From UPSC perspective, the following things are important :
Prelims level : APMC Act
Mains level : Paper 3- The issues with APMC reforms
Reforms in agri-marketing has been long overdue. So, the government recently announced three reforms in this regard. This article examines the problems of agri-marketing. And it concludes that the said reforms are far from being the silver bullet for these problems. So, why these reforms are not going to be effective? Does demand play any role in the problems agriculture is facing currently? Read to know about these issues.
Announcement of reforms regarding agricultural marketing
- The announcement of reforms in agricultural marketing by Finance Minister in May, has been hailed by some as the “1991” moment for agriculture.
- The three reforms regarding agricultural marketing were the reforms in the 1) Agricultural Produce Marketing Committee (APMC) Act, 2) the Essential Commodities Act, 3) Contract farming.
- All of these have been in discussion for almost two decades, with the APMC Act having already seen substantial reforms in many States.
- The first comprehensive model act on APMC was proposed during 2003, and since then, similar efforts to push for more reforms have been proposed in 2007, 2013, and as late as 2017 by the present government.
So, let’s a look at provisions of APMC Act and issues with it
What is the main argument against APMC Act?
- Two main arguments against the APMC Act are-
- 1) It creates barriers to the entry and exit of traders.
- 2) Makes the sale and purchase of agricultural produce compulsory for farmers as well as traders.
Different steps taken by the state governments to address the issues
- So, as many as 17 State governments have amended the APMC Act to make it more liberal.
- In fact, the regulations and the functioning of mandis vary a great deal across States.
- Kerala does not have an APMC Act.
- Bihar repealed it in 2006.
- But several others such as Maharashtra, West Bengal, Odisha, Gujarat, and Andhra Pradesh deregulated fruits and vegetables trade, allowed private markets, introduced a unified trading licence and have introduced a single-point levy of market fee.
- Tamil Nadu has already reformed its APMC with no market fee.
- Several others such as Jharkhand, Himachal Pradesh, Uttarakhand, Haryana and Rajasthan have undertaken one or more of these reforms.
- Many States have introduced direct marketing of farm produce, examples being the Uzhavar Sandhai (Tamil Nadu), the Rythu Bazaar (Andhra Pradesh and Telangana), the Raitha Santhe (Karnataka), the Apni Mandi (Punjab) and the Krushak Bazaar – (Odisha).
So, why the mandis are still blamed for farmers’ problems?
- Despite the above-stated reforms, APMC mandis continue to be vilified for-1) all the ills plaguing marketing infrastructure 2) the low prices received by the farmers for their produce.
- What is the problem? The problem with mandis is not the regulation per se and the structure of mandis but the political interference in the functioning of the markets.
- These are more obvious in case of large mandis specialising in commercial crops and fruits and vegetables, where production is regionally concentrated.
- But even with these deficiencies, APMC mandis continue to play an important role in providing access to the market for farmers.
What the Bihar example teaches us?
- Bihar repealed the APMC Act in 2006.
- The general argument in favour of reforms is that 1) it will allow private investment in marketing infrastructure and 2) provide more choices to farmers, leading to better prices received by farmers.
- But in the case of Bihar, no investment came in building market infrastructure.
- The loss of revenue due to the repeal of the APMC also led to deterioration of existing infrastructure in the State.
- The revenue collected from the APMC earlier was used not only for the modernisation of these market yards but also for the laying of roads and construction of other infrastructure to provide farmers better access to markets.
- But after the repeal, there have been no takers for these market yards, with no investment in creating private mandis.
- On the other hand, it has led to proliferation of private unregulated markets which charge a market fee from traders as well as farmers, and without any infrastructure for weighing, sorting, grading and storage.
- Even in other States where there is deregulation to allow private traders, there is hardly any investment to create market spaces let alone provide other facilities.
- There is also no evidence that farmers have received better prices in private mandis outside the APMC.
- While there have been instances of collusion and corruption in the running of the APMC, they continue to provide essential services to farmers.
Inadequacies of the regulated market
- As against the recommendation that a regulated market should be available to farmers within a radius of 5 km currently regulated markets is in the radius of 12 km.
- There are more than 7,000 regulated markets and 20,000 rural markets when the need is at least twice these figures.
- Most of the existing ones require investment in upgradation of infrastructure.
Price received is more a function of demand than access to market
- The argument that the only bottleneck for farmers not receiving remunerative prices is due to the APMC Act is flawed.
- More than 80% of farmers, most of whom are small and marginal farmers, do not sell their produce in the APMC mandis.
- For a majority of farmers, prices received are more a function of the demand for agricultural commodities than access to markets.
So, let’s come to decline in demand for agriculture produce
- For much of the period during the last two years, terms of trade have moved against agriculture.
- Agricultural commodity price inflation had been negative for a large part of the last two years.
- With underlying weakness in demand and obsession with inflation targeting through fiscal and monetary policies, most agricultural commodities have seen a sharp decline in demand and, consequently, prices received by farmers.
- The argument for choice of markets is only valid as long as there are buyers with purchasing power in the market.
- No amount of marketing reforms will lead to higher price realisation for farmers if the underlying macroeconomic conditions are unfavourable to agriculture and farmers.
What is solution to decline in demand?
- The primary task of the government should have been to increase fiscal spending to revive demand in the economy.
- This has become even more necessary after the sharp decline in incomes, job losses and decline in demand following the lockdown and expected contraction in economic activity for the year ahead.
- With international prices also showing declining trend, the urgency is to protect the farmers from the decline in commodity prices.
Consider the question “Though the APMC Act has often been blamed for the woes of the farmers in price realisation, the act is not the sole reason for price realisation problems faced by the farmers. Critically examine.
The announced reforms are less likely to be effective if carried out without consulting the states. And on the demand side, government needs to increase fiscal spending to create demand in the economy. These two steps will go a long way in ensuring higher incomes to farmers.
Back2Basics: 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 the APMC Act.
- 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 the sale of farmers’ produce.
- 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.
- 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.
Essential Commodities Act 1955
- The ECA is an act which was established to ensure the delivery of certain commodities or products, the supply of which if obstructed owing to hoarding or black-marketing would affect the normal life of the people.
- The ECA was enacted in 1955. This includes foodstuff, drugs, fuel (petroleum products) etc.
- It has since been used by the Government to regulate the production, supply and distribution of a whole host of commodities it declares ‘essential’ in order to make them available to consumers at fair prices.
- Additionally, the government can also fix the maximum retail price (MRP) of any packaged product that it declares an “essential commodity”.
- The list of items under the Act includes drugs, fertilizers, pulses and edible oils, and petroleum and petroleum products.
- The Centre can include new commodities as and when the need arises, and takes them off the list once the situation improves.
How ECA works?
- If the Centre finds that a certain commodity is in short supply and its price is spiking, it can notify stock-holding limits on it for a specified period.
- The States act on this notification to specify limits and take steps to ensure that these are adhered to.
- Anybody trading or dealing in the commodity, be it wholesalers, retailers or even importers are prevented from stockpiling it beyond a certain quantity.
- A State can, however, choose not to impose any restrictions. But once it does, traders have to immediately sell into the market any stocks held beyond the mandated quantity.
- This improves supplies and brings down prices. As not all shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line and the errant are punished.
- The excess stocks are auctioned or sold through fair price shops.