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By Chandra Sekhara Rao Nuthalapati, Yogesh Bhat & Susanto K Beero

Working Paper No- 387

Endemic market failures with infrastructural bottlenecks compounded by excessive regulation and vested interests stifle agricultural markets and farm incomes in developing countries. Electronic market is the new initiative of the central government to overcome these problems. This paper examines the performance of these markets through analysing primary data from 856 farm households in six states along with secondary data. It argues that adequate physical infrastructure is crucial even for the functioning of the electronic market and that other related policy measures are needed to have a significant improvement in agricultural marketing. The results indicate that farmers obtained a 3.75 percent higher prices in these markets vis-a-vis the prices received before selling to these markets. This is significant as it comes in the background of plummeting prices by 8.34 per cent in the manual transactions. One measure of successful electronic market is higher price realization in manual transactions and this has not happened due to the miniscule share of eNAM transactions. On the whole, the exclusion of resource poor and illiterate farmers, lack of related infrastructure including short-term credit in regulated markets and insignificant penetration of electronic market transactions do not inspire confidence on its ability to help overcome market failures.

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