Ad hoc policy-making: Agriculture market reform isn’t just about delisting commodities

Dismantling APMC monopoly is an essential, but not sufficient condition for real reform

Written by Pravesh Sharma | Published:August 4, 2016 3:05 am
apmc, apmc policy, agriculture, agri market,agriculture market, india agriculture market, business news Delisting of any commodity may be a necessary, but not sufficient, condition for achieving real agriculture marketing reform

Even as the backlash from traders to the delisting of fruits and vegetables (F&V) from compulsory trading in Maharashtra’s regulated mandis refuses to die down, there are reports now of the Centre wanting the states to also take pulses out of the purview of their respective APMC (agriculture produce market committee) acts.

Marketing reform, in other words, is becoming synonymous with eliminating key items from being mandatorily traded in regulated APMC yards, one by one. Even in F&V, the push to delist actually came from the Centre, starting with the time of UPA-2 and continued by the present regime. The argument here was that ending the monopoly of regulated mandis would attract buyers, especially organised players, seeking to directly source bulk quantities for processing or trading. That would, in turn, foster greater competition and better prices for farmers.

However, a look at the experience of a large state — Madhya Pradesh — with deregulation in F&V trading may be instructive. MP took the call in 2012, braving the initial wave of strikes by traders in large mandis like Indore, Bhopal and Ujjain. But when traders began boycotting farmers, who continued to bring produce to the mandis, the state government was forced to make an awkward compromise: While direct sourcing of F&V wouldn’t attract any levy, produce auctioned within existing as well as new privately established mandis will be liable for payment of trader’s commission and market fees.

The result: Not a single private player has, in the past four years, put up any new mandi infrastructure for F&V trading in MP. While sporadic off-mandi purchases of small quantities by ITC and other processors do take place in some places, these are more in the nature of contract buying. This is as opposed to trading, where you have multiple buyers bidding for the same product.

Also interestingly, within three months of the delisting notification, farmers of Burhanpur, a major banana-growing district, petitioned the MP government to re-introduce the fruit as a produce reserved for trading on the APMC mandi platform. The reason: A drastic fall in the number of buyers and the resultant wild fluctuation in prices. A year later, green pea growers of Nagda in Ujjain district followed suit, preferring to return to the regulated mandi fold.

MP’s Mandi Board can barely hide its glee at the end of four years. The board, which supervises the mandis under APMC jurisdiction, was bitterly opposed to the delisting move. It can obviously afford the satisfaction of saying “I-told-you-so” when the zero record of new private mandis is discussed. Meanwhile, F&V trading that was happening in 120 mandis in 2012 has, since, expanded to 151 APMC yards. Nor have revenues from F&V sales in these mandis dipped, even as chastened farmers are no longer clamouring for the “freedom” to trade anywhere and with anyone!

Three major lessons emerge from the MP experience.

First, delisting of any commodity may be a necessary, but not sufficient, condition for achieving real agriculture marketing reform. By pushing delisting as an isolated one-off reform initiative, both the Centre and state governments are guilty of ad hoc policy-making without thinking through the consequences. Any delisting decision should be accompanied, if not preceded, by a comprehensive package. That should include identifying alternate land in urban centres for setting up new mandis, a transparent process of selecting private players, incentives for investing in related infrastructure, and regulation to ensure level-playing field between the incumbents and new entrants.

Secondly, for all its faults, the existing mandi system continues to offer two major advantages: the physical aggregation of large volumes of produce at a single location and, because of that, the presence of a sizable number of buyers. While malpractices are rife in many of the country’s 7,500-odd primary APMC mandis, it must be acknowledged that wherever buyer numbers are significant, large-scale collusion and price rigging isn’t possible beyond a point. Even Delhi’s much-lampooned Azadpur mandi continues to draw F&V producers and suppliers from across the country, only because of the intense buying competition it offers. Marketing reform should, in fact, concurrently aim at improving infrastructure at the existing mandis, be it through creation of more godowns and cold stores or facilitating electronic trading and warehouse receipts-based financing.

Finally, the MP experience holds a salutary lesson in market regulation. Delisting of F&V, or any other commodity, must not mean the end of regulation of agriculture markets. Both sellers and buyers benefit from regulation that is fair, but not heavy-handed. In agriculture markets, given the hugely asymmetric and skewed buying power distributed between sellers and buyers, a fair regulator is most important. Removing the umpire in this game is akin to abdication, not deregulation.

The writer, a former IAS officer, is the CEO of an agriculture marketing start-up and is also visiting senior fellow at ICRIER, New Delhi

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