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The proposed National Agriculture Market (NAM), where farmers and buyers will sell and purchase their product through an electronic platform, is unlikely to notch up significant gains unless issues related to taxation structure in mandis, interstate movement of goods and uniform gradation of products is sorted out.
The concept has been in the making for a long time, but took concrete shape earlier this month, when the Cabinet cleared a proposal to set up the National Common Electronic Market with an initial allocation of Rs 200 crore to be spent over a period of five years, starting from 2015-16. The market is expected to become operational by December this year.
These mandis, which want to participate in the electronic platform and avail the central grant, need to fulfil three criteria, which are: Put in place e-auction platform for price discovery of agricultural produce, provide a single licence valid across the state and single-point levy of market fee, the Cabinet decision said.
The objective is to iron out the price differentials that exist across the country by curbing the tendency to hoard, which in the final analysis could lead to a moderation of food inflation.
However, to achieve this goal, the country's antiquated laws governing purchase and sale of farm products across the mandis, commonly known as Agriculture Produce Marketing Acts (APMCs) need to be altered, a process which has gone nowhere since it was first thought of, about a decade back.
The limited objective of transparent pricing for agricultural commodities too, will depend a great deal on how responsive state governments are, to the new proposal. The country has 2,477 principal mandis and 4,843 sub-markets created by the APMCs. With a corpus of Rs 200 crore to be spent over three years, the plan is to link nearly 585 major mandis in the first phase.
A note prepared by Small Farmers' Agribusiness Consortium (SFAC), an agency tasked with the responsibility of being the lead promoter of NAM, says "in a period of five to seven years, we can expect significant benefits through higher returns to farmers, lower transaction costs to buyers and stable prices and availability to consumers. The NAM will also facilitate the emergence of integrated value chains in major agricultural commodities across the country and help to promote scientific storage and movement of agricultural goods."
However, the sense one gets after talking to a range of experts is that setting up of a trading portal alone is unlikely to bring substantial change in the highly fragmented agriculture market. "As a concept, I fully support it and it is indeed a good beginning. But many important issues need to be addressed before a true National Common Electronic Market is developed," argues Ashok Gulati, former chairman of Commission for Agriculture Costs and Prices (CACP).
"It is a good step, no doubt. However, to achieve the twin objective of moderate food inflation and better price realisation for farmers, this has to be accompanied by a series of institutional and legal reforms to attract private investment and efficiency across the value chain, both pre- and post-harvest," says Asitava Sen, an agribusiness expert.
Experts point with NAM as a virtual platform, having APMC controlled mandis as its physical backend, may not be a significant improvement over the existing structure. The existing system, as we know, suffers from multiple problems. Other than non-transparent levies and charges, the APMC model restricts farmers' access to the marketplace. According to reliable estimates, the average area served by a regulated market is 450 sq km, making it inaccessible to many farmers with a surplus produce.
The NAM model too presupposes that farmers will have to come to mandis to sell their produce. The only benefit the farmers will get, is in the form of a greater pool of traders, from local mandis as well as other states to choose from and to sell their produce. Through greater competition, farmers stand a chance to realise a better price for their produce. But the issue of accessibility remains, say experts.
"Farmers will continue to bring their produce to the local mandi, but if it is plugged into NAM, they have the choice to sell either to the local trader if the price offered is good or else, get their produce posted on the NAM platform, which is available in the same mandi. By doing so they might get bids from other traders who are present online but not physically, in the mandi," says Pravesh Sharma, managing director of SFAC. "It does not solve all the problems. But it definitely seeks to mitigate some of the problems. Realising market value for what farmers produce seems possible with NAM," says Ajay Jakhar, chairman of Bharat Krishak Samaj.
APMC-controlled regulated markets allow commission agents to charge market fees. According to reliable estimates, the commission charged is generally six per cent of the sale price of fruits and vegetables and about two per cent in case of non-perishable commodities. Such a high incidence of commission, mostly realised from farmers and passed on to consumers, hurts the farmers and consumers alike. Several studies have shown because of such distortionary practices and existence of layers of intermediaries, primary producers end up getting only 20-25 per cent of the retail price and the total markup adds up to 75 per cent.
The NAM is unlikely to address this. According to SFAC note, for regulated markets to join the NAM platform, they will have to fulfil the following three conditions: APMCs will have to allow electronic trading, "state APMC Act must provide for issue of licences to anyone in India to trade through the NAM in the local mandis" and "there must be a single licence for each state to facilitate trading in all the mandis of that state and a single-point levy of transaction fee." It does not say anything about market fees charged by commission agents.
Even for the three conditions to be met, state governments will have to reform their APMCs. And APMC reform has been in progress for over a decade now, with negligible result. For a better system, the central government had formulated a model APMC Act in 2003. It permitted private and corporate bodies to set up a marketing network and to demolish the well-entrenched mechanism of middlemen and arthiyas and, for allowing private mandis. But state governments' approach has been partial adoption of some of these provisions. Some states have allowed contract farming; others have allowed direct purchase from farmers. But comprehensive reform of APMC legislation is yet to take place in any state. There have been few takers for keeping even fruits and vegetables off mandis.
"The idea of a national agriculture market is like Goods and Services Tax which is in the formative stage forever," says an agriculture expert. Yet another expert says even the Karnataka model which is what seems to be getting replicated at the national level now, suffers from the same set of problems.
"The electronic common market in Karnataka is also not integrated in the true sense as it just facilitates electronic trading, but does nothing to address the core issues of multiple mandi tax and smooth movement of farm goods within the state," he observes.
NAM TIMELINE
- June 1, 2015: The process started; Project management unit comprising experts in agribusiness, IT, project management to be set up
- September 30: Strategic partner to be selected
- October: Beginning of roadshows in states to promote the concept
- December: Final launch expected
