The Indian Farmer, Middlemen and the APMCs

Abstract

The emergence of middlemen in the Indian agricultural marketing sector can be traced to the Agricultural Produce Marketing Corporation Acts passed by State Legislatures all over India. Agriculture is a state subject, hence drafting legislation on marketing is the prerogative of the State. With the objective of protecting the interests of the farmer, the APMC Acts passed by States in India share the common features of dividing the territory of the State into specially designated 'market areas' with each area having an Agricultural Marketing Committee appointed by the Government. Such a committee may set up one or more government-run markets in which trading of designated agricultural produce may take place. Now, how has the system of marketing of agricultural produce taken place in India in the past? Outlining the basics, contrary to western market practices, the Indian farmer is prohibited by law from selling is produce directly to an urban retailer. He can sell to the end-consumers but there is a restriction- he cannot sell more than 400 kilogrammes. If he has a produce above this figure, then he has to proceed to the Agricultural Markets run by the Government. Licensed brokers, commission agents and traders operate at these markets. Only such licensed operators are allowed to buy agricultural produce from the producer. Therefore if an urban retail chain would like to purchase several tonnes of tomatoes to sell throughout the city, then it will have to procure them from these 'licensed market operatives'. The law prohibits them from sourcing them from the farmer. Rule 5 of the Maharashtra Agricultural Produce Marketing Rules explicitly says that agricultural produce can only be marketed at the APMCs. The stated objective of Indian Policymakers was to prevent exploitation of the farmer. They envisioned that the farmer's produce would be sold at these designated markets at prices which were publicly displayed and monitored by the government. This way whatever price the farmer sold his produce at could be monitored and ascertained for its reasonableness by the State Agricultural Market Committee. With buying limited to the license holders, their activities could be scrutinised to check whether they were paying the government approved prices to the farmer and not exploiting him. Unfortunately India faces the agony of having laws rich in nobility but lacking in practicality and shoddy in enforcement. There is no exception for the APMC Acts also. Originally intended to create a system wherein a group of carefully monitored functionaries would be allowed to purchase agricultural produce, the act backfired in action, ultimately creating a coterie of middlemen, who along with the complicity of the market committees, formed a virtual barrier between the farmer and the consumer, paying the former a pittance for his produce and charging the latter obscenely exhorbitant amounts for daily necessities. Thus, the provisions of the APMC Acts confer a virtual monopoly on market functionaries or 'middlemen'. Farmers near the city can easily go into town to sell produce. But for those who live many miles away from production centers and are to poor to afford bulk transport, their only choice remains the APMC markets. There it is quite possible for middlemen to collude with one-another and dictate prices. They can afford transport facilities to ferry produce in large quantities. This produce passes on further to wholesalers in the city, who in turn sell it to small retailers or peddlers. There is a price rise of rupees 4 to 5 at every step. The end result is that vegetables, many of which are purchased at Rs. 2 or 3 a kg from farmers is sold at 20 to 30 rupees a kilo to urban consumers. This setup has been going on for not less than 25 to 30 years (since the passing of the APMC legislation). It has affected every major town and city in India. Thus, millions of urban Indians have had to pay artificially higher prices and millions of farmers went underpaid. The profit made by middlemen rarely figures in banks. Their record of paying taxes is dismal. It is common practice for the business community to store money in cash and not in banks. Therefore, we are looking at diversion of large amounts of capital into unproductive use. Also, price rises do not benefit farmers. It is suspected that groups of middlemen are behind the rise by hoarding produce. Rampant corruption ensures that their activities go unchecked. Had open marketing been allowed, millions of farmers would have got at least 4 or 5 rupees more for their produce and would have enjoyed a much better financial status today. Even the role of the government in mitigating this is dismal. Reading the website of the Press Information Bureau of the Government of India, there was a press release regarding policy steps to reduce prices. Not a single step mentioned therein dealt with the role played by middlemen in inflating prices or even measures to check them. This could be possible because their finances make them very powerful in local politics. Mayawati in Uttar Pradesh used to call 'Baniya Sammelans' to appease her voters in the business class. Since it is believed that many middlemen hail from that community, it would be appropriate to examine the political influence of that class. Remedial measures are now being taken. Many states have amended their APMC legislation to permit contract farming and direct purchase of agricultural produce by urban retailer. Thus, the market functionaries at APMC markets will face competition. Direct purchase by organised retailers reduces the length of the supply chain, giving better prices to farmers and charging lower prices from consumers. In a field survey conducted by the researcher in Pune, 'More', the retail arm of the Aditya Birla Group was selling capsicum at Rs. 26 a kg. At the same time, upon inquiring, it was found that peddlers at the 'subzi mandi' nearby were selling the same at Rs. 30 a kg! Also, contract farming by corporates will help better growing methods reach farmers, as such agreements contain clauses which provide that the corporate will provide technology to the grower to improve his yield. This benefits both, the farmer through increased yield and the corporate, who can source the same quantity from lesser suppliers.