Commodity Analysis

The end of APMC monopoly. More power to the farmer

Rajalakshmi Nirmal | Updated on May 17, 2020 Published on May 17, 2020

The farmer can choose the market to sell, based on where auctions are transparent, trade is fair and price is attractive

While farmers may be disappointed with the ₹20-lakh-crore stimulus package that has no provision for ‘loan waiver’ or ‘direct cash transfer’ to ease their immediate pain, structural reforms taken up by the Centre can go a long way to empower them.

The Centre has turned the ongoing crisis into an opportunity and has lifted provisions of the Essential Commodities Act on onions, pulses, edible oil and other key food items. It also intends to end the APMC monopoly and put in place a Central law to free up inter-State trade and set up a framework for e-trading of agriculture produce.

If the above-mentioned steps materialise, the farmercan decide the market he/she want to sell at attractive prices.

Cracking the whip

The Agriculture Produce Market Committee (APMC) Act of most States currently restrict primary sale of commodities to within the limits of an APMC mandi.

The first sale in crops produced in the area notified under an APMC can be conducted only under the supervision of the mandi board officials through licensed commission agents.

There are two main problems with APMCs: First, the mandi licence is issued only to those individuals owning a shop/godown inside the APMC. This has become an entry barrier for the private sector — both individual traders and corporates — and has discouraged free trade and competition. The traders (buyers) inside the mandi take advantage of their position and fix prices by forming a cartel.

Second, the APMCs have failed to provide even basic facilities to farmers. Leave alone infrastructure for sorting and grading the produce, many do not have even storage facilities (covered) or electronic weighing scales.

A case in point is the markets in Haryana where farmers are given only manual weighing scales and commission agents don’t pay them the MSP for their produce.

What the Centre has now promised will help build a direct farmer-end-user marketing model by sidestepping the APMC. The plan is to create a new trade zone, said a source in the know of things at the North Block.

How this will be implemented, given that agriculture is a State subject, is a big question.

The entry 28 in the State List is Markets and Fairs. Entry 26 of the State List mentions trade and commerce within the State. So, clearly, the Centre can’t poke its nose into affairs of a State with regard to agri markets.

But note that entry 26 in the State List is subject to the provisions of entry 33 of the Concurrent List of the Constitution of India which gives power to the Centre to decide on intra-State trade laws for food items, including edible oilseeds and oils.

Also, entry 42 in the Union List gives powers to the Centre for inter-State trade and commerce.

Thus, to put it simply, the Centre can decide on trade laws for both inter-State and intra-State.

While APMCs may continue to remain, the new trade zone being created by the Centre will offer a choice to the farmer and can end the monopoly of APMCs. Finance Minister Nirmala Sitharaman also said that there will be a framework set up for e-trading of agri produce.

While eNAM was set up with this idea, it has a long way to go.

It appears that the Centre is planning a new larger platform to connect farmers and end-consumers.

Here, however, it becomes essential that farmer rights are protected through a regulatory body. Currently, many farmer producer companies feel cheated by their buyers. There are several deductions from the price written in the contract. For instance, in Madhya Pradesh, while the private traders show a price equal to MSP or higher on the contract, the net price the farmer gets is way below.

Sample this: In Madhya Pradesh, this season, a large food retailer promised ₹1,990/quintal of wheat, which is ₹ 65/quintal higher over the MSP. But what landed in farmers’ pockets was less than ₹1,800/quintal. This is because, the buyer reduced the weight of gunny bags — 650 grams per piece — deducted a charge of 1.5-2 per cent for making payment within 5-6 days to the agent (he, in turn, reduces the price to the farmer) and also deducted 1.5-2 per cent on account of poor quality grains. There is no scientific means of determining the quality of grains, lament farmers.

While the idea of a new market(s) is good, equally important is conducting trade in a manner that is fair to both the buyer and the seller.

In the past few weeks, thanks to the Centre nudging the States, Gujarat, Uttar Pradesh, Madhya Pradesh and Karnataka have modified their APMC Act to allow farmers to sell their produce outside the APMC without the latter’s intervention.

States should give preference to farmer producer companies when setting up new markets.

Other reforms

Besides the two key reforms — one on APMCs and other on amendments to the Essential Commodities Act — the Finance Miniter also announced a slew of other positive measures.

This includes setting up an Agriculture Infrastructure Fund (by investment of ₹1-lakh crore) and another fund for helping micro food enterprises and fishermen, and importantly, ‘Operation Total’ to enable farmers to realise better prices on all fruits and vegetables.

At an expenditure of ₹500 crore, the scheme will be implemented to provide a 50 per cent subsidy on transportation of products and a 50 per cent subsidy on storage. It will be implemented as a pilot over the next six months and then expanded.

While all these measures will take time to bear fruit for the farmer, once implemented, they will fill the gap in infrastructure at the farm-gate level and even out the volatility in food prices.

What is missing

Despite the severe shortage of labour and challenges in transportation amid the nationwide lockdown, many farmer groups have successfully moved produce of their member farmers to markets in cities.

It was an apt time for the Centre to recognise the work of farmer groups and support them. But it failed to do so.

If the Centre had extended concessional working capital loans to FPOs (farmer producer organisations) through a special credit line, it would have been a big help. Also, while the Ministry of Rural Development did release a comprehensive circular on how States should provide more work and take into fold all migrant labourers who have come back, it failed to list farm work such as paddy transplantation, sowing of vegetables/fruits and loading/unloading as permissible work under MGNREGA.

Had it been done, it could have helped marginal farmers, who have been hit by the pandemic, sustain their livelihoods.

Published on May 17, 2020

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