The impact of formal mechanisation access on agricultural productivity and informal rental markets

Agriculture remains central for the livelihood of a large portion of the population in developing countries, employing nearly 60% of the population in Sub-Saharan Africa and 750 million people in South Asia alone (World Bank, 2018). With increasing land fragmentation over time – average land holdings in India declined from 1.2 hectares to 1.08 hectares between 2010 and 2015 – increased agriculture productivity remains central to alleviating poverty. To the extent that equipment rental markets overcome scale barriers that prevent the adoption of equipment by smallholder farmers, they are of first order relevance to the transformation of rural economies.

Several stakeholders, including government and the private sector, have launched initiatives to promote mechanisation, with varying emphasis on achieving mechanisation via facilitating rental markets versus equipment purchases. Several factors determine the efficacy of such initiatives, including their interaction with informal rental agreements that usually pre-date them.

The researchers have partnered with one of the biggest providers of rental agricultural equipment in India, a spin-off of one of the largest manufacturers of agricultural equipment in India. The partner has set up a platform which allows farmers to rent agricultural equipment (and a professional driver) through a phone call, and service is assured to arrive at each location within two-days of posting a request.

This project aims to run a randomised control trial to understand how the availability of formal rental markets for mechanisation affects agricultural productivity including profits, particularly for smallholder farmers, and informal rental service providers. The RCT will allow the researchers to test the causal effects of accessing these rental markets on agricultural productivity, crop choice, and incomes for farmers, and on service prices and times to completion for informal service providers.

The main research questions that the project intends to answer are:

1. To what extent is the availability of a formal equipment rental market easing constraints to mechanisation in the farming sector in India?
2. What is the impact of the availability of these formal rental markets on farm and household outcomes such as profitability and labour allocation?
3. How do informal rental arrangements change or evolve in response to these formal rental opportunities?