Agri reforms: Where did the APMCs go wrong? Editorial 26th Sep’20 FinancialExpress

Agricultural Produce Market Committees (APMCs) were brought in to ensure fair prices for farmers:

  • Pre-APMC days in Indai were dominated by price misinformation and arbitrage (quick purchase and sell with middlemen making profits).
  • APMCs were created in the early 1960s to ensure price discovery and fair transactions.
  • They were designed to create infrastructure for auctions and storage out of the cess paid by the buyers and not by the taxpayers.
  • Many APMCs (mandis) used the funds to create rural marketing infrastructure.
  • It was designed as a democratic, decentralised system with physical auctions as the basis of price discovery and licencing of traders as a way to ensure payment.

But later vested interests too over the APMC Mandis:

  • Over time, the system, designed with good intentions, deteriorated and vested interests took over.
  • For example, even an organisation like NAFED (National Agricultural Cooperative Marketing Federation) found it almost impossible to obtain trader’s licence in Azadpur Mandi.
  • Another example is of how apples from Himachal, which already paid cess on goods in Himachal, are being subjected to a high and unreasonable cess in the Delhi mandi.
  • Similar examples can be cited from across India.

Key stakeholders responsible for decline of APMCs:

The state governments:

  • The state governments started looking at APMC cess as a source of extra revenue, which can be used at their discretion since this amount was not part of the budget.
  • It remained in the bank accounts of the Mandi Board and was used for ‘discretionary’ development spending (there was no MPLADS in those days) mostly under the chief minister’s orders.  
  • Cess raised unreasonably:
    • Since this was ‘revenue’, state governments could not resist the temptation of increasing the cess to unsustainable levels.
    • Cess which was initially 0.5% or 1% cess went up effectively to 5% or more.
    • In states where FCI did most of the procurement, the burden of high cess was borne by the FCI and, by implication, the Government of India.
  • Cesses were imposed indiscriminately on goods not even produced in the state: 
    • Most APMCs devised new ways of increasing revenue by expanding the schedule of commodities, without considering whether these were produced in their state or not.
      • For example, AMPCs in Bihar were imposing cess on milk powder.
    • Most APMCs have a list of more than 100 commodities. Azadpur Mandi in Dlehi had a list of 198 items on the last count, including butter and honey.
  • Government nominees on APMC boards: 
    • As the APMC Mandis began being treated as sources of revenue, the state governments were also filling these boards with government nominees.
    • Further, there was appointment of administrators superseding the boards, and farmers lost their voice.

The traders and commission agents:

  • Licensing of traders in APMCs was to protect farmers:
    • Legal provisions for licencing of traders to operate in the market yards were meant to ensure prompt payments to farmers.
    • The insistence on correct weighment and transparency in auctions were in the best interests of price discovery.
    • The law also stipulated that prices be displayed prominently in the market yard.
  • But traders and commission agents started acting in corrupt manner to hurt farmers’ interests:
    • Over a period of time, traders and commission agents formed coteries and took ‘effective’ control of the management.
    • New licences were deliberately delayed or declined to protect the vested interests of entrenched traders.
    • Price discovery and display of prices became disfunctional.
    • The managements made arrangements with the traders and the powerful ‘commission agents’, leaving the farmers in the lurch.
    • Only in case of the Minimum Support Price (MSP), farmers got decent prices as there was no price discovery. However, the traders kept their interests intact by increasing their commissions, which burdened the FCI.

With traders and governments in collusion, no APMC reforms were allowed to take off:

  • The ‘mutual benefit’ arrangement between traders and governments ensured that all efforts to reform APMCs failed.
  • There were many committees, model acts or advisories and requests from the Union government during the last twenty years calling for APMC reforms.
  • To a large extent, they need to take the blame for the current situation, where new central farm bills were necessitated to enable better price discover for farmers.

FPTC Bill to overcome barriers created by APMCs:

  • The Farmers’ Produce Trade and Commerce (promotion and facilitation) Bill 2020 seeks to give farmers and traders enjoy the freedom of choice relating to sale and purchase of farmers’ produce.
  • It seeks to facilitate remunerative prices through competitive alternative trading channels to promote efficient, transparent and barrier-free inter-State and intra-State trade and commerce of farmers’ produce outside physical premises of markets or deemed markets notified under various State agricultural produce market (APMC) laws.
  • FPTC Bill has been hailed as a game-changer creating new opportunities for farmers. Farmers are yet to be convinced.
  • It will bring the  virtual monopoly of APMCs to an end.

How to reinvent APMCs to keep them relevant:

  • In spite of all their failures, APMCs will continue to remain relevant not just for the infrastructure, but for price discovery and payment processes, however, imperfect.
  • However, they need to reinvent themselves to serve farmers.
  • Change the law to make them farmers’ organisations:
    • At least two-thirds of the members of the board/committee should be elected farmers/ Farmer Producer Organisations (FPOs), reducing the government nominees to two.
    • The board /committee should be allowed to appoint the chief executive from the open market.
    • By law, the scope for frequent government interventions must be ended and all cadre-based government-controlled employees must be removed.
    • The board should function like a well managed co-operative.
  • Allow farmers to sell in any market yard:
    • The states must amend the APMC acts to remove ‘geographical’ constraints for all farmers by allowing farmers to sell in any market yard of their choice.
  • End separate licenses for each market:
    • States must remove the condition of a separate licence for each market.
    • One licence can be made valid for the entire state, and it can be made hassle-free and online.
  • Reduce cesses:
    • The cess must be reduced to 1% or less.
    • Mandis can collect service charges, if required, for facilities provided.
  • End commission agents:
    • The coterie of ‘commission agents’ must be removed, with the buyer or the farmer paying service charges if they use their services.
  • Invest in market yards: 
    • There must be substantial investment in the market yard premises, to create modern storage & cold chain facilities, state of the art auction halls, fintech, hygiene, etc, to make the market yards modern and efficient.
  • Prioritize the provision of ‘farm services’ to support farmers 
  • There is a need to drastically reduce the APMC schedule of commodities to a bare minimum.


GS Paper III: Indian Economy