MP, UP and Gujarat end state monopoly on agri markets
The Bharatiya Janata Party (BJP)-ruled Gujarat, Madhya Pradesh, and Uttar Pradesh have ended decades-old monopolies of state-run agricultural produce market committees (APMCs), often blamed for exploitative trading, by permitting privatisation of seller-buyer platforms for farmers, in what analysts say is a far-reaching reform.
The three states, which produce about two-thirds of the country’s wheat, apart from various commodities, such as rice, cotton, oilseeds, pulses, and vegetables, will now allow privately owned mandis or wholesale markets to compete with those run by APMCs, which, though elected, are essentially close-knit cartels, according to some studies.
These reforms in “agricultural marketing,” or the mandi system that controls buying and selling of farm produce have been a long time in the making and various government panels and economists have often argued for changing the existing structures of agricultural trade.
APMC regulations require farmers to only sell to licensed middlemen in notified markets, usually in the same area where farmers reside, rather than in an open market.
They often act as cartels, evidence suggests. In December 2010, when prices peaked during the last major spike, a probe by the country’s statutory anti-monopoly body, the Competition Commission of India, revealed that one firm accounted for nearly a fifth of the total onion trading for that month at Lasalgoan APMC, Asia’s largest onion market in Maharashtra’s Nashik.
Ushered in the 1960s, APMC regulations were meant to protect farmers from being forced into distress selling.
Under APMC system, farmers have to go through smaller crop aggregators to access bulk buyers. Over time, this has spawned layers of intermediaries spanning the farm-to-fork supply chain. This results in a large “price spread”, or the fragmentation of profit shares due to the presence of several middlemen. Farmers often get the lowest shares.
On May 12, the Gujarat government stepped in with the Gujarat Agricultural Produce Markets Ordinance 2020, allowing private traders and even farmers to set up markets. The ordinance, which has the effect of law, also allows farmers to sell harvests from any point of sale, not allowed earlier.
Madhya Pradesh, too, has introduced a slew of reforms in agricultural marketing allowing farmers to sell from silos and warehouses and the freedom to sell to any buyer of their choice, not necessarily to APMC-run markets. These decisions were taken on May 2.
The Union government has, in the past, made attempts to push states to reform the mandi system that controls buying and selling of farm produce. But not many came through. One reason for this, an agriculture ministry official said requesting anonymity, is that agents in APMC markets exert outsize influence over farmers.
Since the Covid-19 lockdown has disrupted traditional farm-to-fork supply chains, the void created has enabled the government to quickly move in with reforms to keep supplies going, the official said.
In September last year, an interministerial panel at the Centre for rural and agriculture sectors, one among 10 such committees formed to suggest various reforms, had identified persistent trade barriers within the mandi system that continue to hurt farmers. This has been cited as a major reason for depressed agricultural markets, responsible for lower farm profits.
On April 11, Union agriculture minister Narendra Singh Tomar had said in a video press conference: “Farmers should be able to sell to any buyer. This is also good from a social distancing point of view. Otherwise, all farmers of an area will converge in a single market, which will obstruct the principle of social distancing.”
The Uttar Pradesh cabinet on May 8 approved an ordinance, taking out 46 horticulture commodities from the control of APMCs and also waived a tax that applied to traders of foodstuff. Agriculture minister Surya Pratap Shahi said the reforms would benefit farmers, traders and also free up the mandis.
“These reforms are deeply structural and their experiences will serve as examples to other states. The central government had issued a model APMC law for states to adopt as guidance. But APMCs are entrenched bodies; difficult to deal with. The best way is to expose them to competition,” said economist Abhishek Agrawal of Comtrade, a commodities trading firm.
According to the interministerial report, cultivators need freer access to markets to sell their produce. Therefore, it suggested a single mandi tax for the country and removal of levies charged from traders and farmers when farm goods are sold from one state to another, known as interstate mandi tax. The Uttar Pradesh government has waived a 2% market tax that APMCs charge from farmers.