Originally Published 2016-08-02 11:48:20 Published on Aug 02, 2016
Making NAM successful

Talking of economic reforms, agricultural marketing is an area that needs rapid reforms because it remains highly inefficient. India is a country of small producers with an average landholding of 1.6 hectares. Most small and marginal farmers are not in a position to hold on to their produce for better price realisation or deal with big buyers on an equal footing. It is therefore important to empower small farmers by aggregation. Different organisations have been formed to achieve such aggregation of small producers.

There are many self-help groups, farmers’ associations and markets, as well as cooperative marketing societies. All these have not had equal success because of lack of support which should have come from the state governments and financial institutions. Farmers’ organisations to be successful should be supported through technical, managerial and financial help, at least in the initial stages. Instead, small traders have taken over the place of farmers in many farmers’ markets.

The small farmer is unable to realise fair prices because of the number of costs which he/she encounters while trying to sell the produce. The government has been concerned about the vulnerability of farmers and hence enacted various regulations to make marketing more transparent. Unfortunately, some of these restrictive Acts are now posing as big stumbling blocks to the smooth functioning of agricultural marketing.

The Agricultural Produce Marketing Committee (APMC) Act applies to all states and it is illegal to sell or buy produce outside the market place (market yard) notified by the market committee. Today, the APMC is not able to protect the interests of farmers. These have emerged as some sort of government-sponsored monopolies in the supply of marketing services. The APMC system makes farmers vulnerable to traders and marketing agents’ price manipulations. Traders also delay payment to farmers for weeks/months and it makes it difficult for farmers to prove their income to get loans from banks.

The price setting mechanism is not transparent and market information is not easily available to farmers. They often have to travel long distances to the market. In addition, the mandi staff is usually ill-equipped and untrained to help in the smooth functioning of the markets. Often, traders and commission agents and labourers organise themselves in strong associations and create barriers to entry for new functionaries.

The licensing system under the APMC has also created an entry barrier to new traders/buyers. Also, there are multi-point levy of market fees. Market fee, which by definition is the charge for the services provided by the market committee, is not ploughed back. It varies from 0.5 percent to 2 percent. All this has created a chain of intermediaries and the produce has to pass through a long channel involving several intermediaries and transactions.

The farmer, however, is paid after deducting labour charges for unloading and cleaning, mandi tax and brokerage commissions. Commission agents in the market provide an essential service to both buyers and sellers. The charges vary from 1 to 2.5 percent for foodgrains and 4 to 8 percent in the case of fruits and vegetables. Since a number of sellers are unorganised and competing with each other, the produce is often sold below the MSP.

There are three-four stages before the produce reaches the retail stage. There is a lot of inefficiency at the retail level and prices are hiked as a result. A study by the Global Agricultural System of Fruit and Vegetable supply in four metro cities found the supply chain of agri-products to have a large number of intermediaries. In the fruits and vegetables supply chain, there were five-six intermediaries between primary producers and consumers. The total mark up in the chain was found to be up to 60 to 75 percent. As a result, the primary producers received only 20 to 25 percent of the consumer price. Also, multiple handling by different intermediaries resulted in huge wastage of 15 to 25 percent of the value.

It is important to reduce the risks faced by small farmers and include them in the value chain and facilitate their integration in the wider economy. It is also important to encourage private and public investment in storage and cold chains specifically aimed at the preservation of horticultural products.

The APMCs have been reformed, albeit slowly. A model APMC has been laid out that has scope for alternative marketing channels, better price discovery and transparency and newer institutional arrangements. There is provision for contract farming also.

The idea of a new single market — National Agricultural Market (NAM) — was mooted by Finance Minister Arun Jaitley in Union Budget 2016-17. In the NAM, the farmer can sell his/her produce to any part of India through spot commodity exchanges.

The NAM could promote a single licensing system across the implementing states and also have a single-point levy or market fee. The online portal will enable buyers to transfer funds to the farmers’ account and the APMC concerned accounts after the delivery of the produce by the buyer has been ensured. The model for the NAM has been the Rashtriya-e-market service initiative by the Karnataka Government Agricultural Marketing Board, in a joint venture with the National Commodity and Derivatives Exchange, in 2014. This joint venture has integrated 55 out of the 155 principal APMCs into a single licensing system and accommodated many farmers and traders in the electronic auctioning of pulses.

But for the NAM to succeed at the national level, infrastructure development in rural areas is required. There has to be greater harmonisation of quality standards of agricultural produce and there has to be quality testing facilities in every market to enable informed bidding by buyers. Currently, only 7 percent of the total quantity sold by farmers is graded before sale. The electronic trading portal of the NAM has already been initiated with the intention of connecting more than 500 AMPCs across the country. Till now, only 20 commodities have been identified for common tradable parameters.

This magic transformation from primitive mandis to electronic trading will take time. First the infrastructure for electronic trading in rural India has to be laid out. The Essential Commodities Act, which restricts the movement of produce from one state to another, will also have to be amended if the NAM is to function in future.

This commentary originally appeared in The Tribune.

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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