Paving the way for ‘One Nation, One Agri Market’, the Union Cabinet on approved an ordinance to allow barrier-free trade in agriculture produce outside the notified APMC mandis on 04 May 2020.
The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, proposes to bar state governments from imposing taxes on sale and purchase of farm produce undertaken outside the mandis and give farmers the freedom to sell their produce at remunerative prices. This will end the “inspector raj” for undertaking trade outside the mandis, and there won’t be legal hurdles in undertaking barrier-free trade outside mandis.
The ordinance also proposes electronic trading in transaction platform for ensuring a seamless trade. Farmers will be fully protected and will be free from the license raj.
The existing System
Agricultural Produce Market Committee (APMC) Act
Agriculture is a state subject and almost all state governments enacted APMC act in 1950’s or so, to bring transparency and end discretion of traders. This Act was directed towards food security, remunerative prices to farmers and fair prices to consumers. This was also the period before onset of ‘Green Revolution’ in India when food scarcity was prevalent.
Under the APMC acts, States are geographically divided in to markets which are headed by market committees and any production in that area is bound to be brought to the market committee for sale.
In this Market committee (popularly called Mandi) there are commissions agents (called arhatiyas) who hold license and are allotted a shop in the market. Farmer and buyer have discretion to go to any agent in this market, based on personal relations.
b) Shortcomings in Current APMC system
Monopoly of APMC – It deprives farmers from better customers, and consumers from original suppliers.
- Cartelization – It is quite often seen that agents in an APMC get together to form a cartel and deliberately restraint from higher bidding.
- Entry Barriers – License fee in these markets are highly prohibitive. In many markets farmers were not allowed to operate.
- Conflict of Interest – APMC play dual role of regulator and Market. Consequently its role as regulator is undermined by vested interest in lucrative trade. They despite of inefficiency won’t let go any control.
- High commission, taxes and levies: Farmers have to pay commission, marketing fee, APMC cess which pushes up costs. Apart from this many states impose Value Added Tax.
- Other Manipulations – Agents have tendency to block a part of payment for unexplained or fictitious reasons.
- Reforms intended for Agri-market
a) Direct Marketing
This completely eliminates middleman and narrows gap between farmer’s sale price and price paid by consumer. There are numerous successful examples all over India such as Apni Mandi in Punjab, Rythu Bazar in Andhra Pradesh, Uzhavar Sandhai in TN, Shetkari Bazaar in Maharashtra, Hadaspur Vegetable Market in Pune, Krushak Bazaar in Odisha and Kisan Mandi in Rajasthan.
b) Contract Farming
Under contract farming inputs material may be provided by purchasing party for a particular crop and there is a crop buyback agreement in advance. Quality is specified in advance. This is mainly entered into by big corporates who are in business of food processing.
c) Future contracts and ‘negotiable warehouse receipts’ in agriculture
A futures contract is a contract between two parties where both parties agree to buy and sell a particular asset of specific quantity and at a predetermined price, at a specified date in future.
Hence, these contracts are instruments for Risk management, price discovery and trading. This trading attracts intense scrutiny of market analysts for prediction of future trends of demand and supply, which in turn yield much useful data for manufacturers and producers.
The Negotiable Warehouse Receipts (NWR) system aimed at not only helping the farmers to avail better credit facilities and avoid distress sale but will also to safeguard financial institutions by mitigating risks inherent in credit extension to farmers.