Amid ongoing farmers’ protests in Delhi, opposition parties, including Congress, have supported the farmers. The primary demand of the farmers’ unions is to take back the three newly introduced laws that are Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, and the Essential Commodities (Amendment) Act. According to the farmers, the government is trying to end the Agricultural Produce Market Committees (APMC) system where farmers can sell their produce at Minimum Selling Price (MSP) at Mandis.
Though the government has assured MSP is not going away and the Mandi system will continue, the unions are not ready to understand. The opposition parties, including Congress, are adding fuel to the agitation by calling these newly passed laws “the black laws” and demanding the central government should take back the laws.
Congress-led Committee found irregularities in APMC system
Interestingly, according to a report published in the Guardian, it was a Congress-ruled United Progressive Alliance government that came up with suggestions of similar agricultural reforms and also started looking into the functioning of the APMCs. The Ministry of Agriculture under Sharad Pawar formed a committee comprising of agriculture and marketing ministers from 11 states.
The aim was to bring reforms in the Agriculture sector and look into the complaints regarding APMCs. The Committee found out that the APMCs were making a mockery of the system. They were not only charging high commission from the farmers but also blocking much-needed investment from the private sector. The idea behind APMCs was to benefit the farmers, but in reality, they were benefiting a selected group of people.
Ministers from Maharashtra, Assam, Uttarakhand, Andhra Pradesh and Haryana (led by Congress), Gujarat and Madhya Pradesh (led by BJP), Bihar (led by JDU), Karnataka (led by JDS), Odisha (led by BJD), and Punjab (led by Shiromani Akali Dal were part of the Committee. Harshvardhan Patil, the Agriculture Minister from Maharashtra, was the head of the Committee. A total of nine meetings were held in two years with the stakeholders, including farmers, industrialists, retailers, and cold storage owners, to investigate the reasons that were causing a blockage in the progress of the agriculture sector while keeping the farmers poor.
Observations made by the Committee
The Committee had submitted a 98-page report on January 22, 2013, where it had shared many observations that were based on the conversations with several groups during the meetings. The main point that the Committee raised was that the APMCs and intermediaries were making a major part of the income that was supposed to go to farmers. They were not allowing private investment in the agriculture sector as well.
The Committee reported, 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.”
Using different examples, including the milk trade and poultry business, the Committee said that the milk producers and farmers were getting more than 70% of the price paid by the end consumer. The well-organized structure and supply chain made it possible for better distribution of the funds among the farmers and milk producers. However, in the agriculture sector, the farmers were getting only 25% of the price the consumer was paying for the product. The remaining 75% was minted by the middlemen. As there were insufficient markets and inadequate marketing infrastructure combined with high charges at APMCs and lack of competition, the long chain of the intermediates kept the farmers poor.
The blockade created by commission agents/traders
The Committee found that the current commission agents and traders were barring entry of any new competition in the market. As it was mandatory to get a license to own a shop or godown in the APMC market, the already existing licensed traders were acting as a major hurdle in allowing any new person to enter the market. These markets were established decades ago, and no expansion plans were ever sought to increase the capacity that became another reason for the lack of new competition. The licensed traders formed associations, and they made it next to impossible for any new person to start working in the APMC markets. The Committee suggested, “There is a need for a transparent and simple system of registration of market functionaries to simplify and revitalize the present marketing system.”
Lack of facilities
The Committee noted that only two-thirds of the markets had open auction platforms. One-fourth of the markets had drying yards. One-tenth of the markets had cold storage facilities, and one-third of the markets had grading facilities. The electronic weigh-bridges were available in a handful of markets.
The high commission charged by APMCs
As per the law, the APMCs could only collect market fees ranging between 0.50% to 2.0% of the sale value of the produce. However, the Committee found out that they were charged 1% to 2.5% in food grains and 4% to 8% in fruits and vegetables. Other charges, including purchase tax, weighing charges, and porter charges, among many others, were to be paid by the farmers. In the end, the farmers had to pay 15% in the charges.
The problems with the supply mechanism
The Committee reported that due to the problems in the supply mechanism, various commodities faced post-harvest losses. In 2009, the total post-harvest losses clocked to Rs.44,000 crore. In cereals, such losses clock to 3.9% to 6%, in pulses 4.3% to 6.1%, in fruits 5.8% to 18% and in vegetables 6.8% to 12.4%, which was adding up to the financial pressure on the farmers.
As per the report, the supply chain in India was very long, with a large number of marketing channels. Between the producers and the consumers, there were many intermediaries causing a spike in the end-price without adding any value to the product. Hence, farmers became the biggest sufferers. The Committee said, “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 importance of private investment
The Committee said that the current system was causing unnecessary delays in the transportation of the agricultural produce at the border checkpoints. It was creating artificial barriers making it harder to manage the movement and storage of the commodities. The government has to come up with a plan to provide a free hand to the private sector so that it can own, operate, and manage the market or create an alternate marketing system. The government should concentrate on formulating the rules and regulations for such markets rather than controlling them.
In the report of the Working Group on Agricultural Marketing Infrastructure for the XII Five Year Plan 2012-17, it was assessed that there was a requirement of more than Rs.14,56,000 crore for development in the agriculture sector. A major chunk of this investment was expected from the private sector. To ensure the investment was encouraged, the government was required to form a regulatory and policy environment. Also, the report suggested a need to encourage the procurement of agricultural commodities directly from the farmer’s field. The states have to amend their marketing laws to ensure the barriers caused by the APMC Act and other regulations are removed for storage and smooth supply of the commodities across the country.
Kisan Union asked to abolish APMC last year
In 2019, Bharatiya Kisan Union had repeatedly asked for the removal of intermediaries in Punjab to ensure direct payments to farmers. Their 2019 manifesto had asked for the abolition of APMCs and the Essential Commodities Act. They had supported the then Union Minister for Consumer Affairs, Food and Public Distribution, late Ram Vilas Paswan, after he demanded Punjab Chief Minister Captain Amarinder Singh to do away with the Arhitya system and ensure direct payment to farmers as is provided under the new farm laws. The same BKU has now been hailing Punjab CM Amarinder Singh for ‘rejecting’ the new farm laws that have provisions to free farmers from the clutches of middlemen.