Spare a thought for agri-marketing

Declaring an industrial policy or, better still, a policy for the IT sector, with the captains of industry in attendance gets brownie points for any new government. Less glamorous sectors are relegated to the background or even forgotten. Yet, the five-month-old government in Karnataka recently announced a policy for agricultural marketing — an almost forgotten activity.

Every State, barring Bihar and Kerala, has a law to regulate agricultural marketing, dating back to the 1950s. Farmers have to reach these regulated markets to sell their produce. These markets, set up to provide a competitive space for the produce, are anything but that.

An alien setting, limited buyers for the lot, bids that do not reckon quality of the produce, discounts in weighing, delay in payment and economic balkanisation through movement restrictions characterise these markets. Yet, the producer has little choice; regulated markets are the best among the choices available to him!

Little has changed in the last five decades, except for some minor tinkering of the system. One such effort was the suggestion by the Centre to amend the law to enable private markets to come up, which some States actually did. Little did policy-makers realise that private capital would not flow into this area, due to the long gestation period riddled with uncertainties. Last heard, the recommendations of the committee of ministers for agricultural marketing of select States are waiting to be translated into action.

Given this milieu, the policy announced by Karnataka raises hopes of a fresh start to this sector crying for reforms. The policy has three critical anchors — appropriate market structure, increasing competition and strengthening of institutions — that attempt to comprehensively address the issues plaguing the market. And encompassing all these is technology — an enabler to achieve the objectives of the policy.

PROPER market structure

The market structure that existed was taken as given and appropriate. This policy departs from the trend and seeks to redesign it. The conceived structure seeks to establish adequate testing and grading infrastructure and linking physical markets and warehouses. When achieved, this has the potential to create a state-wide virtual market for the produce with prices being determined by overall supply demand factors, duly reckoning location, quality and variety variations.

Participation in such a market will change — the policy seeks to empower the farmer through aggregation, value addition, facilities for storing the produce, financing through formal channels to facilitate storage, dissemination of price information to decide the time of sale and online payments to the seller akin to equity and commodity exchanges. If implemented successfully, heavy arrival of the produce witnessed during harvesting season may give way to steady inflow throughout the year.

Here, the policy does not reckon the risk that the farmer might face if prices remain subdued, as post-harvest price behaviour could change. One cannot blame the policy — derivative contracts in commodities are the domain of the Centre and one hopes that integrating futures exchanges with primary agricultural markets would at least begin now.

A significant aspect mentioned in the policy is capacity building. The changed market structure would pose a challenge to participants. They have to be made aware of its nuances, lest the initiative come in for criticism. The State seeks to play an active role in this effort. One hopes that, by active role, the Government implies creating an enabling environment to increase awareness — not actually conduct programmes!

More competition

A virtual market cannot exist without widespread participation. So the policy declares that all barriers to participation would be done away with and the existing cumbersome process would give way to a single unified licence. A laudable objective critical to the success of the policy; yet this could prove to be the Achilles heel, as entrenched interests would have to be dealt with! And one hopes that along with relaxing licensing conditions, movement restrictions would also be done away with to increase efficiency in intermediation.

Regulating markets

The policy seeks to separate operational and regulatory aspects of the markets. This is a long overdue requirement. One hopes that the separation is real and the State leads the way in creating a distinct regulatory structure similar to other market regulators. Such a move would increase the confidence of private investors to invest in the State.

A significant declaration of the policy, again a first, is creation of an appropriate public private partnership arrangement for providing state-of-the-art technology for marketing the produce. The Government and its regulated markets have their limitations in adopting technology and if the intention is to partner with the private sector to make these markets as sophisticated as exchanges — which are advanced market places — then it is a step in the right direction.

On the whole, the policy promises to make a fresh beginning. One hopes that the zeal with which the policy was announced continues during its implementation on the ground!

(The author is a former MD and CEO of NCDEX.)

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