Competition Issues in Agricultural Marketing and Procurement in India Jyoti Gujral- IDFC Piyush Joshi & Anuradha R.V.- CLARUS LAW ASSOCIATES February 16, 2011

Inefficiencies in Agricultural Markets in India, primarily due to: ▫Undue State intervention in pricing, marketing etc. ▫Barriers to entry by private operators ▫Bureaucracy at various levels of obtaining licenses/ permits for different stages of activity Regulatory and Institutional Reforms to ensure robust functioning of markets and ensuring competition- a necessity Some basic facts 2 CLARUS LAW ASSOCIATES

XOur paper is not about how Competition Commission of India can intervene and resolve all that ails agricultural marketing and procurement systems in India √Our paper is about identifying a few critical issues in agricultural marketing and procurement, which maypotentially qualify as issues necessitating and justifying intervention by the Competition Commission of India Threshold issue: Not everything an issue for the Competition Commission for India 3 CLARUS LAW ASSOCIATES

 Agricultural Marketing governed by Agricultural Produce Marketing Acts in different States in India  Constitution of Agricultural Produce Marketing Committees  Agricultural Procurement governed by the FCI Act in India Focus of Discussions 4 CLARUS LAW ASSOCIATES

Farmer Pre-Harvest Contractor Commission Agent/ Broker (Regulated by APMC) Wholesaler (Regulated by APMC) Retailer Consumer Chain in Agricultural Marketing 5 CLARUS LAW ASSOCIATES

Theory Regulation of Agricultural Produce markets Access to Farmers to orderly regulated markets Practice Exclusion of new entrants Restriction of growth of agricultural markets Difficult terms for existing players Monopolistic and Oligopolistic conduct Role of APMCs 6 CLARUS LAW ASSOCIATES

Regulation of : ▫Licensor/ Creator of market, and ▫Regulation of participating entities Regulation of: ▫Who can Farmer sell to ▫Who can participate in the market ▫Where are the markets to be established Price inefficiencies in procurement, storage, release and marketing of agricultural produce ▫Any increase in price of agri commodities: 53% for farmers, 31% for middlemen, 16% market costs. Impact of APMCs 7 CLARUS LAW ASSOCIATES

Marketing only in ‘notified areas’; which is typically the whole state No marketing without APMC license possible in whole state Licenses to limited no. of wholesalers/ traders Imperfect competition in agricultural mandis No transparency in Licensing system Anti-competitive effects 8 CLARUS LAW ASSOCIATES

Process of granting licenses- not transparent Very few new entrants Location specific licenses; limited scope for expansion Instances of arbitrary revocation of license Variations in Duration of Licenses: In some states, duration is only 1 year, which dis-incentivises investment in infrastructure Impact of Licensing terms: Inability to raise adequate commercial loans Only persons controlling and regulating system typically retain licenses APMC Licenses 9 CLARUS LAW ASSOCIATES

Closed system; no transparency on price discovery etc. Open auction accounts only for 20-30% of market transactions; 40% through secret bidding Role of Traders/ Commission Agents 10 CLARUS LAW ASSOCIATES

Limiting the market for farmers Preventing purchasers from accessing markets Preventing development of adequate infrastructure Preventing development of private markets Anti-competitive impacts & APMCs 11 CLARUS LAW ASSOCIATES

FCI, estb. Under Food Corporation Act, 1964, is the nodal agency of GOI to undertake procurement under Minimum Support Price (MSP). Although MSP procurement is not the only procurement FCI undertakes, it is one of its more critical operations and is the focus of our paper Food Corporation of India 12 CLARUS LAW ASSOCIATES

FCI MSP procurement is undertaken through state level agencies and cooperatives identified by the state government at identified purchase centers Generally majority of the identified purchase centers for MSP procurement are APMC markets leading to control of APMC licensed traders. Food Corporation of India 13 CLARUS LAW ASSOCIATES

CCI’s Mandate: ▫Anti-competitive Agreements  When these have an appreciable adverse effect on competition in India ▫Abuse of Dominant Position Broad Jurisdiction: ▫Includes jurisdiction over statutory entities and Govt. authorities. (Only exception: when Govt. exercises ‘sovereign functions’) Role of the Competition Commission of India 14 CLARUS LAW ASSOCIATES

Resolving Disputes (Adversarial situations) Competition Advocacy: a unique role to advocate principles of competition in various contexts; potential ability to initiate legislative reforms. Role of the Competition Commission of India (cont’d) 15 CLARUS LAW ASSOCIATES

There is preliminary grounds for CCI to either: ▫Commence full scale investigation by the DG under the Competition Act ▫If not a full investigation, commence studies and surveys as a first step towards investigation ▫ take action based on complaints received ▫Issue competition advocacy advisories to GOI, State Governments and other government agencies on measures that can be initiated to remedy Role of the Competition Commission of India (cont’d) 16 CLARUS LAW ASSOCIATES