A Critical Look at
the Terminal Market Concept for Perishables
The agricultural marketing system is a
link between the farm and nonfarm sectors. The biological nature of the
agricultural commodities and small farm nature of agriculture in the country
had made the farmers price takers with little influence over the market price. APMC
act in almost states were amended to include provision of direct marketing and
contract farming, development of agricultural markets in private and cooperative
sector.
With the increasing income there has
been a considerable shift in favour of fresh fruits, vegetables, animal
protein, milk etc in the Indian consumer basket. On the other hand, the
organized retail is growing with the emphasis on cost reduction through supply
chain efficiency. The existing supply chain for agricultural commodities is
long and fragmented resulting in considerable wastages especially for fruits
and vegetables. Hence the system was neither able to pass a fair share of
consumer rupee to the producer nor was able to benefit the consumer with lower
prices. With the launch of the National Horticultural Mission in 2005-06 it was
expected that there would be a manifold increase in production of fruits and
vegetables. The expected increase in production could be sustained only when
there is adequate infrastructure to handle post harvest management and
marketing of these crops. With this background, the scheme of terminal market
complex was conceptualized and being implemented.
The terminal market would operate in a
hub and spoke model. The terminal market would be the hub linked to a number of
collection centres called spokes. With the amendment of the APMC act greater
private sector involvement was expected in setting up the terminal market
complex.
Terminal
Market
The terminal market with ultra modern
facilities would be located near major urban centres in the country. These
markets would be serviced by a number of collection centres (spokes)
established in key production areas. The collection centres would get the
supply from individual farmers or farmers association at the village or block
level. The farmers or their association can bypass the collection centres and
supply directly to the terminal markets.
The market complex would contain all the
necessary infrastructure. The electronic auctioning platform would help in
quick, efficient and transparent process of the transactions. The processor,
exporter, wholesaler, trader, retail chain can all be members of the exchange
and participate in the auctioning. There are provisions for cold storage,
warehouse facilities, ripening chambers at the complex. Necessary
infrastructure for cleaning, grading, packing, pellatisation, quality testing
etc would be part of the complex. The participants can avail these services on
payment of user charges. Besides,
facilities for banking and transport etc would be provided. In short, all
facilities for smooth transactions and better price realization would be
created under one roof.
Collection Centres
The collection centres would be located
at key production areas. The major function of the centre would be to aggregate
the produce received from the registered farmers or their association and sent
them to the terminal markets. These commodities would be washed, graded and
sorted before sent to the terminal markets. These centres would receive the
payment from the terminal market and settle it with the suppliers. The centres
would collect and disseminate information on prices, quality requirement etc to
the growers. There would be advisory services on agronomic practices such as
inputs, their dosages etc.
Thus, the collection centres in
production areas will integrate producers and retailers, processing units and
exporters etc. into market system. The number of collection centres shall be
determined in each case depending on the size of the market, distance from
growing areas and other factors.
Functioning of the Terminal Markets
The commodities to be marketed by the
TMC will include all perishables, inter-alia, fruits, vegetables, flowers,
spices, aromatics, herbs, medicinal plants, meat products, poultry products,
dairy products and fish and marine products etc. Non-perishables can also be
handled in the TMC. However, the annual throughput for perishable horticultural
produce such as fruits, vegetables, flowers, medicinal plants, aromatics, herbs
etc handled by each TMC should not be less than 70% of the throughput capacity
of the TMC.
The individual farmer or producer
association brings the produce from the farms and villages. At the collection
centres the commodities are washed, cleaned and graded. Poor quality is
rejected and those which meet the quality specifications are made into a lot
and sent to the terminal markets. The supplies coming from the collection
centres are auctioned through the electronic trading platform. Since, the
farmers are expected to get a fair return a floor price is fixed for the
commodity below which the goods will not be sold. The unsold stock may be taken
to the cold storages to be auctioned on a subsequent day. The payment from the
successful bidder is collected on the same day and the stocks transferred to
him. The purchaser may transfer the goods to some place outside the market
complex or use the facilities at the market to store or further process the
commodities. Only registered buyers are allowed to participate in the auction.
In case the purchaser bids for smaller
quantity in the lot, the lot will be broken and the remaining quantity would be
auctioned again. In case of unsold stocks the terminal market through its
forward linkages with institutional buyers or through its retail outlets would
dispose off the commodity. For example the project report for the Chandigarh
complex envisages apart from linkages with institutions like Army, Paramilitary,
eating establishments it was expected that ten retail outlets would be opened
in different parts of the country by the market operator to dispatch the
produce.
Eight terminal market complexes for
perishables at Nagpur, Nashik, Bhopal, Kolkata, Patna, Rai, Chandigarh and
Mumbai were to be established. Although the detailed project report has been
prepared for several terminal markets such as Chandigarh, Mumbai, Sambalpur,
Ahmedabad, Surat etc by National Institute of Agricultural Marketing and other
consultants the response for the bid was lukewarm. The government is
considering increasing the subsidy component[1] to
make the idea more attractive to the private players. There could be several
reasons for low response to the concept. Some of the reasons could be flaws in
the very design some of which we try to highlight below.
Issues
in the Conception of TM
A market can be defined as a place where
buyers and sellers meet in order to exchange products and values with
others. It is a place where the needs
and wants of the consumer is expected to be met. However, the terminal market
apart from providing a place and facilities for buyers and sellers to interact
is also obliged to create forward linkages with the institutional buyers as
well as set up own retail outlets. That is it is expected that the market
operators also would indulge in buying and selling the commodities. There is no
reason why a market operator would involve himself in trading activity. His
primary aim would be to look for a fair return on his investment by providing
the services or facilities in the complex rather than take additional risk of
buying and onward marketing of the commodities.
For example, the project report on
Chandigarh terminal market envisages setting up “Forward Link Team” which will
find the daily prevailing rate in all important markets of India and find out
the possibility of dispatching the produce. Further, the report expected the
TMC to open retail outlets at Chandigarh and other parts of the country to sell
the commodities coming to terminal markets. Further, an ambitious idea was
proposed that is, to brand the commodities passing though the Chandigarh
terminal.
So, it is clear that terminal markets are
expected not merely to provide a platform but indulge in buying and selling of
the commodities. This is unlikely because the buyers take part in market
transaction to fulfill their particular need or want in exchange for some value
terminal market operators are not in a position to do unless some promoters
also have interest in organized retail, processing or export. Even then, it is
unfair to expect that they will be able to clear whatever arrives in the
market.
At the time of auctioning a floor price
is fixed for the commodity. If the auction price is below the floor price the
commodity will not be sold. The floor price is fixed in order to ensure a fair
return to the farmers. In case, if the commodity is not sold what happens? If
it is kept in cold storage for some time for the price to rise who will bear
the cost? If there is bumper harvest depressing
the prices will the floor price be revised to the level which may not be
remunerative to the farmer? Ideally market forces must be allowed to operate
and the goods need to be cleared unless the specific producer or association
request that the commodity should not be sold below a certain price and willing
to hold in the cold storage at its own cost. The terminal markets operators
should be kept away from such responsibilities.
At the collection centre the supply
comes from different individual farmers from many villages either brought by
the farmer himself or by the producer association. The commodities are graded
and sorted since much of the quality parameters for fruits and vegetables are
subjective it would not be possible to convince a farmer that his produce is
second grade. The problem would be compounded if the price difference between
the two grades is high or when the produce just marginally fails to make the
higher grade. There will be accusation of bias, nepotism etc against the
centres’ office bearers. Such situation had lead to collapse of many collective
efforts in the country. This may well prove an Achilles heel in the terminal
market in forming groups or association of farmers to ensure supply.
In the normal traditional market the
farmer’s lot receive an average price irrespective of the percentage of
different grades in the lot. Nothing is returned to him. In case of terminal
market concept, at the collection centres after grading the residual is
expected to be taken back by the farmer. Apart from the cost of transport the
farmer has to find alternative ways to dispose of these residuals. Because of
such hassles, farmers would prefer the traditional market to terminal markets.
Farmers in most part of the country sell
the perishables especially fruits through forward contracts. That is just a
month before harvest contractors take the orchards or plantation for a fixed
amount. The farmer is not only saved from price volatility but also in having
to arrange for labour to harvest small quantities and arrange for transport. As
the harvesting season extends to a month or couple of months it makes eminent
sense for the farmer to have such arrangements. It is therefore, not reasonable
to expect them to form groups or associations and bring the produce to the
market.
Further, the lots coming from the
collection centres would be bigger. In case a bidder bids for a part of the lot
it needs to be broken and the rest would be auctioned again. In case there are
three different price realizations for the same lot how that would be
distributed to the farmers. Will the realization would be pooled and divided proportionately
according to the supply of a farmer or would they be treated separately. What
would be the reaction of the farmers?
The farmers are expected to be paid
immediately upon selling of his produce. The bidder is to deposit the amount
immediately on purchase of the commodity. What would be the arrangement to
transfer and how long that would take is not clear. However, it was mentioned
in the guidelines to create a revolving fund to expedite the payment process.
The question is who will contribute to this and why the operator of the market
should take this additional responsibility.
The terminal market operator is
responsible for establishing the collection centres that is identifying the
location and getting the necessary clearances. They are to offer 26 percent
stake in the terminal market to these collection centres. This is with the
intention that the collection centre would continue to supply on a sustained
basis if their interest is involved. Each terminal market would require
substantial investment may be ranging from rupees 50 crore to 100 crores.
Twenty six percent of this would be a huge amount to be raised from the farmer
members at the collection centres. With no direct return at least in the
initial years it would be a herculean task to mobilize the amount from the
farmers.
These markets are to be located near
major urban centres and a large area of prime land is to be allotted to the
project. It would be tantalizing for the promoters to use major portion of the
land for commercial establishment and less to marketing agricultural products.
If proper mechanism is not put in place such a misuse cannot be prevented.
Therefore, more clarity is needed in
various aspects of the proposed terminal market idea. The role of the promoter
has to be made realistic in order to make the proposition attractive to the
private investors.
thank you.
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