Introduction to initiation and evolution of e-trading in India

Since the launch of the economic reforms in 1991, the average annual growth rate for
five years in agriculture hovered around a long-term growth trend of 3% whereas growth rate
of non-agriculture sector increased steadily from around 6% during the early 1990s to 10%
during 2004–05 to 2008–09, and 7.5% during the recent five years. An important reason for
this is that the price incentive offered by the agricultural market in the country did not
improve, as these markets remained fragmented, inefficient and dominated by low scale and
multiple middlemen.
It is observed that after implementation of the Agricultural Produce Marketing
(Regulation) Act (APMRA) in various states during 1960s and 1970s, no major reform in the
agricultural market has been implemented (Chand 2012). The facilities provided in markets
remained not only inadequate, but also deteriorated in many cases. Excessive intermediation
worked to the disadvantage of producers and consumers, and favoured only middlemen.
Also, after 1991 the country liberalised its external trade initially as a part of domestic
policy reforms, and then to meet the requirement of the 1995 World Trade Organization
(WTO) agreement and to adjust to it. The reforms also led to profound changes in trade and
commerce in the non-agriculture sector. All these factors put lot of pressure,towards late
1990s, to bring reforms in agriculture markets in the country.
Attempt to Reform Market
In response to the changes in trading environment during 1990s, the union
government acted through removal of (Licensing Requirements, Stock Limits and Movement
Restrictions) on Specified Foodstuffs Order, 2002 and 2003. Further, the prohibition on
futures trading in agricultural commodities was removed in 2003. These were important
reforms but they did not include reforms in agricultural marketing or transactions of farmers’
produce. One reason for this was that agricultural marketing is a state subject, that is, it
required reform by respective states. However, the central government initiated several
measures to bring reforms in the system of agricultural market in states.
The Ministry of Agriculture constituted set up a committee to formulate a model law
on agricultural marketing in consultation with the states. The committee drafted and finalised
the model legislation after holding discussions with the state officials (GoI 2003).
The model act called the State Agricultural Produce Marketing (Development and
Regulation) Act, 2003, was shared with all the states for implementation. Some important
provisions of the model act are: (i) more than one market can be established by private
persons, farmers, cooperatives and consumers in a market area; (ii) there will be no
compulsion on the growers to sell their produce through existing markets administered by the
Agricultural Produce Market Committee (APMC); (iii) a new chapter on contract farming
was added to facilitate contract farming; (iv) provision made for the direct sale of farm
produce to contract farming sponsor from farmers’ field without the necessity of routing it
through notified markets; (v) provision made for imposition of single point levy of market fee
on the sale of notified agricultural commodities in any market area and discretion provided to
the state governments to fix graded levy of market fee on different types of sales; (vi)
registration for market functionaries provided to operate in one or more than one market
areas; and (vii) provision made for the purchase of agricultural produce through private yards
or directly from agriculturists in one or more than one market area.
As per the recent information, majority of the states reported that they have adopted
key area of reforms as suggested in the model act. However, the ground reality has been that
except in states like Karnataka, various reforms have been considerably diluted and only
partly implemented at the state level. In some cases, new conditions were attached. The
central government order 2002 which liberalised trade in agricultural commodities was put in
abeyance by various central government orders during 2006–08. Thus, licensing
requirements, stock limits and movement restrictions in respect of purchase, sale, supply,
distribution or storage for sale of agricultural commodities, which were removed in 2002,
were brought back.
In the meantime, unorganised functionaries like commission agents and traders
organised themselves and successfully thwarted attempts to change market rules and
practices. The net result has been that persistent efforts for nearly one and a half decades, to
reform markets, remained more or less unsuccessful.
Karnataka Market Model: e-trading system under Unified Market Platform (UMP)
Karnataka state was first in implementing Model APMC Act and it has been piloting
new practices on its own. In order to take advantage of modern technology to improve
agricultural marketing, the state prepared a plan in 2012–13 with the assistance of NCDEX
(National Commodity and Derivatives Exchange) Spot Exchange for automation of auction
process in mandis (primary agricultural markets where producers sell their agricultural
produce).
The plan involves creation of transparent, integrated e-trading mechanism coupled
with facilities for grading and standardisation to facilitate seamless trading across mandis
(APMCs). The approach was to integrate all such APMCs with major consumption market to
fetch remunerative prices to farmers. The plan has been implemented through Rashtriya e-
Market Services (ReMS) Private Limited Company, which is a joint venture created by the
state government and NCDEX Spot Exchange. ReMS offers automated auction and post-
auction facilities (weighing, invoicing, market fee collection, accounting), assaying facilities
in the markets, facilitation of warehouse-based sale of produce, commodity funding and price
dissemination. NCDEX is also implementing a unified market platform, whereby all mandis
in the state are being unified for single trading.
The unified online agricultural market initiative was launched in Karnataka on 22
February 2014. A total of 105 markets spread across 27 districts have been brought under the
Unified Market Platform (UMP) as of March 2016. Under this initiative, every farmer who
brings produce to the APMC market is given an identification number for the lot brought into
the mandi. The farmer has a choice to use the common platform or the platform of
commission agent for auction of the produce. These lots are then assayed and information
about quantity and quality is put on the portal of ReMS.
Buyers or traders who want to buy produce from the farmers are required to get the
unified market licence, register themselves with ReMS by paying nominal fee, and are
required to keep some security in the bank. Each trader is given a username and password.
Any prospective buyer can bid for the produce online from anywhere using her/his username
and password. A trader can revise the bid upward any number of times before closure of the
bidding time. After closure of auction period, the bids are flashed on television screens put up
in the mandis and on the portal of ReMS. Thereafter, the producer/seller is required to give
his acceptance for the bid. A seller has the right to reject the bid, in which case a second
round of bidding takes place on the same day and in the same way. A bidder is required to
keep a pre-bid margin of 5% of value of the lot marked for sale with ReMS before opening of
the tender. ReMS charges 0.2% of the value of the transacted produce for providing various
online services.
 Participation in UMP is not restricted to Karnataka. Traders from other states and bulk
institutional buyers such as Cargill, ITC, Reliance, Metro Cash & Carry are also registered
with ReMS.
The UMP received overwhelming response from farmers in the state and it shows
impressive results in a short period. Auction and sale of farm produce is not restricted to
traders within the market. Thus, the possibility of tacit understanding to suppress prices
received by farmers or cartelisation has been eliminated. Price discovery is competitive,
transparent and efficient. Farmers have also started selling online, enabling farmers to have
much higher prices and removing many middlemen.
Scope for Adopting Karnataka Model
The success of UMP in Karnataka got countrywide attention and some states like
Andhra Pradesh, Telangana, Maharashtra and Gujarat have already started adopting the
Karnataka model. Impressed by the success of UMP in Karnataka, the union government
took initiative to encourage other states to adopt e-trading platform for agricultural
commodities.
The Cabinet Committee on Economic Affairs approved the central sector scheme for
promotion on the national agriculture market through Agritech Infrastructure Fund with a
budget allocation of `200 crore on 1 July 2015. The scheme entails setting up of a common e-
platform in 585 selected wholesale regulated markets across the country. The central
government will provide the software free of cost to the states along with `30 lakh per mandi
for setting up the hardware and related equipment/infrastructure. It envisages to expand
Karnataka’s UMP model at the national level in a bid to cover the entire country.
e-NAM: System and procedure
To give real push to this move, Prime Minister Narendra Modi has launched the
electronic trading platform for National Agriculture Market (e-NAM) on 14 April 2016.
National Agriculture Market (NAM) is a pan-India electronic trading portal which networks
the existing APMC mandis to create a unified national market for agricultural commodities.
In its first phase, the initiative will cover 21 mandis from eight states, namely,
Gujarat, Telangana, Rajasthan, Madhya Pradesh, Uttar Pradesh, Haryana, Jharkhand and
Himachal Pradesh. Further, 25 crops, including wheat, maize, pulses, oilseeds, potatoes,
onions and spices have been included for trading on the platform. It is proposed that 585
markets across the country will be brought on the platform by March 2018.
It is pertinent to mention that for integration with the e-platform, the states/union
territories will need to undertake three reforms, namely: (i) a single licence to be valid across
the state, (ii) single point levy of market fee, and (iii) provision for electronic auction as a
mode for price discovery.
The NAM Portal provides a single window service for all APMC related information
and services. This includes commodity arrivals & prices, buy & sell trade offers, provision to
respond to trade offers, among other services. While material flow (agriculture produce)
continue to happen through mandis, an online market reduces transaction costs and
information asymmetry.
How e-NAM can promote the warehousing sector
The recently launched e-NAM (National Agriculture Market) is targeted to be rolled
out in 200 mandis across the nation on September 30, 2016.
 In recent years, the country has seen rising efforts by the government and private
companies to unify agricultural markets. It is expected that participants across the nation will
trade on the e-NAM platform and that the prices of agricultural produce will be determined
based on wider demand and supply perspectives while reducing the number of intermediaries.
Though it has been proposed that the electronic platform will facilitate buyers across
the nation to participate in the trade, it may be possible only if the physical presence of the
buyer is not essential.
For example, a trader based in Karnataka can participate in trading of apples in the
markets of Himachal Pradesh only if at least two things are made certain; first, that the
grade/quality of the produce being displayed for auction is reliable and that the buyer is
familiar with the grading system.
Second, the buyer has to have adequate logistical support to get the produce delivered
to him.
Under the prevalent practice at APMCs, farmers bring their produce and once the
price is determined after auction, delivery takes place immediately.
But in the case of e-NAM, since the buyer may be participating from a distant
location and the auction will decide from which APMC the produce will be bought, getting it
delivered will be a limiting factor.
The solution
The concept of Warehouse Based Sell (WBS) is a potential solution to overcome such
an issue and hence, a determining factor for the success of e-NAM. This system of WBS is
already in practice in the country and is followed mainly by commodity exchanges. Except
Karnataka, no State has notified the warehouse as a component of market.
In the case of e-NAM, if the commodities sold through APMCs are routed through
warehouses, or if the APMCs make arrangements for warehousing/cold storage facilities
through tie-ups locally, it will be easy for buyers to trade at any APMC without hurrying the
delivery.
As followed in the case of commodity exchanges, the seller can deposit assayed and
graded produce at notified warehouses and based on the warehouse receipt, trading occurs. In
order to make such an arrangement available, quality storage will be needed across the
nation.
This will require the active role of an agency such as the Warehousing Development
and Regulatory Authority to increase awareness about accreditation of quality warehouses
and to also speed up the process of accreditation.
Warehousing gaps
Currently the warehousing capacity gap estimated by the Planning Commission stands
at 27 million MT. Also, insufficient and inefficient infrastructure has been a major drawback
of the warehousing sector in India. While obtaining accreditation with WDRA, warehouse
operators need to comply with the strict norms of accreditation.
It has been observed that the warehouse operators in the country have been putting in
efforts to renovate their warehouses in such a way that it fits the accreditation criteria.
Though WDRA has been operational from 2010, the number of accredited
warehouses in the country was around 450-500 until 2014.
 One of the reasons for the slow progress in accreditation is the shortage of
accreditation agencies registered with WDRA. A total of 16 agencies are registered with
WDRA, of which only nine have been actively taking up the task of accreditation.
If States amend their APMC Act to notify WDRA accredited warehouses as a
component of the market yard, it is likely to result in demand for quality storage facilities.
WDRA may need to register more accreditation agencies to speed up the process and ensure
a surge in warehouses accredited across the nation.e-NAM: Anticipated Benefits
Prime Minister Narendra Modi in April 2017 launched e-NAM, an online portal for
trading in agriculture produce, which promises to liberate farmers from the clutches of
middle-men and realise fair market value for their yields. The e-NAM marketplace will
initially enable farmers in eight States — Uttar Pradesh, Madhya Pradesh, Jharkhand,
Himachal Pradesh, Gujarat, Telangana, Rajasthan and Haryana — to sell 25 commodities in
21 wholesale mandis.
The commodities that will initially be sold online include chana (black gram), castor
seed, paddy, wheat, maize, turmeric, onion, mustard, mahua flower, tamarind and shelling
pea.Using this portal, a farmer can decide where his produce will be sold, when it will be
sold, and at what price. At the same time, consumers and traders, too, won’t suffer.
The idea behind the online market is to provide transparency in pricing by removing
the information asymmetry between sellers and buyers and enable farmers to benefit from
price discovery. It will also reduce transaction cost, provide a single licence valid across all
markets, help farmers identify the best buyers, enable single-point levy of market fees, and
set quality standards.
Additionally, the online market also liberates farmers from dependence on
commission agents, who are the traditional link between them and consumers. In some cases,
commission agents also double as financiers to farmers, who thus feel obligated to sell their
produce through the agent to whom they are indebted.
On the e-platform, farmers can list the items they want to sell on the portal. Local
traders, as well as traders in other States, can then bid for the produce. The farmer will be free
to choose to accept the offer made locally or by traders in other States. The transaction will
be recorded on the books of the local mandi, which will continue to earn the transaction fee.
Traders, too, stand to benefit as they can tap any number of sellers if for some reason they
don’t get what they want from their traditional sellers.
The laboratories to be set up at the mandis would scientifically classify the quality of
the product being sold and the transparency would help farmers, traders as well as consumers,
he added.
Current Status
As on 31st Oct 2017, 470 Mandis(Click here for Mandi List) across 14 states have
been intergrated with e-NAM namely, Himachal Pradesh (19 Mandis), Haryana (54 Mandis),
Rajasthan (25 Mandis), Gujarat (40 Mandis), Maharashtra (45 Mandis), Madhya Pradesh (58
Mandis), Chhattisgarh (14 Mandis), Andhra Pradesh (22 Mandis), Telangana (44 Mandis),
Jharkhand (19 Mandis), Odissa(10 Mandis),Tamil Nadu (15 Mandis), Uttarakhand(5 Mandis)
and Uttar Pradesh (100 Mandis).
On 14th April, 2016 in 21 Mandis across 8 States Pilot trading of 24 Commodities
namely Apples, Potato Onion, Green Peas, Mahua Flower, Arhar whole (Red Gram), Moong
Whole (green gram), Masoor whole (lentil), Urad whole (black gram), Wheat, Maize, Chana
whole, Bajra, Barley, Jowar, Paddy, Castor Seed, Mustard Seed, Soya bean, Ground nut,
Cotton, Cumin, Red Chillies and Turmeric has been launched. As of 31st Oct 2017, 470
Mandis ( Click here for Mandi List) across 14 states are live and 90 commodities (Click here
for Commodity List ) are being traded.

Sr. No. Particulars Time-lines

1. Development of electronic trading portal By 01.04.2016
2. Pilot Launch in 21 Mandis On 14.04.2016
3. Roll out of software in 200 Mandis By 30.09.2016
4. Roll out of software in next 200 Mandis By 31.03.2017
5. Roll out of software in remaining 185 Mandis By 31.03.2018

Status in Tamil Nadu

About 15 agriculture regulated markets in the State are expected to join the electronic
trading portal of National Agriculture Market (e-NAM) this year. Farmers, traders and
officials will have to move from manual to e-trading and then to online trading.
Of the 278 regulated markets in the State, 50 handle large volume of commodities and
another 100 get seasonal volume. Two of these - Perundurai and Vellore - have e-trading
platforms. This year, about 15 of these markets are expected to be linked to the Central
Government’s e-NAM platform.
Further, the State Government is looking at development supply chain management in
10 districts for horticultural produce. The ₹398 crore project is funded by Nabard and is
expected to be completed in two years. The districts covered will include Coimbatore,
Dharmapuri, Krishnagiri, the Nilgiris, Dindigul and Tiruchi.
By bringing in organised handling, perishability of the produce will come down and
the farmers will get better realisation. About 65 primary processing centres will be set up in
these 10 districts to handle the fruits and vegetables that are cultivated in large volume in that
area. Cleaning, sorting, and packing will be done at these centres and there will be direct
linkages with the market.
The ICRISAT was studying systems to operate these centres and also developing a
software for this.
The misses
The more significant benefits of automation and unification, in terms of new players
and greater transparency in price discovery, are however yet to be achieved. Our interviewees
mentioned, for instance, that no bids were currently being received from traders in other
mandis, despite the fact that trading across mandis was now possible. Nor had there been any
increase in mandi arrivals due to automation, something one would expect if more farmers
now saw the benefits of a unified market.
It emerged that a key reason for the virtual absence of cross-mandi bidding was the
strong preference of traders for visual inspection. It seemed that traders preferred to rely on
commission agents for assessments of quality rather than the mandi’s assaying facilities.
Assaying for most commodities was available on voluntary basis, but neither farmers nor
traders trusted the quality based on assaying. While traders felt that scientific assaying
methods were a poor and inadequate substitute for visual inspection, farmers felt that
assaying actually reduced the price of the commodity and were reluctant to part with produce
for assaying. Furthermore, assaying of a sample can take anywhere between 10 minutes to
one hour or more, depending on the commodity and attributes being tested. This is not
feasible during peak times – when arrivals were so large that it would take several days to
assay all the lots. There is neither enough space nor enough personnel to get all mandi
arrivals assayed. Unavailability of credible assaying facilities has limited the ability of traders
to place bids in distant mandis.
With no new participants, the new system is as vulnerable to the threat of collusion as
the old system. At the Tiptur APMC mandi, for example, all traders apparently placed their
bids around the bid of a big trader. At another APMC mandi, the commission agents and
traders had colluded to boycott e-trading. Further, trading on e-tendered commodities, in
some cases, has moved to non e-trading days, and in others, has moved outside the mandi in
the form of unregistered trades. Accounts suggest that in the absence of outside traders, local
traders and agents continue to exert control over trade.
The other key initiative of this phase of reforms: payment to farmers´ bank accounts,
is also facing severe challenges. The greatest resistance is coming from commission agents,
who feel that the government is trying to weed them out. Commission agents were strongly
opposed to e-payments since it would only allow them to take the permissible commission of
2%. Commission agents typically acted as aggregators, quality testers, provided post-trade
services, storage facilities, acted as guarantors of quality, and took on the risks of rejection of
produce by the traders. Besides, they said that traders make payment to commission agents in
about two weeks- to six months, while farmers are paid by them on the same day or in a day
or two. Direct payments would prevent them from charging for these services, and hence they
celebrated its withdrawal.
The farmers too did not seem to be uniformly enthusiastic about assaying or e-
payment. They seemed to trust the commission agent, who not only gets their produce sold,
but also provides agricultural credit on need basis. Further, they preferred immediate cash
over bank payment which takes 24-48 hours for processing, and requires them to spend
another day at the bank. They were also skeptical that through e-payment, their bank account
could get linked to their loan account, and would be used to deduct interest/principal from
their primary account. It is only in the highly organised markets, arecanuts, for example,
where farmers were all members of cooperatives, that e-payments received consistent
support.
In the presence of these issues, we found that the ultimate goals of the reforms -
transparent price discovery, and reduction of collusive power of traders and commission
agents, were yet to be achieved.
Implications for e-NAM
The experience of Karnataka suggests that the problem in agricultural marketing
cannot be solved by merely propping up an electronic platform, nor is it merely a
technological problem. Rather, it is one of redesigning the architecture of agricultural
marketing, which is sensitive to the complex and deeply entrenched farmer-agent-trader
relationships that characterise the agricultural output transactions in India. Reforms need to
focus simultaneously on institutional reform, incentives, and infrastructure. When the three
are aligned with one another, ultimate objectives of market reforms can be achieved.
Agricultural Price Policy in India
Introduction to Agricultural Policy:
Price policy plays a pioneer role in the economic development of a country. It is an
important instrument for providing incentives to farmers for motivating them to go in for
production oriented investment and technology.
In a developing country like India where majority of the population devotes 2/3 of its
expenditure on food alone and where majority of the population is engaged in agricultural
sector, prices affect both income and consumption of the cultivators. The Govt. of India
announces each year procurement/support prices for major agricultural commodities and
organizes purchase operations through public agencies.
Need of Agricultural Price Policy:
Undoubtedly, violent fluctuations in agricultural prices have harmful results. For
instance, a steep decline in the price of particular crop in few years can inflict heavy losses on
the growers of that crop. This will not only reduce the income but also dampen the spirit to
cultivate the same crop in the coming year. If this happens to be a staple food item of the
people, supply will remain below the demand.
This will force the Govt. to fill the gap by restoring imports (in case of no buffer
stock). If, on the other hand, prices of a particular crop increase rapidly in the particular
period, them the consumer will definitely suffer. In case, the prices continuously increase for
the particular crop, this can have disastrous effect on the sector of the economy.
Objectives of Agricultural Price Policy:
The objectives of agricultural price policy vary from country to country depending
upon the place of agriculture in national economy. Generally, in developed countries, the
major objective of price policy is to prevent drastic fall in agricultural income while in
developing economies it is to increase the agricultural production.
However, its main objectives are:
(i) To Ensure Relation between Prices of Food-grains and Agricultural Goods:
The foremost objective of agricultural price policy is to ensure the appropriate
relationship between the prices of food grains and nonfood grains and between the
agricultural commodities so that the terms of trade between these two sectors of the economy
do not change sharply against one another.
(ii) To Watch Interests of Producers and Consumers:
To achieve the balance between the interest of producers and consumers, price policy
should keep a close eye the fluctuations within maximum and minimum limits.
(iii) Relation Between Prices of Crops:
The price policy should be such which may sustain the relationship between the prices
of competing crops in order to fulfill the production targets in respect of different
commodities in accordance of its demand.
(iv) To Control Seasonal Fluctuations:
Another object of price policy is to control cyclical and seasonal fluctuations of price
rise to the minimum extent.
(v) Integrate the Price:
 The agricultural price policy should also aim at to bring the greater integration of
price between the various regions in the country so that regular flow of marketable surplus
could be maintained and exports of farm products stimulated regularly.
(vi) Stabilise the General Price:
To stabilize the general price level, it should aim at increasing the public outlay to
boost economic development in the country.
(vii) Increase in Production:
The agricultural price should aim at to raise the production of various commodities in
the country. Therefore, it must keep balance between output and input required by the
cultivations.
Major Objectives:
The important objectives of the new agricultural policy are:
1. Facilities for All-Round Development:
In order to accelerate the pace of development, the new agricultural policy has set an
objective to augment facilities for processing, marketing, storage, irrigation, along with
development of horticulture, fisheries, biomass, livestock, sericulture etc. for all round
development of agricultural sector.
2. Infrastructural Development:
The new policy favoured to make the provision for infrastructural development
related to agriculture and thereby to infuse new dynamism through increased volume of
public investment.
3. Revising and Strengthening Co-Operatives:
The policy also aims at reviving and strengthening Co-operatives and local
communities for the development of agriculture.
4. Involvement of NGOs:
The policy also aims at involving the nongovernment organisations on a large scale
for the development of agricultural sector.
5. Encouragement:
The policy aims at providing necessary support, encouragement and thrust on farming
activities so that rural people accept it as a noble and viable occupation.
Features of New Agricultural Policy:
(i) Raising Capital Formation:
The new policy has undertaken a strategy to raise the rate of capital formation in
agricultural sector as the same is maintaining a decreasing trend from 18.7 per cent of total
gross capital formation in 1978- 79 to only 9.5 per cent in 1993-94.
As the invisible resources are being diverted from agriculture to industry and sectors,
the new policy, thus introduces measures to rechnelise available resources for productive
investment in the sector. The policy will focus to create a better investment climate for the
farmers by introducing a favourable price and trade regime.
(ii) Enhancing Public Investment:
 In order to raise the volume of public investment, new agricultural policy will take
steps to create public investment for building supportive infrastructure for agriculture.
Conservation of water and use of alternative and renewable sources of energy for irrigation
and other agricultural works have also been encouraged. Such enhancement of infrastructural
investment will reduce the regional imbalances and generates more value added exportable
surpluses.
(iii) Raising the Flow of Credit:
The policy will make an attempt to enhance the flow of credit to the agricultural
sector. In this connection, the Co-operative credit societies were engaged for such purpose.
(iv) Improving Agricultural Marketing:
An attempt will be made to improve the marketing arrangement of agricultural
produce through agro- processing, marketing and storage.
(v) Ensuring Remunerative Prices:
The new policy has entrusted the Government to undertake responsibility for ensuring
remunerative prices of agricultural produce to the farming community by adopting necessary
price support policy.
(vi) Raising Agro-Exports:
The new policy has made an attempt for harnessing the comparative natural advantage
in agricultural export of the country. The policy has laid special thrust on the exports of fruits,
vegetables, flowers, poultry and livestock products so as to raise the share of agricultural
exports.
(vii) Land Reforms:
The new policy will make efforts to take land reform measures for the interest of
small and marginal farmers and raise agricultural output.
(viii) Development of Land:
The policy has made an attempt to develop land permanently for cultivation to meet
the growing needs of population. In order to develop rainfed areas of the country watershed
management scheme has been given much importance so as to bring integrated development
of the land.
(ix) Treating Agriculture at Par with Industry:
The steps for creating a positive trade and investment climate for agriculture and also
to treat agriculture at par with industry for the purpose will be taken.
(x) Crop Insurance Scheme:
Considering the problems of crop failure and high risk of instability in production, the
policy stressed for redesigning the crop and livestock insurance schemes in a comprehensive
manner so that the farmers can recover their losses arising out of natural disasters.
Types of Agricultural Price Policy:
The prices favourable to the producers of agricultural products may work against the
interest of the non-agricultural sector vice-versa. In fact, this has been one of the major
considerations underlying the agricultural price in various countries during the course of the
development of their economies.
 Sometimes, the prices of agricultural products as well as the agricultural inputs have
been so manipulated and the ancillary fiscal and administrative policy so devised that the
benefits of development of the agricultural sector were partly or wholly passed on to the
industrial sector. Such a policy changed the terms of trade, against agriculture.
On some other occasions, the price policy has favoured the agricultural sector at the
cost of the non-agriculture sector. The two types of price policy have been called ‘Negative’
and ‘Positive’ price policies respectively.
1. Negative Price Policy:
In the context of the policy of accelerating economic growth, a “negative” agricultural
price policy has been practiced by a large number of countries in the early stages of their
development.
The main objectives of such a policy was to keep the prices of food and raw materials
relatively low (when compared with the prices of industrial products) so as to facilitate the
growth of the industrial and tertiary sectors and to provide surpluses in the form of savings
for these sectors. In other words, the terms of trade were purposively kept unfavourable for
the agricultural sector.
2. Positive Price Policy:
In contrast to the above methods, a number of countries today follow what may be
termed as the “positive” price policy which consists of light taxes on the agricultural sector
and also assure the farmer of a fair price for his produce.
Such a policy is considered necessary in the context of the realisation that unless the
agricultural sector attains some critical minimum rate of growth, it would not be possible to
attain the general targets of economic growth and development.
This is true for a number of reasons, chief among which are:
(i) In most of the developing countries, agriculture continues to be the single most
important sector from the points of view of generating income, employment and exports, and
(ii) The increasing demand for food caused by increasing population and rising money
incomes can be met only by a continuously growing agricultural production.
Evaluation of Agricultural Price Policy:
The draft agricultural policy envisages 3.5 per cent annual growth in agriculture as
compared to 2.6 per cent growth rate registered since independence. The draft of the National
Agricultural Policy circulated for comments has secured broad agreements form all the State
Government, central ministries and Agricultural Universities.
In short the draft agricultural policy has offered a detailed framework of policy
initiative required for the agricultural sector on a long term perspective. By introducing a
favourable price and trade regime, the policy has created a suitable environment for the
sector.
The thrust of the policy is to make the sector a viable and profitable for the nation.
Thus the new policy is expected to improve the quality of life in villages and can reduce the
gap in the social welfare facilities between rural and urban areas and create sufficient gainful
employment opportunities on a self-sustaining basis.
Moreover, new agricultural policy proposed to accord the status of industry. The new
agricultural policy resolution would bestow the same benefits to agriculture as were being
enjoyed by the industry but care should be taken to ensure that agriculturists were not
subjected to the regulatory and tax collection machinery of the Government.
Thus the draft agricultural policy was intended for the progress and welfare of
farmers. The Agricultural Ministry has also given stress on drip irrigation projects so that
agriculture did not suffer. Attention was also being paid to watershed management, soil
conservation environment and other aspects which would benefit agriculture. Besides, the
benefits of liberalisation and technology transfer should reach to the farmers.
Effects of Agricultural Price Policy:
It is correctly stated that agricultural price has worked remarkably well to streamline
the price stability activities.
1. Incentive to Increase Production:
Agricultural price policy has been providing necessary incentive to the farmers for
raising their agricultural output through modernisation of the sector. The minimum support
price is determined effectively by the government which will safeguard the interest of the
farmers.
2. Increase in the level of income of Farmers:
The agricultural price policy has provided necessary benefit to the farmers by
providing necessary encouragement and incentives to raise their output and also by
supporting its prices. All these have resulted in an increase in the level of farmers as well as
its living standards.
3. Price Stability:
The agricultural price policy has stabilized the price of agricultural products to a
greater extent. It has successfully checked the undue fluctuation of price of agricultural
products. This has created a favourable impact on both the consumers and producers of the
country.
4. Change in Cropping Pattern:
As a result of agricultural price policy, considerable change in cropping pattern of
Indian agriculture is needed. The production of wheat and rice has increased considerably
through the adoption of modern techniques by getting necessary support from the
Government. But the production of pulses and oilseeds could not achieve any considerable
change in the absence of such price support.
5. Benefit to Consumers:
The policy has also resulted in considerable benefit to the consumers by supplying the
essential agricultural commodities at reasonable price regularly.
6. Benefit to Industrials:
The agricultural price policy has also benefited the agro industries, like sugar, cotton
textile, vegetable oil etc. By stabilizing the prices of agricultural commodities, the policy has
made provision for adequate quantity of raw material for the agro industries of the country at
reasonable price.
Shortcomings of Agricultural Price Policy:
1. Inadequate Coverage:
 Inadequate coverage of procurement facility has rendered the price ineffective. The
facility of official procurement reaches only a handful of farmers—of the total food gains
production, procurement covers hardly 15 per cent.
2. Remunerative Price:
The remunerative price and/or subsidized inputs have failed to keep pace with the rate
of increase in costs. It has had two consequences. The farmer is discouraged from producing
the maximum level of output; he tries to balance his output against the level of costs, and
settles for a lower level of output.
3. Ineffective Public Distribution System:
The public distribution has not been very effective. A large section of the poor people
are outside the purview of the system. Even those who are covered under the system do not
necessarily get the benefit of issue prices. The system has absolutely failed to serve the
objective. Besides, the burned on the national exchequer is increasing enormously.
4. Difference in Prices:
There is an important issue of wide difference between prices received by the
producers and prices paid by the consumers. In this context, issues relating to the network of
regulations and costs associated with it, incidence of octroi, increase in transportation costs,
over fragmentation of the distribution network etc. require careful study.
5. Unaccompanied by Effective Policy:
The efficacy of the price policy depends on a number of other factors inherent in the
system of agricultural operations like land holding patterns, income distribution, general
disparities and cropping pattern. But, it is pity to say that the price policy has not been
accompanied by any effective policy for a total development of agriculture.
A continuous increase in procurement prices may have even an adverse impact on
agricultural productivity. Price increases which over-compensate cost increases can
discourage measures to raise agricultural productivity since such prices automatically lead to
higher profits for the farmers.
Suggestions for Reorientation of Agricultural Price Policy:
The adequacy of the present agricultural price policy calls for reorientation in relation
to the priority objectives which are likely to shape the development strategy. Considering the
present critical situation in the national economy, concern with and about broad-based and
sustained growth is bound to be a dominant objective. Such crucial issues relating to the
strategy needed to achieve such growth are yet to be settled and focused.
Given the recent thinking in India and outside on the relative roles of government,
markets, private enterprise and non-government organizations, a careful look would have to
be given to the issues regarding spheres appropriate for direct government intervention.
While it is important to explore opportunities to transfer certain takes from the
government to others, it would be equally important to demarcate areas, where the
government must act. It would be wishful to assume that wherever the government performs
badly, others would readily take-over and do better.
This means that top priority should be given to national issues rather than ideological
issues of different political parties of the country. There is ample reflection of these broader
objective in the recent and continuing discussion on the yet to be finalized Agricultural Policy
Resolution.
Some obvious indications are:
(i) Systematic attempts to orient agricultural planning towards effective use of
resource endowments
(ii) A much-expanded employment-cum-investment programme for conservation and
upgradation of land and water resources;
(iii) Greater priority for dry land agriculture,
(iv) A substantial set-up in the proportion of total planned resources earmarked for
agriculture/rural sectors; and
(v) Time-bond targets for provision of rural infrastructures, etc.
(vi) Comparative advantages of grow climatic areas of the country,
(vii) Policy regarding growth of inputs and extension services and marketing etc.
Sincere and determined efforts for development of agriculture/rural sectors would
have three main implications for the agricultural price policy.
1. Agricultural growth in the areas, crops and farms which have remained stagnant so
far would have the effect of expanding the boundaries of that part of Indian agriculture which
is responsive to agricultural price changes.
2. Improvements in what CACP considers as important ‘non-price’ factors—
technology, inputs, marketing etc. —would add to the effectiveness of price policy as an
instrument to promote growth along with efficiency and cost effectiveness.
3. The most important, if income and welfare support for the poor and the problems of
non-viable small and marginal farmers get priority attention in the overall development
strategy, the price policy would be able to focus itself more pointedly on its primary
economic functions.
In view of the above considerations, following suggestions can be made in regard to
reorientation of the agricultural price policy:
1. Minimum Support Prices:
Two economic criteria should govern the operations based on minimum support price.
First, it should give protection only to the efficient producer so that minimum support price
promotes growth and efficiency and merely subsidizes all sections of farmers.
Specifically, it is urgent to realize that non-viable farmers cannot be helped simply by
fixing a high enough minimum support price; the solution of their problems lies in other areas
than in policy. Secondly, the protection should be given only to prevent losses being made by
the efficient producer and not to ensure him profits.
2. Maximum Price:
The criteria for fixing a maximum for the prices of a commodity are not equally easy
or strength forward to stipulate.
The primary responsibility of the government in relation to price level is:
(a) To keep in check the inflationary forces bringing about increases—sustained and
cumulative—in the overall price level, and
(b) Elimination of collusive and manipulative practices leading to artificial scarcity
and high prices for particular commodities.
 If these two sources of price rise are effectively neutralized, it is difficult to think of
any need to match every minimum support price with corresponding ceiling price. When the
stability of the general price level is maintained; the efficacy of the price mechanism would
depend on the extent to which the relative prices are left free to vary in response to changes in
the underlying supply and demand conditions.
3. Balanced and Integrated Price Structure:
A balanced and integrated price structure criteria should be evolved. This type of
price structure would help not so much in price fixation as in monitoring the changes in
factors which affect prices. The extent to which an agricultural price policy would help
development strategy and planning for agriculture would depend on its capacity to
extrapolate, forecast and work out the implications of alternative actions.
In a market-based economy, such analytical exercises would need models of
interconnected markets based on the concept of equilibrium and capable of showing the
manner in which the markets adjust to policy interventions, disturbances etc.
Summary of Agricultural Price Policy in India:
(i) Setting Institutions:
The Government of India has set up some institutions for the implementation of
agricultural price policy in the country accordingly; the Agricultural Price Commission was
set up in 1965 which announced the minimum support prices and procurement prices for the
agricultural products. In 1985, the name of this institution was changed into Agricultural cost
and Price Commission. Moreover, the Food grains policy.
Committee was, appointed by the Government in 1966 which also recommended
various measures of price support. The Food Corporation of India was also set up in 1965 for
making necessary procurement, storage and distribution of food grains.
In 1989-90, total capital employed in FCI was to the Extent of Rs. 5138 crore with its
total storage capacity at 18 million tones. The corporation organises the price of food grains
at government determined price and sale these food stocks through the network distribution
system. In the year 2009-10 and 16.28 million tonnes of wheat and 4.94 million tonnes rice
were distributed to FCI.
(ii) Minimum Support Price:
The government fixes the minimum support prices of agricultural products like wheat,
rice, maize, cotton, sugarcane, pulses etc. regularly to safeguard the interest of farmers. The
FCI also make their purchase of food grains at the procurement prices so as to maintain a
rational price of food grains in the interest of farmers.
(iii) Protecting the Consumers:
To safeguard the interest of the consumers, the agricultural price policy has made
provision for buffer stock of food grains for its distribution among the consumers through
public distribution system.
(iv) Fixation of Maximum Price:
In order to have a control over the prices of essential commodities the government
usually determines the maximum price of agricultural products so as to protect the general
people from exorbitant rise in prices.