The Muddy Business of Mandis
When we go to the store, we buy what we want. But what happens when there is only one item and multiple people who want it? Or when there is a limited supply of the item, but many potential buyers, how do we resolve who gets the item and who doesn’t?
Such questions relating to trading networks are present in various contexts globally, from trading floors on Wall Street to Indian marketplaces for food called mandis. Farmers bring their produce to sell at their local mandis. Auctions in these mandis are often facilitated by middle men who are essential in ensuring that the open auction runs smoothly. “In a wide range of markets, individual buyers and sellers do not interact directly with each other, but instead trade through intermediaries — brokers, market-markers, or middlemen who set the prices. This is true in settings that range from the trade of agricultural goods in developing countries to the trade of assets in financial markets” (Easley, Kleinber)
In the Indian mandis that sell agricultural goods, an “arhatiya” is the commission agent who serves as a representative for the farmer (see S1, S2 in figure below) and does much of the behind the scenes work while also managing the auction and ensuring the farmers receive their payment. Arhatiyas are also “responsible for farmer’s crop display, basic cleaning, and sorting, conducting auction and payment to farmers” (LinkedIn). The “arhatiya” plays a similar role to that of a “trader”/”intermediary” in a trading network. The buyers (see B1, B2, B3, B4 in figure below) interact with the arhatiya rather than with each of the individual farmers in order to obtain the goods. Arhatiyas play a crucial role in these markets not only because they serve as the intermediaries for sellers, but also because they maintain long-term relationships with the farmers/sellers (LinkedIn).
Once the auction begins, an auctioneer (also known as the Neelamnkarta) facilitates the auction process. Buyers circle around the goods, and after inspecting the goods, they submit bids which the auctioneer then records. Once bids are submitted, the auctioneer declares the highest bidder as the winner.
Though there are similarities between arhatiyas and traders in a trading network, arhatiyas set neither bids nor asks to maximize profits as they are not buying from the sellers. They simply serve as middlemen between sellers and buyers. However the arhatiya and auctioneer do select bids to maximize the profit.
In recent years, however, farmers have voiced increasing dissatisfaction with the mandi system. They have highlighted instances of exploitation by the middlemen whose “lack of transparency in the trading process, collusion among traders, price cartelisation, delay in payments and low quality of mandi infrastructure” has jeopardized farmers’ livelihoods (New Indian Express). Farmers have been advocating to sell their crops outside this system of mandis — and even within the system of mandis but with substantial increases in their autonomy — in order to increase the transparency of the system and obtain payments faster. However, even as the government moved to enact some of these changes, such as a law allowing farmers to engage outside the mandi system, farmers have been apprehensive given that the legislation has concurrently “increased dependence on corporates, reduced government involvement in agriculture, [increased] land grabbing and exploitation by firms” (New Indian Express). This increased dependence on corporate support is particularly concerning given that this support could evaporate in unfavorable economic conditions.
Links:
https://www.linkedin.com/pulse/primer-mandi-based-agri-produce-marketing-siddharth-surana
https://www.cs.cornell.edu/home/kleinber/networks-book/networks-book-ch11.pdf