10/08/2015
There have been many attempts at alleviating the pain of the farmer in India, be it natural calamities or market risks, but nothing seems to work, and the problems of farmer distress and indebtedness continue to grow. For some time now, there has been a focus on reforming agricultural markets; the largest of these attempts being the amendment to the Agricultural Produce Market Committee (APMC) Act at the state level, which allowed the direct purchase of farm produce from farmers with or without contract, bypassing the mandi or wholesale market.
The argument in this regard was that the farmer needs to be given a choice of channels to sell his produce. This meant that the practice of contract farming with farmers, and direct purchase from them without a contract, are now legal; although permission for each has to be obtained from the local APMC in the form of a licence, and market fee and other charges are still applicable to procured produce. Thus, there are hundreds of licences given to various buyers for direct purchase or contract farming across states.
However, some still clamour that the APMC is the culprit and the monopoly of the APMC should be done away with. This is not true. When contract farming is legal, direct purchase is permitted, and even a private wholesale market can be set up next to an APMC market. So, how can there be monopoly of an APMC?
In order to take care of the so-called excessive delays and costs of buying and selling perishables through the APMC markets, the state govenments were advised by the previous (UPA) and the current (NDA) regime to take perishables out from the ambit of the APMC Act. They were advised to denotify fruit and vegetable crops from the APMC Act, so that their trade is not monitored by the APMC. This also meant that buyers need not pay the commission and other mandi fees and charges on purchase from such mandis. A few states have already acted on this and have denotified the fruit and vegetable produce from APMC regulation.
It is important to note that there was no adequate logic for this step (of denotification) and that is why it has not made any difference to the farmer with respect to his market situation, even though such a step was taken in the name of the farmer. It is a different matter that the APMCs have lost some revenue and buyers have got a free ride without any obligation to “buy better” because they still buy from these APMC markets—but without any regulation—as now, open auction or other norms of market conduct need not be followed by any buyer.
It would have been better if this exemption was given to those who could have gone to farmers to buy directly or undertake contract farming with them, which would have led to another channel becoming available to them at a lower cost and better service, if not better price. The proliferation of private roadside vegetable markets in Bihar is the result of this denotification and the abolition of the APMC Act altogether, where, for the first time in the history of independent India, the farmer is being charged a 2% commission by these private mandi organizers without the provision of any facility.
After this failed attempt at reforming agricultural market conduct, there is a new attempt being made, in the name of the farmers, to create a National Agricultural Market (NAM), where the farmers would be able to sell anywhere in India as the local markets will be connected with buyers across India through an e-platform.
This initiative draws on the experiment in Kanataka, where the Rashtriya e-Market Services (ReMS)—a joint venture of the state govenment and the NCDEX spot exchange—has created an online trading platform for 55 APMC markets and 354 sub-markets wherein traders/buyers with a single statewide APMC licence can buy farm produce; and farmers, commission agents and other stakeholders in the transaction, can receive online payments. It is reported that 21 lakh lots valued at Rs.8,500 crore have been traded during the past one year. The facilities include computerized lot entry, automated auction and price discovery, market fee collection, electronic weighing, inventory tracking, warehouse-based sale of produce, MIS reports and e-permit.
This example, which is being used to make a case for a NAM, is flawed. This is because it has been attempted within a single state, and not across states; and the latter is likely to be questioned as it will directly impinge on the states’ rights to frame policies for agricultural marketing.
Thus, the logic for this initiative (NAM) is flawed as agriculture is a state subject and undertaking such an initiative would be against the spirit of federalism as the states would need to be coaxed into accepting this solution to link farmers with markets. It will require an amendment of the Constitution to transfer the subject of agricultural marketing from the state list to the concurrent or the Union list, which will require its passing in Parliament with two-thirds majority, which is not be possible at present given the lower strength of the ruling NDA alliance in the Rajya Sabha, and some of its partners being opposed to the centralization of policymaking powers within the Union govenment.
The other provision, such as a resolution on this issue by the Rajya Sabha—which represents the states—due to its national importance, with two-thirds majority, will only be temporary in nature as that would be for a limited period.
The third option of two or more states requesting a Union law on this issue is also likely to be problematic as this will have to be passed by state legislatures and then by Parliament and, finally, approved by the President.
The final option of inserting an entry into the Union or the concurrent list for regulating interstate agricultural trade at the national level is also problematic, as it should not conflict with the APMC Acts and, therefore, existing APMC markets will have to be left under APMC regulation, which will not be of much help. Further, such legislation will be restricted to only some commodities, which will be the crucial weakness.
As an altenative non-constitutional provision, making use of the Warehouse Receipts Act will also not be viable as it will come in conflict with the APMC Acts and can be used only for e-markets, e-trading and e-spot exchanges and not physical markets. The Economic Survey of 2014-15 also makes a case for NAM, but cautions the govenment on this step being contrary to the spirit of cooperative federalism.
The online market integration initiative as attempted in Kanataka is also not likely to solve the problem of market linkage and get a better deal for the farmers as just creating a platform is not enough if the farmer is not free to sell. The lack of farmer freedom to sell here refers to the existence of interlocking of various markets in which the farmer operates, i.e., input and output market interlocking, credit and output market interlocking, and the like.
Since the farmer borrows from agricultural input traders/commission agents or output buyers, he has to sell his produce to these players as a part of the deal to borrow cash or buy inputs for the crop on credit. Therefore, just providing an e-platform or price information is not going to help if the farmer is not free to sell his produce. This market linkage was tried by some private players in the past like ITC in its e-choupal and Choupal Sagar and DCM Shriram in its Hariyali Kisan Bazaar stores, and they have, by and large, backtracked after some experimentation as they could not break the interlocking of markets despite bringing the bank linkage as part of their service.
Even if a national platform is provided for some farmer producer organizations (FPOs) under the NAM initiative, it cannot help the farmers at large as most of them are still outside the ambit of these agencies. Therefore, there is no altenative to making APMCs work by taking tough measures and breaking the hold of the secondary interests in agriculture, by cutting out the intermediaries from these markets as had been done in Madhya Pradesh long ago, and also by bringing new players like FPOs in these markets. Further, a big push needs to be given to contract farming and direct purchase with better targeted incentives to give local altenatives to farmers, especially small farmers, who cannot take their produce to distant large mandis.
It is well known that there are strong trader and commission agent lobbies, which operate at various levels in agricultural markets. Unless and until they are managed or controlled by legal and administrative measures, there will not be a real change for the farmers in terms of their market linkage improvement.
Thus, the farmers and their agencies also need to take a call on this matter and bell the cat. On the other hand, the state should not keep jumping from one solution to another, but focus on long-term strategic steps in order to make a difference to the situation and show its political commitment to working for the farmers and farmers alone. The solutions are known, but just legislating for them and not implementing the solutions is not going to be of much help. The farmers and their agencies need to work at the state level to get effective policy changes brought about as this is where the problem and its solutions lie—and not in a National Agricultural Market.
Sukhpal Singh is a faculty member in the Centre for Management in Agriculture (CMA) at IIM Ahmedabad. His research and teaching interests include vertical coordination in agribusiness, value chains, sustainability and small producer organizations.
The article presents the author’s personal views and should not be construed to represent the institute’s position on the subject.
