Ending monopoly of mandis is good, but process could be problematic

Ending the monopoly of the mandis is a good thing, but early experiences show that the process can be problematic

After failing several times, the Union government is making another attempt to end the so-called hegemony of Ag­ricultural Produce Market Co­mmittees (APMCs) in India’s farming landscape.

Following Madhya Pradesh, Uttar Pradesh, Gujarat and Karnataka’s decision to amend their Mandi Acts via Ordinances to enable farmers to sell their produce directly to consumers, establishing private mandis and allowing traders single uniform licences to trade in any mandi, the Union government last week decided to introduce a Central legislation that will facilitate easier inter-state trade in farm commodities so that farmers can shrug off the powerful monopsony of the arthiyas or middlemen who operate in regulated markets and gain access to multiple markets for their produce.

India has over 7,000 regulated markets or APMCs and more than 22,000 sub-markets (of which half fall under some sort of regulation) covering 36 states and Union Territories. The broad plan is to maintain the existing market structures but diversify them to enable India’s almost 140 million farmers to get better price discovery. For instance, this law is also expected to provide a framework for e-trading in farm produce, something which the Electronic-National Ag­riculture Market (e-NaM) hasn’t managed to do so far.

 

 

The fine print of the central law is still to be published, but government sources say it will draw its power from provisions in the seventh schedule of the Constitution: entries 42 of the Union list, 33 of the concurrent list and 26 of the state list.

Agriculture analysts have mostly welcomed this initiative but recent history suggests that it may be more challenging to implement.

In 2003, the Centre chipped in with the first model APMC Act to reform the regulated markets in the country. Countless committees and panels have made recommendations on these lines. Attempts to offer farmers alternative selling options have been in the works for more than 15 years with several states denotifying a range of fruit and vegetables from the ambit of the AMPCs, framing laws for contract farming and promoting private markets and yards.

Experiments such as Kisan Mandi or Apni Mandi in Punjab, Uzhaver Sandhais in Tamil Nadu, Krushak Bazaars of Odisha or the Delhi Kisan Mandi promoted by Small Farmers Agribusiness Consortium (SFAC) or Rythu Bazaars in Andhra Pradesh where farmers sell directly to consumers without intermediaries have been functioning for quite some time. Overall, more than 400 such farmer-consumer markets are in operation across the country at present.
 

Data sourced from the agmarket portal shows food produce is being sold outside the APMC channel in  significant quantities (see chart).  So why have these alternative structures not broken the monopoly of the APMCs and improved farm incomes?

One principal reason is that most of these alternative markets, with the exception of the Rythu Bazaars in Andhra and Telangana, have few footfalls. This is because  they have not been able to replicate the vital infrastructure that the arthiyas offer in terms of transporting produce from field to market. “Any production that is in surplus to the absorption capacity in the market region requires physical connectivity with demand that is further afield,” the government’s Committee on Doubling Farmers Income pointed out.

Direct sourcing by big processors, food retailers and so on has worked sporadically in some areas but most states are yet to frame clear rules on this process. Reports show that just over 200 direct procurement licences have been issued by 11 states in the country, the maximum by Maharashtra.

Contract farming is the third option but here, too, just over 15 companies are engaged in contract farming in the country, the maximum once again in Maharashtra and Haryana.

As for private mandis, an analysis by the Committee on Doubling Farmers Income found that only 11 states had notified the rules for them and only 82 private marketing licences have been issued.

FPOs or Farmer-Producer Or­ga­ni­sations, under which groups of fa­rmers can form groups to act as supply chain intermediaries for inputs and marketing produce, have also been considered as viable alternative channels. But here too the numbers are small —around 5,000 — and the ambit of their operations extremely local.

Though APMCs are considered exploitative and prone to cartelisation, there is as yet little evidence to show that farmers get a better deal in states that do not have this system. The weaknesses of non-APMC structures, in fact, offer lessons on the risks of poorly designed alternative market networks.

In a piece written few years ago, Sukhpal Singh, Professor and Chairperson at the Centre for Management of Agriculture at IIM-Ahmedabad, found that in Bihar, which abolished APMC in 2006, the new structure lacked proper monitoring practices. Small and marginal farmers, who constituted the largest chunk of its farming community, didn't have any grievance option and the absence of open auctions meant that competitive price discovery — the principal reason for marketing reform — wasn’t available.

The other apprehension is the risk of alternative monopolies in the absence of an adequate number of big players. “Bringing big organised players into the value chain is a good option but it should be done with the objective of providing more competition and should not lead to cartelisation and exploitation of some other kind,” Mahendra Dev, director of Indira Gandhi Institute of Development Research, said. This, in fact, has been the experience for farmers in some parts of Bihar.

“Some sort of regulation is needed or else farmers could be subjected to exploitation even by big processors or even traders,” agreed Ajay Vir Jakhar, chairman of Bharat Krishak Samaj. For instance, Jakhar points out, lowering the market fees, as Uttar Pradesh is proposing to do, is a good step, but it was important to ensure that no charge is levied on the growers under the guise of removing it from traders.

“You can have reforms in the agriculture marketing space but state should not abdicate their responsibility and leave everything to private players,” he said.