India Economy

It’s time to end monopoly of APMCs; food majors should be encouraged to procure directly

Rajalakshmi Nirmal BL Research Bureau | Updated on March 30, 2020 Published on March 30, 2020

At the time of peak arrivals, mandis witness hundreds of farmers, traders and labourers gathering to carry out the trade.   -  THE HINDU

If mandi boards surpass the agent network and support trade, farmers will stand to benefit immensely

This could be the right time for the Centre to nudge States to make their Agriculture Produce Market Committees (APMCs) play a more active role in primary market trade.

If the private sector engages in direct procurement from farmers now, the crowding in mandis can be checked effectively. This is imperative in maintaining the social distancing required to check the spread of the coronavirus.

At the time of peak arrivals, mandis witness hundreds of farmers, traders and labourers gathering to carry out the trade.

Many food companies including ITC, Britannia, Nestle, BigBasket, Cargill India, Patanjali and Adani Group buy produce from farmers from across the country. But most do not make direct farm gate purchases; they channel them through the commission agent network. The role of the commission agent is to reach out to farmers, aggregate the produce, do a quality check per the buyer’s requirements and transport the stock to the buyer’s processing plant/warehouse.

Here, if this commission agent link is removed and replaced with farmer producer organisations (FPOs) for aggregation of produce and its transportation, and APMCs are brought in to do quality checks and take up counter-party risk, buyers may come forward to purchase directly from farmers. With the eNAM network established across the country, this should be possible now. But will States nudge their APMCs to act?

Scope of eNAM platform

There are already 800-plus FPOs on board eNAM. If traders such as ITC, Britannia and Cargill India onboard eNAM and purchase directly from the FPOs, it will reduce the footfall in mandis to some extent.

The advantage of eNAM is also that it ensures pricing transparency for farmers. Currently, across many States where arrivals of grains and pulses have started — including Maharashtra, Madhya Pradesh and Bihar — farmers are selling in distress. If the large retailers come in now, it will offer substantial relief to the farmers.

To incentivise retailers to come in, APMCs can consider waiving the mandi fee or giving a discount. This may encourage the corporate buyers to shoulder the cost of logistics. If procurement has to be done directly from farmers or the aggregation point of FPO, the transportation distance will be longer. For packaging, loading/unloading, States can direct mandi boards to use MNREGA workers who currently do not have enough to do.

BusinessLine has initiated talks between a retail buyer of Sharbhati and Purna wheat and farmers of Sehore district of Madhya Pradesh. If this works out many farmers from the region with harvest of over 1,000 tonnes will benefit. If the Madhya Pradesh Mandi Board, eNAM authorities and powers-that-be in the State can come forward to help, this trade may carried out smoothly.

Breaking through APMC structure

There are a total of 2,477 APMCs and 4,843 sub-yards across the country and several lakh commission agents. These agents are a powerful lobby. While the Centre has been nudging States to amend their APMC legislation in line with the Model APLM Act, 2017, to let direct purchase from farmers, not all States have complied, wary of inviting the wrath of the commission agents. But, if State governments go ahead and do it, and also get the Mandi Board to take up the counter-party risk, more buyers will come forward to buy directly from farmers. If not the Mandi Board, the State government can take up the responsibility of covering for any default by the buyer/seller, akin to how commodity derivative exchanges do it. This will reinforce buyers’ confidence in the platform.

Corruption is deep-rooted in APMCs and they are not keen on an online platform (eNAM) replacing the existing system in mandis, according to government officials who spoke to BusinessLine but didn’t want to be named. In many States, the APMCs are connected to caste as well as political networks that the State governments do not want to disturb.

While the APMCs were formed under the Agricultural Produce Marketing Acts of the respective States in the 1960s with the aim of facilitating hassle-free sale of produce by farmers, over years, these committees have been ridden by corruption. In a research paper submitted to the National Council of Applied Economic Research, Delhi in 2016, titled ‘Understanding Price Variation in Agricultural Commodities in India: MSP, Government Procurement, and Agriculture Markets’, by Shoumitro Chatterjee, Princeton University and Devesh Kapur, University of Pennsylvania, it was noted that the APMCs have been failing in their duties and hampering fair trade at mandis.

“While the intention of the APMC Act was to ensure that farmers were offered fair prices in a transparent manner, it has led to the creation of local monopsonies by restricting free entry in market creation, discouraged investments by the private sector and generally discouraged free trade and competition,” said the researchers.

Discretionary funds?

A study by the National Commission on Farmers — titled ‘Serving Farmers and Saving Farming: National Commission on Farmers, Third Report, 2006 — said APMCs are a good source of fund for States, a reason why they are not pulled up for inefficiency or corruptio. “State governments usually find these mechanisms (APMCs) a major source of extra budgetary income, outside the purview of audit. Hence, very often, they tend to be used as discretionary funds by the political masters,” said the report.

It’s time State governments that truly care about farmers came forward. If not done now, reforms may never happen in the country’s commodity spot markets (mandis)..

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

Published on March 30, 2020
This article is closed for comments.
Please Email the Editor