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iasparliament
August 10, 2018
2 months
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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

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Shankaranand 2 months

Please Review,

Thank You.

IAS Parliament 2 months

A Good answer. Keep writing.

IAS Parliament 2 months

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. 

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