Agricultural Marketing Reforms: Model APMC Act and NAM

Agricultural marketing reforms in India have been a crucial aspect of transforming the agricultural sector to ensure better returns for farmers, reduce middlemen intervention, and create an efficient marketplace. Read further to know more.

India is an agrarian economy with 70% of its population dependent on agriculture. Over the years we have improved our agricultural production which has been a boon. However, finding a market for the marketed surplus and getting fair prices have always been a major challenge. This points out the need for agricultural marketing in the present times.

The Model Agricultural Produce Market Committee (APMC) Act and the National Agricultural Market (NAM) are two significant initiatives aimed at modernizing agricultural marketing in the country.

Why is agricultural marketing so important?

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Agricultural marketing covers all the activities in the movement of agricultural products from the farms to the consumers.

• Advanced agricultural practices resulted in surplus production which changed the subsistence face of Indian agriculture.
• Approximately 33% of the output of food grains, pulses, and nearly all of the production of cash crops like cotton, sugarcane, oilseeds, etc. are marketed as they remain surplus after meeting the consumption needs of the farmers.
• As the agriculture sector produces raw materials for many of the other industries, marketing of such commercial products assumes significance.
• Increased efficiency of the marketing mechanisms would result in the distribution of products at lower prices to consumers having a direct bearing on national income.
• An improved marketing system will stimulate the growth in the number of agro-based industries mainly in the field of processing.

History of Agricultural Marketing in India

For a long time, a traditional market system has existed in India. It was characterized by the village sales of agricultural commodities, post-harvest immediate sales by farmers, etc.

In 1928, the Royal Commission pointed out the problems of traditional marketing such as high marketing costs, unauthorized deductions, and the prevalence of various malpractices. This led to the demand for regulated markets in India.

Ancient Period

• Barter System: In ancient India, agricultural trade primarily operated on a barter system, with farmers exchanging goods and produce directly.
• Local Markets: Small local markets, known as “haats” or “shandies,” served as venues for farmers to sell and exchange their agricultural products.

Medieval Period

• Expansion of Trade Routes: With the expansion of trade routes during the medieval period, agricultural products gained importance in regional and interregional commerce.
• Role of Middlemen: The emergence of middlemen became more prominent, connecting farmers with distant markets and facilitating trade.

Mughal Era

• Empire-Sponsored Markets: The Mughal rulers established markets and trade centers to facilitate agricultural commerce.
• Zamindari System: The zamindari system, where revenue collectors were intermediaries between the farmers and the state, influenced agricultural marketing.

British Colonial Period

• Land Revenue System: The British introduced the Permanent Settlement Act (1793) and the Ryotwari Settlement System (1820s), impacting landownership and agricultural practices.
• Railway Network: The development of the railway network during the mid-19th century facilitated the transportation of agricultural produce to distant markets.
• Establishment of APMCs: The British introduced the concept of regulated markets through the establishment of Agricultural Produce Market Committees (APMCs) to regulate and streamline agricultural trade.

Post-Independence Period

• Agricultural Reforms: Post-independence, the Indian government initiated various agricultural reforms to address issues of land tenure, production, and marketing.
• Green Revolution: The Green Revolution in the 1960s led to increased agricultural production, and the need for organized marketing systems became more evident.
• Creation of NAFED: The National Agricultural Cooperative Marketing Federation of India (NAFED) was established in 1958 to promote cooperative marketing.

Liberalization Era (1990s Onward)

• Market Liberalization: Economic liberalization in the 1990s led to changes in agricultural marketing policies, allowing for greater private sector participation.
• Introduction of Contract Farming: Contract farming gained prominence, with agribusinesses entering into agreements with farmers for the production and marketing of specific crops.
• National Agricultural Market (NAM): Launched in 2015, the NAM aimed to create a unified national market for agricultural commodities by integrating APMCs through an online platform.

What is a regulated market?

The regulated market aims at the elimination of unhealthy and unscrupulous practices, reducing market costs and providing benefits to both producers as well as sellers in the market.

Post the independence period in the sixties and seventies, most of the states enacted the Agricultural Produce Market Regulation Acts (APMR Acts). It authorized the States to set up and regulate marketing practices in wholesale markets. The objective was to ensure that farmers get a fair price for their produce.

Drawbacks of regulated markets

However, regulated markets had some drawbacks such as:

• Under this regulation, no exporter or processor could buy directly from farmers. It discouraged the processing and exporting of agricultural products.
• Under the act, the state Government could only set up markets, thus preventing private players from setting up markets and investing in marketing infrastructure.
• Formation of cartels with links to caste and political networks resulting in price variations.
• An increased number of middlemen formed a virtual barrier between the farmer and the consumer.
• The licensing of commission agents in the state-regulated markets has led to the monopoly of licensed traders acting as a major entry barrier for new entrepreneurs.
• The fragmentation of markets within the State hinders the free flow of agro- commodities from one market area to another and multiple handling of agri-produce and multiple levels of mandi charges end up escalating the prices for the consumers without commensurate benefit to the farmer.

Amendments in APMC Acts

• Consequently, the inter-ministerial task force on agricultural marketing reforms (2002) recommended the APMC Act be amended to allow for direct marketing and the establishment of agricultural markets by the private and cooperative sectors to provide more efficient marketing and create an environment conducive to private investment.
• In response, the Union Ministry of Agriculture proposed a model act on agricultural marketing in consultation with State governments for adoption by the States. (Here, you should note that agriculture is a state subject and hence Central government can only give guidelines. It is within the powers of state government to decide whether to make amendments or not.)

Model APMC Act 2003: Salient features

• As per the act, the State is divided into several market areas, each of which is administered by a separate Agricultural Produce Market Committee (APMC) which imposes its marketing regulations (including fees).
• Single Market Fee: The Act recommends a single-point levy of market fees, eliminating multiple fees imposed at different stages of the marketing process.
• Direct Marketing: It allows farmers to sell their produce directly to consumers, processors, exporters, or bulk buyers, bypassing traditional APMC markets.
• Electronic Trading: Facilitates the use of electronic trading platforms to promote transparency and efficiency in the marketing process.
• Contract Farming: Encourages contract farming arrangements between farmers and agribusiness firms, providing price assurance to farmers.
• Price Discovery: The Act facilitates transparent price discovery mechanisms, ensuring fair remuneration for farmers.
• Market Diversification: Farmers can access a broader market, including national and international buyers, through electronic trading platforms.
• Reduced Intermediaries: Direct marketing and contract farming reduce the role of intermediaries, ensuring a higher share of profits for farmers.

National Agriculture Market (NAM)

The motivation for a unified market platform can be traced to the Rashtriya e-Market Services (ReMS), an initiative of Karnataka State Agricultural Marketing Board with National e-Markets Limited (NeML), erstwhile National Commodity and Derivatives Exchange (NCDEX) Spot Exchange.

NAM, announced in Union Budget 2014-15, is a pan-India electronic trading portal that seeks to connect existing APMCs and other market yards to create a unified national market for agricultural commodities.

Features of NAM

• Unified Market Platform: The NAM provides a common online platform for buyers and sellers, enabling transparent and efficient price discovery.
• e-NAM: The platform operates under the e-NAM (National Agriculture Market) initiative, allowing farmers to list their produce online and receive competitive bids from buyers.
• Interconnected Markets: APMCs across different states are gradually being interconnected through the NAM to create a seamless national market.
• Price Transparency: The NAM enhances price transparency by providing real-time information on prices and market demand.
• Reduced Transaction Costs: Electronic trading reduces transaction costs, benefiting both farmers and buyers.
• Market Access: Farmers gain access to a larger pool of buyers, potentially improving their bargaining power.

However, for a state to be part of NAM, it needs to undertake prior reforms in respect of

• A single license is to be valid across the state.
• Single point levy of market fee.
• Provision for electronic auction as a mode of price discovery.

Challenges for Agricultural Marketing Reforms

The model APMC act that promoted the participation of the private sector has not been implemented by all the states and the monopoly of APMC continues.

• Implementation Issues: Some states have faced challenges in implementing the provisions of the Model APMC Act effectively.
• Resistance to Change: Traditional market participants may resist changes that diminish their role in the marketing process.
• Limited Coverage: The NAM is still in the process of expanding its coverage to include more APMCs and commodities.
• Infrastructure and Connectivity: Challenges related to infrastructure and internet connectivity in rural areas can hinder the effective functioning of the platform.

Summary

In current days of mass production and marketing which is being replaced by customer-based or market-driven strategies, an effective marketing extension service is the need of the hour.

This has added significance in light of the post-WTO scenario. If the Indian farmers have to withstand the possible onslaught of international competitors, both in domestic as well as overseas markets, agricultural marketing services have to be strengthened.

The history of agricultural marketing reforms in India reflects the country’s economic and social transformations over the centuries. From ancient barter systems to the establishment of APMCs and the advent of digital platforms, the journey has been marked by evolving policies and practices.

Today, as India navigates challenges and embraces technological advancements, the focus remains on creating a more efficient, transparent, and remunerative agricultural marketing system for the benefit of farmers and the economy.

Also read: Mechanization of Indian Agriculture; Transport and Marketing of agricultural produce and Issues and related constraints

Article contributed by: Sree Resmi S