National Agricultural Market
2 Jun 2015
R. Ramaseshan
Vice Chairman
ReMS
What is ahead
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India – unique market structure
New market structure
Moving to the new market structure
Institutions for the new market
INDIA – UNIQUE MARKET STRUCTURE
APMCs dominant market
• Average area served by a market quite high – 460
square kms. Long distances travelled.
• Accessed by small and marginal farmers
• Over 50% of the marketed surplus passes through
regulated markets
• Despite limitations, these prices provide reference
points
• Private markets – no visible impact. High investment,
long gestation, risky, limited impact
Fragmented markets
• Each APMC market is isolated – broader supply
demand factors not an influence
• Limited participation due to intra state and inter
state licence restrictions – price inefficiency
• Physically accessing the market is a necessity
• Inter state and intra state movement restrictions
Price discovery
• Manual auction system – time consuming, every lot
does not get an equal chance to be bid
• Less competition – prone to cartelization.
• Farm gate prices never known – bilaterally
negotiated
• Adjacent market prices not known on time for selling
decisions
Indifference to quality
• Quality of produce not determined scientifically
• Asymmetric information – farmer knows about the
quality and the buyer the prevailing price
• Farmers – incentive to bring without cleaning and
sorting.
• Buyers – justification to demand quantity discounts
Payment uncertainty
• No standard payment cycle – varies from same day to
a fortnight or even more
• Payment in many markets – after secondary sale.
Working capital of trader funded by the farmer
• Same day payment – at a discount
• Could be in instalments
Payment uncertainty
• Almost no deployment of technology
• Participants – market functionary interaction is
intensive
• Restrictions on secondary trade. Rent opportunities
• No surveillance of market behaviour. Ineffective
regulation
Misaligned incentives
• Department and market authorities work to
maximize market fee collection. Market arrivals,
price efficiency, etc., – never monitored.
• Extreme cases – traders remit market fee; free to
price the produce outside the market and decide
terms of trade
• Encourages movement restrictions, check posts, etc.
Having a market is vital ……..
• Abolishing markets – no solution. Small/marginal
farmers would be sufferers.
• Need for an efficient market cannot be overlooked.
• States that allowed private APMCs – no visible
impact
• Address market structure issues for an efficient
market; private markets may gradually be
established.
NEW MARKET STRUCTURE
Redesigned market – features
• Reformed APMCs – part of the solution
• Efficient price discovery –
 Quality based bidding – assaying of produce
 Increased competition – nationwide licence
 Interconnected markets – intra state & inter
state
• Improved efficiency of markets – use of technology
for all operations
• Wide, real time dissemination of prices
• Handling of payment to farmers
Redesigned market – features
• No restrictions in movement of goods after primary
sale
• Regulatory structure –
 Principles of regulation agreed between states
 States regulate primary sale – in regulated
markets, warehouses, private markets, etc.
 No restrictions beyond primary sale
• Appropriate structuring of the proposed GST – not to
hamper remote location participation
Redesigned market – features
• Warehouse based selling –
 Any eligible person to operate warehouses
 Technology platform common between
warehouses and regulated markets
 Warehouses as a part of the integrated market
 Gateway for institutional finance flow
• Warehouses – doubles up as viable, low investment
market locations
• Regulatory overlap between WDRA & state authorities
• Monitoring/Handling of payment to farmers
Redesigned market – features
• Private markets, processors’ procurement if existing –
 Common technology platform
 These also as a part of the integrated market
• Wide, real time dissemination of all prices – regulated
markets, warehouses, private markets, etc.
• Monitoring/Handling of payment to farmers
• Option to choose the market to sell – based on prices,
locations, etc.
• Use of technology to facilitate choice. End of the check
post era.
Trader 1
Delhi
Single
virtual
Market
Trader 2
Bangalore
Traders 3
Bhopal
Unified Market
Platform
APMC
Karnataka
Market
Warehouse
Mizoram
Warehouse
Indore
New Market Scenario
Rajasthan
Market
MOVING TO THE NEW MARKET STRUCTURE
Critical steps – technology
• A single pan India electronic platform for –
 Efficient and transparent price discovery
 Gateway for all licensing
 Facilitating intra state and inter state movement of
commodities
 Payment gateway
 All market operations
• A central IT architecture for every state capable of being
interconnected and accessed from any location
• Augmenting IT infrastructure in all markets and states
Critical steps – modernise
• Institutional structure at state level to manage
modernisation
• All regulated markets to adopt the electronic platform.
Create supporting infrastructure.
• Bring all market operations on to the platform in all
states
• Standardise quality parameters. Establish assaying
facilities in markets and operate these
• Facilitate institutional finance for participants
• Facilitate warehouse selling, private markets, processor
procurement, etc.
Critical steps – regulation
• Regulatory environment – consensus amongst states.
• State-wide licence of buyers. Simplifying licence
conditions.
• Reciprocal recognition of licences – licence granted
by a state recognised by others, leading to a national
licence (similar to NPs in transport)
• Multiple individual regulation – morphing into a
common regulatory mechanism
INSTITUTIONS FOR THE NEW MARKET
STRUCTURE
National level institution
• To provide –
 Technology services for operating markets
 Oversee market functioning
 Other related areas
• Guide implementation of reforms in regulated
markets in states
• Progressively move states to the new market
structure
• Coordination amongst states
The critical factor
• Technology is key – not an IT project. Knowledge of
operating markets essential
• Technology not a one time exercise. Constant up
gradation to bring best practices.
• Blend public interest with the initiative of a private
enterprise. Profit making not the sole motive
The critical factor
• Certainty of continuity in operations.
• Service provider not suitable –
 Technology – time to develop, limited by prior
knowledge, etc.
 With all states connected, any disruption not
acceptable
 Zeal to drive reforms
• Establishing an institution is critical.
Structuring an institution
• Efficient functioning for a larger public cause
• A PPP model attempted by Karnataka may be
suitable
• Private partner – knowhow, expertise in market
operations and provide access to technology. Guide
the entity in its operations
• Institutions – bring public purpose into focus.
• Dispersed ownership
T H A N K YO U