Ending India’s food ‘cartels’

The Union cabinet recently approved a proposal to amend the Competition Act, 2002, giving the Competition Commission of India (CCI) more teeth. While CCI should be lauded for its efforts to check anti-competitive practices, it’s time the regulator expanded its reach.

Consider this: India’s wheat stocks on 1 September were estimated to be around 46.16 million tonnes, way above buffer stock norms. Till the middle of July, state agencies had procured around 38.11 million tonnes of wheat, roughly 95% of total market arrivals. Many agencies procure foodgrain on behalf of the Food Corporation of India (FCI), a government agency that undertakes the purchase of specified agricultural commodities at the minimum support price. If it wasn’t a government organization, this would make it the biggest “hoarder” of wheat in India. It’s time CCI investigated the practices of some of these agencies.

This is not an abstract issue delinked from the real world: unless anti-competitive practices in this area are checked, they will defeat one of the key purposes for which foreign direct investment has been allowed in the retail sector.

There are thorny issues at the level of procurement. Storage and marketing of agricultural produce in each state are regulated and governed by the Agricultural Produce Marketing Committees (APMCs) established under the Agricultural Produce Marketing Act. APMCs are not only entrusted with establishing and managing agricultural markets, but also act as the licensor/regulator for participants in the market.

In other words, they decide who the farmer can sell his produce to and who can participate in the market. Over time, this has led to distortions in the market by creating barriers among participants such as farmers, retailers and end consumers. New licences are scarce and there is no clarity on how those licences are issued, thereby limiting competition. Limited and scarce licences lead to unequal bargaining power. The result is lack of transparency in price discovery. This has also led to APMC licensed middlemen exploiting the situation. It is observed that state agencies, APMCs and middlemen licensed by APMCs function virtually like a cartel during the purchase process.

Clearly, there is a case for CCI to look into the practice of food grain procurement. Section 3(1) of the Competition Act, 2002, prohibits anti-competitive agreements and says that an enterprise shall not enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provisions of services, which causes or is likely to cause an “appreciable adverse effect” on competition within India.

Have APMCs outlived their utility?