APMC act and Indian Agriculture AGRICULTURE SHOULD NOT BE A STATE SUBJECT CII today organized a Seminar on Reforms
in the APMC (Agricultural Produce Market Committee) Act , and its impact in the Southern States. This is an initiative of the Agri Business Sub-Committee, CII-Southern Region. Speaking at the occasion, Mr. Shankarlal Guru, Chairman-International Society for Agricultural Marketing said Agricultural sector is in urgent need of reforms by the respective State governments to help drive the economy to a higher growth rate that is expected by the policy makers, but a comprehensive agenda for reforms in this crucial sector is yet to emerge. Hence, the need for Agriculture to be made a central subject and not a state subject, thus alienating it from politics, said Mr. Guru. Contract farming should be encouraged as it will help bring technology and modern practices into the agriculture sector - opined Mr. Guru. The APMC Act in each state of India requires all agricultural products to be sold only in government - regulated markets. These markets impose substantial taxes on buyers, in addition to commissions and fees taken by middlemen, but typically provide little service in areas such as price discovery, grading or inspection. A key impact of this regulation is the inability of private sector processors and retailers to integrate their enterprises directly with farmers or other sellers, eliminating middlemen in the process. Farmers also are unable to legally enter into contracts with buyers. This leaves no incentives for farmers to upgrade, and inhibits private and foreign investments in the food process sector. Also addressing the audience was Mr. Sivakumar, Chairman Agri Business SubCommittee, CII-Southern Region and Chief Executive - Agri, ITC Ltd. Said that Agri business in India is at a transition point. Having sailed through the shortage economy to an economy with surplus in grains, it is important that Governments at the Centre and State recognize the need for inclusive growth to take agriculture forward in India. Setting the context for the day's discussion, Mr. Sivakumar emphasized that in spite of employing about 57% of the population of the country, agriculture on contributes 27% to the GDP of India. This distortion makes agriculture not a lucrative employment generator and hence,
keeping with the global view, India needs to carve out opportunities in agri-exports sector. Contract farming and direct marketing to retail chains and processing units are the need of the hour he said. Regulations to keep pace with these needs are required, which need alternative marketing mechanisms. Hence, reforms in the APMC Act are recommended in various fields, he added. Making a presentation on "Aligning State Policies with emerging new marketing models", Prof. S Raghunath from the Indian Institute of Management-Bangalore, emphasized the need for an effective and efficient distribution system for agri-produce and provision for supply-demand transparency. Since the main objective of the APMC Act was to prevent exploitation of farmers by various intermediaries, reforms were required in the Act, with changing face of agriculture and the agricultural supply chain, opined Prof Raghunath. India is the largest producer of vegetable in the world, with a total share of 15% of global produce. 8% of world's fruits are produced in India, ranking it second in the world market. In spite of this, there is a high cumulative wastage of 40% in India, informed Prof. Raghunath. Inadequate infrastructure and lack of organized supply chain were the main cause for such a disparity, he said. Thus, reforms in this sector need to catch up with the pace of development in the economy and disintermediation and participation of organized players in the sector will remove the lacunae, opined Prof. Raghunath. Centre asks states to amend APMC Act In a move to allow farmers to directly sell their produce to industry, contract farming and setting up of competitive markets in private and cooperative sector, the Centre has asked the state government to amend the Agricultural Produce Marketing Act. Under the present Act, the processing industry cannot buy directly from farmers. The farmer is also restricted from entering into direct contract with any manufacturer because the produce is required to be canalised through regulated markets. These restrictions are acting as a disincentive to farmers, trade and industries.
The government has recently approved a central sector scheme titled “Development/strengthening of agricultural marketing infrastructure, grading and standardisation.” Under the scheme, credit linked investment subsidy shall be provided on the capital cost of general or commodity specific infrastructure for marketing of agricultural commodities and for strengthening and modernisation of existing agricultural markets, wholesale, rural periodic or in tribal areas. The scheme is linked to reforms in state law dealing with agricultural markets (APMC Act). Assistance under the new scheme will be provided in those states that amend the APMC Act. The Centre has asked the state governments to inform as to whether necessary amendments to the APMC Act have been carried out, in order to notify the reforming states for applicability of the scheme. Along with the Centre, the industry is also interested in the amendment to the APMC Act as it restricts the growth of trade in agricultural commodities. “The policy regime pertaining to internal trade is particularly restrictive. The agricultural sector continues to be hamstrung by a plethora of controls, which were introduced during the era of shortages,” said the PHDCCI. Meanwhile, a decentralised system of procuring wheat and rice would make the Public Distribution System more cost effective, the government has said.
Anti-retail lobby targets APMC Act
The anti-retail and land acquisition bandwagon has a new target now. An assorted bunch of farmers, small traders and non-government organisations (NGOs) have trained their guns on a legislation that allows private companies to directly procure produce from farmers. Termed the Model Agriculture Produce Marketing Committee (APMC) Act, the legislation was drawn up by the central government a few years back. The farm sector is administered by both the state and central government. Till date, an estimated 10 states, including Madhya Pradesh, Punjab and Haryana, have amended their existing APMC legislations.
Explaining the reasons for building opposition to the APMC Act, Dharmendra Kumar Sharma, director of NGO India FDI Watch, said, “The Act is aimed at allowing private players such as Reliance to set up a direct supply chain — a Farm to Fork strategy. It will directly affect the livelihoods of lakhs of persons, including wholesalers, retailers, commission agents, ‘mathadis’ (mandi workers), transporters and other APMC staff.” “APMC markets have already seen a reduction in business over the last few months, ever since agriculture products have started directly entering Mumbai through private companies. This has propelled the mathadi workers’ unions to take up this issue along with the traders, which by itself is a historic move,” said Vinod Shetty, spokesperson, Vyapaar Rozgaar Suraksha Kriti Samiti, an organisation that is organising a massive rally in Mumbai on Wednesday. All APMC mandis across Maharashtra will voluntarily remain closed on the day. Among their various demands is one to cancel the wholesale cash-and-carry permissions granted by the central government to German Metro AG and South Africa’s Shoprite. Against the backdrop of a possible mid-term election, the anti-APMC issue is expected to hit political centre stage. This is despite the fact that the adoption of the Model APMC Act is a state subject. “Politicians will have no choice but to side with us. It is a question of their survival,” said Shetty. Reliance Retail is trying to set up a large wholesale market at Navi Mumbai. But a company insider admitted that if its plans became a political target, it would delay the project. Trade unions and anti-organised retail groups are slowly gaining the support of farmers. Bhartiya Kisan Union, led by Mahendra Singh Tikait, has already promised support to the cause. “These corporates will initially promise higher rates to the farmers. But after that, they will create a monopoly and kill the farmer by paying less. These companies only care for profit,” said Rakesh Tikait, son of Mahendra Tikait. BKU is organising a rally in Lucknow on October 18, and will also protest against the model APMC Act, among other farmer-related issues. “My father met the prime minister last month. In that meeting, he informed the PM that farmers in the Hindispeaking belt would not sell their produce to companies like Reliance Retail,” said Rakesh Tikait. On the other side, retailers are claiming that the entire agitation is based on the fact that the APMC committee members do not want to lose out on their powerful positions. One of the country’s largest retailers said, “Every state committee collects as much as Rs 1,500-2,000 crore annually. These committees have become politcised and play a major role during elections. Why would they want to lose out on their power?” Consultative Conferences on APMC Model Rules
India is endowed with approximately 141 million hectares of arable land, all the 20 types of agro-ecological regions, long hours of sun-shine and incredible genetic bio-diversity. The agriculture sector in India is highly diverse and it supports the majority of its population for livelihood. Its contribution in National GDP is approximately 18%. This is such a vital sector of our economy that without improving its growth, it is not possible to achieve the desirable level of growth of 9 or 10% of our National GDP. Most of our farmers are small and marginal farmers and, therefore, suitable market access for their produce and assurance of remunerative prices to them, continues to be one of the major challenges being faced in our agricultural system. Without improving marketing opportunities and competitiveness, it would be difficult to achieve the targeted 4% annual growth in Agricultural GDP. Thus, viability of the small holdings is an important issue and promoting agricultural diversification towards high value crops through an efficient marketing system is considered to be one of the means through which this can be achieved.
In India, the role of Government has generally remained focused on promoting organized marketing of agricultural commodities in the country through a network of regulated markets. To achieve an efficient system of buying and selling of agricultural commodities, most of the State-Governments and Union Territories have enacted legislations (APMC Act) to provide for regulation of agricultural produce markets. This gave a tremendous strength to our agricultural marketing system and the total number of regulated market yards/ sub-yard which was only 286 in 1950, went up to 7566 by the end of March, 2006. The basic objective of setting up of network of physical markets has been to ensure reasonable gain to the farmers by creating environment in markets for fair play of supply and demand forces, regulate market practices and attain transparency in transactions. Under the APMC Act, only the State Governments are permitted to set up markets. Monopolistic practices and modalities of the State-controlled markets have prevented private investment in the sector. The licensing of traders in the regulated markets has led to the monopoly of the licensed traders acting as a major entry barrier for a new entrepreneur. The traders, commission agents and other functionaries organize themselves into associations, which generally do not allow easy entry of new persons, stifling the very spirit of competitive functioning. In view of liberalization of trade and emergence of global markets, it became necessary to promote development of a competitive marketing infrastructure in the country and to bring about professionalism in the management of existing market yards and market fee structure. While promoting the alternative marketing structure, however, Government needs to put in place adequate safeguards to avoid any exploitation of farmers by the private trade and industries. For this, there was a need to formulate a Model Legislation on agricultural marketing. The Ministry of Agriculture had accordingly formulated a Model Law on agricultural marketing in consultation with the States Governments in 2003 and circulated to them for adoption. The draft Model Legislation provides for establishment of Private Markets/ Yards, Direct Purchase Centres, Consumer/Farmers Markets for direct sale and promotion of Public Private Partnership in the management and development of agricultural markets in the country. It also provides for Special Markets for Commodities like Onions, Fruits, Vegetables, Flowers etc. A separate Chapter has been included in the legislation to regulate and promote contract-farming arrangements in the country. It provides for prohibition of commisssion agency in any transaction of agricultural commodities with the producers. It redefines the role of present Agricultural Produce Market Committee to promote alternative marketing system, contract farming, direct marketing and farmers/ consumers markets, it also redefines the role of State Agricultural Marketing Boards to promote standardization, grading, quality certification, market led extension and training of farmers and market functionaries in marketing related areas. Provision has also been made in the Act for constitution of State Agricultural Produce Marketing Standards Bureau for promotion of Grading, Standardization and Quality Certification of agricultural produce. This would facilitate pledge financing, Etrading, direct purchasing, export, forward/future trading and introduction of negotiable warehousing receipt system in respect of agricultural commodities. Till now, twenty five States/ UTs have either amended their Act or have no APMC Act. The 53rd meeting of NDC chaired by the Prime Minister, Dr. Manmohan Singh, in its resolution has advised the States to encourage development of modern markets by completing the process of amending the APMC Act and notify the Rules thereunder, and also encourage development of linkages to markets through a variety of instruments including co-operatives of farmers, contract farming and other means preferred by the States. The process of notifying Rules under the amended APMC Legislation should be completed during 2007-08. In pursuance of this resolution, the Ministry of Agriculture has also framed draft Model Rules for the guidance of States/ UTs and circulated to them for consultation. A favourable regulatory environment has attracted the interest of several large corporates of late. While corporate intervention in upstream agricultural activities was limited to the Agriinput players largely, the recent times have witnessed a spurt in business initiatives by other industry players as well. ITC's e-choupal is such an initiative and endeavours to offer an
integrated bundle of services ranging from technical help on agricultural package and practices, supply of inputs, market information in rural areas, etc. to the farming community. The impact of such integrated services at grassroot levels has been very positive and has encouraged even the small firms to divest innovative models to deliver services and products at the farmers' door steps. The emergence of direct retailing in recent years and creation of quality retail space has led to an increased demand for quality produce and thereby investment in supply chain infrastructure including cold chain. Modern food retailing will offer the prospect that lower marketing costs could lead to lower prices for consumers and higher realization for farmers. These economies need to be fully exploited to increase the income of farmers. The corporate investments in the farming sector have increased substantially in the recent years and has reached the inflection point with several large corporate such as ITC, the Tata Group, Adanis and Godrej etc. ready to make significant investments. The entry of large business conglomerates such as Reliance Industries is likely to attract more investments and are expected to create a cascading effect across the SME segment of the food and agri-space. With the effective implementation of the above reform measures initiated by the Government of India, agricultural marketing sector is expected to achieve nation wide integration and thereby enhance the competitiveness of Indian agriculture in global markets. These measures would also facilitate private sector in making massive investments for development of agriculture infrastructure and ago-processing industries in the years to come. Despite several initiatives undertaken by the Central Government, it is seen that response for market reforms from certain State Governments is lukewarm. The arrangements of direct marketing and contract farming are being seen with suspicion by some. The impact of growth of organized retail is being perceived as a threat by certain sections of the agribusiness sector. While State Governments have made certain amendments, they have not fully adopted the widely accepted provisions recommended through the model AMPC Act. Even though Jammu and Kashmir Government has not notified the marekt areas and commodities, it has not considered the proposed amendments. Punjab, Haryana and NCT of Delhi have made only partial amendments in their Acts and the Governments of Uttar Pradesh and Uttarakhand are yet to consider the proposed amendments. This Conference, I am sure, would facilitate a debate on the various issues relating to agricultural marketing and would help evolve considered opinions about the future course of action in this regard