“Tuhanu saadda 2.5% commission disda hai, par saadde kharche kisi nu ni disde (You see our 2.5% commission, but not our expenses),” Ajmer Singh Gill says.
This statement by the biggest arhtiya — or commission agent — at Khanna near Ludhiana, home to Punjab’s largest APMC (agricultural produce market committee) mandi, provides an insight into the operations of a not-quite-well understood economic actor.
Not just bichauliyas
The arhtiyas, who are extending critical support to the ongoing farmers’ agitation, are often referred to as “bichauliya” or middlemen.
But that is gross oversimplification.
The arhtiya isn’t a trader holding title to the grain bought from a farmer. He merely facilitates the transaction between a farmer and actual buyer, who may be a private trader, a processor, an exporter, or a government agency like the Food Corporation of India (FCI). That makes him more akin to a broker.
The arhtiya, however, also finances the farmer. That, plus his income from commission being dependent on the quantity and value of produce routed through him, aligns the arhtiya’s interests much more with those of the farmer.
MSP crops in Punjab
Gill, who is now at the main protest site at Singhu on the Haryana-Delhi border, handled 58,875 quintals of paddy procured by state agencies during the recent kharif marketing season. His 2.5% commission on that paddy at its minimum support price (MSP) of Rs 1,888 per quintal, worked out to Rs 27.8 lakh.
The 62-year-old also facilitated 21,000 quintals of wheat purchases (at the MSP of Rs 1,925/quintal), apart from 7,500 quintals of basmati paddy, 12,500 quintals of maize and 1,600 quintals of sunflower. The last three crops were bought by private players at average market rates of Rs 2,000, Rs 900 and Rs 4,000/quintal, respectively. His aggregate commission at 2.5% from all these transactions came to a little more than Rs 46 lakh, of which Rs 37.9 lakh (82%) was from the two government MSP-procured crops.
“That sum (Rs 46 lakh) isn’t my income. You have to deduct expenditures from that,” Gill says. Every arhtiya engages at least 7-8 workers, who unload the grain from the farmer’s tractor-trolley in front of the arhtiya’s shop for auctioning. They also do its cleaning, filling in bags, weighing, stitching, and final loading onto trucks for despatch from the mandi.
A big arhtiya, Gill employs 70 labourers in the main arrival season (April-May for paddy and October-November for wheat). “We need to pay them and provide for their stay. Even the farmers coming here have to be served tea and snacks. In addition are expenses on the munim (accountant) and other office staff who make payments, issue J-Forms/sale invoices, etc.,” Gill says.
Some of these costs are recovered from the farmer (unloading and cleaning) and buyers (weighing, bag-filling, stitching, and loading) at standard government rates. But there are many costs — on electricity, cleaning machine, electronic weighing scales and tarpaulin covers for unlifted grain — that the arhtiya has to bear. Also, officials have to be occasionally “persuaded” to accept grain that may have moisture beyond the prescribed limits, or does not fully meet fair average quality norms.
“At the end of it, we hardly earn 1%, not 2.5%,” claims Gill.
Khanna APMC has 270 licensed arhtiyas — more than half of them from the Jat Sikh peasant community like Gill. Together, they handled about 26.25 lakh quintals of paddy and 12.5 lakh quintals of wheat this year. For them, this is an assured business where payment comes within one month. In basmati, maize and sunflower, the buyers are all private. 📣 Follow Express Explained on Telegram
“They pay only after 3-4 months and sometimes run away [without paying]. On our part, we cannot delay payment to farmers beyond 48 hours,” says Harbans Singh Rosha, president of Khanna’s Arhtiya Association.
Rosha’s association on Monday sent out 50 buses and 80 personal vehicles carrying farmers, labourers and arhtiyas to the Singhu border. “We will keep sending till the government withdraws its laws that seek to weaken our mandi system and phase out MSP procurement,” Rosha says.
In Andhra, different equations
Around 2,110 km away from Khanna, Shekhar Pallela suffers no such insecurities. A commission agent at the Guntur Mirchi Yard in AP, he too is into lending to farmers (usually at 24% per annum) and facilitating sale of their produce.
With annual arrivals of 1.2 crore bags of roughly 45 kg each, this APMC handles 25-30% of India’s red chilli production. At an average Rs 14,000 per quintal (Rs 6,300/bag) prices, it does a business of Rs 7,500 crore per year.
Guntur’s commission agents charge only 2%. Moreover, unlike in Punjab and Haryana, they collect it from the farmer, not the buyer. But the levy of commission on percentage basis also induces them to secure the best possible price for the farmer. The Khanna arhtiya has no such incentive: Since the MSP is fixed, he only aims at maximising the quantity of sales routed through him. Government agencies have procured 202.78 lakh tonnes of non-basmati paddy from Punjab this time, as against the state’s estimated 145 lakh tonnes output. This means grain from other states has also been sold in Punjab’s mandis.
Pallela (36) offers three reasons for the Guntur Mirchi Yard facing no major threats from the new central law that dismantles the monopoly of APMCs in farm produce trading.
First, the Guntur APMC levies only a 1% market fee on buyers. In Punjab, this is at 3% for wheat and paddy, besides a separate 3% rural development cess of the state government. In Haryana, these are at 2% each. Guntur’s 1% fee, which generates Rs 75 crore annually on a high-value crop, isn’t so high to divert trade away from the mandi.
Secondly, the Guntur yard has 400-odd commission agents and 250 registered exporters/buyers, ensuring enough liquidity. Farmers not only from Guntur, but even Prakasam, Krishna, and Kurnool districts of Andhra Pradesh; Khammam, Warangal, and Nalgona in Telangana; and Hubli in Karnataka come to sell there. Many buyers and sellers guarantees better price discovery. Creating an alternative market is in nobody’s interest.
Third, big firms such as ITC, Synthite, NK Agro Exports, Venkatrama International, and A P Vanniarajan & Co, cannot pay farmers in cash. Buying 4,000 bags daily at Rs 6,300/bag in the peak season (January-May) requires shelling out Rs 2.5 crore every day, or Rs 75 crore per month. A farmer harvesting 30 quintals (67 bags) per acre would want immediate cash payment of Rs 4.2 lakh, which only commission agents can provide.
“We pay in cash and our payment from exporters/traders comes after 15 days. They cannot manage their capital rotation without us and will not be able to deal directly with farmers,” explains Pallela, who is from the Reddy farming caste.
This link between the farmer and the trade is not something even large corporates can easily replace. More so, in competitive and open APMC mandis like Guntur.
This article first appeared in the print edition on December 10, 2020 under the title ‘The arhtiya business’.
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