Marketing of Agricultural Produce in India: Definition; Role; APMC Act, Model APMC Act, 2003

Agricultural Marketing in India

Definition:

In a very narrow sense, Agriculture marketing means delivering farm product from farmers to the final consumers. The National Commission on Agriculture defined agricultural marketing as a process which starts with a decision to produce a saleable farm commodity, and it involves all aspects of market structure of system, both functional and institutional, based on technical and economic considerations and includes pre- and post-harvest operations, assembling, grading, storage, transportation and distribution.

The Broader role of Agriculture Marketing in India.

The prerequisites to attain these goals are:

These conditions cannot come up on their own, particularly in a developing country like India. Therefore, agricultural market policies are treated as an integral part of development policies and their functioning has remained an important part of public policy in India.

Government Intervention in Agriculture Markets

Policy interventions in agricultural markets in India have a long history. Till the mid-1960s, it was mainly meant to facilitate the smooth functioning of markets and to keep a check on hoarding activities that were considered unfriendly to producers and/or consumers.

Subsequently, the country opted for a package of direct and indirect interventions in agricultural markets and prices, initially targeted at procuring and distributing wheat and paddy. This gradually expanded to cover several other crops/products and aspects of domestic trade in agriculture.

The present policy framework for intervention in agricultural markets and prices can be broadly grouped under three categories –

(a) regulatory measures;

(b) market infrastructure and institutions; and

(c) agricultural price policy.

Regulatory Measures

Regulatory measures include development and regulation of wholesale markets in Indian; and, adoption of legal instruments for regulation of agriculture marketing and trade.

Agriculture Produce Marketing Committee Regulation (APMC) Act.

All wholesale markets for agricultural produce in states that have adopted the Agricultural Produce Market Regulation Act (APMRA) are termed as “regulated markets”. With the exception of Kerala, J & K, and Manipur, all other states have enacted APMC Act.

The working of the APMC

The Act is implemented and enforced by APMCs established under it.

  1. It mandates that the sale/purchase of agricultural commodities notified under it are to be carried out in specified market areas, yards or sub-yards. These markets are required to have the proper infrastructure for sale of farmers’ produce.
  2. Prices in them are to be determined by open auction, conducted in a transparent manner in the presence of an official of the market committee.
  3. Market charges for various agencies, such as commissions for commission agents (arhtiyas); statutory charges, such as market fees and taxes; and produce-handling charges, such as for cleaning of produce, and loading and unloading, are clearly defined, and no other deduction can be made from the sale proceeds of farmers. Market charges, costs, and taxes vary across states and commodities.

The Advantages of APMC Act

Besides improving the way markets functioned, the Acts created an environment that freed producers-sellers from exploitation by traders and mercantile capital.

The APMC act in recent years have developed certain inefficiencies, and the opponents have strongly argued to revamp the act as per the needs of the current situations. The main argument for the changes are:

Because of all this, the Inter-Ministerial Task Force on Agricultural Marketing Reforms (2002) recommended that the APMC Acts be amended to allow for direct marketing and the establishment of agricultural markets in the private and cooperative sectors.

The rationale behind direct marketing is that farmers should have the option to sell their produce directly to agribusiness firms, such as processors or bulk buyers, at a lower transaction cost and in the quality/form required by the buyers.

On the recommendation of the committee, the government had come up with a Model APMC Act in 2003.

Model APMC Act, 2003

  1. Under the model APMC Act, the private sector and cooperatives can be licensed to set up markets.
  2. The model act also provides for contract farming and direct marketing by the private players.
  3. Except for few states, all the States and UTs have either fully or partly adopted the model APMC Act.
  4. As a result of the model act, the proportion of private trade and contract farming had increased manifold in some part of the country.
  5. However, The Model Act, so far, has not succeeded in persuading the private sector or cooperatives to set up agricultural marketing infrastructure as an alternative to the state-owned mandi system.

How the APMC act started benefiting Middleman

Initial situation: When the APMC Act was enacted by various states in the mid-1960s, the country was facing a serious food shortage and desperately seeking to achieve a breakthrough in food production. It was strongly felt that it would not be possible to attain and sustain food security without incentivising farmers to adopt new technology and make investments in modern inputs.

Therefore, high priority was attached to enabling farmers to realise a reasonable price for their produce by eradicating malpractices from markets, protecting them from exploitation by middlemen, and creating a competitive pricing environment. Simultaneously, the hold traders and commission agents had over them by providing credit was diluted by increasing the supply of institutional credit. This, along with technology-led output growth, resulted in increased farm incomes, making farmers less dependent on the trading class for credit and cash requirements. It also gave farmers the freedom to choose markets and buyers for their produce.

The Green Revolution Era: The spread and success of the green revolution during the 1970s and 1980s led to an increase in the political power of the farming class and their clout in policymaking. This was reflected in the creation and strengthening of farmer-friendly institutions and a policy environment favourable to farmers.

Marketing institutions like market committees, state-level agricultural marketing boards and many others in the public and cooperative sectors served the interests of the farming community.

The entry of Middlemen’s Post 1991: Over time, as the country moved closer to food self-sufficiency, public policy began losing its focus. The marketing system and marketing institutions were plagued by inefficiencies, bureaucratic control, and politicisation.

The growth in market facilities did not keep pace with the growth in market arrivals, forcing producers to seek the help of middlemen in the market, which, in turn, led to dependence on them.

There was also a reversal of the credit situation after 1991, making farmers more dependent on commission agents and traders for loans. The trading class quickly regained its marketing power over farmers by meeting their credit requirements with interlocked transactions, robbing producers of the freedom to decide where they would sell and whom they would sell to. Taking advantage of the lax attitude of state governments towards marketing, the trading class consolidated their power in mandis.

Middlemen successfully turned marketing policies to their benefit, dictating terms to producers, and thwarting modern capital from entering agricultural marketing.

Some examples of this are:

  1. increasing the commission rates of arhtiyas without any justification;
  2. Rejecting direct payment to producers, which would bypass commission agents; and
  3. Determining prices through non-transparent methods.

The various problems facing the agricultural marketing system were summarised by the Twelfth Plan Working Group on Agricultural Marketing (Planning Commission 2011).

  • Too many intermediaries, resulting in high cost of goods and services;
  • Inadequate infrastructure for storage, sorting, grading, and post-harvest management;
  • Private sector unwilling to invest in logistics or infrastructure under prevailing conditions;
  • Price-setting mechanism not transparent;
  • Ill-equipped and untrained mandi staff;
  • Market information not easily accessible; and
  • Essential Commodities Act (ECA) impedes free movement, storage and transport of produce.

Laws regulating agriculture marketing in India

Essential Commodity Act: Almost all agricultural commodities, such as cereals, pulses, edible oilseeds, oilcakes, edible oils, raw cotton, sugar, gur, and jute, are included in the list of essential commodities.

The Act provides for instruments like licences, permits, regulations and orders for

(a) price control,

(b) storage,

(c) stocking limits,

(d) movement of produce,

(e) distribution,

(f) disposal,

(g) sale,

(h) compulsory purchase by the government, and

(i) sale (levy) to the government.

Agriculture Produce Grading and Marketing Act: The act defines standards of quality and prescribes grade specifications for a number of products. The Act authorises an agricultural marketing adviser in each state to grant a certificate of authorisation to persons or corporate bodies who agree to grade agricultural produces as prescribed by it.

There are AGMARK grade specifications for 212 agricultural products, but the use and awareness of it have remained low despite a better understanding of quality attributes among consumers.


By
Himanshu Arora
Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University
CategoriesUncategorized
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Nagraj Prabhu
Nagraj Prabhu
25 Aug, 2018

This is a great primer to understand the evolution of APMC