HISTORICAL PERSPECTIVE OF REGULATORY FRAMEWORK FOR FRUITS AND VEGETABLES MARKETING IN INDIA: RECENT CONTRADICTIONS

V P S AroraVice Chancellor, Supertech UniversityFormer Vice Chancellor, Kumaun University

Total Geographical Area : 329 m.ha.

No. of States : 29

No. of Union Territories : 7

Literacy Rate : 74%

Population Density : 382 per sq.km.

Rural Population : 69 %

Life Expectancy : 70 years

Per Capita Income : Rs 68,757 at current prices

Rs 39,168 at 2004-05 prices

India: An OverviewIndia: An Overview

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OUR COUNTRY HAS

18 % of the world human population

15 % of the world livestock heads

BUT ONLY

2.4 % of the world geographic area

11.3% of the world arable land

1% of the rain water

1% of the forest cover

0.5% of pasture land

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MilkLargest Producer

~132.40 Mn T

F & V#2 in the world

243.47 Mn T

Food Grains#2 in the world(255.36 Mn T)

Cattle / buffaloesLargest in the world

304.42 million

TeaLargest Producer

(0.96 Mn T)

Sugarcane# 2 in the world(338.96 Mn T)

Goat & Sheep212.10 million

FisheriesMarine: 3.275 Mn TInland : 5.744 Mn T

India is the Front Ranking Producer of many Commodities

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Indian Agriculture

Backbone of the economy

Leading producer of agriculture , horticulture, and animal products

Wide variability of crops due to variability in agro-climatic conditions

To achieve double digit GDP growth rate, an agriculture growth rate of around 4% is required

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The Agenda for Agriculture has been written over several times by many agencies

Who will make it happen? Multiple stakeholders, Multiple decision makers Complexities and Mistrust No single “agency” responsible No single “stakeholder group” can make it happen Need for neutral body to catalyze collective action

How can an integrated virtuous cycle that compliments and accentuates different positive forces Towards making it happen?

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The Agriculture & Food Value Chain in India

Farmers • Inputs (seeds, Pesticides/Fertilizers)• Implements & equipment• Extension Services • Technology including IT• Post Harvest Handling, Supply

Chain, Logistics & Intermediation • Markets & Market Infrastructure • Processing • Packaging • Retailing • Exports

Potential Businesses in Agri Value

Chains

Final Users

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Indian Agriculture – A health Check

Pre-Harvest

•Declining average holding size

•60% of area remain under rain fed agriculture

•Inefficient last mile delivery of inputs

•Eroding water tables and declining soil health

Post-Harvest

•Regulated markets

•Inefficient market systems and linkages

•Knowledge and information gaps in grading, sorting, packing, pre-cooling etc.

•No value addition at farm gate

The Key

Issues

Needs massive infusion of Technology, Infrastructure and Market linkages

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Agriculture Transition – Forces at work

•Shift in consumption pattern from traditional crops to high value crops

•High penetration of processed foods in the consumption basket

Retail revolution

•Retailing in India is currently a US$ 800 billion industry with 70% share of Food & Grocery

• Expected to grow @15-20 % per annum for the next 3 years

• 90% growth in food and groceries

•Modern format going for nationwide presence including Rural

The Transition

The Transition

Compulsion on Government to move away from subsidies to higher remuneration to farmers

Conscious policy shift for value added agriculture

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Challenges of Demand Driven Agriculture

Land fragmentation / lack of land markets

Poor credit and risk cover mechanism

Inadequate knowledge of potential risk and returns

Uncertain Crop diversification Policies and

Programmes

Linking small farmers to new marketing systems

Lack of collaborations across value chains

Scalability and

sustainability

Lack of efficient Agri markets

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What Does Indian Agriculture Need Today

High Value Agriculture

Policy and programs for transition to high value/demand led Agriculture

Crop diversification to suit commercial needs

Modern Technologies across Value Chains

Agri focused infrastructure including Cold Chain for linking farms to markets

Investments in rural infrastructure

Collaborations across value chains

Appropriate credit and risk management policy

Demand pull

Food grain Sector

Massive infusion of technology and knowledge transfer for productivity enhancement

Irrigation

Rural Infrastructure

Credit and Insurance

Long term

Competitiveness 04/19/23

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Critical Missions

Link Agriculture to Markets (state level reforms, marketing infrastructure, cold chains)

Greater private participation in extension and farm services

Develop mutually rewarding models for Agri risk management

Promote private sector investments in Agribusinesses and Agri infrastructure

State Governments to speed up reforms

Enable a globally aligned industry friendly food regulatory regime

Capacity building in the food processing sector

Promote promising Agri Value Chains 04/19/23

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Agricultural Marketing– Backdrop

Increased marketed surplus

Changed commodity mix with growing share of high value commodities

Increased urbanization and income levels

Increased linkages with distant and overseas markets

Changes in the form and degree of Government interventions

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Dimensions of Agricultural Marketing: S C P Issues

Agriculture engages about 52% of work force and contributes about 14 percent of GDP.

Small and marginal farms account for over 40% of total food grains viz.

- 49% of Rice; - 40% of Wheat; - 29% of coarse cereals; - 27% of pulses; and - over half of the total fruits

and vegetables 04/19/23

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Marketing Channels Agricultural commodities move through different

marketing chains.

Market functionaries involved distinguish the Marketing channels

Length of the marketing channel depends on the size of market, nature of the commodity and the pattern of demand at the consumer level.

Agricultural marketing channels are in general divided into four broad groups:

- Direct to consumer : up to 2%- Through wholesalers and retailers :

about 80%- Through public agencies or co-operatives :about10%- Through processors : from 3 to 5%

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Evolution of Supply Chains

For centuries, traditional market was the only supply chain to handle goods

FarmerConsumersMarkets

Price & Regulation

From simple to complex supply chains have evolved

ConsumersFarmer

Farm Owner

Consolidator

Trader / Transporter

Commission Agent 1

Commission Agent 2

Wholesaler

Hand Cart Vendor

Small Roadside Vendor

Medium / Large Retailer

Supermarket / Hyper market

Source: Presentation by the World Bank in MACP Workshop04/19/2316

Marketing Agencies Main functionaries in the marketing channel for

agricultural commodities include village traders, primary and secondary wholesalers, commission agents, processors and retailers including vendors (Approx. 2 Million wholesalers and 5 Million retailers)

Public agencies, farmers’ co-operatives and consumers’ organizations also perform many marketing functions

Private sector handles around 80 per cent of the marketed surplus of agricultural products

Quantity of agricultural products handled by government agencies has been about 10 per cent of the total value of marketed surplus

Around 10 per cent marketed surplus was handled by producers or consumers co-operatives.

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Government/ Co-operatives in Marketing

Government intervention in purchase of agricultural commodities under-

- Minimum Support Price programme (MSP), - Procurement of food grains, - Market Intervention Scheme (MIS), - Monopoly purchase, - Open market purchases of commodities by NAFED, CCI,

JCI and state oilseed federations

Basic objective of entry of these agencies is to safeguard the interest of producer-farmers along side providing food security to consumers through operating PDS

Food Corporation of India has entered as an important market functionary in the trade of cereals

Fair price shops also came as retail outlets for distribution of cereals to targeted sections of population

Co-operatives have also assumed importance in the marketing channel with the encouragement to producers or consumers cooperatives

In case of sugarcane, co-operative sugar factories play a dominant role.

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Historical Developments in Regulating Agricultural Markets

First Agricultural Market was regulated in 1896 at Karanja (Former Hyderabad State)

Cotton and Grain Market Law was enacted in 1897 in the Berar region (Hyderabad Assigned District)

Based on the recommendations of Indian Central Cotton Committee (1917) and Royal Commission on Agriculture (1928), various Provinces and States enacted Acts for establishing Markets

Before Independence, market regulation was in force in Bombay (1927), Central Province (1932, 1935), Mysore (1939), Punjab (1941), and Patiala (1947)

After Independence most of the States enacted Agricultural Produce Market Regulations Acts

The process of amendment in APMC Act by States restarted after Model APMC Act was framed at the national level in 2003

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Agricultural Markets in India as on 31.03.2014

5964 Wholesale Markets in India

22759 Rural Primary Markets (about 15% are regulated markets)

2483 Principal Regulated Markets

4631 Regulated Market Sub-yards

Total – 7114

(Only 250 and 286 regulated markets in August 1947 and1950 respectively)

• Need for Regulated Markets within 5 sq. km radius whereas average all India availability is 462.19 sq. km only.

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Salient Features of Regulated Markets Democratically governed by APMC, consisting of 15

to17 representatives of farmers, traders, cooperatives, warehouses, and officials of marketing and other departments (Elected members not less than 11).

Bylaws, rules and regulations are framed by APMC Secretary of APMC is appointed by the Government National Commission on Agriculture (1976)

recommended one regulated market at a radius of 5 sq km

Commodities notified varies from state to state There is a provision of establishing Special

Commodity(ies) Markets

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Contribution of Regulated Markets• Basic objectives have been-

- to ensure reasonable gain to the farmers by creating environment in markets for fair play of supply and demand forces,

- to regulate market practices and attain transparency in transactions • Aimed at providing proper method of sale, correct weighment, prompt

payment and various marketing related services

• Democratic set up to control and manage markets

• Advent of regulated markets has helped in mitigating the market handicaps of producers/ sellers at the wholesale assembling level

• Achieved only limited success and Rural Periodic Markets in general, and the Tribal Markets in particular, remained out of its developmental ambit.

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Various Reforms Initiated

• Suitable amendments in the State APMC Acts to facilitate efficient and alternative marketing channels for farm produce

• Progressive dismantling of controls and regulations under EC Act to evolve a national integrated market for agri-produce

• Law for implementing Negotiable Warehouse Receipts System passed by the Parliament

• Enactment of an Integrated Food Law to promote quality and single window regulatory system

• Allowing futures trading/ electronic spot trading in agricultural commodities for better price risk management and price discovery

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Major Reforms through Model APMC Act

Central Government circulated Model APMR Act to State Governments for adoption in September 2003 and Model Rules in November 2007

Establishment of Private/ Co-operative markets/ Farmer-consumer markets/ Direct marketing

Safeguarding interest of the farmers through provisions for Contract Farming

Single point levy and payment of market fee/ Single point registration of functionaries

PPP in management & extension activities/ Promotion of e-trading/ Electronic Spot Exchanges

Encouraging professional management in APMCs

Promotion of Grading and Standardization.

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Myths and Realities

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WHERE IS REGULATION OF AGRI MARKETS? India: 35% of wholesale markets and 25% of all

agri markets Karnataka: 30% and 40%; Tamilnadu: 90% and

30%; AP (old): 100% Jharkhand:14% and 25%; MP: 100% and 33%; UP:

50% and 15% UK:70% and 90%; Haryana: 35% and 60%;

Punjab: 35% and 90% Gujarat: 98% and 85%; Maharashtra:33% and

22% WB: 14% and 20% and Orissa: 10% and 20%

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ABOUT AMENDED APMC ACTS

Is the farmer not free to sell anywhere s/he wishes? If not, how are food supermarkets procuring? and how

is contract farming going on across India? And how are farmers’ markets being held?

Direct purchase from farmers allowed in: Maharashtra (130), MP (8), Chattisgarh, Karnataka (258) Andhra Pradesh(171), Gujarat (21), Haryana (37), Himachal Pradesh (12), Odisha (46), Punjab (26), Rajasthan (77), Delhi, and Tamilnadu (179)

States with no APMC Act: Bihar (repealed w.e.f. 01.09.2006),Kerala, and Manipur

MoFPI says 16 states have amended the APMC Act fully or partially, and have agreed to delist F&V from the APMC Act! Some have already done it (??)

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MAJOR F & V STATES IN INDIA Andhra Pradesh, Karnataka, Kerala, Tamil

Nadu, Bihar, Orissa, West Bengal, Jharkhand, Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra, Himachal Pradesh, Uttarakhand, Uttar Pradesh, Manipur, Arunachal Pradesh, Meghalaya, Sikkim, Tripura

Where are F&V growing fast: AP, Bihar, Jharkhand, Gujarat, Haryana, HP, J&K, MP, Chhattisgarh, Maharashtra, Orissa, UP, UK, WB, and the NE states

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ABOUT AMENDED APMC ACTS

Is contract farming not permitted anywhere in India?

States that permit Contract Farming: Punjab, Haryana, Himachal Pradesh, Uttarakhand, Rajasthan, Maharashtra, Gujarat, Chhattisgarh, Madhya Pradesh, Jharkhand, Andhra Pradesh, Orissa, West Bengal, Karnataka, Kerala

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MAKING AGRI MARKETS WORK Scrutiny of contracts, public contract terms, and

competition in procurement (monopsony) Incentivise smallholder inclusion Link credit to CF, though not mandatory or

exclusive (lower interest rates for CF?) Exempt F&V crops from APMC rules only for

CF and Direct purchase Promote Producer Companies to

organise/encourage market oriented and business like co-operatives (New Generation Co-operatives) which can deal with CF agencies

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MAKING AGRI MARKETS WORK Role of the state- How Much regulation? Bihar v/s

Gujarat in APMC Act! Role of the state: Promotion of producers’ organizations for marketing

of farm produce as PPP Provide more of marketing extension to growers Market orientation in terms of improved marketing

practices at the farmer level. Incentivise/promote Group contracts to reduce

information asymmetry between firm and growers, transaction cost of dealing with small growers and for better bargaining power to growers

Legal protection to growers like in Japan/USA

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MAKING AGRI MARKETS WORK Reform APMC markets- free licensing for better

competition, e-payment of market fee, ensure open auction system, better facilities, PC representation in APMC managment, denotification of CAs/Arthiyas like in MP, (APMC markets serve as competitors to contract and direct purchase and can help improve the terms offered by CF/DP to growers as contract/contact prices are benchmarked to APMC prices, Make warehouse receipts applicable to less perishable produce like potato/onions

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Farmers’ Need to Get Organized

Group/ Co-operative Society/ Producer Company formation can help in lowering transaction costs in marketing & purchase of inputs and increasing bargaining strength

Helps in aggregation of marketable surpluses & value addition and development of forward linkages with suppliers/ processors/ exporters/ futures market,

Facilitates access to technical services & credit, Can help in owning & managing marketing/

processing facilities – Farmers’ Markets coming up in many States – V & F Promotion Council of Kerala, Ryathu Bazars in AP, Apni Mandis in Punjab are examples,

ATMA Scheme & other Government Programmes promoting group formation, capacity building, revolving funds, access to market information, etc.04/19/23

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Future Challenges Some States still not willing to allow direct

marketing or private markets – political opposition to direct marketing/ contract farming/ organized retail chain etc.

Authorities are overprotecting existing marketing channels – not facilitating change/ competition/ new channels – also not modernizing APMC Yards or improving management through PPP

Trade/ movement restrictions still existing for certain commodities

Single point levy of tax/ single point payment yet to be facilitated in most States

APMC Rules not notified in many States for amended provisions (Notified only in AP, HP, Karnataka, Maharashtra, Rajasthan , M.P (only single license for more than one market), Haryana (Only CF) & Orissa so far. 04/19/23

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Way forward

Execution and not intent of APMC can be questioned

India needs professionally managed APMCs to safeguard the interests of millions of Small and Marginal Farmers

Massive use of ICT will eliminate loose ends in the process

APMC should act as marketing entity rather then policing entity

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Thank You

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