Updated: December 5, 2020 10:34:12 pm
In a mandi in New Delhi. The APMCs continue to report an annual business volume of over Rs 48,000 crore while the ‘business areas’ report business of around Rs 11,000-13,000 crore. (Express Photo: Tashi Tobgyal, File)
The idea of alternative markets, or “commercial areas” as described in the NDA government’s Trade and Trade in Agricultural Products (Promotion and Facilitation) Act, 2020, is not new in India. The first and perhaps the most advanced experiment of these was in Maharashtra when in 2005-06 then-Chief Minister Vilasrao Deshmukh sanctioned the establishment of private markets and collection centers by issuing Direct Marketing Licenses (DMLs). Private markets were wholesale mandis set up by private entrepreneurs, while collection centers were for aggregators like BigBasket and Reliance Fresh, who bought directly from farmers at the farm gate. Fifteen years later, these experiments have thrown the business out of whack, but not to the extent that the planners would have liked.
What were the reforms and why were they introduced in the state?
Private markets, as their name suggests, are market patios established by private entrepreneurs to facilitate trade in agricultural products. The marketing director of the state government issues licenses to establish these markets. A minimum of five acres of land would be needed to establish these markets along with infrastructure such as auction rooms, sheds, waiting rooms, motor vehicle roads, etc. Except for the cost of land, the initial investment into these markets is around Rs 4-5. crore.
To date, 18 private markets have emerged in the state that trade in basic products such as cotton, soybeans, chana, etc. Markets such as Ramdev Krishi Bazar, in the Washim district of the state, trade various commodities such as wheat, tur, while markets such as ACF Agro Marketing in Buldhana district deals only with a single commodity such as cotton. In 2019-20, these 18 markets reported a turnover of Rs 4,357.88 crore and traded 100.88 lakh quintals of commodities.
Private markets, by definition, are market places where trading can take place. A more intense intervention was the introduction of direct market licenses (DMLs) that allowed aggregators such as BigBasket, Reliance Fresh, ADM Agro Industries to buy directly from farmers. The licensees, for their part, are supposed to set up an infrastructure like collection centers, sorting sheds, etc., where farmers can bring their produce directly. A bank guarantee of Rs 5 lakh must be deposited before the license is issued, but this has been relaxed considerably when agricultural producer enterprises (FPCs) come into play.
The management has issued 1,100 DMLs and most of them in recent years have been delivered to the Agricultural Producer Companies (FPC). The latter have been granted a large number of concessions that allow them to compete with large corporations. For farmers, DML holders are a lucrative option, as they are supposed to purchase at the farm gate. Last year, the total volume of products handled by DML players was 372.86 lakh quintals with a turnover of Rs 2,528.72 crore.
Who controls the operation of these alternative markets?
The state government, through the office of the marketing director, is the supervisory authority for all alternative markets operating in Maharashtra. Each year, these licenses must be renewed and in case of complaints of fraudulent activities, the marketing director can take action against the markets by revoking their bank guarantees. The DMLs, for their part, have to pay a 1.05 percent market assignment of the transaction to the APMCs within whose jurisdiction they operate. This has been a bone of contention with the DML holders, as they say they do not use any APMC infrastructure to pay the tax. But after the approval of the Central Law, this controversial provision no longer applies to them MahaFPC, the coordinating body of the State Farmer Producing Companies (FPC), has said that its member companies have purchased around 2,600 tons of soybeans directly. from farmers to oil processors worth Rs 10 crore between September and October. This would not have been possible before given the legal provision of having to pay the market rate. 📣 Follow Express explained on Telegram
Is MSP mandatory for these markets?
Yes, one of the clauses of the license is that not a single operation would be carried out below the MSP notified by the government by these licensees. In the case of complaints, licenses can be revoked. Many DML holders suspend their acquisitions when market prices fall below the government-declared MSP. This is mainly to avoid actions by the authority.
The Maharashtra Agricultural Products Marketing (Development and Regulation) Act 1963 places the responsibility on the APMC to prevent trade below the MSP. The law in its Section 29 (1) (ix) asks the committee to “take measures to prevent sales and purchases below the minimum support price set by the government from time to time. “In addition, the committee has been asked to use its market funds to prevent such a transaction. In the event of such trading, the committee may suspend the traders license.
But such action has been very rare given the impracticality it entails. Traders have pointed out the non-viability of this clause, since most commodities, according to them, work on the principle of supply and demand.
How have the reforms developed on the ground?
Since they were introduced, estimates say that about 22 percent of the total mandi business has been diverted into these “commercial areas.” The APMCs continue to report an annual turnover of more than Rs 48,000 crore while these markets, on the other hand, report business of around Rs 11,000-13,000 crore.
Analysis of private markets shows interesting trends. More than 80 percent of the existing licenses are for commodities such as cotton or oilseeds. Officials admit that these private markets were run by processors such as gin and press unit owners dealing with cotton extractors or solvents dealing with oilseeds. “In most cases, these units are spread over more than 5 acres of land and traders have shown that area as the market yard to get the license. In a private market, traders do not have to pay for mandatory market cessation and the formation of private markets provided a way out, ”said a senior official in the state marketing department.
The APMCs, officials noted, were even now the only source of price discovery with private markets and DML holders tracking mandi rates. “This was not supposed to be the case, alternative markets were supposed to have their own price discovery mechanism and give mandi a run for their money,” they said. Also, most of the licenses were taken over by existing merchants with very few new entrants to the market. Investment in terms of infrastructure such as warehouses or cold storage has also been rare, which was supposed to be a game changer for the sector.
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