How farmers view the existing Mandi system
The protest by farmers against the agriculture laws passed by Parliament recently refuses to fade away. The multiple rounds of talks between the government and farmer groups have failed to produce the desired results. To understand the pulse of farmers on this issue, we engaged in an in-depth interaction with a cross-section of them located in Kurnool and Kadapa regions in Andhra and Ammur and Denkanikottai in TN on the implications of one of the laws, The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020.
This Act aims to build an ecosystem that provides farmers the freedom to sell their produce, multiple trading options, remunerative prices, and an efficient and barrier-free agricultural market. The Act proposes to fulfil these objectives in two ways: First, by enabling the farmers to sell their produce directly to any traders outside the state government-controlled markets. Second, by facilitating the setting up of electronic agricultural trading platforms. Presently, India’s agricultural markets are regulated by the states under the Agricultural Produce Marketing Committee (APMC) Act.
Under the APMC Act, the states can establish agricultural markets, popularly known as mandis. The sale of agricultural commodities can occur only in the mandis through auction. The sales process in mandis is regulated through commission agents (CAs) who mediate between the farmers and traders.
Over half of the farmers we interacted with (57%) are unhappy with the mandi system of sale.
The reasons are exploitation by CAs, lower price realisation, lack of transparency in the trading process, collusion among traders, price cartelisation, delay in payments and low quality of mandi infrastructure. The delay in payments to the farmers ranges from three to fifty days. Instant payment is made only after deducting the interest on loans obtained by farmers from CAs. The payment delay forces the farmers to depend on borrowing from CAs, local money lenders and savings for their daily expenses.
Therefore, the inclusion of the provision in the Act that the payments to the farmers have to be made by traders within a maximum of three working days assumes importance. All the farmers said they have no bargaining power in fixing the prices. The traders and CAs dominate the pricing decision as they have monopolistic power and political backing. The Act addresses this issue in two ways. First, by allowing the farmers to sell outside the mandi system, the Act has attempted to reduce their dependence on the mandis. This is expected to enhance the bargaining power of farmers.
Second, the Act has mandated the government to develop “a price information and market intelligence system for farmers’ produce” and disseminate it to them. The government has already initiated a plan to set up a portal and disseminate the price information through various channels such as mobile applications, text messages and electronic displays in mandis. This initiative would help farmers make an informed decision while selling their produce. Presently, farmers access price information through a homogeneous and closed information network, namely CAs, mandi officials, friends and relatives.
They believe in the price and market information provided by their peers. Another problem highlighted was the deduction of commission charges and market cess from the price discovered through auctions. Many farmers are clueless about the amount deducted from them; the estimates provided ranged from 5-20% of the auction price. Such deductions result in lower price realisation for farmers. The Act addresses this problem by prohibiting the collection of market fees or cess or levy from the farmers.
The farmers who are dissatisfied with the current system felt that they should be provided with a choice to sell their produce outside the mandis. This justifies the government’s decision to enact the Act. At the same time, the farmers were apprehensive about a new system of trade on various grounds. They include increased dependence on corporates, reduced government involvement in agriculture, land grabbing and exploitation by firms, and exit of corporates if the market conditions are unfavourable.
These concerns need to be addressed by the government by including suitable safeguard provisions in the Act. Despite the outcry, the farmers interviewed did not raise any concerns regarding the minimum support price system’s continuity. Interestingly, the sections of farmers who are satisfied with the mandi system are also substantial (43%) due to trust built over time with CAs and traders, reasonable price discovery and trust in government control.
This section of the farmers preferred to stay with the mandis due to difficulty in adjusting to a new system and fear of exploitation and low price realisation. Yet, they demanded an improvement in the efficiency of operation of mandis and prices offered there. These results suggest that farmers are somewhat divided on their choice of the mandi system of trade. So the government did the right thing by allowing the farmers to continue to sell their produce in mandis and providing alternative options to others.
Most farmers depend on CAs for credit, price information, transportation and storage. This suggests that farmers’ ability to take advantage of the new trading opportunities depends on the institutional conditions that control farm production. Therefore, the government needs to put complementary support mechanisms to empower the farmers and reduce their dependence on CAs for agricultural support services. Then, the goal of freeing up the farmers from the clutches of mandis would become easier to achieve.
Sthanu R Nair
Associate Professor of Economics, IIM Kozhikode
Reddy Sai Shiva Jayanth
Doctoral scholar in Economics, IIM Kozhikode
(Rahul V, MBA student at IIM Kozhikode, also contributed to the article) (srn@iimk.ac.in)