Reforming Mandis: A market so near and yet too far

States will not reform their APMC Acts to create a unified national market for farm produce. The legislative lead for that must come from the Centre.

New Delhi | Updated: August 23, 2018 12:50:19 am
The fragmentation from India’s roughly 7,500 mandis has created one of the world’s most inefficient and wasteful agri marketing systems. (Photo: Narendra Vaskar)

Written by Pravesh Sharma

Sweating profusely in 44 degrees centigrade under a tin shed at Uttar Pradesh’s Mainpuri mandi (wholesale grain market) this June, listening to a veteran commission agent there for over two hours, made me feel like having experienced an epiphany. I was out to explore setting up centres in the district for direct procurement of maize from farmers by our start-up, to serve organised customers in the starch, poultry-feed and pharma sectors. A truly farm-to-factory model, I told anyone who cared to listen, while drawing attention to the UP government’s adopting the new model Agricultural Produce and Livestock Marketing Act circulated by the Centre. Under it, farmers could ostensibly now sell their produce to any buyer.

The moment of truth came when the same commission agent gently told me: “Sir, if you want maize, you’ll have buy it through us. Nobody will allow any purchase outside the mandi.” When I went to the local APMC (agricultural produce market committee) office to find out whether our enterprise would be permitted to open direct procurement centres, the people there helpfully informed that the state government hadn’t notified any rules to that effect. We could, then, buy only through traders at the mandi. But we will pay Rs 50 per quintal more than the prevailing mandi prices, if allowed to purchase at the farmgate. Wouldn’t that matter, I asked the officials, when the mandi rates are ruling below the government’s own minimum support price (MSP)? “We won’t look at prices. Our only concern is that the buyer pays mandi tax”, was the reply I got.

So, in the end, we nominated the straight-talking mandi agent as our supplier and paid him lakhs of rupees as commission over the marketing season for the procurement that he had “facilitated”.

The above experience we have seen being repeated with only minor variations across India in the past two years. The search for a supportive policy framework, which permits direct farmer-end user marketing models, is an exercise in vain, we discovered. In all the states where we source produce, bypassing the mandi system and loosening the monopoly granted to a handful of licensed traders in APMC market yards, to tolerate even a bit of competition, is practically impossible. While some state governments have created tiny openings for buyers to operate outside APMC-regulated mandis, the threshold to access these windows is so formidable — in terms of lakhs, or even crores, of rupees payable as security deposit — that it’s truly a case of a market so near, yet too far.

The fragmentation resulting from India’s roughly 7,500 mandis, each a tiny fiefdom in itself, has created one of the world’s most inefficient and wasteful agri marketing systems. Layers of intermediaries between the farmer and consumer ensure that the former, on an average, receives hardly a quarter of every rupee the latter spends on buying his produce. This, when the same India has unified national markets in dairy and poultry products, where no APMC-type legislations exist. Both these value chains are also fairly inclusive, allowing for better sharing of the consumer price with primary producers.

Yet, it is remarkable that decades of cajoling, nudging and even financial incentives from the Centre hasn’t moved state governments to discard the model of APMC zamindari over agri produce, even as they issue full-page newspaper ads, each of them claiming to have the most farmer-friendly marketing systems. Achieving the goal of doubling farmers’ incomes by 2022 is clearly not possible without a barrier-free and unified national market for all produce. It defies logic all the more, therefore, why states aren’t creating conditions for a large number of new players — both individual traders and corporates — to enter into agri marketing, with an emphasis on incentivising those wanting to create modern supply chains originating at the farmgate.

Regulation per se isn’t the problem. Bihar’s APMC Act was abolished overnight in 2006, but without any regulatory framework to replace it. The free-for-all that has ensued is hardly the ideal. Unreformed and unregulated agri markets are equally dangerous. They pose an even greater and more immediate risk of scuttling the ambitious MSP policy of the current government at the Centre, which seeks to provide minimum 50 per cent return over cultivation costs to farmers. With reports suggesting that mandi traders will have a role in buying produce under the new policy, the prospect of their existing monopoly being strengthened further is real. It makes one wonder if those drawing up these plans have thought through all the implications.

The private trade can certainly do much in reducing the burden of state agencies for extending MSP-based price support. But why should that role be limited to existing mandi traders? Why not a policy that permits any enterprise willing to deploy capital and human resources to participate in the process? And why not provide incentives to those that go to the farmgate, or partner with cooperatives and farmer producer organisations, for such procurement? Audit trails for reporting and electronic tracking of payments can easily be created, while ensuring that the MSP benefits also reach the millions of farmers who currently are unable to bring their produce to the mandis and forced to supply to local aggregators.

The time has come for the Centre to contemplate legislation that creates a unified national market for agri goods. It is naïve to assume that all states can somehow be persuaded to support this idea within a reasonable timeframe. The reason is simple: Incumbent players will always bring pressure to bear on provincial political actors, to prevent any relaxation of the existing rental arrangements.

Instead, Entry 42 in the Union List of the Constitution, pertaining to “inter-state trade and commerce”, provides a suitable opening for the Centre to create a truly barrier-free national agricultural market. And if the Centre is going to cough up over Rs 100,000 crore for implementing the new MSP policy, it can well force the states to swallow this bitter, but necessary, medicine.

The writer, a former IAS officer, is CEO of Kamatan, a farm produce supply chain startup, and also affiliated to ICRIER as a visiting senior fellow

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