Lessons for Bihar for farmers abolishing its APMC system

Of the three bills on agricultural reform passed by Parliament this week, perhaps the most controversial is the Farmer Product Trade and Commerce (Promotion and Facilitation) Bill, 2020. It seeks to provide for commercial areas outside the Mandis of the Agricultural Product Marketing Committee. (APMC). This angered the farmers. The basic argument behind the reforms is that APMC Mandis imposes charges that reduce farmers ’realization of prices. The commission charged by intermediaries is an example. By allowing unregulated commercial areas beyond the APMC mandis, the law seeks to eliminate intermediaries from the agribusiness and increase price realization for farmers.

The arguments against the APMC mandals are well known. The biggest complaint is their over-politicization, which has led to cartelization and pricing as a result. Because of this, many attempts have been made to reform their performance. Simple licensing regulations, removal of entry and exit barriers and computerization and transparency have been introduced in most APMC markets. However, the Bihar government decided in 2006 to abolish the APMC system altogether.

Critics on the APMC system have promised that its abolition would result in better prices for farmers in the state and that its market would attract large amounts of private investment in infrastructure, even the current versions. How has the abolition of the APMC system affected agriculture in Bihar? Prior to their abolition, Bihar had 95 market yards, including 54 cover yards, godowns and administration buildings, infrastructure such as weight bridges and processing as well as grading units. Acquired by State Agriculture Board in 2004-05 60 crores and was spent through taxes 52 crore, of which 31% is in infrastructure design. With no income to maintain it, that infrastructure is now in disrepair. Also, there were no large private investments.

In a study on agriculture in Bihar last year, the National Council for Applied Economic Research reported an increase in grain prices after 2006, which adversely affected crop choices and farmers’ decisions to adopt better cultivation practices. The abolition of the Bihar APMC system and the consequent rise in price volatility has been cited as a factor in the low growth of agriculture in the state. It concluded, “Farmers are left to the mercy of traders who recklessly set low prices for the agricultural products they buy [them]. Market facilities and organizational arrangements lead to the realization of low prices and volatility in prices. Recent field studies have reported that traders and farmers in private unregulated markets are charging market fees despite the lack of infrastructure for weighing, sorting, grading and storage.

Bihar is the largest producer of maize in India and the third largest producer of fruits and vegetables after Uttar Pradesh and West Bengal. As for corn, many farmers reported getting the price this year 1,000-1,300 per quintal compared to the official minimum support price (MSP) 1,850. For wheat, farmers in Bihar reported receiving prices 10-15% lower than MSP. In addition, wheat procurement in the state is only 5,000 tonnes, compared to 13 million tonnes in Madhya Pradesh and 39 million tonnes nationally, similar to Bihar. Unlike Bihar, Madhya Pradesh has not been abolished and instead its APMC has strengthened its infrastructure over the years.

The Bihar experiment has important lessons for future marketing reforms in agriculture. The benefits of these reforms will be available to farmers only if they are combined with private investment in creating the physical infrastructure and institutional mechanisms needed for farmers to invest more. While it has not materialized in the decade and a half since the abolition of APMC Mandis in Bihar, the record of other states in attracting private investment is not as good.

Without the regulatory framework, by only trying to shift trade from the APMC to non-APMC areas, the new law is unlikely to ensure better price realization for farmers. Conversely, if adequate revenue is not available for its maintenance and development it can lead to a decline in APMC infrastructure.

Himanshu is an Associate Professor at Jawaharlal Nehru University and a Visiting Fellow at the Center for Sciences Humans in New Delhi.

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