1. Prologue
2. APMC Acts: What and Why?
   1. Old APMC Acts: Problems?
   2. License raj=Lootera-raj
   3. Hoarding
   4. APMC Definition vs MSP
   5. Model APMC Act
      1. Model APMC Act: Salient Features
      2. Model APMC Act: Limitations/Problems
      3. Additional suggestions to reform APMC
   6. Contract farming
3. Below APMC-Mandi market
4. Direct Sale / Cooperative markets
   1. Rythu Bazar
   2. Virtual Markets
   3. ITC e-Choupal
5. Single Food Regulator
6. Problem with overlapping laws
7. FSSAI Act 2006: Features

Prologue

In the previous two articles on [Food Processing], we saw

1. Intro to food processing industry: Awesomeness and Obstacles
2. 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

1. GS3: Marketing of agricultural produce and issues and related constraints (GS3)
2. GS3: Food processing Supply chain management (SCM): upstream issues (Because outdated APMC Acts permit commission agents=lengthen and fragment the supply chain=increase raw material cost.)
3. Even for food inflation, FDI in Multibrand retail= APMC angle needs to be discussed.

APMC Acts: What and Why?

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:

1. Ensure that intermediaries (and money lenders) do not compel farmers to sell their produce at the farm gate @throwaway prices=farmer is not exploited
2. 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.

Old APMC Acts: Problems?

Membership	State APMC Market Committees have 10-17 members Either elected or nominated by Government in accordance with provisions of the respective State APMC Act. But in several States, regular elections of APMCs = not held. APMC board are administrated by bureaucrats. As a result APMC bodies have lost democratic nature. bureaucrats run the show= red tapes + bribery
Farmers Cheated	Most Mandi traders do following: Even after receiving the fruit/veggies/grains, they delay payment to farmers for weeks and months. If payment is done on spot, then trader would arbitrarily deduct some amount, on excuse that he has not received payments from the other parties. To avoid tax/cess, the traders don’t give sale slips to farmers=>Later it is difficult for farmer to prove his ‘income’ to get loans from banks. on an average basis the farmer is able to receive barely 1/4th to 1/3rd of the final retail prices
Double Commission	Middlemen @Mandi charge commission on both seller (farmer) + buyer (the urban retailer / food processor) =double commission=final consumer has to pay even more!
Hurting Both Sides	Middlemen donot pass the benefit to either side during peak season, when they buy from farmer @low prices, they don’t drastically reduce the prices to final consumer. during lean season, when consumers prices are high, the farmers do not get higher returns on their produce.
Resistance To Reform	Middlemen have rent-seekers mentality. They resist anything that’ll increase transparency or reduce transaction cost and time. Even when electronic auction centres were established like the Safal National Exchange in Bangalore, the existing markets did not allow the transition to a transparent system.
No Value Addition	Middlemen have no facilities to do grading/sorting, all they do is pass the produce from farmer to final consumer and charge truckload of commission in between. Thus, post-harvest losses continue to be in the range of 18 to 40 per cent for several commodities
Price Discovery	For cereal, pulses and oilseeds, government announces Minimum support prices (MSP). So farmers know in advance, what the price of their produce. But for most perishables fruits/veggies, government doesn’t declare MSP. thus, farmers are completely dependent for price discovery and on intermediaries During peak production of seasonal crops, prices drop so drastically, the farmers can’t even cover the cash expenses of transportation to markets, leave alone the cost of production.
No auction	The licensee traders and commission agents have formed informal cartels @mandis.  No auction takes place. Even if auction is held, collectively these traders keep low bidding so farmer never benefits.
Cess	Cess= tax on tax In every Mandi, every transaction is subjected to market tax + market cess. This Cess money is to be used for further development of Mandi infrastructure- sorting grading storage facilities etc. But money is not used for that purpose (Raja/Kalmadi-type elements omnipresent.) As a result, fruits and veggies often get rotten due to lack of processing, storage facilities at the Mandi. Even the good produce gets contaminated due to flies and larvae=>gastrointestinal diseases.

License raj=Lootera-raj

To operate in an APMC Market (Mandi), you need to get a license. This license raj leads to following problems:

1. 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.
2. 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!)
3. 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.

Hoarding

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.

APMC Definition vs MSP

• 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).

Model APMC Act

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

Model APMC Act: Salient 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
A separate Chapter to regulate and promote contract-farming arrangements in the country. Dispute resolution mechanism for contract farming.	lolz
Prohibits commission agents in any transection.	commission agents permitted.
establish State Agricultural Produce Marketing Standards Bureau for Grading, Standardization and Quality Certification of agricultural produce (so they can fetch higher prices in desi-foreign markets)	lolz
Increased the responsibilities of APMC committee. They have to: ensure complete transparency in pricing system and transactions taking place in market area; ensure payment for agricultural produce sold by farmers on the same day; promote agricultural processing + value addition Publish data on arrivals and rates of agricultural produce brought into the market area for sale. Setup and promote public private partnership in Mandi Management.	maha-lolz

Ok this new Model APMC act sounds all well and good. But here are the problems

Model APMC Act: Limitations/Problems

1. 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.
2. 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.
Bihar	Repealed its APMC act in 2006. Now, SDM is in-charge of the unregulated markets No market fee are charged from the farmers But other charges for loading/unloading/Hamal charges are vogue/uncontrolled.
WB	Yet to amend its APMC Act. Mamata opposing the concept of contract farming on the premise that it could jeopardise farmers’ interests.

Additional suggestions to reform APMC

(These were made by committees of planning commission, inter-ministerial groups etc.)

Remove horticulture	Horticulture should be specifically excluded from definitions of APMC. Because these Mandis are main culprits for inflation and wastage of fruits and veggies.
E-Auction	All APMCs Mandis should introduce electronic auction platform
Membership	Open membership of APMC’s by encouraging wholesalers and retailers to enter into transactions with the growers.
No License	Anyone should be allowed to trade in APMC market. Licensing system should be abolished. The APMC Market Committee should only fix the transaction fee and keep a Bank Guarantee from traders to ensure that the farmers’ payment is not affected.
No Cess/Tax	all the taxes/cess levied in APMC Mandis should be abolished.

Contract farming

Contract farming is a forward agreement between farmers and buyers

buyer	Agrees to buy produce from farmer @predetermined price. Usually provides inputs (Seeds, fertilizers, pesticides), technology and production practices so that final produce meets his desired quality.
farmer	Agrees to grow and supply the produce to the buyer @ predetermined quality, quantity and prices.

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
	Soyabean	1200	ITC
Karnataka	Ashwagandha	700	Himalaya Healthcare
Madhya Pradesh	Wheat	15,000	Hindustan Unilever

Contract Farming also done for export oriented cropping of Basmati, Chilli, Gherkins and soybean.

Below APMC-Mandi market

• 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.

Direct Sale / Cooperative markets

Long before the circulation of Model Act (2003), several States had promoted Farmer’s Market. Example

Rythu Bazar

• 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.

Current scenario:

Rythu Bazar in Andhra	>100
villages covered	>2000
farmers covered	>40000

similarl direct marketing iniatives in other states:

Punjab and Haryana	Apni Mandi
Rajasthan	Kisan Mandi
Tamil Nadu	Uzhavar Shanthigal
Maharashtra	Shetkari bazaar

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%

Virtual Markets

• 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.

NCDEX	Setup an e-mandi (online wholesale market). Farmer will first deposit his produce to a NCDEX nominated warehouse, gets receipt. This receipt can be traded by the participant on the e-mandi across the country.
MCX	Working on similar project like above, with help of Yes bank. MCX online portal for commodity trading also available in regional languages to help non-English speaking farmers.

an allied topic is negotiable warehouse receipts, but we’ll see it in the next article under finance-taxation-FDI-exports.

ITC e-Choupal

In 2001, ITC (India Tobacco Company Limited) started small internet kiosks at the village level. Provides following:

1. direct procurement framework
2. Real time market information related to prices
3. Availability of inputs: seeds / fertilizers, their prices
4. scientific farm practices
5. weather, monsoon data
6. Dispute resolution between the company and the farmers.

Coverage	more than
farmers	4 million
villages	40,000
kiosks	6000

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

Single Food Regulator

USA	Single regulator: Food and Drug Administration (FDA).
UK	Food standard agency (FSA) is the single authority for formulating all food laws.
Aus+NZ	Australia and New Zealand have a common single regulator known as  “Food Standards – Australia New Zealand (FSANZ)”
India	Totally awesome: just check the list of overlapping and outdated laws Prevention of Food Adulteration Act 1954 (PFA) Essential Commodities Act 1955 (ECA) Vegetable oils, De-oiled meal and edible flour control order, 1967 ( VPO) Fruit Product Order, 1955 (FPO) Meat Food Products Order, 1973 (MFPO), Milk and Milk Products Order, 1992 (MMPO) Agricultural Produce (Grading and Marketing) Act 1937 Bureau of Indian Standards, 1986 Standards and Weights Measure Act, 1976 Export (Quality Control and Inspection) Act, 1963

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?

Problem with overlapping laws

1. Many ministries deal with food laws = multiple bodies which set food standards = ambiguity, confusion for consumers, traders and manufacturers.
2. Very few standards developed for raw agricultural produce.
3. 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).
4. 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.
5. 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.

FSSAI Act 2006: Features

• 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:

Guidelines	Scientific Food standards: frame them, enforce them Regulate the manufacture, import, processing, distribution, and sale of food. Make Guidelines for accreditation of food laboratories, food safety management bodies. International technical standards for food, sanitary and phyto-sanitary standards (SPS)
Advisory	Scientific advice and technical support to Central Government and State Governments food safety and nutrition related policies and rules.
Survey	Collect Data on food consumption, food contamination,  biological risk etc.
Networking	Create information network across the country to connect public, consumers, Panchayats etc. Provide them rapid, reliable and objective information about food safety Rapid alert system for food contamination and biological risk Promote general awareness about food safety and food standards.
HRD	Training to people involved in food business

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.