APMC Act 2003

In India, the production of food products has been increasing in step with the rise in urban / rural population and export of food products is too insignificant to have any impact on prices. One of the real reasons for the runaway rise in food prices is the Inefficient Market mechanisms, manifested in the long supply chain as shown below:

The markets are generally far from most of the villages and therefore, the small and medium farmers find it economic to sell their produce to the local intermediaries.

Thus, intermediaries are the integral part of the supply chain of the agricultural produce. A typical supply chain has been shown by the above graphics.

One of the major reasons of such a long supply chain is the poor infrastructural scenario. The unreasonably long supply chain results in steep escalation in the total cost owing to procurement, transit and other taxes and service charges levied at various layers.

Brokers and APMC

The role of broker in the market is to negotiate the deal between the buyer and the seller for which brokerage is charged at a stipulated rate fixed under bye-laws of the Agricultural Produce Marketing Committee under the APMC Act/Rules. There are other intermediaries like Commission Agents, wholesalers, retailers under different marketing channels through which the produce of farmers reaches to the consumers. The share of farmers in ultimate price of fruits and vegetables varies from 32% to 68% depending on the marketing channel adopted, the distance of the markets and the infrastructure facilities available.

APMC Act Background

  • In India, agriculture is a “state subject”. Thus, the wholesaling of agricultural produce is governed by the Agricultural Produce Marketing Acts of various State governments. The specific objective of market regulation is to ensure that farmers are offered fair prices in a transparent manner.
  • The APMC Act empowers state governments to notify the commodities, and designate markets and market areas where the regulated trade takes place.
  • The Act also provides for the formation of agricultural produce market committees (APMC) that are responsible for the operation of the markets. The entire State is divided and declared as a market area wherein the markets are managed by the Market Committees constituted by the State Governments. Currently there are around 7,500 regulated markets in the country.
  • Once an area is declared a market area and falls under the jurisdiction of a Market Committee, no person or agency is allowed freely to carry on wholesale marketing activities. The issues with the monopolistic behaviour of these regulated wholesale markets result in:
    • No development in the competitive marketing system
    • No help to farmers in direct marketing and organizing retailing
    • No smooth raw material supply to agro-processing industries
    • No adoption of innovative marketing system and technologies.
  • To tackle various issues, a report by a Government Task force suggested the following:
  • New and competitive Agricultural Market in private and cooperative sectors should be promoted.
  • Direct marketing and contract farming programmes should be promoted
  • The industries and large trading companies should be facilitated to undertake procurement of agricultural commodities directly from the farmer’s fields
  • Effective linkages between the farm production and retail chains should be established.

Thus, it was suggested that there is a necessity to integrate farm production with national and international markets to enable farmers to undertake market driven production plan and adoption of modern marketing practices. To make such changes effective, the current framework of APMC Acts in various states has to be amended.

Model APMC Act 2003

Union Government had prepared a Model APMC Act in 2003. As of 2014 some 16 states have adopted this Model Act. The salient features of this act are as follows:

Objectives of APMC Act
  • To provide for development of efficient marketing system,
  • Promotion of agri-processing and agricultural exports
  • Lay down procedures and systems for putting in place an effective infrastructure for the marketing of agricultural produce.
Who can establish new markets?
  • Under the existing acts, the markets are setup only at the initiative of State Governments. The 2003 act provides that Legal persons (such as individuals, organizations and companies), growers and local authorities are permitted to apply for the establishment of new markets for agricultural produce in any area.
  • Further, in a market area, more than one market can be established by private persons, farmers and consumers.
Is a farmer forced to bring his farm produce to the APMC market area?
  • There is no compulsion on the growers to sell their produce through existing markets administered by the Agricultural Produce Market Committee (APMC).
  • However, agriculturist who does not bring his produce to the market area for sale will not be eligible for election to the APMC.
What are provisions for separate markets for some specific commodities?
  • The act makes separate provision for notification of ‘Special Markets’ or ‘Special Commodities Markets’ in any market area for specified agricultural commodities to be operated in addition to existing markets.
What are responsibilities of the Market Committees under APMC Act?
  • Ensuring complete transparency in pricing system and transactions taking place in market area;
  • Providing market-led extension services to farmers;
  • Ensuring payment for agricultural produce sold by farmers on the same day;
  • Promoting agricultural processing including activities for value addition in agricultural produce; and
  • Publicizing data on arrivals and rates of agricultural produce brought into the market area for sale.
  • Setup and promote public private partnership in the management of agricultural markets.
What is the new chapter on contract farming?

Contract Farming may be defined as an agreement between processing and / or marketing firms for production support at production support at predetermined prices. Under the Model APMC Act 2003, a new chapter on ‘Contract Farming’ has been added to promote contract farming. The provisions include:

  • Compulsory registration of all contract farming sponsors (such as companies)
  • Recording of contract farming agreements
  • Resolution of disputes, if any, arising out of such agreement
  • Exemption from levy of market fee on produce covered by contract farming agreements
  • Providing indemnity to producers’ title/ possession over his land from any claim arising out of the agreement.

The provisions under this chapter enable direct sale of farm produce to contract farming sponsor from farmers’ field without the necessity of routing it through notified markets.

 How the act allows Direct Marketing?
  • Direct marketing helps the farmers to
    • Reach and fulfil specific demands of the wholesalers or traders
    • Dynamically take advantage of favorable prices
    • Reduce marketing cost
  • Direct marketing also allows the farmer to undertake sorting, grading and quality marking at the farm gate itself. It helps him to obviate the regulated markets which are not necessarily equipped with all required services and facilities affecting the marketing efficiency adversely.
  • The impact of direct marketing is that
    • The elongated chain of intermediaries is eliminated
    • There is a reduction of consumer prices
    • Producers receive better prices.
  • In India, the direct marketing model This model has been experimented in Punjab and Haryana via the Apni Mandis , in Andhra Pradesh  via the Rythu Bazar and in Tamil Nadu via the Uzhavar Santhaigal .
  • The Model APMC Act 2003 makes provisions for establishment of consumers’/ farmers’ market to facilitate direct sale of agricultural produce to consumers.
Private Investments in market yards

The ultimate objective of this act is to attract private investment in constructing market yards and creating the post-harvest value chain comprising cold stores, warehouses and logistics infrastructure.

Some of these measures are meant for high-value and perishable produce, such as fruit, vegetables and livestock products, which contribute substantially to food inflation.

Other important Provisions
  • Imposition of single point levy of market fee
  • Resolving of disputes, if any, arising between private market/ consumer market and Market Committee
  • State Governments conferred power to exempt any agricultural produce brought for sale in market area, from payment of market fee.
  • Market Committees permitted to use its funds to create infrastructure on its own or through public private partnership

Various Issues and need of amendment of APMC Act

In our country, the Agricultural marketing suffers from inefficiencies and infrastructural inadequacy. Needless curbs and controls, including movement restrictions, further constrain free and fair trade. Except for those who produce wheat and rice or the crops covered by the MSP regime, the gap between the prices received by producers and those paid by consumers is wide. Marketing operations lack transparency and are marked by high price volatility.  The much-needed market intelligence, especially price information, is not readily available to most farmers.  Various Issues with the APMC act are as follows:

  • Centre had circulated the Model Agricultural Produce Marketing Committee (APMC) Act in 2003 and asked them to amend their APMC laws accordingly.
  • The act provides for the setting up of private markets, direct deals between the growers and end-users of agro-commodities, including out of Mandi transactions, and legalisation of contract farming etc.
  • While many states have altered their marketing laws on constant prodding from the Centre, most of the amended laws do not conform strictly to the spirit of the Model statute.
  • Vested interests in retaining the present Mandi system along with virtual monopoly of the APMCs over the farm produce marketing are too strong to allow the needed legal changes.
  • The state level statues have so far unable to address the key issues such as expansion and modernisation of marketing facilities, improvement in marketing information communication and linking small producers with efficient marketing channels.
  • Further, task of establishing infrastructure needs massive investment, which the government alone cannot bear. So, Private participation is a must.
  • But private investment of this magnitude is unlikely to come about in the absence of a favourable legal framework and policy environment.
  • A planning commission working group report said that present model of marketing reforms, which seeks to create space for a new set of modern markets to operate along with the much less transparent APMC regulated markets, is unlikely to attract much private investment in modern marketing infrastructure.
  • This report also maintained that private and APMC markets can coexist when some common standard operating procedure is introduced for all markets, including the existing ones.
  • However, the existing APMC Mandis will not adopt such measures if they are not legally bound to do so.

The above discussion leads us to conclude that one more round of amendment of state APMC laws is needed. But this is a lengthy process.

A faster alternative can be enacting a central law for agricultural marketing that overrides the state laws. Though the agriculture is a state subject, yet the parliament of India is empowered to enact a law on any of the state subject using the power conferred upon it by virtue of the Article 249 of the constitution of India.  Such an approach has been adopted in some other sectors that fall in the states’ jurisdiction under the Constitution.