In this article we will discuss about:- 1. Agricultural Marketing Infrastructure 2. Government Intervention towards Agricultural Marketing.
Agricultural Marketing Infrastructure:
Agricultural marketing infrastructure has been the victim of monopoly, politics and lethargy. That is why agricultural markets are primitive; there is no common auction platform in more than one-third of regulated markets in the country. Anybody who has bought vegetables in a local mandi would have done so amid shouting hawkers, dirty mandis and piles of vegetable waste, without even having basic amenities such as drinking water or toilets.
Cold storage facilities required for perishables such as fruits and vegetables do not exist in mandis. The Planning Commission (2007) has noted that facilities for storage and processing are very inadequate. The Working Group on Agriculture Marketing of the Planning Commission for the Twelfth Plan highlighted the following gaps in the marketing infrastructure.
i. There was no progress in setting up wholesale markets, except in Kerala.
ii. There are only 1,637 grading units at the primary level in the whole country.
iii. Grading units are found in less than 20 percent of the market yards/sub-yards in the 7,246 regulated markets in India; only around 7 percent of the quantity sold by farmers is graded before sale.
iv. Modern storage capacity is only 30 percent of what is required.
v. Cold storage facilities are available for only 10 percent of fruits and vegetables.
vi. Simple facilities such as benches to sit on and drinking water taps or toilets are not available in more than 70 percent of the markets.
vii. Price information was not displayed in most markets.
These statistics show why farmers depend on arhatiyas and traders in primary markets. The lack of facilities and amenities in markets forces producers to look for agents and traders, who then squeeze the farmers like ripe mangoes. This does a long-term harm, as little investment goes to modernize the farm or marketing of agricultural produce.
The main reasons for poor market infrastructure are:
1. Market committees do not plough back the market fee collected into developing infrastructure.
2. The private sector has been prevented from developing marketing infrastructure due to government monopoly and restrictive laws.
This increases transaction costs of farmers. Woldie and Nuppenau (2011) have analyzed the marketing behaviour of Ethiopia’s banana producers by employing a transaction cost economics approach. Transaction costs that affect farmers are information costs, negotiation costs, access to credit and enforcement costs.
i. Information cost refers to the opportunity cost of searching for price information, the difficulty of obtaining it and reliability of the information.
ii. Negotiation cost is the opportunity cost of time spent and power of negotiation with agents and wholesalers.
iii. Monitoring and enforcement costs relate to enforcement of contracts.
iv. Access to credit and interest cost is an important institutional constraint in marketing and reduces transaction costs.
The farmer has no power over any factor and, as a result, his transaction costs are extremely high. The choice of where and how to sell depends on where transaction costs are minimized for farmers.
Transaction costs can be reduced by creating the following facilities:
i. Storage facilities – Whether the farmer has storage facilities to hold on to the stock.
ii. Direct Sales – Whether the farmer has enough time or manpower to sell directly to the consumer and depends on location as well.
iii. Transportation – Whether the farmer can transport the produce to the nearby town on city.
iv. Access to finance – Whether the farmer is rich enough to be able to hold on to stock.
v. Price Information – Whether the farmer has price information in nearby markets.
vi. Food processing facilities – Whether there is a factory or a cooperative union close by that buys the produce.
Mostly, small farmers have access to neither of these and government efforts in this direction have been lacking. As a consequence, they are under pressure to sell the crop when it is harvested. They are often in deep debt by the time the crop is ready, having spent their resources in buying seeds, pesticides, irrigation and crop protection. At harvest time, they have to spend more for paying for the labour or for hiring harvesters.
They cannot hold the crop since they lack storage facilities. That is why, once the crop is ready, farmers have to sell quickly. Some are approached by pre-harvest contractors or agents of APMC registered large buyers who provide advance payments to the farmers during the time of harvest. In this approach, farmers are able to cover the risk of post-harvest losses but get lower prices.
The pre-harvest contractor adds another link to the marketing channel, which is shown below:
Farmer → Pre-harvest contractor → Commission agent → Wholesaler → Retailer → Consumer
Further, agricultural markets are distorted by government intervention at every stage. Direct intervention in price setting, control of markets, having almost monopoly power in procurement, restrictions on storage and subsidies distort supply at every stage of the marketing process.
Government Intervention towards Agricultural Marketing:
Agricultural marketing is dominated by the government. The objective of this has presumably been to supply food-grains at cheap prices to the poor and to prevent dishonest practices such as overcharging and hoarding. While this may have served a food-scarce economy, today this policy is serving to strangulate the sector; modernization and private investment shies away from investments in the marketing of agriculture. Today, though the production has increased manifold, agricultural supply chains remain primitive.
The government exercises powers through a plethora of agencies and corporations it has set up and control is exercised on practically every aspect of agricultural marketing. There are a number of farmers’ cooperative agencies too, but in many of these politicians have taken over, limiting their efficiency and exercising control over them through the back door.
There are also several laws that govern agricultural and food marketing in the country. Apart from the laws, the procurement of agricultural products is largely done through government agencies. Large quantities of food-grains have accumulated in the godowns of the FCI and state agencies, but much of it gets spoilt because of poor storage. There is high incidence of malnutrition and starvation across the country despite a large PDS and food subsidy. This shows the criminal neglect of food supply chains in the country.
Marketing of agricultural products is under the purview of APMC Act. Licensing of traders has led to monopoly and provides little help to farmers in direct and free marketing. The APMC Act, which was enacted to protect farmers’ interests and increase market efficiency and transparency, is now being used to deny them opportunities to get better prices, to prevent competition and to guard the interests of middlemen.
A serious consequence of selling at APMC designated yards or mandis is that once agricultural produce has been brought to it, farmers can seldom take it back in the event of any unfair deal. The costs already incurred in bringing the produce to the market and in cleaning and unloading it prevent this. This robs the producer of whatever little bargaining power she/he has in price determination. Small producers with less to sell are left in a highly disadvantageous position.
APMC Monopoly:
Agricultural Marketing is covered under State List in Article 245 of Constitution of India. The State Agriculture Produce Marketing (Regulation and Development) Act promoted by state governments regulates agriculture marketing within a state.
The Act requires that agricultural produce be bought and sold only in a regulated market or mandi. The marketing of agricultural products is controlled by APMCs, which are supposed to regulate agricultural markets in a notified area. The mandi collects fees for its services and taxes that go to the state government, but it has not invested the proceeds in providing better facilities and infrastructure. Farmers cannot sell their produce outside the state, which gives the mandi boards monopoly.
Political interference and revenue considerations have prevented both the mandi boards and state governments to reform the system. That is one of the reasons that agricultural marketing has not kept pace with the changing times and is highly fragmented. Because of the system, a common national market for agricultural commodities has not been able to develop. It would not be wrong to say that both the government and mandi boards are earning revenue at the expense of poor farmers.
A research paper by Agricultural Economics Research Centre, University of Delhi says that the State Agriculture Produce Marketing Act has been the biggest hindrance in providing a modern marketing system to farmers. It treats agricultural marketing as a localized subject confined to a specific notified area and regulates the sale of agricultural produce grown in that area between farmers and registered traders. It creates a monopoly by prohibiting traders and processors located in other states from buying in an area without a license from the APMC.
The problems with the APMC Act are summarized as follows:
1. Monopoly – The monopoly power of the Act deprives farmers from markets and they have to sell through designated agents.
2. Cartelization – Agents deliberately offer low prices to the detriment of the farmer. Farmers often have to sell below the MSP.
3. High Fees – License fee and rents in the designated markets are very high. Farmers have to pay commission, marketing fee, APMC cess and Value Added Tax (VAT), which pushes up prices. Very often agents charge commission both from sellers and buyers. The commission rate is usually 6 percent for perishable items and 2 percent for non-perishables, which is very high as per global standards. Due to several layers of agents, the producer gets 20-25 percent of the retail price and the total mark-up is as high as 75 percent.
4. Controlled by Politicians – The chairman of the state APMC is nominated by the government, who is in most cases a politician. The politicians milk the boards for their own benefit, doing nothing for the farmers. For instance, The Tribune (2015) reports that the Punjab Mandi Board chairman, Ajmer Singh Lakhowal, has cost the Board more than Rs. 2 crore. The Board pays for his security cover which costs Rs.1.15 crore as salary to gunmen. Lakhowal was been given a cabinet rank by the Punjab government; seven cars have been purchased for him and his escort for Rs. 78.12 lakh, out of funds meant for markets and farmers. Similar stories about misuse of mandi funds are reported from other states as well.
5. Conflicting Roles – The APMC serves both as regulator and marketing agent. Thus, the regulator is undermined by revenue earning opportunities. Inefficiencies have been encouraged as a result.
6. Delayed Payments – Agents often block a part of payment to farmers for fictitious reasons. Many transactions are done verbally and farmers are refused payment slips.
7. No Value Addition – While agents charge high fees, they add no value and have no facilities for grading, sorting or storing. Commissions are added for no value addition. The APMCs neither do demand assessment to advise farmers as to what to produce, nor do they provide any technical inputs.
8. Opaque Pricing – Price discovery is not transparent. Usually farmers have to accept whatever prices are offered by agents. During peak harvest season, prices drop so drastically that farmers have to dump their produce on the roads. It is a regular feature of the agricultural economy that every year farmers somewhere in the country resort to distress sales of some product or the other and dump their produce, as prices drop to less than even the transportation cost.
The farmer is therefore severely limited and does not have many choices to sell his produce. Besides the APMC monopoly, the farmer has several limitations of resources. At the time of harvest, most farmers are hard-pressed for cash. They have invested in seeds, pesticides and irrigation—often by taking loans—and now look for quick recovery of their investment. It is this urgency to sell that is exploited by agents.
Next, we look at the various laws and controls that govern agricultural marketing and food supply in India and their working.
Laws Impacting Agricultural Marketing:
In this article, we look at some of the laws that impact agricultural marketing and food supply in the country.
Agricultural and food marketing is governed by a plethora of laws, as follows:
i. Consumer Protection Act, 1986
ii. Edible Oils Packaging (Regulation) Order, 1998
iii. Environment (Protection) Act, 1986
iv. Essential Commodities Act (ECA), 1955
v. Food Safety and Standards Act (FSSA), 2006
vi. Fruit Products Order, 1955
vii. Meat Food Products Order, 1973
viii. Milk and Milk Product Order, 1992
ix. Prevention of Food Adulteration Act & Rules (PFA Act), 1954
x. Solvent Extracted Oil, De-oiled Meal and Edible Flour (Control) Order, 1967
xi. Standards of Weights and Measures Act, 1976
xii. Sugar (control) Order, 1996
xiii. The Essential Commodities Act, 1955
xiv. The Export (Quality Control and Inspection) Act, 1963
xv. The Insecticides Act, 1968
xvi. Vanaspati (Control) Order, 1975
xvii. Vegetables Oil Products (Control) Order, 1998
In addition, there are various food laws and standards which apply to finished products, which can be followed by food processors. Labels such as the Agmark Standards (AGMARK), Codex Alimentarius Standards and BIS Standards and Specifications help to maintain the quality of finished products. Standards also help in marketing of processed agricultural materials as consumers can depend on these labels for quality. How do some of these laws and standards work are described below.
Essential Commodities Act:
The ECA, 1955, was enacted to prevent hoarding of essential commodities. Almost all agricultural commodities, such as cereals, pulses, edible oilseeds, oilcakes, edible oils, raw cotton, sugar, gur and jute are included in the list of essential commodities. A large number of orders have been put into force by the Central government and state governments under the ECA.
The Act controls virtually every aspect of agricultural marketing and supply chains. It provides for instruments such as licenses, permits, regulations and orders for (a) price control (b) storage (c) stocking limits (d) movement of produce (e) distribution (f) disposal (g) sale and (h) compulsory purchase by the government. The measures that can be taken under the provision of the Act include licensing, distribution and setting stock limits. The government also has the power to fix price limits and prohibits selling above that limit.
Black marketing of essential commodities was a major problem in the past and this has now been controlled to a large extent. However, as pointed out by Jha et al. (2010), the Act now makes it impossible to build large warehouses and modern supply chains. It prevents businesses from building centralized storage units and also makes it impossible for the private sector to play a larger role in agricultural marketing. Excessive control and intervention by the government have hampered the participation of private trade in agricultural marketing.
Some changes in the controls have been made. The dairy sector was liberalized through various amendments to the Milk and Milk Product Order, beginning in 1992. The main purpose of these changes was to allow increased participation by the private sector in marketing agricultural commodities. In response, private sector investments in the dairy sector have increased and resulted in healthy competition between cooperatives and the private sector.
Some steps towards reforms were also taken. The government removed licensing requirements and restrictions on buying, stocking and transporting specified commodities, including wheat, rice, oilseeds and sugar in 2002. This change in the ECA attracted big domestic and multinational players such as ITC, Cargil, Britannia, Agricore, Delhi Floor Mills and Adani Enterprises to the grain trade.
However, the government quickly flip-flopped over the policy. There was a shortage of wheat in 2006-07, coinciding with a period of high global prices, which led to the global food crisis of 2007-08. India had to import more than 6 million tonnes of wheat. The government then reversed the decision on the ECA, hence the organized private companies had to withdraw from the grain market.
Commission for Agricultural Costs & Prices:
Commission for Agricultural Costs and Prices (CACP) came into existence in 1965. It was earlier named as Agricultural Prices Commission and was set up to advise on the price policy of various crops including food-grains, pulses, oilseeds, sugarcane, groundnut, cotton, jute tobacco, and so on, to achieve a balanced and integrated price structure in the economy. It is supposed to set prices taking into account demand and supply, cost of production, price trends in the market, inter-crop price parity, terms of trade and implications of MSP on consumers.
The failure to stabilize agricultural prices over the years shows that the CACP is ineffective in its mandate. Himanshu (2015) writes that the failure is as much institutional as it is political. Prices of essential food items, including fruits and vegetables, continue to fluctuate wildly every season showing a complete lack of any price stabilization mechanism in the country. The CACP prices have not led to farmers benefiting out of these except in the case of rice and wheat.
The distorted price policy has resulted in farmers producing excessive rice and wheat at the cost of neglecting other crops, particularly pulses, oilseeds and cash crops. Food grain stocks are in excess of demand and they rot in government warehouses. The MSP is thus neither helping the farmer or the consumer but occasionally contributes to price inflation.
The CACP needs to be revamped since price fluctuations threaten the livelihood of farmers. India needs not only a sound price policy but also institutional mechanisms to deal with providing fair price to farmers and consumers.
Agmark:
The AGMARK facility is supposed to promote grades and standards of agricultural products. It has not become very popular and consumers seldom check this mark while buying products. The total quantity of produce graded at the producers’ level is very low. Due to lack of awareness and low brand value, AGMARK certified output has been about 1.5 percent of the total value of crop produce in the country.
In 2010-11, exports worth only Rs. 180 crore were certified, which was 0.16 percent of the total value of agricultural exports from India. Poor implementation of quality standards or laws results in widespread adulteration of food in the country.
Food Safety and Standards Authority of India:
Food Safety and Standards Authority of India (FSSAI) has been established under Food Safety and Standards Act, 2006 which consolidates various acts and orders that were in force earlier. FSSAI has been created for laying down standards for food articles and to regulate their manufacture, storage, distribution, sale and import to ensure availability of safe and wholesome food for human consumption, according to its website. The lack of proper testing laboratories and outdated rules—some rules go back to 1954—have resulted in major criticisms against FSSAI.
National Agricultural Cooperative Marketing Federation of India Limited:
National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) was set up to promote and develop marketing, processing and storage of agricultural, horticultural and forest produce in the country. It also distributes agricultural machinery, implements and other inputs, undertakes import and export of agricultural goods and provides technical advice in agricultural production to its members and cooperative societies.
It has been recognized as a ‘Star Export House’ by Government of India. However, despite being a nodal agency for procurement of oilseeds and pulses, its report turnover including exports shows that it is not very successful in meeting its objectives.
Apart from NAFED, every state has its own agricultural marketing federation.