Agriculture market imperfections

One of the least noticed and least talked about problems in the agriculture sector is the overwhelming influence of middle-men in the food supply chain. So it was particularly encouraging to note through various news reports that the government plans to increase the efficiency of the food distribution system by eliminating the role of these middle-men. Needless to say, there has been significant opposition to the move by the government, as there often is when the economic interests of any group of people are directly affected. Yet the very fact that this policy occurred to somebody in the bureaucracy is a step in the right direction, one that we hope will result in better incomes for farmers and lower prices for consumers.

There is, however, some cause for concern. While the middle-men, who prefer to call themselves traders, end up increasing prices for consumers owing to their own margins, they also play some critical roles. For example, they are an important source of agricultural credit for many farmers. In addition, they also serve as the medium through which farmers get a sense of future pricing trends, based on which they make their growing decisions. If the government begins to eliminate the middle-men, it needs to make sure that it does not leave farmers without a viable alternative to these services. It appears that some of the civil servants involved in this policy initiative appear to appreciate this fact. In Sindh there seems to be an increasing push to gradually reduce the role of the middlemen. However, this can only be done if there is a clear and well-thought plan which ensures that the change in policy does not have disruptive effects on production and distribution of food and related agriculture items. This will be done if the government takes a proactive approach in pre-empting hoarding and smuggling, which happen far too often, especially in markets for staple items (where the demand for such goods is by and large unchanging, and hence hoarders stand to make hefty profits) such as wheat and sugar. So far there has been no proof of this because many times a good wheat crop has been followed by a shortage of the item in local markets.

Published in The Express Tribune, July 30^th, 2010.