Benefits of Competition in the Agricultural Produce Marketing Sector NATIONAL SEMINAR National Competition Policy and Economic Growth of India Thursday, 21 st March, 2013, New Delhi 1

Structure of the Presentation Background Aim & Scope APMC Marketing Chain Legal Analysis Areas/Sources of Anti-Competitive Practices Survey Constraints Identified Economic Benefits due to competition Policy Recommendations 2

Background Agriculture is one of the major driving forces of economic growth Market-mediated linkages of the agriculture sector In India, the agriculture sector is diverse and supports a majority of population for their livelihood 3

Aim Promote effective adoption and implementation of principles of National Competition Policy by advocating for legislative changes Scope Review of existing Laws Identification of competition distortions Suggest reforms to induce competition in agricultural marketing 4

Agriculture Produce Market Committee Marketing Committee – regulate agricultural marketing in notified market area Roles of Marketing Committees Structural rigidities of APMCs lead to operational efficiency Need for a APMC reform 5

FARMERS Aratdars/Auction Agents/commissi on agents PRODUCE TRADERS Retailers/Whol esalers in the vicinity of the Regulated markets Aratdars in other states / cities/ wholesale markets Consumers in the vicinity of the Regulated markets RETAILERS Consumers in other states/cities 6 Marketing Chain Brokers

Legal Analysis Nuances of Agricultural Markets: Competition Perspective Used to be perceived as an example of a perfectly competitive market Buyer power could be a possible distorting factor Review of some relevant Acts & Rules (Central and State Level) Essential Commodity Act 1995 (Amended as on 2010) Agriculture Produce (Grading and Marking) Act, 1937 (Amended as on 1986) APMC Model Act 2003 The Maharashtra Agricultural Produce Marketing (Development and Regulation) Act, 1963 (Amended as on 2010) The Maharashtra Agricultural Produce Marketing (Development and Regulation) Rules, 1967 (Amended as on 2010) The West Bengal Agricultural Produce Marketing (Regulation) Act, 1972 (Amended as on 1981) The West Bengal Agricultural Produce Marketing (Regulation) Rules, 1982 The West Bengal Cold Storage (Licensing and Regulation) Act,

Areas/Sources of Anti-Competitive Practices Maharashtra APMC Lack of Competition in a Market Area: A rationale should be provided for why more than one mandi cannot operate in a territorial market area Grant of Licence: licence can be denied without any valid reason National Integrated Produce Market: sharing of market information may encourage price-sharing arrangements government organisations are exempt from bank guarantee requirement; distortion of competitive neutrality Tomato Specific Vertical linkages thrive where over time abuse of dominance can occur Collection centres - Cold storage – transportation vans (reefer vans) – retailers/food processing outlets Contract Farming Model Contract Farming Agreement (Maharashtra APMC) Should be vetted to ensure there are no provisions which could give rise to exclusive arrangement 8

Areas/Sources of Anti-Competitive Practices Favourable provisions for Farmers Cooperatives Absence of justification for favouring farmers cooperatives Maharashtra State Agricultural Marketing Board (Cold Storage Subsidy Scheme) Subsidy scheme is not applicable to all players: Applicable to APMC, cooperative societies West Bengal Cold Storage Licensing Order Preference is given to the produce of farmers cooperatives 9

Survey Product Chosen: Tomatoes Rationale - to capture a horticultural product which is highly perishable India is the worlds second largest producer of tomatoes, but, it imports more processed tomatoes than it exports One third of our import of processed tomatoes is from China [worth approximately 6.7 mn US dollars] Limited cold storage and transportation facilities Contract Farming is ideal for bulky, perishable commodities like horticultural products Saumitra Chaudhri Committee report Perishable commodities should be de-notified from APMC Acts Perishables should be exempted from cess so that farmers can sell their produce in any place States Chosen: Maharashtra and West Bengal Rationale – the states experiencing differing levels of implementation of APMC reform 10

Survey Product Profile in Maharashtra & West Bengal West Bengal is 4 th largest producing state Maharashtra is 6 th largest producer and harvesting period is throughout the year Stages of adoption of Model APMC Revised their APMC legislation in line with the Model APMC (Maharashtra) Modified the Model APMC (West Bengal) Is against including contract farming provisions Interest of farmers who have undertaken joint cultivation model have been protected Has exempted market fees for fruits and vegetables 11

Constraints Identified Structural and Behavioral rigidities Auction System Election system Marketing linkages Inadequate Infrastructure Market Information system 12

Economic Benefits due to competition Lines of improvement to build competitive structure: Lines of improvement to build competitive structure: -Technology -Market linkage -Financial assistance Economic Benefits Economic Benefits -Increase in operational efficiency -Removal of structural barriers -Better remuneration to the producers 13

Policy Recommendations Central Government Level Competition Commission of India should monitor agreements dealing with infrastructure and transportation service providers Territory of operation of a service provider should be identified Vertical linkages between cold storage service providers and transportation companies should be examined Monitoring should extend to retailers, processors and exporters Farmers Cooperatives Provisions which favour farmers cooperatives should be amended 14

State Level West Bengal Cold Storage Licensing Order: Preference for storage of produce of farmers cooperatives should be removed Maharashtra Cold Storage Subsidy Scheme: Should be made widely applicable Maharashtra APMC Grant of Licences: Fees should be reduced ; Reason should be provided for not granting a licence National Integrated Produce Market: Instances where vertical agreements such as exclusive supply agreements may be struck up should be monitored Contract Farming; drafting of agreements and their implementation could be closely monitored by CCI, by the virtue of the powers conferred to it under Section 3 of the Indian Competition Act Policy Recommendations 15

Thank You 16