Lessons from Bihar’s Abolition of its APMC System

Context: The failure of Bihar in raising price realization for farmers by abolishing APMC mandis should serve as a lesson for the Centre, which is moving its farm reform efforts in the same direction.

Arguments against APMC mandis

• Heavy imposition of charges: APMC mandis impose charges which reduce the price realization of farmers.

• The commission charged by middlemen is an example.

• Excessive politicization: which has resulted in cartelization and price-fixing.

Arguments favouring APMC abolition

• Ensures better prices for farmers: By allowing unregulated trading areas beyond APMC mandis, the law seeks to remove intermediaries from agricultural trade

• Attracts large sums of private investment in its market infrastructure 

Case of Bihar: Abolition of APMC system inn 2006 has deteriorated the agricultural market in Bihar.

• Dilapidated Infrastructure and Revenue: 
• Before 2006, Bihar had 95 market yards, of which 54 had infrastructure such as covered yards, godowns and administrative buildings, weighbridges, and processing as well as grading units.
• In 2004-05, the state agricultural board earned ?60 crores through taxes and spent ?52 crores, of which 31% was on developing infrastructure.
• With no revenue to maintain it, the infrastructure is now in a dilapidated condition.

• No major private investment.

• Increased volatility in grain prices: which negatively affected the crop choices

• Inadequate market facilities and institutional arrangements are responsible for low price realization and instability in prices.
• High storage cost at the warehouses.
• The need for immediate cash meant that they were forced to sell at whatever prices private traders offered.

• Low growth of agriculture: Due to repeal of the APMC system and consequent increase in price volatility

• Domination of traders: Farmers are left to the mercy of traders who unscrupulously fix a lower price for agricultural produce

• Exploitation by unregulated private markets: Both  traders and farmers are being charged market fees in unregulated private markets,

• Selling price lower than the official minimum support price (MSP) :  

• For maize, this year most farmers in Bihar reported getting a price of ?1,000-1,300 per quintal, as against the official minimum support price (MSP) of ?1,850

• For wheat, farmers in Bihar reported receiving prices 10-15% lower than the MSP

• Low procurement:

• Wheat procurement in Bihar was only 5,000 tonnes, compared to 13 million tonnes in Madhya Pradesh, which has the same crop yield as Bihar(Madhya Pradesh  had strengthened its APMC infrastructure over the years.)