Economy and Business

What’s in a NAM?

The online National Agricultural Market can become a game changer only if it sorts out some critical offline challenges

Jul 6, 2016
By Mekhala Krishnamurthy
 
The online National Agricultural Market can become a game changer only if it sorts out some critical offline challenges
 
Mid-April, Prime Minister Modi officially launched the National Agricultural Market (NAM), designed to serve as a “pan-India electronic trading portal which networks the existing APMC mandis to create a unified national market for agricultural commodities”. Proposed in Budget 2014-15, the NAM, currently in pilot phase, includes 21 markets in eight States and 11 commodities.
 
It is projected to integrate 585 mandis by 2018, a target that still represents just 8 per cent of the nearly 7,500 regulated markets, and will inevitably cover a small fraction of the vast range of agricultural commodities marketed and traded, both inside and outside mandis across the country.
 
At this initial stage, then, it is important to understand what the measures proposed under the NAM framework can achieve, without being swept up in the rhetoric of transformation or resisting all possibilities for meaningful reforms in the complex and diverse agricultural markets.
 
What is needed
Two of the most important regulatory reforms that the NAM requires are a single license, valid for buying across all mandis in a State, and a single point for the levy of the market fee.
 
The licensing reform is a very significant shift away from the current system of local mandi-specific licensing. Restrictions and rents on licenses to new buyers have always been a major problem and have often limited the pool of buyers in primary markets, especially for parties located outside the State and its entrenched networks. This is, therefore, a critical step and will require serious legislative action.
 
Crucially, the NAM will enable mandis to continue to collect the mandi fee (levied at the first point of transaction) for all sales by farmers in a particular market, irrespective of the buyer's location. This seems to be a practical move and need not only be seen as a concession to resistant APMCs.
 
Given the costs and constraints of physical marketing, farmers are generally unlikely to be able to transport their produce to distant markets in search of price. They need much more competitive, integrated and well-appointed local markets, where both local traders and extra-local online buyers can bid on the produce brought by farmers to their mandis.
 
Going online
This is where the third key element of the NAM comes in — the introduction of an electronic auction — into the mandi system. This is largely based on the e-auction platform developed and implemented in Karnataka in partnership with NCDEX’s National Spot Exchange (now National e-Markets Limited, NeML), over the last few years, starting with the major tur (red gram) mandi of Gulbarga.
 
A 2014 research paper on the Gulbarga mandi, ‘Understanding Mandis: Market Towns and the Dynamics of India’s Rural and Urban Transformations’, co-authored by Devesh Kapur, director of the Center for the Advanced Study of India, found that this market had moved successfully — albeit after considerable resistance — from manual tendering to an e-tendering system.
 
This enabled interested buyers outside the mandi to participate in the auction and significantly increased the speed of the tendering process and quite possibly, the transparency of price discovery.
 
Here, however, we do need many more rigorous evaluations of the relative strengths and weaknesses of different auction mechanisms across market sites. The enormous challenges associated with sampling and standardisation are, of course, critical and are intrinsically commodity and agro-industry-specific.
 
More generally, we have to balance the need for grades and standards to enable wider participation in markets with the need to accommodate the significant variations in the quality of produce that arrives in mandis, grown under the diverse conditions and constraints of small-holder cultivation in different regions and sub-regions across the country.
 
As the experience in Karnataka (and my own work and that of Richa Kumar, both in Madhya Pradesh) shows, the introduction of electronic platforms and digital technologies does not lead to disintermediation.
 
In e-auction mandis such as Gulbarga, for instance, commission agents, linked to both farmer-sellers and large commodity traders and processors are still vital actors in the process, from sampling to dispatch. Even in states such as MP, where kacha arhatiyas or credit-based farmer-linked commission agents do not operate in regulated markets for grain, pulses, and oilseeds, buyers outside the mandi bidding in e-auctions will still need local agents managing the physical transfer, storage, and movement of their purchases.
 
Certainly, new warehousing and logistics operators are likely to materialise, and existing intermediaries may have to adapt or exit, but the multiple roles (including credit) that they currently play will remain salient.
 
The real movers
Here, it is also especially important to highlight the black box of transportation. Our study of the tur supply chain in Karnataka, for instance, revealed that transportation accounted for 14 per cent of the supply chain costs. Understanding the inner workings of the transportation networks is a critical area for new research.
 
Finally, even in States with relatively well-developed APMC networks, access to mandis still remains a huge problem for many farmers, especially small and marginal cultivators. The problem is, of course, far more widespread and acute for producers in States such as Bihar, where the AMPC Act has either been repealed, and where largely unregulated markets are organised on the basis of bilateral transactions between traders and commission agents.
 
Therefore, while the NAM is a welcome shift in focus toward investing in, upgrading, and opening up mandis after well over a decade has been spent calling for their abolition, we must also address the marketing challenges of the many producers still restricted to transacting, under very unfavourable conditions, outside market yards. Most important, the imagination around NAM must extend far beyond the construction of an e-platform.
 
Instead, it needs to be seen as an opportunity for both a more comprehensive and contextual approach to market reform. This should include support to new and promising institutional forms such as producer companies, especially among small and marginal farmers working in rain-fed regions. And perhaps most crucially, place emphasis on much more nimble and inclusive procurement operations that extend the benefit of MSPs to under-served areas and commodities (especially pulses and millets), where we already have examples of appropriate technological platforms (including e-auctions and reverse auctions).
 
For this to happen, it is not just about the States plugging into the NAM, but the NAM plugging into the diverse agrarian political economies, regulatory developments, and specific requirements of Indian states. As we have seen, all too vividly in recent weeks, negotiating and maintaining a common market is always difficult, even when it offers great promise.
 
The writer is an associate professor of sociology at Shiv Nadar University. This article is by special arrangement with the Center for the Advanced Study of India, University of Pennsylvania
 
The Hindu, July 05, 2016

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