Prof. V.P. Gupta
Director
Rau’s IAS Study Circle, New Delhi – Jaipur – Bengaluru
The overall development of Indian agriculture is extremely vital for faster, sustainable and more inclusive growth. It can be argued that the development of agriculture would have local multiplier effect in terms of nutritional security, women empowerment, increase in income levels and consequently holistic development of rural areas.
It is being said that poor marketing infrastructure in India is one of the biggest hurdles before farmers for realising optimum prices on their agricultural produce. However, the increase in the agricultural production has benefitted neither the farmers nor the end-consumers. While on one hand, farmers continue to get lower prices, on the other hand, the consumers continue to pay more money. This can be attributed to fragmented agricultural market, lack of integrated domestic market, restrictions imposed on the storage, movement and sale of agricultural commodities, etc.
Hence, let us understand the importance of Agricultural Marketing in India, its weaknesses and what should be done in order to address these challenges.
Understanding the Role of Agricultural Marketing
Agriculture marketing in India has a much broader connotation and basically includes all activities in the procurement of farm inputs by the farmers as well as the movement of agricultural produce from farm land to the end-consumers, industries and traders. This covers broad range of activities which include storage, physical handling, transportation, primary processing, grading and packaging, sale of agri-commodities, etc. Thus, agricultural marketing involves all the aspects related to agriculture, while excluding the core activity of cultivation. An efficient agricultural marketing system is extremely critical for the growth of agriculture sector in a country on account of number of reasons.
H Firstly, an efficient and well-connected agricultural marketing enables the farmers to buy agricultural inputs such as fertilisers, seeds, etc. at affordable prices. This becomes quite important since the agricultural input costs have been increasing over a period of time.
H Secondly, it provides signals to the farmers with respect to planning for sowing of crops. By making use of market signals, the farmers would be able to grow those crops which are in high demand and get remunerative prices. A well-connected and an efficient market would also be able to address the food inflation since it would be able to match the supply with the demand.
H Thirdly, an integrated domestic marketing system would considerably reduce the price variations in the agricultural commodities across India. This would enable the farmers to sell their produce anywhere in India and get best prices.
H Fourthly, a High-level Expert Committee constituted by the Ministry of Agriculture has estimated that 25 to 30% of fruit and vegetables and 8 to 10 % of food grains are wasted annually due to lack of post-harvest technology and non-existence of integrated transport, storage and marketing facilities, etc. Thus, an efficient marketing infrastructure would enable the farmers to reduce their post-harvest losses and improve their incomes.
H Lastly, there is lot of scope for India to boost its export of agricultural commodities. However, India has failed to make optimum use of this opportunity. In this regard, the agricultural marketing policies can act as an enabler for boosting agri-exports.
Problems with Agriculture Marketing
Regulation of markets: Under the present APMC Act, only the State Governments are permitted to set up markets. The Act requires that farm produce be sold only at regulated markets through registered intermediaries. Further, the Essential Commodities Act allows Central and State governments to place restrictions on the storage and movement of commodities deemed essential by governments. Such kind of regulations have stifled the private sector investment in the agricultural marketing infrastructure. Such restrictions also create artificial barriers and unnecessarily hinder free flow of agricultural commodities in India. Thus, the focus of the government has so far been on regulating rather than facilitating agricultural trade. Rather than facilitating options for the farmers to sell their produce, it constraints their selling options.
Fragmented Agricultural Marketing: There are about 2,500 regulated APMCs and around 5,000 sub-market yards regulated by the respective APMCs in India. Apart from that, there are thousands of Rural Markets or Grameen Haats. Hence, due to this fragmented marketing infrastructure, the agricultural commodities pass through multiple middlemen and traders who are operating in the APMCs. This leads to escalation in the cost of prices and prevents the farmers from getting remunerative prices. Ideally, the farmers should be allowed to sell their produce anywhere throughout India based on prices which they get. This can significantly improve their bargaining position and enable them to earn more incomes. Hence, the present fragmented marketing infrastructure goes against the interest of both farmers as well as consumers. In this regard, there is a need to develop integrated domestic market by removing all the existing agricultural trade-related barriers.
Lack of Access to APMCs: Adequate number of markets should be set up closer to agricultural fields so that the
farmers have access to APMCs. This also leads to decrease in transportation costs for the farmers and cut down post-harvest losses. Accordingly, the National Commission for Farmers had recommended that each APMC should serve a market area of around 80 sq.km and it should be available to farmers within a radius of 5km. However, an average APMC in India serves an area of around 450 sq.km, which denotes poor access of the farmers to the APMCs. On account of this, the farmers are forced to sell their produce at lower prices outside the APMCs.
Against the Interests of Small and Marginal Farmers: Almost 85% of the farmers in India are small and marginal. These farmers with lower marketable surplus find it difficult to aggregate their produce and sell it in the APMCs through auction. Hence, these farmers resort to sell their produce to local agents and traders at much lower prices.
Poor Infrastructure of the APMCs: Even though the APMCs earn regular revenue through the imposition of Mandi tax, the infrastructure in the APMCs such as Godowns, Cold chain infrastructure, etc. continue to remain quite poor. This leads to improper storage and consequently higher post-harvest losses. Further, most of the APMCs have not able to set up electronic auction platforms which are quite important for offering remunerative prices to the farmers.
Imposition of Multiple Fees in APMCs: The APMCs charge market fee from the buyers as well as licensing fee from the traders. Apart from that, they also charge licensing fee from other agents such as warehousing agents and loading agents. These multiple fees are estimated to be around 15% of the value of the agricultural produce in some of the states. These charges imposed have a cascading effect on the prices of the commodities which adversely affect the end consumers.
Higher Post-harvest Losses: According to the recent study, the total estimated loss in India is around Rs. 92,000 crore. The higher post-harvest losses could be attributed to fragmented market, lack of access to proper storage, poor handling and transportation, etc.
Initiatives Taken by the
Government so far
Model APMC Act: The Ministry of Agriculture has developed a model APMC Act, 2003 and has been pursuing the state governments to modify their respective Acts along the lines of the Model APMC Act, 2003. The Model APMC Act provides for the freedom to the farmers to sell their produce outside the APMCs to the exporters, processors and end-consumers. It permits private sector entities to establish new markets for agricultural produce in any area. It seeks to do away with multiple levies and instead impose a single levy of market fee on the sale of notified agricultural commodities in any market area. Similarly, it does away with the need for multiple licensing requirements for the traders and has instead proposed licensing of market functionaries which would allow them to operate in multiple markets.
National Agricultural Market (e-NAM): In order to integrate agriculture markets throughout India, the Government has set up National Agriculture Market (NAM) in 2016. It is a pan-India electronic trading (e-trading) portal which seeks to network the existing APMCs through a virtual platform to create a unified national market for agricultural commodities. The
e-NAM platform promotes better marketing opportunities for the farmers to sell their produce through online, competitive and transparent price discovery system and online payment facility.
Contract Farming: The contract farming agreement is an agreement between the farmers and buyers such as MNCs wherein the buyers provide for necessary inputs such as seeds to the farmers and the farmers agree to sell their produce at a pre-determined price. In this regard, the Model APMC Act provides for contract farming agreement to reduce barriers to agricultural trade and ensure remunerative prices to the farmers. There are few notable successes on contract farming by Pepsi Co India in respect of potato, tomato, groundnut, etc. in different parts of country.
Farmer Producer Organisations (FPOs): Farmer Producer Organisation (FPO) is an entity formed by primary
producers such as farmers, milk producers, etc. which provides for sharing of profits/benefits among the members. The
small and marginal farmers do not have the large marketable surplus and hence formation of FPOs by these farmers
increases their bargaining power and avoids the long chain of intermediaries to sell their produce directly to end-consumers. In this regard, the Union Budget 2018-19 announced a five-year tax holiday and small credit guarantee fund of Rs. 100 crore for promoting FPOs. Further, the Central Government has been encouraging the states to directly support the FPOs through various schemes.
PM-AASHA: The Government has launched a new Umbrella Scheme “Pradhan Mantri Annadata Aay Sanraks Han Abhiyan’ (PM-AASHA). It involves different components such as physical procurement of commodities by the Government agencies (Price Support Scheme), payment of difference amount between MSP and selling price (Price Deficiency Payment Scheme) and procurement of commodities by private sector agencies (Private Procurement & Stockist Scheme). It is expected that proper implementation of this scheme would prevent distress sale of commodities by the farmers and enable the Government to fulfil its stated objective of doubling the farmers’ income by the end of 2022.
Further, Agriculture is a state subject. Therefore, the success of the policies and programmes of the Government of India depends on how effectively they are adopted and implemented by the state governments. Some of the states have been quite progressive in implementing various reforms. On the other hands, many states have lagged behind leading to inter-state income disparities. Hence, in order to incentivise the states to undertake the agriculture marketing reforms, the Central Government has come out with various indices to measure the progress on Marketing Reforms. For instance, NITI Aayog has launched Agricultural Marketing and Farm Friendly Reforms. On similar lines, the Ministry of Agriculture has launched the Ease of Doing Agri-Business Index.
Further Reforms Needed
The European Union, consisting of multiple countries, has been able to set up Common Market for all products by eliminating all forms of trade barriers. In this regard, India would also be able to reap benefits by setting up a “Single Market”. One of the major impacts of removing the inter-state barriers would be the realisation of better prices by the Indian farmers as supply chain between the producer and the consumer would be reasonably streamlined. This would also benefit the consumers.
Hence, in this regard, the National Commission on Farmers (NCF) headed by M.S. Swaminathan had recommended creation of a single integrated market for farmers. The Commission also recommended that agricultural marketing be placed under the Concurrent List. Even the Committee on Doubling Farmers’ Income (DFI) had argued for placing agricultural marketing under the Concurrent List.
Apart from that, both the Central and State governments must come together with the spirit of cooperative federalism in order to address all the structural challenges associated with the agricultural marketing infrastructure highlighted before. The states must amend their APMC Acts so as to facilitate internal trade and provide the necessary ecosystem to ensure fair and remunerative prices to the farmers. There is a need to promote new models of marketing such as Contract Farming, Commodity Exchanges, Private Wholesale Markets, Farmer Producer Organisations, Agricultural Cooperatives, etc.