Wednesday, September 28, 2016

The challenge with APMC reforms

Niranjan Rajadhyaksha writes about the challenges associated with the development of an integrated agriculture market for India. He talks about the new legislation's market consolidation and electronic trading platform as providing the thickness and congestion mitigation that the previous fragmented and physical Agriculture Producer's Market Committees did not provide.

But this assumes that market fragmentation was the major contributor to thickness and physical markets were coming in the way of congestion management. But what if there are factors that go beyond them in either case.

Thickening the markets require not only bringing together enough buyers and sellers, but also making them transact. The latter requires addressing the information asymmetry problems that hinder transactions. In case of agriculture, primarily such problems involve information about the quality of produce in distant markets. A trader in the neighbouring state should be assured about the quality of tomato or paddy being offered by the farmer so as to be confident about making the payment and transacting. This is where product standards assumes significance. Unfortunately, India is some distance away from getting there. In its absence some other more invasive standards validating mechanism or incentive compatible payment system assume significance. The market design has to be constructed keeping this in mind.

Then there are also entry barriers for both buyers and sellers that come in the way of thickening. In the prevailing environment, commission agents influence entry and access of both farmers and traders. They are the primary creditors to both. In the absence of measures that initiate the process of breaking this monopoly, market participation will remain very thin. 

It is here that some prudent compromise may be necessary. Given the near impossibility of wishing away these commissioning agents, they need to be strategically co-opted into any proposed process reform. Their role could vary based on context, from becoming formal moneylenders to product validation intermediaries or the provider of any other service along the agricultural value chain. 

Undoubtedly, the reforms initiated will set the ball rolling in thickening and decongesting the markets. But, by itself, it will be a very long haul. The expected progress will be largely dependent on the leadership within Agriculture departments in States and their commitment to embrace such opportunistic tactics.

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