Incentive Compatible Mechanisms for Efficient Procurement of Agricultural Inputs for Farmers through Farmer Collectives

Sourcing the right quality and quantity of agricultural inputs such as seeds, fertilizers, and pesticides, constitutes a crucial aspect of agricultural input operations. This is a particularly challenging problem being faced by the small and marginal farmers in any emerging economy. Farmer collectives (FCs) which are cooperative societies of farmers, launched under Federal Government initiatives in many countries, offer the prospect of enabling cost-effective procurement of inputs with assured quality. We seek, in this work, sound and explainable mechanisms for the above important use-case. In particular, we propose the use of incentive compatible auction mechanisms that could be used by an FC to procure quality inputs in bulk. The idea is the following. An FC collects from the farmers their individual requirements for inputs and aggregates them into different buckets. For each bucket, the FC identifies suppliers who meet the quality criteria and engages them in a competitive procurement auction. We explore in this paper, two particular types of procurement auctions: volume discount auctions and combinatorial auctions in the framework of Vickrey-Clarke-Groves (VCG) mechanisms. These are explainable mechanisms that induce truthful bids from the suppliers as well as maximize the social welfare. We show their efficacy through carefully designed thought experiments. Our field studies of FCs give us the confidence that such mechanisms, if deployed systematically, can become a game changer, benefiting a massive community of smallholder farmers.