The APMC Act

One of the key announcements in this year’s budget by Mr. Arun Jaitley was that in order to accelerate setting up of a National Market, the Central Government will work closely with the State Governments to re-orient their respective “APMC Acts”, to provide for the establishment of private market yards/private markets. The state governments will also be encouraged to develop Farmers’ Markets in town areas to enable the farmers to sell their produce directly.

This post is an attempt to explain the APMC Act, what it means, its features, its proposed reforms and its impact on the Indian economy.

Background

The basic premise of the APMC Act revolves around the question of sole controller of the food distribution channels in India. Local political powers had been controlling the distribution channels for food and other basic needs in the early 1940s. In the early 1950s, the government made efforts to address the situation by enacting the Essential Commodities Act. Then, in the 1970s, came the Agriculture Produce Marketing (Regulation) Act, through which agriculture produce marketing committees (APMCs) were formed to ensure remunerative prices for farmers. Over the years, the basic structure forged by the original APMC Act for regulating food distribution channels acquired an exploitative and price-distorting character: exploitative for the producer/farmer and price-distorting for the end consumer. It has become a system through which the “middlemen” earn hoards of cash by performing the minimal amount of work/effort. The interests of both the farmer and the end-consumer are harmed because of this system. Neither do our farmers receive fair price for their produce, nor do consumers benefit from low prices.

As agriculture is a subject in the “state list”, the central government has a lesser say in matters pertaining to it. All states have their individual APMC Acts. According to the APMC Act:-

  • A State is geographically divided and Market (Mandis) are established at different places within the states.
  • Farmers have to sell their produce through the auction @mandi.
  • To operate in Mandi, a trader has to get license.
  • Wholesale, retail traders (e.g. shopping mall owner) or food processing company etc cannot buy farm output directly from farmer. They’ve to get it through the Mandi.

Now as we Indians are aware through our history, wherever a “license” is involved, there is corruption, collusion, inefficiency, bribery, exploitation of the underpriviliged! The same concept is applicable in this case. Private FMCG (Fast-Moving Consumer Goods) companies cannot directly buy from the farmers as the companies are not eligible for getting the licences. The system of granting licences is not transparent at all and involves a lot of money and political influence. A trader has to obtain his licence by paying a registration fee and a hefty bribe to the state APMC official. After obtaining his license, the trader decides to recover the amount by exploiting the farmer. The farmer who is not up to date with the prices due to lack of information has to be contend by selling his produce (let’s assume onions) at the MSP (Minimum Support Price), even though the commodity he has produced may be in high demand in the cities, being sold at very high prices to the end-consumer. Subsequently, the farmer sells his onions at ₹5/kg and the end-consumer buys it at ₹60/kg. And the amount in between goes into the account of the middleman. Thus, we can see how only one interest group gets immensely benefitted through the system and the others are at a disadvantage, which in turn increases inequality in the Indian society. The rich gets richer and the poor gets poorer. The farmer in turn suffers form defaults on loans, the primary reason for the high suicide rate among the farmers in India. 

 In India, farmers’ conditions are even worse than previously pointed out. For vegetables, fruit and fishes, the government does not even declare an MSP like that for grains and coarse cereals; as a result, farmers selling these are hapless victims. They have no way of ascertaining the correct prices of fruits and vegetable and have to reluctantly suffer at the hands of the traders/middlemen. They cannot sell these to the state-owned FCI (Food Corporation of India). In 1951-52, 89% of what the consumer spent on food reached the farmer. Today, only 34% reaches him while 66% goes to middlemen. The chain of middlemen consists of 8 to 10 links, each adding his profit margin of 30% or so. This is one of the main reasons that a farmer gets only Rs 5 per kg for onions while the consumer pays over Rs 30 per kg. The middlemen do not pay the increased costs to farmers even during lean season but collect highly inflated prices from the consumers. Similarly in the peak season, consumers do not get the correct reduced prices for the fruits, vegetable and grains. Therefore, we can imagine the scale of the massive trade-distortion going on in India in the agriculture sector because of this inefficient market mechanism.

At present 30-35% of food products perish during storage and transportation. If this proportion is reduced, supply would substantially increase and prices would come down. For this, India needs to develop cold chains for storage and transportation all over the country on a massive scale which can be done only through the direct involvement of the private players with the producers.

Reforms

To rectify this discriminatory Act, the Union government in 2003 proposed a model APMC Act. The features of this Act are:-

  • Farmer doesn’t need to bring his produce to the APMC Mandi. He can directly sell it to whomever he wants.
  • Processors, exporters, graders, packers, etc. can buy agricultural produce directly from farmers.
  • Permits private market yards, Direct Purchase Centers, farmers’ market for doing trade in agriculture produce. (hence, monopoly of Mandis = destroyed)
  • Prohibits commission agents in any transaction.
  • Contract farming (for example, ITC can directly give high-yielding seeds, equipment, scientific information to the farmer, who in turn can directly sell his produce at the pre-determined price to the company)

But uptil now only 16 states have amended their old APMC Acts to include the new provisions of the model APMC Act proposed by the Union Government. The primary reason is the collusion and funding of the local political parties in the states by the middlemen traders. Even these states have not necessarily included all the new provisions uniformly in their respective APMC Acts. This piecemeal approach towards reforms won’t result in anything substantial for the producers/growers.

The new Act increases the responsibilities of APMC committee too. They have to:-

  1. Ensure complete transparency in pricing system and transactions taking place in market area.
  2. Ensure payment for agricultural produce sold by farmers on the same day.
  3. Promote agricultural processing + value addition.
  4. Publish data on arrivals and rates of agricultural produce brought into the market area for sale.
  5. Setup and promote public private partnership in Mandi Management.

Recent examples in other countries demonstrate what great power these reforms can bring to the primary producers/farmers and rejuvenate the economy of the nation as a whole. Take South Korea for example:- after direct marketing of agricultural products by the farmers to the end consumers, the middlemen were eliminated and as a result consumers’ prices declined by upto 30% and farmers’ income rose by upto 20%.

Solutions

  1. Commendable initiatives have been launched by some Indian corporates to resolve this issue. ITC unleashes its “e-choupal” project to help the aggrieved farmers. Through the e-choupal farmers can remain updated about the market prices of their produce in real time and negotiate with the traders accordingly, and in the scenario of the traders not agreeing to the reasonable rates can sell it to ITC. 
  2. Setting up of virtual markets like the NCDEX, MCX, future exchange, spot exchange, Warehouse Receipt System, Web Marketing, etc. where farmers and consumers can speculate and trade in agrarian commodities.
  3. Setting up of single regulator for agriculture sector. At present, India has different regulators for dairy, meat, oils, fruits, etc. USA has a single regulator Food and Drug Administration (FDA), in U.K. Food standard agency (FSA) is the single authority for formulating all food laws and Food Standards – Australia New Zealand (FSANZ) is the common singular regulator in Australia and New Zealand.
  4. There are restrictions and added costs on the inter-state free movement of agriculture goods. These need to be abolished. The GST (Goods & Services Tax) will prove to be the panacea to this hurdle.

Way Forward

Hence, we can see that in India it is a pressing need for the citizens to either have an amended model APMC Act or to have the Act repealed altogether and develop a new system from scratch. In the words of the Nobel laureate, Amartya Sen:-

“Famines and acute poverty too arise from faulty distribution and not for want of goods to distribute.”

References

http://mrunal.org/2013/08/food-processing-nuisance-of-apmc-acts-commission-agents-marketing-of-agricultural-produce-issues-and-constrains-for-gs-mains.html

http://www.financialexpress.com/news/apmc-reform-a-must/1101267/1

http://www.thehindu.com/news/national/karnataka/traders-on-indefinite-strike-over-apmc-act/article6192478.ece

http://swapsushias.blogspot.in/2012/09/apmc-act.html#.U-35DcWSy1V

http://profit.ndtv.com/news/economy/article-why-abolition-of-apmc-is-a-good-idea-532601

http://www.gktoday.in/why-apmc-act-needs-revision/

-Ribhu V.

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