Reforms 2.0: The focus must shift from agricultural production to marketing

A perfect market pre-supposes many sellers and buyers, whereas the farmgate and haat have monopsonies. APMCs technically have multiple buyers, but the system of open auctions for determining prices through transparent bidding is, in practice, non-existent. In most APMCs, buyers have to route all purchases through licenced aadhatiyas. These middlemen charge commission for their “services” — many times, both from the buyer and seller. The aadhatiya is also often a moneylender, supplying seeds, fertilisers and pesticides to farmers on credit. They, then, are forced to sell through him and settle their dues in perpetuity.

The Union Agriculture Ministry’s Model Agricultural Produce and Livestock Marketing (APLM) Act seeks to expand farmers’ marketing choices — by allowing private markets (as against only APMCs), permitting direct bulk purchases from the farmgate, declaring warehouses or cold storages as deemed markets, and demolishing the existing concept of a “market area”. Currently, an APMC’s purview extends to the entire tehsil and villages in that sub-district, with any trade undertaken in this so-called market area liable for payment of mandi fee. The Model APLM Act recognises only the market yard, i.e the area within the boundary walls where actual trade in the mandi takes place.

Not surprisingly, few states have adopted the Model APLM Act in toto. The opposition is primarily due to the delineation of “market area”, which has a bearing on the earnings of APMCs. There is also fear that it might lead to traders moving out, to save on mandi fees levied on transactions within the market yard. This would eventually affect the functioning of APMCs, which is definitely not in farmer interest.

Against this background, a few policy suggestions may be worth considering:

> Uniform mandi fees: These now range from 0.5% to 5% on the value of sale, while varying across states and commodities. It is proposed that a uniform mandi fee of 0.25% or 0.50% be levied nationwide for foodgrains, oilseeds and fruits & vegetables. The consequent losses to APMCs may be compensated by the Centre and state governments, as in the case of the Goods and Services Tax. The Model APLM Act restricts an APMC’s market area only to the mandi premises. To ensure this arrangement does not unduly favour trading outside the APMC — farmers, too, benefit from open auctions, unlike direct trade where prices are set by single buyers — a level-playing field should be created for those transacting within the market yard. This can be done by lowering mandi fees and other levies.

> Abolish mandi fees on inter-state trade: Charging mandi on produce brought to a state from other states (where it would already have been levied) amounts to double taxation, besides violating the idea of a single national market. The practical difficulty is to verify whether the commodity has actually come from another state, as traders sometimes use this route to pass on their unaccounted stocks. A way out is to make e-way bills mandatory for all inter-state trade and mandi fee exemptions be given only against these. But once the delineation of APMC area is limited to the market yard, the requirement of permits for movement within the state should be done away with. There may be some documentation requirement for stocks exiting APMC premises, which can be generated online by mandi officials or traders. The objective here is only to ensure payment to farmers and of mandi fees. Once the produce leaves the premises, no documentation is needed for any onward movement.

> Eliminate Aadhatiya-based trading: All trade in APMCs should be through open auctioning, involving multiple bidders for each lot. Such trades should be directly between buyers and sellers, with no middlemen charging commission. The aadhatiya can participate only as a trader. The farmer should have total freedom to sell his produce at the farmgate, haat, APMC yard, private markets, deemed markets (warehouses/cold storages) or e-trading platforms.

> Enable sample-based sales: Farmer today brings his whole produce to the APMC and the buyers do physical inspection before bidding. The successful buyer, then, sort and grade it before onward supply, resulting in double transportation — from the farmgate to APMC and from the APMC to the ultimate destination. If grading and sorting facilities exist closer to the farmgate, the farmer need take only a sample of his produce, along with the relevant quality certification documents, to the mandi. It would save him the trouble of hauling a trolley-load, while the trader benefits by getting sorted and graded produce that can be directly transported to the destination. There will be less crowding at the APMCs as well.

> Storage and banking facilities near APMCs: At mandis the lowest prices are during the 3-4 post-harvest months and highest in the immediate pre-harvest period. Farmers undertake maximum sales just after harvest, as they need to purchase inputs for the next sowing season. Such distress sales can be avoided if facilities for bagging and storage, along with loans against warehouse receipts, are available to meet immediate cash requirements. These should exist in the vicinity of APMCs. When farmers have the choice to sell or store their crop, it will force traders to pay the actual value of produce based on quality.

> Promote FPOs in marketing: Producer organisations/companies should be encouraged to take up direct marketing of their members’ produce to large buyers and processors. Besides, they can be given mandi to trade in APMCs. There are some FPOs that do such trading; it has been found to result in more competition and better prices at APMCs.

nRelax/abolish Essential Commodities Act: Increased production, liberalised imports and food inflation well under control, restrictions on stocking, movement and export of farm produce have become redundant. The dismantling of such controls under ECA and other regulations would expand trade and lead to better realisations for cultivators.

> Common e-NAM trading licence: Electronic National Agriculture Market (e-NAM) online trading platform has helped connect 585 APMCs across India. The ground reality, however, is that much of trading in e-NAM is still being done by traders within the same mandis. The reason is the individual licencing system adopted by each APMC. What is needed is a common licence valid across all e-NAM APMCs. This can be issued with a rider that the trader will deposit upfront the margin money/funds in any APMC where he wishes to undertake physical buying on any given day. An e-wallet or plug-and-play facility of this kind will multiply the number of buyers and meet the e-NAM’s primary objective of promoting better price discovery.

The writer is Managing Director, Madhya Pradesh State Agricultural Marketing Board. Views expressed are personal