Devesh Roy (IFPRI)

Agricultural progress is central to the development agenda with poverty and food security directly linked to it. Beyond the advances in technology and subpar productivity growth, possibly the most critical constraint plaguing the Indian agriculture has been market inefficiency driven by several factors. Often the special interests have blocked reforms and agriculture being a state subject reflects unenviable records on market reforms. In this backdrop, Bihar, among the poorest and least industrialized states in India implemented the most far-reaching agricultural market reforms in 2006 by repealing APMC act that restricted farmers to selling in government regulated markets. With the unmatched radicalness of this reform, its impacts, and implications for farmers, has not been analyzed. Taking the natural experiment of repeal of APMC, we first assess the impacts employing synthetic control method and find that abolition of APMC act did not lead to increase in market efficiency, reduction in the price wedge between wholesale and retail prices and wholesale prices of food items. We study the reasons behind these large-scale reforms only leading to minimal effects on aggregate outcomes. We find explanation in structure of farming and supply chains in Bihar. Yet, at a more granular level we find farm harvest prices not only being impacted but more importantly revealing significant heterogenous effects across crops and over time. Using traditional difference and difference methods we show that farmers of cereals lost out post the repeal of APMC. At the farmer level, by uniquely using panel data on farm harvest prices (FHP) and farming characteristics, we find evidence of impacts on FHP by crop. The DID estimates show that repeal of APMC seemed to impact in terms of lower FHP of paddy with a larger negative effect on marginal farmers. FHP of maize, grown mainly for exports to other states and countries, was higher after reforms possibly because of increased competition among buyers and use of alternate and more direct channels of procurement from farmers. On closer examination where we invoke recent innovations in difference in difference estimations including generalization of parallel trends and synthetic DID estimations, we assess that post intervention trends in support prices and procurement possibly created a gap between Bihar and other states implying a relative performance effect showing negative effects when post treatment trends between treated Bihar and other states diverged. The impact of reforms have to be evaluated holistically taking into account the wider attenuating or revering effects of policies other than reforms.