R. RamaseshanVice 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 1Delhi Trader 2

Bangalore Traders 3Bhopal

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