Introduction
Indian
farmers especially the small, marginal and tenant farmers are the ones who are
most affected by the lack of ability to market agricultural produce (low
volume, lack of knowledge, cost of accessing markets and exploitation by the
intermediates). Liberalization has ensured the achievement of market driven
efficiencies and improvements in the industrial and services sectors, bypassing
the agriculture sector.
About
30-40% of the value of agricultural/ horticultural produce in India is lost due
to damage during transport, pilferages, perishable nature of the produce
themselves and lack of adequate storage or agro-processing facilities. Given
the large size of rural population engaged in agriculture and related sectors
it is essential that market reform in this sector addresses the accrual of more
value or benefits to farmers.
Agri-marketing
Reforms
In
India deregulation of domestic and external trade is expected to improve the
incentives and structure of agriculture production and make it more
competitive. The three components of this are an improvement of productive
efficiency by ensuring the convergence of potential and realised output; an
increase in agricultural exports and value added activities using agricultural
produce; and finally, an improved access to domestic and international markets
that are either tightly regulated or overly protected. Opening up the
agriculture sector has the potential to transform subsistence agriculture to
commercialised agriculture and to improve the living conditions of the rural
community.
Organized marketing of agricultural commodities
has been promoted in the country through a network of regulated markets to
ensure reasonable gains to farmers and consumers by creating a market environment
conducive for fair play of supply and demand. In order to bring about reforms in
the sector, a model Agricultural Produce Marketing (Development and Regulation)
(APMC) Act was prepared in 2003. 25 states and union territories have
either amended their APMC Act or do not have APMC Act[1],
but until the rules are framed as per the amendment, the ground reality does
not change. Though the process of market reforms has been
initiated by different state governments through amendments in the present APMC
Act on the lines of Model Act, many of the states are yet to adopt the Model
Act uniformly. The
amendment in the APMC Act has paved the way for contract farming in a number of
states although there is restriction in the lease period. Under the model law
on contract farming, a farmer can lease out his land for a minimum of 11 and a
maximum of 30 months. Currently, only Punjab, Haryana and Maharashtra allow
farmers to lease land. Here too, farmers are now leasing out their land for
short periods only, as they fear losing the right to their land if they lease
it out for longer periods.
It is, therefore, necessary to complete the process of market reforms
early in order to provide farmers an alternative competitive marketing channel
for transaction of their agricultural produce at remunerative prices.
Development of an agricultural marketing infrastructure is the foremost
requirement for the growth of a comprehensive and integrated agricultural marketing
system in the country. For the purpose, the Ministry of Agriculture is implementing
demand-driven Plan schemes by providing assistance to entrepreneurs in the form
of back-ended credit-linked subsidy, viz. the Grameen Bhandaran Yojana and
Development/Strengthening of Agricultural Marketing Infrastructure, Grading and
Standardization.
The storage capacities for buffer
stocks are sufficient to store less than 30 million tonnes, while the actual
needs is estimated to be more than 50 million tonnes. Therefore, there is an
urgent need to increase storage capacities. Accordingly, the Union Budgets
2012-13 and 2013-14 announced the allocation of `5,000 crore each, for financing warehouses,
cold storages, cold chains, and related infrastructure to state governments and
state government owned corporations by NABARD, out of RIDF and the Warehouse
Infrastructure Fund (WIF) (which also finances private sector entities in addition to state
governments and public sector entities).
Market
Reforms: Commodity Exchange and Organised Retail
According
to economists and market analysts worldwide there are two distinct benefits of
commodity derivatives trading, viz. efficient price discovery and effective
price signals. Further, commodity exchanges also provide a specialised risk
management tool for the producers, traders and consumers encompassing the
entire ecosystem. Other benefits of commodity exchanges include enhancing the
country’s economic infrastructure, and setting up and implementing better
regulatory standards.
The
existence of a dynamic commodities exchange sensitises the complete commodities
ecosystem and all other sectors of the economy to react to the price signals
emanating from the primary commodities and plan economic activities or policy
initiatives accordingly, thus ensuring better integration of the primary sector
with all other sector of the economy. As a result the rural economy starts
attracting new investments, which accelerate the development of strong forward
and backward linkages. Vigorous commodity markets also promote a greater
standardisation of commodities, trading practices, quality standards,
warehousing, storage practices, etc.
The
establishment of commodity exchanges, viz., MCX and NCDEX, has enabled the entire ecosystem to participate in
deciding the price of the relevant commodities, and markets have undergone a
complete makeover in terms of their transparency and efficiency in functioning.
Besides national integration, transparency and the future price signals provided
by commodity exchanges also reduced the volatility in spot prices reducing
losses to producers during times of over-supply, and reduce costs to consumers
at times of increase demand. It is observed that price volatility reduced in
the spot market after the introduction of MCX futures contracts. Besides
reducing the volatility futures exchanges have also provided an effective tool
for the management of risks for the entire ecosystem players by hedging and
sharing their risk with other ecosystem players. Futures prices discovered in
the markets have also helped producers (to plan in advance their production/
sowing decisions) and consumers (to plan their future consumption). Thus by
streamlining the demand and supply, it helps the markets arrive at the true
worth of commodities, which would reflect on their ‘scarcity value’
Development
of organised retail, including FDI in retail, revolves round the idea of direct
purchase of agricultural/ horticultural commodities from farmers, bypassing the
APMC system. The farmers benefit from remunerative prices, while the retailers
are able to cut down costs in the absence of middlemen, and are able to sell
the commodities to customers at competitive rates. Organised retailers could
use the services of federations of farmers’ clubs as aggregators of
commodities, in order to ensure the effective functioning of the system. They
could also enter into contract farming arrangements with farmers’ clubs/
farmers’ federations/ producer organisations/ JLGs. Further, they also need to
invest in infrastructure along the value chain, viz, cold chains, warehouses, transport/
logistics, etc.
Collateral
Financing
A warehouse accepts goods, verifies the grade and issues warehouse
receipts to the depositor. Farmers can obtain warehouse receipts after
delivering the products and use the same as collateral for short term borrowing
from banks in order to get working capital, and sell the produce later when
prices increase, thus maximising their profits. With commodity exchanges
providing warehouse facilities, farmers can transport their produce to any
suitable warehouse and convert it into a warehouse receipt.
Developing an Agri-marketing system: Electronic Platform[2]
The
benefit of subsidy schemes for construction of Godowns, Market Yards, Cold
Storages and other Agri-Marketing Infrastructure, has flown to traders,
agro-processors and private individuals. This has led to addition of more value
to the owners of this infrastructure without concomitant value addition to the
farmers. Given the large numbers engaged in agriculture and related systems it
is essential that market reforms in this sector addresses the accrual of more
value or benefits to farmers.
NABARD
could contemplate the creation of a platform (as a subsidiary) for agri-marketing
linking various farmer/ producer groups (PACS, Farmer Clubs, producer
companies) to the bulk consumers (agro processing companies, retail majors,
wholesalers) so as to ensure that value share in the hands of the farmer
increases to a level of 60%-70% (from the present level of 20%-40%).
The
project can be implemented in creeping manner with a pilot phase where not much
investment is required except cost involved in travel / use of mobile phone and
liaison with bulk buyers and groups of farmers to obtain information on
products on offer for sale and tying them up with bulk buyers. During implementation
phase investment would be needed in developing a website and hosting the same
followed by marketing cost to enrol more and more bulk buyers into the system.
Logistics
between buyers and sellers could be ensured through liaison with a network of
transporters. A robust settlement process could be developed which can be
triggered on-line with the availability of RTGS/NEFT or with third party
payment gateways.
Given
that the agri-GDP is around `10,00,000 crore, even 10% trade taking
place through the website/ portal will ensure a turnover of `1,00,000 crore approx and provide `2000 crore by
way of commission.
The
spin-off benefits from this system could be as follows
(i) Financing
of storage infrastructure by NABARD can be undertaken to develop synergy with Agri-Marketing Electronic Platform.
(ii) Direct
Financing of Agro-Processing companies for their production and expansion plans.
(iii) Financing
of retail majors for short-term working capital
(iv) Ensure
Green Development by matching buyers and sellers electronically with least
geographical distance
(v) Financing
the producers wherever they group themselves into producer companies, as the
marketing of the produce will act as effective collateral for the loans
Systemic
benefits would include: (a) unleashing of forces for the other channels to
provide improved margins to the farmers; (b) wastage of produce will be reduced
due to reduced handling and direct delivery (just-in-time); (c) lack of
transparency in the existing marketing channels will be laid bare; and (d) consumers
will pay a lesser premium for inefficiencies of supply-chain.
Conclusion
Reform
in agriculture marketing through scientific supply chain management is critical
for increasing the value of agriculture produce, income of farmers and lower
prices to consumers. Farmers' access to markets is hampered by poor roads, storage
and market infrastructure, and excessive regulation. It is, therefore, imperative that the APMC Acts
are amended by states and mechanisms for linking wholesale processing,
logistics and retailing with farm-production activities be developed so as to
generate enhanced efficiency, and better farm prices.
(Views expressed
by the author are personal)
[1]States which
amended APMC Act: Andhra Pradesh, Arunachal Pradesh, Assam, Chhattisgarh, Goa,
Gujarat, HP, Karnataka, MP, Maharashtra, Nagaland, Odisha, Rajasthan, Sikkim
and Tripura.
No
amendment needed : Tamil Nadu
States
with no APMC Act: Bihar (abolished),
Kerala, and most of the UTs.
APMC
Act Partially amended : Chandigarh (CF and private mandis), Punjab and Haryana
(only CF) and Delhi
APMC
Act amendment under consideration: Jharkhand, Uttarakhand, UP, West Bengal,
J&K, Meghalaya and Mizoram
[2] I sincerely thank Mr. S.Padmanabhan,
CGM, NABARD, for sharing his ideas.
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