For India’s Farmers, APMCs Are Fast Losing Relevance

One of the greatest misconceptions surrounding the new farm laws was that they would do away with the Agricultural Produce Marketing Committee (APMCs). Given the protests were centered around Punjab where a majority of the MSP procurement happens at the APMCs, the concerns did warrant addressing.

The APMC mandis, for decades, had been argued as the safety net for farmers. With the help of commissioning agents and other middlemen, the farmers sold their produce at these mandis. However, while these mandis ensured a safety net or a prospective buyer for the crops, they also interfered with the demand-supply economics of the trade.

For instance, in Punjab, where the protests have originated from, a thriving APMC structure coupled with guaranteed MSP procurement distorted sowing decisions, thus resulting in a preference for paddy, a water-intensive crop. This had a direct impact on the soil quality and the water tables of the region, issues which have become central to the debate on the environmental impact of these laws.

It also hindered price realisation for the farmers, given they were the victims of price cartelisation. In 2010, the gap between the average wholesale price and the average retail price of onions in Bangalore was 132 per cent.

Another FICCI report mentioned that in Andhra Pradesh, before 2013, only 20 per cent of the consumer price in the fruits and vegetable market was passed on to the farmer.

Within the price build-up, 20 per cent of the consumer price went to the farmer, 11 per cent to the village merchant, 14 per cent to the middlemen, 15 per cent to the wholesaler, 12 per cent to the commission agent, 17 per cent to the farmers’ market, and 11 per cent to the retailer. Eventually, the burden was left for the consumer.

A 2019 survey from the Reserve Bank of India (RBI) from agricultural mandis across 16 states found that farmers receive 28 to 78 per cent of the total final retail price across 14 food items.

The Economic Survey of 2014-15 highlighted the political influence within the market committees and market board at the state level. It also stated that these influential middlemen enjoy a cordial relationship with the licensed commissioning agents and create a cartel that does not allow for the farmer to monetarily realise the full potential of their crop.

The APMCs have been plagued with a number of problems over the years.

Firstly, excessive taxation. The buyers are supposed to pay a market fee. Commissioning agents, mediating between the farmers and buyers, paid a licensing fee. Warehousing and loading agents had to pay a fee to the mandi committees.

The commissioning agents charged a commission as well on the sales revenue. The total taxes, charges, cesses went from three per cent to 20 per cent in different states.

Two, most mandis are not equipped with modern infrastructure. Across India, in many mandis, weighing continues to be manual, storage or refrigeration facilities are absent or not good enough, and a system of direct digital payments is absent, thus leaving the farmer at the mercy of the middlemen.

The lack of storage facilities has a direct bearing on the post-harvest losses, sometimes as high as 5-10 per cent of the total produce. Annual losses in agriculture, horticulture, and livestock alone have been close to Rs. 90,000 Crore around 2012-13.

To reform the APMCs, the central government, in 2017, introduced the Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act. The act was focused on the deregulation of fruits and vegetables, allowing the establishment of private markets and mandis, ensuring a single trading license, allowing warehouses, silos, or any other storage facilities to double up as markets, direct trade, and e-trading.

The centre has not been alone in pushing for APMC reforms. Over the years, even states have undertaken reforms to improve the APMCs. More than 18 states have made provisions for private markets, 19 states have permitted direct purchase from the farmers, and many states have their contract farming laws.

In terms of deregulation of fruits and vegetables, Arunachal Pradesh, Andhra Pradesh, Assam, Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Nagaland, Odisha, Rajasthan, Punjab, West Bengal, and Delhi had already given the green signal by May 2020.

Barring a few states, direct marketing, e-trading, single point levy of market fee, and a single trading license has been made possible in all states. As of May 2020, only a few states had not allowed for private mandis.

Bihar, which abolished the APMC altogether in 2006 is an interesting story as well.

Before 2005, India’s economy was growing at around 6.8 per cent while Bihar’s economy was growing at 5.3 per cent. After the APMC was abolished, Bihar’s economy, powered by a 4.7 per cent growth in agriculture against 3.6 per cent for India, grew at 11.7 per cent against 8.3 per cent for India.

The abolition of the APMC had a bearing on the prices as well, given there was an increase in the wholesale price of paddy by 126 per cent, in maize by 81 per cent, and in wheat by 66 per cent. Interestingly, the growth in Bihar was registered even when the infrastructure to replace the APMCs did not materialise.

In June-July 2020, during the partial lockdown, there was a reduction in the year-on-year arrivals in the APMC mandis. While some of it could be attributed to the lockdown in the states that may have made transportation difficult, many state market committees have been witnessing a reduction in their revenues.

Between June and August 2020, on a year-on-year basis, the inflow of onions decreased by around 57 per cent, around 54 per cent for potato, around 55 per cent for cauliflower, 25 per cent for brinjal, 48 per cent for watermelon, 32 per cent for oranges, 49 per cent for apples, 20 per cent for paddy, 22 per cent for wheat, 39 per cent for masur, 45 per cent for tur, and 41 per cent for urad. However, the trends will be far more pronounced once the new laws are implemented.

The shift from the APMCs has a lot to do with the limited impact of the MSP procurement as well.

There are 23 crops under the MSP purview, but of the total value of agriculture output pegged at Rs. 40 lakh crore for FY20, only produce worth Rs. 2.5 lakh crore was covered under the MSP operations.

Close to 50 per cent of the produce includes livestock, fishing, and forestry.

Within the MSP crops, too, the numbers tell a different story. Merely 3.5 million wheat-growing farmers, 9.5 million paddy-growing farmers, and 7.5 million farmers growing pulses received the benefits of government procurement in the kharif and rabi marketing seasons of 2019-20.

In terms of percentage, the procurement impacted only 7.64 per cent of the paddy farmers and 6 per cent of the pulses growing farmers. The government estimates the total number of farmers to be around 125 million.

When viewed from the lens of MSPs, pricing, trader interests, and farmer income, the APMC structure comes across as a decade-old socialist curse, hindering growth, agriculture expansion, investment, and innovation.

The socialist curse of APMCs has thrived for far too long, and while it cannot be abolished, the next best option is to have the farmers the freedom to opt for the private sector route to sell their crops.

APMCs will stay, yes, but as we move ahead, they will only serve as a reminder of the rusted socialism we were forced to romanticise for so long.