Description: Macro Workshop - Jianwei Ai (Renmin University of China)
Contact Person: Gary Lyn
Abstract: How does the market power in the agricultural value chains affect the welfare of
the farmers? This paper studies the impact of China’s grain distribution market integration and intermediary spatial competition on farmers’ welfare and technology adoption. Using the registration data of middlemen and the National Fixed Point Survey data, we show that the market-oriented reform of grain distribution begun in 2004 has significantly improved the spatial competition of the middlemen in the agriculture value chain, and increased the income of farmers. To interpret these reduced-form results, we develop a structural model with a micro-founded Nash bargaining process that includes middlemen in the grain trade. The model mainly includes three parts: (1) the utility function of farmers is estimated from the demand side, and the discrete
choice results of farmers choosing intermediate grain buyers are captured (2) from the perspective of the agricultural value chain, farmers bargain with intermediaries to determine prices farmers received (3) demand in retail markets. Using this structural model, we do some counterfactual exercises to speculate how the spatial competition of intermediaries increased after the restrictions on the grain distribution market are fully liberalized.