The Irony of the Indian Agrarian Sector

by Gaurav Pallod

Introduction

Agricultural Produce Market Committee (APMC) is a marketing board established to ensure farmers are safeguarded from exploitation by large traders or retailers.

Each state which operates APMC markets geographically divides the state into mandis (markets places).


Farmers have no option but to sell their produce via auction at the mandi in their region and only licensed traders can work inside the mandi.


Consequently, wholesale and retail traders (e.g. shopping mall owners) and food processing companies cannot buy produce directly from a farmer.


These APMCs were set up with the intention to increase farmers’ incomes by making it easier to sell their produce without having to deal with commission agents.


Many states such as Tamil Nadu, Telangana, and Uttar Pradesh have started giving cash prizes as incentives for using APMCs.

Another service complementary to APMC is the e-National Agriculture Market Portal (e-NAM).


It was introduced in the Union Budget of 2014-15, as a pan-India electronic trading portal that seeks to connect existing APMCs and other market yards to create a unified national market for agricultural commodities.


e-NAM is a single-window, “virtual” unified market with online trading platforms both, at State and National levels. But it has a physical market (mandi) at the back end.


An online market like this one reduces transaction costs and information asymmetry.

What is wrong with APMCs?

“When you create competition for farmers’ produce, the price improves. There are more buyers, more choices. Farmers will get the benefits of that. Whether you have one buyer or ten buyers for a service makes a difference.”


-Ashok Gulati, former Chairman of the Commission for Agricultural Costs and Prices.


However, not only will the competition amongst the buyers increase, but the competition amongst the farmers increases too, this might drive down the prices.

By the law, it is illegal to open competing markets. This essentially creates a monopoly in the form of APMCs. Thus, preventing private players from setting up markets and investing in marketing infrastructure.

The main indicator of a monopoly is a high barrier to entry. In this case, it is the licensing of traders in the state-regulated market yards.


This has also led to traders forming cartels to artificially lower prices of the agricultural produce they buy from farmers.


A 2012 report created by the Competition Commission of India mentions this as well:

“Regulated markets could not function efficiently due to collusion/formation of cartels among traders. The Market Committees for all practical purposes were dominated by the traders’ interest. The regulated markets also led to the monopolization of trade by way of granting licenses to intermediaries”

Citing the example of other industries where there are no restrictions on how producers sell their products, Finance Minister Nirmala Sitharaman said that farmers should be able to sell their produce at attractive prices.


On May 14th, 2020, she also said that the government will put together a central law that will provide barrier-free, inter-state trade, along with a framework for online trading of agricultural produce.


This will reduce the barrier to enter the market, thereby making it more competitive and fairer.

Broadly speaking, if Indian farmers need to withstand the conceivable competition of worldwide contenders, both in domestic as well as abroad markets, agricultural marketing administrations must be fortified.

It is basic demand and supply, if the demand shrinks artificially, the price stays down, and does not reach the socially optimal level, as it would otherwise.


The APMCs, by making it compulsory for the farmers only to sell their produce to the traders, have restricted demand.


This has proven fatal for the rural economy. This also encourages illegal practices such as arbitrage, as the price varies heavily, not only between states but also between districts.


Moreover, it gives too much-negotiating power to the traders and they often deduct the prices after the contract by claiming excuses such as, “poor quality of grain” or “late delivery”.


The farmers, ironically, are left helpless. And that’s not all.


There were many other logistical and fundamental problematic issues for the farmers.


The proportion of village sales was so large that it made the operation of the APMC Act Ineffective in providing fair prices to the producer.


In some regulated districts, there was no elected Market Committee, nor a market yard of the Committee where produce could arrive, and auctions could take place.


Subsequently, deals regularly occurred in the market yard with no management. Moreover, the market charge collected by the APMC was scarcely utilized for improvement of the market and arrangement of modern facilities.


There was often congestion in the market yard and farmers had to wait for a long time to sell their produce. Also, there were no proper facilities for the farmer to wait till his produce was finally sold.

In conclusion, this act has proven to be little use, and more harmful for the Indian rural markets.


Removal of APMCs, along with the introduction of the electronic National Agricultural Network to facilitate the producers and uniform the prices, can go a long way.



References:


1) Competition commission on onion prices - https://www.cci.gov.in/sites/default/files/SuoMoto01of2011MemberGG_0.pdf

2) Competitive Assessment of Onion Markets in India by the competition commission of India - https://www.cci.gov.in/sites/default/files/AO.pdf


3) https://www.businessinsider.in/politics/news/bjp-narendra-modi-nirmala-sitharaman-push-agriculture-apmc-reform/articleshow/75760189.cms


4) https://economictimes.indiatimes.com/news/economy/agriculture/govt-to-bring-central-law-to-reduce-farmers-dependence-on-apmc/articleshow/75759739.cms


5) https://www.news18.com/news/business/food-security-liquidity-finance-minister-nirmala-sitharamans-economic-relief-package-in-5-points-2625379.html


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