Concept of trade areas in farm laws

Abstract: The idea of alternate markets, or “trade areas” as described in the NDA government’s Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, are not new to India. The first and perhaps the most advanced experiments of these were in Maharashtra when in 2005-06 the then chief minister Vilasrao Deshmukh sanctioned the setting of private markets and collection centers through the issuance of Direct Marketing License (DML)s. 

The private markets were wholesale mandis set up by private entrepreneurs, while the collection centres were for aggregators like BigBasket and Reliance Fresh who procured directly from farmers at the farm gate. Fifteen years down the line, these experiments have seen the business move out of the mandis but not to the extent the planners would have liked.

Introduction:  Private markets, are market yards set up by private entrepreneurs for the facilitation of trade in agri-commodities. The state government’s director of marketing issues licenses for setting up these markets. A minimum of five acres of land would be required for setting up of these markets along with infrastructure like auction halls, sheds, waiting halls, motorable roads, etc. Barring the land cost, the initial investment towards such markets is around Rs 4-5 crore.

Till date 18 private markets have come up in the state dealing in commodities like cotton, soya bean, chana etc. Markets like Ramdev Krishi Bazar, in Washim district of the state, deals in multiple commodities like wheat, tur, while markets like ACF Agro Marketing in Buldhana district deal only in a single commodity like cotton. In 2019-20, these 18 markets had reported a turnover of Rs 4,357.88 crore and traded 100.88 lakh quintals of commodities.

Body: Private markets by their definition are market places where trade can be conducted. A more intense intervention was the introduction of direct market licenses (DMLs) which allowed aggregators like BigBasket, Reliance Fresh, ADM Agro Industries to buy directly from the farmers. The license holders on their part are supposed to set up infrastructure like collection centres sorting sheds etc where farmers can bring their produce directly. A bank guarantee of Rs 5 lakh is to be deposited before the license is issued but this has been considerably relaxed when Farmer Producers Companies (FPC)s get into the play.

The directorate has issued 1,100 DML with the majority of them in recent years being issued to Farmers Producers Companies (FPC)s. The latter has been given a large number of concessions to allow them to compete with the big corporates. For farmers, the DML holders are a lucrative option as they are supposed to procure at the farm gate. Last year the total volume of commodities handled by players with DML was 372.86 lakh quintals with an turnover of Rs 2528.72 crore.

Alternate Markets:   The state government through the office of the director of marketing is the controlling authority of all the alternate markets in operation in Maharashtra. Every year, these licenses have to be renewed and in case of complaints of fraudulent activities, the director of marketing can take action against the markets by revoking their bank guarantees. DMLs on their part have to pay a market cess of 1.05 per cent of the transaction to the APMCs within whose jurisdiction they are functioning. 

This has been a bone of contention with DML holders as they say they do not use any infrastructure of the APMCs to pay the cess. But after the passage of the central Act, this contentious provision is no more applicable to them MahaFPC the umbrella body of farmers producers companies (FPC)s in the state have said that their member companies have procured around 2,600 tonnes of soyabean directly from farmers for oil processors worth Rs 10 crore between September and October. This would not have been possible earlier given the legal provision of having to pay the market cess.

Minimum Support Price (MSP):  one of the license clauses is that not a single trade would be carried out below the government notified MSP by these license holders. In the case of complaints, the licenses can be revoked. Many DML holders suspend their procurement when market prices fall below the government declared MSP. This is mainly to avoid action from the authority.

Maharashtra’s Agricultural Produce Marketing (Development and Regulation) Act 1963 puts the onus on the APMC to prevent below MSP trade. The law in its Section 29 (1)(ix) asks the committee to “take measures for prevention of sales and purchase below the minimum support price fixed by the government from time to time.” Also, the committee has been asked to use its market funds to prevent such a transaction. In case of such trade, the committee can suspend the license of traders.

But such action has been very rare given the non-practicality involved with it. Traders have pointed out the non-viability of this clause as most commodities they say work on the principle of supply and demand.

Conclusion & Way forward:  Since they were introduced, estimates say around 22 per cent of the total business of mandis have been diverted towards these ‘trade area’. APMCs continue to report annual turnover of over Rs 48,000 crore while these markets on the other hand report business of around Rs 11,000-13,000 crore.

Analysis of private markets throws up interesting trends. More than 80 per cent of the existing licenses cater to commodities like cotton or oilseeds. Officers admit these private markets were run by processors like gin and press unit owners who deal with cotton or solvent extractors who deal with oilseeds. “In most cases, such units are spread over more than 5 acres of land and the traders have shown that area as the market yard to get the license. In a private market, the traders do not have to pay the mandatory market cess and formation of the private markets provided a way out,” pointed out a senior officer of the state marketing department.

APMCs, officers pointed out, were even now the only source of price discovery with the private markets and DML holders following the mandi rates. “This was not supposed to be so, the alternate markets were to have their own price discovery mechanism and were to give mandis a race for their money,” they said. Also, the majority of the licenses were taken by the existing traders with very few new entrants in the market. Investment in terms of infrastructure like warehouses or cold storage has also been rare which was supposed to be a game-changer for the sector.