Iasscore:: APMC Act: Analysis

APMC Act: Analysis

 Agricultural marketing has to undergo a series of exchanges or transfers from one person to another before it reaches the consumer. Selling on any agricultural produce depends on some couple of factors like the demand of the product at that time, availability of storage, etc. The products may be sold directly in the market or it may be stored locally for the time being. Sometime processing is done because consumers want it, or sometimes to conserve the quality of that product. The distribution system has to match the supply with the existing demand by whole selling and retailing in various points of different markets like primary, secondary or terminal markets. 

Importance of proper agriculture marketing

Farmers are mostly distress sellers. Being unable to store their products they are forced to sell their products at low price to the middlemen after the harvest and cannot even cover the production cost. Due to lack of proper storage facilities, adequate and cheap transport facilities, organized and regulated retail market, correct information about the product price and market conditions, Indian system of agricultural market does not operate efficiently and farmers do not get fair price for their crops. 

 Thus an efficient marketing system enables producers to get the best possible revenue by reducing gap between the price earned by actual producer and price paid by the ultimate consumer. Direct linkage always gives higher returns to the producer and the consumers are also benefitted as they get the goods at reasonable price far less than the price paid through other channels either through different groups of intermediaries. 

Current APMC system

At time of Independence, a moneylenders or trader in villages mainly controls the whole distribution system of agriculture commodities; consequently farmers were trapped into a perpetual debt instead of getting any profit. Hence to overcome this problem, different state enacted their APMC acts to set up Agricultural Markets. 

Features of APMC Act

a)  The state is divided into different markets based on geography and many principal or sub markets established in various parts of the state. Once a particular area is declared a market area and falls under the jurisdiction of a Market Committee, no person or agency is allowed freely to carry on wholesale marketing activities. 

b)  These markets are managed by the Market Committees constituted by the State Governments. Market Committee generally composes of 10-20 members who are either elected or nominated by govt but elections are rare. 

c)  Market committee authorizes various commission agents or traders to carry out various procurement and distribution activities related to agriculture produce. In other words, license raj is prevalent in today’s liberalized India as traders had to take license before carrying out any activity. 

Flaws in APMC system: 

• Monopoly: APMC process leads to monopolization because:

1. The Market committee authorize many commission agents or traders in market area to undertaken various activities in APMCs.

2. Now farmers have to sell their agriculture produce only to these commission agents either through personal relations or through process of auctions. 

3. Generally these agents come together and form cartels to procure produce not above a specified price, ultimately increase their own profits while reducing the farmer’s one.

4. The wholesalers and retailers have to buy agriculture produce from only these agents or traders. Again they adopt the technique of cartelization to sell the produce to wholesalers.

5. Consequently farmers got lesser price for their produce and end consumer had to pay more money to buy the similar produce which might not be case if APMC situation was not present.

6. The license raj pose many difficulties to get more number of agents or traders in the market as nexus of govt employees, local politicians and agents is in its mature stage and difficult to break.

7. A hard truth is that members and chairman are nominated/elected out of the agents operating in that market which is major cause behind existence of monopoly from several decades. 

• Fees or Commission: 

1. The APMC Act treats APMC as an arm of the state and the market fee as the tax levied by the state, rather than as a fee charged for providing services, which acts as a major impediment in creating a national common market. 

2. Various taxes, fees/charges and cess levied on the trades conducted in the markets or Mandis are also notified under the APMC Act.  APMCs charge a market fee from buyers, and a licensing fee from the commissioning agents who mediate between buyers and farmers. 

3. They also charge small licensing fees from a whole range of functionaries (warehousing agents, loading agents etc.). 

4. Commission agents generally charge large fees from both sellers (Farmer) and buyers (Wholesalers). 

5. Statutory levies/mandi tax, VAT etc. all add up to hefty amounts, create market distortions with cascading effects and  strong entry barriers.

6. Also some hidden charges are also included in legal fee and tax like small intermediaries charged to farmer or buyer. 

7. Further multiple licenses to be obtained from Market Committee include large corruption amount and ultimately added to final retail price. So farmer is able to receive only 25 to 30% of final retail price.

• The delay of payments to farmers by agents is a common phenomenon in APMC Mandis.   

• As numbers of small farmers are large in number and markets are far away from villages, farmers sell their produce to small middlemen agents to avoid the transport cost.

• These APMC’s does not provide any help to farmers in direct marketing, organizing retailing, a smooth raw material supply to agro-processing industries and adoption of innovative marketing system and technologies.

• Further, APMCs play dual role of regulator and Market. Consequently, their role as regulator is undermined by vested interest in lucrative trade.

• APMC boards are generally administered by bureaucrats and create various bureaucratic problems.
 

Model APMC Act 2003

The monopoly of Government regulated wholesale markets has prevented development of a competitive marketing system in the country. An efficient agricultural marketing is essential for the development of the agriculture sector as it provides outlets and incentives for increased production, the marketing system contribute greatly to the commercialization of subsistence farmers. Worldwide Governments have recognized the importance of liberalized agriculture markets. In accordance with above objectives, Model APMC act was drafted by ministry of agriculture in 2003.

Major Features:

• It provides for direct sale of farm produce to contract farming sponsors. 

• It provides a provision for setting up “Special markets” for “specified agricultural commodities”

• It permits private persons, farmers and consumers to establish new markets for agricultural produce in any area.

• Every market shall levy market fee on sale or purchase of agriculture commodities which brought from within or outside state.

• Replaces licensing with registrations of market functionaries and trade at any market area within state.  

• Market Committees permitted to use its funds to create facilities like grading, standardization and quality certification; to create infrastructure for post harvest handling of agricultural produce and development of modern marketing system. 

• State Governments conferred power to exempt any agricultural produce brought for sale in market area, from payment of market fee.

• State Agricultural Marketing Board made responsible for grading and standardization.

• APMC have been made specifically responsible for: 

1. ensuring complete transparency in pricing system and transactions taking place in market area;

2. providing market-led extension services to farmers;

3. ensuring payment for agricultural produce sold by farmers on the same day;

4. promoting agricultural processing including activities for value addition in agricultural produce; 

5. Publicizing data on arrivals and rates of agricultural produce brought into the market area for sale.

6. Setup and promote public private partnership in the management of agricultural markets

Model APMC act 2003 – Criticism

• The model APMC Act provides some freedom to the farmers to sell their produce directly to the contract-sponsors or in the market set up by private individuals, consumers or producers but this act is not enough for setting a common agriculture market even at state level. 

• The reason is that the model APMC Act retains the mandatory requirement of the buyers having to pay APMC charges even when the produce is sold directly outside the APMC area either under contract farming or private markets set up individuals.

• In some states minimum limit of setting up a private market was too high say 10Crore and act as barrier for small farmers to come together and form a market.

• Also many states have not amended their APMC act in line of Model APMC Act 2003 and even some states adopted this act in partial manner only. 

To improve the marketing system in India the Department of Agriculture, Government of India has launched a National Agricultural Market with the Cabinet Committee on Economic Affairs approving a scheme of Rs 200 crore through Agri-Tech Infrastructure Fund. This will serve as a common electronic platform for trading agricultural commodities. This will integrate 585 wholesale markets across India. The plan will cover 250 mandis in the current fiscal, 200 mandis in 2016-17 and 135 mandis in 2017-18. The NAM will facilitate the emergence of value chains in major agricultural commodities across the country and help to promote scientific storage and movement of agri goods.