What Regulations did to Agriculture Markets: Can eNAM be a Game Changer?

by Sara John*

The central government is carrying out a slew of measures to revive the agriculture sector with the aim of keeping its promise of doubling farmers’ income by 2022. The government has been criticised for being populist in its budgetary allocations by providing temporary sops for the farming community, as the election results are greatly dependent on the votes of the rural population. However, the vicious cycle of the failure of the farmers to get profitable price for their produce, farmer suicides and loan waivers continue, amidst many policy measures and promises to help farmers get better price for their produce.

It is an intriguing question as to why the farmers do not get reasonable prices for their produce, when other players in the agricultural market gain more profit than the farmers do. In an efficient market system, the producer should get the maximum revenue with a minimal gap in the price earned by the producer and price paid by the consumer. Given this context, it would be interesting to look at how the government regulation of the agricultural market through the Agriculture Produce Market Committee (APMC) Act over the years, resulted in market distortions and entry barriers, thus failing to meet its intended purpose of helping farmers get better price for their produce.

From Regulations to Monopoly

As per the APMC Act, a state is divided into different market areas based on geography. Each market comes under the jurisdiction of a marketing committee comprising of representatives of the state government, local bodies, cooperatives, traders and farmers. The loopholes in the system resulted in the monopoly of trade, restricting the options available to farmers to sell their produce. The prevalence of license raj for traders restricted the entry of more number of traders into the market. In addition, cartel formation by the agents risked the price the farmers should actually get for their produce.

The marketing committee charges market fees as tax levied by the government from buyers and licensing fees from commission agents and other functionaries like warehousing agents. This adds up to the retail price of the produce but farmers get only 25–30 per cent of the retail price. The dual role of regulator and market played by the APMCs has paved the way for vested interests to predominate in their operations and hindered direct marketing.

The amendments in the APMC Act during the course of time did not help in improving the situation. For instance, the Model APMC Act of 2003 allowed the setting up of private markets but the owners of the private market were required to collect fees on behalf of buyers and sellers. The relatively weak infrastructure of the distribution system along with corruption in the functioning of APMCs added to the woes of the farmers and consumers due to price distortions.

The Union Budget of 2014-15 recognised the need for a national common market for agricultural commodities. The central government is persuading the state governments to bring about reformative changes in their APMC Acts to remove taxation and licensing barriers. It is assumed that the states do not prefer to bring in these changes, as these reforms may threaten the monopoly and power of the marketing committees influenced by political factors.

Transforming Legislation to Reality

With the intention of liberalising trade and giving farmers wider options beyond the local mandis (markets), the central government launched an electronic National Agriculture Market (eNAM) purported to reduce transaction costs and information asymmetry, though material flow of goods will continue to happen through mandis. The central government has also approved the Model APMC Act, 2017, which can act as a template for the states to bring about changes in facilitating trade through eNAM. Though 417 mandis in various states have joined the eNAM platform and the concept of One Nation One Market seems to be a game changer, the transformation of legislation to ground reality is a herculean task.

Several states have amended the APMC Act but they have not framed rules for the Act. Madhya Pradesh has imposed an entry barrier of Rs 1 crore for issuing a unified state license. Though a few states have joined the eNAM platform, it is not fully functional and restricted to a few commodities. Lack of infrastructure facilities, poor internet connectivity and absence of scientific sorting/grading facilities have impended the progress and implementation of the provisions of eNAM. The concept of a common market with a single point of levy of taxes and single state-wide license for trade looks impressive on paper but to what extent the system is equipped to realise it needs to be pondered.

It is a challenge to convince the stakeholders to shift to online trading. Ultimately, the question is if there is any guarantee that the farmers can sell their produce at the price they seek or if the state of affairs would be back to square one, where a powerful few would benefit, while the same vicious cycle would continue for the less privileged in the farming community. The need of the hour is doable action plans, which can be implemented effectively, and not initiatives that are confined on paper. Increasing the budgetary allocation will not help if proper implementation does not happen.

Sara John is Project Associate at Centre for Public Policy Research. Views expressed by the author is personal and does not reflect that of CPPR.