Farmers stand to get better prices for their produce, and the consumer will have to pay less for cereals, pulses, fruit and vegetables as the supply chain will become shorter. The process will become transparent, and the scope to manipulate prices will lessen.
Here’s agricultural trade in the physical market as we know it: the arhatiyas (commission agents) buy the agricultural commodities from farmers and sell them to wholesalers in the nearby mandi (wholesale market). At the mandi, bulk consumers or semi-wholesalers or retailers buy them from the wholesalers. It’s only after going through several hands that the goods finally reach the end buyer. The chain is long. And at each level, handling charges, commissions and profits get added to the cost. In the process, the end buyer pays way more than what the farmer originally sold his produce for.
For some time, the online nationwide spot commodity exchanges have been trying to bridge this gap and bring about greater transparency. Now, with clarity emerging on regulating the spot commodity exchanges, the system is expected to get streamlined further. Online spot exchanges — three at present — will be regulated by the Forward Markets Commission (FMC). This decision will also help address the concerns of these spot commodity exchanges. So far, they were approaching different states for licences to operate as agriculture produce marketing committees (APMCs), or online mandis. FMC’s role was confined to allowing them one day carry forward facility.
FMC has proposed the ‘Commodity Spot Exchange Regulation Act’, which has recently been approved by the Union ministry of law. Sources say, “Now, FMC is preparing a cabinet note for the proposed bill which proposes that FMC should be the regulator for all spot exchanges.” FMC is understood to have proposed 25-crore net worth to set up such exchanges as “India needs more online spot exchanges and the net worth should not became a barrier,” says a source who does not wish to be named.
Online spot commodity exchanges provide a single point facility to all, including farmers and consumers, and display the price at which the goods can be sold and bought with complete transparency. As a result, everyone who is part of this chain stands to gain.
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In India, there are 7,548 mandis. The non-agricultural mandis, like those that deal in iron and steel, or steel and iron scrap, are located mainly in the cities and at ports. While the total trade for agricultural mandis is estimated at Rs 12 lakh crore per annum, that for non-agricultural mandis is over RS 15 lakh crore per annum. All these mandis fall in the jurisdiction of the respective states. The trade conducted here is not transparent. Tax collection methods are also equally dependent on disclosures and the trade is confined to the geographical location in which they are operating.
Online spot exchanges are now trying to bring a radical change in the way commodities are bought and sold through regular mandis, be it for farmers, wholesalers or bulk consumers.
Anjani Sinha, CEO of National Spot Exchange of India, says, “The organised electronic national spot exchanges can bring about a sea change in the physical market for commodities. The average cost of intermediation in farm commodities is 50 to 60 per cent, which could come down to just 10 per cent. This will help bring better realisations to farmers, control inflation and bring about transparency in spot prices of commodities.” Sinha adds, “This will [also] help increase the collection of mandi cess, VAT and other duties due to a complete audit trail of all transactions.”
Spot exchanges, also known as electronic mandis, are also going a step further. National Spot Exchange of India, which is controlled by Financial Technologies, has introduced e-contracts in commodities to promote investment in commodities. This has attracted investors to put their money into even metals like copper and zinc apart from gold and silver. The investor can buy an e-contract and the commodity is delivered to him in a dematerialised form.
The exchange also promotes aggregating where one agency deals with the exchange on behalf of a group of people, say farmers, to sell their produce. In order to create direct market linkage for a large number of farmers, National Spot Exchange has incubated a ‘Farmer Aggregator Model’. One such company was recently launched in the name of Western Ghat Agro Growers Limited, or WGAGL. This company is promoted jointly by farmers of high range Kerala and NSE. “There will be many such tie-ups in the future,” says Sinha.
NSE has a good base in Gujarat and several farmers from the castor hub, Palanpur district in North Gujarat near the Rajasthan border, are selling castor seeds through its platform. One of the leading farmers, Raychandbhai Sendhaji Thakor from Bhadarpur village, says, “We are getting more for our produce by selling through the NSE. We just have to send the trucks to the approved godowns of the exchange and the rest is organised by it [the exchange].”
Thakor’s work has, in fact, been made easy by the broker through whom he sells the produce to the exchange authorities. The broker arranges for the truck to be sent and unloaded at the exchange-approved godowns. He pays the farmer immediately and, in turn, gets money from the exchange mechanism. So, the broker finances such a deal till the exchange pays him.
Manoj Agraval, a trader from Palanpur, says, “We do trading in APMC as well as on the exchange. But the exchange mechanism is transparent and since it shakes off the chain of intermediaries, smaller farmers generally get 2-3 per cent more.”
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Another spot exchange, NSPOT, a sister concern of the agriculture commodity-centric National Commodity & Derivatives Exchange Limited (NCDEX), is promoting the concept of modernising mandis. At present, trading in APMCs, or mandis, is not transparent. The chain of middlemen takes away a major chunk of the price benefits leaving little for farmers. Last year, NCDEX Spot tied up with Gulbarga APMC in Karnataka and modernised all operations, including registering farmers, grading and assaying of their produce. Now, all these goods are traded on the exchange’s platform electronically on e-tendering bases. The exchange is replicating this model in the Tumkur, Tiptur, Bellary, Bijapur, Bagalkot, Arsikere, Haveri and Yadgir APMCs — all in Karnataka.
Rajesh Sinha, CEO of NSpot, says, “In the next five years, we plan to cover 150 district mandis where we will be providing the complete architecture and will develop an ecosystem for farmers that will help them sell their produce and even help the mandi administration to collect proper taxes.”
The scope is enormous. Of the 7,548 mandis, several may be insignificant and may be catering to local businesses. India has 630 districts. Even if this is done for only the major mandi in each district, then, too, the reach will be sizeable.
Gulbarga APMC is also planning to link all the mandis of India so that anyone from the country can buy the produce offered for sale on the exchange platform. H K Chandramohan, secretary, APMC, Gulbarg says, “The mandi modernisation programme has been a success and it has brought in transparency in trades, along with an increase in the collection of cess.” After commodities like tur being graded and sold, farmers’ realisation has also gone up, he adds.
The program is now in the final stage where Gulbarg APMC is being linked with 50 other Karnataka state APMCs. The produce offered in Gulbarga on the NSPOT platform can be purchased by any licensed trader in the other mandis of the state.
“The Gulbarg mandi will be linked with other mandis of the country at a later stage and goods offered in our mandi can be purchased by anyone from the country. This will only help farmers get a better price as bidding will be most competitive,” Chandramohan says.
When farmers keep their produce with the warehouse registered with the exchange, they get bank finance easily against the warehouse receipt. Now there is a proposal that the same receipt can be traded on spot exchanges as negotiable instruments. The Warehouse Development and Regulatory Authority (WDRA), set up for warehouses, has proposed the ‘Electronic Warehouse Receipts Regulation’. Once it is notified, WDRA will lay down the process for trading in electronic warehouse receipts. This will further change the way commodities are traded in India.
