Protecting Producers : A Legal Framework for Agricultural Marketing
Tapan S Yadav
As part of its mandate to promote research on issues pertaining to farmers, the IFFCO Foundation has
conducted a study on the Agricultural Produce Market Regulation (APMR) Act, which is the most important
legal provision pertaining to agricultural marketing. This study is based on interviews of industry experts
and secondary research.
Background
As agriculture is a State Subject, the APMR Acts have been enacted by various State Governments
primarily to provide farmers an access to markets, while preventing their exploitation in terms of lower
price or improper weighing or unjustified quality rejection. Apart from promoting such fair market
practices, other objectives (Acharya 2011) of this Act are :




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To provide remunerative prices to farmers which act as an incentive for farmers to increase production
To improve the infrastructural facilities for marketing agricultural produce
To increase market efficiency through reduction in market charges
To eliminate superfluous intermediaries from the marketing value chain
To ensure that consumers get agricultural products at reasonable prices
It is important to note here that according to a study of the fruit and vegetable supply chain conducted by
Global AgriSystem (Patnaik 2011) in metros, presently there are 5 – 6 intermediaries between the farmer
and the final consumer. This results in a high mark-up of 60% – 75% in the supply chain, with the farmer
getting just 20% – 25% of the final consumer price. Moreover, multiple handling by different intermediaries
results in wastage of 15% – 25% of the value.
History of Market Regulation in India
The need for market regulation (Acharya 2011) arose in the nineteenth century from the compulsion of the
British rulers to arrange for cotton supplies at reasonable prices for the textile mills in their home country.
The first regulated Karanjia cotton market was established in India as early as in 1886 under the Hyderabad
Residency Order. The first market-related legislation in India was the Berar Cotton and Grain Market Act of
1897.
In 1935, the Government of India established the office of the Agricultural Marketing Advisor (Directorate
of Marketing and Inspection) under the Ministry of Food and Agriculture to look into the problems of
marketing of agricultural produce. In 1938, the Directorate of Marketing and Inspection (DMI) prepared a
Model Bill to enable the States to enact the legislation for regulation of agricultural markets. After
independence in 1947, the Odisha Government was the first State to promulgate its APMR Act in 1956.
Other States followed suit, albeit slowly, with Sikkim enacting its APMR Act as late as in 1993.
It is worth noting here that there are 8 States / Union Territories where the APMR Act is still not
operational, the details of which are given below :
S. No. Status of APMR Act
1
Not Enacted
2
Not Implemented
3
Repealed
Source : FRCSMICAMPR 2013
Names of States / Union Territories
Kerala, Manipur, Dadra & Nagar Haveli, Daman & Diu, Lakshadweep
Jammu & Kashmir, Mizoram
Bihar @
@
With effect from September 1, 2006
Basic Terminology of the APMR Act
1. Regulated Markets : For the purpose of this Act, the whole State is divided into distinct geographical
“markets”, nearly one-fourth of which are “regulated”. The total number of markets and regulated
markets as on December 31, 2012 are given below :
Type of Market
Type of
Market
Regulated
Number of
Wholesale Markets
6,489
Number of
Primary Markets
2,456
Source : FRCSMICAMPR 2013
Number of
Rural Primary Markets
22,505
Total Number of
Markets
28,994
Number of
Sub-market Yards
4,734
Total Number of
Regulated Markets
7,190
Despite the fact that the number of regulated markets has increased over the years, the area served per
regulated market is still quite high at 454 square kilometer, with average being much higher in hilly
States such as Meghalaya where it is 11,215 square kilometer. This implies that farmers have to travel
long distances to reach a regulated market, and hence, they avoid these markets.
It is worth noting here that the National Commission on Agriculture (1976) had recommended that a
market should be available within a radius of 5 kilometer (Acharya 2011) of a farmer’s farm. This
implies that the catchment area of a market should be nearly 80 square kilometer, which in turn implies
that India needs 41,838 markets as against 28,994 available now.
2. Enforcement Agency : The responsibility of enforcing different provisions of the Act, Rules and Byelaws framed there-under has been vested with the Market Committee. The number of members of the
Market Committee vary from 8 – 20 (Acharya 2011) depending upon the State concerned, with the
farmers expected to constitute the largest interest group in the Market Committee. The members of the
Market Committee are either elected or nominated by the concerned State Government in line with the
provisions of the concerned State Act.
3. Notified Trading Area : The Market Committees do not allow the traders to buy from the farmers
outside the specified area of the regulated markets, so that they do not lose out on the related market
charges.
4. Commodity Notification : The manner of notifying the commodities for regulation varies across States
(Patnaik 2011). Some States have included all the required commodities in the schedule for exercising
control. In other States such as Punjab, though the schedule of the commodities is appended to the
respective APMR Act, yet control is exercised only on such commodities as are specified in the
notification for each market.
Need for Reforms
The APMR Acts promulgated by the various State Governments have served their purpose well in the initial
years. For instance, according to a study conducted by M L Dantwala in 1991 (Acharya 2011), the market
charges have reduced by nearly 50% after the APMR Act was enforced. But now there are concerns that
these Acts are preventing transparency in pricing and free flow of information, besides resulting in
corruption. Some of the other important negative fall-outs of these Acts are :
1. “Bureaucratization” : Though the Market Committees are meant to be farmer-dominated managerial
bodies, the ground reality is that regular elections of Market Committees are not being held in many of
the States, and are instead, being administered by bureaucrats. In fact, at one point in time, over 80% of
the Market Committees were being managed by bureaucrats (Acharya 2011). Thus, the Market
Committees have now become “Government sponsored monopolies”, (Patnaik 2011) with all the
associated inefficiencies.
2. Poor Infrastructural Facilities / Amenities : The Market Committee provides the infrastructural
facilities / amenities for smooth functioning of a regulated market. In fact, norms have been laid down
for the infrastructure to be provided, which varies according to the income of the Market Committee.
But the facilities / amenities in many of the regulated markets are below norms as the following survey
conducted by the DMI in 1999 (Acharya 2011) shows :
S. No. Facility / Amenity
1
2
3
4
5
6
7
8
9
Cold Storage
Common Auction Platform (Covered)
Common Auction Platform (Open)
Common Drying Yard
Grading Equipment
Processing Unit
Storage Godown
Traders’ Modules
Weighing Equipment
Percentage of Markets with
Facility / Amenity
9%
64%
67%
26%
30%
7%
74%
63%
85%
It is worth mentioning here that the infrastructure available in Rural Primary Markets (RPM’s) is much
less developed than that of the Wholesale Markets, all of which are regulated – only 15% (Acharya
2011) of RPM’s have adequate infrastructural facilities.
3. High Market Charges : The current marketing system suffers from multiple tax regime (Patnaik 2011).
In addition, there is no uniformity of market charges across States. The Market Fee, which is the charge
for services provided to market functionaries, varies from 0.5% to 2.5% across States. The Commission
Charge varies between 2.0% and 5.0% in food grains, and 4% – 8% in case of fruit and vegetables. In
fact, the total market charges are quite high in some of the States. For instance, the total market charges
on transactions of food grains in Punjab are 15.5%, the break-up of which is as under :
S. No.
1
2
3
4
5
6
Type of Market Charge
Market Fee
Development Charge
Purchase Tax
Commission Charge
Infrastructure Cost
Value Added Tax (VAT)
Total
Ad Valorem Percentage
2.0%
2.0%
4.0%
2.0%
1.5%
4.0%
15.5%
Apart from the aforementioned market charges, there are some other charges in Punjab which are given
below:
S. No.
1
2
3
4
5
Type of Other Market Charge
Weighing
Loading
Brokerage
Hamal
Cleaning
Total
Value
(in Rs per bag per quintal)
Rs 0.55
Rs 0.40
Rs 0.16
Rs 1.00
Rs 0.65
Rs 2.76
It is worth mentioning here that a considerable part of the Market Fee is not ploughed back (Patnaik
2011). In fact, in some of the States, it has become a source of income for the State Government to meet
their budget deficits. There is no specific provision in the State APMR Acts which prohibits spending of
Market Fee on expenses other than those for market development, but for Punjab where the Punjab &
Haryana High Court has laid down the specific end-uses of the Market Fee.
4. Licensing of Market Functionaries : All the market functionaries, be it traders or commission agents
or labourers working in a regulated market, have to procure a license to carry on their business. But
procurement of such licenses is not easy. New entrants are normally not permitted on the basis of
restrictive rules governing the grant of such licenses. For instance, a pre-condition for a prospective
trader in most of the States is that he must own a shop or a warehouse in the Mandi. Alternatively, a
prospective entrant may be denied a license at the behest of the respective associations and unions which
are quite strong. Moreover, separate Mandis for cereals and fruit and vegetables require obtaining more
than one license. Thus, strong barriers are created for preventing entry of new functionaries
(FRCSMICAMPR 2013). In fact, this licensing system has resulted in corruption.
5. Overlapping Marketing Organizations : The necessity of an organization to supervise / guide the
Market Committees, and focus on market development resulted in the establishment of State
Agricultural Marketing Boards (SAMB’s), to which report the various Market Committees in the
respective State. While the role of the Marketing Board in some of the States such as Andhra Pradesh is
advisory in nature, they are statutory bodies in States such as Punjab, and are perhaps “overstepping”
(Patnaik 2011) beyond their jurisdiction.
In addition, Marketing Departments or Cells have been set up in all the States as counterparts of the
Central Marketing Department under the State Agriculture Department. These organizations get the
necessary guidance from the Central DMI to look after the marketing problems of farmers.
It is necessary that the functions of the Agriculture Marketing Department / Cell and the SAMB be
clearly defined for smooth implementation of the APMR Act.
6. Systemic Weaknesses : Some of the systemic weaknesses (Acharya 2011, Patnaik 2011) of regulated
markets include :
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Heavy loss of quantity of produce during operations such as unloading and cleaning
Considerable wastage of time of farmers in waiting for their turn during auction or weighing
Lack of professionally qualified staff to manage the day-to-day operations of a regulated market
Excessive focus on creation of physical infrastructure and collection of Market Fee rather than
market development
7. Continued Malpractices : The following malpractices are still continuing (Patnaik 2011) in several
markets :
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Late payment to farmers
Deduction of certain amount for cash payment
Non-issue of sales slips by traders
Reforms Proposed in the Model Act
To break the monopoly of these Market Committees, the Ministry of Agriculture introduced a Model Act
named the Agricultural Produce Marketing (Development & Regulation) Act in 2003, and circulated the
Model Rules for the same in 2007. As the title of the Act suggests, the focus of the Model Act is on
development of agricultural marketing, apart from regulation. The salient features of the Model Act are
given below :
1. Creation of Private Markets : Private markets or yards can be set up by the private sector and the
cooperatives. In some of the States, the stipulation for setting up a private market are quite stringent ; for
instance, the license fee for setting up a private market in Andhra Pradesh (Patnaik 2011) is Rs 50,000,
and the minimum project cost is Rs 10 crore. Some States have also specified a minimum distance
between a private market and a regulated market. So far, only one private market has come up which is
located in Maharashtra, but it is facing stiff resistance from the existing players.
In addition, there is also provision for resolution of disputes between a private market and the concerned
Market Committee.
2. Creation of Direct Purchase Centres : The Model Act allows granting licenses to processors,
exporters, graders and packers for purchase of agricultural produce directly from farmers. In States such
as Chandigarh, there is an exemption of Market Fee for direct purchase of certain commodities by
selected processors.
3. Provisions for Contract Farming : The Model Act allows :
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Contract farming by registration of contract with the Market Committee
Purchase of contracted produce directly from farmers outside the market yards
Exemption of Market Fee on purchase of contracted produce
One of the concerns remaining is that the Market Committee, which is a major player, is also a
registering authority for contract farming, thereby creating a conflict of interest. Secondly, the
arbitration process is not time-bound.
4. Single Point Levy of Market Fee : In many States, Market Fee is collected for transactions carried out
in the notified trading area as well as outside the notified area, thus hampering the smooth flow of
goods. Similarly, in many States, the agricultural commodities are subjected to cascading Market Fee
when they are traded in another market, whether within or outside the concerned State (Patnaik 2011).
The Model Act provides for single point levy of Market Fee.
5. Prohibition of Commission Agents : Commission Agents in the market provide services to both the
sellers and the buyers for which they charge commission. The existing APMR Acts authorize the Market
Committee to prescribe the rate of commission as well as specify whether it is to be collected from
buyer or seller or both. Though the Model Act prohibits Commission Agents in agricultural transactions,
it is doubtful whether this clause will be implemented in its true spirit.
6. Establishment of Farmers’ Markets : Even before the Model Act was tabled, farmers’ markets existed
in several States e.g. Apni Mandi in Punjab, Krushak Bazaar in Odisha, Shetkari Bazaar in Maharashtra
and Rythu Bazaar in Andhra Pradesh. These markets help in realizing better returns to the farmers while
enabling consumers to get products at reasonable prices.
At present, these markets are being run at the expense of State exchequer (FRCSMICAMPR 2013), and
have yet to demonstrate long-term self-sustained financial viability. Moreover, with the passage of time,
small traders have taken the place of farmers in many of these markets.
7. Transactions Outside Notified Area : There shall be no compulsion on farmers to sell their produce
through regulated markets. But farmers who do not bring their produce to the notified area for sale will
not be eligible for election to the Market Committee.
8. Special Commodity Markets : The Model Act provides for declaration of any market primarily meant
for transacting in fruit and vegetables as a “Special Market” or a “Special Commodity Market”.
9. Utilization of Market Committee Fund : To check the existing practice of diversion of the Market
Committee Fund to State exchequer, the Model Act specifies the possible end-uses of the Fund
including market research, grading, standardization, quality certification and infrastructure for postharvest handling.
10. Professional Top Management : The Model Act provides for appointment of the Chief Executive
Officer (CEO) of the Market Committee from professionals drawn from the open market.
11. Role of Marketing Boards : The Model Act redefines the role of SAMB’s to :
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Provide market-led extension services
Promote grading, standardization and quality certification
In fact, the Model Act also redefines the role of Market Committees to ensure transparency in pricing
and market transactions.
12. Replacement of Licensing by Registration : Licensing of market functionaries is dispensed with, and a
time-bound procedure for registration is laid down. Moreover, market functionaries can operate in one
or more markets with the same registration.
This provision can increase the number of market functionaries substantially thereby creating
competition within themselves, which shall make them more competitive as “competition breeds
efficiency”. This has been observed in India as a positive fall-out of privatization in industries as diverse
as aviation and fixed-line telephony.
Progress on Reforms as per the Model Act
The reforms proposed in the Model Act have been implemented by the States in bits and pieces. For
instance, one can compare the progress on the 3 most important provisions in the Model Act viz. creation of
private markets, creation of direct purchase centres and those pertaining to contract farming. While a State
such as Andhra Pradesh (FRCSMICAMPR 2013) is at one extreme as it has amended its APMR Act to
include all the 3 provisions, on the other extreme is a State such as Uttar Pradesh which has not initiated the
reforms at all. In the middle are States such as Punjab which have amended their APMR Act partially.
Moreover, the pace of adoption of reforms is definitely slow. The main reason for this slow adoption is that,
as explained above, a large part of the Market Fee collected goes to the State exchequer rather than being
utilized for market development, a practice which shall be curbed if the provisions of the Model Act are
adopted. Moreover, as expected, there is stiff resistance from the concerned unions / associations of various
market functionaries.
Reforms recommended by the Committee of State Ministers for Agricultural Marketing
As the implementation of the agricultural marketing reforms was slow, the Ministry of Agriculture
constituted a Committee of State Ministers of Agricultural Marketing in 2010 to make recommendations for
improving the framework of reforms as well as guide the implementation of reforms. The Committee
submitted its final report in 2013 which contained the following important recommendations
(FRCSMICAMPR 2013) :
1. Independent Regulator : To prevent overlap of Marketing Functions, there is a need for an
independent regulator. This requires that the post of Director (Marketing) as regulator should be distinct
from the post of the Managing Director of the SAMB as the service provider.
2. Liberal Conditions for Registration : The pre-condition of owning a shop or a godown in the Mandi
for getting registered should be removed. Moreover, the registration should be valid for a period of at
least 5 years.
3. Limits on Market Charges : The total of Market Fee, Development Fund and Purchase Tax should be
limited to 2%. Similarly, the commission charge should be limited to 2% for food grains and oilseeds,
and 4% for fruit and vegetables
4. Secondary Agricultural Produce : There should be no Market Fee on processed agricultural produce
such as besan, maida and ghee. However, appropriate user charges may be levied.
5. Registration for Contract Farming : Due to conflict of interest, the Market Committee should not be
the authority for registration under contract farming. Instead, a district-level authority can be set up for
registration.
6. Arbitration related to Contract Farming : Similarly, the Market Committee should not be the
authority for dispute settlement under contract farming. The dispute should be settled within 5 days, and
the appeal should be disposed of within 15 days.
7. Intra-State Barrier-free Movement : States should notify the documents required for the producer to
be a farmer, so that his consignment is not halted at the check posts / barriers.
The Way Forward
As far as the APMD&R Act is concerned, the aforementioned recommendations are quite comprehensive.
But there are certain additional recommendations which could be looked at :
1. Reform-linked Central Schemes : The Central Government should link the transfer of funds of
agriculture-related Central Schemes to implementation of market reforms by States. Currently, only the
following 3 schemes promoting agricultural marketing infrastructure are reform-linked :
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Scheme for Development / Strengthening of Agricultural Marketing Infrastructure Grading and
Standardization
Post-harvest Management and Marketing Facilities for Horticulture Crops
Terminal Market Complex (TMC) for Horticulture Crops
An effort should be made to relate more such Central Schemes to implementation of provisions of the
Model Act by the States.
2. Exemption of Market Fee for Perishables : The perishable commodities such as fruit and vegetables,
milk and fish should be de-notified from the APMD&R Act so that they do not attract Market Fee.
(Patnaik 2011)
3. Inter-State Barrier-free Movement : The Central Government should promulgate an Act pertaining to
the Inter-State Trade of Agricultural Produce under Entry – 42 of the Union List, which refers to InterState Trade and Commerce.
Apart from the APMD&R Act, it is important to review other legal provisions related to agriculture. For
instance, the Essential Commodities Act, 1955 should be made an emergency provision. But reforming the
legal environment alone shall not result in dramatic improvement unless the marketing reforms pertaining to
agriculture are undertaken as a complete package. An example is the continuing reservation of certain agrobased and food processing industries, de-reserving which shall attract private investment and create the
much-needed forward linkages.
Last but not the least, it is pertinent to keep the following in mind while implementing the agricultural
marketing reforms (Vyas 2007) :
1. Gradual Approach : The reforms should be implemented in a phased manner – “big bang” approach to
reforms has not succeeded in the past, Russia being a classic case in point.
2. Sequencing of Reforms : It is important to reform the legal environment before an attempt is made to
attract investment in the downstream food processing industries.
3. Co-opting “Interested” Parties : Groups with vested interests feeling threatened by such changes
should be co-opted. Building alliances with those who are likely to benefit from such reforms shall also
help – farmer organizations and consumer interest groups could play the role of opinion leaders.
4. Political Support : Strong political support shall perhaps be the single most important determinant of
success in implementing these reforms.
References
1. Acharya 2011, “Agricultural Marketing in India” by S S Acharya & N L Agarwal, 5th Edition, 2011
2. FRCSMICAMPR 2013, “Final Report of Committee of State Ministers In-charge of Agriculture
Marketing to Promote Reforms”, Ministry of Agriculture, Government of India
3. Patnaik 2011, “Status of Agricultural Marketing Reforms” presented by Gokul Patnaik in a Workshop
on “Policy Options and Investment Priorities for Accelerating Agricultural Productivity and
Development in India” held on November 10 – 11, 2011 at New Delhi
4. Vyas 2007, “Marketing Reforms in Indian Agriculture : One Step Forward, Two Steps Back” by V S
Vyas in the “The Dragon & The Elephant : Agricultural and Rural Reforms in China and India”, Edited
by Ashok Gulati and Shenggen Fan, Published for the International Food Policy Research Institute by
The John Hopkins University Press, Baltimore, 2007
(The writer is a Consultant at IFFCO Foundation based in Gurgaon)