National e-mandi, a great idea

Too local a market That helps fewer people. STEVE ESTVANIK/SHUTTERSTOCK.COM

An electronically unified agriculture market will introduce transparency and reduce intermediation costs

The Union Cabinet’s nod to the setting up of the National Agriculture Market makes July 1 an important day in the history of agriculture marketing reforms in India.

The concept of electronic agricultural markets is not new to India. National and regional players have tested the waters by setting up electronic cash and derivatives markets for trading in agricultural commodities.

Spot exchanges have been offering online trading in various commodities with standardised contracts wherein farmers, traders, processors, exporters, importers, can buy/sell in a transparent manner, with the exchanges providing counter-party guarantee for the trades.

This has been a marked departure from the traditional mandi system and has helped facilitate efficient price discovery and transaction functions of the marketplace.

Two national-level spot exchanges have achieved relatively better success in creating an electronic seamless spot market mechanism, largely by way of support of the exchange ecosystem of their derivatives exchange counterparts. Moving a step forward, Rashtriya e-Market Services Pvt Ltd (ReMS) was established as a JVC between Karnataka and the NCDEX Spot Exchange Limited. This single market platform currently integrates 51 markets and aims at covering all main 155 market yards and 354 subyards as well.

Proposed framework

In the mandi system, farmers get a very low share of the rupee due to a long chain of intermediaries and cartelisation at the physical marketplace, which adds two major costs: the intermediaries’ margins as well as multiple handling costs.

Further, there are various limitations under the current framework related to direct marketing legislation, multiple tax levies and licences, logistics and infrastructure. These challenges in the existing system and low returns to farmers prompted the Centre to visualise the creation of a unified National Agriculture Market (NAM). NAM has been proposed to induce transparency in the marketing system, leverage state of the art technology for a well-regulated market, and enable participation and benefits for the entire agri value chain, from farmer to consumer.

The proposed NAM framework envisages real-time electronic auctioning of the commodities along with integrated assaying, weighing, storage and payment systems. It proposes to issue a single licence for trading across the country in order to promote increased participation. Assaying, weighing and FIs will be integrated with auctioning in such a manner that the payments will be credited directly to the farmers’ accounts. In this context, the Prime Minister’s Jan Dhan Yojna can be a great enabler towards payment facilitation for marginal and small farmers.

Well-equipped warehouses will be created in the vicinity of major production clusters.

Details will be furnished on the electronic platform. It will provide a dual benefit to producers by averting the need to bring produce to the market physically and enabling them to avail funding against the commodities stored in the warehouses, thus strengthening the price risk management framework for the farmer.

The imposition of GST will further facilitate unification of the isolated markets by rationalising the tax regime. The framework of NAM shall go a long way in encouraging private sector participation in marketing reforms, both for the physical as well as soft infrastructure.

Way forward

The respective Agricultural Produce Marketing Committees (APMCs) will need to implement the tenets of the envisaged NAM in a phased manner, including enabling infrastructure for integrating pre- and post-auctioning activities.

Further, efficient extension activities will help create awareness among producers on grades standardisation, quality assaying and electronic auctioning systems. This should induce the active participation of major stakeholders, enhance healthy competition and provide fair returns to farmers.

Existing spot exchanges should strive to create a national market for agricultural produce and bring the advantages of a transparent pan-India market to farmers and consumers alike. While exchanges can provide the knowhow and technology for creating a pan-India market, the Centre and the State governments should formulate a strong facilitating framework.

An efficient marketing system with high levels of transparency will encourage healthy competition, the active participation of genuine stakeholders, higher returns to the farming community, and a fair deal to consumers.

This will help actualise Sabka Saath, Sabka Vikaas in the true spirit.

The writer is the MD and CEO of Yes Bank and president of Assocham

Published on July 02, 2015

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