Intermediaries are often blamed for driving a big wedge between prices that consumers pay and prices that farmers receive. Evaluate how far such criticism is valid. (200 words)
Refer – Business Line
Enrich the answer from other sources, if the question demands.
Shankaranand 6 years
Please Review,
Thank You.
IAS Parliament 6 years
IAS Parliament 6 years
KEY POINTS
· The two most common accusations before intermediaries are –
a) Several layers of intermediation before the output reaches the consumer increases the wedge between retail and farm gate prices
b) Intermediaries earn rent without providing any value addition.
· In contrast, Economic theory views intermediation as “greasing the wheels of the economy” rather than necessarily causing inefficiency.
· Also, multiple intermediaries increase consumer welfare by inducing competition.
· Time is a major constraint which prevents farmers from marketing their own crops, giving rise to intermediaries.
· Furthermore, transportation and marketing require specialised skills that farmers may not have.
· Lack of storage and perishability increases the risk that agents downstream the supply chain face.
· In general, price wedges comprise transport costs, processing costs, and rents due to inefficiencies.
· Viewed from the lens of division of labour, intermediaries may not be the source of the problem.
· They could simply be earning the marginal value for their services and the risk they bear.
· Therefore, forcing them out could potentially disrupt the agricultural supply chain as happened in Bangladesh.
