By Yukti Makan, Symbiosis Law School, Pune.

India derives approximately 50% of its national income from agricultural business. The marketing of the agricultural produce also varies from nation to nation, from state to state and it even varies within the state. Agricultural market practices need to be uniform in the interest of developing wider markets for better practices. The rising food prices have emerged as a bottleneck for the Government in framing policies. Certain measures should be taken and the Agricultural Produce Market Committee (APMC) Act should be amended to curb the inflation. An efficient marketing strategy is required to be implemented for the development and the enhancement of the agricultural sector.

In India, agriculture is a “state subject”. Presently, markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by the State Governments. Through this act the State Governments are empowered to notify the commodities and also to designate markets for the respective commodities. Effectively, India has not one, not 29 but thousands of agricultural markets. The first sale of the designated commodities can only be made under the APMC Act through the Commission agents licensed by the APMCs set up under the act.

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Increasing inflation in food prices is probably the most urgent issue in India today. The country has experienced one of the most sustained periods of food hikes since the early 1970s.   This inflation is due to the increase in population that has led to the increase in demand for food products. One of the major causes of inflation is the inefficient market mechanisms, manifested in the long supply chain.  To reduce this inflation agricultural sector needs well functioning markets to drive growth, economic prosperity and also for improving the employment ratio.

Background

For the majority of the rural Indian population, agriculture is the only mode to fulfill their basic necessities. It provides employment to approximately 65% of the workforce and also contributes 25% towards GDP. Agricultural markets in most of the states are regulated by APMC Act. APMC Act was first drafted by the Union Government in 2003. Later, in 2014 around 14 States adopted this Act.

Inadequacies of APMC Model Act

The current provisions of the APMC Act are not adequate as they do not create a state or a national level common market for agricultural commodities. The main reason behind this is the mandatory payment of the charges to the APMC even when the product is sold directly outside the APMC area, say, to the contract sponsors or in a privately set up individuals.

The relevant provision for the above mentioned inadequacy is provision no. 42:

“Every Market Committee shall levy market fee on the sale or purchase of notified agricultural produce, whether brought from within the State or from outside the State, into the market area.”


Currently, APMC is charging multiple fees that are not transparent. They are charging fees from buyers, licensing fees from the commission agents and also several other fees from other agencies. The commission agents also charge a commission fee on the transactions between the consumers and the farmers.The ultimate burden of all these fees and commission fall on the farmers because the buyers would discount their bids to the extent of the fees or commission paid by the APMC and the Commission agent.

The commission charged by the agents is at an exorbitant rate and are for the full value of the product sold rather than the net value. There is also a perception that the positions in market committees are occupied by the politically influential people leading to the formation of cartels.

Suggestions of the Economic Survey 2014-2015

The economic survey emphasized that there is a strong need for a national common agricultural market, so as to eradicate the problems in agricultural growth. The following three possible solutions were given as suggestions for building up national markets. There is also a need for the Central and State Governments to redraft their respective APMC Act. The following three suggestions were given:

  1. The states should drop fruits and vegetables from the APMC schedule of regulated commodities and also followed by other commodities.
  2. Certain specific policies should be made by the State Government for the setting up of private markets in the private sector.
  3. In view of the difficulties in attracting domestic capital for the setting-up of marketing infrastructure, liberalization in FDI in retail could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies.

The national common markets for the agricultural products can also be created using constitutional provisions. The Concurrent List Entry 33 covers trade and commerce and production, supply and distribution of  foodstuff including edible oilseeds and oils, raw cotton, raw jute etc. Entry 42 of Union List, viz., ‘Interstate trade and commerce’ also allows a role for the Union.

The commission charged by the agents is at an exorbitant rate and are for the full value of the product sold rather than the net value. There is also a perception that the positions in market committees are occupied by politically influential people leading to the formation of cartels.

Major reforms required in the APMC Act to tackle Inflation

The present aim of the APMC Act is to safeguard the farmer’s interest and make available the organized markets for bulk sales. Contract farming still does not exist. Today, APMC act is a bane for farmers and boon for middlemen, traders, wholesalers and exploitative companies. In view of the existing conditions as described above, it is felt urgent reforms are needed in agricultural marketing.

Some major reforms to be made are as discussed below:

  1. Reforming the mandi system, and also the delisting of fruits and vegetables from the APMC designated products can also help to bring about major changes.
  2. Establishment of Private Markets, Yards, Direct Purchases Centers will also lead to  the development of the agricultural markets in the country.
  3. Contract farming should be promoted.
  4. Value added taxation method should be made applicable on primary agricultural goods.
  5. Direct farm-firm linkage can also be introduced an alternative to the Mandi system. This will in turn increase the farmers’ profits.
  6. Establishment of a commercial intelligence agency that can maintain records of production, stocks, and trade and also tracks prices, can generate advance signals in case of a rise in inflation.
  7. Development of proper infrastructure and improved managing mechanisms can help to create a balance between demand and supply.
  8. Use of Information & Communications Technology (ICT) solutions can help eliminate middlemen and also increase the profit percentage for the farmers.

Conclusion

The 14-15 Economic Survey emphasizes that India needs a national common market for agricultural commodities by making the Agricultural Produce Market Committee just one among many options available for the farmers to sell their produce.

With the effective implementation of the above reform measures that should be initiated by the Government of India, agricultural marketing sector is expected to achieve nationwide integration and thereby enhancing the competitiveness of Indian agriculture in global markets. Indian agriculture is in dire need of some major reforms to deliver high performance.

Further, agricultural reforms should not be confined to farming alone, but extend to other activities such as input supplies, logistics, processing, and marketing, warehousing, database management system, research & development, etc.

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