Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial

The Road To Agricultural Hell is Paved With Good Intentions


Ila Patnaik talks about the terrible situation created by the concept of the APMC (Agricultural Produce Marketing Committee)

APMC acts were passed by states during our socialist past. They restrict whom farmers can sell to, who can get a licence to buy produce, and where trading can take place. This has given rise to a system with substantial barriers to entry in the trade of agricultural products. The freedom of farmers and other citizens to buy or sell as they like has been abrogated – farmers are forced to sell to traders who hold APMC licences at APMC prices.

As with many other state structures in socialist India, APMC regimes rapidly turned into rackets. Hardly 30 per cent of the mandated “open auctions” are actually open or transparent. New licences are mostly given to persons who already have shops and godowns in the prescribed market area. Shops in these areas are limited and are mostly available only to friends and relatives of existing traders. There are no transparent criteria for sale or for getting a licence. There is no time-bound application processing period during which a licence is either granted or refused.

Anyone with a brain cell can figure out how this is counterproductive for the Indian food supply chain. Farmers can only sell in mandis, and not directly to say an industry or an FMCG company. Mandis have become areas where getting in is impossible unless you knew someone. Transparency has been shot.

But how did it all begin? It started off with “good” intentions.

Farmers didn’t have markets to sell and there was no way for farmers to easily advertise that they have some crop for some price. There were no phones to speak of, and road transport was terrible. You had to get to a town and hope someone bought you out, and there was no law enforcement of any real sort to protect you from getting robbed. Supply was truant because some large company would go buy all the crops in one area for their factory, leaving nothing for the locals to buy.

The saviour was APMC. The government would set up a “mandi”, where farmers could come and safely sell their goods in an “open” transparent auction. To avoid industry and large companies stealing food at higher prices even before farmers came to a mandi, the government said that farmers couldn’t sell ANYWHERE but at a mandi.

The traders that formed the mandi first were good people. They weren’t corrupt, they really wanted to change the system for the better. The auctions were initially transparent and favoured the farmers. Since people saw the open auctions, prices were more uniform, and everyone bought from the mandi which became a bustling marketplace.

With time the concentration of power showed its evil face.

Realizing farmers couldn’t sell anywhere else, the traders at the mandi cartelized to drive down the prices. After all no one else but the traders at the mandi with a licence could bid. (Remember the Libor scandal? Similar)

Then if you had to be at the mandi to be able to buy from a farmer, then it’s quite easy to ensure that only relatives of traders get in. After all even that might have been “transparent” but eventually turned opaque due to the concentration of power.

Disbanding APMCs is the only real solution not because they are evil, but because they are designed to provide power to a few. Eventually, no matter how “democratic” the system starts off, it eventually rests in the hands of a few leaders precisely because they have the power.

I fear the return of the APMC in every facet of our life, with the kind of politics we’re seeing nowadays. We aren’t fighting corruption with freer markets and a fierce response to any form of cartelization – we are instead responding by concentrating more power in the hands of a different few. The bureaucrat is now the mohalla sabha is now the khap panchayat is now the godfather.

What we need is better regulation, but also freer markets. We need more players. We need farmers to be able to sell to anyone, we need agricultural markets to be created (by zoning laws) but also, allows buyers and sellers the freedom to transact anywhere. We need to get the government out of the “procurement” game. We need the farmers to be free to sell their land to whoever they please.

Instead, what we’ll get is – “Fry Amitabh Bachchan for saying he’s a farmer to buy agricultural land!” because this is the shape our outrage has taken. Maybe we deserve the socialism we get because we want it. But something, somewhere tells me there is a part of this very agitation that realizes that doles, handouts and subsidies or concentrations of power are the problem, not the solution. Instead, we should just allow ourselves the freedom of trade, transport and discovery.


Like our content? Join Capitalmind Premium.

  • Equity, fixed income, macro and personal finance research
  • Model equity and fixed-income portfolios
  • Exclusive apps, tutorials, and member community
Subscribe Now Or start with a free-trial