Data and descriptive statistics

We conducted a baseline survey across a sample of 64 randomly selected dis- tricts, stratified across four districts in the state of Bihar. From these 64 villages, we exclude villages that are close to large markets or urban areas in which a significant share of the farmers sell their output outside of the vil- lage and villages where the presence of maize and wheat cultivation is limited. Table 3.1 presents an overview of the villages in the samples. A village sur- vey was used to collect aggregate, village-level information on demographic characteristics, infrastructure, agricultural activities, and markets through interviews with village officials, community leaders, and groups of farmers, and from official records. On average, each village had about 5.5 markets in which farmers from the village carried out transactions. The number of markets within 10 kilometers is lower - about 1.5 permanent and 1.5 weekly markets. Most of the farmers in the village sell their wheat and maize to grain traders who have operations in the village, and a smaller number also sell in local markets within or near the village. On average, the number of grain traders operating in the village is about 2.3, indicating that the grain markets in these villages are likely to be concentrated.

As mentioned earlier, we carried out a baseline survey of 50 farm house- holds within each village as well as a census of all the traders who operated in these villages. From each of these villages in the study, we recruit farmers from the baseline sample for participating in the mystery-seller experiment using the sampling procedure described in the previous section. We exclude those traders who report that they do not transact in maize or wheat in the baseline census. Our final sample for the experiment consists of 98 traders and an equal number of farmers. Table 3.2 provides a summary of the main descriptive characteristics of the participants in the experiment.

ers have a mean age of 50 years with around 8.5 years of education and a household size of just over five members on average. The wheat and maize yields reported by the farmers for their most recent season are 2.4 tons per hectare (ha) and 3.7 tons per ha, respectively. These are slightly higher than the state average yields of 2.2 tons per ha for wheat and 3.6 tons per ha for maize for the 2015-16 season (Directorate of Economics and Statistics,

2016). Farmers in the sample mainly sell to just one trader in the village. On average, the number of sale transactions per farmer is slightly more than two for wheat and about 1.7 for maize. They have small landholdings with an average farm size of 0.56 hectare consistent with the overall farm size structure in Bihar where more than 90 percent of the farms are less than 1 hectare in size based on a census of agricultural holdings carried out in 2011 (Department of Agriculture). These farms are also fragmented, with each farmer having nearly 3.8 plots on average. Discussions with farmers in the sample show that these plots usually differ in their quality of soil, access to irrigation and other features that could determine grain quality. As a result, farmers tend to produce grains that can significantly differ in quality across plots. We explicitly incorporate this fact in the script followed by farmers in the mystery-seller experiment to lend credibility for the farmers providing grain samples of two different quality to the traders to elicit their offer price.

Panel B of Table 2 presents the trader characteristics based on the data from the census of traders. The traders in the sample are slightly younger than the farmers on average (mean age of 44.6 years) and have a higher number of years of education on average (9.3 years). They have considerable experience working as traders, with over 15 years on average. More than three-fourths of the traders also have a farm of their own. They sell grain to a variety of customers. Most of them (83 percent) work as aggregators engaged in selling the grain to other larger traders. These large traders are usually located close to nearby urban or transportation hubs and buy in large volumes that most farmers are unable to produce on their own. Some of the traders also sell directly to mills or feed manufacturers (22 and 18 percent, respectively), while a smaller percentage (11 percent) also report selling grains to retail consumers (households).

that they procure per month, during the peak season. Using the volumes re- ported by all the traders in the census, we calculate Herfindahl-Hirschman indices (HHI) of market power for each village. HHI is the sum of the squared market shares of the traders in each village. On average; we find an HHI of about 0.45 for both maize and wheat. A Herfindahl-Hirschman index above 0.25 generally indicates a high concentration market in the United States (U.S. Department of Justice and Federal Trader Commission, 2010). The high degree of concentration appears to be consistent with the small number of traders per village seen in Table 3.1.

At the time of the mystery-seller experiment, we administer a brief survey to ask the farmers information about their past transactions and social in- teractions that they have with each trader in the experiment. We use this information to examine whether farmer-trader relations affect the quality premia offered to farmers. Table 3.3reports these the summary statistics for the relationship variables for the farmer-trader pairs. In total, we have 202 farmer-trader pairs.

In 51 percent of the cases, the trader is someone the farmer has sold to in the past year. We also find that the farmers in 42 percent of the cases have had some form of social interactions with the trader which involved the exchange of gifts during festivals, weddings or other social occasions. 47 percent of the farmers also talk to the trader regarding information about market prices. Only in about 13 percent of the cases do farmers report that the trader pays the full amount for the grains at the time of purchase, while most of the traders take up to two weeks to pay the farmer. Most traders do not pay for transport, nor do they offer credit or sell agricultural inputs. As a result, it is unlikely that farmers sell to a trader because they have provided agricultural inputs or financing to the farmer. This implies that informal contracts between farmers and traders in our sample are likely to be based on past transactions and social relationships rather than financial ties.