Lessons from Bihar’s abolition of its APMC system for farmers3 min read . Updated: 24 Sep 2020, 09:24 PM IST
The retreat of APMCs may not help farmers without a regulatory framework for private markets
Among the three bills on agricultural reforms approved by Parliament this week, perhaps the most contentious one is the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020. It seeks to provide for trading areas outside mandis of an Agricultural Produce Marketing Committee (APMC). This has been a source of anger among farmers. The basic argument behind the reforms is that APMC mandis impose charges which reduce the price realization of farmers. The commission charged by middlemen is an example. By allowing unregulated trading areas beyond APMC mandis, the law seeks to remove intermediaries from agricultural trade and raise price realization for farmers.
Arguments against APMC mandis are well known. The biggest complaint is their excessive politicization, which has resulted in cartelization and price fixing. Precisely for this reason, there have been several attempts at reforming their functioning. Easier licensing norms, the removal of entry and exit barriers and computerization and transparency have been introduced in most APMC markets. However, the Bihar government decided to abolish the APMC system altogether in 2006.
Critics of the APMC system had promised that its abolition would ensure better prices for farmers of the state and attract large sums of private investment in its market infrastructure, something the current reforms also promise. How did the abolition of the APMC system impact agriculture in Bihar? Before their abolition, Bihar had 95 market yards, of which 54 had infrastructure such as covered yards, godowns and administrative buildings, weighbridges, and processing as well as grading units. In 2004-05, the state agricultural board earned ₹60 crore through taxes and spent ₹52 crore, of which 31% was on developing infrastructure. With no revenue to maintain it, that infrastructure is now in a dilapidated condition. Also, no major private investment has come in.
In a study of agriculture in Bihar last year, the National Council for Applied Economic Research reported increased volatility in grain prices after 2006, which negatively affected the crop choices and decisions of farmers to adopt improved cultivation practices. It concluded that Bihar’s repeal of the APMC system and consequent increase in price volatility could be one of the reasons for low growth of agriculture in the state. It concluded, “Farmers are left to the mercy of traders who unscrupulously fix a lower price for agricultural produce that they buy from [them]. Inadequate market facilities and institutional arrangements are responsible for low price realisation and instability in prices." Most of the farmers surveyed reported high storage costs at private warehouses. Further, the need for immediate cash meant that they were forced to sell at whatever prices private traders offered. Recent field studies have also reported traders and farmers both being charged market fees in private unregulated markets, even though infrastructure for weighing, sorting, grading and storage is missing.
Bihar is among the leading producers of maize in India and the third largest producer of fruits and vegetables after Uttar Pradesh and West Bengal. For maize, this year most farmers reported getting a price of ₹1,000-1,300 per quintal, as against the official minimum support price (MSP) of ₹1,850. For wheat too, farmers in Bihar reported receiving prices 10-15% lower than the MSP. Besides, wheat procurement in the state was only 5,000 tonnes, compared to 13 million tonnes in Madhya Pradesh, which has the same crop yield as Bihar, and 39 million tonnes nationally. Unlike Bihar, Madhya Pradesh did not abolish and instead strengthened its APMC infrastructure over the years.
The Bihar experiment has important lessons for future marketing reforms in agriculture. The benefits of these reforms will only accrue to farmers if they are accompanied by private investment in creating the physical infrastructure and institutional mechanisms needed to allow for greater participation of farmers. While this did not materialize even after a decade-and-a-half of the abolition of APMC mandis in Bihar, the record of other states on attracting private investment isn’t much better.
By only attempting to shift trade away from APMC to non-APMC areas, without a regulatory framework, the new law is unlikely to ensure better price realization for farmers. On the contrary, it might even lead to a decline in the APMC infrastructure if enough revenue for its upkeep and development isn’t generated.
Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi