Missing link

Missing link

The 7,000 protesters who took to Mumbai’s streets on Wednesday to oppose the spread of organized retail chains had a long list of demands. Among them is the scrapping of the model Agriculture Produce Marketing Committee (APMC) Act, which allows companies to directly buy produce from farmers. The current legislation fosters a state-trader monopoly. Maintaining it is likely to hurt Indian farmers.

Indian agriculture suffers from many problems. Marketing is perhaps the most important of them. It gives the smallest farmer with some surplus produce to sell a guarantee against the stupendous risks he takes. Yet, efforts to galvanize and speed up marketing of rural produce have been few and haphazard.

Modern markets will help. India’s first state-of-the-art fruit and vegetable auction market came up in Bangalore in 1996, set up by the cooperative National Dairy Development Board. A couple of markets—the flower auction centre at Goregaon in Mumbai and a vegetable market at Solan in Himachal Pradesh—will come up by the year-end. But why didn’t we see any new markets coming up in these 11 years?

India has more than 7,500 regulated markets and 27,000-plus periodic village markets. Most are primitive. Their processes are not transparent. Market infrastructure is poor. A recent report in Mint from the Azadpur mandi in Delhi, which is Asia’s biggest wholesale market for fruit and vegetables, showed rampant price fixing, as the buyer and seller press fingers under a handkerchief to strike deals, as opposed to a transparent price discovery in most market halls worldwide.

Farmers markets, despite the initial euphoria, never took off. The apni mandis and Rythu bazaars were soon taken over by traders. States have either not changed or partially changed their APMC Acts. The most radical and welcome change have come in Bihar; it has scrapped the Act.

There has been uneven progress on other fronts, as well. The ban on forward trading in a few commodities since the beginning of 2007 has caused much heartburn. But traders overwhelmingly use the system. Barely 1% of Indian farmers use the forward markets, compared with one-third of farmers in the US.

Even contract farming has worked inconsistently. Some experiments have been smooth, while others have failed. The lack of a fixed purchase price in many contract farming deals keeps poorer farmers away. Some experts point out that instead of a new law, merely fixing the price element and having an arbitration body could work wonders. In the case of ITC’s e-choupal, for instance, having a sanchalak or a conductor to help farmers in price discovery contributes to the popularity of the system.

Why are efficiently working and competitive markets important? Agricultural commodities in India go through six or seven stages from farm to fork. Traders dominate most of this chain. Farmers get 15-30% of the price that consumers pay. Yet, rural produce is still not graded and auctioned anywhere in this chain, except in the Bangalore market mentioned before. It is all done in the cities, adding to their garbage and municipal woes.

Taxes are another story, adding up to, for instance, more than 11% of the price of wheat in Punjab. A Planning Commission working group recommends no tax on raw produce and a 4% value-added tax on processed foods. The plethora of taxes, cess, market charges and octroi makes marketing an operational minefield—for the farmer as well as the private sector operator. Small farms produce 41% of India’s total grain, and more than half of the total fruit and vegetables. Their contribution is rising. They need the private sector to link them to consumers, but that will happen only if the APMC Act is either radically changed or scrapped altogether.

Do Indian farmers need better marketing support? Write to us at views@livemint.com