Alternative marketing options key to inflation control

Written by Sandip Das | Updated: Jan 24 2014, 08:12am hrs
A significant fallout of the current agricultural market system is declining competitiveness. This leads to increase in prices at the consumer level, without benefiting the farmer. Ramesh Chand, director, the National Centre for Agricultural Economics and Policy Research (NCAP), spoke to Sandip Das on the issues concerning agricultural marketing in the country and ways to fix it.

Have the Agricultural Produce Market Committees (APMCs) performed their role of providing a marketing platform for the farmers produce

All wholesale markets for agricultural produce in states that have adopted the Agricultural Produce Market Regulation Act (APMRA) are termed as regulated markets. Apart from Kerala, Jammu and Kashmir, and Manipur, all other states have enacted marketing legislations known as APMC Acts. It mandates the sale or purchase of agricultural commodities in a notified area at a specified market yards or sub-yards. These markets are required to have the proper infrastructure for sale of farmers produce. Prices are to be determined by open auction, conducted in a transparent manner in the presence of designated officials. APMC Acts have served some important purposes in last two decades. They got rid of malpractices and imperfections in agricultural markets, created orderly and transparent marketing conditions, and ensured a fairer deal to farmers. Decades ago it was a pressing need at the time and it transformed agricultural markets in most states.

Pressure has mounted to change this market regulation and remove its various restrictions. The APMC Act was relevant when private trade was underdeveloped, exploitative and controlled by mercantile power. At present, due to the marketing monopoly provided to the state by the Act, it is preventing private investments in agricultural markets.

Why APMCs have been held responsible for distortion in agricultural commodity prices

Agricultural markets are crowded with small traders who operate on a small scale in a limited market segment. In agriculturally advanced Punjab, there are as many as 22,000 commission agents, this implies one for every 50 farmers. Then there are a host of other middlemen such as wholesalers, transporters, labour contractors and brokers in each market. As the size of their business is small, they seek large margins on small volumes of business. Thus, the marketing channels for agricultural produce remain long and fragmented, and lack economies of scale. On an average, four to six transactions take place before the produce reaches consumers from the point of sale by producers. As each transaction involves cost and some margin for intermediaries, the price spread between consumers and producers becomes quite large, without any real value addition.

But the Centre passed a model APMC Act in 2003 so that states could change their APMC law accordingly

Even the model Act has failed to change the status quo. Producers feel that they do not get value for their produce and consumers feel that they have to pay an unjustified higher price. The only way to address this is to integrate the supply chain, reduce the number of intermediaries and allow economies of scale in market operations. This is not possible if there are no alternative marketing options for the government-owned mandis. A grave fallout of the present market system is declining competitiveness. This means increases in prices at the consumer levelthe result of various factorsare not passed on to farmers.

The government had attempted to bring the private sector into grain marketing a decade ago. Why has that initiative led to withdrawal of private players from grain purchase

The experience of liberalising grain trade has not been very encouraging. The changes in the Essential Commodities Act (ECA) in 2002 attracted big domestic as well as multinational players like ITC, Cargill, Australian Wheat Board, Britannia, Agricore, Delhi Floor Mills and Adani Enterprises to the grain trade. This came after the government had accumulated excessive foodgrain during 2001-03. But soon the domestic foodgrain demand and supply balance, particularly for wheat, turned adverse and India had to import more than 6 million tonnes of wheat in 2006-07. The imports were arranged with great difficulty and at high price because Indias wheat shortage coincided with a period of high global prices, which culminated in the global food crisis of 2007-08. Partly because of below-normal production and partly because of an increase in procurement by private trade, government agencies could not obtain enough wheat in 2006-07. The government was worried about being able to procure adequate quantity of wheat in 2007-08 because rising global and domestic food prices were providing a strong incentive to the private sector to buy wheat coming to the market. Unrestricted trade in grain by the private sector was also found to aggravate instability in prices. These developments led the government to reconsider and it, along with many state governments, decided to reverse the decision on the ECA. This made a large section of the organised private traders withdrawing from the grain market.

Have models been developed in states for improving the functioning of APMCs and creation of alternate market system

Some innovative marketing mechanisms have been developed in some states, which involve the direct sale of farm produce to consumers, the sale of produce to buyers without routing it through mandis and group marketing. Many states have attempted to promote direct contact between producers and consumers by making arrangements for sale at designated places in urban areas. Examples are Apni Mandis or Kisan Mandis in Punjab and Haryana, Rythu Bazaars in Andhra Pradesh, Shetkari Bazaars in Maharashtra, Krushak Bazaars in Orissa, and Uzhavar Sandhais in Tamil Nadu. The scale of operation of these marketing arrangements is quite small as only farmers in the vicinity of big towns can take advantage of them. Another successful example of linking producers to consumers and eliminating middlemen is of Safal, a division of the National Dairy Development Board (NDDB). Its method of direct procurement backed with technical support has brought immense benefits to farmers, even without an assurance on prices. Similarly, vertical integration of poultry meat production under integrators who supply everything from inputs to technical support and pay the producer a predefined fixed price has been very successful.

Farm producer organisations (FPOs) of various kinds are emerging as a new model for organised marketing and farm business. Such models include informal farmers groups or associations, marketing cooperatives, and formal organisations like producers companies. Producers can benefit by getting together to sell their produce through economies of scale in the use of transport and other services, and raise their bargaining power in sales transactions, while marketing expenses get distributed. This results in a better share of net returns. Such models are particularly required for small farmers to overcome their constraints of both small size and modest marketable quantities.

What are the lessons from the recent sharp rise in onion prices

The government agencies must monitor prices and market arrivals of sensitive commodities like onion. The government must take appropriate action based on market intelligence, like import, restriction on export, and check on hoardings for bringing stability to onion prices. There is a need for creation of buffer stocks to counter sharp rise in onion prices.

Given the rising food subsidy bill, what should be the Indias position to tackle the issue in WTO forums

There are two aspects of food subsidy bill. One is given to producers or farmers and another to consumers. In case of WTO norms, there are provisions for providing subsidy or financial support to poor or low income earning farmers. Thus, as far as providing subsidy to small farmers is concerned, we are fully compliant as far as the WTO norms go. As far as food subsidy to the consumers is concerned, we must target our subsidy better by giving the logic that much of the financial flows towards food subsidy are directed at the poor families under the Targeted Public Distribution System (TPDS).

Is there any scope for enhancing the subsidy in the agriculture sector without drawing attention from the WTO regime

Many of the current subsidies provided to Indian agriculture sector can be put in the Green Box; we are not putting many of the subsidies under the Green Box. In WTO terminology, subsidies in general are identified by Boxes which are given the colours of traffic lights: green (permitted), amber (slow down or reduce), red (forbidden). In agriculture, things are more complicated. The Agriculture Agreement has no Red Box. For example, capital subsidy given under drip irrigation can be labelled as natural resource conservation which would curb falling ground water level across many regions of the country. This subsidy should not be put under the category of support for the farmers. Similarly, as a large chunk of our soil has become degraded, the financial support given under nutritional enhancement scheme through fertiliser use can be classified under the Green Box.

What would be your suggestion to the government on dealing with such issues at WTO

Our support for the undernourished or economically poorer sections of the population should be exempted under the WTO guidelines. The key here is that we need to decide the threshold limits of our poverty or poor population. We need to vigorously argue in support of our food subsidy regime through better targeting of the PDS.