Benefits of Competition in the Agricultural Produce Marketing Sector

1. NATIONAL SEMINAR National Competition Policy and Economic Growth of India Benefits of Competition in the Agricultural Produce Marketing Sector Thursday, 21st March, 2013, New Delhi

2. Structure of the Presentation • Background • Aim & Scope • APMC • Marketing Chain • Legal Analysis • Areas/Sources of Anti-Competitive Practices • Survey • Constraints Identified • Economic Benefits due to “competition” • Policy Recommendations

3. Background • Agriculture is one of the major driving forces of economic growth • Market-mediated linkages of the agriculture sector • In India, the agriculture sector is diverse and supports a majority of population for their livelihood

4. Aim Promote effective adoption and implementation of principles of National Competition Policy by advocating for legislative changes Scope • Review of existing Laws • Identification of competition distortions • Suggest reforms to induce “competition” in agricultural marketing

5. Agriculture Produce Market Committee • Marketing Committee – regulate agricultural marketing in notified market area • Roles of Marketing Committees • Structural rigidities of APMCs lead to operational efficiency • Need for a APMC reform

6. Retailers/Wholesalers in the vicinity of the Regulated markets Consumers in the vicinity of the Regulated markets Marketing Chain Aratdars/Auction Agents/commission agents PRODUCE FARMERS Consumers in other states/cities TRADERS Brokers Aratdars in other states / cities/ wholesale markets RETAILERS

7. Legal Analysis • Nuances of Agricultural Markets: Competition Perspective • Used to be perceived as an example of a perfectly competitive market • Buyer power could be a possible distorting factor • Review of some relevant Acts & Rules (Central and State Level) • Essential Commodity Act 1995 (Amended as on 2010) • Agriculture Produce (Grading and Marking) Act, 1937 (Amended as on 1986) • APMC Model Act 2003 • The Maharashtra Agricultural Produce Marketing (Development and Regulation) Act, 1963 (Amended as on 2010) • The Maharashtra Agricultural Produce Marketing (Development and Regulation) Rules, 1967 (Amended as on 2010) • The West Bengal Agricultural Produce Marketing (Regulation) Act, 1972 (Amended as on 1981) • The West Bengal Agricultural Produce Marketing (Regulation) Rules, 1982 • The West Bengal Cold Storage (Licensing and Regulation) Act, 1966

8. Areas/Sources of Anti-Competitive Practices Maharashtra APMC • Lack of Competition in a ‘Market Area’: A rationale should be provided for why more than one mandi cannot operate in a territorial market area • Grant of Licence: licence can be denied without any valid reason • National Integrated Produce Market: • sharing of market information may encourage price-sharing arrangements • government organisations are exempt from bank guarantee requirement; distortion of competitive neutrality Tomato Specific • Vertical linkages thrive where over time abuse of dominance can occur • Collection centres - Cold storage – transportation vans (reefer vans) – retailers/food processing outlets • Contract Farming • Model Contract Farming Agreement (Maharashtra APMC) • Should be vetted to ensure there are no provisions which could give rise to exclusive arrangement

9. Areas/Sources of Anti-Competitive Practices Favourable provisions for Farmers Cooperatives • Absence of justification for favouring farmers cooperatives • Maharashtra State Agricultural Marketing Board (Cold Storage Subsidy Scheme) • Subsidy scheme is not applicable to all players: Applicable to APMC, cooperative societies • West Bengal Cold Storage Licensing Order • Preference is given to the produce of farmers’ cooperatives

10. Survey • Product Chosen: Tomatoes • Rationale - to capture a horticultural product which is highly perishable • India is the world’s second largest producer of tomatoes, but, it imports more processed tomatoes than it exports • One third of our import of processed tomatoes is from China [worth approximately 6.7 mn US dollars] • Limited cold storage and transportation facilities • Contract Farming is ideal for bulky, perishable commodities like horticultural products • Saumitra Chaudhri Committee report • Perishable commodities should be de-notified from APMC Acts • Perishables should be exempted from cess so that farmers can sell their produce in any place • States Chosen: Maharashtra and West Bengal • Rationale – the states experiencing differing levels of implementation of APMC reform

11. Survey • Product Profile in Maharashtra & West Bengal • West Bengal is 4th largest producing state • Maharashtra is 6th largest producer and harvesting period is throughout the year • Stages of adoption of Model APMC • Revised their APMC legislation in line with the Model APMC (Maharashtra) • Modified the Model APMC (West Bengal) • Is against including contract farming provisions • Interest of farmers who have undertaken joint cultivation model have been protected • Has exempted market fees for fruits and vegetables

12. Constraints Identified • Structural and Behavioral rigidities • Auction System • Election system • Marketing linkages • Inadequate Infrastructure • Market Information system

13. Economic Benefits due to “competition” • Lines of improvement to build competitive structure: • Technology • Market linkage • Financial assistance • Economic Benefits • Increase in operational efficiency • Removal of structural barriers • Better remuneration to the producers

14. Policy RecommendationsCentral Government Level • Competition Commission of India should monitor agreements dealing with infrastructure and transportation service providers • Territory of operation of a service provider should be identified • Vertical linkages between cold storage service providers and transportation companies should be examined • Monitoring should extend to retailers, processors and exporters • Farmers’ Cooperatives • Provisions which favour farmers’ cooperatives should be amended

15. Policy Recommendations State Level • West Bengal Cold Storage Licensing Order: Preference for storage of produce of farmers cooperatives should be removed • Maharashtra Cold Storage Subsidy Scheme: Should be made widely applicable • Maharashtra APMC • Grant of Licences: Fees should be reduced ; Reason should be provided for not granting a licence • National Integrated Produce Market: Instances where vertical agreements such as exclusive supply agreements may be struck up should be monitored • Contract Farming; drafting of agreements and their implementation could be closely monitored by CCI, by the virtue of the powers conferred to it under Section 3 of the Indian Competition Act

16. Thank You