e-NAM & the dream of ‘One Nation One Market’

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The e-National Agriculture Market (e-NAM), touted as the ‘turning point’ of India’s Agriculture sector, was launched by PM Modi in April this year. The e-NAM platform is expected to provide information to both buyers and sellers on produce available, its quality and price at the bidding markets. A farmer, empowered with this information, can take his produce for sell wherever he gets the desired price, thereby connecting producers directly to consumers, processors, exporters or large retailers. The intent is to accrue maximum benefit to both farmers and consumers as farmers decide “when, where and at what price” they sell their produce by collapsing the long supply chain and removing the profit of the middle-man (arhtiya).

This portal will eventually link 585 mandis by March 2018, creating a seamless national market for agricultural and horticultural produce in India. The farmers will be provided “farmer helpline services” for any information related to this portal and soil testing facilities near the mandis.

NAM is not a parallel agriculture market but a trading portal supported by existing physical mandis creating a unified national market – an intra-state portal now but expected to expand inter-state. AGMARKNET, an online portal is already up indicating daily prices of agricultural commodities.

Licence Raj in agriculture market

The agriculture market in India is governed by Agricultural Produce Market Committees (APMC) Act, originally established to bring in transparency in the markets and protect the farmers from exploitation by the middlemen. The Act mandate that all farm produce will be sold via auction at regulated markets thereby ensuring that farmers get a fair price for their produce. The state is divided into a number of regulated markets and licences are issued to traders to operate in these markets. Farmers can sell their produce only in the nearest APMC market premises.

However, the APMC Act failed to benefit either farmers or consumers. As the Act limits the number of licenses issued to the traders for a particular market and takes away freedom of options from the farmers to sell their produce, it led to collusion of traders. The Act that was brought in to help farmers left them at the mercy of these trading cartels which controlled prices and charged large commission fees per transactions. Particularly prices of perishables (vegetables and fruits) that do not come under MSP (Minimum Support Price), depended on the whims of the traders. As these markets lack proper infrastructure like cold storage, the farmers usually ended up selling their produce at throw-away prices.

This created a license raj in the agriculture market under APMC Act, facilitated hoardings by traders and ultimately high food inflation.

Benefits of e-NAM

As against information asymmetry, lack of transparency in price and fee under APMC Act, the e-NAM platform will increase competition and information flow as local traders as well as those on NAM portal can bid for the produce leading to better price discovery. In NAM, single licence is required to operate across the state.

Farmers will have the freedom to take his produce to any market that gives him better price instead of mandatorily selling it in the local mandi. Local traders will get access to larger national market.

The NAM platform will allow private players (bulk buyers, processors, exporters) to buy directly from farmers so far not allowed under APMC. This will shorten the supply chain and efficiency gains will be transferred to both farmers and consumers in terms of fair price. Private investment can flow-in to improve infrastructure in cold storage, warehouses, logistics, packaging etc. which will reduce wastage of perishables and create employment.

Efficient supply chain is critical for any industry, more so for food industry with perishable products. One major challenge in India has been the seasonal spike in prices of perishables that pushes up food inflation. Inflation is a tax on the poor. E-NAM is expected to address the supply-side reforms in agriculture market, increase investments in cold chain, and discourage hoarding leading to lower food inflation.

Challenges and outlook

Without reforming the state APMC Acts, it is not possible to integrate the mandis with NAM. According to Agriculture ministry, only 17-18 states have amended APMC Act till now to invite more competition. Large farming states like Punjab and Haryana have only done partial amendment.

The first step is to delist the perishables commodities from Schedule-I of the APMC Act through an administrative order that would allow farmers to sell these commodities anywhere. It may not be easy as most APMC committees enjoy political patronage. The Maharashtra government that has recently amended the APMC Act, faced strong opposition from powerful traders.

Moreover, awareness about the platform is low. Broadband penetration and digital infrastructure in rural India are poor. Internet-literacy is minimal among farmers which might lead to a new kind of exploitation by middlemen. Most farmers in India are marginal with small land holdings. It is not exactly clear how bargaining power of these farmers will be protected as they negotiate with large companies.

Will NAM become just a trader’s portal?

Agriculture sector with its share in employment of around 50% contributes only around 15% to real GDP. It is announced in the budget that interventions in the farm sector will be reoriented to double the income of farmers by 2022. It is necessary to understand that ‘farm loan waiver’ and ‘hike in MSP’ cannot help farmers. Loan waivers only create moral hazards and most marginal farmers do not have access to institutional credit. Moreover about 75% of farm produce is outside the purview of MSP.

Indian agricultural market is fragmented and E-NAM, if implemented properly, can help the farmers and reach the goal of ‘One Nation One Market’. Much more groundwork is still needed to make it a reality.

Source: Times of India

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