Editorial Analysis: The APMC Conundrum

APMC Act – Analysing the conundrum

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APMC Act Analysis

Agriculture marketing under APMC acts:

  • It is important to first understand how the agricultural marketing system has functioned for many decades.
  • APMCs with monopoly over market areas:
    • Under the Agricultural Produce Marketing Committee (APMC) Act, each state divides its entire area into several market areas with each area managed by an APMC.
    • The state government appoints the APMC and commission agents (“arhtiyas”) and wholesalers responsible for selling and buying the produce.
    • The APMC manages market yards and sub-yards (mandis) where wholesale trade in the produce of the entire market area takes place.
    • An APMC thus has a monopoly over wholesale trade in the entire area.
  • Farm to Consumer supply chain:
    • Commission agents typically send village commission agents to collect produce from farmers in villages and bring it to the market yard.
    • In the yard, commission agents sell the produce to wholesalers.
    • The wholesalers sell it to sub-wholesalers who sell it to retailers.
    • Retailers finally sell the produce to the consumer.
  • Issues with the APMCs:
    • Opaque pricing: The price at which market commission agents sell the produce to wholesalers is supposed to be determined by auction, but in practice the process is opaque.
    • Poor infrastructure: Storage infrastructure at APMC yards being poor, a significant part of the produce regularly rots.
    • Additional costs: A variety of taxes and commission agents’ fees get added to the final price.
    • Overall the farmer receives a low price while the consumer pays a high price due to:
      1. The presence of multiple intermediaries
      2. The nexus among APMC members, commission agents and wholesalers
      3. Poor storage facilities at the yard
      4. Taxes by the state government
      5. Fees of commission agents

Importance of recent reforms:

  • The above summary of agriculture marketing under APMCs provides the context to appreciate the value of the recent reform of agricultural marketing.
  • This has been in the works for long:
    • The current reform has had near unanimous support of not just economists and policy analysts but also all central governments since the late 1990s.
    • The government of India, during Atal Bihari Vajpayee’s term as the Prime Minister, first introduced the reform via the Model APMC Act of 2003.
    • During its ten years, the UPA government actively lobbied state chief ministers to adopt the model act.
    • The main opposition party also promised in its manifesto to “repeal the APMC Act and make trade in agricultural produce – including exports and inter-state trade free from all restrictions”.
  • Freeing farmer from the APMCs:
    • The government has finally implemented the reform using its powers under the concurrent list of the Constitution.
    • The purpose of the two recent APMC laws enacted by the central government is to free up the farmer from this stranglehold of the APMC and be able to sell his produce directly to the highest bidder.
    • For the farmer, there is no downside due to the reforms, while the upside is significant.

Current protests:

  • Commission agents upset due to loss of compulsory commission:
    • The commission agents who have guaranteed income from APMC transactions are naturally upset with the new reforms.
    • Some large farmers double up as commission agents also.
  • Some state governments upset at loss of easy income:
    • Meanwhile, the state governments, which collects taxes on the sales in the yard, especially procurement of grains paid for by the central government (which is borne by the Indian taxpayer), are also upset by the reform.
    • As a result, political parties and agents in states where APMCs are the most active, are the ones driving the protests.
    • It is possible that, fearing the loss of tax revenue collected on large volumes of grain procurement from their states, Punjab and Haryana leaders might also covertly or overtly encourage their farmers to join the protests.
  • Some farmers looking to get MSP legalized on all sales:
    • There is also a possibility that richer farmers, especially from Punjab, see an opportunity in the protests to extract a legal guarantee for a lucrative minimum support price (MSP) on all sales whether to the government or private agents.

Way ahead:

  • No rollback of reforms:
    • The government should not respond to the protests through any kind of rollback of the reform.
    • Any rollback of the reform will further encourage vested interests to rise up against other reforms.
    • Guaranteeing the MSP on all purchases must be especially resisted.
      • At MSP, the supply of grain would exceed demand, and a legalized high MSP for all purchases could result in there being no buyers of the most of the farmers’ produce. 
      • Even the government would not be able to afford to buy up all the excess supply.
  • States could be asked to amend laws if they wish to implement in their states:
    • As a last resort, if the government may allow the states to amend the new central laws as per local sentiment by passing amendments in the legislatures and seeking the Centre’s permission for them.
      •  Centre must approve for any state laws on concurrent list subjects to override a central law.
    • States that choose to retain old laws that hurt its own farmers in the name of protecting their interests, it should be allowed to do so. 
  • Reform-friendly states can use this opportunity:
    • Meanwhile, the states that are able to see the benefits of the reforms can see their agricultural sectors flourish.

Also Read: Amid opposition protests, LS okays bills on farm reforms

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