Abolishing mandis is a bad idea

V KUMARASWAMY | Updated on December 24, 2014




They can be a sound platform for price discovery if cartelising tendencies are checked. Their absence will hurt farmers

One of the measures considered to tame inflation is modification or even suspension of Agricultural Produce Marketing Committee’s (APMC) operations. Several states have initiated steps which lie in a spectrum, from taking out some commodities from the scope of APMCs to regulating their commissions.

The Act’s original aim of making it mandatory to sell farm produce through mandis was to ‘induce’ the economists’ ideal of ‘perfect competition’.

In other words, multiple buyers are meant to be pitted against multiple sellers leading to discovery of fair price, with no single or set of entities being in a position to dictate or set the price to its unfair advantage.

This is to prevent exploitation of farmers by money lenders or other middlemen at the farm gate.

Besides, mandis also make for free flow of information of the prevailing prices within the market, preventing information asymmetries.

One is not exactly clear on how the above objectives would be met by the recent suggested (or actual) amendments made, or the call for abolition of APMCs.

Possible consequences

For a product which is de-listed from APMC, the farmers may well seem to have the option to sell to anyone at the farm gate or in the nearby township.

Since there is no one place and no information about prevailing prices at various centres, he may feel spoilt for choice and may dispose of the produce at his farm itself. The harvest at any point of time itself is not so high that it can attract more than one or two buyers.

After maybe one or two rounds, even the buyers will patronise just one or two villages (like moneylenders do now). In perishable commodities such a structure will put pressure on the seller, driving down prices.

In fact, this is the situation which led to the creation of APMCs.

The lead buyer in each village may start lending against the crop to ensure he has first priority (or exclusivity) and the sellers’ choice may dwindle further.

The problem with mandis is not in the concept. It is more in the execution. APMCs have created restrictions on membership or mandate a minimum shopping area.

Since these are not transferable, soon cartelisation takes root. If the membership is floating, cartelisation will be difficult but when it is frozen cartelisation becomes easy even if the number is large. We have seen it in BSE.

Rectifying the situation

One way to rectify the situation is to allow multiple mandis to come up — a kind of competition among mandis themselves (like between NSE and BSE).

These can be promoted by local banks, sellers themselves, co-operative societies, etc.

Second, in the existing mandis anyone who has anything to sell or buy should be allowed into the market, with perhaps a restriction that no one will be allowed to buy more than 10-20 per cent of what is on offer.

The mandi can provide for facilities like pesticide testing, grading, sorting, cleaning and classify the produce.

Different prices will rule for different grades and slowly the premiums for sorted, graded varieties will evolve, which might lure the farmers to do it themselves.

Anyone with produce to sell can get the quality and quantity certified and announce it for sale through the system, or at a designated place.

Once a deal is struck, the buyer can pay it in the mandi counters and produce the receipt for claiming his goods as well as take it out of the mandi gates. The seller can get paid after the commission/fees for mandi services.

The mandi can establish boards which disseminate the prices of various deals through electronic boards. It can perhaps be mandated to display prices in other nearby markets as well.

Government’s role

Government should evolve standards and train the market players in related activity. This may be more of an incremental activity since in most cases standards of some sort already exist.

It should also train the farmers themselves in doing it at the farm gate itself so that more economic activity gets done at farm level, thus absorbing some cheap labour there.

It will also reduce wastages, if proper packing, stacking, pelletising systems are taught to the farmers.

The Government can use a part of mandi fees or consider time spent in training part of the Mahatma Gandhi National Rural Employment Gurantee Act (MGNREGA) work to finance this.

Mandi abolition disastrous

Abolition or the various kinds of modification being suggested now may harm the farmers within a short time by dismantling the price discovery mechanism — which is sound at the conceptual level.

It may not address inflation since it does not address the distortion in the chain. The case of few buyers vs many sellers may just shift from one stage to another.

The transmission of high end consumer prices to the farmers or low farmer prices (when production is high) to the consumers requires that right along the four or five stages in the link chain there is no distortion in market. Just correcting the APMC mandis alone may not be the solution.

All put, the cause behind the malaise is minor. We need not throw out the baby with the bathwater.

The writer is the author of ‘Making Growth Happen in India’ (Sage India)

Published on December 24, 2014

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