The Hindu Business Line : Giving farmers a marketing platform

Initiatives are under way to empower farmers and usher in the next Green Revolution by harnessing technology to improve cultivation. Once a national-level electronic market is set up to provide spot trading facilities, the country will be converted into a common Indian market.

Agriculturists have traditionally got a raw deal in India, but reforms are being put in place to create a level field for them. The spot exchange is one such initiative.

According to the APMC (Agricultural Produce Marketing Committee) law, farmers cannot sell directly to end-users, consumers and non-APMC licencees; they have to sell their produce only through APMC traders. This naturally leads to exploitation.

An unfair system

Moreover, in the APMC auction system, farmers cannot quote prices; only the buyers can. After bidding is closed, a farmer may decide to accept the deal or take his produce back. He cannot contribute in the price discovery process; he is only a price-taker.

If there is case of collusion among buyers, the auction price may not be fair. The farmer is practically forced to accept the offer in open auction because neither does he have storage facilities at the mandi nor can he afford to transport his produce from his village and back day after day. Neither does he know the price in advance. He is, thus, totally at the mercy of the buyers.

The absence of an alternative platform means that farmers do not have any bargaining power in the sale of commodities.

Due to non-availability of finance against produce through banks at the village level, farmers have less holding power and cannot take advantage of, say, an off-season price rise.

Due to informal loan arrangements with the local arhatia (agent), they are always financially and morally obliged to sell their produce through such middlemen. This traps them in a vicious cycle of exorbitant interest rates.

The farmer does not have access to information on prices at other markets, so he accepts the price offered at the local mandi as the best rate, which may not be true.

Most crops in India are seasonal. For instance, wheat is harvested during February-April, but consumed throughout the year. If we take into account the cost of production, land and labour, it is apparent that traders who stock wheat for five-six months earn more than the farmers who produce the crop.

Even if corporate buyers and exporters are willing to pay a higher price for the produce depending on their parity, such advantages accrue to the traders and not the farmers.

Reform marketing

Research has revealed that farmers in India get only 25-30 per cent of the price paid by the end-user for a number of products. In the US, this figure is as high as 60-65 per cent. An exception in India is Amul, where the figure is around 90 per cent.

This was made possible only by reforming the marketing process.

There are a number of market intermediaries, such as kachcha arhat, pakka arhat, commission agent, trader, stockist, dealer, wholesaler, upcountry wholesale buyer and retailer. This chain consists of six-eight links.

Up to 70 per cent of the price paid by the end-user is absorbed by this chain. For instance, while a consumer in Mumbai pays Rs 180 for a kg of cumin seed, the farmer who grew it in Rajkot, Gujarat, gets only Rs 50 a kg. Clearly, there is need for some structural changes in the agricultural marketing process to sort out these issues.

A similar situation can be seen in the case of the stock market, which was fragmented before the creation of the National Stock Exchange (NSE). There were 22 regional stock exchanges, each with its own prices.

At that time, brokers who had better access to information about prices prevailing in bigger exchanges were able to earn huge profits, while small investors in smaller centres who did not have such information did not get a fair price for their shares.

Things changed with the NSE. Regional disparities in prices across stock exchanges were removed and the market became transparent.

The same development is expected in the physical market of commodities. Initiatives are under way to empower farmers and usher in the next Green Revolution by harnessing technology to improve agricultural operations.

The main thrust is to set up an electronic platform for commodity trading that will ensure transparency. Once a national-level electronic market is set up to provide spot trading facilities, the entire country will be converted into a common Indian market.

(The author is MD and CEO, National Spot Exchange Ltd.)

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