Breaking the middleman nexus

The Cabinet Committee on Economic Affairs had on Wednesday approved a Central Sector Scheme for Promotion of a National Agricultural Market through Agri-Tech Infrastructure Fund. What is now being envisioned is a National Agriculture Market (NAM) online trading portal where farmers can offer their produce to buyers in any part of the country. This is a positive step in the right direction. The APMC (Agricultural Produce Market Committees) system is a relic of the past that forces the farmers to sell their produce only to middlemen approved by the government in authorised Mandis (markets). 

Thus, if say a person is  a vegetable producer and another person is a  supermarket, the producer and the supermarket cannot directly enter into a transaction. What APMC did was force the vegetable producer and the supermarket to go through a broker. This increases prices for the end buyer and unnecessarily adds red tape. The system was put in place to protect the farmers from the “evil corporations”. A lot of our policies are a relic of our colonial past and this includes the APMC system as well. 

During the post-independence era, the Government was worried that the farmers would be cheated by the end buyers and the Mandis would provide them better prices. This was all right, in theory, as long as the brokers in Mandi didn’t collude in price fixing and hoarding. This, of course, did not happen in actual practice. And thus an inefficient system was born. Currently APMCs are dominated by collection agents, traders, money lenders who distort the prices, rake a majority of the profits and leave behind a pittance for the farmers which are usually not even enough to cover the production costs. APMC reforms, though introduced in 2003, have not made any difference on the ground. A streamlined national market has the potential to free farmers from this vicious iron-like grip of the traders. 

These purported set of reforms promise to create a single unified market where farmers would be free to sell at any place of their choice. Regional variation in production and demand will lead to price discovery, promote healthy competition among traders. Cold storage, warehouse facilities and logistic networks will be required across the nation so that farmers can sell only when prices go up. 

Warehouse receipts would allow an average farmer to obtain credit from formal sources and reduce the dependence on slimy cut throat money lenders. Warehouses will also reduce the perennial wastage of food grains. When farmers are exposed to new markets, they’ll get to know about the trends in domestic and international market. This will encourage diversification of crops sowed. We have seen many examples where educated farmers have benefitted through product diversification such as Organic vegetables. 

Contract and cooperative farming based on the hub (Tier-1 and Tier-II cities) and spoke models (towns and rural areas) will encourage farmers to sell directly to consumers irrespective of the state that they belong. Monopolies at the national level pose a threat to such reform. However, experts have pointed out that the market is too big and diverse to allow such a scenario from happening. The full potential of a National Agricultural Market can be realised when taxation reforms, infrastructure and logistical facilities are created. However, immediate reforms for encouraging competition in existing APMCs has to be the starting point to progress towards a National Agricultural Market which is efficient, transparent and fair.