R. Ramaseshan Vice Chairman ReMS National Agricultural Market 2 Jun 2015

What is ahead 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.

APMC Unified Market Platform Karnataka Market Warehouse Indore Warehouse Mizoram Trader 1 Delhi Trader 2 Bangalore Traders 3 Bhopal New Market Scenario Single virtual Market 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

THANK YOU