Since August 2020, the farmers of India are protesting against three new Agriculture bills (now acts) passed by the Parliament—one of the reasons stated is the potential of the new legislation affecting the Agricultural Produce Market Committee (APMC)’s Mandi system. APMC regulates and manages the agricultural market.

The farmers have covered some major highways around Delhi and have set up camps as well. They demand that the Mandi System should remain the same and want the new legislations to be unconditionally taken back.

Per contra the government claims the bills are good for farmers, Amit Shah, the Union Home Minister of India said about the farm bills “They will liberate them from the clutches of middlemen, and the Modi govt. is committed to keeping its promise of doubling farm income.”

The middleman here is perhaps the arhathiyas who facilitate and manage all kinds of procurement related transactions in the mandis between the seller (farmer) and the buyer (government or private traders) of the APMC Mandi. Arhathiyas thrive due to the current APMC Mandi system, therefore, in order to understand the current discourse on the farm bills, it is crucial to understand how the APMC Mandi system works and locate it in a broader historical as well as contemporary context, which is what this article attempts to do.

The History of APMC: From Royal Commission of 1928 to Implementation Post-Independence

Although, the institution of wholesale Mandis—as described by Harsh Damodaran in his The Indian Express column—is “since time immemorial,” the implementation of exclusively government controlled Mandis is a newer practice. The idea is grounded in the 1928 royal commission report on agriculture that mentioned the following on the need of a regulated market:

“The establishment of properly regulated markets should act as a powerful agent in bringing about a reform which is and much needed, primarily in the interests of the cultivator and secondarily, in that of all engaged in trade and commerce in India. From all parts of India, we received evidence of the disabilities under which the cultivator labours owing to the chaotic condition in which matters stand in respect of the weights and measures in general use in this country and of the hampering effect this has upon trade and commerce generally. Needless complications and unevenness in practice as between market and market tend to prejudice the interests of the cultivator.”

One of the first implementations of the government regulated agricultural markets—now known as APMC—is credited to Sir Chhotu Ram, a farmer leader and the then Development Minister in the provisional government of Punjab. The Punjab Agricultural Produce Markets Act, which sets up APMC in Punjab was initiated by him in 1939.

In the 1960’s, when India was a newly independent country, many of its citizens were starving due to food shortage. Adding on to the already existing hunger—droughts made the situation even worse. To fix this problem, the government started the Green Revolution, in which it tried to modernize the Indian agriculture. The Government took the help of advisors from the United States and introduced several reforms in agriculture. India had a food surplus during the Green revolution. The Indian Government decided to go back to the 1928 report and developed a nationwide food marketing system to ensure fair prices. The system differs from state to state. Farmers take their produce to wholesale markets called APMC Mandis to sell their produce to traders through open auctions with transparent pricing.

In the APMC Mandis—to protect farmer’s interests—the government fixes Minimum Support Prices (MSP)—a price floor—for some crops and makes arrangements from their purchase under the state account whenever prices fall below the support level.

The idea of MSP as well was implemented during the same period. Whereas its implementation is credited to the then-finance minister C Subramaniam, the idea is the brainchild of Dr Frank W Parker.

APMC System: Inefficiencies and Reforms

APMC system as well has got its own set of problems. The “golden period” for APMC markets lasted till around 1991. With time, there was a loss in growth in market facilities and by 2006, it had declined to less than one-fourth of the growth in crop output after which there was no further growth. This increased the problems of Indian farmers as market facilities did not keep pace with the increase in output and regulation did not allow farmers to sell outside APMC market.

The farmers were left with no choice but to seek the help of middlemen. Due to poor market infrastructure, more produce is sold outside markets than in APMC mandis. The net result was a system of interlocked transactions that robs farmers of their choice to decide to whom and where to sell, subjecting them to exploitation by middlemen.

Over time, APMC markets have been turned from infrastructure services to a source of revenue generation for the middlemen.

Furthermore, the market committee has excessive powers to give licences to the traders. A lot of licencing led to a 'licence Raj' kind of situation. The licensed commission agents started forming cartels, to collectively decide the prices at which they would or would not buy the produce from the farmers, so that the farmers aren’t left with any options—leading to creation of what supporters of the farm bill today call “mandi mafia.”

In the year 2003, the government brought some reforms allowing for better liberalization in the Model APMC Act, Indian Economic Service’s online Encyclopedia, Arthapedia, describes the reforms as:

“An efficient agricultural marketing is essential for the development of the agriculture sector as it provides outlets and incentives for increased production and contribute to the commercialization of subsistence farmers. Worldwide Governments have recognized the importance of liberalized agriculture markets. Keeping, this in view, Ministry of Agriculture formulated a model law on agricultural marketing - State Agricultural Produce Marketing (Development and Regulation) Act, 2003 and requested the state governments to suitably amend their respective APMC Acts for deregulation of the marketing system in India, to promote investment in marketing infrastructure, thereby motivating the corporate sector to undertake direct marketing and to facilitate a national  market.

The Model APMC Act, 2003 provided for the freedom of farmers to sell their produce. The farmers could sell their produce directly to the contract-sponsors or in the market set up by private individuals, consumers or producers. The Model Act also increases the competitiveness of the market of agricultural produce by allowing common registration of market intermediaries.”

The Model APMC Acts were implemented by some states, but not all.

When APMC was repealed: A look at Bihar

States like Punjab and Haryana, which have the richest farmers in the country, have the regulations play an important role in the industry. But Bihar, where markets were eliminated in 2006, has the poorest farmers in India. This clearly shows the failure of the removal of this system.

Before the abolition of the APMC Mandis, Bihar had 95 market yards, of which 54 had infrastructure such as covered yards, godowns and administrative buildings, weighbridges, and processing as well as grading units. In 2004-05, the state agricultural board earned 60 crore INR through taxes and spent 52 crore INR, of which 31% was on developing infrastructure. With no revenue to maintain it, that infrastructure is now in a dilapidated condition.

In a 2019 study by the National Council for Applied Economic Research, it was reported that in Bihar, there was an increase in the volatility of grain prices after 2006, which negatively affected the crop choices and decisions of farmers to adopt improved cultivation practices. It concluded, “Farmers are left to the mercy of traders who unscrupulously fix a lower price for agricultural produce that they buy from [them]. Inadequate market facilities and institutional arrangements are responsible for low price realisation and instability in prices.” Farmers who were in immediate need for money had to sell their produce at the price that was forced upon them by the private traders. Also, there were reportedly high storage costs at private warehouses.

A farmer from east Champaran, Somnath Singh, told Down To Earth, “Earlier we would get a good price for our produce but the situation has deteriorated after the abolishment of the APMC Act. The PACS simply refuse to buy our produce citing moisture; even if they procure them, they take months to pay the dues.”

APMC and Farm Act

Coming back to where we started—the farmers protests—right now, the farmers are sitting in the cold on the highways of Delhi, living in tents. They are being provided food by the langars in Gurudwaras and have received support from them. Several farmers in fact died since September—some in the protests; and others due to accidents, illness, or cold weather conditions.

One of the central demands as mentioned earlier is to let the APMC Mandi system stay as it was. Yet, one of the three Farm acts—Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, creates free, unregulated trade spaces outside the markets. The act is actually creating two parallel markets, one being the regular mandis and the other, with free, unregulated trade.

According to data by NSSO, around 6% farmers get MSP (can be even more), who mostly sell their produce in state-government regulated mandis and 94% farmers sell outside mandis. Therefore, already the majority is selling outside the markets. Moreover, in the new act, there will be no tax outside APMC pushing more farmers to leave the mandis and opt for the trade markets, eventually leading to the collapse of the Mandi system.

However, we must remember, the markets outside APMC do not provide MSP—they work on the principles of supply and demand—therefore in case the prices fall to an extent making selling the produce loss making—there will be no safeguards—potentially leaving richer traders farmers to exploit economically vulnerable farmers.

Furthermore, the tax in the APMC Mandis is collected by the state government, if this system collapses, the states won’t be receiving any taxes from the sale of agricultural produce. Moreover, agriculture currently is in the state list, however, the new act gives the center the power to regulate the agriculture across India, making the federal structure of the country in question.

Talking about the arhtiyas (or the middlemen) who are projected as the adversaries of farmers by the government and the supporters of the Act, we have to remember that’s just one side of the story. As Chaba and Damodaran explain in their column on The Indian Express:

“The arhtiya isn’t a trader holding title to the grain bought from a farmer. He merely facilitates the transaction between a farmer and actual buyer, who may be a private trader, a processor, an exporter, or a government agency like the Food Corporation of India (FCI). That makes him more akin to a broker.

The arhtiya, however, also finances the farmer. That, plus his income from commission being dependent on the quantity and value of produce routed through him, aligns the arhtiya’s interests much more with those of the farmer.”

Therefore it is safe to conclude that the Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act will create more problems than to solve them.