The Next Steps After Ending The APMC Monopoly

The Maharashtra government's recent ordinance to reform agricultural marketing is a big hop, in what I see as a ‘hop, step, and jump' race towards farmer prosperity. The state government must be lauded for this far-reaching move.

The big hop, to my mind, is restricting the Agricultural Produce Market Committee's power to regulate marketing of agricultural produce within the market yard, and not in all of its delineated market area. The resultant open regime will lay the foundation for innovations in alternative marketing channels and draw the consequent investments in the necessary infrastructure.

The stated intent of this reform—as was the case for similar reform in marketing of fruits and vegetables a couple of years ago—is “ensuring better prices to the farmers for their produce”. One step and a jump, beyond this hop, are essential to accomplish this goal.

When a few other agriculturally prominent states follow suit and open up their agricultural marketing, which of these states will attract the much-needed investments? More and quicker?

A Vision Document For Policy Clarity

The next key step for the state is to publish a white paper and a vision document.

A white paper on the state's agricultural resources, namely crops that can be grown competitively based on the local agro-climatic conditions, logistical advantages of the location including access to key markets, state of the infrastructure etc. A vision document outlining the value addition opportunities and a road-map that can leverage these resources.

While it's true that all the stakeholders can figure out these opportunities on their own without such documents, the state publications will play a vital role in changing the mindset of the front-line officials from one of regulation and enforcement, to that of the desired promotion and facilitation.

For industry, the policy regime becomes more predictable.

A Demand-Driven Framework

The jump is in moving away from the market yard/mandi-centric paradigm of agricultural marketing, whether such market yards are set up by the government or private companies, be they physical or electronic.

The mandi is an institution of the production-driven supply chain system from the food shortages era.

The backdrop of any APMC reform is the need for transitioning Indian agriculture to demand-driven value chains on the canvas of global competitiveness. True alternative marketing channels would be value chain specific, and further, farmer-cluster or company specific, based on how the value creation is going to occur.

Don't be mistaken when I say that market yards would be history. They will continue to play a vital role in marketing a very large volume of the undifferentiated fair average quality produce.

Simple cost reduction, by moving farm produce directly to processing units bypassing the mandi may be enough in the ‘low-unit-value and high-volume' commodities.

Price discovery through linking spot transactions to derivative markets is more important in commodities where the prices are highly volatile.

When hard and soft infrastructure exists for warehouse receipt financing, and the derivative markets are mature and deeper, such transactions will increase manifold. Declaring warehouses, silos, cold storage and others as ‘Market Sub Yards' in the current ordinance is a good move in this context.

On a completely different note, integrated crop and pest management, organic and such other crops that promise food safety to the consumers need traceable value chains.

The agricultural produce of none of the above value chains should go to mandis to fulfil the illustrated farmer/consumer needs. While the current APMC Act does have provision for direct marketing, that should get mainstreamed.

This paradigm shift away from the mandi-centric view of agricultural marketing—when appropriately detailed out in the vision document and properly implemented—would be the high-jump needed to ensure better prices to the farmers, rounding off the hop, step, and jump.

S Sivakumar is the chief executive of the agri businesses at ITC.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.