The primary finding of the committee was that the APMCs and the intermediaries were pocketing a major part of the income which should go to the farmers and that their presence was not allowing private investment in agriculture, a sector that required massive investments from private players.
New Delhi: On 2 March 2010, when the Congress-ruled United Progressive Alliance government was in power at the Centre, the Ministry of Agriculture, which was headed by Sharad Pawar, had constituted a high-powered committee comprising agriculture and marketing ministers from 11 states to suggest agricultural reforms and look into the functioning of the Agricultural Produce Market Committees (APMCs). One of the key findings of the committee was that the APMCs were responsible for charging excess commissions from farmers, deterring much-needed private investments in the sector, which was leading to the formation of cartels to increase revenue for their masters, rather than act as an institution to benefit the farmers and other market participants.
Among these 11 members, five were from states where Congress was in power (Maharashtra, Assam, Uttarakhand, Andhra Pradesh and Haryana), two were from BJP-ruled states (Gujarat and Madhya Pradesh), one from JDU (Bihar), one from JDS (Karnataka) and one each from BJD (Odisha) and Shiromani Akali Dal (Punjab). The committee was headed by the then Maharashtra Agriculture Minister and Congress stalwart, Harshvardhan Patil.
For almost over two years, this committee held nine meetings in various parts of the country while interacting with all the stakeholders—from farmers to industrialists to retailers and cold storage owners—to dive deep into the problems that were plaguing the marketing of agricultural goods and keeping the farmers poor.
This Empowered Committee held nine meetings at different places including New Delhi, Mussoorie (Uttarakhand), Khajuraho (Madhya Pradesh), Bhubaneswar (Odisha), Sasan Gir (Gujarat), Chandigarh (Haryana), Guwahati (Assam), Tirupati (Andhra Pradesh) and Shirdi (Maharashtra) to meet as many stakeholders as it could. The committee released multiple interim reports before submitting its final report on 22 January 2013.
In its 98-page report, the committee shared many observations, based on its interactions with various groups and on the basis of the fact-finding exercise that it had undertaken and the primary finding of it was that the APMCs and the intermediaries were pocketing a major part of the income which should go to the farmers and that their presence was not allowing private investment in the sector, which required massive investments from private sector players.
KEY FINDINGS
According to the committee, “In the current system, the inefficiencies in intermediary structure result in the producer (farmer) getting only 20-50% of the consumer’s purchase value. In the United States, the farmer gets roughly 60-65 % of the price paid by the end user.”
The committee, while giving the example of the milk trade in the country, stated: “Through the process of developing an efficient direct marketing chain through Amul, the milk producers were getting more than 70% of the price paid by the end consumer. In the poultry business, farmers were getting more than 70% of the consumer price. The reason is that the distribution channel of eggs is well-structured and organised.” This was not happening in the agricultural sector due to which the farmer was getting only 25% of the price, which the consumer was paying for the product; the rest 75% was going to middlemen.
The committee also identified a lack of sufficient number of markets and adequate marketing infrastructure, high incidence of market fee/charges and lack of competition with a long chain of intermediation which were keeping the farmers poor.
According to it, the regulation of markets had achieved limited success in providing an efficient agricultural marketing system in the country. Over the years, these development-oriented institutions (e.g. the State Agriculture Marketing Boards, APMCs etc.) had become more revenue generating institutions than facilitating efficient marketing practices to benefit the farmers and other market participants.
In the present system, there were a lot of licencing barriers, the committee found. “The compulsory requirement of owning a shop/godown for licensing of commission agents/traders in the regulated markets has led to the monopoly of these licensed traders acting as a major entry barrier in existing APMCs for new entrepreneurs thus, preventing competition. Many market yards established long back do not have adequate space for construction of shops, godowns, etc., thus, the issue of new licences for traders was discouraged/banned in such cases. The traders, commission agents and other functionaries organise themselves into associations, which generally do not allow easy entry of new persons, stifling the very spirit of competitive functioning. The system of licencing is quite restrictive and has outlived its utility. There is a need for a transparent and simple system of registration of market functionaries to simplify and revitalize the present marketing system.”
It further found that covered and open auction platforms exist only in two-thirds of the regulated markets, while only one-fourth of the markets have common drying yards. Cold storage units existed in less than one tenth of the markets and grading facilities in less than one-third of the markets. Electronic weigh-bridges were available only in a few markets.
More importantly, as per its findings, the APMCs, that are authorised to collect market fees ranging between 0.50% to 2.0% of the sale value of the produce, were charging much more than that from the farmers. “In addition, commission charges vary from 1% to 2.5% in food grains and 4% to 8% in fruits and vegetables. Further, other charges, such as, purchase tax, weighment charges and hamal (porter) charges are also required to be paid. In some states, this works out to total charges of about 15% which is excessive.”
In mandis in Punjab, for example, 5% was being charged as sales tax, 2% as market fee, 2.5% as Arthia commission and 5% as other charges, which means the farmer was paying 15% as commission, even before his product was sold.
Due to problems in the supply mechanism, post-harvest losses of various commodities ranging from 3.9-6.0% for cereals, 4.3-6.1% for pulses, 5.8-18.0% for fruits and 6.8-12.4% for vegetables was happening. The total post-harvest losses of agriculture commodities were estimated at about Rs 44,000 crore at 2009 wholesale prices.
The farmers were the biggest sufferers in the present system, the committee stated. “The share of farmers in consumer’s price is very low, particularly in perishables, due to a number of intermediaries, lack of infrastructure and poor holding capacity. In order to provide remunerative prices to the farmers, there is a need to reduce intermediation by providing alternative marketing channels like direct marketing, contract farming, etc. for which reforms in the agricultural marketing system are necessary.”
The committee found that there were a large number of marketing channels with Long Supply Chain. “The normal agricultural marketing chain in the country was very long with a large number of intermediaries between the producers and the consumers, adding up more costs without adding significant value.”
PRIVATE INVESTMENT NEEDED
According to their findings, a massive influx of private investment was needed to reform the agricultural sector, which was not possible in the present licence raj.
“Report of the Working Group on Agricultural Marketing Infrastructure for the XII Five Year Plan 2012-17, has assessed investment requirements of more than Rs 14,56,000 crore for development of different infrastructure during XII Plan Period. A major portion of this investment is expected from the private sector for which an appropriate regulatory and policy environment is necessary. Alongside, enabling policies need to be put in place to encourage procurement of agricultural commodities directly from the farmer’s field and to establish effective linkages between the farm production and the retail chain and food processing industries. Towards this end, the states need to amend their marketing laws in true spirit on the line of the Model APMC Act and Rules and other laws proving barriers to storage and smooth supply of produce in the country.
“The present system gave rise to inordinate delay in haulage of agricultural produce at the border checkpoints creating artificial barriers on the movement and storage of agricultural commodities and to that extent, the formation of a common market. The regulatory framework needs to undergo a change by providing a free hand to the private sector to own, operate and manage markets/alternate marketing systems with backward and forward linkages. The government may, at best, formulate rules of the game for the market players rather than controlling the system,” it stated.
According to the committee members, the Long Gestation Period of Infrastructure Projects and Seasonality of Agriculture was deterring investments in the field and there was a strong need of Viability Gap Funding/subsidy and easy availability of finance to attract investment for such projects and also easy availability of concessional funding to attract investment for marketing infrastructure projects.
CASE STUDY
The committee found and gave an example of how direct contract between the farmer and the seller, omitting the middleman, had helped the farmers in Himachal Pradesh.
* “Contract Farming and Direct marketing of Apple in Himachal Pradesh By Adani Agrifresh Ltd”
Himachal Pradesh produces about 5 lakh MT of apples. As the marketing infrastructure in the state is limited, farmers in the wholesale markets of Chandigarh and Delhi sell most of it. The present system of apple marketing has the following disadvantages:
1. Inconvenience to farmers as they have to travel to faraway markets to sell their apple.
2. Opaque auction system at the wholesale markets.
3. Commission payable to the Commission Agent.
4. It takes anywhere between 36 to 48 hours from the time of harvesting to reaching Delhi market. Further, it takes 6 to 8 days to reach the southern markets. In the meantime, there is a substantial deterioration in quality.
5. There is substantial value loss due to deterioration in quality due to long transit time and improper handling en route the market.
6. Traffic congestion in Delhi due to influx of apple trucks (200 to 300 trucks come to Azadpur market during the peak season).
Then Adani Agrifresh Ltd intervened in Himachal Pradesh and set up three Controlled Atmosphere (CA) storage facilities for 18,000 MT at an investment of Rs 180 crore.
As the CA storage is meant for long-term storage of 8 to 10 months, only apple meeting the stringent quality norms could be purchased and stored. This meant a lot of training to farmers on post-harvest practices and direct purchase of apples from farmers.
The intervention of Adani Agrifresh Ltd has benefited the stakeholders in the following ways:
1. Over 4,000 farmers directly sell apples to Adani Agrifresh Ltd.
2. No farmer needs to travel more than 40 km to sell their apple.
3. Apple can reach the CA storage facility within 6 to 12 hours of harvest.
4. Farmers are supplied with crates to bring the apple and hence no expenditure on packaging material, packers/graders and no hassle in finding trucks in the peak season.
5. As there is no intermediary involved, farmers save the commission, which they would have otherwise paid in the wholesale market.
6. Adani Agrifresh announces prices for various grades of apple based on size and colour on a weekly basis to enable farmers make informed decisions before bringing the apple for sale to Adani Agrifresh.
7. Apple is graded on a computer controlled grading unit where each apple is weighted and graded as per its colour and size.
8. Farmers are paid according to the grade and weight of the apple.
9. Adani Agrifresh has opened three farmer service centers from which it sells agri inputs to farmers and also provides extension services.
However, these benefits to apple farmers in Himachal Pradesh only became possible after the APMC-related restrictions were abolished.
The committee also gave the example of Madhya Pradesh, which has exempted fruit and vegetable growers from the compulsion to bring their products and sell them in the market yards, thereby providing them with an additional option to sell their produce outside the market yards. The produce sold outside the market yard would not attract any mandi fees or the provisions of the APMC Act.
Similarly, as per the committee, West Bengal has excluded vegetables (except potato, onion and bitter gourd) from the Schedule of the Act for the purpose of not levying the market fee in the state.
These initiatives, as per the findings of the committee, had not only enhanced marketing efficiency of perishable horticultural produce and promoted private investment, but also reduced the marketing cost resulting in relief from food inflation.
Not surprisingly, on 27 December 2013, in a meeting convened by then Congress vice-president Rahul Gandhi—and attended by Chief Ministers of all 12 Congress-ruled states, as well as Finance Minister P. Chidambaram, Food Minister K.V. Thomas and the MoS for Personnel V. Narayanasamy—it was decided that all Congress-ruled states would keep fruits and vegetables out of the Agricultural Produce Markets Committee Acts of the respective states. The decision would give farmers a choice on where to sell their produce and consumers would get the benefit of lower prices, the Congress had said at the time.