Agri reforms: Where did the APMCs go wrong?

September 25, 2020 7:40 AM

States subverted the intention behind the creation of APMCs to serve their revenue interests, but APMCs remain crucial to price discovery and must reinvent themselves

Over time, the system, designed with good intentions, deteriorated and vested interests took over.Over time, the system, designed with good intentions, deteriorated and vested interests took over.

By T Nanda Kumar

Agricultural Produce Market Committees (APMCs) are the villains in the narrative on Farm Bills. ‘The Farmers’ Produce Trade and Commerce (promotion and facilitation) Bill 2020’ (FPTC ordinance earlier), has been hailed as a game-changer creating new opportunities for farmers. Farmers are yet to be convinced. The virtual monopoly of APMCs is definitely going to end. Did APMCs self-destruct? Can they reinvent themselves?

Pre-APMC days were dominated by price misinformation and arbitrage. APMCs were created in the early 1960s to ensure price discovery and fair transactions. They were designed to create infrastructure for auctions and storage out of the cess paid by the buyers and not by the taxpayers. Many APMCs (mandis) used the funds to create rural marketing infrastructure. It was designed as a democratic, decentralised system with physical auctions as the basis of price discovery and licencing of traders as a way to ensure payment.

Over time, the system, designed with good intentions, deteriorated and vested interests took over. How can one explain the fact that an organisation like NAFED finding it almost impossible to obtain trader’s licence in Azadpur Mandi, or apples from Himachal, which were ‘cess-paid’ goods in Himachal, being subjected to a high and unreasonable cess in the Delhi mandi. Similar examples can be cited from across India.

What caused this? Who all were responsible? First, the state governments: The APMC cess became a source of extra revenue for them; money, which can be used at their discretion since this amount was not part of the budget. It remained in the bank accounts of the Mandi Board and was used for ‘discretionary’ development spending (there was no MPLADS in those days) mostly under the chief minister’s orders. To be fair, it did improve infrastructure in rural India when funds like PMGSY or MNREGA were not available. Since this was ‘revenue’, state governments could not resist the temptation of increasing the cess to unsustainable levels.

What started as a 0.5% or 1% cess went up effectively to 5% or more. In states where FCI did most of the procurement, the burden was borne by the FCI and, by implication, the Government of India. Most APMCs devised new ways of increasing revenue by expanding the schedule of commodities with scant regard to whether these were produced in their state or not! How does one justify a cess on milk powder in Bihar? Most APMCs have a list of more than 100 commodities. Azadpur Mandi had a list of 198 items on the last count, including butter and honey! The ‘revenue’ interests also prompted the ‘packing’ of these boards with government nominees. Not satisfied with this, there was appointment of administrators superseding the boards, and farmers lost their voice.

Legal provisions for licencing of traders to operate in the market yards were meant to ensure prompt payments to farmers. The insistence on correct weighment and transparency in auctions were in the best interests of price discovery. The law also stipulated that prices be displayed prominently in the market yard.

Over a period of time, traders and commission agents formed coteries and took ‘effective’ control of the management. New licences were deliberately delayed or declined to protect the vested interests of entrenched traders. Price discovery and display of prices became a sham! The managements made cosy arrangements with the traders and the powerful ‘commission agents’, leaving the farmers in the lurch. The story of procurement under the Minimum Support Price (MSP) remained different since there was no price discovery. The traders kept their interests intact by increasing their commissions much to the chagrin of FCI.

This ‘mutual benefit’ arrangement ensured that all efforts to reform APMCs failed. There was no dearth of committees, model acts or advisories and requests from the Union government during the last twenty years. Now that the new FPTC Bill has been passed, the APMCs are faced with the question of survival. To a large extent, they need to take the blame on themselves for their current predicament!

In spite of all their failures, APMCs need to remain not just for the infrastructure, but for price discovery and payment processes, however, imperfect. They need to reinvent themselves to serve farmers.

What should be done? First, change the law to make them farmers’ organisations. At least two-thirds of the members of the board/committee should be elected farmers/ Farmer Producer Organisations, reducing the government nominees to two. Allow the board /committee to appoint the chief executive from the open market. Eliminate, by law, the scope for frequent government interventions and remove all cadre-based government-controlled employees. The board should function like a well managed co-operative. Second, remove ‘geographical’ constraints for all farmers by allowing farmers to sell in any market yard of their choice. Third, remove the condition of a separate licence for each market. Make one licence valid for the entire state, and make it hassle-free and online.

Even better, shift to the registration of buyers system with appropriate guarantees to avoid defaults in payments to farmers. Fourth, reduce the cess to 1% or less. Collect service charges, if required, for facilities provided. Fifth, remove the coterie of ‘commission agents’, let the buyer or the farmer pay service charges if they use their services. Provide this space to FPOs. Sixth, invest substantially in the market yard premises: create modern storage & cold chain facilities, state of the art auction halls, fintech, hygiene, etc, to make the market yards modern and efficient. Seventh, make provision of ‘farm services’ to support farmers a priority. Eighth, drastically prune the list in the schedule to a bare minimum! And last but not least, remove bureaucratese and become the friend that the farmer is looking for!

The author is Former secretary, Food & Agriculture
Views are personal

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