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The Advantages of APMC Act

  • IAS NEXT, Lucknow
  • 12, Jan 2021
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Besides improving the way markets functioned, the Acts created an environment that freed producers-sellers from exploitation by traders and mercantile capital.

The APMC act in recent years have developed certain inefficiencies, and the opponents have strongly argued to revamp the act as per the needs of the current situations. The main argument for the changes are:

Because of all this, the Inter-Ministerial Task Force on Agricultural Marketing Reforms (2002) recommended that the APMC Acts be amended to allow for direct marketing and the establishment of agricultural markets in the private and cooperative sectors.

The rationale behind direct marketing is that farmers should have the option to sell their produce directly to agribusiness firms, such as processors or bulk buyers, at a lower transaction cost and in the quality/form required by the buyers.

On the recommendation of the committee, the government had come up with a Model APMC Act in 2003.

Model APMC Act, 2003

  1. Under the model APMC Act, the private sector and cooperatives can be licensed to set up markets.
  2. The model act also provides for contract farming and direct marketing by the private players.
  3. Except for few states, all the States and UTs have either fully or partly adopted the model APMC Act.
  4. As a result of the model act, the proportion of private trade and contract farming had increased manifold in some part of the country.
  5. However, The Model Act, so far, has not succeeded in persuading the private sector or cooperatives to set up agricultural marketing infrastructure as an alternative to the state-owned mandi system.

How the APMC act started benefiting Middleman

Initial situation: When the APMC Act was enacted by various states in the mid-1960s, the country was facing a serious food shortage and desperately seeking to achieve a breakthrough in food production. It was strongly felt that it would not be possible to attain and sustain food security without incentivising farmers to adopt new technology and make investments in modern inputs.

Therefore, high priority was attached to enabling farmers to realise a reasonable price for their produce by eradicating malpractices from markets, protecting them from exploitation by middlemen, and creating a competitive pricing environment. Simultaneously, the hold traders and commission agents had over them by providing credit was diluted by increasing the supply of institutional credit. This, along with technology-led output growth, resulted in increased farm incomes, making farmers less dependent on the trading class for credit and cash requirements. It also gave farmers the freedom to choose markets and buyers for their produce.

The Gree Revolution Era: The spread and success of the green revolution during the 1970s and 1980s led to an increase in the political power of the farming class and their clout in policymaking. This was reflected in the creation and strengthening of farmer-friendly institutions and a policy environment favourable to farmers.

Marketing institutions like market committees, state-level agricultural marketing boards and many others in the public and cooperative sectors served the interests of the farming community.

The entry of Middlemen’s Post 1991: Over time, as the country moved closer to food self-sufficiency, public policy began losing its focus. The marketing system and marketing institutions were plagued by inefficiencies, bureaucratic control, and politicisation.

The growth in market facilities did not keep pace with the growth in market arrivals, forcing producers to seek the help of middlemen in the market, which, in turn, led to dependence on them.

There was also a reversal of the credit situation after 1991, making farmers more dependent on commission agents and traders for loans. The trading class quickly regained its marketing power over farmers by meeting their credit requirements with interlocked transactions, robbing producers of the freedom to decide where they would sell and whom they would sell to. Taking advantage of the lax attitude of state governments towards marketing, the trading class consolidated their power in mandis.

Middlemen successfully turned marketing policies to their benefit, dictating terms to producers, and thwarting modern capital from entering agricultural marketing.

Some examples of this are:

  1. increasing the commission rates of arhtiyas without any justification;
  2. Rejecting direct payment to producers, which would bypass commission agents; and
  3. Determining prices through non-transparent methods.

The various problems facing the agricultural marketing system were summarised by the Twelfth Plan Working Group on Agricultural Marketing (Planning Commission 2011).

  • Too many intermediaries, resulting in high cost of goods and services;
  • Inadequate infrastructure for storage, sorting, grading, and post-harvest management;
  • Private sector unwilling to invest in logistics or infrastructure under prevailing conditions;
  • Price-setting mechanism not transparent;
  • Ill-equipped and untrained mandi staff;
  • Market information not easily accessible; and
  • Essential Commodities Act (ECA) impedes free movement, storage and transport of produce.

Laws regulating agriculture marketing in India

Essential Commodity Act: Almost all agricultural commodities, such as cereals, pulses, edible oilseeds, oilcake, edible oils, raw cotton, sugar, gur, and jute, are included in the list of essential commodities.

The Act provides for instruments like licences, permits, regulations and orders for

  • (a) price control,
  • (b) storage,
  • (c) stocking limits,
  • (d) movement of produce,
  • (e) distribution,
  • (f) disposal,
  • (g) sale,
  • (h) compulsory purchase by the government, and
  • (i) sale (levy) to the government.

Agriculture Produce Grading and Marketing Act: The act defines standards of quality and prescribes grade specifications for a number of products. The Act authorises an agricultural marketing adviser in each state to grant a certificate of authorisation to persons or corporate bodies who agree to grade agricultural produces as prescribed by it.

There are AGMARK grade specifications for 212 agricultural products, but the use and awareness of it have remained low despite a better understanding of quality attributes among consumers.

Private and Co-operative Sector in Marketing of Agriculture Produce in India, Crop Insurance in India

The entry of private sector in Agriculture Marketing
  1. As a step towards liberalisation of agricultural trade, the union government issued an order on 15 February 2002, which removed licensing requirements and all restrictions on buying, stocking and transporting specified commodities, including wheat, rice, oilseeds and sugar. They were further decontrolled after this.
  2. Similarly, the dairy sector was liberalised through various amendments to the Milk and Milk Product Order, beginning in 1992. The main purpose of these changes was to allow increased participation by the private sector in marketing agricultural commodities.
  3. In response, private-sector investments in the dairy sector have increased, and it has a healthy competition between cooperatives and the private sector.
  4. However, the experience of liberalising grain trade has not been very encouraging. The 2002 change in the ECA attracted big domestic and multinational players like ITC, Cargill, Australian Wheat Board, Britannia, Agricore, Delhi Floor Mills and Adani Enterprises to the grain trade.
  5. This came after the government had accumulated excessive foodgrain during 2001-03. But soon, the domestic foodgrain demand and supply balance, particularly for wheat, turned adverse and India had to import more than 6 million tonnes of wheat in 2006-07.