Harvesting the benefits of NAM – (Electronic) National Agriculture Market !!!
On 14 April 2016, Prime Minister Narendra Modi launched the e-NAM – Electronic National Agriculture Market – aiming to bring existing Agriculture Produce Market Committees (APMCs) on a common nationwide platform to facilitate trading in agricultural commodities.
Considering the monsoon deficiency of the first two years of the NDA government and the rising rural stress, the PM has set an ambitious target of doubling Indian farmers’ incomes by 2022, with the e-NAM playing a key role in achieving that vision.
Indian agriculture has traditionally been marred by sub-scale farming operations, over-dependency on monsoons and poor supply chains, resulting in inadequate price realizations.
Every central government has juggled between guaranteeing minimum prices for farmers and managing food inflation. The compounding effects of these issues have kept Indian farmers struggling for subsistence incomes.
The central and state governments have attempted to manage this complex supply-demand equilibrium of agricultural produce through minimum support prices, buying produce directly for the Food Corporation of India (FCI) stocks from the farmers and repeatedly urging APMCs to unshackle their stringent rules.
The small-scale farmers, however, continue to be condemned to running a difficult commercial operation, the alternatives being a search for temporary farm wage jobs or migrating to cities.
In 2003, the government under prime minister Atal Bihari Vajpayee tried to reform the APMCs. The government created a model act, which asked states to enact laws to:
· Remove licences for APMC agents
· Permit creation of new APMCs outside of the existing ones like the cooperatives
· Remove multiple levies
· Permit contract farming for bulk buyers
· Create special markets for different types of commodities with varying restrictions, especially opening up the markets for non-perishables
· Goad APMCs to invest in modern supply chains from the profits they make
· Allow direct sale of farm produce to large buyers
States have since moved in this direction at varying pace. Most of the more than 7,300 APMCs in the country, including the 600-odd district-level APMCs, continue to be run by a middlemen network that is busy choking farmers’ access to the buyers in the supply chain.
The programme has opened up an opportunity after 13 years of Vajpayee’s stillborn efforts to reduce Indian agrarian distress. To ensure that e-NAM gets adopted in spirit and benefits the small-scale farmers across the country, the government still has some way to go. Here are 10 areas that should be a point of focus in the next couple of years:
1. Encouraging states to participate in e-NAM
2. Enabling large mandis to lead the way
3. Achieving success early
4. Standardisation of quality of produce
A key aspect that can delay adoption will be the differing quality of the same commodity across the markets. When a buyer purchases a share of a blue chip on an electronic stock market, the share has the same characteristic as that bought by every other buyer on that market. This is not true for agriculture commodities. The type of wheat in Punjab and MP will differ significantly. Even the type of wheat in western and eastern MP will differ from each other.
While the e-NAM will have the provision of quality assessors to certify the produce, there has to be an institutional attempt for quality standardisation, like the option of buying and selling half-a-dozen types of wheat, aggregated for similar characteristics. These teething issues should be addressed on priority.
5. Clearing, settlement and counter guarantees
All trading markets have an associated element of clearing (matching buyers and sellers and assigning trades) and settlement (exchange of the traded commodity and money between buyers and sellers). While there is a network of banks that will participate in the e-NAM for the financial operations, there may be initial hesitation for participants to sign up due to the opaqueness of counter guarantees in place.
As of now, the middlemen in the mandis perform these functions, and personal trust is key underwriting element despite the routine financial gouging involved. The government may have to spend time and resources in educating potential participants in the market, making features and associated fallbacks of e-NAM.
When Indian Railways first launched online ticket booking, the traditional agents who used to facilitate physical ticket bookings did not lose business. They just started operating online terminals, still charging the small one-off ticket buyers for the facility. The APMCs and their intermediaries may well replicate this same behaviour. Admittedly, it will be a more transparent operation for farmers, but the government must strive to scale up e-NAM like the fully functional IRCTC website sooner rather than later.
6. Standardisation of quantities
Electronic markets of all kinds have a concept of lot sizes – the minimum quantities that can be traded. In the case of agricultural commodities, this is a big issue, especially for the small farmers. While a farmer may be willing to sell his produce on the e-NAM, the operation has to be practical – the seller should not incur very high transportation and shipment charges; it would make his price untenable. With the logistics business booming across the country, there’s a case for the government to address this issue with the help of technology and private participation.
7. Storage facilities and supply chain technology
Since most APMCs have not invested in basic facilities like warehouses, cold storages and inventory management systems, storing agricultural produce before or after trading is very difficult for farmers. Today’s systems are based on the assumption that the farmer will not store the produce anywhere except at the farm gates, and then transport it a short distance to the nearest mandis. However, proper price discovery and national trading needs to be backed up by massive investment in storage sites and facilities. The 2016-17 Union Budget opened up the food-processing sector for foreign direct investment (FDI). This change coupled with the logistics boom should reflect in the agricultural supply chains in the short-term.
8. Easier transportation of agricultural produce
Most farmers today use small vehicles to take their produce to the nearby mandis. However, national markets would require movement of the agricultural produce, including perishable ones, across the district and state borders. The maze of permits, the condition of the road network, the ability of the railways to transport commodities at a scale – are some of the areas the central government has to focus on, on priority. Else, the APMC middlemen may cite impracticality of transport options as proof against e-NAM being an effective replacement for their committees.
9. Investment in special transportation vehicles
As India looks to scale up manufacturing, the government can creatively bridge the lack of specialised agricultural produce transportation vehicles with the help of the ‘Make In India’ programme. If private players can be encouraged to spend on research and development on “mobile cold storages” and large farmers, APMCs or transport operators can be encouraged to buy fit-for-purpose vehicles, the reach of the e-NAM may widen fast. Ultimately, the farmers will benefit in spite of the geographical boundaries.
10. Short-term financing
The APMCs and their agents today perform a central function in the supply chain, which is to make short-term finances available at high rates of interest. These middlemen are also the first port-of-call for many farmers for their day-to-day as well as long-term (e.g. marriage, education) cash requirements, thus doubling up as moneylenders. Financial inclusion has naturally been a key area for the Modi government, with a slew of measures adopted to bring the bottom of the pyramid population into the financial net. The government should find a way to extend these inclusion programmes for agricultural credit, which can ultimately make the adoption of e-NAM successful.
The adoption of e-NAM is a test of implementation for the Modi government. The eventual success of the market will also depend on the enthusiasm and participation of the state governments. The central government has been able to create a fairly broad consensus and a sense of competition among the states in areas like ease of doing business, power distribution reforms and smart cities. The same zeal and a federal outlook need to be urgently applied to the e-NAM. The good news is that there are examples of targeted success already in this area. The e-choupal, run by the consumer goods major ITC for many years, has addressed many of the above issues already.
The ministries concerned – agriculture, food processing, food and civil supplies, road transportation and highways and finance – have to come together to create fully-packaged solutions with a long-term vision. The Ministry of Agriculture can lead this effort with the help of sector experience, innovative ideas, technology, and the capacity for risk-taking and entrepreneurship, and usher in real rural transformation.