From UPSC perspective, the following things are important :
Prelims level : APMC Act
Mains level : Paper 3- Structural issues in agri-marketing.
The article discusses the structural issues that may not go away with the reforms announced by the government recently. Issues like inadequacies in APMC infrastructure, regulation of APMCs need are discussed in detail.
What is the issue?
- The Union government signalled the intention to enact a new central law.
- The new law would override existing state regulations that restrict the farmer from legally selling to anyone other than a buyer licensed by the local Agricultural Produce Marketing Committee (APMC).
- The decision to push for a central law comes after dissatisfaction with two decades of partial and uneven reforms by different states.
So, will the change in the law solve the marketing problem?
- This will be overstating the power of legal reform in guaranteeing economic freedom and outcomes.
- The problems farmers face are of two type-
- 1) Problems that are a result of vested, monopolistic interests.
- 2) Problems that are rooted in larger structural conditions that significantly weaken their terms of engagement in agricultural markets.
- Type 1 may be addressed by regulatory intervention.
- But type 2 will need location-specific policies, well-directed investment, and well-functioning agricultural institutions.
- So, solving either of these problems require consensus, coordination and capacity in which the states will need to play a major role.
Why do farmers sell their produce outside APMC mandis?
- The dominant narrative is that farmers are forced to sell their produce only to licensed APMC traders.
- But the reality is that even today the majority of Indian farmers sell their produce to small-scale and largely unlicensed traders and intermediaries.
- This is true, especially of small and marginal cultivators.
- But, if farmers are bound by law to sell in APMC mandis, why are so many of them selling outside?
But, do we have enough mandis?
- At least part of the answer to the question of why farmers sell outside mandis is that India still doesn’t have enough mandis.
- Over the decades, most states in general, and specific regions in particular, have hugely under-invested in the basic infrastructure required to create viable, primary wholesale markets within easy physical reach of farmers.
- The 2017 Doubling Farmers Income Report estimates that in addition to the current 6,676 principal and sub-market yards under APMCs India needs over 3,500 additional wholesale markets.
- Approximately 23,000 rural periodic markets (or haats) have also suffered long-standing neglect.
- So, the new allocation towards market infrastructure must be fully utilised to build up an appropriately designed physical marketing ecosystem, especially in remote regions.
- Most importantly, unlike in the past, this process should engage deeply with farmers and traders in each location to avoid misdirected and misplaced infrastructure and assets.
Regulatory reforms in mandis needed
- Where APMC mandis do exist and have established themselves as dominant market sites, mandi committees have typically done everything in their power to restrict competition.
- Obtaining a licence for a new entrant — has most often proved to be a bureaucratic nightmare and a costly affair.
- This is where regulatory reform to remove conflicts of interests, enable the entry of new buyers, and facilitate the flow of trade both within and outside the mandi system is absolutely crucial.
- No state has done enough in this direction, but here too there are cautionary lessons.
Perils of complete deregulation: Example of Bihar
- Complete deregulation, as we have seen in the decade following Bihar’s repeal of its APMC Act in 2006, does not necessarily transform agricultural markets and spur competition.
- Even after all restrictions were lifted, there was little uptake in direct procurement by formal players in the state.
- When corporations entered the maize market in a big way, they chose to buy from larger traders and aggregators and not from farmers.
- Most farmers have seen little change in marketing practice and continue to sell to village traders as they had done before the repeal.
- Where private markets have emerged — mainly for horticultural produce — they are constituted and run by local traders and commission agents.
- But across the system, traders complain about deteriorating infrastructure.
- And the regulatory vacuum has led to the proliferation of brokers to deal with counter-party risk in growing and dynamic commodity markets such as maize.
Benefits of limited degree of regulation: MP and Karnataka example
- Madhya Pradesh and Karnataka have undertaken some degree of regulatory reform instead of repeal.
- In these states, we do observe, at least to some extent, the fruits of competition.
- In the early 2000s, MP granted ITC a licence to set up procurement hubs outside mandi yards.
- Establishment of ITC procurement hubs not only resulted in price competition, but also from electronic weighing and quick payments, as mandis upgraded in response.
- But ITC’s procurement channel was understandably restricted to select commodities (and qualities), seasons and farms within its own commercial strategy.
- These limitations revealed the mandi’s comparative advantage as a permanent multi-buyer, multi-commodity market for all local producers.
- The key lesson to draw from studies of direct procurement and contracting is the need for a regulatory architecture that enables both new and existing systems to respond, adapt, and compete.
Issue of intermediation
- Small traders and intermediaries exist — and persist — because they are able to respond — in cash, credit, time and place — to the multiple needs of farmers and firms across the interconnected domains of production, marketing, processing and consumption.
- This is not to say that they do not exploit farmers when the opportunity arises.
- So, the organised and technologically driven procurement and marketing systems will only work if they manage to address the real constraints that farmers face on the ground, especially access to credit, inputs, storage, transport, and timely payments.
- Most of these constraints originate in the relations of land ownership and access and the limits and exclusions they impose on smallholding farmers and landless cultivators.
- Simply put, farmers will not be in a position to exercise any newly granted regulatory freedom in the market if they cannot overcome these constraints.
- Equally, while increasing competition for intermediaries is desirable, their elimination is a misguided — and indeed dangerous — objective if one does not respect or replace the roles and risks that they cover.
Issue of re-regulation and new barriers to entry
- Agriculture is at the very heart of the essential economy and our food system runs on the backs of small-scale producers, traders, commission agents, processors, wholesalers, retailers, and labourers.
- Regulatory reform to increase competition must not degenerate into re-regulation that unduly favours large-scale consolidation and channel control by erecting new barriers to entry and operation for agro-commercial MSMEs.
The UPSC asked a direct question about the APMC Act in 2014- ” There is also a point of view that Agriculture Produce Market Committees (APMCs) set up under the State Acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine.”
While going for the reforms government must consider the issues underlying the problems and try to address them. We must recognise and strengthen the diversity, dynamism, enterprise, and resilience of India’s agricultural markets.