Benefits of Competition in the Agricultural Produce

Report
NATIONAL SEMINAR
National Competition Policy and Economic
Growth of India
Benefits of Competition in the Agricultural Produce
Marketing Sector
Thursday, 21st 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
Marketing Chain
Retailers/Whol
esalers in the
vicinity of the
Regulated
markets
PRODUCE
FARMERS
Consumers in
the vicinity of
the Regulated
markets
Aratdars/Auction
Agents/commissi
on agents
TRADERS
Consumers
in other
states/cities
Brokers
Aratdars in other
states / cities/
wholesale
markets
RETAILERS
6
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
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 The West Bengal Cold Storage (Licensing and Regulation) Act, 1966
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
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give rise to exclusive arrangement
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
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Survey
 Product Chosen: Tomatoes
 Rationale - to capture a horticultural product which is highly perishable
 India is the world’s 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
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Survey
 Product Profile in Maharashtra & West Bengal
• West Bengal is 4th largest producing state
• Maharashtra is 6th 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
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Constraints Identified
 Structural and Behavioral rigidities
 Auction System
 Election system
 Marketing linkages
 Inadequate Infrastructure
 Market Information system
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Economic Benefits due to “competition”
 Lines of improvement to build competitive structure:
- Technology
- Market linkage
- Financial assistance
 Economic Benefits
- Increase in operational efficiency
- Removal of structural barriers
- Better remuneration to the producers
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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
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Policy Recommendations
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
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Thank You
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