Ordinance to deregulate APMCs: A bold step forward, but some alterations required

Trading of farm produce at a FPC warehouse in Karnataka

The newly promulgated ‘Farmers’ Produce Trade and Commerce (Promotion & Facilitation) Ordinance 2020’ has been widely hailed as a revolutionary step in agriculture reforms. The ordinance seeks to provide for a barrier-free trade of farmers’ produce outside the markets notified under the various state APMC Acts. The APMCs, for long, held monopoly over all trading of agriculture produce. The state level APMC acts, brought in to force to protect the interests of farmers, were often criticised for instead promoting a monopoly of handful of middlemen, who cartelised agriculture prices and also charged hefty commissions from farmers.

Now, it is not as if states have never done anything to liberalise their own APMCs acts. Over the past few years, many state governments, like Maharashtra, Karnataka etc. have liberalised their respective state APMC acts to allow more free trade in agri commodities. However, such deregulation has generally been partial in nature, and rendered ineffective due to still being linked to the local APMCs, who imposed strict access control, through grant of licenses. This ordinance, prevails over all state APMC acts, and is now expected to completely deregulate all marketing of agri produce. The APMCs and the Arthiyas (Commission agents in the APMC) now move from being the sole option for trading, to one of the many options available to farmers. Another key feature is the abolishing of the market cess (or Mandi tax), which will bring in more standardisation in inter-state trade. These changes will have wide ranging benefits for agricultural marketing, chief among them being the following.

1. By encouraging more competition, the ordinance encourages companies, large traders and processors to directly purchase from farmers. It is expected that the savings from dis-intermediation could potentially benefit both parties by way of better economic returns.

2. The ordinance is also expected to force the APMCs and commission agents to become more efficient, put an end to cartelisation of prices and ensure better returns for farmers.

3. The ordinance will also promote a greater use of online trading platforms that can provide pan-national trading opportunities for farmers, and consequently better prices.

4. The ordinance lays out a greater opportunity for Farmer Producer Organisations, since they are being seen as key aggregating players, when interacting with alternative markets such as online trading platforms and private buying from buyers.

5. Abolishing of the market cess is expected to be a great leveller for inter-state trade. States often had differing rates for market cess, which brought in discrepancies in prices for the same commodity in different states. At the same time, cess rules and attendant documentation also made interstate movement of agri produce cumbersome and expensive.

6. Abolishing of cess rates is also likely to help FPOs and private companies purchasing from the market. Many FPOs have raised the issue of local level corruption which enabled the middle men to sell at unsustainable low prices, because they skipped paying a cess, thus making the goods offered by FPOs non-competitive. Abolishing of this cess now lays out a level playing field for all.

However, the ordinance has not come without it’s fair share of criticisms and short comings pointed out. This ordinance promised to radically change the way agri-marketing happens, and a lot of conventional structures may come down now. This author feels that the following is the unfinished business that the government still needs to work on.

1. Benchmark Prices. APMCs have for long been the benchmark for commodity prices across the country, as all trades were essentially reported to them. With deregulation and abolishing of the market cess, there will be no reporting of trades to APMCs, and hence no tracking and recording of market prices and arrivals. There is hence a need for a new system to record and publish daily trade prices.

2. MSP Obligation. The government clearly would like to encourage private companies to come forward and directly buy from farmers. However, many private companies that this author has spoken to, have expressed ignorance about what their buying price obligations are. A general apprehension, inhibiting private companies in buying from farmers, has been that they may be mandated to buy at the Minimum Support Price (MSP), which are often at a significant premium to the market prices, and could be set more as a political consideration. And, in the case of a company buying at lower than MSP prices (i.e. the market prices), the company is afraid of being exposed to harassment from government officials. This ambiguity needs to be addressed and a level playing field laid for all.

3. E-Trading. There are already a plethora of e-trading platforms for trading of agricultural produce, and more are waiting in the wings. There is a need to bring all e-trading platform under a single regulator (such as SEBI), thus providing standardisation in trading rules and ensuring counter-party guarantees to trade participants.

4. Assaying and Grading. There is a need to establish a standardised, third party and cost-effective assaying and grading mechanism which will allow seamless trading of goods across the country. Assaying and grading mechanisms in the country tend to be informal in nature, thus exposing farmers to unfair practices and also inhibiting large scale, cross-national trades.

The ordinances is no doubt a positive step forward, and is expected to significantly accelerate the level of activity in the agriculture marketing sector, bringing out newer opportunities for farmers. As is the case with any new piece of regulation, there are always creases that need to be ironed out. The government should look at the above factors to further strengthen this new law, which promises to be revolutionary for the agri-marketing sector as a whole, and farmers in particular.

Views expressed in this article are the author’s personal views, and have no connections to that of the organisation he is associated with.

Agri-marketing professional with 16 years of work experience. Specialised in working with small holder farmers and Farmer Producer Companies. Former CEO of one

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Ashutosh Deshpande

Ashutosh Deshpande

Agri-marketing professional with 16 years of work experience. Specialised in working with small holder farmers and Farmer Producer Companies. Former CEO of one

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