Columns: Dousing the veggie fire - APMC Act reforms

Written by Ashok Gulati | Ashok Gulati | Updated: Sep 9 2014, 07:37am hrs
On September 2, 2014, a historic decision was taken by the Delhi government to de-list fruit and vegetables (F&V) from APMC markets of Azadpur, Keshopur and Shahdara. This was a historic step because several governments in the past, be it the UPA or the AAP, had talked about it, promised it, but could not deliver. Rahul Gandhi had even announced all Congress-ruled states would do this well before January 15, 2014, but none followed him, not even the then Delhi Chief Minister, considered close to him. No wonder, they all paid a heavy price, politically.

But even as the Modi government was sworn-in on May 26, it knew well that food inflation had to be top priority, else its credibility would be at stake. Delayed and deficient rains made this even more challenging. The government took at least two bold decisions: that of liquidating 15 million tonnes of grain from FCI stocks and de-listing fruit and vegetables from the APMC Act. The Centre advised all the states to de-list F&V, but as usual, several states have avoided taking any steps in that direction due to local political dynamics. But the Delhi government, under the lieutenant-governors rule, could be advised directly by the Centre. The decision was taken in June itself to free F&V from APMC shackles, but the due administrative process had to be followedvia Delhi governmentof inviting objections and responding to them. And finally, kudos to the Centre and the Delhi government, the decision was made on September 2.

What happens now Will the veggies that have been on fire for quite some time become cheap in the next two weeks, two months or two years The answer is both yes and no, depending upon what follow-up steps are taken. I can say yes because onions and potatoes were sold last Friday at a retail price of R20/kg by the Small Farmers Agri-Business Consortium (SFAC), directly to consumers. And SFAC will keep selling at these prices in the days to comenot on subsidy, but on profitable terms to farmers, with farmers getting better prices than before. And you may soon see their trucks standing near your housing society, which they are focusing on, to start with. Their prices would be at least 25-30% lower than those of your neighbourhood vendor, who is still selling onions and potatoes at around R30/kg, if not more.

But how much can SFAC scale up Currently, it is sourcing from 40 farmer-producer organisations (FPOs) and is likely to expand to 100 in a years time. It is also likely to open a kisan mandi in Delhi soon. But even after two years, it cant touch 5% of what Azadpur market handles, which is anywhere between 12,000 tonnes and 15,000 tonnes of F&V a day. The official commission of the agent in Azadpur APMC market is 6% for auctioning the produce, a process that takes just 5-10 minutes; 1% is the market fee. Unofficially, commissions go up to even 10-12%, and then add all the expenses and commissions of wholesalers and vendors, and the prices easily more than double by the time F&V come to the consumers doorsteps. This is where the inefficiency of the value chains is, which gives less to farmer and charges more from the consumer. The alternative model is to aggregate the produce at the farm level itself, clean it, grade and package it therepreferably with bar-coding so that the origin can be tracedand then bring it directly to consumers doorsteps, bypassing the mandi system altogether. This is a model that is feasible and is being currently followed in some countries dominated by small-holders, such as Indonesia.

Such a model of directly sourcing from millions of small farmers and selling to consumers is nothing new for India as far as the milk sector is concerned (the Amul model). The developing world admires our Amul model, but why have we failed to replicate it for F&V One obstruction was the APMC Act, which, at least as of now, has been taken care of in Delhi. Other states should follow soon, if they want the good of the farmers and consumers. But given the local politics, that is not likely to happen soon. In that case, the Centre should pass an Act over-ruling states and create an all-India unified market for F&V, and delist them from the APMC Act.

This streamlining of the APMC Act is a necessary condition, but not a sufficient one to build efficient value chains. Remember how the Amul model was scaled up through Operation Flood in the seventies. The National Dairy Development Board (NDDB) had created a chain of organised retail booths for milk in metros like Delhi while aggregating milk at the back-end, in remote villages. Large investments were made in chillers, reefer vans, processing plants and building an organised retail network. The government had come forward to make these investments via NDDB. The rest is history and today, India is the largest milk producer in the world (139 million tonnes), primarily driven by small-holders.

A similar experiment, with similar hope, was undertaken by NDDB for F&V under Safalland was given in prime areas on highly concessional termsbut this failed to meet with the same success. One never gets the best quality F&V in Safal booths. In places, the model suffers from leakages and Safal certainly is not selling F&V at

25-30% below the vendors price. An independent evaluation is called for to rejuvenate Safal and for it to be made into a success story.

Suffice it to say, for the change in the APMC Act to have an impact, we need more players to create alternative mandis and models, creating competition, so that the benefits percolate to the farmers and consumers. The biggest hurdle will be finding the land for private mandis in Delhi. Who will give it At what price The Delhi government needs to identify patches of land for mandis and invite bids, else the Supreme Court will say auction it. But was the land given to Mother Dairys Safal in Mangolpuri auctioned Decades after, it is still highly underutilised. Why cant it be franchised These are operational questions, and unless they are sorted out soon, the full benefits will not kick in.

If simply tweaking the law was enough, then Bihar and Kerala, which do not have an APMC Act, would have had the best value chains in the country, and their farmers and consumers should have prospered the most. But that has not happened because both states failed to follow up to by inviting businesses to invest in value chains. Hence, some humble advice to the Modi government: good that you have changed the APMC Act by de-listing F&V, but benefits will flow only if this is taken to its logical end, by demarcating land for mandis, inviting bids from private parties, co-ops, farmers organisations, and laying down transparent rules of business. No one, better than the Prime Minister, knows how to create an investment climate and walk the last mile!

The author is Chair Professor for Agriculture at Indian Council for Research on International Economic Relations (ICRIER)