Agriculture

The National Agriculture Market Currently Benefits Buyers Far More Than Farmers

A common, unified market will benefit buyers far more than farmers unless logistical and procedural issues are quickly fixed.

The NAM needs urgent and quick fixes. Credit: PTI

The NAM needs urgent and quick fixes. Credit: PTI

The Modi government, in April 2016, launched an online marketing platform, namely the National Agriculture Market (NAM), whereby farmers could sell agricultural produce to buyers located in far-off places. NAM is expected to usher in significant reforms in the Indian agricultural produce marketing system – presently controlled by the Agricultural Produce Market Committee (APMC) market yards and mandis – networked with licensed commission agents also called as arthiyas, largely for the benefit of farmers.

However, a closer look at some aspects of NAM is required to understand the extent by which it will actually benefit farmers.

Rural roads built under the Pradhan Mantri Gram Sadak Yojana are already helping farmers in adapting to better and efficient transportation facilities to market their farm produce. There are hardly any bullock carts – at least in developed states – to transport agricultural produce. Due to various improved transportation facilities, farmers can directly reach consumers – especially in fruit and vegetable markets – to sell their crops in nearby urban centres. This is currently helping farmers to avoid the mandi route to sell farm products, even for bulk commodities such as grains. Commission agents have also started providing necessary marketing services to the farmers by sending trucks with as much as 20 metric tonnes of capacity to farm fields to collect the commodity and transport it to intended buyer located elsewhere – including in export terminals. Further, it is for the commission agents to check quality of the commodity and make payments irrespective of final acceptance of the commodity.

In case of NAM, farmers have to take their produce to a designated location or a warehouse of the Agriculture Produce Market Committee (APMC) for quality checking and weighing, with no guarantee that they will receive a premium price for doing so. 

The NAM project proposal by Small Farmers Agribusiness Consortium (SFAC) – the nodal agency for implementing the project – says the NAM “would offer a common marketplace by providing real-time prices on a national level to participants” and “would result in better price discovery for agri-produce, largely benefiting the farmers”, without specifying whether the farmers in a particular location would be able to cash-in on higher prices for a given commodity elsewhere in the country.

For instance, let us consider a particular commodity being traded in two mandis, A and B, where both mandis are in different states. The price of a certain commodity at B is higher by Rs 100 per quintal compared to A, due to differences in supply-demand factors. Assuming transportation and other costs from location A to B is Rs 60 per quintal, there is still an opportunity make to additional Rs 40 per quintal, which is called arbitrage in financial jargon, if the farmer is able to deliver his or her produce at location B.

Now, does the NAM have a mechanism to help the farmer to deliver the commodity at location B instead of location A (his native location) and realise the higher price? If it does or it proposes to do so in the future, to whom should the market or mandi fee be paid – mandi A or B?

At first glance the proposed mechanism does not seem to have provided such a facility even to commission agents, unless they have licenses in both states. However, buyers do have such a facility as they generally operate in multiple states. To be precise, having ‘access’ to multiple markets is more important than having mere information about prices, arrivals and their trends.

In the proposed system, buyers can access market information from multiple states and mandis wherever they are registered and take advantage of this information by choosing the lowest-quoted offer, or prices and receive the commodity. But for farmers, although they can access the information, they cannot exploit this advantage as NAM currently does not have any facility to transport produce from a farmer’s field or a local mandi and transport it to the mandi where higher prices for that commodity are prevailing.

Although one can expect logistic service providers to facilitate such transactions, issues such as conflict between two mandis for sharing the market fee, documentation in case of taxable commodities (especially in interstate transfer) and the profit margins of private logistic companies that may eat into the farmer’s profit margin needs to be addressed.

Under the existing manual auction system in mandis, farmers have the right to reject even the highest bid received for his produce or to negotiate for a higher price with the winning bidder. But the proposal by SFAC has created some ambiguity by stating in para 3.3.12 that, “if the farmer or commission agent refuses to honour the winning bid, appropriate action will be taken against them as per prevailing rules and Acts”.

Touted as harbinger of change, NAM states to amend the APMC Act in as a prerequisite. The required amendments are with respect to a single license that ought to be valid across the state, a single point levy of market fee and a provision for electronic auction as a mode for price discovery. However, under the existing system, no farmer requires a license to sell his produce at either a local market yard or any other – he only needs to approach a licensed commission agent to get his produce sold to licensed buyer. Farmers are also not responsible for paying any market fee to the mandi – it is the buyers or the commission agents who pay the fee to APMC. In view of this, the first two amendments are only helpful to buyers, not farmers, in reducing the administrative costs incurred on reaching every mandi in a state. And there is no guarantee that these savings will be passed on to farmers via a higher price for farm produce.

On the face of it, an electronic auction looks promising by helping technically educated farmers to get more bids for their produce, but there is a possibility that it might go against the farmer’s interest. Assuming the entire quantity of produce in a mandi is put up for online sale, buyers having operations in multiple states can view live, authenticated offers and arrival information across states and mandis and use it to their advantage by keeping bid prices low or completely stay away from bidding if they feel that the quantity of arrivals is large enough to cause a decline in offer prices in the near future – something that may lead to a distress sale by farmers.

The whole thrust of NAM seems to be on improving the so-called ‘market efficiency’ (similar prices across markets, even when there are no flows) and not so much on achieving better integration (price equilibrium through transparent trade flows) – which is necessary for increasing a farmer’s share in the final price paid by consumers.

Sudhakar Gummula is an agri-business consultant.