Marketing agricultural commodities

The Economic Survey emphasises on the need for a national common agricultural market and identifies unintegrated and distortion ridden agricultural market as one of the most striking problems in agriculture growth.

• The Economic Survey suggests 3 incremental steps as possible solution, building on the Budget 2014 recognition for setting up a national market, farmers’ markets and need for the central government and the state government to work closely to reorient their respective Agricultural Produce Market Committee (APMC) Act.
• It may be possible to get all States to drop fruits and vegetables from APMC schedule of regulated commodities and followed by other commodities.
• State governments should also be specifically persuaded to provide policy support for alternative or special markets in private sector.

In view of the difficulties in attracting domestic capital for setting-up marketing infrastructure, liberalisation in FDI in retail could create possibilities for filling in the massive investment and infrastructure deficit in supply chain inefficiencies. As a last resort, the economic survey suggests using constitutional provisions to create a national common market for agricultural commodities. The concurrent list entry 33, covers trade and commerce and production, supply and distribution of food stuff including edible oilseeds and oil, raw cotton, raw jute etc. Entry 42 of union list, viz., ‘interstate trade and commerce’ also allows a role for the union.

Presently, markets in agricultural products are regulated under the Agricultural Produce Market Committee (APMC) Act enacted by respective state governments. This Act notifies agricultural commodities produced in the region such as cereal, pulses, edible oilseed and even chicken, goat etc. The first sale in these commodities can be conducted only under the aegis of APMC through the commission agents licensed by the APMC.

The typical amenities available in and around the APMC are: auction halls, weigh bridges, godowns, shops for retailers, farmer’s amenity center etc. Various taxes, fees/charges and cess levied on the trades conducted in the mandis are also notified under the Act. Currently, APMCs charge multiple fees, of substantial magnitude, that are non-transparent. They charge a market fee of buyers, and they charge a licensing fee from the commissioning agents and licensing fees from a whole range of functionaries.

In addition, commissioning agents charge commission fees on transactions between buyers and farmers. These statutory levies mandi tax, VAT etc. varying from state to state are the major source of market distortion. Such high level of taxes at the first level of trading has significant cascading effects on the price. The APMC Act treats APMC as an arm of the state and the market fee as the tax levied by the state, rather than fee charged for providing services.

This provision acts as a major impediment to creating national common market. The APMC operations are hidden from scrutiny as the fee collected is not under state legislature approval. Also the commissions charged by commission agents are exorbitant as they are often charged on entire value of product sold rather than the net value. There is a perception that the positions in market committees and market boards are occupied by the politically influential thus leading to the formation of cartels in APMC.