Following numerous discussions by government, research, and academic stakeholders over the past year, including on the India Food Security Portal, the e-National Agricultural Market was established in April 2016. The national market had integrated 79 markets in nine Indian states as of August, and the government aims to integrate a total of 585 regulated wholesale markets by 2017.
Three prerequisites were set forth to guide this integration: (i) a single license valid across the entire state, (ii) a single point levy of market fees, and (iii) a provision for electronic auction as a mode for price discovery. Some Indian states already have the capability to meet these prerequisites, while others still lack capacity. To examine where we stand in terms of progress toward these agricultural market reforms, IFPRI organized a dialogue in Hyderabad on October 5-6, in collaboration with the Indian Society of Agriculture Marketing (ISAM) and the Centre for Economic and Social Studies (CESS).
According to the presentation made by Vijay Paul Sharma, chairman of the Commission for Agricultural Costs and Prices (CACP), the main benefits of e-NAM will be improved competition and transparency of trade, better price discovery and lower transaction costs, increased compliance of transactions, and more efficient supply chain management. The main agriculture marketing reforms will include the establishment of private markets and yards, the possibility of direct farmer-consumer linkages, the opportunity for direct wholesale purchases by processors, exporters, and bulk buyers from the farm gate, contract farming initiatives, a unified single license and registration process, and the provision of e-trading and a single point levy of market fees.
India’s current markets are often fragmented, with many remote markets and a lack of adequate road infrastructure. Other challenges include a multitude of market intermediaries (and low volume of business), complex regulatory measures imposed by the Agricultural Produce Market Committee (APMC) and the Essential Commodities Act (ECA), a lack of robust competition, a lack of viable private investment, non-availability of timely market information, inadequate price discovery, inadequate and poor quality infrastructure, and low use of technology.
The dialogue also featured a discussion on the impact of e-NAM on marketing efficiency and farmers’ share of returns. Participants emphasized that a mechanism is needed to study the best operating supply chains and markets, not only across India but also around the world, in order to determine which approach would work best. For example, some markets in Beijing and Indonesia were identified as systems that could work within the Indian context, largely due to their smallholder participation. There is also need to make investment by private parties easier so that the private sector has more incentive to invest in market infrastructure.
Facilitation of direct back-end linkages of small farmers and large procurement companies is also required. The dialogue highlighted a number of policy reforms that can help in this. For example, contract farming arrangements and Farmer Producer Organizations (FPOs) can ease the operational aspects of new e-markets, while third-party grading can increase trust among market actors, improve marketing efficiency, and reduce market asymmetry.
Regarding price stabilization and better supply response in India’s agricultural markets, participants identified the need for market-led prices instead of process-led prices and the integration of e-NAM as a price discovery mechanism. This will require better education on-the-ground. For example, extension services should teach farmers about market functions and about technological innovations to help them participate in agricultural markets, such as the use of greenhouses. Many existing resources, such as mobile apps, can be used to provide farmers with this education and information. Farmers should also be provided with effective, low-cost grain storage, such as community silos or better storage bags and cocoons. This will ensure the quality of their produce and give farmers the freedom to respond to market price fluctuations.
Farmers will sell their produce with or without e-markets, but the presence of e-markets will affect prices in the physical market, according to Dr. Abhijit Sen, former member of India’s planning commission and national committees. Dr. Sen also emphasized that there is a need for a greater understanding of how farmers can be organized most effectively. Governments will likely need to play a role in establishing FPOs to work within the new e-market platform, which could take 6-7 years. This means that we will need to wait and see whether e-markets will beneficial in the long term.
However, there is an immediate need to better organize farmers to make collective trading decisions in the new e-markets. Currently, there is no institutional mechanism in place to support FPOs. Andhra Pradesh was given as example as it has undertaken initiatives such as Direct Purchase Centers (DPC), which give a 1 percent tax exemption for investment in agriculture to encourage private sector participation. These DPCs will be linked to e-platforms to take up the NAM.
It was noted that e-NAM will remove many existing restrictions and distortions by integrating physical markets with e-markets and this process is already underway in Karnataka. If prices increase due to e-NAM, there is the possibility of price increases in the physical markets may be seen; however, markets may become more stabilized over time. Participants emphasized that e-NAM traders will definitely benefit from the program, but the farmers may not participate in e-markets right away and may thus take time to see the benefits. It is hoped that once increased awareness is created, farmers’ skills and organizational capabilities are developed, and rural infrastructure is improved, more and more farmers will join the program.
Participants put forth several recommendations for policies to strengthen the e-markets:
- Research needs to be used to strengthening e-markets.
- Grading and working capital requirements must be set up.
- Governments need to monitor the governance part of the market reform process and ensure that actions taken on the ground match what is set forth on paper.
- For the effective functioning of the APMC, market leaders should be democratically elected by farmers.
- There is a broad consensus among the participants that National Agriculture Market (NAM) is a good alternative. However, there has been no micro-level data required for policy formulation to date; therefore, there is a need for micro-level research covering different aspects of the program.
- Inter-state studies would be more helpful. There is also a need for training for market functionaries and farmers.
- Efforts must be made to remove traders’ misapprehensions. Producers must also be empowered in the use of modern technology and equipment.
States representatives from Andhra Pradesh, West Bengal, Maharashtra, Gujarat, Telangana, and Punjab contributed their local experience to the discussion. Punjab has not begun the process of consolidating its markets into a common platform, as the three prerequisites for the e-markets are still lacking. Gujarat is currently conducting an evidence-based study of markets for commodities such as onions and grapes. West Bengal does not have APMC and markets; rather, the millers in this state pick the produce themselves and make payments later. From the perspective of AP, Shri J. Chandra Mohan Reddy, Joint Director of A.P. Marketing, Guntur shared that ten markets are functioning on an online basis under the NAM and another 12 markets are in the pipeline.
Clearly, each state has its own specific conditions, and it is the responsibility of state governments to cooperate with the central government on these market reforms. Real-time data monitoring and dissemination is a major need and provides a major challenge, as internet access is still spotty and data remains expensive to collect and monitor. While India has started walking on the path of market reform, there remain challenges to be solved to make the unified national agricultural market a reality.
By: Jaspreet Aulakh, IFPRI