Regulator for agricultural markets

A Competitive Commission for Agriculture, on the lines of Sebi, will curtail monopoly practices and develop multiple market players

By Author A Amarender Reddy   |   Published: 4th Nov 2020   12:12 am Updated: 3rd Nov 2020   11:22 pm

The recently approved farm laws aim at passing the benefits of free markets to farmers with adequate safeguards. The three laws intend to provide more options to farmers to sell their produce in addition to procurement at Minimum Support Price (MSP) and regular sales at regulated Agricultural Produce Market Committee (APMC) markets along with the assurance of agreed price if farmers opt for contract farming. They also present opportunities for traders to adjust their stocks so that they operate more efficiently to respond to market signals in line with the broader objective of ‘one-nation, one market’.

Vested Interests

It is natural that some States have apprehensions about the new laws as the old ones, framed during the 1960s, gave a monopoly to traders in the APMC markets by banning all types of transactions outside such markets. The monopoly power of APMCs has created opportunities to exploit farmers by traders and commission agents. Over the last 50 years, vested interests have developed around the APMC markets mainly by traders, commission agents and even by governments by levying market fee, commission charges on farmers produce.

The APMCs are extracting surpluses from farmers in terms of higher market fee, commissions, cess and other charges, which cumulatively snatch over 5% of the value of the produce without any accountability to famers, especially in high-market fee States like Punjab, Haryana and western Uttar Pradesh.

Competitive APMC markets

With the new laws, farmers will have an additional option of selling outside the APMC markets with near-zero market fee. Resultantly, the APMC markets will lose their power to extract from farmers. Ultimately, if the APMC markets have to survive competition from private traders outside their markets, they have to reduce their market fee and become competitive.

The fear among APMC markets and State governments in high-fee States like Punjab is understandable. For instance, more than 99% of the paddy and wheat produced in Punjab is procured at MSP through state agencies by levying more than 5% as market fee and the same is charged to the FCI. If private traders are free to procure on behalf of the FCI at competitive market fee, the fee may reduce to less than 1% and it will force State government agencies to reduce their market fee to retain market share.

However, the APMC market fee in some States like Madhya Pradesh, Andhra Pradesh, Maharashtra, Himachal Pradesh and Telangana is less than 2% and there will not be a need for reducing it with the new laws. Hence, there is no fear among existing traders and commission agents. Further, the existing traders operating within APMC markets are in a better position to compete with new traders from outside the APMC markets as they have the advantage of already available infrastructure like auction platform, bulk storage, cleaning and sorting facilities in addition to bulk market arrivals from known farmers.

The grievances mechanism provided in the new Acts is easy, time-bound with sufficient deterrent penal provisions. The first dispute settlement body is the board of conciliation at the local level. If not solved at this stage, farmers can approach the sub-divisional magistrate and then the District Collector against the injustice done by any market intermediary. The dispute resolution at the local level without involving courts is good. For farmers, approaching courts is never a practical option and any dispute needs to be settled within a day or two, otherwise costs of dispute settlements outweigh benefits.

Price Controls Barrier

The punitive punishments proposed in the Punjab State Bills such as imprisonment for three years for sale-purchase of wheat or paddy below the MSP will create fear in even genuine traders. This fear will keep traders away from farmers, resulting in less competition and in turn monopoly practices and increased exploitation of farmers.

Generally, price controls distort the working of the market. Since the last 30 years, price control in paddy and wheat has led to oversupply at the cost of huge deficit in other commodities. They exacerbate problems like excessive stocks, wastage of paddy and wheat on one hand and huge import of edible oils on the other.

Further, if we scuttle market forces and keep more controls on paddy and wheat, it will discourage private players from entering agricultural markets. It will adversely affect farmers of other crops like pulses and oilseeds, which are entirely handled by private traders.

Beyond Govt Capability

Ensuring similar controls and safety nets for the 23 crops for which the government announces MSP is beyond the capacity of the government. This is like the cure is worse than the disease. Since the last 70 years, procurement at MSP concentrated only on paddy and wheat and that too covered only less than 10% of farmers mainly in Punjab and Haryana. It is time to address the broader needs of farmers across India, who grow different crops like pulses, oilseeds, fruits, vegetables and animal products like milk and meat.

In response to the new central farm laws, Rajasthan, Punjab and Chhattisgarh governments are trying to declare the entire area of their States as APMC market yard and also impose stock limits, which effectively make Central laws null and void. The Central laws are applicable only outside the APMC market yard designated as ‘Trade Area’. With this, traders even outside the APMC market yard, have to adhere to the regulation of State APMC Act like obtaining licence, pay market fee, levy and cess. This is like going back to licence raj years of the 1970s which will result in malpractices and red tape.

To satisfy all stakeholders, including States like Punjab and Haryana, it is the responsibility of the Central government to ensure competitiveness of agricultural markets by allowing private players to compete with the existing APMC markets. Under the ‘one-nation one-market’ concept, there is a need for establishing a centralised regulator like Competitive Commission for agricultural markets to curtail monopoly practices and development of multiple market players, like Sebi is for the stock market.

(The author is agricultural economist, ICAR-Central Research Institute for Dryland Agriculture. Views expressed are personal)

 


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