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Inflation: What’s stifling your veggies

business Updated: Jan 20, 2011 23:38 IST
Zia Haq

An innovative mechanism to save farmers from exploiting traders, which India implemented as a national model in the 70s, is now being blamed for rising vegetable prices.

Agricultural produce marketing committees (APMCs) have become archaic and vegetables and fruits need to be taken out of these local market hubs, analysts say.

“They have turned into platform for hoarders, rather than a buyer-seller platform,” farm expert Sompal, who was formerly union agriculture minister, said.

States’ APMC laws make it mandatory for farmers to sell all produce through local committees. Licences for participating wholesale buyers, who are required to pay a transaction or mandi tax, are concentrated in a few hands.

Farmers who don’t go through APMCs can be booked for avoiding mandi taxes. Most APMCs harbour monopolistic practices.

“APMCs should now give way to farmers’ markets and these should be made zero tax facilities. It’s time to free up all restrictions,” Sompal added.

Since APMCs entail a 4-5% tax, the first mark-up in prices happen right at first point of sale.

It’s time to accord special status to perishables and horticulture commodities and de-listing of horticulture commodities from the schedule-I containing notified commodities in APMR Acts of all states, the Federation of Indian Chambers of Commerce and Industry said.

Food inflation has been in double digits for more than a year, primarily due to severe pressure from fruits and vegetables, eggs, meat and marine products.

The present onion crisis appears more “episodic” and according to indications, would be resolved in 2-3 weeks time with fresh arrivals from major onion growing regions in the country.

If vegetables are taken off from the schedule-I containing notified commodities in APMR Acts of all states, it would mean that anyone can buy or sell only perishable commodities anywhere in the country.

This would also mean that zone of influence for the so-called perishables would be beyond states, resulting in better prices for farmers and stabilised prices for consumers as a result of more market players.

The government is toying with the idea of allowing foreign direct investment in multi-brand retail.

Large retailers could be required by law to procure major part of their supplies locally. At the same time farmers cooperatives could be promoted to ensure sufficient

Markets should be electronically linked by introducing electronic auctions or electronic spot exchange counters for transparent price discovery. “The government could consider providing special funds to APMCs for developing electronic auction platforms,” the FICCI said.

However, FDI in multi-brand retail is a controversial option and there are fears that it could wipe out small groceries. It could even replace public monopoly with private monopoly by big chains. The government could, however, ensure adequate safeguards in allowing FDI in retail.