22 Mar 2016 20:36 IST

National Agri Market: A new era for agri trading

A national level e-platform for farmers will reduce costs, check various levies on agri-commodity goods

The Budget had many significant proposals targeted at rural economy and agri-markets. One of these was the e-platform for farmers that will connect 585 wholesale markets in the country. This initiative is expected to help the Centre reach its target of doubling farmers’ income by 2022.

Currently, each State is divided into multiple markets with each of them administered by a separated Agriculture Produce Market Committee (APMC). These APMCs levy multiple fees resulting in large inefficiencies in agri-commodity marketing. Also, there is no proper infrastructure or technology support for farmers to help them get a good price for their produce.

A pilot experiment of setting up an e-platform for agri marketing was done in Karnataka. In 2014, the NCDEX Spot Exchange was developed as a State wide e-platform for its APMCs through Rashtriya e-Market and Services in 2014. Today, the platform connects more than 100 APMCs (of the total 157). The success of this platform shows that a NAM can be a hit too.

Improved returns of farmers

A national-level agri platform will improve returns of the farmer in two ways.

One, the farmer will get a better price for his crops as the reach through the platform will be national and he/she need not dispose his entire produce to the district APMC. With food processors, exporters and large private traders having access to the e-platform, it will end monopoly of the APMC agents. Also, since it is an online platform it will ensure efficient price discovery. Currently, few big local traders collude to mark down prices of commodities resulting in a loss for the farmer.

Two, the new platform will check the various charges that APMCs levy today. For instance, the APMC levies an administration charge, fee for custody and maintenance, interest charges and a 5 per cent VAT on wheat. As per the Economic Survey 2014-2015, these are calculated as a percentage of MSP and can go as high as 14.5 per cent in Punjab and 11.5 per cent in Haryana. For rice, the charges are 14.5 per cent in Andhra Pradesh and 10 per cent in Odisha and Punjab.

When an online platform is established, the intermediaries will disappear and costs will reduce for farmers. However, this doesn’t mean that APMCs will lose business. They will continue to act as the local mandis. But, all their charges and levies will come under scrutiny and they can’t charge a heavy transaction fee as they do now.

Help futures market

The unified national e-market for agri-commodities can bring sanity to pricing of agri futures. Today, without an underlying market, futures prices are driven merely by speculation and this results in wild price swings. Even recently, castor seed futures were suspended after reported price manipulation by a few large traders. The contract saw a price drop of 20 per cent in January. Once a national online market is established, price discovery will be transparent and participants across the country will benefit from dissemination. In the National Spot Exchange fiasco a few years ago, where thousands of commodity investors lost money, the exchange and a few brokers sold obscure commodity contracts to investors for assured returns. Such a racket was possible only because of lack of information on the fundamentals (demand/supply) of specific commodities and their prices to investors.

Check inflation

The aam aadmi will also derive benefits from the new platform as it will improve supply-chain efficiencies and check hoarding by middlemen. Once the leakage from the system is sealed, inflation in price of commodities can be checked. In pulses, for instance, every year, hoarding is reported as a reason for supply shortages and higher price. With free movement of commodities between States, logistics and warehousing infrastructure will improve and this will help in controlling inflation.

Task ahead

There is however a lot of work that is yet to be done. First, States have to amend their APMC Acts and issue a single license for trading across the State. Then, issues in supply-chain and grading of agri produce have to be addressed. Benefits from the new platform have to be explained to farmers and all parties concerned.

A press release from the Centre says, the Department of Agriculture, Cooperation and Farmers Welfare will bear the expenses for the software for the e-platform and provide it free of cost to the States. It will provide up to ₹30 lakh a mandi for expenses related to buying of equipment for setting up of the e-market platform. Till now proposals from 12 States (for a total of 365 mandis) have already been received by the Centre. A few more States including Tamil Nadu, Andhra Pradesh have also expressed willingness.

NAM is likely to be launched on a pilot basis on April 14 in 20 mandis across eight States and the target is to connect at least 200 markets by September 2016.

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