The effect of intermediary market power on grain prices in India and Brazil

Post-harvest loss is a major concern for global food security and the livelihoods of vulnerable small-holder farmers. Current research is limited in scope to merely estimating physical losses, which ignores the many effects of quality loss on value, food supply, health and safety, and ultimately, physical losses. To prevent quality losses, one must understand the incentives that are causing or preventing their occurrence. I compare the financial incentives to preserve grain quality, in the form of quality premia, in Bihar, India and Parana, Brazil. As a formal market with high transparency, low market power by intermediaries, and explicit quality standards and premia, Parana is a reference point for how incentives can function in a small-holder grain market. In particular, I investigate the role that high market power by agricultural intermediaries plays in setting the price and quality premia in Bihar, and how this impedes incentives as are found in Parana. To estimate the premia in Bihar, I use a modified hedonic model, whose results are compared with stated price schedules used by cooperatives in Parana. I find that high village market power decreases both the price and the premium a trader pays to house-holds. Households who are unable to sell to another trader also receive lower prices than households who are flexible in their choice of trader. I also find that households who produce low quality grain, on average, sell to higher power traders. This suggests that households are responsive to financial incentives, or the lack thereof, for grain quality. High power traders may be buying low quality grain at very low prices and manually improving the grain quality themselves, but this results in higher losses than if farmers were incentivized to maintain quality. Secondary analyses also investigate the relationship between technology, quality, and prices; region and quality; and sale location and prices. The evidence suggests that technology adoption is also not compensated in highly concentrated markets. However, farmers with market power sufficient to sell wheat or rice on-field obtain a premium; this trend is not present for maize, for which on-field sales are customary