Commodity Analysis

APMC reforms will remain on paper unless States extend support to private mandis

Rajalakshmi Nirmal | Updated on May 31, 2020 Published on May 31, 2020

Onus lies with States to extend policy and infrastructure support to woo private players

Despite fierce resistance to ending the APMC monopoly, four BJP-ruledStates — Madhya Pradesh, Uttar Pradesh, Gujarat and Karnataka — have modified their APMC (Agricultural Produce Market Committee) Acts in line with the model Agricultural Produce and Livestock Marketing (APLM) (Promotion and Facilitation) Act, 2017. These States, through the ordinance route, have removed restrictions that limited the sale of farm produce to APMC mandis.

Provisions for issuance of direct marketing licence have also been made to let food processors, exporters and other private players buy directly from farmers without the farmer having to bring the produce to an APMC mandi. Though some observers see this as a move to privatise agriculture marketing and make the APMC system redundant, the model Act prepared by the Ministry of Agriculture has no such intention.

All that it aims to do is liberalise farm trade by giving farmers the freedom to decide whom to sell their produce to, and create competition among different markets for the farmer’s produce. Aimed at these two objectives, the model Act removes the entry barrier for the private sector and allows it to establish new markets and limit the power of any market to its boundary walls.

It also mentions lucidly that the private markets will be regulated and subject to the same rules as applicable to the public mandis (commonly referred as APMCs) at present. The fear that the changes, in line with the model Act’s recommendations, will leave farmers at the mercy of free-market forces is exaggerated. Note that even in government APMCs, it is only the private traders and commission agents who are trading, and there is no guarantee on price to the farmer. So, there is nothing wrong with the idea of having private APMCs.

States, however, can’t lie lazing now. With this one change in regulation, not all things will fall into place.

Maharashtra that allowed private markets in the State way back in 2006 offers, valuable lessons. Below is a report, prepared after talking to people on ground, on how States can ensure success in bringing private markets and infrastructure for farmers.

Maharashtra model

The Maharashtra State government amended its APMC Act 1963 in December 2005, allowing individuals to establish private markets. It also permitted purchase of agricultural produce directly from farmers, by anyone who desires, through direct marketing licence.

However, for the past 13 years, only 59 private markets have come up in the State.

The turnover of these private mandis put together is about ₹6,000 crore, which is only a tenth of the overall turnover in agricultural produce in the markets of the State.

The agriculture market is not a lucrative business proposition. While investment and recurring costs are huge, profit margin is thin. Sample this: In Maharashtra, anyone who wants to apply for a private market licence has to fulfil certain conditions.

This includes a minimum of 5-10 acres of land depending on whether the market is planned in an area inside a municipal corporation (10 acres) or outside (5 acres); certificate of construction of infrastructure in the form of auction halls, godowns, internal roads and sanitary facilities in the proposed market area.

Besides, one also needs to provide a bank guarantee for ₹20 lakh if the market is inside a municipal area (₹5 lakh for other areas), plus pay the mandated licensing fee.

While speaking with the owner of a private onion market in Parnar, a town in Ahmednagar district of Maharashtra, we got to know that he invested ₹2 crore in infrastructure and spent a big sum in acquiring the five acres of land. Now, this brings the question of viability of setting up a private market for small entrepreneurs.

That said, even corporate firms with deep pockets have not shown any interest in obtaining licence for private markets.

While there are only about 60 private markets in Maharashtra, there are about 1,045 direct marketing licences that have been issued.

Many of the big food giants in listed FMCG sector have a direct market licence in Maharashtra.

For the owner of a market, the fee charged on buyers (on value of trade) who come to the yard is the income. Entry fee collected from trucks coming into the yard and charges for using the weighbridge add to revenue but they are insignificant as a proportion to theoverall revenue.

The mandi fee is 1.05 per cent in Maharashtra. Of this, the APMC (public/private mandi) keeps 1 per cent and pays 0.05 per cent to the State government.

While in government APMCs, the investment in land and infrastructure is done by the State, in a private market, it is completely from the pocket of the individual entrepreneur, and all he/she gets in return is 1 per cent of the turnover, which makes the whole effort not worth it. Most of these private mandis do business in a single crop and operate in full volume only for 3-4 months in a year and the infrastructure remains idle during the rest of the year making the RoI (return on investment) low.

State as facilitator

While analysing the private market licences in Maharashtra, it was found that many are individuals who were traders in government APMCs. Speaking to a few of these individuals, BusinessLine learnt that they established the market mainly to save on the fee they paid to the APMC.

States have to be cautious. Private markets can’t be left to develop cartels just as government mandis have done all these years.

To address this concern, FPOs (farmer-producer organisations) should be encouraged to apply for private market licence.

The government should offer subsidy to FPOs to buy/lease the land for the market and establishing the infrastructure.

Also, States should deploy more manpower for supervising mandi operations. An officer in the headquarters of the Director, Marketing, of the State Government has to be assigned the job.

Deploying an individual from the Market Committee/Board of the government APMC will result in conflict of interest, and it should be avoided.

Food giants in the FMCG space in India have always shied away from establishing warehouses, cold storages, grading facilities or taking a licence for a private market. They still largely choose to go through the commission agent network in government APMCs.

The reason for this is mainly the fear that in case of any dispute during procurement or trade operation, there will be none to resolve it. It is high time that a strong independent authority comes into play for agriculture markets.

With the Centre having announced scrapping of the Essential Commodities Act for key agri commodities, hopefully, more private sector players will come forward to invest in warehousing and cold storage infrastructure. The Centre, BusinessLine has learnt, is at the drawing board to draft a new law for inter/intra-State trade outside the APMCs. This should also help.

However, to make any change happen, a regulator with teeth to tackle the menace and strength to promote fair competition in agriculture markets is the need of the hour.

Published on May 31, 2020
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