Amidst the brouhaha over the upcoming GST reforms, and more recently around the demonetization move by the RBI and the Government, a prolific reform, brewing for over a decade lies ignored. The APMCs (Agricultural Produce Market Committee) as they function today will be replaced by a national e-market for agricultural produce.
Why is this necessary?
In the 21st century, India has journeyed from a being a 476bn USD economy to a 2trn USD powerhouse (implying a CAGR of 9.3%). The largest sector (by employment) however missed out on this journey and have only registered a CAGR of 6.5% in the same time period. What is even more disheartening for over half of the nation’s population employed in agriculture and allied services, is that the middlemen have eaten away from this sub-par growth leaving them declining real earnings at times over the last decade. The consumers on the other hand faced double (and at times triple) digit percentage point inflation in the prices of foodstuffs. This resulted in abnormal profits for the middlemen but excluded half of all Indian households from benefiting from the gains in pricing of their own product.
59% of India’s GDP relies on private consumption. For India to, therefore, become an economic growth engine participation of the masses is vital. Half of the households that are employed in farming and related activities can no longer be excluded from our growth story.
The Draconian Way
As the system stands today, the local APMC must be the first point of sale for the farmer. The limited number of licenses per APMC in such a system, gave a rise to a bandit of politically favored traders that colluded to lower the prices paid to the farmer while inflating the retail price by controlling the flow at times.
To add to their horrors, each APMC had its own structure of levies and market fees that imposed on all participants. Additionally, they also had a menu card for any of the services that the farmers would have to avail from them.
The Contemporary Way
Adopting the spirit of the Model APMC Act passed in 2002 and combining the same with the digital advancements the world has seen since, the Government of India will now replace this with a national e-market.
The tenets of the Model APMC Act that this initiative will entail:
- Single license valid across the nation
- Uniform fee structure applicable for levy at a single point
- Consumers, Corporates and Contract farming sponsors to be able to purchase directly.
While this gives the farmers more autonomy over their produce, it is the tadka of the national e-market that really aids in redistribution of wealth and power from the middlemen to the producers. A preview of this move is on display in the state of Karnataka.
The e-market there enables the farmer to deposit their produce at any APMC in the state. The APMC then tests for quality and grades the produce and updates the detail of the same on a statewide online portal. Any registered bidder (trader, corporate, etc.) can place a bid for the produce and can up the bid at any point of time as well based on competitiveness of the bid. At the end of the day the farmer receives a SMS with the best bid and can accept or decline with a click of the button. If he/ she does accept the money gets transferred directly into their bank account.
Why is this significant?
By March 2018, 585 of the 2000+ major Mandis in this country will be on the national e-portal. The software for the same will be provided by the Department of Agriculture and Cooperation in addition to an allowance of 30lakhs per Mandi to implement this platform.
APMC is hardly an exciting topic that is absolutely incapable of inspiring an invigorating discussion but surely warrants one. It redistributes wealth and control by preventing its concentration in the hands of the traders/ middlemen. But more silently, a transparent nationwide price discovery mechanism enables an environment of structurally low inflation vs. the 100% rise in onion prices we see oh so frequently. In light of food and beverages constituting of 54% of India’s CPI index, this move is monumental to say the least.
April 13, 2017 at 11:17 am
Apologies for not reading this piece earlier.
It’s well reaserached paper. I quite like your approach. It’s refreshing ❄️
So here’s my take,
1. It’s the same 2002 APMC act ammendment which saw the birth of national level electronically traded futures commodities markets. Which ofcourse were settled with cash or the underlying.
2. Then there was national spot exchange which had the same audit & payment structures. (Which failed miserably, infact it was the only scam wherein exchange was declared insolvent)
3. There were experiments with perishables like fruit, vegetables & flowers.
4. All of them had a constant struggle with standardisation of quality, quantity, storage.
So the problem here remains same, which is ^price discovery^
I wish I had a solution for this but a multipronged strategy will present some options to the consumer & producers.
But this “e-auction thingy!?” How long it may be relevant? is a question I have. Contract farming & direct purchase are a grey area especially in a country like India wherein farmer debts & avg landholding are major challenges for any sustainable model which can last till 3-5 years of crop cycle.
So that’s that! Keep sharing more…
April 18, 2017 at 5:51 am
Thank you for your comments.
You are right- it is the same APMC Act, however the e-NAM as a concept is only materializing now. In the last 5 months turnover is around 14,000 crores with the total volume of trade amounting to 5.4mn MT. 400 mandis, 36 lakh+ farmers, 78,000+ traders are already registered onto the system. So maybe there is some value in this proposition as seen by the market participants.
The key challenge remains to create an uniform automated assaying system which would eliminate the need for physical presence in the Mandi as well as extinguish manipulation possibilities. What is currently happening in Karnataka, gives us a good flavor of what we should expect across all the 2400+ major mandis in India. The farmer drops off his produce which is then weighed and tagged. Post that the assaying is carried out and the data is loaded onto the platform. At EOD the farmer simply receives a best quote SMS which he or she can accept. As for price discovery- copra prices post the establishment of e-mandi in Karnataka provides an interesting case study.
The other major challenge would be logistics and transporting to the buyer from the mandi. Let’s see how they tackle this going forward.
May 2, 2017 at 1:54 am
Hi Harini..read your article with great interest. fully agree with you on the potential that eNAM offers. also the govt seems set to introduce a model law to further augment the reforms that are urgently needed in this space.
one hopes this is adopted by more states in its truest sense!