BW Communities

Farm Gate Barriers

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[At a certain stage of economic development, the Agricultural Produce Marketing (Regulation) Act — which mandates that all agricultural products be sold only in government-regulated markets — may have served a purpose. The establishment of regulated markets may have helped increase rural — especially the small farmer's — access to orderly marketplaces. It was also a time when the private sector had neither the ability nor the inclination to invest in such activities. Over the years, however, things have changed dramatically. Not only is the private sector willing, it is keen to invest in this sector. But regulations such as the APMC Act pose a major hurdle. As a consequence, private investment in agriculture and allied sectors has remained negligible, even as it has grown by leaps and bounds in most other sectors. The infrastructure that the APMC Acts (most states have their own versions) have created leaves a lot to be desired. The network of state-regulated markets, or mandis, have not been able to serve either the interests of small farmers or provide an efficient marketing mechanism. In fact in many states, the regulated markets are non-functional. Actual transactions do not take place in their premises, but the market fee is collected by the APMC at designated check posts. Also, the area served by a regulated market varies dramatically across the states  — from 115 sq. km in Punjab to 11,215 sq. km in Meghalaya. On an average, a regulated market serves an area of 435 sq. km, and that means farmers have to transport their produce over long distances to reach a regulated market. Even on reaching a regulated market, the farmer can expect few facilities. Most of these markets do not have basic facilities — only 9 per cent offer cold storage, and only one out of three have grading facilities. So in effect, though these markets impose substantial taxes on buyers — over and above the commissions and fees charged by middlemen — they typically offer little in terms of price discovery, grading or inspection. Instead, they raise entry barriers. The APMC Act of Delhi, for instance, allows only registered traders/commission agents in the markets. Worse is the impact of the APMC Act in disallowing private processors and retailers to integrate their enterprises directly with farmers or other sellers, eliminating middlemen in the process. As per the APMC Act, farmers cannot enter into contracts with buyers. This leaves no incentives for farmers to upgrade, and inhibits private and foreign investments in the food processing sector. It is this bottleneck that has come up for special attention in the report of the inter-ministerial group on inflation headed by Kaushik Basu. It has recommended that all states should do away with or amend the APMC Act to allow farmers to directly access retail outlets and allow retailers to purchase directly from the farmers. The group points out that the difference between the farm gate price and the retail price is unusually high in India, and it is this Act which is chiefly responsible. The group has also sought an end to the systems of taxation that disrupt the flow of farm products from one region to another. Even if octroi cannot be abolished, all such charges should at least be levied at a single point, such as a mandi, it suggests. (This story was published in Businessworld Issue Dated 18-07-2011)