There has been a big rush to reform agricultural markets as it is now known that most of the farm sector’s problems start and end with them, whether it is to do with the purchase of farm inputs by primary producers or sale of their output.

The Model APMC Act 2003 provided a road map for States to amend their APMC Acts in order to provide a choice of channels to farmers for sale of produce in the form of direct purchase and contract farming besides private wholesale (non-APMC) markets. Most States have amended their Acts; now it is possible to undertake contract farming or make direct purchase under the relevant Act. In all the major agricultural States, there are many cases of contract farming as well as direct purchase by exporters, processors, food supermarkets and other traders of farm produce. In some States, buyers need to pay full market fee, while in other States they pay reduced rates or none at all.

What has not materialised so far is private wholesale markets. It is well known that despite many licences being given, especially in Maharashtra and Gujarat, not a single private wholesale market has come up.

An interesting phenomenon It is interesting to note that only Bihar has abolished the APMC Act, back in 2006. A recent visit to the semi-urban and rural areas of Bihar revealed that private markets of a different kind have come up.

There are wholesale markets in all major fruit and vegetable pockets of the State functioning on the roadside from 7 am to 10 am without any infrastructure. Participants include farmers from nearby villages, wholesale buyers and sellers including local fruit and vegetable vendors who come on bicycles, rickshaws, auto-rickshaws, motor bikes and small pickup trucks. These markets are set up by individuals who charge both farmers (2 per cent) and buyers (per lot size) a fee. There is hardly any facility other than the roadside space made available for the transaction of produce. There are generally only a few makeshift sheds from which the mandi operator works and monitors the functioning of the market. Farmers can bring in any lot size and sell directly — wholesale or retail. Many vegetable growers sell their produce here.

In one such mandi in Vaishali district, quick enquiries revealed that farmers seem happy the markets have become available closer to their growing areas; they can directly access these markets even for selling small lots on a daily basis unlike earlier when some farmers could not afford to take their produce to faraway APMC markets both in terms of time as well as cost of transport. Thus, these private unregulated wholesale markets have provided easy access to small farmers who wanted to sell directly.

Free-for-all approach On the other hand, though, farmers end up paying a market fee of 2 per cent which is not needed to be paid in the regulated APMC markets. There is no competitive price discovery as there is no open auction in such private local mandis . Also, if there is a malpractice, there is no one the farmers or buyers can approach. It’s a free-for-all with neither facilities being provided nor processes being followed.

For example, even wholesale produce was being weighed with handheld scales which can only take a few kilos at a time. It is here that the role of APMC becomes significant. The question is: Why could not small marketplaces be created closer to produce-growing areas under the APMC system? After all, this is the purpose of the APMC Act and the State agricultural marketing boards, apart from regulating market transactions in terms of fair price discovery and fair settlement of payment.

Going by the experience of such markets, it is important to examine whether the denotification of fruits and vegetables (F&V) from the APMC Act will benefit farmers. If it is assumed that such markets provide a fair and remunerative competitive price, then that is very unlikely as there is no open auction and no monitoring of market practices in these mandis . Further, there is no assurance that these markets will continue to operate. It is possible that the business interests of these informal players will change and they will move on, unlike the APMC markets which are part of the legal mandate of the State.

Too many contradictions If the purpose of denotification is to make F&V purchase and sale hassle-free, why couldn’t direct purchase or contract farming be provided for under the APMC Act? To encourage these new mechanisms, the buyers could be exempted from paying a market fee if they procured directly or undertook contract farming. Not making markets more competitive and fair defeats the purpose.

It is unlikely that such denotification will lower food inflation because buyers still pay a mandi fee to the private operators of such markets and then move the produce to urban areas; this costs the same or more.

Further, when the F&V produce is denotified from the APMC Act, what is the assurance that a buyer will go to the farmers to buy or will involve them for contract farming? They may simply buy from the wholesale market. This is what food supermarkets have been doing, buying A grade produce at wholesale market (APMC) based prices from farmers in various pockets of the country; this adds no value as farmers still end up selling their second and third grade produce in the APMC markets.

Thus, APMC markets are very important especially in States such as Bihar where small and marginal farmers comprise more than 90 per cent of the sector. These markets need to be reformed and made to deliver by liberalising APMC licensing, opening more APMCs in local areas, enabling e-payment of market fee, giving representation to farmer producer companies, denotifying commission agents ( arthiyas ) as is done in Madhya Pradesh, and introducing quality and open auction based price discovery.

These markets are important for small farmers who may not attract large buyers for direct purchase or contract farming. They also serve as a benchmark for seeking contract farming and direct purchase prices. Therefore, there is no need to throw the baby with the bathwater in the rush to reform agricultural markets. It is easier to dismantle institutions than build them. The consequences could be very serious for the farm sector and the farming community.

The writer teaches at IIM, Ahmedabad