ANALYSING INDIAN FOOD SUPPLY CHAIN: Traditional system(1)

According to World Bank report (2007) at the time of independence, the agriculture marketing was highly unorganized. The issues were low price for the producer, higher physical losses and high marketing costs and controlled regulation.1 One of the major government initiatives was to regulate and monitor agriculture market through Agriculture Produce Marketing Committee (APMC). Basic objective of APMC has been to ensure reasonable gain to the farmers by creating environment in markets for fair play of supply and demand forces and to regulate market practices and attain transparency in transactions. It was considered to be successful over the period of time. But several questions have been raised in terms of efficiency of the regulated market system.

This includes prohibition of farmers from buying outside the market yard, increased importance of bureaucrats in managing APMC, barriers to entry for new comers and collection of market fees as a basis of revenue for government. APMC act which regulates Indian agriculture marketing varies from state to state as far as its implementation is concerned. Over the period of time, APMCs have emerged as a government sponsored marketing services monopoly. That prohibits innovation, such as contract farming and does not allow traders to buy outside the specified market yard.

The APMC committee (of farmers and administrated by bureaucrats) based on the eligibility criteria2 allots shops to agents upon a payment of a small license fees for business. The law says that such license holders have an equal right to do business. But the shortage of space for trading, severely reduce their business. Another disadvantage is that, as the number of physical shops are fixed and the holders rarely return licensees, as one generation to next, business is being carried forward, the license holders secures a shop at given rate by only reinforcing over time.

Further apart from ineffective regulations other problems in traditional market include imperfect information transmission, limited service delivery by brokers and lack of outside competition with the broker system.

The exploratory research conducted by IFPRI3in the state of Uttarakhand, addresses the following issues of concern:

❖ Average cost of transactions on wholesale market is high. A word of concern is there from buyers in correctly assessing lot quality and quantity before purchase. This might lead to depress producer prices.

❖ The tendency is also observed in behaviour of some brokers in influencing farmer’s choice through credit and insurance market.

❖ It is also observed that food safety monitoring of food production, distribution of quality input needs very high attention for sustainable development.

❖ Also, giving two different licensees by APMC market officials to a broker4 and a trader55 creates problems. The study in Uttarakhand reveals that some persons hold both the licenses for same products. This lead to confusion with regard to exact role of the broker which ultimately lead to conflict of interest. If an agent 6acts as a wholesaler and a commission agent6, at the same time, this might lead to some perverse incentive. This practice is called “front running”. This is prohibited in modern exchange market (e.g. Chicago board of trade7).