What drives smallholder market participation and channel choice decision? Insights from paddy markets in India

Strengthening smallholder market linkages is critical for transitioning from high-risk and low revenue generating subsistence farming to more commercial and profitable agriculture. However, market access for smallholders in India presents a wide range of challenges such as inadequate access to credit and output markets, low marketable surplus and high transaction costs, information asymmetry, high-quality requirements, and presence of interlocked markets. This study explores the key factors influencing smallholders market participation and extent of participation. It also examines determinants of smallholder’s choice of paddy marketing channels available in the study region. Simultaneous equations and multinomial logit models are used to conduct the analysis for the cross-sectional data of paddy smallholders in Uttar Pradesh. Results indicate that smallholder resource endowment namely access to credit and extension services, farm size, access to off-farm income sources and transportation facilities; transaction costs factors such as market distance, paddy quantity and payment time along with membership of farmer organization influence market participation and channel choice decision Findings stress the need for formulating policies that focus on improving transportation and road infrastructure, extension services and promote financial inclusion of resource poor smallholders. Institutional support in ensuring timely payment can facilitate smallholders’ inclusion in profitable marketing channels. Furthermore, policies aimed at promoting farmer producer organizations and strengthening public procurement is recommended.