New agri-markets: A game-changer

AGRICULTURE/ GOVERNANCE/ FEDERALISM

Topic: General Studies 2,3:

• Marketing of agricultural produce and issues and related constraints 
• Government policies and interventions for development in various sectors and issues arising out of their design and implementation. 
• Challenges pertaining to the federal structure

New agri-markets: A game-changer

Context: The Farmers’ Produce Trade and Commerce (promotion and facilitation) Ordinance 2020 was promulgated on June 5th 2020.

The virtual monopoly of Agriculture Produce Market Committees (APMCs) is expected to end sooner rather than later. 

Key Provisions of Ordinance

• Trade of farmers’ produce: It seeks to provide for barrier-free trade (both intra-state & inter-state) of farmers’ produce outside the markets notified under the various state agricultural produce market laws (state APMC Acts).  
• The Ordinance will prevail over state APMC Acts.
• Electronic trading: The Ordinance permits the electronic trading of farmers’ produce in the specified trade area.  New electronic trading platforms are also allowed to be set up in these areas by private individuals, FPOs and co-ops.
• Payment to farmers: A person transacting with a farmer will be required to make payments to the farmer on the same day, or within three working days in certain conditions, for any transaction of scheduled farmers’ produce. 
• No fees to be levied by states: The Ordinance prohibits state governments from levying any market fee, cess or levy on farmers, traders, and electronic trading platforms for any trade under the Ordinance. 
• Dispute resolution mechanism: The parties involved in a trade-related dispute may apply to the Sub-Divisional Magistrate for relief through conciliation.  The Magistrate will appoint a Conciliation Board and refer the dispute to the Board.

• Centralised System of Information dissemination: Mandi prices are the biggest sources of localised price information for the farmer. The ordinance tries to address this by providing for a central government organisation, which will develop a price information and market intelligence system, and produce a framework for disseminating such information

A brief history of Agriculture Produce Market Committees (APMCs)

• The pre-APMCs days were dominated by misinformation and price arbitrage. Traders with better communications between themselves got a sense of prevailing prices and used this information to their advantage. 
• APMCs were thought to be the answer to these problems. 
• APMCs were institution created for price discovery through a competitive auction process, proper weighing, payment on time, quality grading, etc
• Institutional and physical infrastructure were set up to ensure that all farm produce was brought to the designated markets, traders with licences were allowed to participate in auctions of graded produce and timely payments were made. 
• Market yards and market committees were set up at the district and sub-district levels to cater to farmers in every part of country.
• These changed the market dynamics (at least, partially) in favour of the farmers in the early day

What went wrong with APMCs?

• APMCs were democratic institutions managed by a board/committee of mostly elected members from among the farmers and traders. 
• The state governments, obsessed with revenue collection, found it convenient to supersede these boards and appoint administrators for long periods of time
• Over time, they ceased to represent farmers’ interests.
• APMC system somehow deteriorated into a cartelised operation (licensing becoming the tool); cess collection became an obsession, and price discovery and transparency were side stepped
• APMCs, undisputedly, created market infrastructure, and used the cess collections to improve agrarian infrastructure. However, now they had no interest in investing beyond their market yards.

Why reform of APMCs failed?

• Multiple efforts to reform APMCs failed, primarily due to opposition from state governments who felt their cess collections will go down, and also from powerful vested interests.

Merits of Ordinance

• Wider Choice to Farmers: The ordinance carves out a new space called ‘trade area’ which includes everything(like farm gates, silos, factory premises, etc) except the market yards operated by APMCs and private mandis. This gives the farmer three choices, APMC, private market yard or a trade area
• Price Advantage: No market fee or cess is leviable in the trade area which is huge benefit for both farmer and trader
• Power with Centre: The central government has retained with itself the power to give licences to traders who can operate in this new area, so as to protect the farmers.
• Promotes Transparency: As electronic trading platforms is encouraged, there is openness in the transactions
• Promotes Private investment: The new set up will encourage large companies, food processing firms, exporters, etc, to invest and source good-quality material from the origins, thereby, reducing the risk of mixing with lower grade produce
• Encourages FPOs: This ordinance does open up a new and profitable avenue for Farmer Producer Organisations (FPOs) which can take their rightful place as aggregators and ‘reliable’ suppliers

Challenges Ahead

• Enforcement of provisions by Central government could see the birth of a new set of inspectors.
• Despite the provision of dispute settlement mechanism farmer would like to settle rather than litigate due to economic reasons
• If the APMCs lose most of the business, there are doubts whether they will continue doing price discovery and reporting prices
• For the average farmer, who sells his crop at minimum support prices (MSP), mandis may remain the preferred option unless prices in the ‘trade area’ are above MSP which is unlikely to be the case. If it stays below, the purpose of ordinance is lost.

Conclusion

This is the last chance for APMCs to reform. But, the ordinance that creates the new agri-markets replaces a decentralised structure with a highly centralised one

Connecting the dots:

• Doubling Farmers Income- Ashok Dalwai Committee
• e-NAM and its functioning over the years