Ending APMC Monopoly: Five Reasons Why This Has More Far-Reaching Effects Than 1991 Economic Reforms

The decision of the Narendra Modi government to end the monopoly of the Agricultural Produce Marketing Committee (APMC) markets or mandis is being viewed as one that has more far-reaching effects than the 1991 economic reforms of the P V Narasimha Rao government.

On 15 May, Finance Minister Nirmala Sitharaman, while listing out various schemes under the Atmanirbar Bharat Abhiyan (self-reliant India campaign), announced that the Bhartiya Janata Party (BJP)-led government would pass a central law to amend the existing APMC Act.

She said farmers would be provided “adequate choices” to sell their produce at attractive prices without any barriers, including inter-state ones.

“The 1991 economic reforms ended the licence raj. The Modi government’s decision to end APMC monopoly is enabling the real ease of business. That way this will have more impact,” said a Kolkata-based expert, who tracks the sugar and cotton market in the country.

“The government decision (to amend APMC Act) is far more significant than 1991 economic reforms since this will unshackle the hold that people backed by politicians had been having on the mandis till now,” a Mumbai-based agricultural marketing expert said.

Both experts spoke on the condition of anonymity in view of the sensitive nature of the issue.

The Kolkata-based expert pointed out how Mamata Banerjee’s West Bengal government did not allow its farmers to export potato to the neighbouring state of Odisha.

“For the last three years, the state has had a glut in potato production. Still, Odisha was buying from Punjab as Bengal would not allow it to be traded in the neighbouring state, where prices were higher,” the expert said.

“If farmers refused to give their produce to the politically-backed commission agents, they were beaten up,” he said, pointing out at the significance of the decision.

In Maharashtra, the previous government led by Devendra Fadnavis passed a bill to amend the APMC Act in the state assembly. It had the support of the Shetkari Sanghatana, an organisation representing farmers’ interests.

Still, it had to shelve the bill before it could be introduced in the Maharashtra Legislative Council following pressure from politicians and traders’ lobby.

“Some politicians, especially those belonging to the Nationalist Congress Party (NCP) and Congress would like the current APMC structure to continue, especially in Maharashtra,” the Mumbai-based agricultural marketing expert said.

The reason is simple. In rural areas of Maharashtra, most of the villages have two power structures — one, the sarpanch and the other, the cooperative bodies that run the APMC.

APMC elections in these villages are critical for politicians as whoever is elected the president emerges stronger than the sarpanch.

It was to end such a power structure, that the Fadnavis government tried to focus on direct welfare measures to the farmers, moving away from the cooperative bodies. But it could not.

Pulses importers in Mumbai said that some of the APMC leaders backed by politicians have asked them to pay “money running into tens of thousands".

When an importer questioned, the leaders had shot back: “It is not your father’s money".

"This means I could charge my customer for whatever money they demanded of me,” an importer said, welcoming the move to end the APMC monopoly.

There are similar examples in other states, too.

In Tamil Nadu, coconut farmers are buoyed by the proposed change as they now feel they will be able to directly sell their produce to customers in Odisha.

Turmeric and ginger farmers in Erode, too, are happy since they can avoid a cartelised APMC in their district.

There are a few more examples of how some politically-backed people have prevented farmers from selling their produce directly to big retailers like Reliance or having a vice-like grip on Chennai’s fruit or flower market.

If politically-backed APMCs being weakened are the first reason for the change being welcomed with open arms, the second reason is that it is for the first time that the Centre is focussing on strengthening the output side of farming.

“One reason why either the government has not looked at strengthening the output side or farmers have not focussed on marketing is because they have not looked at agriculture as a business,” says the Mumbai-based expert.

“The major reason for this is that until now governments have only focussed on the input side of agriculture such as fertiliser, power, fuel, seeds, insecticides and pesticides. No effort had been made to develop the marketing part of agriculture,” the agricultural marketing expert said.

The third reason why ending APMCs’ monopoly is a historic decision is that farmers until now have been more connected to middlemen than the market. As a result, the middlemen have ended up benefiting the most.

In particular, marginal farmers need immediate returns. For example, if a small farmer takes 50 tonnes of grain to a trader at the nearest mandi, he or she would get the money immediately.

“The farmer cannot expect to return home empty-handed. That’s why they are forced to sell to middlemen or warehouses set up by them. Also, the farmer cannot afford to hold his/her produce for a long period of time as it could result in the grain getting spoilt,” the Mumbai-based expert said.

The fourth reason is how two earlier experiments to end the APMC monopoly played out. While one has yielded result, the other, the much-publicised electronic National Agricultural Marketing (eNAM) has faced its share of woes.

Maharashtra, under Fadnavis, tried a pilot project called SMART initiative for agri-business and rural transformation. The project got the backing of the World Bank in an effort to revamp agricultural value chains.

The World Bank also gave the know-how which helped to build the back-end chains. The Maharashtra government spent money on logistics, particularly of farmers producer organisations (FPOs) and concretised warehouses.

Corporate firms were roped in for the project under the corporate social responsibility (CSR) initiative wherein they picked the farmers’ produce at a mutually agreed price.

About 1,400 FPOs were launched following this initiative of the Fadnavis government. Of these, 400 of them are active and they have been registered as private limited companies.

At least 10 farmers came together with common interests to form an FPO and some of the FPOs even constructed their own warehouses. The SMART initiative covered about 1,000 villages.

The project yielded some success as the active FPOs are now managing the weekly fruits and vegetable markets that are held across Maharashtra.

This was enabled by the previous government by separating fruits and vegetables from the purview of the APMC. The objective of this was to end cartelisation in APMCs.

The benefits of this are that vendors now get fresh fruits and vegetables from these markets that sees at least one weekly market functioning daily somewhere nearby in a locality. Besides, cartelisation has ended, benefitting the farmer and consumer.

Second, farmers are getting better prices and have understood the value of aggregating their produce. Some of the second generation farmers have bought light commercial vehicles, aggregate all fruits and vegetables and take them to these weekly markets, to get a better price for their produce.

One of the drawbacks of this was that some middlemen tried to form their own FPOs and tried to hijack the government’s initiatives. This is why most of the 1,400 FPOs remain on paper today.

This also baulked the attempts to convert FPO into separate APMCs.

On the other hand, the Modi government’s efforts to prompt eNAMs to help farmers sell their produce to any part of the country have not paid rich dividends. Though many markets have joined the initiative, problems still persist in seamless trading.

According to the Mumbai-based expert, all states are yet to be connected to eNAM and even mandi-to-mandi electronic transactions are not taking place.

“Getting eNAM fully functional is a huge challenge as the Departments of Agriculture and Agriculture Marketing are functioning in silos. This has, in particular, affected centalisation of eNAMs. In states such as Maharashtra, there are problems of convergence,” the agricultural marketing expert said.

The fifth reason why the decision is seen as a landmark one is because for the first time, it is in tune with the emerging situation. The current coronavirus situation demands agriculture market reforms as consumers are looking for delivery at their doorstep.

With markets such as Koyambedu in Chennai (Tamil Nadu), Azadpur in Delhi and Navi Mumbai in Maharashtra turning sources of coronavirus infections, consumers are wary of visiting markets.

“This is where the Pune model of agricultural marketing, in vogue for the last two years, has reaped success. In Pune, farmers directly sell their produce to the housing societies rather than routing them through APMCs,” said the Mumbai-based expert.

Other experts and farmers agree that APMCs have their own limits and reforms were badly needed to open them up.

“Middlemen are money bags who held the entire agriculture system to ransom,” said the Kolkata-based expert, adding that their roles would have to be curtailed.

However, other experts say that these middlemen could now emerge as aggregators.

Some see the end to APMCs monopoly from the decisions taken by state governments such as Uttar Pradesh and Madhya Pradesh this year.

“This year, our state government has exempted us from taking our produce to APMCs or to government procurement centres. I usually go to the nearby Dewas government procurement centre to sell my wheat,” says Sunil Mukhati from a village 50 km from Indore, Madhya Pradesh.

This in itself saves them from charges such as Rs 15 per quintal for weighing the produce. At APMCs, there are commission agents fee, loading and unloading charges besides having to wait endlessly for hours.

Mukhati said that this year, farmers in his region were heading to the wheat silo set up by the Adani Group near his village. The silo is being operated by the Adanis on behalf of the Centre and farmers are paid the current season's minimum support price for wheat.

“You have to wait for three days to sell your wheat at the silo. Situation in the market is also the same,” said the farmer, expressing confidence in getting a good price.

Loosening APMCs hold in states such as Madhya Pradesh can help its farmers to sell premium variety wheat to buyers willing to pay more, said Mukhati. For example, the Sharbati variety, used for making pastas and pizzas, commands a premium.

Tenchu Venkateswarulu from Damaracherla village from Andhra Pradesh’s West Godavari district gives a good example of how getting out of APMCs can help farmers.

“For the last 10 years, I have been selling my chillies to ITC, which is helping us cultivate export quality produce through their outreach programme. They buy the chillies at my farm gate offering me a premium over the market rates,” the Andhra Pradesh farmer says.

Earlier, Venkateswarulu had to travel 200 km to sell his produce at the Guntur market. “It used to take five days to return home sometimes,” he said.

Besides transportation, he had to incur expenses towards commission agent fees and other market-related activities.

“Say if chilli is fetching Rs 10,000 a quintal, nearly Rs 1,000 will go towards these expenses,” the Andhra Pradesh farmer said.

While hopes have been raised by the Modi government’s decision, experts still would want to look at the fine print of the legislation the Centre will introduce to end APMC monopoly.