Developments in Agricultural Marketing in India

Indian agriculture had undergone phenomenal transformation in the last five or six decades. The metamorphosis was not only brought about by technological changes such as the green revolution but also by institutional innovation in delivering the farm inputs and marketing of output. The agricultural marketing system is a link between the farm and non-farm sectors. The marketing of agricultural commodities is different from the marketing of manufactured goods. Agricultural output is characterized by seasonality, perishability, and variability (of quality). Further they are bulky and hence costly and difficult to handle especially while storing and transporting. Weather and biological nature of the crop play a crucial role in determining the quantity and quality of the output. The output comes from many small farmers operating independently. Therefore, farmers are price takers and cannot influence the market price. This disadvantage resulted in unfair trade practices and exploitation of the farmers by trade.

In order to ensure a fair deal to the farmers government stepped in several ways. Announcing minimum support price for several commodities, monitoring and controlling movement of agricultural products, setting up of regulated markets etc are some of the interventions to streamline agricultural marketing. Regulation of primary markets was an important institutional innovation. Construction of well-laid out market yards and sub yards was considered essential for effective implementation of the regulation programme. The markets were administered by a committee consisting of representatives of all stake holders such as farmers, traders, local elected members, government officials etc. It was made mandatory that all the agricultural produce must be traded in the regulated markets. There are 7161 (2364 main yards and 4807 subyards) Agricultural Produce Marketing Committees known as APMC or simply mandies functioning in the country.

Despite enormous progress in improving the infrastructure for marketing agricultural produce there were several problems persisting in the system. Regulated markets provided only physical and regulatory facilities, real benefits would accrue only when the price determination process is strengthened.  The licensed traders in the market colluded in determining the price. Instead of fair price and transparency a kind of oligopsony emerged. Further, the emergence of value added processors who emerged in the 90s felt the system increased the cost of the supply chain due to various intermediaries as processors under the law could not directly procure from the farmers. Global Trade requirement such as the SPS measure and Agreement on TBT have necessitated a review of existing standards for different commodities in order to harmonize them with International Standards.

Considering the emerging needs it was felt that agricultural marketing reforms were necessary so an inter ministerial task force was formed for the purpose. In June 2002, the inter-ministerial task force on Agricultural Marketing Reforms made major recommendations related to the amendment to the State APMC Act for promotion of direct marketing and contract farming, development of agricultural markets in private and cooperative sectors, provide central assistance for the development of marketing infrastructure subject to such deregulation and reforms, progressive dismantling of controls and regulations under the Essentials Commodities Act to remove all restrictions on production, supply storage and movement of commodities and trade and commerce in all farm commodities, stepping up of pledge financing, expansion of future trading to cover all agricultural markets, introduction of negotiable warehouse receipt system and use of information technology to provide market led extension services to the farmers. The Central Government drafted a Model Act on Agricultural Marketing to guide the States in the implementation of the suggested norms which provided for the establishment of direct  purchase centers and farmers markets for direct sales to the consumers, complete transparency in the pricing system and payment to the farmers, public- private partnership for professional management of existing markets and setting up a Market Standards Bureau for promotion of standardization, grading and quality certification of produce. On January 2004, in the National Conference of State Ministers on Agricultural Marketing and Land reforms all State Governments agreed to adopt the Model Act on Agricultural Marketing in their respective States. Almost all states have amended their APMC act more or less in line with the model act. However, some states have not adopted some of the provisions.

Farmers Market

In order to bring the farmer producer and the urban consumers together farmers’ market in various parts of the country was started especially for fruits and vegetables. They were known by various names in different parts of the country. It was called apni mandi in Punjab, ryotu bazaar in Andhra Pradesh, uzhavar sandhai in Tamilnadu.

Contract Farming

There are several intermediaries between the processing firm and the farmer. They contribute to the overall inefficiency in the system. It is estimated that there are six to seven intermediaries in fruits and vegetable marketing in India. On the other hand, the emergence of niche markets for agricultural commodities due to increased income forced many agribusiness firms to find new ways of procuring the commodities for their requirement. Contract farming is one such method wherein the company directly procures from the farmers the required quantity with specified quality at a pre-negotiated price. Though the production risk remains with farmer market risk is transferred to the purchaser. Several companies are procuring their raw materials such as gherkin, potato, safflower, marigold, basmati rice etc through contract farming.

Producers' Company

The Company Act 1956 (The Act) recognised only three types of companies namely companies limited by shares (subdivided into public limited and private limited companies), companies limited by guarantees and unlimited companies. With the coming into force on February 6 of the Companies (Amendment) Act 2002 (1 of 2003), a fourth category producers companies, finds a place in the Act. The legislation enables (a) incorporation of cooperatives as companies and conversion of existing cooperatives into companies (b) to ensure that the proposed legislation accommodated the unique elements of cooperative business with a regulatory framework similar to that of companies. The members have necessarily to be primary producer that is persons engaged in an activity connected with, or related to primary produce. This enables the farmers to reap the economies scale as well as increase the bargaining power vis a vis the market. Since the amendment scores of producers companies have been established in different parts of the country covering a host of commodities ranging from agriculture and plantation crops to handicrafts. However, the efforts were largely handheld by the NGOs and there are only a few which emerged on their own.

Futures Market

The future market which was banned in India in the 1960s as it was feared that they lead to speculation and unwarranted price rise in agricultural commodities. Future markets in many countries have helped to smoothen price volatility and thus led to price discovery. In India, in the past decade future markets on several commodities were revived.

Futures market is a marketplace in which futures contract are traded. In simple terms, a future contract is an agreement to either buy or sell a given commodity at some specified time in the future. Future contracts exist for various agricultural commodities. There are 5 National Exchanges –NCDEX, MCX (both in Mumbai), NMCE and Ahmedabad Commodity Exchange (ACE) (Ahmedabad) Indian Commodity Exchange Gurgaon besides 21 Regional Exchanges in different parts of the country.

Electronic Spot

An electronic spot exchange called SNX was promoted by Mother Dairy Foods Processing Limited (MDFPL)—(a subsidiary of National Dairy Development Board of India), Multi Commodity Exchange (MCX) and Financial Technologies Limited. SNX was an electronic spot market for fruits and vegetables in an exchange format. It is a seamless spot market with national reach (buyers and sellers from any part of the country can participate) to enable transparent price discovery and delivery of fruits and vegetables in the country. The SNX attempts to make the market for agriculture produce perfectly competitive where large number of traders from various parts of the country can participate in the bidding through electronic trading platform and no single individual or group can influence the price thus resulting in better price discovery. However, after initial round of trading in mangoes and bananas in 2007 and 2008 the attempt was given up.

On the other hand, NCDEX started a spot exchange called NSPOT. NCDEX e Markets Limited (formerly known as NCDEX Spot Exchange Ltd) is the leading National Spot Exchange in India. It offers trading platforms for agricultural commodities to various market participants, primary producers including farmers, traders, processors etc. These trading platforms combine technological efficiency and market friendly trading features in a transparent atmosphere. Currently it provides trading facilities for chana and sugar and imported pulses.

Terminal Markets

In order to bring the producer and consumer closer and bypass the middlemen as far as possible the terminal market concept was conceived. It is being implemented under the National Horticultural Mission.

The main objective of the terminal market is to link the farmers to markets by shortening the supply chain of perishables and enhance their efficiency and thus increase farmers’ income. It also aims to bring transparency in the market transactions and price fixation for agricultural produce. 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. Eight terminal market complexes for perishables at Nagpur, Nashik, Bhopal, Kolkata, Patna, Rai, Chandigarh and Mumbai were to be established by 2006-07. Although the detailed project report has been prepared for several terminal markets such as Chandigarh, Mumbai, Sambalpur, Ahmedabad, Surat the response for the bid was lukewarm. Even the terminal market SAFAL in Bangalore promoted by NDDB is not getting the necessary produce to be traded.

Use of ICT (E-Choupal)

There are ways of by passing the middlemen and deal directly with the farmers using technology. One such exercise is undertaken by the Indian Tobacco Company (ITC) for procurement of agricultural commodities through e-choupal using information technology. Central to the e-choupal procurement is a computer with Internet facility at the village level giving the farmers the needed information about the market. This enables the farmer to make an informed decision about when to sell, where and at what price giving him a sense of empowerment rather than be at the mercy of the traders in the mandi.

Private Sector Initiatives

Apart ITC other private agribusiness firms developed their own model for procuring agricultural commodities.

Mahindra Shubhlabh 

Mahindra Shubhlabh Services Limited (MSSL) was established in the year 2000 for selling inputs as well as purchasing output.  MSSL’s operations are now restricted to the fruits and vegetables (F&V) segment. The operations of this segment were initiated in 2005 with the export of grapes to Europe and UK, and domestic business was initiated in 2009. Currently, the product basket of the company includes exports of grapes and pomegranates, and sale of apples, oranges and pears in the domestic market. In November 2013, MSSL launched its fresh fruit brand, Saboro, for the health conscious Indian consumer offering a wide range of fresh fruit.

In April 2014, Mahindra ShubhLabh Services Ltd. signed a joint venture agreement with UNIVEG, a Belgium based Euro 3.2 billion Fresh Produce Company. The JV will also focus on the modernisation of the domestic fruit supply chain in order to respond to the demand for high quality produce. It will focus on improving ripening, packaging, & storage processes to offer better fresh produce.

Hariyali Kisaan Bazaar

Hariyali Kisaan Bazaar was started by DCM Shriram Group in 2002. The idea which began in providing quality input to the farmers developed into purchasing output from the farmers as well as selling consumer durables and FMCG.  Hariyali Kisaan Bazaar was one-stop solution for farmers and nearly 300 outlets were operating. However, it had come down to 37 outlets and these outlets are only selling diesel and petrol.  The concept of rural organized retail seems to be ahead of its times. As HKB was cash only outlets they were unable to sell enough of agri inputs as well as other goods. The procurement of wheat, potatoes to supply processors was not enough to run the outlets profitably.

Organised retail

With the emergence of organized retail in the country, procurement of fruits and vegetables by them directly from the farmers also emerged. Many retailers such as Reliance Fresh, Namdhari Fresh, Spencers etc as well as wholesalers such as Metro Cash and Carry started their own collection centres. The price at which the fruits and vegetables are to be procured in a particular day is communicated to their contact farmers mostly through SMS. If the price is right the farmers bring the produce to these centres where it is weighed and payment given as per quality specifications. From these collection centres the commodities are sent to different outlets of the retailers in the cities.

Collaboration between Processors and NGOs/CBOs,

There are instances where the processors engaged the NGOs or community based organsiations (CBOs) in organizing production and procurement of the required raw materials. The NGOs/CBOs acted as a conduit between the farmers and processors supplying seeds and other inputs and aggregating the output and supplying it to the processors. Although the arrangement between Pepsico and BASIX for procuring potatoes in Jharkahnd initiated in 2005 did not sustain after two rounds there are other processors looking at such opportunities.

NGOs and SHGs

There are several SHGs in different parts of the country involved in procuring agricultural commodities, process and market them. These are again overly relying on NGOs. For examples, Self Employed Women’s Association (SEWA) in Gujarat is promoting RUDI a Multi Trading Company. It is engaged in marketing spices and staples procured directly from the farmers, processed, packed and marketed by rural women. It engages the women Self Help Groups in all these activities. It not only created employment opportunities to rural women but also provided better price to the farmers. The company distributes its products in 14 districts of Gujarat.

Warehouse Receipt Finance

 Farmers have to resort to immediate post harvest sales as they have no holding capacity. They cannot hold on to the harvested crop as they need immediate cash to pay back the loans raised to cultivate the crop and as well as to meet their household expenses. Further, most of the farmers lack storage space with them. This twin handicaps prevent them from taking advantage of a better price that may prevail few months down the line. Warehouse receipts provide farmers with an instrument that allows them to manage their liquidity requirement by extending the selling well beyond the harvesting period. This helps in preventing the farmers from resorting to distress sales.

In order to ensure an efficient warehouse financing system the government of India had enacted the Warehouse Regulation and Development Act 2007. Under this act the warehousing development and regulatory authority would be established. (It has been established in 2010).  Many private players such as Adani Agri Logistics, Star Agri Warehouse and Collateral Management Ltd, Shubham Logistics, Ruchi Industries besides National Bulk Handling Corporation, National Collateral and Management Services.