The Perils of Deregulated Imperfect Agrimarket

Context: The Farm Acts were legislative misadventures, while much more is needed to address the genuine fears of farmers.

Arguments against the Privatisation of Agri-markets

• Farmers are forced to sell outside mandis: About 49% of paddy and 36% of wheat is already being sold to the private traders. Farmers are thus forced to sell outside Agricultural Produce Marketing Committees (APMC) because of the following reasons:
  • Not enough mandis: While the National Commission on Agriculture (NCA) had recommended average are served by mandi at 80kms²; currently, the average area served is 463kms².
    • There are only 6,630 mandis (required 41,000).
    • A government committee in 2017 had recommended at least 10,130 mandis.
  • High transport costs: Small and marginal farmers find it costly to transport produce to mandis, and hence they sell it to local traders.
• No significant private investment despite freedom to sell outside mandis: 18 States have allowed the establishment of private markets outside the APMC, but with no major private investments. Reasons -
  • Presence of high transaction costs: High presence of small and marginal farmers increases the cost of collection including urban sales and storge and risk of perishability.
• No assurances for higher prices: In fact, if transaction costs exceed mandi taxes, the costs would be transferred to the farmers at a lower price.
• Reduction in surplus available to the APMC: Mandi taxes are often invested in improving market infrastructure-
  • The Punjab Mandi Board uses these revenues to construct rural roads, run medical facilities, supply drinking water & sanitation, expand rural electrification and provide relief to farmers during calamities.
• Lack of commitment to Minimum Support Price (MSP): If mandis weaken and private markets with no commitment to MSPs expand, they fear a gradual erosion of their entitlement to a remunerative price.
  • Weakening of MSP is also signalled though government measures like –
    • Slow rise of MSP over the past 5-6 years.
    • Government has not yet agreed to fix MSPs at 50% above the C2 cost of production, resulting in a price loss of Rs 200 to Rs 500 per quintal to the farmers.
    • The Commission for Agricultural Costs and Prices (CACP) has been recommending to the government that open-­ended procurement of food grains should end.

Way Forward

• Increase density of mandis: expansion of investment in mandi infrastructure and a spread of the MSP system to more regions and crops; simultaneous universalisation of the Public Distribution System.
• Reform APMCs to ease the entry of new players: and reduce trader collusion and link them up with national e-trading platforms.
• Introduce unified national licences for traders: and a single point levy of market fees.