The Ideal Meets the Reality of Agricultural Marketing
Growing up, I would always hear my mom saying prices of pulses, vegetables, fruits, etc. are going through the roof and how can the common man afford these things. Whenever prices of any particular ag commodity increased exponentially, media houses would cover the story by visiting APMC markets (place where agriculture produce is sold by farmers) and talking to farmers, traders and householders. This is when I was introduced to APMC markets but never really understood the concept on how it functions back then.
The ag marketing process involved farmers getting their harvests to these markets. There would be many traders in that market. The traders would compete to bid. The highest bidder gets the produce. The farmer benefits and it looks like a happy ending right?
My first visit to Krishi Janani (KJ) head office in Coimbatore was in Oct 2017. During my discussion with the team, I came to know that it was the harvest season for groundnut in the districts where KJ was operating. The average price at which the farmers were selling the groundnut (with shells) was somewhere in the range of Rs 40 to 45. It suddenly struck me that the groundnut that we purchase back in Mumbai was somewhere around Rs 150 per kg. Seeing the vast difference between the procurement price and the price at which they were sold to end customers made me dive deep into the entire supply chain for groundnut. While meeting various stakeholders who are involved in the groundnut supply chain, I understood the importance of APMC markets. I eventually realised that the way in which APMC market functioned was one of the key reasons (not the only reason though, I would cover all the aspects in a separate report) why there was a huge difference in procurement price and selling price of groundnut.
APMC (Agriculture Produce Market Committee) markets are the places that were setup to facilitate farmers selling their agricultural produce directly to traders. To put things in simple words, APMC market is a place where farmers can sell their agricultural produce directly. How did this originate? It was a known issue that farmers could not get the prevailing market rates for their produce, if not always then most frequently. APMC is one of the plans that the government came up with in order to tackle this problem.
Every state implemented their own APMC act since agriculture is a state subject. APMC act in Tamil Nadu where KJ has its operations was enacted in the year 1989 with about 10 amendments till date. Primarily, the act was meant to help the farming sector. Its objective was to regulate buying and selling of agri produce which would help the farmers in getting better rates. The act mandates setting a market committee for every notified area. The committee would then establish APMC market within that notified area. The committee had to ensure that working of the APMC markets were as per the APMC act. It should be noted that the APMC market was the most critical factor in the entire APMC act and the success of the APMC market was depended on the market committee which governed it.
The Ideal: Ag Marketing
APMC was setup to facilitate an ideal supply chain that looked like this:
APMC would set up markets in different regions within the state to ensure that the farmers get prevailing market rates for the agricultural produce. The ag marketing process involved farmers getting their harvests to these markets. There would be many traders in that market. The traders would compete to bid. The highest bidder gets the produce. The farmer benefits and it looks like a happy ending right? NOOO!
So how did the APMC market end up not serving the farmers? The list is long, but let’s focus on the key problems:
- Distance between the farm and the APMC market — There are limited number of APMC markets within a state. It is not easily accessible considering the distance between the farm and the market. Also, a majority of the farmers in India are smallholders (holding less than 2 hectares) which makes it unviable for them to incur transportation cost to take their produce to the APMC market.
- Trader cartel — More often than not traders have an understanding between them and accordingly bid prices. The farmer is forced to sell at lower rates since the traders bid at prices lower than the prevailing market prices.
- Storage — Majority of the APMC markets don’t have adequate storage facilities. Due to this the risk of the produce getting spoilt is very high and in certain cases forces the farmer into distress selling.
The Reality: Ag Trading
APMC is working in a ground reality where the supply chain works like this:
You may wonder whether I am here to only point out the negatives. Frankly I do not doubt the government’s intention. The entire concept of APMC is good and there are farmers who also benefit from them especially the ones with large land holdings. However, majority of the gain is accruing to traders and commission agents.
What if we tweaked or reimagined an APMC that would primarily serve small farmers? What would it look like? How would it function? Follow us as we work on finding answers to these questions.
