Existing APMC laws restrict trade, competition: Ramesh Chand of NITI Aayog

The APMC infrastructure is far from being adequate to handle entire marketable surplus in the country, which is growing by more than the rate of growth of production, says NITI Aayog member Ramesh Chand. Illustration by Binay Sinha
The Centre recently announced three steps that, if implemented properly, can provide alternative selling options to growers other than the existing regulated mandis and help in attracting private investments in farming. In an interview with Sanjeeb Mukherjee, NITI Aayog member Ramesh Chand discusses these proposed changes. Edited excerpts:

The Centre has decided to bring a law that will facilitate the creation of marketing channels outside the Agricultural Produce Market Committees (APMCs) for the growers and a framework for e-trading for farm produce. How restrictive had the APMCs become over the years?

At the outset, I would like to mention that the APMC Act has played a laudable role in bringing order in agricultural markets and checking exploitation of farmers by the intermediaries through an arbitrary system that prevailed before various states/UTs of the country implemented their own APMC Acts. In most of the states, the Act served the purpose for which it was created.

However, the APMC system did not evolve with changes in time and requirement. Growth in mandi infrastructure did not keep pace with growth in marketable surplus of agriculture commodities and no modernisation and competitive practices were introduced. Over time, levies charged in the APMC mandis were increased by many states beyond the fees charged for market services.

These include Rural Development Fund, Krishi Kalyan Cess, Development Cess, which go as high as 3 per cent in some cases. Similarly, charges for commission agents go as high as 4 to 8 per cent in fruits and vegetables in some mandis.

This way, the power of APMC Act is being increasingly used for resource generation and serving interest of intermediaries. These levies and charges add to the price spread between plough and plate, lower the prices received by producers and raise prices paid by consumers.

APMC laws, bye laws, and rules like single trading licence, mandi fee on all successive transactions, requirement to have shops in the mandi to trade there, etc. restrict trade and competition.

The biggest restriction created by existing APMC laws is that farm produce can be sold and purchased only in the space permitted by APMC and is subject to all the regulations of APMC. This forced producers to sell their produce only through APMC channel and deprive them of freedom and choice to use any other route to sell their produce. Some experts term it as monopsony of the APMCs.

As a result, no buyer could buy produce directly from the farmers and had to necessarily pass through the APMC route. This put a full stop on alternative channels for primary trading in farm produce.

At times, APMCs tend to become political battlefields due to conflicting ideological positions. How will a new law address this flaw?

The proposed central law will not interfere with the working of the APMCs. The change in APMC can be brought only by state legislature as agriculture markets and fair come in the state list. The new law will address some of the deficiencies of APMC by offering an alternative to APMC.

This will surely exert pressure on the APMC system to improve its business environment and efficiency to retain business and attract new customers.

States, over the years, have judiciously guarded the APMCs for variety of reasons. Won’t any law that seeks to create alternative marketing channels raise questions about trampling on their jurisdiction?

It is very wrong to say that the new central law will trample on the space of the existing APMCs. It is intended to ensure that various reforms as proposed in the model Act are implemented uniformly throughout the country.

The new central law intends to create option for farmers and for agribusiness firms to transact their business anywhere in the country, outside APMC premises without getting subjected to APMC provisions and charges.

The APMC infrastructure is far from being adequate to handle entire marketable surplus in the country, which is growing by more than the rate of growth of production. It is estimated that around half of the marketable surplus pass through APMC mandis.

The only effect that I visualise on the APMC mandis will correspond to the service provided by them.

One school of thought says that some policy makers have a needless obsession with reforming APMCs, while in reality, a small fragment of the entire agricultural trade is within the ambit of the APMCs as private parties already control a large portion of the trade. How does then creating alternative marketing channels outside help?

The suggestion to reform APMC Act has come from almost all quarters. Model APMC Act/Rules (2003) was formulated by the Government of India in consultation with the state governments and circulated to the states/UTs for adoption in 2003 and 2007.

A committee of state ministers, in charge of agriculture marketing, was constituted in 2010 to persuade various states to implement the reforms in agriculture markets. The first and foremost recommendation of the committee was that the states should amend their APMC Acts in line of the Model Act, and states may complete the process early.

The second recommendation says the present system of licensing of traders/commission agents must be substituted with a modern and progressive system of registration with open and transparent criterion for registration.

Trade in agriculture commodities (notified under the APMC Act), outside the area earmarked by APMC Act for such trade, is violative of the APMC law and is conducted in a concealed manner.

Any trade that is not legal suffers from several angles and does not deliver best result from anyone. It also involves some payment to various officials to escape levies and compliances of APMC Act.

Because of this, a large number of law-abiding private players avoid entering into agri trade. Second, direct trade in notified commodities between farmers and traders is not permitted under the Act.

The new central law will institutionalise large quantity of produce that is transacted outside APMC markets. Legal sanctity to such trade will bring more investments, innovations, competition and e-commerce into agriculture.

The second piece of legislation which many people are talking about is amending the decades old Essential Commodities (EC) Act to bring several important items out of its purview. What happens when prices rise or fall sharply? Won’t it tempt the government to bring back the Act’s draconian provisions?

The Essential Commodities Act for foodstuff was justified when the country faced frequent supply shocks and shortages, transport and communication were under-developed, and small players dominated trade. In such a situation, market manipulation to earn windfall gain through stocking and black marketing was easy and tempting. The situation has changed dramatically over time.

Now the country is surplus in most of the commodities except oilseeds (edible oil) and pulses.

Production instability has declined in all major crops. Market integration has improved. Private players now have the capacity to earn more through price stabilisation than price manipulation.

Experience shows, that abnormal increase in prices in many cases was due to demand attributes and supply situation rather than price manipulation by stocking, e.g. frequent skyrocketing of onion price in the country. Moreover, the conviction rate in the case of violation of orders issued under EC Act is reported to be very low (mere 0.27 per cent during 2015-2017).

The changes in EC Act propose to take cereals, pulses, oilseeds, edible oils, potato and onion out of the EC Act, 1955.

Earlier, these relaxations were given through government order but then the order was put in abeyance when price increase was perceived to be very high. Once these commodities are taken out of the EC Act, they cannot be subjected to various controls.

In the absence of the EC Act, how will the interest of consumers — which also includes large segments of the farming community — be protected in the event of sharp spike and fall in prices?

There can be some situations beyond the control of the government, which can cause very abnormal rise in prices detrimental to the interest of consumers, producers and the economy.

This can be done by inserting a clause in the Act that can be used under extraordinary situations like war, famine, and severe natural calamity along with a transparent trigger on price rise.

This is done in all countries having responsible governments.  Further, interest of agri-business firms who require stock for their normal operation like processing factory can be protected by the Act.

The third is the law on agricultural produce price and quality assurance. How will this work?

The rationale behind this law is to enable farmers, particularly small farmers with scale disadvantage, to enter into arrangements with value chain participants and agri-business firms to access modern capital, knowhow and technology available with private-sector players.

This will also include a mechanism to incentivise farmers to go for quality production, grow more high-value crops, and protect them against market and price risk. Legal backing for farmers’ partnership in value chain will get them benefit of high-end markets, niche markets and export markets.

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