Rajiv Kumar

Time to scrap licence raj in farm marketing

RAJIV KUMAR BASKAR REDDY | Updated on April 15, 2011

A handful of traders, who expectedly often collude with one another, are holding the country to ransom in the trade of perishables.

APMCs are chiefly responsible for bouts of inflation in fruits and vegetables. But States have resisted APMC reforms, as they fear a loss of mandi revenue, say RAJIV KUMAR and BASKAR REDDY.

In the 21st Century, when international trade barriers are being overcome through free trade agreements, Indian farmers from one notified area (taluk/mandal/district) are not allowed to sell their agricultural produce in another notified area of the same State! How many of us know that there is a strong licence raj in agriculture marketing?

Whenever there is an ‘episodic' crisis in onions, potatoes or tomatoes, the print and electronic media tend to portray hoarding by the traders as the main reason for spiralling prices. But if one were to dig deeper into the issue of agriculture marketing, it would emerge that the government, by virtue of provisions in the Agriculture Produce Market Regulation (APMR) Act, is responsible for hoarding by traders and the consequent spiralling prices.

The APMR Act, more commonly known as the agriculture produce marketing committee (APMC) Act of respective State governments, was formulated in the mid-1960s. It authorises State governments to set up and regulate wholesale agriculture markets with the stated objective of ensuring that farmers get a fair price for their farm produce, and of protecting them from exploitation by the traders.


Most APMCs limit the number of licences issued to traders to deal in purchase/sale of agricultural produce in their respective markets (thereby promoting collusion). The farmers are only allowed to sell their produce within the APMC market premises (strictly limiting their marketing options).

Most markets lack the proper infrastructure to store perishables and as a result, farmers are forced to sell their perishables at the price quoted by traders (incentivising traders). When a large number of farmers sell their produce in a mandi to a limited number of traders, the dice is loaded against the farmers and consumers. The general thumb rule of price spread from a farmer to consumer in perishable commodities such as fruits and vegetables is 1:2:3:4. This means, what a farmer sells for Rs 1 is sold at the local mandi at Rs 2; it becomes Rs 3 at the consumption mandi and Rs 4 by the time it reaches the consumer.

This means that the APMC Act is neither beneficial to millions of farmers, or to millions of consumers. This also reflects that a handful of traders, who expectedly often collude with one another, are holding the country to ransom in the trade of perishables.


There is an urgent need to accord a special status to perishables and horticulture commodities and de-list perishables from Schedule-I, containing the list of notified commodities in the APMC Acts of all States. This would mean that anyone can buy or sell perishable commodities anywhere in the country. New pathways for marketing of perishables (farmers directly selling to retailers, farmers' cooperatives selling to exporters/food processors, etc.) would emerge, resulting in better price discovery for farmers and price stabilisation at the consumer end.

While the efforts to modify the APMC Act and allow for greater marketing options for farmers has been on the agenda of the Central government for almost a decade, there seems to be stiff resistance from State governments, as they fear loss of APMC mandi revenue.

In this context, it would be useful to try and estimate the perishable revenue loss to the States. The share of market fees from fruits and vegetables is meagre compared with the total market fees collected in various States, Delhi and Himachal Pradesh being exceptions. Even in States such as Punjab and Haryana, which have phenomenal mandi fee collections, the proportion of the market fee from fruits and vegetables is only 6 per cent. The situation is the same in other States. Therefore, States can easily afford to forego the minimal losses in mandi fee from fruits and vegetables.

The new regime would provide the right atmosphere for the private sector to make investments in agri-infrastructure and food processing. The gains to the State in terms of employment and stabilised food inflation would be far greater than the minimal loss in mandi fee that is in any case supposed to be used for market development, and not for general revenue purpose.

De-listing perishables from Schedule I of listed commodities under the APMCs can be undertaken as an administrative order, not requiring any legislative action or amendments to any existing statutory provisions. While de-listing should be treated as a clarion call, fine-tuning other aspects related to marketing of perishables in the country could result in further win-win-win situations for farmers, consumers and the governments.


The private sector needs to be encouraged to develop specialised markets for fruits and vegetables, thereby offering farmers more marketing options. Ficci has always taken the position that FDI in retail should only be permitted with the stipulation that organised retail chains would work closely with farmers in imparting better know-how and providing inputs to improve the productivity and directly sourcing from farmers.

Large retailers should be required by law to procure substantial part of their supplies locally. Encouraging farmers to form producer associations and aggregating the produce of small and marginal farmers would go a long way in improving their bargaining power.

It is often said that “history would repeat itself”. I am sure it is still fresh in everyone's memory that a government lost the people's mandate due to the onion crisis in 1999. Eleven years later, it is surely time for the governments, both at the Centre and States, to address the underlying structural issues, rather than continue to tinker at the margins.

(The authors are Director-General and Joint Director, FICCI respectively. The views are personal. blfeedback@thehindu.co.in)

Published on March 12, 2011

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor