In China, economic reforms started with agriculture, industry came later, while financial sector liberalisation is still a work in progress. It’s been quite the opposite in India, where the best proof of reforms completely bypassing the farm sector are the agricultural produce marketing committees or APMCs. Most crops produced by farmers today, barring milk and sugarcane, can be sold only in market yards (mandis) controlled by these institutions. Moreover, food processors or retailers cannot buy directly from the mandis; for that, one needs a licence from the APMC that is seldom granted or itself sells at a premium. Also, the licence for one mandi does not entitle the holder to trade in another mandi, even if both are in the same state. And every purchase compulsorily made through the mandis attracts fees payable both to the APMC and the authorised commission agent, or arhatiya, facilitating the transaction.
The Narendra Modi government has taken a significant step towards ending the monopoly of APMCs through the proposed creation of an online National Agriculture Market (NAM) platform. This would be a virtual marketplace allowing farmers to offer their crop to buyers anywhere in the country, as opposed to only traders and arhatiyas at the local mandi. Millers, retailers or traders sitting in other states can, likewise, use the platform to bid for produce normally brought to mandis where they have no operating licence. The NAM trading portal thus expands the universe of buyers for farmers, while giving processors the option of sourcing produce directly, rather than going through licensed traders in the particular APMC jurisdictions. Interestingly, the APMC will continue to collect fees on each transaction, even when it is online. The only justification for such a levy — in return for providing a trading platform and facilities for loading, unloading, grading or weighing — does not exist in this case. If despite that, the requirement of buyers having to pay APMC charges is being retained, it only points to the Centre not wanting to excessively ruffle feathers. Market fees are ultimately also a revenue source for state governments, though technically the proceeds are supposed to meet the operational and infrastructure development needs of the mandis concerned.
Yet, the very move to create an alternative, pan-Indian electronic trading portal for primary agricultural produce can be a potential gamechanger. As farmers and producers organisations start to realise the benefits of supplying directly to large processors or retailers — including new-age online grocers — state governments are bound to come under political pressure to dismantle the monopoly enjoyed by APMCs. The latter will then have to shape up to survive — by offering superior infrastructure and services that will attract farmers and buyers. And that’s what competition is all about.