Competition Issues in Agricultural Marketing and Procurement in India

1. Competition Issues in Agricultural Marketing and Procurement in India Jyoti Gujral- IDFC Piyush Joshi & Anuradha R.V.- CLARUS LAW ASSOCIATES February 16, 2011

2. Inefficiencies in Agricultural Markets in India, primarily due to: • Undue State intervention in pricing, marketing etc. • Barriers to entry by private operators • Bureaucracy at various levels of obtaining licenses/ permits for different stages of activity • Regulatory and Institutional Reforms to ensure robust functioning of markets and ensuring competition- a necessity CLARUS LAW ASSOCIATES Some basic facts

3. X Our paper is not about how Competition Commission of India can intervene and resolve all that ails agricultural marketing and procurement systems in India √ Our paper is about identifying a few critical issues in agricultural marketing and procurement, which may potentially qualify as issues necessitating and justifying intervention by the Competition Commission of India CLARUS LAW ASSOCIATES Threshold issue: Not everything an issue for the Competition Commission for India

4. Agricultural Marketing governed by Agricultural Produce Marketing Acts in different States in India • Constitution of Agricultural Produce Marketing Committees • Agricultural Procurement governed by the FCI Act in India CLARUS LAW ASSOCIATES Focus of Discussions

5. Farmer Pre-Harvest Contractor Commission Agent/ Broker (Regulated by APMC) Wholesaler (Regulated by APMC) Retailer Consumer CLARUS LAW ASSOCIATES Chain in Agricultural Marketing

6. Theory Regulation of Agricultural Produce markets Access to Farmers to orderly regulated markets Practice Exclusion of new entrants Restriction of growth of agricultural markets Difficult terms for existing players Monopolistic and Oligopolistic conduct CLARUS LAW ASSOCIATES Role of APMCs

7. Regulation of : • Licensor/ Creator of market, and • Regulation of participating entities • Regulation of: • Who can Farmer sell to • Who can participate in the market • Where are the markets to be established • Price inefficiencies in procurement, storage, release and marketing of agricultural produce • Any increase in price of agri commodities: 53% for farmers, 31% for middlemen, 16% market costs. CLARUS LAW ASSOCIATES Impact of APMCs

8. Marketing only in ‘notified areas’; which is typically the whole state No marketing without APMC license possible in whole state Licenses to limited no. of wholesalers/ traders Imperfect competition in agricultural mandis No transparency in Licensing system CLARUS LAW ASSOCIATES Anti-competitive effects

9. Process of granting licenses- not transparent Very few new entrants Location specific licenses; limited scope for expansion Instances of arbitrary revocation of license Variations in Duration of Licenses: In some states, duration is only 1 year, which dis-incentivises investment in infrastructure Impact of Licensing terms: Inability to raise adequate commercial loans Only persons controlling and regulating system typically retain licenses CLARUS LAW ASSOCIATES APMC Licenses

10. Closed system; no transparency on price discovery etc. Open auction accounts only for 20-30% of market transactions; 40% through secret bidding CLARUS LAW ASSOCIATES Role of Traders/ Commission Agents

11. Limiting the market for farmers Preventing purchasers from accessing markets Preventing development of adequate infrastructure Preventing development of private markets CLARUS LAW ASSOCIATES Anti-competitive impacts & APMCs

12. FCI, estb. Under Food Corporation Act, 1964, is the nodal agency of GOI to undertake procurement under Minimum Support Price (MSP). Although MSP procurement is not the only procurement FCI undertakes, it is one of its more critical operations and is the focus of our paper CLARUS LAW ASSOCIATES Food Corporation of India

13. FCI MSP procurement is undertaken through state level agencies and cooperatives identified by the state government at identified purchase centers Generally majority of the identified purchase centers for MSP procurement are APMC markets leading to control of APMC licensed traders. CLARUS LAW ASSOCIATES Food Corporation of India

14. CCI’s Mandate: • Anti-competitive Agreements • When these have an appreciable adverse effect on competition in India • Abuse of Dominant Position • Broad Jurisdiction: • Includes jurisdiction over statutory entities and Govt. authorities. (Only exception: when Govt. exercises ‘sovereign functions’) CLARUS LAW ASSOCIATES Role of the Competition Commission of India

15. Resolving Disputes (Adversarial situations) Competition Advocacy: a unique role to advocate principles of competition in various contexts; potential ability to initiate legislative reforms. CLARUS LAW ASSOCIATES Role of the Competition Commission of India (cont’d)

16. There is preliminary grounds for CCI to either: • Commence full scale investigation by the DG under the Competition Act • If not a full investigation, commence studies and surveys as a first step towards investigation • take action based on complaints received • Issue competition advocacy advisories to GOI, State Governments and other government agencies on measures that can be initiated to remedy CLARUS LAW ASSOCIATES Role of the Competition Commission of India (cont’d)