The
food prices are rising much to the discomfort of the new government. The rise
in prices particularly of onions and potatoes has pushed the food inflation to
9.5 percent. This despite the increase in production of these two crops
compared to the previous year. It is said that rise in prices while hurting the
consumers is not benefiting the farmers. So the villain in the opinion of the
experts and the government is the middlemen especially the one operating out of
the APMC mandies. The prescription offered to the malady range from delisting
onions and potatoes from the APMC act to completely scrapping the mandi system.
The argument is that since farmers have no alternative to market their produce apart
from the mandi the middlemen exploit the situation.
Regulations
in agricultural produce marketing were introduced in the late 50s and 60s to
prevent the traders from exploiting the farmers through unethical practices
such as under weighing and lower prices. Not only physical infrastructure like
market yards were created price support was also introduced. These markets or
mandies are governed by a committee representing all stakeholders that is
farmers, traders, government officials, elected representatives of local bodies
etc. Though the system worked fairly well, over the years it has become
monopolistic and all the tendencies associated with it. Further, with the
advent of value added processing and modern retail the mandi system was found
to be inadequate. It increased the cost in the supply chain and hence
inefficient. This called for reforms in the APMC act and the central government
prepared a Model Act in 2003 and advised the state governments to amend their
respective APMC acts as per the model act. Almost all the major states have
adopted the provisions of the model act.
The amendment encourages direct sale by the farmers to the processors
through contract farming, establishing market yards by private companies and
farmers’ markets to sell fresh produce directly to the end consumer.
There
are several companies such as McCain, Pepsico’s Frito Lay, ITC, AM Todd,
Apachi, Global Green, Satnam etc who have entered into contract farming with
farmers negotiating the quantity and price for crops like potatoes, wheat mint,
cotton, basmati rice, gherkin. Organised retailers such as Reliance Fresh,
Spencers and the German wholesaler Metro Cash and Carry, have established collection
centres for fruits and vegetables where farmers bring their produce at a pre
announced price. National Dairy Development Board (NDDB) has established a huge
ultra modern terminal market near Bangalore on the lines of Holland’s famous Aalsmeer
flower market to facilitate direct contact between the farmers with the
processors and retailers. More such terminal markets are in the process of
being established in the Public Private Partnership (PPP) mode in Mumbai,
Chandigarh, and other cities with generous subsidy from the government. DCM groups
have established Hariyali Kissan Bazaar with much fanfare to sell inputs as
well as buy output. The idea was so novel that it attracted Harvard Business
School to write a case material for teaching. However, DCM group could not
expand on the concept and rolled back the initiative. The above examples show
that it is not correct to argue that farmers are not having alternative to sell
their produce.
Some
of the initiatives chug along while others have run into problems as the
Hariyali Kissan Bazaar and the tomato contract farming by Pepsico in Punjab.
NDDB’s terminal market is struggling to get the volume. There are several
reasons for farmers not finding these arrangements attractive; however, two are
most important. The processor and retailers who enter into direct relationship
with the farmers most often bench mark their purchase to the mandi price. A
couple of rupees more than the mandi price is the kind of incentive offered to
lure the farmers. However, because of the quality standards followed by these
companies farmers have to take back a certain percentage of rejected quantity
with them which often offset the gain they got by way of higher price. Farmers
do not really see any major gain in the arrangement as the net income they
realize under the system is at the most may be marginal. Hence, the initial
enthusiasm of the farmers for the new arrangement fades and the relationships
run into trouble.
The
other important reason is the well known factor called credit commodity
linkages which simply means the dependence of the farmers on mandi traders for credit.
There are several studies highlighting the phenomena. Despite several innovations and policy
measures in providing rural credit from priority sector lending to kissan
credit cards to Self Help Groups to ease the flow of credit to agriculture and
rural areas the hold of informal credit is strong. Farmers typically take loan
from the traders during the cropping season either to purchase inputs or meet
the household emergencies. This association or bond has been built over the
years and the traders know the credit worthiness or the trust worthiness of the
farmers. The formal credit mechanism does not have such advantage and rely on
collateral to extend credit. The ease with which the farmers could raise loans from
the traders and mandi operators also binds them to sell the produce to them. The
contract farming companies or the modern retail outlets are not in a position
to extend such credit facilities for fear of default as well little recourse to
recover the loan.
However,
these companies should find ways to offer a better price to the farmers based
on their cost structure as well as by increasing their supply chain efficiency
instead of resorting the easy way of benchmarking with the mandi price.
Otherwise farmers will continue to patronize the APMC despite the delisting and
other measures contemplated by the government.
The extreme measure of scrapping the APMC would be counterproductive as
without the credit lifeline farming will be more difficult. The government may
well a turn a marketing or distribution problem of fresh fruits and vegetables into
production problem.
