- APMC Acts: What and Why?
- Below APMC-Mandi market
- Direct Sale / Cooperative markets
- Single Food Regulator
- Problem with overlapping laws
- FSSAI Act 2006: Features
In the previous two articles on [Food Processing], we saw
- Intro to food processing industry: Awesomeness and Obstacles
- Truckload of Government Schemes and bodies
In this third article, we see the APMC, FSSAI Act and few other topics.
Although UPSC Syllabus nowhere mentions APMC Act but it needs to be prepared with respect to
- GS3: Marketing of agricultural produce and issues and related constraints (GS3)
- GS3: Food processing Supply chain management (SCM): upstream issues (Because outdated APMC Acts permit commission agents=lengthen and fragment the supply chain=increase raw material cost.)
- Even for food inflation, FDI in Multibrand retail= APMC angle needs to be discussed.
In news columns, and TV Debates surrounding food inflation and FDI in multibrand retail, you’ve often heard experts talking about APMC acts. So, what are these APMC Acts and how did they led to proliferation/nuisance of middlemen/intermediaries in food supply chain?
- In old Bollywood villages, there is always one Lala / Muneem type character. He lends money to farmers for seeds/cattle/marriage expenses, then arbitrarily purchases his wheat/rice @throwaway prices + compound interest rate + illiteracy =>farmers in perpetual debt.
- To fix above problem, State governments started enacting Agricultural Produce Market Committee (APMC) acts since 50s.
APMC acts run on two principles:
- Ensure that intermediaries (and money lenders) do not compel farmers to sell their produce at the farm gate @throwaway prices=farmer is not exploited
- All food produce should first be brought to the market yard=> sell through auction=farmers gets good money.
Under APMC Acts:
- A State is geographically divided and Market (Mandis) are established at different places within the states.
- Farmers have to sell their produce through the auction @mandi.
- To operate in Mandi, a trader has to get license.
- Wholesale, retail traders (e.g. shopping mall owner) or food processing company etc cannot buy farm output directly from farmer. They’ve to get it through the Mandi.
|Farmers Cheated||Most Mandi traders do following:|
|Hurting Both Sides||Middlemen donot pass the benefit to either side|
|Resistance To Reform|
|No Value Addition|
To operate in an APMC Market (Mandi), you need to get a license. This license raj leads to following problems:
- In most Mandis, the pre-condition to get license=> you must own a shop or warehouse in the Mandi. But Shops / warehouses are limited n number= extremely high prices.
- If you can’t find a shop/warehouse, then you’ll have to find an old man who has license but leaving business due to age/health problems and his sons not keen to join this profession. Then you buy his shop/license @extremely high price (because there will be other buyers too outbidding each other to buy his license!)
- In any business where license is required=>Bribes have to be paid. Be it Telecom or mining or APMC mandi. So again, you must exploit the farmers to recover your (bribe) investment.
Because 1+2+3=> Commission agent/middleman/trader has to make heavy investment to start his business in APMC. So, he decides to exploit the farmers to recover that big investment.
In Mandi, even weighmen, Paddlers, Hamals have to get license => they also need to pay huge bribes=> they also overcharge the farmers to recover their (bribe) investment.
Over the years, India’s Agro-production has increased but number of intermediaries in APMC remained constant= their cartel controls the supply= hoarding, opportunistic profiteering. But how? Let’s understand that with potato example:
|Potato: peak supply||December to March|
|Potato demand||Throughout the year.|
- Big traders, agents: they buy potatoes from farmers @throwaway prices in the Mandi.
- They rent large cold storage houses across different states for storing potatos only. (Majority of cold storage facilities in Uttar Pradesh and West Bengal only devoted to Potato-storage)
- Thus these traders “control” the potato supply across India. And whoever can control the supply, can control the prices.
- Thanks to this hoarding and cartelism=> in peak and lean season of potato, you’ll find price difference up to 150 per cent or even more. Similar case for onions, tomatoes, daal and everything else.
- In APMC Acts, the definition of “agriculture”=very wide and vogue.
- Although main focus was on cereals, pulses and oil-seeds, even horticulture produce (fruits and veggies) also came within the broad definition of agriculture.
- And over the last five decades, the share of perishable produce in the APMC market is increasing For example, the Azadpur Mandi in Delhi principally caters to perishable crops rather than cereal or oilseeds.
- Ok so what’s the problem?
- Problem= government declares minimum support prices (MSP) for many cereal, pulses and oilseeds crops=> middleman @APMC cannot exploit the farmers beyond a level (otherwise he can sell it to the FCI)
- but for fruits and veggies, government doesn’t declare minimum support prices (MSP)=> gives plenty of opportunity for the middleman to exploit farmer (as well as end consumer).
So far we saw that original APMC Acts enacted by various states=bogus, inefficient, useless, ridiculous.
|2003||After years of badass thuggary and inefficiency, suddenly Union agriculture ministry woke up, drafted a new Model APMC act, and asked the State governments to adopt it. (Why? Because Agriculture is a state subject. So it is upto the States to reform their laws..)|
|2006||Bihar repealed its state APMC act altogether.|
|2012||So far only 16 states have adopted the model APMC act. (as per the reply given by $harad Pawar in Loksabha)|
This new/reformed/model APMC Act of 2003 has following features
|New Model Act||Old Bogus Act|
|Farmer doesn’t need to bring his produce to APMC Mandi. He can directly sell it to whomever he wants. (Although, if he doesn’t bring his produce to Mandi, then he cant run for election in that APMC marketing committee.)||farmers must bring all produce to the Mandi.|
|Farmers Processors, exporters, graders, packers, etc. can buy agricultural produce directly from farmers.||Noone can purchase farm-produce from farmer outside Mandi.|
|Permits Private market yards, Direct Purchase Centers, farmers’ market for doing trade in agriculture produce. (monopoly of Mandis=destroyed)||Only State managed APMC Mandi can to the trade. (monopoly)|
|Public Private Partnership in the management and development of agricultural markets in the country for post-harvest handling, cold storage, pre-cooling facilities, pack houses etc.||lolz|
|commission agents permitted.|
|Increased the responsibilities of APMC committee. They have to:||maha-lolz|
Ok this new Model APMC act sounds all well and good. But here are the problems
- So far, Only 16 states adopted the Model APMC Act (as of 2012). Why? Because Middleman/trader lobby made truckload of cash from exploiting farmers and consumers. Part of that money given in election funding to ruling parties in States=>reforms stalled.
- Model APMC act is not ‘uniformly’ adopted, states have made their own modifications. For example
|Andhra||Andhra Pradesh permitted private markets but they’ve to pay a license fee of Rs 50,000 and project must be min.10 crores =discourages small farmer/trader associations from setting up their own private markets.|
|Odisha||Orissa has not permitted private markets for paddy/rice|
|Haryana||Only adopted Contract farming related provisions.|
|Some states||Even the private markets are subjected to Mandi tax and Mandi cess.|
|commission agent||Madhya Pradesh abolished commission agent system but some other states didn’t adopt this provision of model APMC.|
(These were made by committees of planning commission, inter-ministerial groups etc.)
Contract farming is a forward agreement between farmers and buyers
Contract farming is prevalent only in those states, where the APMC acts are favorable for private player e.g. Andhra Pradesh, Himachal Pradesh, Madhya Pradesh, Maharashtra who adopted the model APMC Act.
|State||Farm produce||Area under contract farming (acres)||Buyer company|
|Punjab||Potato, Tomato, Chilli||6000||Pepsico (for their potato chips)|
|Basmati, Maize||400||Mahindra Shubhlabh|
|Madhya Pradesh||Wheat||15,000||Hindustan Unilever|
Contract Farming also done for export oriented cropping of Basmati, Chilli, Gherkins and soybean.
- Below the Mandi markets, there are primary assembly markets such as village-bazaar, weekly haat in tribal areas etc.
- There is wide variation in their governance. Some states run them under Panchayati Raj institutions, some states put them under supervision of district administration.
- Condition of cattle markets and fish markets are even worse. Most of them do not have even basic amenities like sheds, sanitation or drinking water.
- Immediate reforms/upgrades necessary in all these markets.
Long before the circulation of Model Act (2003), several States had promoted Farmer’s Market. Example
- By Andhra government in ‘99
- to eliminate middlemen
- to help farmers directly sell their produce to customers
- Every farmer in the Rythu bazaar sells his produce as a retailer.
|Rythu Bazar in Andhra||>100|
similarl direct marketing iniatives in other states:
|Punjab and Haryana||Apni Mandi|
|Tamil Nadu||Uzhavar Shanthigal|
Problem: Over the years, small traders have taken over the place of farmers in many of these markets= again problem of middlemen and commission agents.
In South Korea, with direct marketing of agricultural products= middlemen were removed and as a result:
|consumer prices declined by||upto 30%|
|farmers’ income rose by||upto 20%|
- Example of such virtual markets= Future exchange, Spot Exchange, Warehouse Receipt System and Web Marketing.
- In India, the Multi Commodity Exchange (MCX) and the National Commodity Derivatives Exchange (NCDEX) are the two biggest players in the agro-futures market.
an allied topic is negotiable warehouse receipts, but we’ll see it in the next article under finance-taxation-FDI-exports.
In 2001, ITC (India Tobacco Company Limited) started small internet kiosks at the village level. Provides following:
- direct procurement framework
- Real time market information related to prices
- Availability of inputs: seeds / fertilizers, their prices
- scientific farm practices
- weather, monsoon data
- Dispute resolution between the company and the farmers.
Thanks to ITC’s e-Choupal, farmers’ income increased by 10-15% (compared to earlier when they relied on middlemen @mandi)
Anyways we’ll see more about these intermediate market, supply chains in individual articles for fruit-veggies etc. Now moving to the next law topic
|India||Totally awesome: just check the list of overlapping and outdated laws|
In 2006, After sleeping for decades, Government enacted Food Safety and Standards Authority of India (FSSAI) Act to provide for a single food law regulator, and repealed those outdated acts. But until then, for so many years, those old laws did not allow Indian food processing industry to grow. How?
- Many ministries deal with food laws = multiple bodies which set food standards = ambiguity, confusion for consumers, traders and manufacturers.
- Very few standards developed for raw agricultural produce.
- They dealt only with physical parameters of size, colour and farm impurities. But not on microbiological and toxicological characteristics (which are necessary for export to US/EU).
- Food laws are often inconsistent and contradicting each other. e.g. Emulsifiers and Stabilisers are permitted for use in Jams, Marmalade & Fruit Chutney under PFA but not under FPO.
- In many cases, where one standard is more stringent than the other. Then food-entrepreneur would adopt the more stringent standard in order to prevent potential penalization and bribe harassment by food inspectors. For example, FPO allows use of artificial sweeteners in certain fruit products whereas PFA does not. Hence, the industry avoids using artificial sweeteners altogether.
- Established a statutory body The Food Safety and Standards Authority of India (FSSAI) @Delhi Under the Administrative control of Ministry of Health & Family Welfare
- Repealed various outdated central Acts viz.
- Prevention of Food Adulteration Act (PFA)
- Various “Orders” by Central Ministries e.g. Fruit Product Order (FPO), Meat Food Products Order. Milk and Milk Products Order, Vegetable oil, Edible flour Order etc.
- FASSAI made responsible for:
In the next article, we see the finance-taxation-FDI-export matters related to food processing industry. Then we’ll dig into Supply chain management, upstream-downstream requirements for individual sectors: dairy, confectionary, fruit-veggies meat-fish, etc.